DIME COMMUNITY BANCORP INC, 424B3, 1996-05-20

DIME COMMUNITY BANCORP INC
424B3, 1996-05-20
SAVINGS INSTITUTION, FEDERALLY CHARTERED

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PROSPECTUS

DIME [LOGO] COMMUNITY
BANCORP, INC.

(PROPOSED HOLDING COMPANY FOR THE DIME SAVINGS BANK OF WILLIAMSBURGH)
12,650,000 SHARES OF COMMON STOCK

Dime Community Bancorp, Inc. (the "Company" or "Dime Community Bancorp"), a
Delaware corporation, is offering up to 12,650,000 shares of its common stock,
par value of $.01 per share (the "Common Stock"), in connection with the
conversion of The Dime Savings Bank of Williamsburgh ("Dime" or the "Bank")
from a federally chartered mutual savings bank to a federally chartered stock
savings bank pursuant to the Bank's plan of conversion (the "Plan" or "Plan of
Conversion"). In certain circumstances, the Company may increase the amount of
Common Stock offered hereby to 14,547,500 shares. See footnote 4 to the table
below. The simultaneous conversion of the Bank to stock form, the issuance of
the Bank's stock to the Company and the offer and sale of the Common Stock by
the Company are herein referred to as the "Conversion."
(Continued on following page).

FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE 29 OF THIS
PROSPECTUS.

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

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 ANY STATE SECURITIES COMMISSION, NOR HAS SUCH
COMMISSION, OFFICE OR OTHER AGENCY OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
ESTIMATED UNDERWRITING
COMMISSIONS AND ESTIMATED NET
SUBSCRIPTION PRICE(1) OTHER FEES AND EXPENSES(2) PROCEEDS(3)
------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum Per
Share $10.00 $.30 $9.70
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Midpoint Per
Share $10.00 $.28 $9.72
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Maximum Per
Share $10.00 $.26 $9.74
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Total
Minimum(/1/) $ 93,500,000 $2,793,146 $ 90,706,854
------------------------------------------------------------------------------
Total
Midpoint(/1/) $110,000,000 $3,039,821 $106,960,179
------------------------------------------------------------------------------
Total
Maximum(/1/) $126,500,000 $3,286,496 $123,213,504
------------------------------------------------------------------------------
Total Maximum,
as
adjusted(/4/) $145,475,000 $3,570,172 $141,904,828
------------------------------------------------------------------------------
</TABLE>
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(1) Determined in accordance with an independent appraisal prepared by RP
Financial, LC. ("RP Financial") dated December 15, 1995 and updated as of
March 15, 1996, which states that the aggregate estimated pro forma market
value of the Common Stock ranged from $93,500,000 to $126,500,000, with a
midpoint of $110,000,000 (the "Valuation Range"). RP Financial's
independent appraisal is based upon estimates and projections that are
subject to change and the valuation must not be construed as a
recommendation as to the advisability of purchasing such shares nor that a
purchaser will thereafter be able to sell such shares at prices in the
range of the foregoing valuation. Based on the Valuation Range, the Board
of Directors of the Bank (the "Board of Directors") established the
estimated price range of $93.5 million to $126.5 million (the "Estimated
Price Range"), or between 9,350,000 and 12,650,000 shares of Common Stock
at the $10.00 price per share (the "Purchase Price") to be paid for each
share of Common Stock subscribed for or purchased in the offerings. See
"The Conversion--Stock Pricing" and "--Number of Shares to be Issued."
(2) Consists of the estimated costs to the Bank and the Company arising from
the Conversion, including estimated fixed expenses of approximately
$1,387,352 and marketing fees to be paid to Sandler O'Neill & Partners,
L.P. ("Sandler O'Neill") in connection with the Subscription and Community
Offerings, which fees are estimated to be $1,405,794 and $1,899,144 at the
minimum and the maximum of the Estimated Price Range, respectively. See
"The Conversion--Marketing and Underwriting Arrangements." Such fees may
be deemed to be underwriting fees and Sandler O'Neill may be deemed to be
an underwriter. See "Pro Forma Data" for the assumptions used to arrive at
these estimates. Actual fees and expenses may vary from the estimates.
(3) Actual net proceeds may vary substantially from estimated amounts
depending on the number of shares sold in each of the offerings and other
factors. Includes the purchase of shares of Common Stock by the Employee
Stock Ownership Plan of Dime Community Bancorp, Inc. and Certain
Affiliates and related trust (the "ESOP"), funded by a loan from the
Company to the ESOP, which will initially be deducted from the Company's
stockholders' equity. See "Use of Proceeds" and "Pro Forma Data."
(4) As adjusted to give effect to the sale of up to an additional 15% of the
shares which may be offered at the Purchase Price, without resolicitation
of subscribers or any right of cancellation, due to regulatory
considerations, changes in market or general financial and economic
conditions. See "Pro Forma Data" and "The Conversion--Stock Pricing." For
a discussion of the distribution and allocation of the additional shares,
if any, see "The Conversion--Subscription Offering and Subscription
Rights," "--Community Offering" and "--Limitations on Common Stock
Purchases."

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

THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED OR GUARANTEED BY THE SAVINGS ASSOCIATION INSURANCEFUND OR
THE BANK INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR BY
ANY OTHER GOVERNMENT AGENCY.
---------------
Sandler O'Neill & Partners, l.p.
---------------

The date of this Prospectus is May 14, 1996.
<PAGE>

(continued from previous page)

NON-TRANSFERABLE RIGHTS TO SUBSCRIBE FOR THE COMMON STOCK HAVE BEEN GRANTED,
IN ORDER OF PRIORITY, TO EACH OF THE BANK'S ELIGIBLE ACCOUNT HOLDERS, TO THE
COMPANY'S AND THE BANK'S TAX-QUALIFIED STOCK EMPLOYEE BENEFIT PLANS (THE
"EMPLOYEE PLANS"), TO THE BANK'S SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS AND TO
CERTAIN OTHER MEMBERS (EACH AS DEFINED HEREIN) IN A SUBSCRIPTION OFFERING (THE
"SUBSCRIPTION OFFERING"). SUBSCRIPTION RIGHTS ARE NONTRANSFERABLE. PERSONS
FOUND TO BE TRANSFERRING OR ATTEMPTING TO TRANSFER SUBSCRIPTION RIGHTS WILL BE
SUBJECT TO THE FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND
PENALTIES IMPOSED BY THE OFFICE OF THRIFT SUPERVISION ("OTS"). Shares
purchased by the ESOP are anticipated to be funded by a loan from the Company
with a ten-year term at an interest rate of 8.0%. Concurrently, and subject to
the prior rights of holders of subscription rights, the Company is offering
the 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 Kings (Brooklyn), Queens,
Bronx and Nassau Counties, New York, the counties in which the Bank's offices
are located (the "Community Offering") (the Subscription Offering and the
Community Offering are referred to collectively as the "Subscription and
Community Offerings"). It is anticipated that shares not subscribed for in the
Subscription and Community Offerings will be offered to members of the general
public in a syndicated community offering (the "Syndicated Community
Offering") (the Subscription and Community Offerings and the Syndicated
Community Offering are referred to collectively as the "Offerings").

The ESOP, which is an Employee Plan of the Company, intends to subscribe for
8% of the total number of shares of Common Stock issued in the Conversion. No
Eligible Account Holder, Supplemental Eligible Account Holder or Other Member
may, in their capacity as such, subscribe in the Subscription Offering for
more than $250,000 (25,000 shares) of the Common Stock offered in the
Conversion exclusive of any shares issued pursuant to an increase in the
Estimated Price Range of up to 15%; 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 $250,000 (25,000
shares) of shares offered in the Conversion exclusive of any shares issued
pursuant to an increase in the Estimated Price Range of up to 15%; and, except
for the Employee Plans, 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 1.0% of the total number of shares
of Common Stock offered in the Conversion; provided, however, that the overall
maximum purchase limitation may be increased and the amount that may be
subscribed for may be increased in the sole discretion of the Bank or the
Company without further approval of the Bank's members. Prior to the
consummation of the Conversion, 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. The minimum purchase is 25
shares. The Company and the Bank reserve the right, in their absolute
discretion, to accept or reject, in whole or in part, any or all subscriptions
in the Community Offering and the Syndicated Community Offering, either at the
time of receipt of an order or as soon as practicable following the
termination of such offerings. If an order is rejected, the funds submitted
with such order will be returned promptly with interest. If the Company
rejects a subscription in part, the subscriber will not have the right to
cancel the remainder of his or her subscription. See "The Conversion--
Subscription Offering and Subscription Rights," "--Community Offering" and "--
Limitations on Common Stock Purchases." The Bank has engaged Sandler O'Neill
to consult with and advise the Company and the Bank in the Offerings and
Sandler O'Neill has agreed to use its best efforts to assist the Company with
the solicitation of subscriptions and purchase orders for shares of Common
Stock in the Offerings. Sandler O'Neill is not obligated to take or purchase
any shares of Common Stock in the Offerings. The Company and the Bank have
agreed to indemnify Sandler O'Neill against certain liabilities arising under
the Securities Act of 1933, as amended. See "The Conversion--Marketing and
Underwriting Arrangements."

THE SUBSCRIPTION AND COMMUNITY OFFERINGS WILL TERMINATE AT 5:00 P.M., NEW
YORK TIME, ON JUNE 17, 1996 (THE "EXPIRATION DATE") UNLESS EXTENDED BY THE
BANK AND THE COMPANY, WITH APPROVAL OF THE OTS, IF NECESSARY. Subscriptions
paid by cash, check, bank draft or money order will be placed in a segregated
account at the Bank and will earn interest at the Bank's rate of interest on
passbook accounts from the date of receipt until completion or termination of
the Conversion. Payments authorized by withdrawal from deposit accounts at the
Bank will continue to earn interest at the contractual rate until the
Conversion is completed or terminated; these funds otherwise will be
unavailable to the depositor until such time. Upon completion of the
Conversion, funds withdrawn from depositors' accounts will no longer be
insured by the Federal Deposit Insurance Corporation ("FDIC"). Orders
submitted are irrevocable until the completion of the Conversion; provided,
that, if the Conversion is not completed within 45 days after the close of the
Subscription and Community Offerings, unless such period has been extended
with the consent of the OTS, if necessary, all subscribers will have their
funds returned promptly with interest and all withdrawal authorizations will
be cancelled. If an extension of time has been granted, all subscribers will
be notified of such extension, of any 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. A resolicitation of subscribers will also be made if the pro
forma market value of the Common Stock is either more than 15% above the
maximum of the Estimated Price Range or less than the minimum of the Estimated
Price Range. If an affirmative response to any resolicitation is not received
by the Bank and the Company from a subscriber, such order will be rescinded
and all funds will be returned promptly with interest. Such extensions may not
go beyond June 21, 1998. See "The Conversion--Subscription Offering and
Subscription Rights" and "--Procedure for Purchasing Shares in Subscription
and Community Offerings."

The Company has received conditional approval from the National Association
of Securities Dealers, Inc. ("NASD") to have its Common Stock quoted on The
Nasdaq Stock Market under the symbol "DIME" upon completion of the Conversion.
One of the requirements for continued quotation of the Common Stock on The
Nasdaq Stock Market is that there be at least two market makers for the Common
Stock. The Company will seek to encourage and assist at least two market
makers to make a market in its Common Stock. Sandler O'Neill has advised the
Company that it intends to make a market in the Common Stock following the
completion of the Conversion, but it is under no obligation to do so. 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 Market for Common Stock."

2
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DIME [LOGO] SAVINGS BANK
of WILLIAMSBURGH

[GRAPHIC APPEARS HERE]

3
<PAGE>

SUMMARY

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

DIME COMMUNITY BANCORP, INC.

Dime Community Bancorp, Inc. is a Delaware corporation recently organized by
the Bank for the purpose of acquiring all of the capital stock of the Bank to
be issued in the Conversion. Immediately following the Conversion, the only
significant assets of the Company will be the capital stock of the Bank, the
Company's loan to the Bank's ESOP, and the net conversion proceeds retained by
the Company. The Company will purchase all of the capital stock of the Bank to
be issued upon the Conversion in exchange for at least 50% of the net proceeds
from the Offerings with the remaining net proceeds to be retained by the
Company. Funds retained by the Company will be used for general business
activities, including a loan by the Company directly to the ESOP. On an interim
basis, the net proceeds from the Offerings are expected to be invested in
federal funds, short-term, investment grade marketable securities and mortgage-
backed securities. See "Use of Proceeds." The business of the Company will
initially consist of the business of the Bank. See "Business of the Bank" and
"Regulation--Regulation of Holding Company."

THE DIME SAVINGS BANK OF WILLIAMSBURGH

The Dime Savings Bank of Williamsburgh was originally founded in 1864 as a
New York State-chartered mutual savings bank. On November 1, 1995, the Bank
converted to a federal mutual savings bank. The Bank has been, and intends to
continue to be, a community-oriented financial institution providing financial
services and loans for housing within its market areas. The Bank maintains its
headquarters in the Williamsburgh section of the borough of Brooklyn. Six
additional offices are located in the boroughs of Brooklyn, Queens, and Bronx,
and in Nassau County. The Bank gathers deposits primarily from the communities
and neighborhoods in close proximity to its branches. The Bank's delineated
lending area is larger, and includes much of New York City and Nassau County.
Most of the Bank's mortgages are secured by properties located in its
delineated lending area. See "Business of the Bank--Market Area and
Competition." At December 31, 1995, the Bank had total assets of $665.2
million, total deposits of $557.1 million and equity of $80.3 million. The
Bank's deposits are insured up to the maximum allowable amount by the Bank
Insurance Fund ("BIF") of the FDIC.

The Bank's primary management strategy is to increase its household and
deposit market share in the communities it serves, either through acquisition
or purchase of deposits, or by direct marketing, and to increase its
origination of, and investment in, mortgage loans, with an emphasis on multi-
family loans. In furthering its primary strategy, on November 2, 1995, the Bank
entered into an Agreement and Plan of Merger (the "Merger Agreement") with
Conestoga Bancorp, Inc., a Delaware corporation ("Conestoga"), pursuant to
which Conestoga and its wholly-owned financial institution subsidiary Pioneer
Savings Bank, F.S.B. ("Pioneer") will be acquired by the Bank (the
"Acquisition"). The acquisition of Conestoga provides the Bank with wider
coverage in three areas which the Bank currently serves: Brooklyn, Queens and
Nassau. The acquisition also provides the Bank with a new source of liquidity
with which to increase its lending, especially multi-family lending. Multi-
family lending is a significant business of the Bank and is reflective of the
fact that much of the housing in the Bank's delineated lending area is multi-
family housing. The Bank's secondary, or supplemental, strategy is to: provide
a stable source of liquidity and earnings through the purchase of short- to
medium-term investment grade securities; seek to maintain the Bank's asset
quality for loans and other investments; and use appropriate portfolio and
asset/liability management techniques to manage the effects of interest rate
volatility on the Bank's profitability and capital.

4
<PAGE>

Financial highlights of the Bank include:

Capital Position. As of December 31, 1995, the Bank had equity of $80.3
million, or 12.07% of assets. At that same date, the Bank's tangible, core and
total risk-based capital ratios were 11.97%, 11.99% and 22.31%, respectively,
which exceeded all applicable capital requirements. Giving effect to the
Acquisition and the Conversion, and assuming the Company retains 40% of the net
proceeds at the maximum of the Estimated Price Range, the Bank would have had
tangible and core capital ratios of 11.35% and 11.37%, respectively, and a
risk-based capital ratio of 22.96%, and the Company would have had total
stockholders' equity of $188.3 million, or 15.89% of assets. See
"Capitalization" and "Pro Forma Data."

Asset Composition. The Bank's assets, which totaled $665.2 million at
December 31, 1995, are primarily comprised of adjustable-rate mortgage loans
and mortgage-backed securities and short- to medium-term investment securities.
The Bank's total net loans amounted to $435.3 million, or 65.4% of total
assets. Multi-family mortgage loans secured by apartment buildings, and
mortgage loans secured by apartment buildings organized under the cooperative
form of ownership ("underlying cooperatives") represented 60.6% of gross loans.
The Bank's holdings of investment securities, representing 28.0% of total
assets at December 31, 1995, were comprised of mortgage-backed securities
totaling $92.6 million, obligations of the U.S. Government and government
agencies totaling $31.3 million, other debt obligations, primarily corporate,
totaling $59.1 million and $3.0 million in equity securities. See "Business of
the Bank--Lending Activities" and "--Investment Activities."

Profitability. The Bank's income before the cumulative effect of change in
accounting principles was $8.4 million, $9.5 million, $9.2 million, $6.5
million and $4.7 million, respectively, for the five fiscal years in the period
ended June 30, 1995, and $4.1 million for the six months ended December 31,
1995. The Bank's return on average assets (net income before the cumulative
effect of change in accounting principles expressed as a percentage of average
assets) for these same periods was 1.33%, 1.46%, 1.47%, 1.03%, 0.76% and 1.23%
(annualized), respectively. See "Selected Consolidated Financial and Other Data
of the Bank."

Asset Quality. The Bank has sought to maintain high asset quality by
utilizing comprehensive loan underwriting standards and collection efforts and
by generally limiting its origination of mortgage loans to its market area. The
Bank's ratio of non-performing loans to total loans at year end ranged from
1.18% to 3.48% during the five-year period ended June 30, 1995, and was 1.73%
at December 31, 1995. Non-performing assets to total assets averaged 2.58%
during the last five years, and was 1.43% at December 31, 1995. The Bank's
allowance for loan losses as a percentage of non-performing loans averaged
42.0% over the five years ended June 30, 1995, and was 74.9% at December 31,
1995.

Net Interest Margin. The Bank's net interest margin (net interest income
divided by average interest earning assets) averaged 4.34% for the five fiscal
years ended June 30, 1995. The Bank's net interest margin for the year ended
June 30, 1995 decreased to 4.91% from 5.12% for 1994, primarily due to a
reduction in savings deposits and an increase in higher yielding certificates
of deposit. For the six months ended December 31, 1995, the Bank's net interest
margin on an annualized basis was 4.41%. See "Risk Factors--Potential Impact of
Changes in Interest Rates" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Management Strategy."

Core Deposits. The Bank's deposits at December 31, 1995 were $557.1 million,
of which $272.2 million, or 48.9%, were core deposits. Management of the Bank
considers its core deposits to consist of non-interest bearing demand accounts,
NOW and Super NOW accounts, and savings and money market accounts. Between June
30, 1993 and December 31, 1995, core deposits decreased from $344.1 million to
$272.2 million, as spreads widened between core deposits and certificates of
deposit. At December 31, 1995, the Bank's total cost of deposits was 4.14%
(annualized).

5
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ACQUISITION OF CONESTOGA BANCORP, INC.

On November 2, 1995, the Bank entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Conestoga pursuant to which Conestoga and its
wholly-owned financial institution subsidiary Pioneer will be acquired by the
Bank. The Merger Agreement provides that each share of Conestoga's common
stock, par value of $.01 per share (the "Conestoga Common Stock"), outstanding
as of the effective time of the Acquisition (the "Effective Time") (other than
shares held as treasury stock, unallocated shares held by Conestoga's
Recognition and Retention Plans and Trusts and any shares as to which
dissenters' rights may be exercised under applicable law) will be converted
into the right to receive $21.25 in cash without interest (the "Merger
Consideration"). In the event the transaction is not completed on or prior to
May 31, 1996, the Bank will be required to increase the Merger Consideration by
$0.07 per share for each month, pro rated on a daily basis, commencing on June
1, 1996 until completion of the transaction. Based on the total number of
shares of Conestoga Common Stock outstanding as of December 31, 1995 and the
consideration to be paid in respect of options on Conestoga's Common Stock
outstanding on that date, the Bank estimates that total cash consideration to
be paid to Conestoga's shareholders and option holders in the Acquisition will
be approximately $104.8 million, exclusive of any adjustment to the Merger
Consideration.

The Acquisition is subject to (i) approval of the Merger Agreement by the
requisite number of stockholders of Conestoga, (ii) the receipt of all
necessary consents, waivers, clearances, approvals and authorizations from
regulators or governmental bodies, including the OTS, (iii) the occurrence of
all material steps necessary to complete the Conversion and (iv) the
satisfaction or waiver of certain other conditions. Stockholder approval for
the Merger Agreement was received at a special meeting of Conestoga's
stockholders held on March 22, 1996 and the Bank has applied for all necessary
regulatory approvals. Conversely, the Conversion is contingent upon the
satisfaction or waiver of each of the conditions to the Acquisition (except as
to the Conversion). In the event that such conditions are not satisfied or
waived, the Company will terminate the Offerings and return promptly with
interest all funds submitted. See "Acquisition of Conestoga Bancorp, Inc.--
Regulatory Approvals" and "--Conditions to the Acquisition." The closing for
the Acquisition is expected to occur immediately after the closing for the
Conversion.

Conestoga is the holding company for Pioneer, which is subject to the
regulation of the OTS and FDIC. Conestoga does not transact any material
business other than through its subsidiary, Pioneer. Pioneer's principal
business is attracting retail deposits from the general public and investing
those deposits, together with funds generated from operations, principal
repayments and borrowings, primarily in one- to four-family, owner-occupied,
residential mortgage loans and, to a lesser extent, consumer loans. In
addition, Pioneer invests in mortgage-backed and mortgage-related securities,
securities issued by the U.S. Government and agencies thereof, corporate
securities and other investments permitted by applicable laws and regulations.
Pioneer also invests to a limited extent in non-residential real estate loans
and construction and land loans. Pioneer's revenues are derived primarily from
interest on its mortgage loan and mortgage-backed and mortgage-related
securities portfolios and interest and dividends on its investment securities
portfolio. Pioneer's primary sources of funds are deposits, principal and
interest payments on loans, mortgage-backed and mortgage-related securities and
investment securities.

Pioneer's deposit gathering and lending markets are primarily concentrated in
the communities surrounding its full service offices in Kings, Queens, and
Nassau Counties and, to a lesser extent, parts of Suffolk and Westchester
Counties, all of which are in the New York City metropolitan area. See
"Business of Conestoga."

The Acquisition will enable the Bank to expand its banking services in
certain communities it currently serves (primarily Kings and Queens Counties in
New York City and southern Nassau County) and certain nearby communities it
does not currently serve (primarily northern Nassau County). Completion of the
Acquisition is expected to increase the Bank's deposit base and its one- to
four-family loan portfolio. In addition, the Acquisition in combination with
the Conversion will permit the Bank to put to use a significant portion of its
capital, with the Bank continuing to qualify as a "well capitalized"
institution for regulatory purposes. The Acquisition is also expected to reduce
the pressure to leverage the Bank's balance sheet that typically exists when

6
<PAGE>

a "well capitalized" institution engages in a standard conversion transaction.
See "Unaudited Pro Forma Condensed Combined Financial Statements" and
"Regulatory Capital Compliance."

THE CONVERSION AND THE SUBSCRIPTION AND COMMUNITY OFFERINGS

On November 1, 1995, the Board of Directors of the Bank adopted the Plan of
Conversion pursuant to which the Bank is converting from a federally chartered
mutual savings bank to a federally chartered stock savings bank and all of the
outstanding capital stock of the Bank will be acquired by the Company in
exchange for at least 50% of the net proceeds from the Offerings. The
Conversion and the Offerings are subject to OTS approval, which was received on
May 14, 1996 and approval of the Bank's members at a special meeting to be held
on June 21, 1996. See "The Conversion--General." The Bank is converting to
increase its capital, to replenish capital depleted as a result of the
Acquisition and to structure itself in a form used by many commercial banks and
other business entities and a growing number of savings institutions. At
December 31, 1995, the Bank had equity of $80.3 million, or 12.07% of total
assets. Giving effect to the Acquisition and the Conversion, and assuming the
Company retains $49.5 million or 40% of the net proceeds at the maximum of the
Estimated Price Range, the Bank would have had total stockholders' equity of
$153.9 million, or 13.37% of total assets on a pro forma basis at December 31,
1995. See "Capitalization" and "Pro Forma Data." The Conversion will enhance
the Bank's ability to access capital markets, expand its current operations,
acquire other financial institutions or branch offices, provide affordable home
financing opportunities to the communities it serves or diversify into other
financial services to the extent allowable by applicable law and regulation.
See "The Conversion--Purposes of Conversion." The holding company form of
organization would provide additional flexibility to diversify the Bank's
business activities through existing or newly-formed subsidiaries, or through
acquisitions of or mergers with both mutual and stock institutions, as well as
other companies. Although there are no current arrangements, understandings or
agreements, written or oral, regarding any such opportunities other than the
Acquisition, the Company will be in a position after the Conversion, subject to
regulatory limitations and the Company's financial position, to take advantage
of any such opportunities that may arise. The holding company form of
organization also provides certain anti-takeover protection. See "Risk
Factors--Certain Anti-Takeover Provisions."

Common Stock will be offered in the Subscription and Community Offerings and,
to the extent shares are available, in the Syndicated Community Offering.
Common Stock offered in the Subscription Offering will be offered in the
following order of priority: (1) depositors whose deposits in qualifying
accounts in the Bank totaled $50 or more on October 31, 1994 ("Eligible Account
Holders"); (2) the Employee Plans, including the ESOP; (3) depositors whose
deposits in qualifying accounts in the Bank totaled $50 or more on March 31,
1996 ("Supplemental Eligible Account Holders"); and (4) members of the Bank,
consisting of depositors of the Bank as of May 9, 1996, the voting record date
("Voting Record Date") for the special meeting of members to vote on the
Conversion, other than those members who otherwise qualify as Eligible Account
Holders or Supplemental Eligible Account Holders ("Other Members"). Persons who
are depositors of Pioneer will not receive subscription rights with respect to
the Common Stock except to the extent that they independently qualify as
Eligible Account Holders, Supplemental Eligible Account Holders or Other
Members, as specified above. 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 Kings, Queens, Bronx and Nassau Counties, New York, the counties in
which the Bank's offices are located. The Company and the Bank have the option
to reserve up to 25% of the Common Stock offered in the Community Offering for
purchase by certain institutional investors. The Company and the Bank reserve
the absolute right to reject or accept any orders in the Community Offering,

7
<PAGE>

in whole or in part, either at the time of receipt of an order or as soon as
practicable following the Expiration Date. Subscription rights will expire if
not exercised by 5:00 p.m., New York time, on June 17, 1996, unless extended by
the Bank and the Company. See "The Conversion--Subscription Offering and
Subscription Rights" and "--Community Offering." The Bank and the Company have
hired Sandler O'Neill as consultant and advisor in connection with the
Offerings and to assist in soliciting subscriptions and purchase orders in the
Offerings. The Bank and the Company will pay a fee to Sandler O'Neill which
will be based on the aggregate Purchase Price of the Common Stock sold in the
Offerings. See "The Conversion--Marketing and Underwriting Arrangements."

In connection with the Conversion, the Company has established, and the Bank
has adopted, an ESOP and related trust for eligible employees of the Bank and
Company, which intends to subscribe for 8% of the shares of Common Stock issued
in the Conversion. At a meeting of shareholders to be held no earlier than six
months following the completion of the Conversion, the Company intends to seek
shareholder approval of the Stock Option and Incentive Plan for Employees and
the Stock Option Plan for Outside Directors (the "Stock Option Plans") and
certain other stock-based compensation plans (the "Stock Programs") which the
Company intends to establish as a method of providing officers, employees and
non-employee directors of the Bank and the Company with a proprietary interest
in the Company in a manner designed to encourage such persons to remain with
the Bank and the Company. For a more detailed discussion of the Stock Option
Plans and Stock Programs and the benefits expected to be received by officers,
employees and directors, see "Summary--Benefits to Management and Directors,"
"Risk Factors--Certain Anti-Takeover Provisions--Voting Control of Officers and
Directors" and "Management of the Bank--Benefits."

PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING SHARES

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

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 (October 31,
1994), Supplemental Eligibility Record Date (March 31, 1996) and/or the Voting
Record Date (May 9, 1996) must list all accounts on the stock order form,
giving all names on each account and the account numbers. Failure to list all
such account numbers may result in the inability of the Company or the Bank to
fill all or part of a subscription order. See "The Conversion--Procedure for
Purchasing Shares in the Subscription and Community Offerings."

RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES

Prior to the completion of the Conversion, no person may transfer or enter
into any agreement or understanding to transfer the legal or beneficial
ownership of the subscription rights issued under the Plan or the shares of
Common Stock to be issued upon their exercise. Each person exercising
subscription rights will be required to certify that any purchase of Common
Stock will be solely for the purchaser's own account and that there is no
agreement or understanding regarding the sale or transfer of any shares
purchased as a result of the

8
<PAGE>

exercise. The Company and the Bank will pursue any and all legal and equitable
remedies in the event they become aware of the transfer of subscription rights
and will not honor orders known by them to involve the transfer of such rights.
See "The Conversion--Restrictions on Transfer of Subscription Rights and
Shares."

Following the Conversion there generally will be no restrictions on the
transfer or sale of shares by purchasers other than affiliates of the Company
and the Bank. See "Regulation--Federal Securities Laws" and "The Conversion--
Certain Restrictions on Purchase or Transfer of Shares After Conversion."

PURCHASE LIMITATIONS

The minimum purchase in the Offerings is 25 shares. The ESOP intends to
subscribe for 8% of the shares of Common Stock issued in the Conversion
pursuant to the subscription rights granted under the Plan. No Eligible Account
Holder, Supplemental Eligible Account Holder or Other Member, in their capacity
as such, may subscribe in the Subscription Offering for more than $250,000
(25,000 shares) of the Common Stock offered, exclusive of any shares issued
pursuant to an increase in the Estimated Price Range of up to 15%; no person,
together with associates of or persons acting in concert with such person, may
purchase in the Community Offering and the Syndicated Community Offering in the
aggregate more than $250,000 (25,000 shares) of the total number of shares of
Common Stock offered, exclusive of any shares issued pursuant to an increase in
the Estimated Price Range of up to 15%; and, except for the Employee Plans, no
person, together with associates of or persons acting in concert with such
person, may purchase more than the overall maximum purchase limitation of 1.0%
of the total number of shares of Common Stock offered. At any time during the
Conversion and without further approval by the Bank's members, the Company and
the Bank may in their sole discretion increase the overall maximum purchase
limitation, and increase the amount that may be subscribed for in the
Subscription and Community Offerings, up to 5% of the shares offered or, if
orders for Common Stock exceeding 5% of the total offering of shares do not
exceed in the aggregate 10% of the total shares offered, up to 9.99%. Prior to
consummation of the Conversion, 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. See "The Conversion--Limitations
on Common Stock Purchases" and "The Conversion--Community Offering." In the
event of an increase in the total number of shares up to 15%, the additional
shares will be distributed and allocated to fill unfilled orders in the
Subscription and Community Offerings, with priority given to the Employee
Plans, without any resolicitation of subscribers, as described in "The
Conversion--Subscription Offering and Subscription Rights" and "--Limitations
on Common Stock Purchases."

STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION

Federal regulations require that the aggregate purchase price of the Common
Stock to be issued in the Conversion be consistent with an independent
appraisal of the estimated pro forma market value of the Common Stock following
the Conversion. RP Financial, an independent appraiser, has advised the Bank
that in its opinion, dated December 15, 1995, the aggregate estimated pro forma
market value of the Common Stock ranged from $93,500,000 to $126,500,000, with
a midpoint of $110,000,000. The Board of Directors of the Bank has established
the Estimated Price Range of $93.5 million to $126.5 million, assuming the
issuance of between 9,350,000 and 12,650,000 shares of Common Stock at the
Purchase Price of $10.00 per share. THE APPRAISAL OF THE COMMON STOCK IS NOT
INTENDED AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION OF ANY KIND AS TO THE
ADVISABILITY OF PURCHASING SUCH STOCK NOR CAN ANY ASSURANCE BE GIVEN THAT
PURCHASERS OF THE COMMON STOCK IN THE CONVERSION WILL BE ABLE TO SELL SUCH
SHARES AFTER THE COMPLETION OF THE CONVERSION AT OR ABOVE THE PURCHASE PRICE.

9
<PAGE>

All shares of Common Stock issued in the Conversion will be sold at the
Purchase Price, as determined by the Bank and approved by the Company. The
actual number of shares to be issued in the Conversion will be determined by
the Company and the Bank based upon the final updated valuation of the
estimated pro forma market value of the Common Stock, giving effect to the
Conversion, at the completion of the Offerings. The number of shares to be
issued is expected to range from a minimum of 9,350,000 shares to a maximum of
12,650,000 shares. Subject to approval of the OTS, the Estimated Price Range
may be increased or decreased to reflect market and economic conditions prior
to the completion of the Conversion, and under such circumstances the Company
may increase or decrease the number of shares of Common Stock to be issued in
the Conversion. The maximum of the Estimated Price Range may be increased by up
to 15% and the number of shares of Common Stock to be issued in the Conversion
may be increased to 14,547,500 shares due to regulatory considerations, changes
in market or general financial and economic conditions. No resolicitation of
subscribers will be made and subscribers will not be permitted to modify or
cancel their subscriptions unless the gross proceeds from the sale of the
Common Stock are less than the minimum or more than 15% above the maximum of
the current Estimated Price Range. See "Pro Forma Data," "Risk Factors--
Possible Increase in Estimated Price Range and Number of Shares Issued" and
"The Conversion--Stock Pricing" and "--Number of Shares to be Issued."

USE OF PROCEEDS

Net proceeds from the sale of the Common Stock are estimated to be between
$90.7 million and $123.2 million (or $141.9 million if the Estimated Price
Range is increased by 15%) depending on the number of shares sold and the
expenses of the Conversion. See "Pro Forma Data." The Company will use the net
proceeds from the sale of the Common Stock as follows:

1. The Company will purchase all of the capital stock of the Bank to be
issued upon Conversion in exchange for the greater of 50% of the net
proceeds or an amount of net proceeds sufficient to allow the Bank's
tangible capital to exceed 11% of its adjusted assets, after giving effect
to the Acquisition.

3. The Company may use a portion of the retained net proceeds to make a
loan directly to the ESOP to enable the ESOP to purchase 8% of the shares
to be issued in the Conversion. The amount of the loan to the ESOP
(assuming the loan is not made by a third party lender) is estimated to be
between $7.5 million and $10.1 million (or $11.6 million if the Estimated
Price Range is increased by 15%) to be repaid over a period of up to ten
years at an interest rate of 8%. See "Management of the Bank--Benefits--
Employee Stock Ownership Plan and Trust."

In determining the amount of net proceeds to be used for the purchase of the
capital stock of the Bank, consideration was given to such factors as the
regulatory capital position of the Bank, both before and after giving effect to
the Conversion and the Acquisition, and the rules and regulations of the OTS
governing the amount of proceeds which may be retained by the Company. The
Company will be unable to utilize any of the net proceeds of the Offerings
until the close of the Offerings. Funds retained by the Company will be used
for general business activities, and, subject to applicable limitations, the
possible payment of dividends and repurchases of Common Stock. In addition, the
Company is subject to the terms of a certification made to the OTS in
connection with the application to the OTS for approval of the Conversion,
which certification prohibits the Company from taking any actions to further
any payments to its shareholders through a return of excess capital for a
period of one year following the Conversion. The certification expressly does
not apply to taxable dividend payments made by the Company or to dividend
payments made by the Bank to the Company. The Board of Directors does not
expect to pay a dividend on the Common Stock initially after the Conversion.
See "Dividend Policy" and "Regulation--Regulation of Federal Savings
Associations--Limitations on Capital

10
<PAGE>

Distributions." Funds received by the Bank from the Company's purchase of its
capital stock, estimated to be $73.7 million at the maximum of the Estimated
Price Range, will be used for general business activities and to replenish the
Bank's capital used to effect the Acquisition. The total cash cost of the
Acquisition to the Bank, which includes cash compensation to Conestoga
stockholders and the cost of cashing out outstanding options on Conestoga
Common Stock, is expected to be $104.8 million, exclusive of any adjustment to
the Merger Consideration. The Company and the Bank may also use such funds to
expand operations through branch acquisitions and the acquisition of other
financial institutions. Except as described in "Acquisition of Conestoga
Bancorp, Inc.," neither the Bank nor the Company has any pending agreements or
understandings, written or oral, regarding acquisitions of any specific
financial institutions or branch offices. On an interim basis, the net proceeds
from the Offerings are expected to be invested in federal funds, short-term
investment grade marketable securities and mortgage-backed securities. A
significant portion of the net proceeds retained by the Bank may be used to
fund a portion of the Merger Consideration or to pay down short-term borrowings
that may be incurred to finance a portion of the Merger Consideration. See "Use
of Proceeds."

DIVIDENDS

The Board of Directors of the Company does not expect to pay a cash dividend
on the Common Stock initially after completion of the Conversion. In the
future, the Board of Directors may consider a policy of paying cash dividends
on the Common Stock. However, no decision has been made as to the amount or
timing of such dividends, if any. Declarations of dividends, if any, by the
Board of Directors will depend upon a number of factors, including the amount
of the net proceeds from the Offerings retained by the Company, investment
opportunities available to the Company or the Bank, capital requirements,
regulatory limitations, the Company's and the Bank's financial condition and
results of operations, tax considerations and general economic conditions. As
the principal asset of the Company, the Bank will provide the principal source
of funds for payment of dividends by the Company. At December 31, 1995,
assuming the Acquisition and the Conversion had been effected as of such date,
approximately $49.5 million would have been available for the payment of
dividends by the Company at the maximum of the Estimated Price Range. See
"Dividend Policy."

BENEFITS TO MANAGEMENT AND DIRECTORS

Stock Option Plans. Following the Conversion, the Company intends to adopt
the Stock Option Plans. The adoption of the Stock Option Plans will be subject
to shareholder approval obtained at a meeting of shareholders to be held no
earlier than six months after the completion of the Conversion. An amount of
shares of common stock equal to 10% of the Common Stock issued in the
Conversion (935,000 shares and 1,265,000 shares at the minimum and maximum of
the Estimated Price Range, or an aggregate dollar amount of $9.35 million and
$12.65 million, respectively, assuming an exercise price equal to a Purchase
Price of $10.00 per share) are expected to be reserved for issuance under the
Stock Option Plans. No determinations have been made by the Company as to the
specific terms of the Stock Option Plans or the amount of awards to be made
thereunder. Current OTS regulations provide that no individual employee may
receive more than 25% of the options granted, and non-employee directors may
not receive more than 5% individually or 30% in the aggregate of the options
granted, under option plans implemented within one year following the
Conversion. See "Management of the Bank--Benefits--Stock Option Plans."

Stock Programs. Following the Conversion, the Company also intends to adopt
the Stock Programs for the benefit of officers, employees and non-employee
directors of the Company and the Bank. The adoption of the Stock Programs will
be subject to shareholder approval obtained at a meeting of shareholders to be
held no earlier than six months after the completion of the Conversion.
Assuming the receipt of shareholder approval, it is expected that funds will be
contributed to the Stock Programs to enable their related trusts to acquire, in
the aggregate, up to 4% (3% unless OTS approval is obtained) of the shares of
Common Stock issued in the Conversion, or 374,000 shares and 506,000 shares at
the minimum and maximum of the Estimated Price Range, respectively. These
shares will be acquired either through open market purchases, if permissible,
or from authorized but unissued Common Stock. See "Risk Factors--Possible
Dilutive Effect of Stock Options and

11
<PAGE>

Stock Programs." No specific determinations have been made by the Company as to
the specific terms of the Stock Programs or the amount of awards to be made
thereunder. Current OTS regulations provide that no individual employee may
receive more than 25% of the shares of any plan and non-employee directors may
not receive more than 5% of the stock individually or 30% in the aggregate in
the case of plans implemented within one year following the Conversion. Under
the anticipated terms of the Stock Programs, recipients would vote any shares
allocated to them and an independent trustee would vote unallocated shares in
the same proportion as it receives instructions from recipients with respect to
allocated shares which have not been vested and distributed. See "Management of
the Bank--Benefits--Stock Programs."

ESOP. The Bank and the Company have established the ESOP for the benefit of
eligible employees, including officers. The ESOP intends to subscribe for up to
8% of the Common Stock issued in the Conversion (7% unless OTS approval is
obtained) and to finance its subscription with funds borrowed from the Company
for a period of ten years at interest rate of 8% per annum. The Bank and
Company intend to make cash contributions to the ESOP as required for debt
service to repay the loan over an eight-year period. The Common Stock acquired
by the ESOP will initially be held in a suspense account and will be allocated
to eligible employees as the loan is repaid. See "Management of the Bank--
Benefits--Employee Stock Ownership Plan and Trust."

401(k) Plan. The Bank has amended its existing 401(k) Savings Plan (the
"401(k) Plan") to permit participating employees, including officers, to invest
all or any portion of their account balances in Common Stock. Initially, such
Common Stock may be purchased in the Conversion. Subsequent to the Conversion,
purchases may be made on the open market or in private transactions, or from
treasury stock or authorized but unissued shares in transactions with the
Company. See "Management of the Bank--Benefits--401(k) Plan."

Employment Arrangements With Senior Management and Key Personnel. The Bank
and the Company intend to enter into employment arrangements with certain
senior management and key employees that will provide for benefit and cash
payments to be made in the event of their termination of employment following a
change of control of the Bank or the Company. The provisions of these
arrangements, described below, may have the effect of increasing the cost of
acquiring the Company, thereby discouraging future attempts to take over the
Company or the Bank.

Based on current compensation and benefit costs, cash payments to be made in
the event of a change of control of the Bank or the Company pursuant to the
terms of the Employment Agreements would be approximately $10,636,000, of which
approximately $5,678,000 would be payable to Mr. Palagiano, $3,438,000 would be
payable to Mr. Devine and $1,520,000 would be payable to Mr. Mahon. However,
the actual amount to be paid under the Employment Agreements in the event of a
change of control of the Bank or the Company cannot be estimated at this time
because the actual amount is based on the compensation and benefit costs
applicable to Messrs. Palagiano, Devine and Mahon and other factors existing at
the time of the change of control which cannot be determined at this time. See
"Management of the Bank--Employment Agreements."

The Bank and the Company also intend to enter into employee retention
agreements ("Retention Agreements"), effective on the Conversion, with certain
other officers ("Contract Employee(s)"). Based on current compensation and
benefit costs applicable to the Contract Employees expected to be covered by
the Retention Agreements, cash payments to be made in the event of a change of
control of the Bank or the Company would be approximately $2,218,000. However,
the actual amount to be paid under the Retention Agreements in the event of a
change of control of the Bank or the Company cannot be estimated at this time
because it will be based on the compensation and benefit costs applicable to
the Contract Employees and other factors existing at the time of the change of
control which cannot be determined at this time. See "Management of the Bank--
Employee Retention Agreements."

12
<PAGE>

Other Change in Control Provisions. The Bank's Employee Severance Plan
provides for benefits following certain terminations of eligible employees
after a change in control. The Retirement Plan for Directors provides for a
lump sum distribution of benefits upon a change in control. The Employment
Agreements provide for payments in the event of certain terminations, including
following a change in control in specified circumstances. The ESOP, established
by the Company and adopted by the Bank, is expected to provide for accelerated
vesting in the event of a change of control. Some of these provisions may also
have the effect of increasing the cost of acquiring the Company. Based on
current compensation levels, cash payments to be paid in the event of a change
of control pursuant to the terms of the Employee Severance Pay Plan and the
Retirement Plan for Directors would be approximately $969,980 and $1,802,000,
respectively. However, the actual amount to be paid in the event of a change of
control of the Bank or the Company cannot be estimated at this time because the
actual amount is based on the average compensation and benefits, as applicable,
for each covered individual and other factors existing at the time of the
change of control which cannot be determined at this time. See "Restrictions on
Acquisition of the Company and the Bank--Restrictions in the Company's
Certificate of Incorporation and Bylaws," "Management of the Bank--Benefits--
Employee Stock Ownership Plan and Trust."

RISK FACTORS

See "Risk Factors" for a discussion of certain factors that should be
considered by prospective investors, including: Potential Impact of Changes in
Interest Rates; Risks of the Acquisition; Multi-family and Non-residential
Lending Risks; Weakness in the Local Economy; Certain Anti-Takeover Provisions;
Absence of Market for Common Stock; Possible Increase in Estimated Price Range
and Number of Shares Issued; Possible Dilutive Effect of Stock Options and
Stock Programs; Possible Adverse Income Tax Consequences of the Distribution of
Subscription Rights; Recapitalization of SAIF, SAIF Premiums and Proposed BIF
Premiums; Financial Institution Regulation and Possible Legislation; and
Pending Legislation Regarding Bad Debt Reserves.

13
<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. The Selected Consolidated Financial and Other
Data of the Bank for the six-month periods ended December 31, 1995 and 1994
were not audited by the Bank's independent auditors, but in the opinion of
management, reflect all adjustments necessary for a fair presentation of the
results for such periods. All such adjustments are of a normal recurring
nature. The results for the six-month period ended December 31, 1995 are not
necessarily indicative of the results of the Bank that may be expected for the
entire year.

<TABLE>
<CAPTION>
AT JUNE 30,
AT DECEMBER 31, --------------------------------------------
1995 1995 1994 1993 1992 1991
--------------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL
CONDITION DATA:
Total assets............ $665,187 $662,739 $646,458 $645,899 $643,120 $626,502
Loans, net(1)........... 435,319 424,680 427,960 458,422 477,516 457,197
Mortgage-backed
securities(2).......... 92,584 91,548 94,356 82,077 58,404 49,576
Investment
securities(2).......... 98,226 101,695 86,686 56,724 72,055 79,433
Federal funds sold...... 12,802 17,809 7,029 21,037 9,348 17,242
Deposits................ 557,084 554,841 546,761 564,110 564,520 552,348
Equity.................. 80,258 77,067 67,919 58,920 49,648 43,123
</TABLE>

<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
---------------- ----------------------------------------
1995 1994 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income......... $26,276 $24,461 $49,223 $49,821 $51,393 $55,230 $56,329
Interest expense on
deposits and
borrowings............. 11,986 8,662 18,946 17,594 21,251 32,391 38,371
------- ------- ------- ------- ------- ------- -------
Net interest income.... 14,290 15,799 30,277 32,227 30,142 22,839 17,958
Provision for loan
losses................. 950 1,475 2,950 4,105 3,395 1,409 831
------- ------- ------- ------- ------- ------- -------
Net interest income
after provision for
loan losses........... 13,340 14,324 27,327 28,122 26,747 21,430 17,127
Non-interest income..... 601 805 1,773 2,267 3,195 2,107 1,629
Non-interest expense.... 6,400 6,542 14,053 12,714 12,214 11,768 10,405
------- ------- ------- ------- ------- ------- -------
Income before income tax
expense and cumulative
effect of changes in
accounting principles.. 7,541 8,587 15,047 17,675 17,728 11,769 8,351
Income tax expense...... 3,447 3,792 6,621 8,211 8,530 5,227 3,687
------- ------- ------- ------- ------- ------- -------
Income before cumulative
effect of changes in
accounting principles.. 4,094 4,795 8,426 9,464 9,198 6,542 4,664
Cumulative effect on
prior years of changing
to a different method
of accounting for:
Income taxes(3)........ -- -- -- (383) -- -- --
Post-retirement
benefits other than
pensions(4)........... (1,032) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income............. $ 3,062 $ 4,795 $ 8,426 $ 9,081 $ 9,198 $ 6,542 $ 4,664
======= ======= ======= ======= ======= ======= =======
</TABLE>
(Notes on following page)

14
<PAGE>

<TABLE>
<CAPTION>
AT OR FOR THE SIX
MONTHS ENDED
DECEMBER 31, AT OR FOR THE YEAR ENDED JUNE 30,
------------------ -----------------------------------------
1995 1994 1995 1994 1993 1992 1991
-------- -------- ------ ------ ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL
RATIOS AND OTHER
DATA(5):
PERFORMANCE RATIOS:
Return on average
assets(6)............. 1.23% 1.52% 1.33% 1.46% 1.47% 1.03% 0.76%
Return on average
equity(6)............. 10.38 13.53 11.50 14.66 16.83 14.16 11.40
Average equity to
average assets........ 11.84 11.22 11.53 9.98 8.72 7.30 6.67
Equity to total assets
at end of period...... 12.07 11.60 11.63 10.51 9.12 7.72 6.88
Average interest rate
spread(7)............. 3.88 4.80 4.51 4.80 4.61 3.44 2.69
Net interest
margin(8)............. 4.41 5.15 4.91 5.12 4.95 3.72 3.01
Average interest-
earning assets to
average interest-
bearing liabilities... 114.23 112.65 113.15 111.50 109.66 105.26 104.98
Non-interest expense to
average assets........ 1.92 2.07 2.21 1.97 1.95 1.86 1.70
Efficiency Ratio(9).... 42.81 39.41 44.11 37.63 38.18 48.29 53.32
REGULATORY CAPITAL
RATIOS(10):
Tangible capital....... 11.97% 11.67% 11.53% 10.47% 9.07% 7.72% 6.88%
Core capital........... 11.99 11.70 11.56 10.51 9.12 7.72 6.88
Total risk-based
capital............... 22.31 22.50 22.18 19.83 14.13 11.59 11.23
ASSET QUALITY RATIOS AND
OTHER DATA:
Total non-performing
loans(11)............. $ 7,626 $ 5,165 $5,073 $6,248 $11,632 $16,713 $11,452
Other real estate
owned, net............ $ 1,907 $ 6,420 $4,466 $8,200 $ 7,981 $ 7,367 $ 3,994
Ratios(12)(13):
Non-performing loans
to total loans....... 1.73% 1.21% 1.18% 1.45% 2.52% 3.48% 2.50%
Non-performing loans
and real estate
owned to total
assets............... 1.43 1.87 1.44 2.23 3.04 3.74 2.47
Allowance for loan
losses to:
Non-performing
loans............... 74.88 80.83 101.99 58.15 25.76 12.53 11.70
Total loans.......... 1.29 0.98 1.20 0.84 0.65 0.44 0.29
Full service branches... 7 7 7 7 7 7 7
</TABLE>
--------
(1) Loans, net, represents gross loans less net deferred loan fees and
allowance for loan losses.
(2) The Bank has classified its securities as "held-to-maturity" or
"available-for-sale" since July 1, 1994, when it adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS No. 115"). Includes the
Bank's investment in the capital stock of the Federal Home Loan Bank of
New York ("FHLBNY").
(3) Pursuant to Statement of Financial Standards No. 109, "Accounting for
Income Taxes" ("SFAS No. 109"), on July 1, 1993, the Bank changed
prospectively from the deferred method to the liability method of
accounting for income taxes. The effect of the adoption of this standard
is reflected in the financial statements as the cumulative effect of
adopting a change in accounting principles.
(4) The Bank adopted Statement of Financial Accounting Standards No. 106,
"Accounting for Post-Retirement Benefits Other than Pensions," effective
July 1, 1995. The Bank elected to record the full accumulated post
retirement benefit obligation upon adoption. This resulted in a cumulative
effect adjustment of $1,032,000 (after reduction for income taxes of
$879,000) to apply retroactively to previous years the new method of
accounting, which is shown in the consolidated statement of income for the
six months ended December 31, 1995.
(5) With the exception of end of period ratios, all ratios are based on
average daily balances during the indicated periods, and are annualized
where appropriate. Asset Quality Ratios and Regulatory Capital Ratios are
end of period ratios.
(6) Income before cumulative effect of changes in accounting principles is
used to calculate return on average assets and return on average equity
ratios.
(7) The interest rate spread represents the difference between the weighted-
average yield on interest-earning assets and the weighted-average cost of
interest-bearing liabilities.
(8) The net interest margin represents net interest income as a percentage of
average interest-earning assets.
(9) The efficiency ratio represents non-interest expense as a percentage of
the sum of net interest income and non-interest income excluding any gains
or losses on sales of assets.
(10) For definitions and further information relating to the Bank's regulatory
capital requirements, see "Regulation--Regulation of Federal Savings
Associations--Capital Requirements." See "Regulatory Capital Compliance"
for the Bank's pro forma capital levels as a result of the Offerings.
(11) Non-performing loans consists of non-accrual loans; the Bank did not have
any loans that were 90 days or more past due and still accruing at any of
the dates presented. Non-performing loans do not include troubled-debt
restructurings ("TDRs"). See "Business of the Bank--Asset Quality--Non-
performing Assets and Troubled-Debt Restructurings."
(12) Total loans represents loans, net, plus the allowance for loan losses.
(13) The Bank adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS No. 114") on
July 1, 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Impact of Accounting Standards."

15
<PAGE>

SELECTED FINANCIAL AND OTHER DATA OF CONESTOGA

The selected consolidated financial and other data of Conestoga set forth
below is derived in part from, and should be read in conjunction with, the
Financial Statements of Conestoga and Notes thereto presented elsewhere in this
Prospectus. The selected Consolidated Financial and Other Data of Conestoga for
the nine-month periods ended December 31, 1995 and 1994 were not audited by
Conestoga's independent auditors, but in the opinion of management, reflect all
adjustments necessary for a fair presentation of the results for such periods.
All such adjustments are of a normal recurring nature. The results for the
nine-month period ended December 31, 1995 are not necessarily indicative of the
results of Conestoga that may be expected for the entire year.

<TABLE>
<CAPTION>
AT MARCH 31,
AT DECEMBER 31, --------------------------------------------
1995 1995 1994 1993 1992 1991
--------------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL
CONDITION DATA:
Total assets............ $488,415 $445,181 $428,429 $367,818 $343,705 $291,034
Loans, net.............. 115,931 114,651 99,801 102,074 92,758 95,753
Mortgage-backed
securities(1)(3)....... 161,574 166,502 164,137 150,070 134,144 92,023
Other securities(2)(3).. 179,136 123,286 69,712 57,101 73,017 73,272
Federal funds sold...... 7,000 14,200 71,600 36,400 21,600 12,300
Deposits................ 393,965 353,005 350,753 334,503 316,274 266,406
Stockholders' equity/net
worth.................. 79,355 77,462 72,914 28,568 23,618 21,646
</TABLE>

<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED MARCH 31,
--------------- -----------------------------------------
1995 1994 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income......... $24,527 $19,587 $26,709 $24,829 $27,211 $26,402 $24,544
Interest expense on
deposits and
borrowings............. 13,774 8,903 12,305 11,618 13,337 17,064 17,137
------- ------- ------- ------- ------- ------- -------
Net interest income.... 10,753 10,684 14,404 13,211 13,874 9,338 7,407
Provision (recoveries)
for loan losses........ 37 10 (36) 39 105 (112) 113
------- ------- ------- ------- ------- ------- -------
Net interest income
after provision for
loan losses........... 10,716 10,674 14,440 13,172 13,769 9,450 7,294
Non-interest income..... 1,522 1,358 1,830 1,486 1,905 1,110 1,109
Non-interest expense.... 7,504 6,173 8,660 7,343 6,539 5,962 4,923
------- ------- ------- ------- ------- ------- -------
Income before income tax
expense................ 4,734 5,859 7,610 7,315 9,135 4,598 3,480
Income tax expense...... 2,266 2,703 3,508 3,406 4,185 2,626 1,504
------- ------- ------- ------- ------- ------- -------
Net income............. $ 2,468 $ 3,156 $ 4,102 $ 3,909 $ 4,950 $ 1,972 $ 1,976
======= ======= ======= ======= ======= ======= =======
</TABLE>

(Notes on following page)

16
<PAGE>

<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS ENDED
DECEMBER 31, AT OR FOR THE YEAR ENDED MARCH 31,
-------------------- --------------------------------------
1995 1994 1995 1994 1993 1992 1991
--------- --------- ------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL
RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:
Return on average
assets(4)............. 0.68% 0.99% 0.96% 1.04% 1.38% 0.64% 0.71%
Return on average
equity(5)............. 4.23 5.63 5.45 11.59 19.20 8.63 9.63
Average equity to
average assets........ 16.02 17.63 17.63 8.85 7.21 7.36 7.40
Equity to total assets
at end of period...... 16.25 17.65 17.40 17.02 7.77 6.87 7.44
Average interest rate
spread................ 2.38 2.95 2.95 3.45 3.91 2.92 2.42
Net interest
margin(6)............. 3.11 3.56 3.57 3.69 4.13 3.21 2.83
Average interest-
earning assets to
average interest-
bearing liabilities... 118.36 120.44 120.39 107.68 105.49 104.97 106.14
Non-interest expense to
average assets........ 2.06 1.94 2.03 1.93 1.83 1.92 1.78
Ratio of net interest
income to non-interest
expense............... 1.43x 1.73x 1.66x 1.80x 2.12x 1.57x 1.50x
Book value per common
share................. $ 17.53 $ 17.30 $17.27 $16.96 N/A N/A N/A
REGULATORY CAPITAL
RATIOS:
Tangible capital....... 12.10% 12.90% 12.70% 11.70% 7.80% 7.00% 7.50%
Core capital........... 12.10 12.90 12.70 11.70 7.80 7.00 7.50
Total risk-based
capital............... 34.10 39.80 39.50 37.40 23.40 19.00 17.40
ASSET QUALITY RATIOS AND
OTHER DATA:
Non-accrual loans...... $ 661 $ 617 $ 351 $ 542 $1,023 $ 311 $ 630
Accruing loans past due
ninety days or more... -- -- -- -- -- -- --
--------- --------- ------ ------ ------ ------ ------
Total non-performing
loans................. $ 661 $ 617 $ 351 $ 542 $1,023 $ 311 $ 630
Other real estate
owned, net............ $ 264 $ 207 -- -- $ 213 $ 377 --
RATIOS:
Non-performing loans to
total loans........... 0.57% 0.55% 0.31% 0.54% 1.00% 0.34% 0.66%
Non-performing loans
and real estate owned
to total assets....... 0.19 0.19 0.08 0.13 0.34 0.20 0.22
ALLOWANCE FOR LOAN
LOSSES TO:
Non-performing loans... 31.92 35.66 49.53 38.75 16.72 21.22 28.25
Total loans............ 0.18 0.19 0.15 0.21 0.17 0.07 0.18
</TABLE>
--------
(1) Includes Real Estate Mortgage Investment Conduits ("REMICS") and
Collateralized Mortgage Obligations ("CMOs").
(2) Includes interest-bearing deposits with other banks and FHLBNY stock.
(3) Includes securities available for sale.
(4) Return on average assets is net income divided by average total assets.
(5) Return on average equity is net income divided by average equity.
(6) Calculation of net interest margin is based on net interest income before
provision for loan losses divided by average interest-earning assets.

17
<PAGE>

SELECTED PRO FORMA UNAUDITED CONDENSED
COMBINED FINANCIAL DATA OF THE COMPANY

The selected pro forma consolidated financial data of the Company set forth
below is derived in part from and should be read in conjunction with, the
Unaudited Pro Forma Condensed Combined Financial Statements (the "Pro Forma")
of the Company and notes thereto presented elsewhere in this Prospectus. In
deriving the amounts in the tables below, the Acquisition reflected in the
"Purchase Adjustments" to the Pro Forma is assumed to have occurred, while the
issuance of Common Stock reflected in the "Conversion Adjustments" to the Pro
Forma is not assumed to have occurred. In deriving the amounts for the Selected
Financial Condition Data, Regulatory Capital Ratios, and Asset Quality Ratios
and Other Data, the Acquisition was assumed to have been consummated at
December 31, 1995. In deriving the amounts for the Selected Operating Data and
Performance Ratios, the Acquisition was assumed to have been consummated on
July 1, 1995 and July 1, 1994 respectively for the six months ended December
31, 1995 and the year ended June 30, 1995. Except as noted below, all amounts
and ratios presented below are determined on a basis consistent with the Select
Consolidated Financial and Other Data of the Bank presented previously. See
"Unaudited Pro Forma Condensed Combined Financial Statements."

<TABLE>
<CAPTION>
AT DECEMBER 31,
1995
-----------------
(IN THOUSANDS)
<S> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets................................ $1,077,289
Loans, net.................................. 553,395
Mortgage-backed securities.................. 255,995
Investment securities....................... 278,355
Federal funds sold.......................... 19,802
Goodwill.................................... 25,523
Deposits.................................... 948,470
Equity...................................... 80,258
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1995 JUNE 30, 1995
----------------- -------------
(IN THOUSANDS)
<S> <C> <C>
SELECTED OPERATING DATA:
Interest income............................. $42,747 $75,281
Interest expense on deposits and
borrowings................................. 21,691 31,767
---------- -------
Net interest income....................... 21,056 43,514
Provision for loan losses................... 987 2,914
---------- -------
Net interest income after provision for
loan losses.............................. 20,069 40,600
Non-interest income......................... 1,702 3,603
Non-interest expense........................ 11,163 22,253
---------- -------
Income before income tax expense and
cumulative effect of changes in accounting
principle.................................. 10,608 21,950
Income tax expense.......................... 5,411 10,782
---------- -------
Income before cumulative effect of changes
in accounting principle.................... $ 5,197 $11,168
========== =======
</TABLE>

18
<PAGE>

<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS ENDED
DECEMBER 31, 1995
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:
Return on assets(1)............................... 0.96%
Return on equity(1)............................... 12.95
Equity to total assets at end of period........... 7.45
Efficiency ratio.................................. 50.49
REGULATORY CAPITAL RATIOS:
Tangible capital.................................. 5.14%
Core capital...................................... 5.15
Total risk-based capital.......................... 11.00
ASSET QUALITY RATIOS AND OTHER DATA:
Non-accrual loans................................. $8,287
Accruing loans past due ninety days or more....... --
------
Total non-performing loans........................ $8,287
Other real estate owned, net...................... $2,171
Ratios:
Non-performing loans to total loans............. 1.50%
Non-performing loans and other real estate owned
to total assets................................ 0.97
Allowance for loan losses to:
Non-performing loans.......................... 71.45
Total loans................................... 1.06
Full service branches............................... 15
</TABLE>
--------
(1) In calculating the return on assets and equity, total pro forma combined
assets and equity of $1,077,289,000 and $80,258,000 at December 31, 1995
respectively were utilized instead of average assets and average equity.
Return on assets and return on equity ratios have been annualized.

19
<PAGE>

RECENT DEVELOPMENTS

The selected consolidated financial and other data and financial ratios of
the Bank set forth below at and for the three months and nine months ended
March 31, 1996 and 1995 were derived from unaudited financial statements. In
the opinion of management, all adjustments necessary for a fair presentation
of the results of unaudited periods presented have been included. The results
of operations and ratios and other data presented for the three and nine
months ended March 31, 1996 are not necessarily indicative of the results of
operations for the fiscal year ending June 30, 1996. The information presented
below is qualified in its entirety by the detailed information and financial
statements included elsewhere in this Prospectus and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business of the Bank" and the audited Financial
Statements of the Bank and Notes thereto included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
AT AT
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets............................................. $676,175 $665,187
Loans, net(1)............................................ 437,533 435,319
Mortgage-backed securities(2)............................ 93,253 92,584
Investment securities(2)................................. 94,728 98,226
Federal funds sold....................................... 24,247 12,802
Deposits................................................. 561,026 557,084
Escrow and other deposits................................ 11,515 6,933
Equity................................................... 81,636 80,258
</TABLE>

<TABLE>
<CAPTION>
FOR THE NINE
FOR THE THREE MONTHS MONTHS ENDED
ENDED MARCH 31, MARCH 31,
--------------------- ----------------
1996 1995 1996 1995
---------- ---------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income......................... $ 12,974 $ 12,082 $39,250 $36,543
Interest expense on deposits and
borrowings............................. 5,803 4,681 17,789 13,343
---------- ---------- ------- -------
Net interest income................... 7,171 7,401 21,461 23,200
Provision for loan losses............... 900 738 1,850 2,213
---------- ---------- ------- -------
Net interest income after provision
for loan losses...................... 6,271 6,663 19,611 20,987
Non-interest income..................... 379 465 980 1,270
Non-interest expense.................... 3,901 3,591 10,301 10,133
---------- ---------- ------- -------
Income before income tax expense and
cumulative effect of changes in
accounting principle................... 2,749 3,537 10,290 12,124
Income tax expense...................... 1,266 1,638 4,713 5,430
---------- ---------- ------- -------
Income before cumulative effect of
changes in accounting principle........ 1,483 1,899 5,577 6,694
Cumulative effect on prior years of
changing to a different method of
accounting for Post-Retirement benefits
other than pensions(3)................. -- -- (1,032) --
---------- ---------- ------- -------
Net income.............................. $ 1,483 $ 1,899 $ 4,545 $ 6,694
========== ========== ======= =======
</TABLE>
(Notes on following page)

20
<PAGE>

<TABLE>
<CAPTION>
AT OR FOR AT OR FOR
THE THREE MONTHS THE NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
------------------ ----------------
1996 1995 1996 1995
-------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DA-
TA(4):
PERFORMANCE RATIOS:
Return on average assets(5)............ 0.89% 1.22% 1.11% 1.42%
Return on average equity(5)............ 7.30 10.19 9.33 12.38
Average equity to average assets....... 12.15 11.93 11.94 11.46
Equity to total assets at end of peri-
od.................................... 12.07 11.79 12.07 11.79
Average interest rate spread(6)........ 3.88 4.52 3.88 4.70
Net interest margin(7)................. 4.41 4.92 4.41 5.08
Average interest-earning assets to av-
erage
interest-bearing liabilities.......... 114.71 112.87 114.39 112.73
Non-interest expense to average as-
sets.................................. 2.33 2.30 2.06 2.15
Efficiency ratio(8).................... 51.81 46.12 45.83 41.55
REGULATORY CAPITAL RATIOS(9):
Tangible capital....................... 12.01% 11.79% 12.01% 11.79%
Core capital........................... 12.03 11.82 12.03 11.82
Total risk-based capital............... 22.22 22.59 22.22 22.59
ASSET QUALITY RATIOS AND OTHER DATA:
Total non-performing loans(10)......... $ 5,614 $ 6,028 $ 5,614 $ 6,028
Other real estate owned, net........... $ 1,814 $ 4,865 $ 1,814 $ 4,865
Ratios(11)(12):
Non-performing loans to total loans.. 1.27% 1.40% 1.27% 1.40%
Non-performing loans and real estate
owned to total assets............... 1.10 1.71 1.10 1.71
Allowance for loan losses to:
Non-performing loans................ 109.48 77.64 109.48 77.64
Total loans......................... 1.39 1.09 1.39 1.09
Full service branches.................... 7 7 7 7
</TABLE>
--------
(1) Loans, net represents gross loans less net deferred loan fees and
allowance for loan losses.
(2) The Bank has classified its securities as "held-to-maturity" or
"available-for-sale" since July 1, 1994, when it adopted SFAS No. 115.
Investment securities include FHLBNY stock.
(3) The Bank adopted SFAS No. 106, effective July 1, 1995. The Bank elected
to record the full accumulated post retirement benefit obligation upon
adoption. This resulted in a cumulative effect adjustment of $1,032,000
(after reduction of taxes of $879,000) to apply retroactively to previous
years the new method of accounting, which is shown in the nine month period
ended March 31, 1996.
(4) With the exception of end of period ratios, all ratios are based on
average daily balances during the respective periods and are annualized
where appropriate. Asset Quality Ratios and Regulatory Capital Ratios are
end of period ratios.
(5) Income before cumulative effect of changes in accounting principles is
used to calculate return on average assets and return on average equity
ratios.
(6) The interest rate spread represents the difference between the weighted-
average yield on interest-earning assets and the weighted-average cost of
interest-bearing liabilities.
(7) The net interest margin represents net interest income as a percentage of
average interest-earning assets.
(8) The efficiency ratio represents non-interest expense as a percentage of
the sum of net interest income and non-interest income excluding any gains
or losses on sales of assets.
(9) For further information relating to the Bank's regulatory capital
requirements, see "Regulation--Regulation of Federal Savings Associations--
Capital Requirements." See "Regulatory Capital Compliance" for the Bank's
pro forma capital levels as a result of the Offerings.
(10) Non-performing loans consists of non-accrual loans; the Bank did not have
any loans that were 90 days or more past due and still accruing at any of
the dates presented. Non-performing loans do not include TDRs. See
"Business of the Bank--Asset Quality--Non-performing Assets and Troubled-
Debt Restructurings."
(11) Total loans represents loans, net, plus the allowance for loan losses.
(12) The Bank adopted SFAS No. 114 on July 1, 1995. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Impact of Accounting Standards."

21
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT DEVELOPMENTS

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

Total assets increased by $11.0 million to $676.2 million in the three month
period ended March 31, 1996. The growth was concentrated in overnight federal
funds sold, which increased by $11.4 million, reflecting an increase in the
Bank's liquidity position brought on primarily by deposit inflows and an
increase in mortgage escrow accounts. The increase in liquidity is expected to
be temporary, with the excess funds earmarked for new loan originations later
in the year. Growth in the loan portfolio was $2.4 million during the quarter,
as new loan originations of $21.3 million were partially offset by $18.9
million in repayments of existing loans. The low interest rate environment
which characterized the beginning of the quarter was the primary factor behind
the surge in loan prepayments. The Bank's securities portfolio was similarly
affected by lower interest rates, declining by $3.5 million between December
31, 1995 and March 31, 1996 due to an increase in bond call activity.

Total liabilities at March 31, 1996 were $594.5 million as compared with
$584.9 million at December 31, 1995, an increase of $9.6 million. The growth
was concentrated in the Bank's mortgage escrow accounts, which increased by
$4.6 million, and certificates of deposit, which increased by $3.5 million.
The increase in mortgage escrow reflects the seasonal inflow of escrow funds
that typically occurs in the first calendar quarter of the year. Total equity
of the Bank was $81.6 million, or 12.07% of total assets, an increase of $1.4
million from December 31, 1995. The increase was attributable to net income of
$1.5 million during the period, and a $106,000 decrease in the net unrealized
gain on the Bank's available for sale securities portfolio, net of taxes, as
required by SFAS No. 115.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND
MARCH 31, 1995

Net income for the three months ended March 31, 1996 was $1.5 million,
compared to $1.9 million for the same period in 1995. The decrease was
primarily attributable to a $310,000 increase in non-interest expenses, a
$229,000 reduction in the Bank's net interest income, and a $162,000 increase
in the provision for loan losses.

Total interest income and interest expense were both higher in the current
quarter, despite a significant decrease in interest rates between 1995 and
1996. Interest income was $13.0 million during the three months ended March
31, 1996, an increase of $892,000 from the same period in 1995. The increase
in interest income reflects an increase in the Bank's average interest earning
assets from $602.0 million during the 1995 quarter to $651.1 million during
the comparable 1996 period, the effect of which was partially offset by a
period to period decrease from 8.03% to 7.97% in the yield on the Bank's
interest earning assets. The resulting increase in interest income was less
than the increase in total interest expense, however, as both the level of
deposit liabilities and the Bank's cost of funds increased during the period.
Average deposit liabilities rose $34.9 million from year earlier levels to
$558.2 million for the three months ended March 31, 1996. Within total deposit
liabilities, the continued shift of deposits out of savings accounts into
higher cost certificates of deposit had the effect of increasing the Bank's
average cost of funds, which rose to 4.09% from 3.51% the year before. This
shift reflects, in part, management's strategy of paying competitive interest
rates on certificates of deposit with maturities beyond one year in order to
encourage depositors to extend the average maturity of their deposits. The
result of the increases in both interest income and interest expense was a
$229,000 decrease in net interest income. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Management
Strategy."

The Bank's provision for loan losses totaled $900,000 for the three months
ended March 31, 1996, as compared to $738,000 for the same period in 1995, an
increase of $162,000. Between these two periods, the level of non-performing
loans in the Bank's portfolio decreased, mitigating against loan loss reserve
provisions in excess of loan charge-offs. Management continued to provide
reserves, however, in light of the Bank's continued emphasis on multi-family
lending and management's evaluation of the adequacy of the reserve in the
context of the Bank's historical loan loss experience. Between March 31, 1995
and March 31, 1996, the Bank's

22
<PAGE>

loan portfolio increased by $11.2 million, with new multi-family loans
accounting for virtually all of the increase. See "Risk Factors--Multi-family
and Non-residential Lending Risks," and "Business of the Bank--Asset Quality."
At March 31, 1996, the allowance for loan losses totaled 109.5% of non-
performing loans and 1.39% of total loans, up from 77.6% and 1.09%,
respectively, at March 31, 1995.

Non-interest expenses were $3.9 million in the three months ended March 31,
1996, as compared to $3.6 million in the comparable 1995 quarter. Non-interest
expenses were higher in the 1996 quarter due primarily to a $178,000 provision
for losses attributable to the Bank's portfolio of other real estate owned,
necessitated by a reduction in the value of a portion of such portfolio, and a
$171,000 increase in the provision for losses related to Nationar, a failed
check-clearing and trust company. See "Business of the Bank--Legal
Proceedings." Other significant changes in the Bank's operating expenses
included a $281,000 decrease in the insurance premiums paid to the Federal
Deposit Insurance Corporation resulting from the FDIC's decision to lower the
insurance premiums paid by BIF-insured institutions to the legal minimum
effective January 1, 1996, and a $162,000 increase in compensation and
benefits expense, attributable to an increase in employee bonuses and normal
salary increases.

OTHER RECENT DEVELOPMENTS

The Bank is negotiating an agreement with a third party to sell a $2.2
million non-performing loan. The underlying property, a 60 unit, 6 story
cooperative apartment building located in Brooklyn, New York, has been in the
process of foreclosure since November, 1994, and is currently classified as
substandard by the Bank. Based on these negotiations, the Bank would sell the
loan for $1.6 million. No assurance can be given that the loan will be sold,
or as to the ultimate terms of any such sale. The Bank believes that its
allowance for loan losses as of March 31, 1996 is adequate after taking into
consideration the proposed sale of the loan and expected charge to the
allowance for loan losses.

23
<PAGE>

RECENT DEVELOPMENTS OF CONESTOGA

The following tables set forth certain condensed financial data of Conestoga
at and for the periods indicated. Financial and operating data, financial
ratios and other data at and for the three months and year ended March 31,
1996 and three months ended December 31, 1995 were derived from unaudited
financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair
presentation of results of the unaudited periods presented are included. The
information presented below is qualified in its entirety by the detailed
information and financial statements included elsewhere in this Prospectus and
should be read in conjunction with "Management of Conestoga's Discussion and
Analysis of Financial Condition and Results of Operations of Conestoga,"
"Business of Conestoga" and the audited Financial Statements of Conestoga and
Notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH
MARCH 31, DECEMBER 31, 31,
1996 1995 1995
----------- -------------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets.............................. $494,348 $488,415 $445,181
Loans receivable, net..................... 114,518 115,931 114,651
Mortgage-backed securities, net(1)(3)..... 129,610 161,574 166,502
Other securities(2)(3).................... 212,016 179,136 123,286
Federal funds sold........................ 9,900 7,000 14,200
Deposits.................................. 399,725 393,965 353,005
Stockholders' equity/net worth............ 79,964 79,355 77,462
</TABLE>

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE YEAR ENDED
------------------------------ ---------------------
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1996 1995 1996 1995
-------------- ------------- ----------- ---------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income........ $ 7,875 $ 7,122 $32,402 $26,709
Interest expense on de-
posits and
borrowings............ 4,519 3,402 18,293 12,305
------------- ------------- ------- -------
Net interest income.. 3,356 3,720 14,109 14,404
Provision (recoveries)
for loan losses....... 67 (46) 104 (36)
------------- ------------- ------- -------
Net interest income
after provision
(recoveries) for
loan losses......... 3,289 3,766 14,005 14,440
Non-interest income.... 1,068 472 2,590 1,830
Non-interest expense... 2,762 2,487 10,266 8,660
------------- ------------- ------- -------
Income before income
tax expense........... 1,595 1,751 6,329 7,610
Income tax expense..... 853 804 3,119 3,508
------------- ------------- ------- -------
Net income........... $ 742 $ 947 $ 3,210 $ 4,102
============= ============= ======= =======
</TABLE>
--------
(1) Includes REMICs and CMOs.
(2) Includes interest-bearing deposits with other banks and FHLBNY stock.
(3) Includes securities available for sale.

24
<PAGE>

<TABLE>
<CAPTION>
AT OR FOR THE THREE MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, MARCH 31,
-------------------------- ------------------
1996 1995 1996 1995
------------- ------------- ----------- ------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS
AND OTHER DATA:
PERFORMANCE RATIOS:
Return on average as-
sets(1)............... 0.60% 0.87% 0.66% 0.96%
Return on average equi-
ty(2)................. 3.72 4.92 4.10 5.45
Average equity to aver-
age assets............ 16.23 17.62 16.07 17.63
Equity to total assets
at end of period...... 16.19 17.40 16.19 17.40
Average interest rate
spread................ 2.14 2.95 2.32 2.95
Net interest mar-
gin(3)................ 2.88 3.62 3.06 3.57
Average interest-earn-
ing assets to average
interest-bearing lia-
bilities.............. 119.10 120.17 118.53 120.39
Non-interest expense to
average assets........ 2.25 2.28 2.11 2.03
Ratio of net interest
income to non-interest
expense 1.22x 1.50x 1.37x 1.66x
Book value per common
share................. $ 17.58 $ 17.27 $17.58 $17.27
REGULATORY CAPITAL RA-
TIOS(4):
Tangible capital....... 12.17% 12.74% 12.17% 12.74%
Core capital........... 12.17 12.74 12.17 12.74
Total risk-based capi-
tal................... 27.75 39.50 27.75 39.50
ASSET QUALITY RATIOS AND
OTHER DATA:
Non-accrual loans...... $ 265 $ 351 $ 265 $ 351
Accruing loans past due
ninety days or more... -- -- -- --
------------- ------------- ------ ------
Total non-performing
loans................. $ 265 $ 351 $ 265 $ 351
Real estate owned,
net................... $ 524 -- $ 524 --
RATIOS:
Non-performing loans to
total loans........... 0.23% 0.31% 0.23% 0.31%
Non-performing loans
and real estate owned
to total assets....... 0.16 0.08 0.16 0.08
ALLOWANCE FOR LOAN LOSSES
TO:
Non-performing loans... 80.19% 49.53% 80.19% 49.53%
Total loans............ 0.18 0.15 0.18 0.15
</TABLE>
--------
(1) Return on average assets is net income divided by average total assets.
(2) Return on average equity is net income divided by average equity.
(3) Calculation of net interest margin is based on net interest income before
provision for loan losses divided by average interest-earning assets.
(4) Regulatory capital ratios for Pioneer only.

25
<PAGE>

MANAGEMENT OF CONESTOGA'S DISCUSSION AND ANALYSIS OF RECENT DEVELOPMENTS

Total assets increased by $5.9 million or 1.2% to $494.3 million at March
31, 1996 from December 31, 1995. For the three month period ended March 31,
1996, net loans receivable decreased $1.4 million or 1.2% to $114.5 million.
Mortgage-backed securities declined by $32.0 million or 19.78% to $129.6
million during the same three month period. This is a result of the one time
reassessment and related reclassification from the held-to-maturity category
which resulted from the Company's decision to utilize the window allowed by
the Financial Accounting Standards Board ("FASB") to reclassify held-to-
maturity portfolios pursuant to SFAS No. 115 without affecting the
classification of the remaining portfolio. During the three month period,
Conestoga sold all mortgage-backed securities classified as available-for-sale
with the exception of the $1.5 million remaining at March 31, 1996.

The Bank has invested in short-term assets in order to be prepared for an
improvement in the mortgage market as well as to be positioned for a possible
rise in interest rates. Consequently, other securities increased by $32.9
million to $212.02 million at March 31, 1996, an 18.4% increase from December
31, 1995, which was mainly comprised of an increase in commercial paper. All
investment securities in the available-for-sale account of $22.2 million at
December 31, 1995 were sold as of March 31, 1996.

Deposits rose $5.8 million to $399.7 million, an increase of 1.5% from
December 31, 1995 to March 31, 1996. This was due to a $1.4 million increase
in deposits plus interest posted for the quarter.

Retained earnings at March 31, 1996 were $80.0 million, an increase of
$609,000 or 0.8% for the quarter ended March 31, 1996. This increase is
primarily due to maintaining a positive interest margin and the gain on sale
of investment securities.

Net income for the quarter ending March 31, 1996 was $742,000, a decrease of
$205,000 from the same quarter the prior year. This decline primarily was
attributed to a compression in the interest margin from 3.62% at March 31,
1995 to 2.88% at March 31, 1996. Non-interest income increased $596,000, from
$472,000 for the quarter ended March 31, 1995 to $1,068,000 for the quarter
ending March 31, 1996, resulting primarily from gains on sales of available
for sale securities of $874,545, offset, in part, by decreases in
miscellaneous operating income and fee income from service charges. Operating
expenses increased $275,000, primarily due to acquisition costs. Comparing the
quarter ending March 31, 1996 to the same quarter the prior year, operating
expenses to average assets declined from 2.28% to 2.25%. The return on average
assets declined from 0.87% for the three month period ended March 31, 1995 to
0.60% for the three month period ended March 31, 1996.

Net income for the year ended March 31, 1996 was $3.2 million compared to
$4.1 million for the year ended March 31, 1995. As high-yielding investments
were sold and called, incoming funds were invested in shorter-term securities.
These liquid investments, while presently producing lower yields, will place
the Bank in an advantageous position should interest rates increase sharply
over the next several months. This narrowed the net interest spread to 2.32%
for the year ending March 31, 1996 compared to 2.95% for the year ended
March 31, 1995. The return on average assets for the years ending March 31,
1996 and March 31, 1995 was 0.66% and 0.96%, respectively.

26
<PAGE>

SELECTED PRO FORMA UNAUDITED CONDENSED COMBINED FINANCIAL DATA
OF THE RECENT DEVELOPMENTS OF THE COMPANY

The selected pro forma consolidated financial data of the Company set forth
below is determined on a basis consistent with the Pro Forma of the Company
and notes thereto presented elsewhere in this Prospectus. In deriving the
amounts in the tables below, the Acquisition reflected in the "Purchase
Adjustments" to the Pro Forma is assumed to have occurred; while the issuance
of Common Stock reflected in the "Conversion Adjustments" to the Pro Forma is
not assumed to have occurred. In deriving the amounts for the Selected
Financial Condition Data, Regulatory Capital Ratios, and Asset Quality Ratios
and Other Data, the Acquisition was assumed to have been consummated at March
31, 1996. In deriving the amounts for the Selected Operating Data and
Performance Ratios, the Acquisition was assumed to have been consummated on
January 1, 1996 and July 1, 1995, respectively, for the three months ended
March 31, 1996 and the nine months ended March 31, 1996. Except as noted
below, all amounts and ratios presented below are determined on a basis
consistent with the Selected Consolidated Financial and Other Data of the Bank
presented previously. See "Unaudited Pro Forma Condensed Combined Financial
Statements."

<TABLE>
<CAPTION>
AT MARCH 31,
1996
------------
(IN
THOUSANDS)
<S> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets....................................................... $1,093,601
Loans, net......................................................... 554,196
Mortgage-backed securities......................................... 224,700
Investment securities.............................................. 277,837
Federal funds sold................................................. 64,047
Goodwill........................................................... 24,914
Deposits........................................................... 958,172
Equity............................................................. 81,636
</TABLE>

<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1996
------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
SELECTED OPERATING DATA:
Interest income........................... $20,685 $63,432
Interest expense on deposits and
borrowings............................... 10,191 31,882
------- -------
Net interest income..................... 10,494 31,550
Provision for loan losses................. 967 1,954
------- -------
Net interest income after provision for
loan losses............................ 9,527 29,596
Non-interest income....................... 1,447 3,149
Non-interest expense...................... 6,478 17,641
------- -------
Income before income tax expense and cumu-
lative effect of changes in
accounting principle..................... 4,496 15,104
Income tax expense........................ 2,433 7,844
------- -------
Income before cumulative effect of changes
in accounting principle.................. $ 2,063 $ 7,260
======= =======
</TABLE>

27
<PAGE>

<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED
MARCH 31, 1996
------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:
Return on assets(1)....................................... 0.75%
Return on equity(1)....................................... 10.11
Equity to total assets at end of period................... 7.46
Efficiency ratio.......................................... 54.64
REGULATORY CAPITAL RATIOS:
Tangible capital.......................................... 5.27%
Core capital.............................................. 5.28
Total risk-based capital.................................. 10.51
ASSET QUALITY RATIOS AND OTHER DATA:
Non-accrual loans......................................... $5,879
Accruing loans past due ninety days or more --
------
Total non-performing loans................................ $5,879
Other real estate owned, net.............................. $2,338
Ratios:
Non-performing loans to total loans..................... 1.06%
Non-performing loans and real estate owned to total as-
sets................................................... 0.75
Allowance for loan losses to:
Non-performing loans.................................. 108.15
Total loans........................................... 1.15
Full service branches................................. 15
</TABLE>
--------
(1) In calculating the return on assets and equity, total pro forma combined
assets and equity of $1,093,601,000 and $81,636,000 at March 31, 1996,
respectively, were utilized instead of average assets and average equity.
Return on equity and return on assets ratios have been annualized.

28
<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.

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 securities, and its interest expense on interest-bearing
liabilities, such as deposits and borrowings. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Analysis of Net
Interest Income." The Bank's balance sheet is primarily comprised of assets
which mature or reprice within five years, with a significant portion maturing
or repricing within one year. In addition, the Bank's deposit base is
comprised primarily of savings accounts, and certificates of deposit with
maturities of three years or less, representing 41.3% and 48.2%, respectively,
of total deposits at December 31, 1995. As a result, at December 31, 1995, the
Bank's interest-bearing liabilities maturing or repricing within one year
totaled $248.0 million, while interest earning assets maturing or repricing
within one year totaled $270.1 million, resulting in a positive one-year
interest sensitivity gap of $22.2 million, or 3.3% of total assets. The Bank's
estimate of repricing liabilities for selected deposit types which do not
carry contractual maturities, such as savings accounts, is based upon the
decay rate tables published by the OTS.

Under interest rate scenarios other than that which existed on December 31,
1995, the gap ratio for the Bank's assets and liabilities could differ
substantially based upon different assumptions about how core deposit decay
rates and loan prepayments would change. For example, the Bank's interest rate
risk management model assumes that in a rising rate scenario, by paying
competitive rates on non-core deposits, a large share of core deposits will
transfer to certificates of deposit and be retained, although at higher cost
to the Bank. Also, loan and mortgage-backed security prepayment rates would be
expected to slow, as borrowers postpone property sales or loan refinancings
until rates again decline. As a result, while a positive one-year gap ratio
indicates that the Bank's net interest income would grow in a period of rising
rates (that is, more assets reprice upwards as rates rise than do
liabilities), historically, the opposite has been true. In every rising rate
scenario since the early 1980s, the Bank's net income has declined.
Conversely, when rates declined the Bank's net interest income has risen. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Management Strategy--Interest Rate Volatility."

Increases in the level of interest rates also may adversely affect the fair
value of the Bank's securities and other earning assets. Generally, the fair
value of fixed-rate instruments fluctuates inversely with changes in interest
rates. As a result, increases in interest rates could result in decreases in
the fair value of the Bank's interest earning assets, which could adversely
affect the Bank's results of operations if sold, or, in the case of interest
earning assets classified as available for sale, the Bank's equity if
retained. Under SFAS No. 115, which was adopted by the Bank on July 1, 1994,
changes in the unrealized gains and losses, net of taxes, on securities
classified as available for sale will be reflected in the Bank's equity. As of
December 31, 1995, the Bank's securities portfolio included $85.7 million in
securities classified as available for sale. Accordingly, as a result of
adoption of SFAS No. 115 and the magnitude of the Bank's holdings of
securities available for sale, changes in interest rates could produce
significant changes in the value of such securities and could produce
significant fluctuations in the equity of the Bank.

RISKS OF THE ACQUISITION

The Bank has never acquired another savings bank or other financial
institution. The future growth of the Bank and the Company will depend, in
part, on the success of the Acquisition. The success of the Acquisition will,
in turn, depend, on a number of factors, including: the Bank's ability to
integrate the Pioneer branches into the current operations of the Bank; the
Bank's ability to limit the outflow of deposits held by customers in the
Pioneer branches; the Bank's ability to control the incremental non-interest
expense from the Acquisition in a

29
<PAGE>

manner that enables the Bank to improve its overall operating efficiencies;
and the Bank's ability to retain and integrate the appropriate personnel of
Pioneer into the operations of the Bank. No assurance can be given that the
Bank will be able to integrate Pioneer successfully; that the Bank will be
able to achieve results in the future similar to those achieved by the Bank in
the past; or that the Bank will be able to manage its growth resulting from
the Acquisition effectively. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

MULTI-FAMILY AND NON-RESIDENTIAL LENDING RISKS

In order to meet the needs of its community, the Bank has emphasized the
origination of residential loans, ranging from one- to four-family loans to
multi-family loans. At December 31, 1995, the Bank's multi-family loan
portfolio totaled $267.8 million, or 60.6% of gross loans. Of the Bank's
multi-family loans, $204.3 million, or 76.3%, were secured by apartment
buildings, and $63.5 million, or 23.7%, were secured by underlying
cooperatives at December 31, 1995. Multi-family loans are generally viewed as
exposing the Bank to a greater risk of loss than one- to four-family
residential loans and typically involve higher loan principal amounts. At
December 31, 1995, the Bank had 71 multi-family and non-residential loans with
principal balances of $1.0 million or more, totaling $121.1 million. These
loans, while underwritten to the same standards as the rest of the multi-
family and non-residential portfolios, tend to expose the Bank to a higher
degree of risk due to the potential impact of losses from any one loan
relative to the size of the Bank's capital position. Of the Bank's loans in
excess of $1.0 million, 26.2% were originated prior to December 31, 1990,
while 39.9% were originated between January 1, 1991 and December 31, 1993. As
of December 31, 1995, one of the 71 loans was in process of foreclosure, with
an outstanding balance of $2.2 million. See "Recent Developments--Other Recent
Developments." Three other loans totaling $6.4 million were on the Bank's
"watch list," none of which were in arrears at that date. In addition, the
Bank has identified 52 large real estate loans or commitments, totaling $46.8
million, derived in connection with 15 principal parties, each of which has
certain financial interests in more than one real estate loan held by the
Bank. The principal parties identified may, for example, be officers of
corporations, or sponsors of cooperative corporations, which own the real
estate on which the Bank holds a mortgage. None of the 52 loans are in
violation of the OTS limitations on loans to one borrower. See "Regulation--
Regulation of Federal Savings Associations--Loans to One Borrower."

Repayment of multi-family loans is dependent, in large part, on sufficient
cash flow from the property to cover operating expenses and debt service.
Economic events and government regulations, such as rent control and rent
stabilization laws, which are outside the control of the borrower or the Bank,
could impair the value of the security for the loan or the future cash flow of
such properties. As a result, rental income might not rise sufficiently over
time to meet increases in the loan rate at repricing, or increases in overhead
expenses (i.e., utilities, taxes). During the last five fiscal years and the
six-month period ended December 31, 1995, the Bank's charge-offs related to
its multi-family loan portfolio totaled $5.0 million. As of December 31, 1995,
the Bank had $6.3 million of non-performing multi-family loans. See "Business
of the Bank--Lending Activities" for discussions of the Bank's underwriting
procedures utilized in originating multi-family loans.

The Bank's loan portfolio also includes $33.9 million in non-residential
real estate mortgage loans which represented 7.7% of gross loans at December
31, 1995. Of this amount, $9.8 million was originated prior to 1990. This
portfolio is comprised of commercial and industrial properties, and shopping
centers. Because of the non-residential nature of the underlying collateral
for this group of loans, repayment performance can be expected to be more
sensitive to general business and economic conditions than multi-family loans.
See "-- Weakness in the Local Economy." The Bank had no non-residential loans
either classified or in foreclosure at December 31, 1995.

WEAKNESS IN THE LOCAL ECONOMY

The New York City metropolitan area economy, which began to weaken in the
late 1980s as a result of the general decline in the national economy, changes
in the tax laws in 1986 which limited the deductibility of losses on passive
investments such as real estate, and increasing consolidation in the financial
services sector, has begun to show signs of improvement in recent periods.
Perhaps the most important of these signs has been the gradual decrease in the
area unemployment rate from a 1992 peak. Improvement can also be seen in the
local real estate

30
<PAGE>

market, as reflected in the increase in existing home sales during the past
four years and the stabilization of local real estate values. At December 31,
1995, 92.5% of the Bank's total loans were secured by properties located in
the New York City metropolitan area.

Despite these encouraging trends, the outlook for the local economy remains
uncertain. Total New York City employment, for example, remains significantly
below the high reached in 1988. Other troubling signs include a stubbornly
high commercial property (non-residential) vacancy rate and continued weakness
in local manufacturing and construction activity.

Like many financial institutions operating in the New York City metropolitan
area during 1990 to 1992, the Bank experienced an increase in its non-
performing loans and assets. Such categories have declined substantially since
1992 as a result of a decline in the number of new non-performing loans, and
increased sales of non-performing assets. See "Business of the Bank--Asset
Quality--Delinquent Loans and Foreclosed Assets." At December 31, 1995, non-
performing loans totaled $7.6 million. At December 31, 1995 the Bank's ratios
of non-performing loans to total loans, non-performing assets to total assets
and allowance for loan losses to non-performing loans were 1.73%, 1.43% and
74.9%, respectively. Management has increased the allowance for loan losses
from $1.3 million, or 0.29% of total loans, at June 30, 1991 to $5.7 million,
or 1.29% of total loans, at December 31, 1995. At December 31, 1995, other
real estate owned totaled $1.9 million. The Bank evaluates the market value of
real estate owned at the time it obtains possession of the property and
charges off against the allowance for loan losses any declines in value.
Periodically thereafter, the Bank will evaluate the market value of real
estate owned and charge off any additional decline against the reserve for
losses on real estate owned.

Declines in the local economy, national economy or real estate market could
adversely affect the financial condition and results of operations of the
Bank, including through decreased demand for loans or increased competition
for good loans, increased non-performing loans and loan losses and resulting
additional provisions for loan losses and for losses on real estate owned.
Although management of the Bank believes that the current allowance for loan
losses is adequate in light of current economic conditions, many factors may
require additions to the allowance for loan losses in future periods above
those reasonably anticipated. These factors include: (i) adverse changes in
economic conditions and changes in interest rates that may affect the ability
of borrowers to make payments on loans, (ii) changes in the financial capacity
of individual borrowers, (iii) changes in the local real estate market and the
value of the Bank's loan collateral, (iv) changes in the composition of the
Bank's loan portfolio and (v) future review and evaluation of the Bank's loan
portfolio, internally or by regulators. The amount of the allowance for loan
losses at any time represents good faith estimates that are susceptible to
significant changes due to changes in appraisal values of collateral, national
and regional economic conditions, prevailing interest rates and other factors.
Future adjustments to the allowance also may be necessary if economic or other
conditions differ substantially from those underlying the assumptions used in
making such estimates. In addition, the Bank's plan to increase its investment
in multi-family and non-residential loans and the maximum loan limitations
thereon, can be expected to increase the overall level of credit risk inherent
in the Bank's loan portfolio. The greater risk associated with multi-family
and non-residential loans may require the Bank to increase its provisions for
loan losses and to maintain an allowance for loan losses as a percentage of
total loans that is in excess of the allowance currently maintained by the
Bank. Provisions for loan losses are charged against net income.

CERTAIN ANTI-TAKEOVER PROVISIONS

Provisions in the Company's and the Bank's Governing Instruments. Certain
provisions of the Company's Certificate of Incorporation and Bylaws,
particularly a provision limiting voting rights, and the Bank's Stock Charter
and Bylaws, as well as certain federal regulations, assist the Company in
maintaining its status as an independent publicly owned corporation. These
provisions provide for, among other things, supermajority voting on certain
matters, staggered boards of directors, noncumulative voting for directors,
limits on the calling of special meetings, certain uniform price provisions
for certain business combinations and limits on voting shares in excess of 10%
of the outstanding shares. Any person owning in excess of 10% of the
outstanding Common Stock will be limited to one- one-hundredth (1/100) of a
vote for each share of the Common Stock owned in excess of the 10% limit. The
Bank's Stock Charter also prohibits, for five years, the acquisition of, or
the offer to acquire, directly or indirectly, the beneficial ownership of more
than 10% of the Bank's equity securities. In

31
<PAGE>

the event that holders of revocable proxies for more than 10% of the shares of
Common Stock of the Company, acting as a group or in concert with other proxy
holders, attempt actions which could indirectly result in a change in control
of the Bank, management of the Bank may be able to assert this provision of
the Bank's charter against such holders if it deems such assertion to be in
the best interests of the Bank, the Company and its shareholders. It is
uncertain, however, if the Bank would be successful in asserting such
provisions against such persons. These provisions in the Bank's and the
Company's governing instruments may discourage potential proxy contests and
other potential takeover attempts, particularly those which have not been
negotiated with the Board of Directors, and thus, generally may serve to
perpetuate current management. See "Restrictions on Acquisition of the Company
and the Bank."

Evaluation of Offers. The Certificate of Incorporation of the Company
further provides that the Board of Directors of the Company, when evaluating
any offer of another "Person" (as defined therein) to (i) make a tender or
exchange offer for any equity security of the Company, (ii) merge or
consolidate the Company with another corporation or entity or (iii) purchase
or otherwise acquire all or substantially all of the properties and assets of
the Company, may, in connection with the exercise of its judgment in
determining what is in the best interest of the Company, the Bank and the
shareholders of the Company, give due consideration to all relevant factors,
including, without limitation, the social and economic effects of acceptance
of such offer on the Company's and its subsidiaries' customers, suppliers,
borrowers and employees, and on the communities in which the Company and its
subsidiaries operate or are located. By having these standards in the
Certificate of Incorporation of the Company, the Board of Directors may be in
a stronger position to oppose such a transaction if the Board concludes that
the transaction would not be in the best interest of the Company, even if the
price offered is significantly greater than the prevailing market price of any
equity security of the Company.

Voting Control of Officers and Directors. Directors and executive officers
of the Bank and the Company expect to purchase approximately 4.20% or 3.11% of
the shares of Common Stock to be sold in the Conversion, based upon the
minimum and the maximum of the Estimated Price Range, respectively. In
addition, the ESOP intends to purchase 8% of the Common Stock. As a result,
assuming the Stock Programs and Stock Option Plans are approved by the
Company's shareholders, directors, executive officers and employees have the
potential to control the voting of approximately 25.11% of the Company's
Common Stock at the maximum of the Estimated Price Range, thereby enabling
them to prevent the approval of transactions and other corporate actions
requiring 80% approval of shareholders, such as certain business combinations,
the removal by shareholders of a director for cause, and the amendment of
certain charter provisions. As a result, this potential voting control may
preclude takeover attempts that certain shareholders deem to be in their best
interest and may tend to perpetuate existing management. See "Restrictions on
Acquisition of the Company and the Bank--Restrictions in the Company's
Certificate of Incorporation and Bylaws."

ABSENCE OF MARKET FOR COMMON STOCK

The Company and the Bank have never issued capital stock. The Company has
received conditional approval from the NASD to have its Common Stock approved
for quotation on The Nasdaq Stock Market under the symbol "DIME" upon
completion of the Conversion. One of the requirements for continued quotation
of the Common Stock on The Nasdaq Stock Market is that at least two market
makers make a market in the Common Stock. The Company will seek to encourage
and assist at least two market makers to make a market in its Common Stock.
Sandler O'Neill has advised the Company that it intends to make a market in
the Common Stock following the completion of the Conversion, but is under no
obligation to do so. While the Company anticipates that there will be other
broker-dealers to act as market maker for the Common Stock, there can be no
assurance that there will be two or more market makers for the Common Stock.

Making a market in securities involves maintaining bid and asked quotations
and being able, as principal, to effect transactions in reasonable quantities
at those quoted prices, subject to various securities laws and other
regulatory requirements. The development of a public trading market depends
upon the existence of willing buyers and sellers, the presence of which is not
within the control of the Company, the Bank, or any market maker. Accordingly,
there can be no assurance that an active and liquid trading market for the
Common Stock

32
<PAGE>

will develop, or, once developed, will continue, nor can there be any
assurances that purchasers of the Common Stock will be able to sell their
shares at or above the Purchase Price. The absence or discontinuance of a
market for the Common Stock may have an adverse impact on both the price and
liquidity of the Common Stock. See "Market for the Common Stock."

POSSIBLE INCREASE IN ESTIMATED PRICE RANGE AND NUMBER OF SHARES ISSUED

The number of shares to be sold in the Conversion may be increased as a
result of an increase in the Estimated Price Range of up to 15% to reflect
changes in market and financial conditions following the commencement of the
Subscription and Community Offerings. In the event that the Estimated Price
Range is so increased, it is expected that the Company will issue up to
14,547,500 shares of Common Stock at the Purchase Price for aggregate proceeds
of up to $145.5 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 the Company'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 DILUTIVE EFFECT OF STOCK OPTIONS AND STOCK PROGRAMS

An amount equal to 10% of the Common Stock issued in the Conversion will be
reserved for issuance under the Stock Option Plans. If all of the options were
to be exercised using authorized but unissued Common Stock, the voting
interests of existing shareholders would be diluted by approximately 9.1% and,
assuming that all options were granted at the Purchase Price, the effect on
pro forma net earnings per share and stockholders' equity per share would be
as set forth under "Pro Forma Data." Also, following the Conversion, the Stock
Programs, if approved by the shareholders of the Company, will acquire up to
4% of the shares of Common Stock issued in the Conversion, either through open
market purchases, if permitted, or from the issuance of authorized but
unissued shares. If the Stock Programs are funded by the issuance of
authorized but unissued shares, the interests of existing shareholders would
be diluted by approximately 3.85%. See "Pro Forma Data" for the effect on pro
forma net earnings per share and stockholders' equity per share. If the Stock
Programs are funded by open market purchases, the voting interests of existing
shareholders would not be diluted and assuming that the shares were acquired
at the Purchase Price, the effect on pro forma net earnings per share and
stockholders' equity per share would be as set forth under "Pro Forma Data."
The Company may, but is not required to, issue additional shares of Common
Stock to the 401(k) Plan to fund the employer matching contributions to the
401(k) Plan or to implement the investment instructions of participants. The
issuance of such additional shares would have a dilutive effect on net
earnings per share and stockholders' equity per share. The number of shares
which might be issued cannot be determined and the dilutive effect cannot be
quantified.

POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION
RIGHTS

The Bank has received an opinion from RP Financial that subscription rights
granted to Eligible Account Holders, Supplemental Eligible Account Holders and
Other Members have no value. However, this opinion is not binding on the
Internal Revenue Service ("IRS"). If the subscription rights granted to
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members are deemed to have an ascertainable value, receipt of such rights
would probably be taxable only to those Eligible Account Holders, Supplemental
Eligible Account Holders or Other Members who exercise the subscription rights
(either as capital gain or ordinary income) in an amount equal to such value.
Additionally, the Bank could recognize a gain for tax purposes on such
distribution. Whether subscription rights are considered to have ascertainable
value is an inherently factual determination. See "The Conversion--Effects of
Conversion" and "--Effects of Conversion--Tax Aspects."

RECAPITALIZATION OF SAIF, SAIF PREMIUMS AND PROPOSED BIF PREMIUMS

The Bank is a member of the BIF of the FDIC, and the Bank pays most of its
deposit insurance assessments to the BIF of the FDIC. The FDIC also maintains
another insurance fund, the Savings Association Insurance Fund ("SAIF"), which
primarily insures the deposits of savings and loan associations. The SAIF also
insures

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the deposits acquired by a BIF-insured institution from a SAIF-insured
institution. Accordingly, with the consummation of the Acquisition, the Bank
will acquire the Pioneer deposits, which totaled approximately $394.0 million
at December 31, 1995, and the Bank will be required to pay SAIF premiums with
respect to the Pioneer deposits. In addition, the Bank has $39.3 million of
deposits from a prior branch acquisition on which the Bank is required to pay
SAIF premiums ("Oakar Deposits").

Applicable law requires that both the SAIF and the BIF be recapitalized to a
ratio of 1.25% of reserves to deposits. The BIF achieved the 1.25% reserve
ratio in May 1995, but the SAIF, absent changes in the law, as described
below, is not expected to be recapitalized until 2002. SAIF reserves have not
grown as quickly as the BIF reserves due to a number of factors, including the
fact that a significant portion of SAIF premiums have been and are currently
being used to make payments on bonds ("FICO bonds") issued in the late 1980s
by the Financing Corporation to recapitalize the now defunct Federal Savings
and Loan Insurance Corporation.

For the first three quarters of 1995, both BIF-member institutions and SAIF-
member institutions paid deposit insurance premiums based on assessment rates
ranging from $0.23 to $0.31 per $100 of deposits. In August 1995, the FDIC, in
recognition of the BIF's achievement of the 1.25% reserve ratio, reduced the
deposit insurance premium rates paid by BIF-insured banks to a range of $0.04
to $0.31 per $100 of deposits. The new rate schedule for the BIF was made
effective June 1, 1995. The FDIC refunded to BIF-insured institutions the
premiums they had paid for the period beginning on June 1, 1995, and the Bank
received $319,000 during September, 1995. On November 14, 1995, the FDIC voted
to reduce annual assessments for BIF-insured institutions for the semi-annual
period beginning January 1, 1996, to the legal minimum of $2,000, except for
institutions that are not well capitalized or that are assigned to the higher
supervisory risk categories. The FDIC estimated that 92% of the BIF-insured
institutions will pay only the minimum annual assessment.

Given the undercapitalized status of the SAIF, the FDIC will continue the
range of assessment rates of $0.23 to $0.31 per $100 of deposits for SAIF-
insured institutions and for BIF-insured institutions required to pay SAIF
premiums with respect to SAIF deposits. As a result of the BIF premium
reduction, institutions that are required to pay SAIF premiums, such as the
Bank with respect to the Oakar Deposits and the Pioneer deposits upon
consummation of the Acquisition, are likely to be subject to a competitive
disadvantage relative to institutions with only BIF-insured deposits, subject
to the adoption of legislation to remedy the disparity, as described below.
The FDIC has recognized that the disparity may have adverse consequences for
SAIF-insured institutions, including reduced earnings and an impaired ability
to raise funds in capital markets and to attract deposits.

The proposed Balanced Budget Act of 1995 ("Budget Act"), which was approved
by the Congress but vetoed by the President, included provisions that focused
on a recapitalization of the SAIF. Under the provisions of the Budget Act, all
SAIF-insured institutions would have paid a special assessment to recapitalize
the SAIF, and the assessment base for the payments on the FICO bonds would
have been expanded to include the deposits of both BIF- and SAIF-insured
institutions. The amount of the special assessment required to recapitalize
the SAIF was then estimated to be approximately 80 basis points of the SAIF-
assessable deposits. This estimate of the special assessment was less than the
special assessment of 85 to 90 basis points that had been previously
estimated. The special assessment would have been imposed as of the first
business day of January 1996 or on such other date prescribed by the FDIC not
later than 60 days after enactment of the Budget Act, based on the amount of
SAIF deposits on March 31, 1995. In that event, Pioneer would pay the amount
of any special SAIF assessment imposed before the Bank acquires such deposits.
If an 80 basis point assessment were assessed against the Pioneer Deposits as
of March 31, 1995, Pioneer's aggregate SAIF assessment would be approximately
$2.8 million, on a pre-tax basis. Additionally, the Bank will be obligated to
pay an assessment of approximately $239,000, on a pre-tax basis on its Oakar
Deposits, which are related to the prior acquisition of its Avenue M, Brooklyn
Branch. The Budget Act would have also provided that the BIF could not assess
regular insurance assessments unless required to maintain or to achieve the
designated reserve ratio of 1.25% or such higher ratio found by the FDIC to be
justified because of a significant risk of losses, except on those of its
member institutions that are not classified as "well capitalized" or that have
been found to have "moderately severe" or "unsatisfactory" financial,
operational or compliance weaknesses. The Bank has not been so classified by
the FDIC or the OTS. Accordingly, assuming that

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<PAGE>

any legislation as described above is adopted and that the BIF maintains the
designated reserve ratio, the Bank would have to pay substantially lower
regular assessments on its BIF deposits compared to SAIF deposits, as long as
the Bank maintained its regulatory status.

The Budget Act also provided for the merger of the BIF and SAIF on January
1, 1998, with such merger being conditioned upon the prior elimination of the
thrift charter. Congressional leaders had also agreed that Congress should
consider and act upon separate legislation to eliminate the thrift charter as
early as possible in 1996. If adopted, such legislation would require that the
Bank, as a federal savings bank, convert to a bank charter. See "--Financial
Institution Regulation and Possible Legislation."

The veto of the Budget Act by the President was not based on the above
described provisions of the Budget Act, and Congressional leaders have
indicated that these provisions will be the basis for any future legislation
to recapitalize the SAIF. In February 1996, representatives of the FDIC, the
OTS and the Treasury Department stated to Congress that, unless Congress
adopts legislation to strengthen the SAIF, SAIF's current problems could
result in an erosion of the SAIF deposit base, could cause a default on the
FICO bonds, and could leave the SAIF unable to meet its obligations to insured
depositors.

If enacted by Congress, legislation to recapitalize the SAIF as proposed in
the Budget Act would have the effect of reducing the capital of SAIF member
institutions by the after-tax cost of the special SAIF assessment. The
legislation would also have the effect of reducing any differential that may
otherwise be required in the assessment rates for the BIF and SAIF.

Management cannot predict whether the above legislation or any other
legislative proposal will be enacted as described above or, if enacted, the
amount of any special SAIF assessment, whether ongoing SAIF premiums will be
reduced to a level equal to that of BIF premiums or whether, if thrifts are
required to convert to a bank charter, there will be any relief from the
additional tax liabilities that would be incurred upon the recapture of their
bad debt reserves. It also cannot be predicted whether some other legislative
action will be taken to address the BIF/SAIF disparity and what consequences
such action could have for SAIF members. A significant increase in SAIF
insurance premiums, either absolutely or relative to BIF premiums or a
significant one-time fee to recapitalize the SAIF could have an adverse effect
on the operating expenses and results of operations of the Bank as a result of
the Acquisition. See "Regulation--Regulation of Federal Savings Associations--
Insurance of Deposit Accounts."

FINANCIAL INSTITUTION REGULATION AND POSSIBLE LEGISLATION

The Bank is subject to extensive regulation and supervision as a federal
savings bank. The regulatory authorities have extensive discretion in
connection with their supervision and enforcement activities and their
examination policies, including the imposition of restrictions on the
operation of a savings institution, the classification of assets by an
institution and the imposition of an increase in a savings institution's
allowance for loan losses. In addition, the Company, as a savings association
holding company, will be subject to extensive regulation and supervision. 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 Company, the Bank, its operations and the Bank's Conversion.

Congress has considered various proposals to consolidate and reorganize the
regulatory functions of the four federal banking agencies: the OTS, the FDIC,
the Office of the Comptroller of the Currency ("OCC") and the Board of
Governors of the Federal Reserve System. Legislation has also been introduced
that would limit the activities of unitary savings association holding
companies to those permitted to be engaged in by multiple savings association
holding companies. See "Regulation--Regulation of Holding Company." The
outcome of efforts to affect regulatory consolidation and reorganization and
to change the permitted activities of holding companies is uncertain.
Therefore, the Bank is unable to determine the extent to which such
legislation, if enacted, would affect its business.

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PENDING LEGISLATION REGARDING BAD DEBT RESERVES

Under section 593 of the Internal Revenue Code (the "Code"), thrift
institutions such as the Bank, which meet certain definitional tests,
primarily relating to their assets and the nature of their business, are
permitted to establish a tax reserve for bad debts and to make annual
additions thereto, which additions may, within specified limitations, be
deducted in arriving at their taxable income. The Bank's deduction with
respect to "qualifying loans," which are generally loans secured by certain
interests in real property, may currently be computed using an amount based on
the Bank's actual loss experience (the "Experience Method"), or a percentage
equal to 8.0% of the Bank's taxable income (the "PTI Method"), computed
without regard to this deduction and with additional modifications and reduced
by the amount of any permitted addition to the non-qualifying reserve. Similar
deductions for additions to the Bank's bad debt reserve are permitted under
the New York State Bank Franchise Tax and the New York City Banking
Corporation Tax; however, for purposes of these taxes, the effective allowable
percentage under the PTI method is 32% rather than 8%.

Under pending legislative proposals, section 593 of the Code would be
amended and the Bank would be unable to make additions to its tax bad debt
reserve, would be permitted to deduct bad debts only as they occur and would
additionally be required to recapture (that is, take into income) over a
multi-year period, beginning with the Bank's taxable year beginning on January
1, 1996, the excess of the balance of its bad debt reserves (other than the
supplemental reserve) as of December 31, 1995 over the balance of such
reserves as of December 31, 1987, or over a lesser amount if the Bank's loan
portfolio has decreased since December 31, 1987. However, such recapture
requirements would be suspended for each of two successive taxable years
beginning January 1, 1996 in which the Bank originates a minimum amount of
certain residential loans based upon the average of the principal amounts of
such loans made by the Bank during its six taxable years preceding January 1,
1996. In addition, if section 593 of the Code is so amended, the Bank may be
required for New York State and New York City tax purposes to include in its
entire net income the excess of its New York State and New York City reserves
for losses on qualifying real property loans over its reserve for losses on
such loans maintained for federal income tax purposes (the "Excess Reserves").
Accordingly, if the pending legislative proposals are enacted in their present
form, unless further legislation is adopted in New York, the Bank may be
required to take its Excess Reserves into income in computing its New York
State and City taxes for its taxable year beginning January 1, 1996. The
enactment of such legislation, in its present form, would result in aggregate
tax liability of $2.1 million associated with such recapture. Any such federal
and New York State and City tax liability resulting from the Bank's recapture
of its bad debt reserves, however, should not adversely affect the Bank's
results of operations, since deferred taxes of $1.8 million have previously
been provided for the tax liability for the Bank's post 1987 portion of the
tax bad debt reserve. Generally Accepted Accounting Principles have not
required that the difference resulting from the 1987 New York State and New
York City bad debt deduction in excess of the federal bad debt deduction be
reflected on the financial statements.

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<PAGE>

DIME COMMUNITY BANCORP, INC.

The Company was recently organized at the direction of the Board of
Directors of the Bank for the purpose of acquiring all of the capital stock to
be issued by the Bank in the Conversion. The Company has applied for approval
from the OTS to become a savings association holding company, and, as such,
will be subject to regulation by the OTS. See "The Conversion--General." After
completion of the Conversion, the Company will conduct business initially as a
unitary savings association holding company. See "Regulation--Regulation of
Holding Company." Upon consummation of the Conversion, the Company's assets
will consist of all of the outstanding shares of the Bank's capital stock
issued to the Company in the Conversion and no greater than 50% of the net
proceeds of the Offerings. The Company intends to use part of the retained net
proceeds to make a loan directly to the ESOP to enable the ESOP to purchase 8%
of the Common Stock in the Conversion. The Company will have no significant
liabilities. See "Use of Proceeds." The management of the Company is set forth
under "Management of the Company." Initially, the Company will neither own nor
lease any property, but will instead use the premises and equipment of the
Bank. At the present time, the Company does not intend to employ any persons
other than officers, but will utilize the support staff of the Bank from time
to time. Additional employees will be hired as appropriate to the extent the
Company expands its business in the future.

Management believes that the holding company structure will provide the
Company with additional flexibility to diversify its business activities,
should it decide to do so, through existing or newly-formed subsidiaries, or
through acquisitions of other financial institutions and financial services
related companies. Although there are no current arrangements, understandings
or agreements, written or oral, regarding any such opportunities or
transactions other than the Acquisition, the Company will be in a position
after the Conversion, subject to regulatory limitations and the Company's
financial position, to take advantage of any such acquisition and expansion
opportunities that may arise. The initial activities of the Company are
anticipated to be funded by the proceeds retained by the Company and earnings
thereon or, alternatively, through dividends from the Bank. For a description
of the Acquisition, see "Acquisition of Conestoga Bancorp, Inc."

The Company's office is located at the main office of the Bank at 209
Havemeyer Street, Brooklyn, New York 11211. The Company's telephone number is
(718) 782-6200.

THE DIME SAVINGS BANK OF WILLIAMSBURGH

The Dime Savings Bank of Williamsburgh was originally founded in 1864 as a
New York State-chartered mutual savings bank. On November 1, 1995 the Bank
converted to a federally chartered mutual savings bank. The Bank has been, and
intends to continue to be, a community-oriented financial institution
providing financial services and loans for housing within its market areas.
The Bank maintains headquarters in the Williamsburgh section of the borough of
Brooklyn. Six additional offices are located in the boroughs of Brooklyn,
Queens, and the Bronx, and in Nassau County. The Bank gathers deposits
primarily from the communities and neighborhoods in close proximity to its
branches. The Bank's delineated lending area is larger, and includes much of
New York City and Nassau County. Most of the Bank's mortgages are secured by
properties located in its delineated lending area.

The Bank's principal business has been, and continues to be, gathering
deposits from customers within its market area, and investing those deposits
primarily in multi-family and one- to four-family residential mortgage loans,
mortgage-backed securities, and obligations of the U.S. Government and U.S.
Government sponsored enterprises ("GSEs"). At December 31, 1995, the Bank had
total assets of $665.2 million, total deposits of $557.1 million and equity of
$80.3 million. The Bank's deposits are insured up to the maximum allowable
amount by the BIF of the FDIC. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business of the Bank."

The Bank is subject to extensive regulation, supervision and examination by
the OTS, its primary regulator, and the FDIC, which insures its deposits. As
of December 31, 1995, the Bank exceeded all regulatory capital requirements
with tangible, core and risk-based capital ratios of 11.97%, 11.99% and
22.31%, respectively.

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<PAGE>

Additionally, the Bank's regulatory capital was in excess of the amount
necessary to be "well-capitalized" under the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"). See "Regulation--Regulation of
Federal Savings Associations." It is a member of the FHLBNY, which is one of
the twelve regional banks which comprise the Federal Home Loan Bank system.

The Bank's main office is located at 209 Havemeyer Street, Brooklyn, New
York 11211. The Bank's telephone number is (718) 782-6200.

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<PAGE>

ACQUISITION OF CONESTOGA BANCORP, INC.

GENERAL

On November 2, 1995, the Bank entered into an Agreement and Plan of Merger
with Conestoga pursuant to which Conestoga and its wholly-owned financial
institution subsidiary, Pioneer, will be acquired by the Bank. The Merger
Agreement provides that each share of Conestoga Common Stock outstanding as of
the effective time of the Merger (other than shares held as treasury stock,
unallocated shares held by Conestoga's Recognition and Retention Plans and
Trusts and any shares as to which dissenters' rights may be exercised under
applicable law) will be converted into the right to receive $21.25 in cash
without interest. In the event the transaction is not completed on or prior to
May 31, 1996, the Bank will increase the Merger Consideration by $0.07 per
share for each month, pro rated on a daily basis, commencing on June 1, 1996
until completion of the transaction. Employee and director holders of stock
options granted by Conestoga will receive cash in an amount equal to the
difference between $21.25 and the per share exercise price for each share of
Conestoga Common Stock subject to an option multiplied by the number of shares
of Conestoga Common Stock for which such option is exercisable, for aggregate
consideration of $4.2 million. Based on the total number of shares of
Conestoga Common Stock outstanding as of December 31, 1995 and the
consideration to be paid in respect of options on Conestoga's Common Stock
outstanding on that date, the Bank estimates that total cash consideration to
be paid to Conestoga's shareholders and option holders in the Acquisition will
be approximately $104.8 million, exclusive of any adjustment to the Merger
Consideration.

Conestoga is the holding company for Pioneer, which is subject to the
regulation of the OTS and the FDIC. Conestoga does not transact any material
business other than through its subsidiary, Pioneer. Pioneer's principal
business is attracting retail deposits from the general public and investing
those deposits, together with funds generated from operations, principal
repayments and borrowings, primarily in one- to four-family, owner-occupied,
residential mortgage loans and, to a lesser extent, consumer loans. In
addition, Pioneer invests in mortgage-backed and mortgage-related securities,
securities issued by the U.S. Government and agencies thereof, corporate
securities and other investments permitted by applicable laws and regulations.
Pioneer also invests to a limited extent in non-residential real estate loans
and construction and land loans. Pioneer's revenues are derived primarily from
interest on its mortgage loan and mortgage-backed and mortgage-related
securities portfolios and interest and dividends on its investment securities
portfolio. Pioneer's primary sources of funds are deposits, principal and
interest payments on loans, mortgage-backed and mortgage-related securities
and investment securities.

Pioneer has been, and continues to be, a community oriented savings
institution offering traditional deposit and lending products to the
communities it serves. Pioneer's deposit gathering and lending markets are
primarily concentrated in the communities surrounding its full service offices
in Kings, Queens, and Nassau Counties and, to a lesser extent, parts of
Suffolk and Westchester Counties, all of which are in the New York City
metropolitan area. See "Business of Conestoga."

REASONS FOR THE ACQUISITION

The Acquisition will enable the Bank to expand its banking services in
certain communities it currently serves (primarily Kings and Queens Counties
in New York City and southern Nassau County) and certain nearby communities it
does not currently serve (primarily northern Nassau County). Completion of the
Acquisition is expected to increase the Bank's deposit base and its one- to
four-family loan portfolio. In addition, the Acquisition in combination with
the Conversion will permit the Bank to put to use a significant portion of its
capital, with the Bank continuing to qualify as a "well capitalized"
institution for regulatory purposes. The

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<PAGE>

Acquisition is also expected to reduce the pressure to leverage the Bank's
balance sheet that typically exists when a "well capitalized" institution
engages in a standard conversion transaction. See "Unaudited Pro Forma
Condensed Combined Financial Statements" and "Regulatory Capital Compliance."

The Acquisition will facilitate a key step in the execution of the Bank's
management strategy; that is, to increase market share in the Bank's service
area through the acquisition or purchase of deposits. The combination of the
Bank and Pioneer will provide depositors of both with convenient access to
their accounts by increasing the number of branches available in the Bank's
market area. Accordingly, the Conversion is contingent upon the satisfaction
or waiver of each of the conditions to the Acquisition (except as to the
Conversion). In the event that such conditions are not satisfied or waived,
the Company will terminate the Offerings and return promptly, with interest,
all funds submitted.

CLOSING

The closing of the Acquisition will take place on such date and at such time
as the Bank reasonably selects after the expiration of all applicable waiting
periods in connection with the approval of governmental authorities and after
all other conditions to the consummation of the Merger Agreement are satisfied
or waived. The Bank expects such closing will occur immediately after the
closing for the Conversion. The "Effective Date" of the Acquisition will be
the date on which articles of merger, in the form prescribed by the OTS and
executed in accordance with all appropriate legal requirements, are filed as
required by law. The "Effective Time" of the Acquisition shall be the time on
the Effective Date as set forth in such articles of merger.

CONDITIONS TO THE ACQUISITION

Consummation of the Acquisition is subject to various conditions. While it
is anticipated that all such conditions will be satisfied there can be no
assurance that all of such conditions will indeed be satisfied or waived.

Conditions to Each Party's Obligations. The respective obligations of each
party to effect the Acquisition subject to the fulfillment at or prior to the
Effective Time of the following conditions, none of which may be waived, are
(i) the Merger Agreement shall have been approved by the requisite vote of the
holders of Conestoga Common Stock in accordance with applicable law; (ii) all
necessary regulatory or governmental approvals, consents or waivers required
to consummate the Acquisition shall have been obtained and shall remain in
full force and effect and all statutory waiting periods in respect thereof
shall have expired; (iii) none of the regulatory or governmental approvals,
consents or waivers required to consummate the Acquisition shall, when
received, contain any condition which would, or would be reasonably likely to,
have a material adverse effect on the Bank; and (iv) no party to the Merger
Agreement shall be subject to any order, decree or injunction of a court or
agency of competent jurisdiction which enjoins or prohibits the consummation
of the Acquisition.

Stockholders of Conestoga approved the Merger Agreement at a special meeting
held on March 22, 1996.

Conditions to the Obligations of the Bank. The obligations of the Bank to
effect the Acquisition are further subject to the satisfaction at or prior to
the Effective Time of the following conditions, any one or more of which may
be waived by the Bank: (i) each of the obligations of Conestoga required to be
performed by it at or prior to the Closing pursuant to the terms of the Merger
Agreement shall have been duly performed and complied with in all material
respects; (ii) the representations and warranties of Conestoga contained in
the Merger Agreement shall be true and correct in all material respects as of
the date of the Merger Agreement and as of the Effective Time (as though made
at and as of the Effective Time except as to any representation or warranty
which specifically relates to an earlier date); and (iii) the Bank shall have
received various certificates of Conestoga's officers and opinions of counsel
and other documents.

In addition, the obligations of the Bank to effect the Acquisition are also
subject to the Bank having received subscription and purchase orders to
purchase the Common Stock sufficient to complete the Conversion and the

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<PAGE>

Bank shall have received the final approval of the OTS with respect to the
Appraisal and such other approvals of the OTS as may be required to complete
the Conversion.

Conditions to the Obligations of Conestoga. The obligations of Conestoga to
effect the Acquisition are further subject to the satisfaction at or prior to
the Effective Time of the following conditions, any one or more of which may
be waived by Conestoga: (i) each of the obligations of the Bank required to be
performed by it at or prior to the Closing pursuant to the terms of the Merger
Agreement shall have been duly performed and complied with in all material
respects; (ii) the representations and warranties of the Bank contained in the
Merger Agreement shall be true and correct in all material respects as of the
date of the Merger Agreement and as of the Effective Time (as though made at
and as of the Effective Time except as to any representation or warranty which
specifically relates to an earlier date); and (iii) Conestoga shall have
received various certificates of the Bank's officers, opinions of counsel and
other documents.

Representations and Warranties. Conestoga, on the one hand, and the Bank, on
the other hand, have made certain representations and warranties to each other
in the Merger Agreement as to, among other things, the authorization,
validity, binding effect and enforceability of the Merger Agreement, various
corporate matters, capital structure, compliance with laws, absence of
material adverse changes, absence of certain legal proceedings and regulatory
actions and certain fees payable in connection with the proposed transactions.
Conestoga has also made certain representations and warranties to the Bank
with respect to, among other things, taxes, labor matters, its employee
benefit plans and agreements, title to its assets, environmental matters, its
allowances for possible loan losses, its material contracts, its insurance,
its investment securities, its books and records and certain other matters.
The Bank has also made representations and warranties to Conestoga that on the
date of the Merger Agreement they had, and on the Closing Date they will have,
access to all funds necessary to consummate the Acquisition and pay the
aggregate Merger Consideration. Certain of the representations and warranties
of the parties, the accuracy of which is a condition to the closing of the
transactions contemplated by the Merger Agreement, contain exceptions for any
condition, event, change or occurrence that would not have a material adverse
effect on the party making such representation or warranty. The
representations and warranties of the parties do not survive beyond the
Effective Time if the Acquisition is consummated, and, if the Merger Agreement
is terminated without consummation of the Acquisition, there will be no
liability on the part of any party for a misrepresentation except that no
party shall be relieved from any liability arising out of the willful
misrepresentation in the Merger Agreement.

CONDUCT PENDING THE ACQUISITION

Pursuant to the Merger Agreement, Conestoga has agreed that during the
period from the date of the Merger Agreement to the Effective Time (except as
expressly provided in the Merger Agreement and except to the extent required
by law or regulation or by regulatory authorities), Conestoga shall and shall
cause Pioneer to (i) conduct its business in the usual, regular and ordinary
course consistent with prudent banking practice, (ii) use its reasonable
efforts to maintain and preserve intact its business organization, properties,
leases, employees and advantageous business relationships and retain the
services of its officers and key employees, (iii) not knowingly take any
action which would materially adversely affect or delay the ability of
Conestoga, Pioneer or the Bank to obtain any necessary approvals, consents or
waivers of any governmental authority required for the transactions
contemplated by the Merger Agreement (or which would reasonably be expected to
result in any such approval, consent or waiver containing any material
conditions or restrictions), and (v) not knowingly take any action that
results in or is reasonably likely to have a material adverse effect on
Conestoga or Pioneer.

Conestoga has also agreed to use reasonable good faith efforts to consult
with the Bank (but shall not have to obtain the approval of the Bank) during
the period from the date of the Merger Agreement to the Effective Time before
engaging in any transactions with respect to Conestoga's portfolio of
securities or in any structured transactions, derivative securities,
arbitrage, hedging or borrowing activity.

Conestoga has also agreed that, beginning on the business day immediately
following any date by which Conestoga's stockholders approve the Merger
Agreement and all regulatory approvals for the Acquisition and

41
<PAGE>

the Conversion are received, Conestoga will use reasonable good faith efforts
to use its excess cash flows (after payment of operating expenses) to repay
then existing borrowings (but not deposits), but Conestoga will not be
required to take any such action that would violate or not comply with
applicable law or regulation or subject Conestoga to adverse regulatory
action.

After the date on which all required stockholder approvals, federal
depository institution regulatory approvals (other than the applicable waiting
period) and other approvals are received with respect to the Acquisition and
the Conversion and prior to the Effective Time, at the request of the Bank,
Conestoga will modify and change its loan, litigation and real estate
valuation policies and practices (including loan classifications, levels of
reserves and tax effects thereof) and investment and asset/liability
management policies and practices so as to be consistent on a mutually
satisfactory basis with those of the Bank and generally accepted accounting
principles; provided, that such policies and procedures (a) are consistent
with all applicable laws and regulations and (b) do not violate any law or
regulation or cause Conestoga to be other than "well-capitalized" as defined
by the OTS.

In addition, pursuant to the Merger Agreement, during the period from the
date of the Merger Agreement to the Effective Time (except as otherwise
specifically provided in the Merger Agreement and except to the extent
required by law or regulation or by regulatory authorities) Conestoga shall
not, and shall not permit Pioneer to, without the prior written consent of the
Bank, take certain actions, including to:

(1) amend Conestoga's or the Bank's Certificate of Incorporation, charter
or bylaws;

(2) issue any shares of capital stock except for (i) the exercise of stock
options, or (ii) the stock option Agreement between the Bank and
Conestoga, dated November 2, 1995;

(3) declare or pay any dividend (except for payment of the quarterly cash
dividend of $.10 per share declared on October 11, 1995);

(4) other than in the ordinary course of business, sell, transfer,
mortgage, encumber or otherwise dispose of any material properties,
leases or assets;

(5) increase the compensation or fringe benefits of any employee or
director, except for general salary increases not to exceed 4% in the
aggregate, payment of bonus for calendar year 1995 not to exceed
$174,000 and payment of bonuses for calendar year 1996 not to exceed
$45,125 per quarter; or hire any new employees with an annual
compensation in excess of $50,000;

(6) except as contemplated by the Agreement or as required by certain
accounting standards, change Conestoga's method of accounting;

(7) make any individual investment of more than $50,000 by purchase of
stock or security of any individual, corporation or other entity;

(8) make any investment in any mortgage backed security or debt security
in individual amounts exceeding $1.0 million;

(9) enter into, terminate or revise any contract or agreement in excess of
$50,000;

(10) settle any claim, action or proceeding for money damages in excess of
$50,000 or which materially restricts the operations of Conestoga;

(11) make, renegotiate, renew, increase, extend or purchase any loan,
lease, advance, credit enhancement or extension of credit except
loans, advances or commitments made in accordance with generally
established underwriting guidelines in amounts not in excess of
$500,000 to an individual borrower or $3.0 million in the aggregate
with respect to fixed-rate loans and $25 million in the aggregate with
respect to residential mortgage loans with interest rates that adjust
no more than annually;

(12) make any new capital expenditure in excess of $50,000;

(13) make any new real estate loan secured by undeveloped land or real
estate located outside the State of New York or make any construction
loan;

(14) establish any new branch.

42
<PAGE>

Pursuant to the Merger Agreement, during the period from the date of the
Merger Agreement to the Effective Time, the Bank shall not, except as
expressly provided in the Merger Agreement, (i) knowingly take any action that
would materially adversely affect the ability of the Bank to perform its
covenants and agreements under the Merger Agreement or to consummate the
transactions contemplated by the Merger Agreement or (ii) knowingly take any
action which would materially adversely affect or delay the ability of the
Bank or Conestoga to obtain any necessary approvals, consents or waivers of
any governmental authority required for the transactions contemplated by the
Merger Agreement.

NO SOLICITATION OF ALTERNATIVE TRANSACTIONS

Conestoga has agreed that neither it nor any of its subsidiaries nor any of
their respective officers and directors shall, and Conestoga will direct and
use its best efforts to cause its employees, agents and representatives not
to, initiate, solicit, or knowingly encourage, directly or indirectly, any
inquiries or the making of any alternative proposal or offer (including,
without limitation, any proposal or offer to stockholders of Conestoga) with
respect to a merger, consolidation or similar transaction involving, or any
purchase of all or any significant portion of the assets, or any equity
securities of, Conestoga or any of its subsidiaries (any such proposal or
offer, an "Acquisition Proposal"). In addition, Conestoga may not engage in
any negotiations concerning, or provide any confidential information or data
to, or have any discussions with, any person relating to an Acquisition
Proposal, or otherwise facilitate or attempt to make or implement an
Acquisition Proposal except to the extent Conestoga's Board, after
consultation with its counsel and other advisors, determines in good faith
that such actions are necessary for the Board of Directors to exercise its
fiduciary duties. Conestoga has agreed to cease and terminate any existing
activities, discussions or negotiations with any party (other than Dime)
previously conducted regarding an Acquisition Proposal, and has informed the
appropriate individuals or entities of its obligation to cease such
activities. Conestoga has agreed to notify Dime immediately if any such
inquiries, proposals or offers are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with Conestoga or its subsidiaries.

EXPENSES

The Merger Agreement provides, in general, that Conestoga and the Bank will
each pay its own expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby, including fees and expenses of its
financial or other consultants, investments banks, accountants and counsel.

AMENDMENT AND WAIVER

Prior to the Effective Time any provision of the Merger Agreement may be
waived in writing by the party benefited by the provision. Additionally, the
Merger Agreement may be amended at any time by agreement in writing by
Conestoga and the Bank, except that no amendment may be made that would
contravene Delaware law or the rules and regulations of the OTS. Any amendment
or waiver will need to be further approved by the stockholders of Conestoga if
such amendment or waiver (i) alters or changes the Merger Consideration, (ii)
alters or changes the certificate of incorporation of the surviving
corporation of the Acquisition or (iii) alters or changes the Merger Agreement
in a manner that will adversely affect the stockholders of Conestoga.

TERMINATION OF THE MERGER AGREEMENT

The Merger Agreement may be terminated prior to the Effective Date either
before or after its approval by the stockholders of Conestoga: (i) by the
mutual consent of Conestoga and the Bank, determined by a vote of a majority
of the members of the board of directors of each of them; (ii) by Conestoga or
the Bank, if the party seeking to terminate so determines by vote of a
majority of the members of its entire board, in the event of (a) failure of
Conestoga's shareholders to approve the Merger Agreement; (b) a material
failure to perform or comply by the other party with any covenant or agreement
which failure has not been timely cured after notice; or (c) any material
inaccuracy or omission in the representations or warranties of the other party
which has not been timely cured after notice; (iii) by Conestoga or the Bank
if any approval, consent or waiver of a

43
<PAGE>

governmental authority required to permit consummation of the transactions
shall have been denied or any governmental authority of competent jurisdiction
shall have issued a final, unappealable order prohibiting consummation of the
transactions contemplated by the Merger Agreement; (iv) by Conestoga or the
Bank, if the board of directors of the party seeking to terminate so
determines by vote of a majority of the members of its entire board of
directors, in the event that the Merger is not consummated by August 31, 1996;
and (v) by the Bank in the event that there has occurred an event, condition,
change or occurrence which, individually or in the aggregate, has or might
reasonably be expected to result in a material adverse effect on Conestoga and
which shall not have been remedied after notice.

In the event of the termination of the Merger Agreement, as provided above,
the Merger Agreement shall thereafter become void and have no effect, and
there shall be no liability on the part of any party to the Merger Agreement
or their respective officers or directors, except that (i) certain provisions
regarding confidential information and expenses shall survive and remain in
full force and effect; (ii) no party shall be relieved from any liability
arising out of the willful breach by such party of any covenant or agreement
of it or the willful and material misrepresentation in the Merger Agreement of
any fact actually known to its senior officers; and (iii) if the transaction
is terminated and such termination is due to the failure to complete all
material actions necessary to complete the Conversion or the Bank is otherwise
unwilling or unable to complete the Acquisition by August 31, 1996 (unless
such failure or inability is due to certain actions or inactions by
Conestoga), then the Bank shall pay to Conestoga the sum of $8.5 million.

TERMINATION FEE

In recognition of the efforts and expenses of, and other opportunities
foregone by the Bank while structuring the Acquisition, the Merger Agreement
provides that Conestoga shall, except as described below, pay to the Bank a
termination fee of $4.5 million in cash (the "Termination Fee") on demand if,
during a period of twenty-four (24) months after the date of the Merger
Agreement but prior to termination of the Merger Agreement, the Acquisition
has not been completed and any of the following has occurred:

(i) Any person other than the Bank or an affiliate of the Bank acquires
beneficial ownership of 25% or more of the then outstanding Conestoga
Common Stock;

(ii) Conestoga or Pioneer, without having received the Bank's prior written
consent, enters into an agreement to engage in a merger or
consolidation (except any internal merger or consolidation involving
only Conestoga and/or Pioneer) involving Conestoga, an acquisition of
all or substantially all of Conestoga's assets or an acquisition of
securities representing 25% or more of the voting power of Conestoga
(any of the foregoing an "Acquisition Transaction") with any person
other than the Bank or Conestoga's Board of Directors recommends that
the shareholders of Conestoga approve or accept any Acquisition
Transaction with any person other than the Bank or any of its
subsidiaries; or

(iii) If a bona fide proposal is made by a third party to Conestoga or its
shareholders to engage in an Acquisition Transaction and after such
proposal is made: (a) Conestoga willfully breaches any covenant or
obligation contained in the Merger Agreement and such breach entitles
the Bank to terminate the Merger Agreement; (b) the holders of
Conestoga Common Stock do not approve the Merger Agreement; (c) if
Conestoga's shareholders meeting is not held or is cancelled prior to
termination of the Merger Agreement for reasons other than the fault
of the Bank; or (d) Conestoga's Board of Directors withdraws or
modifies in a manner adverse to the Bank the recommendation of the
Conestoga Board of Directors with respect to the Merger Agreement.

However, notwithstanding the foregoing, the Termination Fee will not be
payable if Conestoga validly terminates the Merger Agreement due to a material
failure by the Bank to perform or comply with any covenant or agreement of the
Bank or a material breach by the Bank of any representation or warranty or in
either case which is not timely cured after written notice.

TAX CONSEQUENCES OF THE ACQUISITION

For income tax purposes, the Acquisition will be treated as a purchase by
Dime of the shares of Conestoga directly from the Conestoga shareholders.
Accordingly, each Conestoga stockholder will realize a gain or a loss

44
<PAGE>

equal to the difference between the purchase price and such stockholder's tax
basis in the shares sold. None of Dime, Conestoga or Pioneer will realize a
gain or loss upon the liquidation of Conestoga or by reason of the merger of
Dime and Pioneer. After the liquidation of Conestoga and the merger of Dime
and Pioneer, Dime will succeed to the tax attributes of Conestoga and Pioneer
except that Dime will not succeed to any net operating loss carryovers.

The Acquisition will cause the basis of Pioneer's assets to remain unchanged
in the hands of Dime, unless Dime makes an election to treat the transaction
as a purchase of assets rather than as a stock purchase. In such case the tax
basis of the acquired assets would be "stepped-up" to include any premium paid
for the Conestoga stock over the book value of the assets.

In addition, because Pioneer owns interests in real property, the
Acquisition could result in tax liability under the New York State Real
Property Transfer Gains Tax and will result in tax liability under New York
State Real Property Transfer Tax and the New York City Real Estate Transfer
Tax. Management believes, however, that it is unlikely that any such liability
will be material to the Bank's results of operations.

ACCOUNTING TREATMENT

The Bank will treat the Acquisition as a purchase for accounting purposes.

OPERATIONS AFTER THE ACQUISITION AND THE CONVERSION

At the Effective Time, Pioneer will ultimately merge with and into the Bank,
with the Bank being the surviving entity (the "Resulting Bank"). The Resulting
Bank will be a wholly owned subsidiary of Dime Community Bancorp, Inc. and
will be named "The Dime Savings Bank of Williamsburgh." All assets and
property (real, personal and mixed, tangible and intangible, choses in
actions, rights and credits) then owned by Pioneer shall immediately become
the property of the Resulting Bank. The Resulting Bank shall be deemed to be a
continuation of Pioneer, the rights and obligations of which shall succeed to
such rights and obligations and the duties and liabilities connected
therewith. The directors and officers of the Bank shall become the directors
and officers of the Resulting Bank. The Bank does not currently anticipate
closing any of Pioneer's or the Bank's branches following the Acquisition.

EFFECT ON EMPLOYEES, OFFICERS AND DIRECTORS OF PIONEER

Pursuant to the Merger Agreement, the Bank has agreed to use reasonable best
efforts consistent with prudent business practice to place or retain employees
of Pioneer after the Effective Time in positions for which they are qualified.
The Merger Agreement provides that officers and employees of Pioneer who
become employees of the Bank after the Acquisition will be entitled to
participate in certain of the Bank's employee benefit plans maintained
generally for the benefit of their employees. The Bank shall treat Pioneer's
employees who become employees of the Bank as new employees, but shall amend
its employee benefit plans to provide credit, for purposes of vesting and
eligibility to participants, for service with Pioneer to the extent that such
service was recognized for similar purposes under Pioneer's plans. Certain
members of Conestoga's management and the Conestoga Board may be deemed to
have certain interests in the Acquisition that are in addition to their
interests as stockholders of Conestoga generally. The provisions of certain
employment agreements, special termination agreements, stock option plans,
recognition and retention plans ("RRPs") and other employee or director
benefit plans will result in cash payments of approximately $10.1 million to
certain of Conestoga's officers and directors, including approximately $2.0
million payable under the RRPs included in the Merger Consideration. No
officer, employee or director of Conestoga or Pioneer has entered into any
agreement with Dime to continue in Dime's employ following consummation of the
Acquisition.

REGULATORY APPROVALS

The merger of Pioneer with and into the Bank, requires the approval of the
OTS. Applications were filed with the OTS for such approvals on or about
December 22, 1995 and, by letter dated April 30, 1996, such applications, as
amended and supplemented, were deemed "sufficient" by the OTS for the purpose
of evaluating the Acquisition. The OTS is required to evaluate the
applications by taking into consideration, among other things, the financial
and managerial resources and future prospects of the institutions involved,
the insurance risk to the BIF or the SAIF of the FDIC and the convenience and
needs of the community to be served. In addition,

45
<PAGE>

the OTS may not approve any proposed acquisition (i) which would result in a
monopoly or which would be in furtherance of any combination or conspiracy to
monopolize or to attempt to monopolize the savings and loan business in any
part of the United States or (ii) which in any section of the country may have
the effect of substantially lessening competition or tending to create a
monopoly or which in any other manner would be in restraint of trade, unless
the OTS finds that the anti-competitive effects of the proposed acquisition
are clearly outweighed in the public interest by the probable effect of the
acquisition in meeting the convenience and needs of the community to be
served. Under the Community Reinvestment Act of 1977 (the "CRA"), the OTS must
take into account the record of performance of the existing institutions in
meeting the credit needs of the entire community including low- and moderate-
income neighborhoods. The OTS also considers, among other things, the fairness
and disclosure of the plan (including compensation to officers, directors and
controlling persons of the disappearing association by the surviving
association), the justification, need for and compensation to be paid to any
advisory board, fees paid to each person or firm rendering legal or other
professional services in connection with a merger and the accounting treatment
of any goodwill in connection with a merger.

For a period of three years following the date of the completion of a
conversion from the mutual form of organization to the stock form of
organization, OTS regulations, among other things, prohibit any person from
acquiring beneficial ownership of more than 10% of any class of equity
security of a recently converted savings association without the prior written
approval of the OTS. Because Pioneer's conversion was completed on March 30,
1994, the Bank applied to the OTS for such approval in connection with the
applications described above as permitted by applicable OTS regulations. The
OTS may deny such an application if it finds that the proposed acquisition
would frustrate the purposes of the provisions of the relevant regulation,
would be manipulative or deceptive, would subvert the fairness of the
conversion, would be likely to result in injury to the converted savings
association, would not be consistent with economical home financing, would
otherwise be violative of law or regulation or would not contribute to the
prudent deployment of the converted savings association's conversion proceeds.

OTS approval is required in connection with the acquisition of Pioneer's
deposits, which are insured by the SAIF, by the Bank, the deposits of which
are insured by the BIF. See "Regulation--Regulation of Federal Savings
Associations--Insurance of Deposit Accounts."

Based on discussions with the OTS, management is not aware of any fact or
circumstance that would result in the transaction not receiving the requisite
regulatory approvals. There can be no assurance that all requisite approvals
will be obtained, that such approvals will be received on a timely basis or
that such approvals will not impose non-standard conditions that would cause a
failure to satisfy certain conditions to the obligations of the Bank. See "--
Conditions to the Acquisition."

There can likewise be no assurance that the United States Department of
Justice or the Attorney General of the State of New York will not challenge
the Acquisition, or if such challenge is made, as to the result thereof.

46
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following financial statements reflect the Acquisition of Conestoga by
the Bank and the conversion of the Bank from a federally chartered mutual
savings bank to a federally chartered stock savings bank. Pro forma
adjustments related to the condensed combined pro forma statements of
operations for the fiscal year ended June 30, 1995 and the six months ended
December 31, 1995 have been prepared assuming that the midpoint of the net
Conversion proceeds, after adjustments, of $93.8 million are received, and
both the Acquisition and the Conversion were consummated as of July 1, 1994,
and July 1, 1995, respectively. The condensed combined pro forma statement of
financial condition was prepared assuming both the Acquisition and the
Conversion were consummated on December 31, 1995.

The historical portion of the Unaudited Pro Forma Combined Statements of
Operations for the year ended June 30, 1995 have been derived from the
historical statements of operations of the Bank for the year ended June 30,
1995 and for Conestoga for the year ended March 31, 1995. The historical
portion of the Unaudited Pro Forma Combined Statements of Financial Condition
have been derived from the historical statements of financial condition of the
Bank and Conestoga as of December 31, 1995. The condensed combined pro forma
financial statements should be read in conjunction with the historical
combined financial statements of the Bank and Conestoga and the notes thereto
and the other financial information pertaining to the Bank and Conestoga
included elsewhere in this Prospectus.

The financial statements have been prepared under the purchase method of
accounting. Under purchase accounting, the acquired assets and liabilities of
Conestoga are recognized at their fair value as of the Effective Date.

The pro forma condensed combined financial statements do not purport to be
indicative of the financial position or operating results which would have
been achieved had both the Acquisition and the Conversion been consummated as
of the dates indicated and should not be construed as representative of future
financial position or operating results. The pro forma adjustments are based
upon available information and assumptions the Bank believes are reasonable
under the circumstances.

47
<PAGE>

<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF FINANCIAL CONDITION
---------------------------------------------------------------------------------
DECEMBER 31, 1995
---------------------------------------------------------------------------------
DIME SAVINGS BANK CONESTOGA TOTAL PURCHASE CONVERSION PRO-FORMA FOOTNOTE
OF WILLIAMSBURGH BANCORP, INC. ADJUSTMENTS ADJUSTMENTS COMBINED REFERENCES
----------------- ------------- -------------- ----------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and due from
banks................. $ 7,004 $ 6,012 $(102,195) $102,195 $ 13,016 (1)
Short term
investments........... 12,802 41,999 -- (8,435) 46,366 (1)
Investment securities
held to maturity...... 46,018 119,247 993 -- 166,258 (2)
Investment securities
available for sale.... 44,414 22,209 -- -- 66,623
Marketable equity
securities............ 2,993 -- -- -- 2,993
Mortgage-backed
securities held to
maturity.............. 54,286 128,086 1,837 -- 184,209 (2)
Mortgage-backed
securities available
for sale.............. 38,298 33,488 -- -- 71,786
Loans:
Real estate............ 436,825 114,758 2,145 -- 553,728 (3)
Other loans............ 3,779 1,384 -- -- 5,163
Less: Allowance for
loan losses........... 5,710 211 -- -- 5,921
-------- -------- --------- -------- ----------
Loans, net............. 434,894 115,931 2,145 -- 552,970 (3)
Loans held for sale.... 425 -- -- -- 425
Premises and fixed
assets................ 5,764 12,757 (3,701) -- 14,820 (4)
FHLB stock............. 4,801 2,681 -- -- 7,482
Other real estate
owned................. 1,907 264 -- -- 2,171
Goodwill............... -- -- 25,523 -- 25,523 (8)
Deferred tax........... 1,990 -- (915) -- 1,075 (7)
Other assets........... 9,591 5,741 -- -- 15,332
-------- -------- --------- -------- ----------
TOTAL ASSETS........... $665,187 $488,415 $ (76,313) $ 93,760 $1,171,049
======== ======== ========= ======== ==========
LIABILITIES:
Due to depositors...... $557,084 $393,965 $ (2,579) -- $ 948,470 (5)
Escrow and other
deposits.............. 6,933 1,641 -- -- 8,574
-------- -------- --------- -------- ----------
TOTAL DEPOSITS......... 564,017 395,606 (2,579) -- 957,044 (5)
Repurchase agreements.. 2,024 10,000 -- -- 12,024
Other borrowings....... 15,710 -- -- -- 15,710
Accrued post-retirement
benefit obligation.... 2,042 -- -- -- 2,042
Other liabilities...... 1,136 3,454 5,621 -- 10,211 (6)
-------- -------- --------- -------- ----------
TOTAL LIABILITIES...... 584,929 409,060 3,042 -- 997,031
STOCKHOLDERS' EQUITY:
Preferred stock........ -- -- -- -- --
Common stock........... -- 48 (48) 110 110 (1)
Additional paid in
capital............... -- 45,934 (45,934) 106,850 106,850 (1)
Employee stock
ownership plan........ -- (2,896) 2,896 (8,800) (8,800) (1)
Recognition and
retention plan........ -- (1,204) 1,204 (4,400) (4,400) (1)
Treasury stock......... -- (1,062) 1,062 -- -- (1)
Retained earnings-
subject to
restrictions.......... 79,713 38,102 (38,102) -- 79,713 (1)
Net unrealized gains
(losses) on securities
available for sale.... 545 433 (433) -- 545 (2)
-------- -------- --------- -------- ----------
TOTAL EQUITy........... 80,258 79,355 (79,355) 93,760 174,018
-------- -------- --------- -------- ----------
TOTAL LIABILITIES AND
EQUITY............... $665,187 $488,415 $ (76,313) $ 93,760 $1,171,049
======== ======== ========= ======== ==========
</TABLE>
(Notes follow tables)

48
<PAGE>

<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED DECEMBER 31, 1995
-------------------------------------------------------------------------------------
PRO FORMA
DIME SAVINGS COMBINED COMBINED
BANK OF CONESTOGA PURCHASE AFTER CONVERSION AFTER FOOTNOTE
WILLIAMSBURGH BANCORP, INC. ADJUSTMENTS ACQUISITION ADJUSTMENTS CONVERSION REFERENCES
------------- ------------- ----------- ----------- ----------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST AND DIVIDEND
INCOME:
Loans.................. $19,696 $ 4,550 $ (134) $24,112 $ -- $24,112 (9)
Investment securities.. 2,908 4,653 (99) 7,462 -- 7,462 (9)
Mortgage backed securi-
ties.................. 3,007 6,614 (92) 9,529 -- 9,529 (9)
Federal funds sold..... 665 979 -- 1,644 (235) 1,409 (10)
------- ------- ------ ------- ------- -------
TOTAL INTEREST INCOME.. 26,276 16,796 (325) 42,747 (235) 42,512
INTEREST EXPENSE:
Deposits and escrow.... 11,481 8,709 258 20,448 -- 20,448 (11)
Borrowed funds......... 505 738 -- 1,243 -- 1,243
------- ------- ------ ------- ------- -------
TOTAL INTEREST EX-
PENSE................. 11,986 9,447 258 21,691 -- 21,691
NET INTEREST INCOME... 14,290 7,349 (583) 21,056 (235) 20,821
Provision/(recoveries)
for loan losses........ 950 37 -- 987 -- 987
------- ------- ------ ------- ------- -------
Net interest income
after provision for
loan losses........... 13,340 7,312 (583) 20,069 (235) 19,834
------- ------- ------ ------- ------- -------
NON-INTEREST INCOME:
Service charges and
other fees............ 418 265 -- 683 -- 683
Gain (loss) on sales of
securities and other
assets................ (81) 707 -- 626 -- 626
Net gain (loss) on
sales of loans........ 22 -- -- 22 -- 22
Other.................. 242 129 -- 371 -- 371
------- ------- ------ ------- ------- -------
TOTAL NON-INTEREST
INCOME................ 601 1,101 -- 1,702 -- 1,702
------- ------- ------ ------- ------- -------
NON-INTEREST EXPENSE:
Salaries and employee
benefits.............. 3,541 1,848 (704) 4,685 -- 4,685 (15)
ESOP and RRP benefits.. -- 531 (531) -- 990 990 (14)
Occupancy and equip-
ment.................. 800 725 (46) 1,479 -- 1,479 (12)
Federal deposit
insurance premiums.... 63 471 -- 534 -- 534
Data Processing........ 246 212 -- 458 -- 458
Amortization of good-
will.................. -- -- 1,063 1,063 -- 1,063 (13)
Other.................. 1,750 1,310 (116) 2,944 -- 2,944 (16)
------- ------- ------ ------- ------- -------
TOTAL NON-INTEREST
EXPENSE............... 6,400 5,097 (334) 11,163 990 12,153
------- ------- ------ ------- ------- -------
INCOME BEFORE INCOME TAX
EXPENSE AND CUMULATIVE
EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES.. 7,541 3,316 (249) 10,608 (1,225) 9,383
Income tax expense...... 3,447 1,590 374 5,411 (563) 4,848 (17)
------- ------- ------ ------- ------- -------
INCOME BEFORE CUMULATIVE
EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES.. $ 4,094 $ 1,726 $ (623) $ 5,197 $ (662) $ 4,535
======= ======= ====== ======= ======= =======
</TABLE>
(Notes follow tables)

49
<PAGE>

<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------------
FOR THE YEAR ENDED JUNE 30, 1995
-------------------------------------------------------------------------------------
PRO FORMA
DIME SAVINGS COMBINED COMBINED
BANK OF CONESTOGA PURCHASE AFTER CONVERSION AFTER FOOTNOTE
WILLIAMSBURGH BANCORP, INC. ADJUSTMENTS ACQUISITION ADJUSTMENTS CONVERSION REFERENCES
------------- ------------- ----------- ----------- ----------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans.................. $38,682 $ 8,560 $ (268) $46,974 $ -- $46,974 (9)
Investment securities.. 4,402 6,546 (199) 10,749 -- 10,749 (9)
Mortgage backed
securities............ 5,464 9,925 (184) 15,205 -- 15,205 (9)
Federal funds sold..... 675 1,678 -- 2,353 (524) 1,829 (10)
------- ------- ------- ------- ------- -------
TOTAL INTEREST INCOME.. 49,223 26,709 (651) 75,281 (524) 74,757
INTEREST EXPENSE:
Deposits and escrow.... 17,933 12,044 516 30,493 -- 30,493 (11)
Borrowed funds......... 1,013 261 -- 1,274 -- 1,274
------- ------- ------- ------- ------- -------
TOTAL INTEREST
EXPENSE............... 18,946 12,305 516 31,767 -- 31,767
NET INTEREST INCOME... 30,277 14,404 (1,167) 43,514 (524) 42,990
Provision/(recoveries)
for loan losses........ 2,950 (36) -- 2,914 -- 2,914
------- ------- ------- ------- ------- -------
Net interest income
after provision for
loan losses........... 27,327 14,440 (1,167) 40,600 (524) 40,076
------- ------- ------- ------- ------- -------
NON-INTEREST INCOME:
Service charges and
other fees............ 1,047 617 -- 1,664 -- 1,664
Gain (loss) on sales of
securities and other
assets................ 159 853 -- 1,012 -- 1,012
Net gain (loss) on
sales of loans........ 33 -- -- 33 -- 33
Other.................. 534 360 -- 894 -- 894
------- ------- ------- ------- ------- -------
TOTAL NON-INTEREST
INCOME................ 1,773 1,830 -- 3,603 -- 3,603
------- ------- ------- ------- ------- -------
NON-INTEREST EXPENSE:
Salaries and employee
benefits.............. 6,879 3,498 (1,409) 8,968 -- 8,968 (15)
ESOP and RRP benefits.. -- 854 (854) 0 1,980 1,980 (14)
Occupancy and
equipment............. 1,610 1,309 (93) 2,826 -- 2,826 (12)
Federal deposit
insurance premiums.... 1,245 882 -- 2,127 -- 2,127
Data processing........ 481 411 -- 892 -- 892
Amortization of
goodwill.............. 70 -- 2,127 2,197 -- 2,197 (13)
Other.................. 3,768 1,706 (231) 5,243 -- 5,243 (16)
------- ------- ------- ------- ------- -------
TOTAL NON-INTEREST
EXPENSE............... 14,053 8,660 (460) 22,253 1,980 24,233
------- ------- ------- ------- ------- -------
INCOME BEFORE INCOME TAX
EXPENSE AND CUMULATIVE
EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES.. 15,047 7,610 (707) 21,950 (2,504) 19,446
Income tax expense...... 6,621 3,508 653 10,782 (1,152) 9,630 (17)
------- ------- ------- ------- ------- -------
INCOME BEFORE CUMULATIVE
EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES.. $ 8,426 $ 4,102 $(1,360) $11,168 $(1,352) $ 9,816
======= ======= ======= ======= ======= =======
</TABLE>
(Notes on following page)

50
<PAGE>

The following notes describe the pro forma adjustments reflected in the
accompanying pro forma condensed combined financial statements:

(1) Assumes that the net proceeds, after adjustments, of $93.8 million were
utilized to replenish the net acquisition cost of $102.2 million
(determined as $21.25 per share paid for the outstanding Common Stock of
Conestoga of 4.7 million, reduced by an after-tax effect of unallocated
Conestoga RRP shares approximating $911,000 and increased by additional
stock options exercised approximating $2.5 million, net of tax). The
shortfall of net Conversion proceeds after adjustments to the net
acquisition cost was assumed to have been funded through liquidation of
short-term investments of approximately $8.4 million.
(2) Since the Acquisition is accounted for as a purchase, all securities are
acquired at fair value. As a result, the historical fair value adjustment
on Conestoga's available-for-sale securities portfolio is eliminated.
(3) Reflects an adjustment to mark Conestoga's loan portfolio to fair value
at December 31, 1995.
(4) Reflects an adjustment to mark Conestoga's premises and fixed assets to
fair value at December 31, 1995.
(5) Reflects an adjustment to mark Conestoga's deposits to fair value at
December 31, 1995.
(6) To accrue the following liabilities to be incurred in connection with the
transaction (in thousands):

<TABLE>
<S> <C>
Employee severance costs.......... $3,947
Professional fees................. 956
Lease termination costs........... 599
Other............................. 119
------
$5,621
======
</TABLE>

(7) To reflect the tax effects of the adjustments described in Notes (2)
through (6).
(8) To record the excess of the acquisition cost over the fair value of net
assets acquired, which will be amortized over a period of 12 years.
(9) Represents the amortization of adjustments to Conestoga's loan,
investment and mortgage-backed securities portfolio to new cost basis in
purchase accounting.
(10) Amount represents the interest cost associated with the shortfall of net
Conversion proceeds, after adjustments, to net acquisition cost discussed
in (1) above. Assumes the shortfall had been financed at an average cost
of 5.58% and 6.22% for the six months ended December 31, 1995 and the
year ended June 30, 1995, respectively. See "Use of Proceeds" and "Pro
Forma Data" for further discussion.
(11) Represents amortization of the fair value adjustment to Conestoga's
deposits.
(12) Represents amortization of the fair value adjustment to Conestoga's
premises and equipment.
(13) Represents amortization of goodwill acquired in the Acquisition over a
period of 12 years.
(14) To reflect the increase/decrease in ESOP and RRP expense resulting from
the termination of Conestoga plans and the establishment of new Dime
Community Bancorp, Inc. plans as described elsewhere in this prospectus.
(15) To record reduction in employee salaries and benefits expense resulting
from planned reductions in Conestoga staffing levels.
(16) To record the reductions in the following operating expenses (in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
JUNE 30, 1995 DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
Directors' fees........................... $204 $102
Automobile Expense........................ 27 14
---- ----
$231 $116
==== ====
</TABLE>

(17) To reflect the income tax effect of the adjustments described in Notes
(10) through (16).

51
<PAGE>

USE OF PROCEEDS

Although the actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed, it is presently anticipated that
the net proceeds from the sale of the Common Stock will be between $90.7
million and $123.2 million (or $141.9 million if the Estimated Price Range is
increased by 15%). See "Pro Forma Data" and "The Conversion--Stock Pricing" as
to the assumptions used to arrive at such amounts. The Company will be unable
to utilize any of the net proceeds of the Offerings until the close of the
Offerings.

The Company will use the net proceeds from the sale of Common Stock as
follows:

2. The remaining net proceeds will be retained by the Company. Net
proceeds to be retained by the Company after the purchase of the capital
stock of the Bank are estimated to be between $21.0 million and $49.5
million (or $65.9 million if the Estimated Price Range is increased by
15%). The net proceeds retained by the Company will initially be invested
primarily in federal funds, short-term investment grade marketable
securities and mortgage-backed securities.

3. The Company may use a portion of the retained net proceeds to make a
loan directly to the ESOP to enable the ESOP to purchase 8% of the Common
Stock in the Conversion. Based upon the issuance of 9,350,000 shares or
12,650,000 shares at the minimum and maximum of the Estimated Price Range,
the amount of the loan to the ESOP (if the loan is made by the Company and
not a third party) would be $7.5 million or $10.1 million, respectively,
(or $11.6 million if the Estimated Price Range is increased by 15%) to be
repaid over a period of up to ten years at an interest rate of 8%. See
"Management of the Bank--Benefits--Employee Stock Ownership Plan and
Trust."

The net proceeds retained by the Company may also be used to support the
future expansion of the Bank's operations through branch acquisitions and the
acquisition of other financial institutions or diversification into other
banking related businesses and for other business or investment purposes,
including possibly the payment of dividends and the repurchase of the
Company's Common Stock as permitted by the OTS. Except as described in
"Acquisition of Conestoga Bancorp, Inc.," the Company has no current
arrangements, understandings or agreements, written or oral, regarding any
such transactions. In addition, the Company is subject to the terms of a
certification made to the OTS in connection with the application to the OTS
for approval of the Conversion, which certification prohibits the Company from
taking any actions to further any payments to its shareholders through a
return of excess capital for a period of one year following the Conversion.
The certification expressly does not apply to taxable dividend payments made
by the Company or to dividend payments made by the Bank to the Company. See
"Dividend Policy" and "Regulation--Regulation of Federal Savings
Associations--Limitations on Capital Distributions." The Company, upon the
Conversion, will be a unitary savings association holding company, which under
existing laws generally would not be restricted as to the types of business
activities in which it may engage; provided, that the Bank continues to be a
qualified thrift lender ("QTL"). See "Regulation--Regulation of Holding
Company" for a description of certain regulations applicable to the Company.
In determining the amount of net proceeds to be used to purchase the capital
stock of the Bank, consideration was given to such factors as the regulatory
capital position of the Bank, both before and after giving effect to the
Conversion and the Acquisition, and the rules and regulations and policies of
the OTS governing the amount of proceeds which may be retained by the Company.

Upon completion of the Conversion, the Board of Directors will have the
authority to adopt stock repurchase plans, subject to statutory and regulatory
requirements. Based upon facts and circumstances which may arise following the
Conversion and subject to applicable regulatory requirements, the Board of
Directors may determine to repurchase stock in the future. Such facts and
circumstances may include: (i) market and economic factors such as the price
at which the stock is trading in the market, the volume of trading, the
attractiveness of other investment alternatives in terms of the rate of return
and risk involved in the investment, the ability to

52
<PAGE>

increase the book value and/or earnings per share of the remaining outstanding
shares, and improvement in the Company's return on equity; (ii) the avoidance
of dilution to shareholders by not having to issue additional shares to cover
the exercise of stock options or to fund employee stock benefit plans; and
(iii) any other circumstances in which repurchases would be in the best
interests of the Company and its shareholders. In the event the Company
determines to repurchase stock, such repurchases may be made at market prices
which may be in excess of the Purchase Price in the Conversion.

Any stock repurchases will be subject to the determination of the Board of
Directors that both the Company and the Bank will be capitalized in excess of
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, the Company's and the Bank's
current and projected results of operations and asset/liability structure, the
economic environment and tax and other considerations. In addition, applicable
OTS regulations generally prohibit the Company from repurchasing its own stock
for a period of one year following the Conversion. Any stock repurchases by
the Company during the two years thereafter are subject to OTS approval and
generally are required to be part of an open market program not involving
greater than 5% of the outstanding Common Stock during any twelve-month
period. However, the OTS Regional Directors have the authority to approve
stock repurchases during the first three years after the Conversion that are
in excess of these limits. See "The Conversion--Certain Restrictions on
Purchase or Transfer of Shares After Conversion."

The Company's Board of Directors does not expect to pay a cash dividend on
the Common Stock initially after Conversion. The Board of Directors may
consider a policy of paying cash dividends in the future. No decision has been
made as to the amount or timing of such dividends, if any. The payment of
dividends or repurchase of stock, however, would be prohibited if
stockholders' equity would be reduced below the amount required to maintain
the Bank's "liquidation account." See "Dividend Policy," "The Conversion--
Certain Restrictions on Purchase or Transfer of Shares After Conversion" and
"--Effects of Conversion--Liquidation Rights."

The portion of the net proceeds not retained by the Company, estimated to be
$73.7 million at the maximum of the Estimated Price Range, will be added to
the Bank's general funds to be used for general corporate purposes, including
investment in multi-family and one- to four-family residential mortgage loans
and other loans which will provide affordable home financing opportunities to
the community; investment in federal funds, short-term, investment grade
marketable securities and mortgage-backed securities; and to fund the Stock
Programs. Such proceeds received by the Bank will serve to replenish the
Bank's capital used to effect the Acquisition. The total cash cost of the
Acquisition to the Bank, which includes cash compensation to Conestoga
stockholders and the cost of cashing out outstanding options on Conestoga
Common Stock, is expected to be $104.8 million, exclusive of any adjustment to
the Merger Consideration. See "Regulatory Capital Compliance." A significant
portion of the net proceeds retained by the Bank may be used to fund a portion
of the Merger Consideration or to pay down short-term borrowings that may be
incurred to finance a portion of the Merger Consideration. 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. Except as described in "Acquisition of Conestoga
Bancorp, Inc." neither the Bank nor the Company has yet determined the
approximate amount of net proceeds to be used for each of the purposes
mentioned above.

DIVIDEND POLICY

The Board of Directors of the Company does not expect to pay a cash dividend
on the Common Stock initially after Conversion. The Board of Directors may
consider a policy of paying cash dividends on the Common Stock in the future
subject to statutory and regulatory requirements. However, no decision has
been made as to the amount or timing of such 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 the Company in the
Conversion, investment opportunities available to the Company or the Bank,
capital requirements, regulatory limitations, the Company's and the Bank's
financial condition, 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.

53
<PAGE>

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

Unlike the Bank, the Company is not subject to OTS regulatory restrictions
on the payment of dividends to its shareholders, although the source of such
dividends will be dependent on the net proceeds retained by the Company and
earnings thereon and may be dependent, in part, upon dividends from the Bank.
The Company is subject, however, to the requirements of Delaware law, which
generally limit dividends to an amount equal to the excess of the net assets
of the Company (the amount by which total assets exceed total liabilities)
over its statutory capital, or if there is no such excess, to its net profits
for the current and/or immediately preceding fiscal year. At December 31,
1995, assuming the Conversion and Acquisition had been effected of such date,
the Company would have had approximately $49.5 million available for the
payments of dividends at the maximum of the Estimated Price Range.

MARKET FOR THE COMMON STOCK

The Company and Bank have not previously issued capital stock, and,
consequently, there is currently no established market for the Common Stock.
The Company has received conditional approval from the NASD to have its Common
Stock quoted on The Nasdaq Stock Market under the symbol "DIME" upon
completion of the Conversion. One of the requirements for continued quotation
of the Common Stock on The Nasdaq Stock Market is that there be at least two
market makers for the Common Stock. The Company will seek to encourage and
assist at least two market makers to make a market in its Common Stock. Making
a market involves maintaining bid and asked quotations and being able, as
principal, to effect transactions in reasonable quantities at those quoted
prices, subject to various securities laws and other regulatory requirements.
Sandler O'Neill has advised the Company that it intends to make a market in
the Common Stock following the completion of the Conversion, but is under no
obligation to do so. While the Company anticipates that there will be other
broker-dealers to act as market maker for the Common Stock, there can be no
assurance that there will be two or more market makers for the Common Stock.
Additionally, the development of a liquid public market depends on the
existence of willing buyers and sellers, the presence of which is not within
the control of the Company, the Bank or any market maker. The number of active
buyers and sellers of the Common Stock at any particular time may be limited.
Under such circumstances, investors in the Common Stock could have difficulty
disposing of their shares on short notice and should not view the Common Stock
as a short-term investment. There can be no assurance that an active and
liquid trading market for the Common Stock will develop or that, if developed,
it will continue, nor is there any assurance that persons purchasing shares
will be able to sell them at or above the Purchase Price or that quotations
will be available on The Nasdaq Stock Market as contemplated.

54
<PAGE>

REGULATORY CAPITAL COMPLIANCE

At December 31, 1995, the Bank exceeded all regulatory capital requirements.
See "Regulation--Regulation of Federal Savings Associations--Capital
Requirements." Set forth below is a summary of the Bank's compliance with
regulatory capital standards as of December 31, 1995, on a historical and pro
forma basis assuming completion of the Acquisition and that the indicated
number of shares were sold as of such date and receipt by the Bank of a
portion of net conversion proceeds sufficient to increase the Bank's tangible
capital to at least 11% of its total adjusted assets. 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.

<TABLE>
<CAPTION>
PRO FORMA AT DECEMBER 31, 1995 BASED ON
-------------------------------------------------------------------------------
14,547,500 SHARES
9,350,000 SHARES 11,000,000 SHARES 12,650,000 SHARES (15% ABOVE
(MINIMUM (MIDPOINT OF (MAXIMUM OF MAXIMUM OF
HISTORICAL AT OF ESTIMATED ESTIMATED ESTIMATED ESTIMATED
DECEMBER 31, 1995 PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)(1)
------------------ ------------------- ------------------- ------------------- -------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF
AMOUNT ASSETS (2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2)
------- ---------- -------- ---------- -------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP CAPITAL........ $80,258 7.45% $138,758 12.22% $138,758 12.22% $138,758 12.22% $138,758 12.22%
======= ===== ======== ===== ======== ===== ======== ===== ======== =====
TANGIBLE CAPITAL:(4)
Capital level(3)... $54,022 5.14% $112,522 10.14% $112,522 10.14% $112,522 10.14% $112,522 10.14%
Requirement(5)..... 15,766 1.50 16,643 1.50 16,643 1.50 16,643 1.50 16,643 1.50
------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Excess............. $38,256 3.64% $ 95,879 8.64% $ 95,879 8.64% $ 95,879 8.64% $ 95,879 8.64%
======= ===== ======== ===== ======== ===== ======== ===== ======== =====
CORE CAPITAL:(4)
Capital level(3)... $54,190 5.15% $112,690 10.15% $112,690 10.15% $112,690 10.15% $112,690 10.15%
Requirement(5)..... 31,537 3.00 33,291 3.00 33,291 3.00 33,291 3.00 33,291 3.00
------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Excess............. $22,653 2.15% $ 79,399 7.15% $ 79,399 7.15% $ 79,399 7.15% $ 79,399 7.15%
======= ===== ======== ===== ======== ===== ======== ===== ======== =====
RISK-BASED
CAPITAL:(4)
Capital level(3)... $59,942 11.00% $118,442 20.62% $118,442 20.62% $118,442 20.62% $118,442 20.62%
Requirement(6)..... 43,613 8.00 45,953 8.00 45,953 8.00 45,953 8.00 45,953 8.00
------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Excess............. $16,329 3.00% $ 72,489 12.62% $ 72,489 12.62% $ 72,489 12.62% $ 72,489 12.62%
======= ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
--------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15%
to reflect changes in market or general financial and economic conditions
following the commencement of the Subscription and Community Offerings.
(2) Pro forma capital levels assume receipt by the Bank of 77%, 67%, 60% and
54% of the net proceeds of the Conversion at the minimum, midpoint,
maximum and 15% above the maximum of the range, respectively. These levels
also assume funding by the Bank of the ESOP purchase and repayment of the
Company's loan to the ESOP at the minimum, midpoint, maximum and 15% above
the maximum of the range and funding by the Bank of the Stock Programs. No
effect has been given to the possible issuance of up to 10% of the issued
Common stock at the minimum, midpoint, maximum and 15% above the maximum
of the range pursuant to the Stock Option Plans. Both the Stock Programs
and the Stock Option Plans are expected to be adopted by the Company
following the Conversion and will require approval at a meeting of
shareholders to be held no earlier than six months after the completion of
the Conversion. Giving no effect to the ESOP and Stock Programs, the pro
forma tangible capital level would be 11.04%, 11.20%, 11.35% and 11.53%,
the pro forma core capital level would be 11.05%, 11.21%, 11.37% and
11.55% and the pro forma risk-based capital level would be 22.35%, 22.66%,
22.96% and 23.30%, respectively, at the minimum, midpoint, maximum and 15%
above the maximum of the range.
(3) Tangible capital and core capital levels are shown as a percentage of
total tangible assets. Risk-based capital levels are shown as a percentage
of risk-weighted assets.
(4) The difference between capital under generally accepted accounting
principles ("GAAP") and regulatory tangible and core capital is an
adjustment to decrease regulatory capital by the amount of the net
unrealized gain, if any, on available-for-sale securities recognized for
GAAP purposes, as well as adjustments related to historical core deposit
premiums of the Bank and the goodwill resulting from the Acquisition.
Regulatory risk-based capital reflects this adjustment plus the inclusion
of the allowance for loan losses. See "Regulation--Regulation of Federal
Savings Associations--Capital Requirements."
(5) The current OTS tangible and core capital requirement is 1.5% and 3.0% of
tangible assets discussed in (4) above.
(6) The current OTS total risk-based capital requirement is 8.0% of risk-
weighted assets. Assumes net proceeds are invested in assets that carry a
50% risk-weighting, which approximates the historical combined risk-
weighting at December 31, 1995.

55
<PAGE>

CAPITALIZATION

The following table presents the historical capitalization of the Bank at
December 31, 1995, and the pro forma consolidated capitalization of the
Company after giving effect to the Acquisition and the Conversion, based upon
the sale of the number of shares indicated in the table and the other
assumptions set forth under "Pro Forma Data."

<TABLE>
<CAPTION>
COMPANY CONSOLIDATED CAPITALIZATION PRO FORMA
BASED UPON THE SALE OF SHARES AT $10.00 PER SHARE
----------------------------------------------------------
BANK MINIMUM OF MIDPOINT OF MAXIMUM OF MAXIMUM OF
HISTORICAL 9,350,000 11,000,000 12,650,000 14,547,500
CAPITALIZATION SHARES SHARES SHARES SHARES(1)
-------------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposits(2)............. $948,470 $ 948,470 $ 948,470 $ 948,470 $ 948,470
Borrowed funds.......... 27,734 27,734 27,734 27,734 27,734
-------- ------------ ------------ ------------ ------------
Total deposits and
borrowed funds......... $976,204 $ 976,204 $ 976,204 $ 976,204 $ 976,204
======== ============ ============ ============ ============
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01
par value, 9,000,000
shares authorized;
none to be issued.... $ -- $ -- $ -- $ -- $ --
Common Stock, $.01 par
value, 45,000,000
shares authorized;
shares to be issued
as reflected......... -- 94 110 127 145
Additional paid-in
capital(3)(4)........ -- 90,613 106,850 123,087 141,760
Retained earnings(5).. 79,713 79,713 79,713 79,713 79,713
Net unrealized gain on
available-for-sale
securities, net of
deferred taxes....... 545 545 545 545 545
LESS:
Common Stock acquired
by the ESOP(6)....... -- (7,480) (8,800) (10,120) (11,638)
Common Stock acquired
by the Stock
Programs(7).......... -- (3,740) (4,400) (5,060) (5,819)
-------- ------------ ------------ ------------ ------------
Total stockholders'
equity................. $ 80,258 $ 159,745 $ 174,018 $188,292 $204,706
======== ============ ============ ============ ============
</TABLE>
--------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15%
to reflect changes in market or general financial and economic conditions
following the commencement of the Subscription and Community Offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Common Stock in the Conversion. Such withdrawals would reduce pro forma
deposits by the amount withdrawn.
(3) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Company's Stock Option Plans intended to be adopted
by the Company and presented for approval by shareholders at a meeting of
shareholders to be held no earlier than six months following the
completion of the Conversion. If approved by the shareholders of the
Company, an amount equal to 10% of the shares of common stock issued in
the Conversion will be reserved for issuance upon the exercise of options
to be granted under the Stock Option Plans. See "Management of the Bank--
Benefits--Stock Option Plans."
(4) Amount shown net of expected conversion expenses of approximately $2.8
million, $3.0 million, $3.3 million, and $3.6 million under the issuance
of 9,350,000 shares, 11,000,000 shares, 12,650,000 shares, and 14,547,500
shares, respectively.
(5) The retained earnings of the Bank will be substantially restricted after
the Conversion. See "The Conversion--Effects of Conversion--Liquidation
Rights" and "Regulation--Federal Savings Associations--Limitation on
Capital Distributions."
(6) Assumes that 8% of the shares offered for sale in the Conversion will be
purchased by the ESOP and that the funds used to acquire such shares will
be borrowed from the Company. The Common Stock acquired by the ESOP is
reflected as a reduction of stockholders' equity. See "Management of the
Bank--Executive Compensation" and "Management of the Bank--Benefits--
Employee Stock Ownership Plan and Trust."
(7) Assumes that an amount equal to 4% of the shares of the Common Stock
issued in the Conversion will be purchased by the Stock Plans subsequent
to the Conversion through open market purchases. The Common Stock
purchased by the Stock Programs is reflected as a reduction of
stockholders' equity. For a discussion of the dilutive impact should the
Stock Programs be funded by authorized but unissued shares, see Note 2 to
"Pro Forma Data." Implementation of the Stock Programs is subject to the
approval of the Company's shareholders to be obtained at a meeting of
shareholders to be held no earlier than six month's following the
completion of the Conversion. See "Management of the Bank--Executive
Compensation--Stock Programs."

56
<PAGE>

PRO FORMA DATA

The actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $90.7 million and $123.2 million (or $141.9
million in the event the Estimated Price Range is increased by 15%) based upon
the following assumptions: (i) 100% of the shares of Common Stock will be sold
in the Subscription and Community Offerings, as follows: (a) 11.3% will be
sold to the Employee Plans and directors, officers and employees or members of
such persons' immediate families; and (b) 88.7% will be sold to Eligible
Account Holders, Supplemental Eligible Account Holders and Other Members in
the Subscription Offering or in the Community Offering; (ii) Sandler O'Neill
will receive a fee equal to 1.625% of the aggregate Actual Purchase Price of
the shares sold to Eligible Account Holders, Supplemental Eligible Account
Holders, Other Members or in the Community Offering, excluding shares
purchased by directors, officers, employees and their families and the
Employee Plans for which there is no fee; (iii) no shares are sold in the
Syndicated Community Offering; and (iv) Conversion expenses, excluding the
fees paid to Sandler O'Neill, will be approximately $1.4 million.

Pro forma net earnings of the Bank for the six months ended December 31,
1995 and the year ended June 30, 1995 are based upon income before cumulative
effect of changes in accounting principles and include adjustments related to
the income which would have been earned or income foregone in connection with
the acquisition of Conestoga at various levels of net proceeds, and assuming a
net acquisition cost of $102.2 million. Pro forma earnings have been
calculated assuming the Common Stock had been sold and the acquisition
consummated at the beginning of the periods and the net proceeds had been
invested at an average
yield of 5.58% and 6.22% for the six months ended December 31, 1995 and the
year ended June 30, 1995, respectively, which approximates the yield on short-
term U.S. government securities. As an alternative to the arithmetic average
method, the approximate average yield on short-term government securities is
used as a proxy for the reinvestment rate of the net proceeds in the interests
of presenting the pro forma income numbers as realistically as possible.
Management believes that the approximate yield on short-term government
securities accurately represents the returns available in the marketplace
during the time period represented by the pro forma tables. The pro forma
after-tax yield or cost are assumed to be 3.01% and 3.36% for the six months
ended December 31, 1995 and the year ended June 30, 1995, respectively, based
on an effective tax rate of 46%. The effect of withdrawals from deposit
accounts for the purchase of Common Stock has not been reflected. Historical
and pro forma per share amounts have been calculated by dividing historical
and pro forma amounts by the indicated number of shares of Common Stock, as
adjusted (in the case of pro forma net earnings per share) to give effect to
the purchase of shares by the ESOP. Pro forma stockholders' equity amounts
have been calculated as if the Common Stock had been sold on December 31, 1995
and June 30, 1995, respectively, and, accordingly, no effect has been given to
the assumed earnings effect of the transactions.

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

The following table summarizes historical data of the Bank and pro forma
data of the Company at or for the fiscal year ended June 30, 1995 and the six-
month period ended December 31, 1995 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 Conversion. The table below gives
effect to the Stock Programs, which are expected to be adopted by the Company
following the Conversion and presented to shareholders for approval at a
meeting of shareholders to be held no earlier than six months after completion
of the Conversion. See footnote 2 to the table. No effect has been given in
the table to the possible issuance of additional shares reserved for future
issuance pursuant to the Stock Option Plans to be adopted by the Board of
Directors of the Company, nor does book value give any effect to the
intangible excess cost over book value, the liquidation account to be
established for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders or the bad debt reserve in liquidation. See footnote
3 to the table below and "The Conversion--Effects of Conversion--Liquidation
Rights" and "Management of the Bank--Benefits--Stock Option Plans."

57
<PAGE>

<TABLE>
<CAPTION>
AT OR FOR THE SIX MONTHS ENDED DECEMBER 31, 1995
-------------------------------------------------
9,350,000 11,000,000 12,650,000 14,547,500
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 RANGE) OF RANGE) OF RANGE) OF RANGE)(6)
----------- ----------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross proceeds................ $ 93,500 $110,000 $126,500 $145,475
Less offering expenses and
commissions.................. (2,793) (3,040) (3,286) (3,570)
-------- -------- -------- --------
Estimated net proceeds........ 90,707 106,960 123,214 141,905
Less: Common Stock purchased
by ESOP(1)................... (7,480) (8,800) (10,120) (11,638)
Common Stock purchased by
Stock Programs(2).......... (3,740) (4,400) (5,060) (5,819)
-------- -------- -------- --------
Estimated net proceeds, as
adjusted..................... $ 79,487 $ 93,760 $108,034 $124,448
======== ======== ======== ========
Net earnings:
Historical--Before cumulative
effect of changes in
accounting principles(7).... $ 5,197 $ 5,197 $ 5,197 $ 5,197
Pro forma earnings/(expenses)
on net acquisition
proceeds/shortfall(7)....... (342) (127) 88 335
Pro forma ESOP
adjustment(1)............... (253) (297) (342) (393)
Pro forma Stock Programs
adjustment(2)............... (202) (238) (273) (314)
-------- -------- -------- --------
Pro forma net earnings(7).... $ 4,400 $ 4,535 $ 4,670 $ 4,825
======== ======== ======== ========
Per share net earnings:
Historical--Before cumulative
effect of changes in
accounting principles(7).... $ 1.20 $ 1.02 $ 0.89 $ 0.77
Pro forma earnings/(expenses)
on net acquisition
proceeds/shortfall(7)....... (0.08) (0.02) 0.02 0.05
Pro forma ESOP
adjustment(1)............... (0.06) (0.06) (0.06) (0.06)
Pro forma Stock Programs
adjustment(2)............... (0.05) (0.05) (0.05) (0.05)
-------- -------- -------- --------
Pro forma net earnings per
share(3)(7)................. $ 1.01 $ 0.89 $ 0.80 $ 0.71
======== ======== ======== ========
Stockholders' equity:
Historical(7)................ $ 80,258 $ 80,258 $ 80,258 $ 80,258
Estimated net proceeds....... 90,707 106,960 123,214 141,905
Less: Common Stock acquired
by ESOP(1).................. (7,480) (8,800) (10,120) (11,638)
Common Stock acquired by
Stock Programs(2).......... (3,740) (4,400) (5,060) (5,819)
-------- -------- -------- --------
Pro forma stockholders'
equity(1)(2)(3)(4)(7)....... $159,745 $174,018 $188,292 $204,706
======== ======== ======== ========
Pro forma tangible
stockholders'
equity(1)(2)(3)(4)(5)(7)..... $133,509 $147,782 $162,056 $178,470
======== ======== ======== ========
Stockholders' equity per
share:(3)
Historical(7)................ $ 8.59 $ 7.30 $ 6.34 $ 5.52
Estimated net proceeds....... 9.70 9.72 9.74 9.75
Less: Common Stock acquired
by ESOP(1).................. (0.80) (0.80) (0.80) (0.80)
Common Stock acquired by
Stock Programs(2).......... (0.40) (0.40) (0.40) (0.40)
-------- -------- -------- --------
Pro forma stockholders'
equity per
share(1)(2)(3)(4)(7)........ $ 17.09 $ 15.82 $ 14.88 $ 14.07
======== ======== ======== ========
Pro forma tangible
stockholders' equity per
share(1)(2)(3)(4)(5)(7)...... $ 14.28 $ 13.43 $ 12.81 $ 12.27
======== ======== ======== ========
Offering price as a percentage
of pro forma stockholders'
equity per share............. 58.51% 63.21% 67.20% 71.07%
======== ======== ======== ========
Offering price as a percentage
of pro forma tangible
stockholders' equity per
share........................ 70.03% 74.46% 78.06% 81.50%
======== ======== ======== ========
Offering price to pro forma
net earnings per share....... 9.90x 11.24x 12.50x 14.08x
======== ======== ======== ========
</TABLE>

(Notes follow tables)

58
<PAGE>

<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED JUNE 30, 1995
-------------------------------------------------
9,350,000 11,000,000 12,650,000 14,547,500
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 RANGE) OF RANGE) OF RANGE) OF RANGE)(6)
----------- ----------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross proceeds................ $ 93,500 $110,000 $126,500 $145,475
Less offering expenses and
commissions.................. (2,793) (3,040) (3,286) (3,570)
-------- -------- -------- --------
Estimated net proceeds........ 90,707 106,960 123,214 141,905
Less: Common Stock purchased
by ESOP(1)................... (7,480) (8,800) (10,120) (11,638)
Common Stock purchased by
Stock Programs(2).......... (3,740) (4,400) (5,060) (5,819)
-------- -------- -------- --------
Estimated net proceeds, as
adjusted..................... $ 79,487 $ 93,760 $108,034 $124,448
======== ======== ======== ========
Net earnings:
Historical--Before cumulative
effect of changes in
accounting principles(7).... $ 11,168 $ 11,168 $ 11,168 $ 11,168
Pro forma earnings/(expenses)
on net acquisition
proceeds/shortfall(7)....... (763) (283) 196 747
Pro forma ESOP
adjustment(1)............... (505) (594) (683) (786)
Pro forma Stock Programs
adjustment(2)............... (404) (475) (546) (628)
-------- -------- -------- --------
Pro forma net earnings(7).... $ 9,496 $ 9,816 $ 10,135 $ 10,501
======== ======== ======== ========
Per share net earnings:
Historical--Before cumulative
effect of changes in
accounting principles(7).... $ 1.28 $ 1.09 $ 0.95 $ 0.83
Pro forma earnings/(expenses)
on net acquisition
proceeds/shortfall(7)....... (0.08) (0.02) 0.02 0.06
Pro forma ESOP
adjustment(1)............... (0.06) (0.06) (0.06) (0.06)
Pro forma Stock Programs
adjustment(2)............... (0.05) (0.05) (0.05) (0.05)
-------- -------- -------- --------
Pro forma net earnings per
share(3)(7)................. $ 1.09 $ 0.96 $ 0.86 $ 0.78
======== ======== ======== ========
Stockholders' equity:
Historical(7)................ $ 77,067 $ 77,067 $ 77,067 $ 77,067
Estimated net proceeds....... 90,707 106,960 123,214 141,905
Less: Common Stock acquired
by ESOP(1).................. (7,480) (8,800) (10,120) (11,638)
Common Stock acquired by
Stock Programs(2).......... (3,740) (4,400) (5,060) (5,819)
-------- -------- -------- --------
Pro forma stockholders'
equity(1)(2)(3)(4)(7)....... $156,554 $170,827 $185,101 $201,515
======== ======== ======== ========
Pro forma tangible
stockholders'
equity(1)(2)(3)(4)(5)(7)..... $130,411 $144,684 $158,958 $175,372
======== ======== ======== ========
Stockholders' equity per
share:(3)
Historical(7)................ $ 8.24 $ 7.01 $ 6.09 $ 5.30
Estimated net proceeds....... 9.70 9.72 9.74 9.75
Less: Common Stock acquired
by ESOP(1).................. (0.80) (0.80) (0.80) (0.80)
Common Stock acquired by
Stock Programs(2).......... (0.40) (0.40) (0.40) (0.40)
-------- -------- -------- --------
Pro forma stockholders'
equity per
share(1)(2)(3)(4)(7)........ $ 16.74 $ 15.53 $ 14.63 $ 13.85
======== ======== ======== ========
Pro forma tangible
stockholders' equity per
share(1)(2)(3)(4)(5)(7)...... $ 13.95 $ 13.15 $ 12.57 $ 12.06
======== ======== ======== ========
Offering price as a percentage
of pro forma stockholders'
equity per share............. 59.74% 64.39% 68.35% $ 72.20%
======== ======== ======== ========
Offering price as a percentage
of pro forma tangible
stockholders' equity per
share........................ 71.68% 76.05% 79.55% $ 82.92%
======== ======== ======== ========
Offering price to pro forma
net earnings per share....... 9.17x 10.42x 11.63x 12.82x
======== ======== ======== ========
</TABLE>

<TABLE>
<S> <C> <C> <C> <C>
(Notes on following page)
</TABLE>

59
<PAGE>

--------
(1) The per share net earnings amounts are calculated based upon average
shares outstanding of 8,648,750, 10,175,000, 11,701,250 and 13,456,438 at
the minimum, midpoint, maximum and 15% above the maximum of the range,
respectively for the six months ended December 31, 1995 and 8,695,500,
10,230,000, 11,764,500 and 13,529,175 at the minimum, midpoint, maximum
and 15% above the maximum of the range, respectively for the year ended
June 30, 1995. These calculated amounts assume that 8% of the shares of
Common Stock offered in the Conversion will be purchased by the ESOP. For
purposes of this table, the funds used to acquire such shares are assumed
to have been loaned to the ESOP by the Company. The amount loaned 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 loan. The Bank's total annual
payment of the ESOP loan is based upon 8 equal annual installments of
principal, with an assumed annual interest rate of 8%. The calculated
amounts also assume that: (i) the Bank's contribution to the ESOP for the
principal portion of the debt service requirement for the six months ended
December 31, 1995 and the year ended June 30, 1995 were made at the end of
the respective periods; (ii) 46,750, 55,000, 63,250 and 72,738 shares at
the minimum, midpoint, maximum and 15% above the maximum of the range,
respectively, were committed to be released during the six months ended
December 31, 1995 and that 93,500, 110,000, 126,500 and 145,475 shares at
the minimum, midpoint, maximum and 15% above the maximum of the range,
respectively, were committed to be released during the year ended June 30,
1995 at an average fair value of $10.00 per share and were accounted for
as a charge to expense in accordance with Statement of Position ("SOP")
No. 93-6; and (iii) only the ESOP shares committed to be released were
considered outstanding for purposes of the net earnings per share
calculations, while all ESOP shares were considered outstanding for
purposes of the stockholders' equity per share calculations. See
"Management of the Bank--Benefits--Employee Stock Ownership Plan and
Trust."
(2) Gives effect to the Stock Programs expected to be adopted by the Company
following the Conversion and presented for approval at a meeting of
shareholders to be held no earlier than six months after completion of the
Conversion. If the Stock Programs are approved by the shareholders, the
Stock Programs will acquire an amount of Common Stock equal to 4% of the
shares of Common Stock issued in the Conversion, or 374,000, 440,000,
506,000 and 581,900 shares of Common Stock respectively at the minimum,
midpoint, maximum and 15% above the maximum of the range, 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 Programs to purchase the shares will be contributed to
the Stock Programs by the Bank. In calculating the pro forma effect of the
Stock Programs, it is assumed that the required shareholder approval has
been received, that the shares were acquired by the Stock Programs at the
beginning of the six months ended December 31, 1995 and the year ended
June 30, 1995 in open market purchases at the Purchase Price, and that 10%
and 20% of the amount contributed was amortized to expense during the six
months ended December 31, 1995 and the year ended June 30, 1995,
respectively. The issuance of authorized but unissued shares of the
Company's Common Stock to the Stock Programs instead of open market
purchases would dilute the voting interests of existing shareholders by
approximately 3.85% during the six months ended December 31, 1995 and the
year ended June 30, 1995 respectively; pro forma net earnings per share
would be $0.91, $0.79, $0.71 and $0.64 at the minimum, midpoint, maximum
and 15% above the maximum of the range, respectively for the six months
ended December 31, 1995 and $0.98, $0.86, $0.77 and $0.69 at the minimum,
midpoint, maximum and 15% above the maximum of the range, respectively for
the year ended June 30, 1995; pro forma stockholders' equity per share
would be $16.8, $15.6, $14.7 and $13.9 at the minimum, midpoint, maximum
and 15% above the maximum of the range, respectively for the six months
ended December 31, 1995 and $16.5, $15.3, $14.5 and $13.7 at the minimum,
midpoint, maximum and 15% above the maximum of the range, respectively for
the year ended June 30, 1995; and pro forma tangible stockholders' equity
per share would be $14.1, $13.3, $12.7 and $12.2 at the minimum, midpoint,
maximum and 15% above the maximum of the range, respectively for the six
months ended December 31, 1995 and $13.8, $13.0, $12.5 and $12.0 at the
minimum, midpoint, maximum and 15% above the maximum of the range,
respectively for the year ended June 30, 1995. There can be no assurance
that shareholder approval of the Stock Programs will be obtained, or the
actual purchase
(Notes continued on following page)

60
<PAGE>

price of the shares will be equal to the Purchase Price. See "Management of
the Bank--Benefits--Stock Programs."
(3) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plans expected to be adopted by the
Company following the Conversion. The Company expects to present the Stock
Option Plans for approval at a meeting of shareholders to be held no
earlier than six months after the completion of the Conversion. If the
Stock Option Plans are approved by shareholders, an amount equal to 10% of
the Common Stock issued in the Conversion, or 935,000, 1,100,000,
1,265,000 and 1,454,750 shares at the minimum, midpoint, maximum and 15%
above the maximum of the range, respectively, will be reserved for future
issuance upon the exercise of options to be granted under the Stock Option
Plans. The issuance of Common Stock pursuant to the exercise of options
under the Stock Option Plans will result in the dilution of existing
shareholders' interests. Assuming shareholder approval of the Stock Option
Plans and the exercise of all options at the end of the period at an
exercise price of $10.00 per share, the pro forma net earnings per share
would be $0.86, $0.75, $0.67 and $0.60, respectively at the minimum,
midpoint, maximum and 15% above the maximum of the range for the six
months ended December 31, 1995 and $0.92, $0.81, $0.73 and $0.66,
respectively at the minimum, midpoint, maximum and 15% above the maximum
of the range for the year ended June 30, 1995; pro forma shareholders'
equity per share would be $16.4, $15.3, $14.4 and $13.7, respectively at
the minimum, midpoint, maximum and 15% above the maximum of the range for
the six months ended December 31, 1995 and $16.1, $15.0, $14.2 and $13.5,
respectively at the minimum, midpoint, maximum and 15% above the maximum
of the range for the year ended June 30, 1995; and pro forma tangible
stockholders' equity per share would be $13.9, $13.1, $12.6 and $12.1, at
the minimum, midpoint, maximum and 15% above the maximum of the range,
respectively, for the six months ended December 31, 1995 and be $13.6,
$12.9, $12.3 and $11.9, respectively, at the minimum, midpoint, maximum
and 15% above the maximum of the range, for the year ended June 30, 1995.
See "Management of the Bank--Benefits--Stock Option Plans."
(4) The retained earnings of the Bank will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The Conversion--
Effects of Conversion--Liquidation Rights" and "Regulation--Regulation of
Federal Savings Associations--Limitation on Capital Distributions."
(5) Amount determined as combined historical tangible capital of $54.0 million
increased by the net proceeds from conversion at the various ranges.
(6) As adjusted to give effect to an increase in the number of shares which
would occur of up to 15% to reflect possible changes in market and
financial conditions following the commencement of the Subscription and
Community Offerings.
(7) Pro forma earnings and stockholders' equity figures are adjusted to give
effect to the Acquisition. See "Unaudited Pro Forma Condensed Combined
Financial Statements."

61
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
CONSOLIDATED STATEMENTS OF OPERATIONS

The following Consolidated Statements of Operations of the Bank for each of
the years in the three-year period ended June 30, 1995 have been audited by
Deloitte & Touche LLP, independent certified public accountants, whose report
thereon appears elsewhere herein. These statements should be read in
conjunction with the other consolidated financial statements and notes thereto
included elsewhere in this Prospectus. The Consolidated Statements of
Operations for the six-month periods ended December 31, 1995 and 1994 were not
audited by the Bank's independent auditors, but in the opinion of management,
reflect all adjustments necessary for a fair presentation of the results for
such periods. All such adjustments are of a normal recurring nature. The
results for the six-month period ended December 31, 1995 are not necessarily
indicative of the results of the Bank that may be expected for the entire
year.

<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS
ENDED DECEMBER 31, ENDED JUNE 30,
-------------------- ------------------------
1995 1994 1995 1994 1993
--------- --------- ------- ------- -------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans secured by real estate.... $ 19,532 $ 19,218 $38,375 $40,596 $42,662
Other loans..................... 164 164 307 337 369
Investment securities........... 2,908 2,219 4,402 3,454 3,808
Mortgage-backed securities...... 3,007 2,664 5,464 4,858 4,199
Federal funds sold.............. 665 196 675 576 355
--------- --------- ------- ------- -------
Total interest income........... 26,276 24,461 49,223 49,821 51,393
--------- --------- ------- ------- -------
Interest expense:
Deposits and escrow............. 11,481 8,150 17,933 16,637 19,623
Borrowed funds.................. 505 512 1,013 957 1,628
--------- --------- ------- ------- -------
Total interest expense.......... 11,986 8,662 18,946 17,594 21,251
Net interest income............ 14,290 15,799 30,277 32,227 30,142
Provision for loan losses (Note
D).............................. 950 1,475 2,950 4,105 3,395
--------- --------- ------- ------- -------
Net interest income after
provision for loan losses...... 13,340 14,324 27,327 28,122 26,747
--------- --------- ------- ------- -------
Non-interest income:
Service charges and other fees.. 418 523 1,047 995 937
Net gain (loss) on sales and
redemptions of securities and
other assets................... (81) 1 159 495 715
Net gain (loss) on sales of
loans.......................... 22 5 33 217 628
Other........................... 242 276 534 560 915
--------- --------- ------- ------- -------
Total non-interest income....... 601 805 1,773 2,267 3,195
--------- --------- ------- ------- -------
Non-interest expense:
Salaries and employee benefits.. 3,541 3,294 6,879 6,461 5,888
Occupancy and equipment......... 800 813 1,610 1,613 1,572
Federal deposit insurance
premiums....................... 63 637 1,245 1,268 1,281
Data processing costs........... 246 235 481 477 471
Other........................... 1,750 1,563 3,838 2,895 3,002
--------- --------- ------- ------- -------
Total non-interest expense...... 6,400 6,542 14,053 12,714 12,214
--------- --------- ------- ------- -------
Income before income taxes and
cumulative effect of changes
in accounting principles...... 7,541 8,587 15,047 17,675 17,728
Income tax expense (Note L)...... 3,447 3,792 6,621 8,211 8,530
--------- --------- ------- ------- -------
Income before cumulative effect
of changes in accounting
principles.................... 4,094 4,795 8,426 9,464 9,198
Cumulative effect on prior years
of changing to a different
method of accounting for:
Income taxes (Notes A and L).... -- -- -- (383) --
Post-retirement benefits other
than pensions (Notes A and M).. (1,032) -- -- -- --
--------- --------- ------- ------- -------
Net income..................... $ 3,062 $ 4,795 $ 8,426 $ 9,081 $ 9,198
========= ========= ======= ======= =======
</TABLE>
See accompanying "Notes to Consolidated Financial Statements" presented
elsewhere in this Prospectus.

62
<PAGE>

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

The Company has only recently 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 interest income earned on
its interest-earning assets, such as loans and securities, and the interest
expense on its interest-bearing liabilities, such as deposits. The Bank also
generates non-interest income such as service charges and other fees. The
Bank's non-interest expenses primarily consist of employee compensation and
benefits, occupancy expenses, federal deposit insurance premiums, net costs of
other real estate owned, data processing fees and other operating expenses.
The Bank's results of operations are also significantly affected by general
economic and competitive conditions (particularly changes in market interest
rates), government policies, changes in accounting standards and actions of
regulatory agencies. The Bank exceeded all of its regulatory capital
requirements at December 31, 1995. See "Regulatory Capital Compliance" for a
discussion of the historical and pro forma capital of the Bank and capital
requirements. See also "Regulation--Regulation of Federal Savings
Associations--Capital Requirements."

MANAGEMENT STRATEGY

The Bank's primary management strategy is to increase its household and
deposit market shares in the communities it serves, either through
acquisitions or purchases of deposits, or by direct marketing, and to increase
its origination of, and investment in, mortgage loans, with an emphasis on
multi-family loans. Multi-family lending is a significant business of the Bank
and reflects the fact that much of the housing in the Bank's delineated
lending area is multi-family housing. The Bank's secondary, or supplemental,
strategy, is to provide a stable source of liquidity and earnings through the
purchase of short-to medium-term, investment grade securities; seek to
maintain the Bank's asset quality for loans and other investments; and use
appropriate portfolio and asset/liability management techniques in an effort
to reduce the effects of interest rate volatility on the Bank's profitability
and capital.

Franchise Expansion. In pursuit of its primary strategy, the Bank has
entered into the Merger Agreement for the Acquisition of Conestoga and
Pioneer. The Acquisition is the first transaction of its kind by the Bank,
although the Bank has been an active bidder in branch and deposit auctions for
several years. In addition, the November 1992 sale of the Bank's sole Suffolk
County branch, and subsequent June 1993 purchase of a branch on Avenue M in
Brooklyn (a net increase in deposits of $11.8 million) are evidence of
management's intent to consolidate the Bank's service area and increase market
share within it. The Bank will continue to evaluate acquisition and other
growth opportunities as they become available. Additionally, management plans
to supplement this strategy with direct marketing efforts designed to increase
household balances and the number of the Bank's services used per household
among its existing customers.

Loan Originations with an emphasis on Multi-family Lending. Management
believes that multi-family loans provide advantages as a portfolio investment.
First, they provide a higher yield than single family loans or investment
securities of comparable maturities or terms to repricing. Second, the Bank's
market area generally has provided a stable flow of new and refinanced multi-
family loan originations. In addition to its emphasis on multi-family lending,
the Bank will continue to market and originate residential first mortgage
loans secured primarily by owner-occupied, one- to four-family residences,
including condominiums and cooperative apartments. See "Business of the Bank--
Lending Activities--One- to Four-Family Mortgage and Cooperative Apartment
Lending." Third, origination and processing costs for the Bank's multi-family
loans are lower per thousand than comparable single family costs. In addition,
to address the higher credit risk associated with multi-family lending,
management has developed what it believes are reliable underwriting standards
for loan applications in order to maintain a consistent credit quality for new
loans.

Stable Source of Liquidity and Earnings. The Bank purchases short- to
medium-term investment grade securities combining what management believes to
be appropriate yield, liquidity, and credit quality, in its efforts to achieve
(1) a managed and predictable source of liquidity to meet loan demand, (2) a
stable source of interest

63
<PAGE>

income and (3) diversification in the Bank's portfolio of earning assets. This
portfolio is comprised of fixed- and adjustable-rate obligations of various
corporate and federal agency issuers totaling $182.0 million. In accordance
with the Bank's policies, new investments in this category must be rated at
least "investment grade" upon purchase and have a final maturity or repricing
term no greater than ten years, although no security purchased since 1990 has
had a term to maturity or repricing greater than five years. Corporate debt
obligations generally carry both a higher rate of return and a higher degree
of credit risk than U.S. Treasury securities with comparable maturities. In
addition, corporate securities are generally less liquid than comparable U.S.
Treasury securities. In recognition of the additional risks associated with
investing in these securities, the Bank's investment policy limits new
investments in corporate obligations to those companies which are rated single
"A" or better by one of the nationally recognized rating agencies, and limits
investments in any one corporate entity to the lesser of 1% of total assets or
15% of the Bank's equity. See "Business of the Bank--Investment Activities."

Asset Quality. The Bank has sought to maintain high asset quality by
utilizing comprehensive loan underwriting standards and collection efforts and
by generally limiting its origination of mortgage loans to its market area. In
addition, the Bank has established a loan workout group whose responsibility
is to manage the Bank's Other Real Estate Owned ("OREO") properties and
foreclosures. Total non-performing assets have decreased steadily since 1992,
due in part to the efforts of this group and also to the general improvement
in the area economy. See "Risk Factors--Weakness in the Local Economy." The
Bank's ratio of non-performing loans to total loans at year end ranged from
1.18% to 3.48% during the five-year period ended June 30, 1995, and was 1.73%
at December 31, 1995. Non-performing assets to total assets averaged 2.58%
during the last five years, and were 1.43% at December 31, 1995. The Bank's
allowance for loan losses to non-performing loans averaged 42.0% over the five
years ended June 30, 1995, and was 74.9% at December 31, 1995.

Interest Rate Volatility. The Bank relies primarily on an income-simulation
model to measure its risk exposure to changes in interest rates. Income-
simulation analysis attempts to capture not only the potential of assets and
liabilities to mature or reprice but also the potential magnitude of these
changes based upon various sets of assumptions used in the model. See "Risk
Factors--Potential Impact of Changes in Interest Rates." The interest rate
risk management strategy of the Bank is designed to stabilize net interest
income and preserve capital over a broad range of interest rate movements and
has three primary components:

. Assets. To aid in the implementation of this strategy, in addition to
the origination of multi-family loans, management has sought to include
various types of adjustable-rate single family (including cooperative
apartment) whole loans and adjustable-rate investment securities in its
portfolio. These categories of adjustable-rate assets generally have
repricing terms of 3 years or less. Adjustable-rate whole loans (single
family and cooperative apartments) totaled $109.5 million as of December
31, 1995, and adjustable-rate investment securities (mortgage-backed
securities issued by government-sponsored entities) totaled $35.0 million
at the same date.

. Deposit Liabilities. The Bank, a traditional community-based savings
bank, is largely dependent upon its base of competitively priced core
deposits to provide stability on the liability side of the balance sheet.
The Bank has retained many loyal customers over the years through a
combination of service quality, convenience, and a stable and experienced
staff. Core deposits at December 31, 1995 were $272.2 million, or 48.9% of
total deposits. The balance of certificates of deposit as of December 31,
1995 was $284.9 million, or 51.1% of total deposits. Depending on market
conditions, management prices its certificates of deposit in an effort to
encourage the extension of the average maturities of deposit liabilities
beyond one year. Over the twelve-month period ending December 31, 1995, the
Bank had an 80.2% retention rate on maturing certificates of deposit.

. Wholesale Funds. The Bank does not accept brokered deposits as a source
of funds and has no plans to do so in the future. However, the Bank is a
member of the FHLBNY which provides it with a borrowing line equal to $96.0
million. From time to time, the Bank will draw down advances ("borrowings")
from the FHLBNY for various purposes. At December 31, 1995, the Bank had
$15.7 million in medium-term advances outstanding.

64
<PAGE>

The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1995, which are
anticipated by the Bank, based upon certain assumptions, to reprice or mature
in each of the future time periods shown. Except as stated below, the amount
of assets and liabilities shown which reprice or mature during a particular
period were determined based on the earlier of term to repricing or the term
to repayment of the asset or liability. The table is intended to provide an
approximation of the projected repricing of assets and liabilities at December
31, 1995 on the basis of contractual maturities, anticipated prepayments, and
scheduled rate adjustments within a three-month period and subsequent selected
time intervals. For purposes of presentation in the following table, the Bank
utilized the national deposit decay rate assumptions published by the OTS as
of December 31, 1992 (the latest available), which for savings accounts, NOW
and Super NOW accounts and money market accounts in the one year or less
category, were 17%, 37% and 79%, respectively. The loan amounts in the table
reflect principal balances expected to be redeployed and/or repriced as a
result of contractual amortization and anticipated early payoffs of
adjustable- and fixed-rate loans, and as a result of contractual rate
adjustments on adjustable-rate loans. The amounts attributable to mortgage-
backed securities reflect principal balances expected to be redeployed and/or
repriced as a result of anticipated principal repayments, and as a result of
contractual rate adjustments on adjustable-rate mortgage-backed securities.

<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
------------------------------------------------------------------------------------
MORE THAN MORE THAN MORE THAN MORE THAN NON-
3 MONTHS 3 MONTHS 6 MONTHS 1 YEAR 3 YEARS MORE THAN INTEREST
OR LESS TO 6 MONTHS TO 1 YEAR TO 3 YEARS TO 5 YEARS 5 YEARS BEARING TOTAL
-------- ----------- --------- ---------- ---------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING
ASSETS(1):
Mortgages and other
loans (total).......... $ 34,693 $32,578 $ 84,424 $110,787 $139,287 $ 39,260 $ -- $441,029
Investment securities... 35,299 9,988 12,139 26,063 1,733 8,203 -- 93,425
Mortgage-backed
securities(2).......... 13,621 16,226 13,566 17,422 21,295 10,454 -- 92,584
Federal funds
investments............ 12,802 -- -- -- -- -- -- 12,802
FHLB capital stock...... 4,801 -- -- -- -- -- -- 4,801
-------- ------- -------- -------- -------- -------- ------- --------
Total interest-earning
assets................ 101,216 58,792 110,129 154,272 162,315 57,917 -- 644,641
Less:
Loan loss reserves..... -- -- -- -- -- -- (5,710) (5,710)
-------- ------- -------- -------- -------- -------- ------- --------
Net interest-earning
assets................ 101,216 58,792 110,129 154,272 162,315 57,917 (5,710) 638,931
Non-interest-earning
assets................. -- -- -- -- -- -- 26,256 26,256
-------- ------- -------- -------- -------- -------- ------- --------
Total assets........... $101,216 $58,792 $110,129 $154,272 $162,315 $ 57,917 $20,546 $665,187
======== ======= ======== ======== ======== ======== ======= ========
INTEREST-BEARING
LIABILITIES:
Savings accounts........ $ 9,778 $ 9,778 $ 19,556 $ 59,409 $ 38,730 $ 92,825 $ -- $230,076
NOW and Super NOW
accounts............... 1,433 1,433 2,865 5,246 1,404 3,108 -- 15,489
Money market accounts... 3,117 3,117 6,235 1,737 826 751 -- 15,783
Certificates of
deposit................ 70,801 49,945 69,908 77,624 16,647 -- -- 284,925
Borrowed funds.......... -- -- -- 15,710 -- 2,024 -- 17,734
Mortgagors' escrow...... -- -- -- -- -- 2,850 -- 2,850
-------- ------- -------- -------- -------- -------- ------- --------
Total interest-bearing
liabilities........... 85,129 64,273 98,564 159,726 57,607 101,558 -- 566,857
Checking accounts....... -- -- -- -- -- -- 10,811 10,811
Other non-interest-
bearing liabilities.... -- -- -- -- -- -- 7,261 7,261
Equity.................. -- -- -- -- -- -- 80,258 80,258
-------- ------- -------- -------- -------- -------- ------- --------
Total liabilities and
equity................ $ 85,129 $64,273 $ 98,564 $159,726 $ 57,607 $101,558 $98,330 $665,187
======== ======= ======== ======== ======== ======== ======= ========
Interest sensitivity gap
per period............. $ 16,087 $(5,481) $ 11,565 $ (5,454) $104,708 $(43,641) --
======== ======= ======== ======== ======== ========
Cumulative interest
sensitivity gap........ $ 16,087 $10,606 $ 22,171 $ 16,717 $121,425 $ 77,784 --
======== ======= ======== ======== ======== ========
Cumulative interest
sensitivity gap as a
percent of total
assets................. 2.42% 1.59% 3.33% 2.51% 18.25% 11.69% --
Cumulative total
interest-earning assets
as a percent of
cumulative total
interest-bearing
liabilities............ 118.90% 107.10% 108.94% 104.10% 126.10% 113.72% --
</TABLE>
--------
(1) Interest-earning assets are included in the period in which the balances
are expected to be redeployed and/or repriced as result of anticipated
pre-payments, scheduled rate adjustments, and contractual maturities.
(2) Based upon historical repayment experience.

65
<PAGE>

Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may not react correspondingly
to changes in market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate with changes in market interest rates,
while interest rates on other types of assets may lag behind changes in market
rates. Additionally, certain assets, such as adjustable-rate loans, have
features, like annual and lifetime rate caps, which restrict changes in
interest rates both on a short-term basis and over the life of the asset.
Further, in the event of a change in interest rates, prepayment and early
withdrawal levels would likely deviate from those assumed in the table.
Finally, the ability of certain borrowers to make scheduled payments on their
adjustable-rate loans may decrease in the event of an interest rate increase.

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 depends upon the relative amounts of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them.

The following table sets forth certain information relating to the Bank's
consolidated statement of financial condition at December 31, 1995, and
consolidated statements of financial condition and the consolidated statements
of operations for the years ended June 30, 1995, 1994 and 1993 and the six
months ended December 31, 1995 and 1994, and reflects the average yield on
assets and average cost of liabilities for the periods indicated. Such yields
and costs are derived by dividing income or expense by the average balance of
assets or liabilities, respectively, for the periods shown. Average balances
are derived from average daily balances. The yields and costs include fees
which are considered adjustments to yields.

<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED DECEMBER 31,
AT DECEMBER 31, ------------------------------------------------------
1995 1995 1994
---------------- -------------------------- --------------------------
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:
Real estate
loans(1)(6)........... $437,250 8.77% $432,137 $19,532 9.04% $427,693 $19,218 8.99%
Other loans............ 3,779 8.75 3,691 164 8.89 3,796 164 8.64
Mortgage-backed
securities(2)......... 92,584 6.76 90,096 3,007 6.68 90,698 2,664 5.87
Investment
securities(2)(3)...... 98,226 5.90 99,164 2,908 5.87 83,086 2,219 5.34
Federal funds sold..... 12,802 5.51 23,358 665 5.69 7,924 196 4.95
-------- -------- ------- -------- -------
Total interest-earning
assets................ 644,641 7.98% 648,446 $26,276 8.10% 613,197 $24,461 7.98%
-------- -------- ======= -------- =======
Allowance for loan
losses................. (5,710) (4,646) (3,318)
Non-interest-earning
assets................. 26,256 22,796 22,106
-------- -------- --------
Total assets........... $665,187 $666,596 $631,985
======== ======== ========
LIABILITIES AND EQUITY:
Interest-bearing
liabilities:
NOW, Super NOW and
Money market
accounts.............. $ 31,272 2.06% $ 30,844 $ 321 2.08% $ 35,418 $ 385 2.17%
Savings accounts....... 230,076 2.53 231,539 2,905 2.51 281,095 3,527 2.51
Certificates of
deposit............... 284,925 5.82 284,049 8,220 5.79 206,848 4,206 4.07
Mortgagors' escrow..... 2,850 2.00 3,428 35 2.04 2,958 32 2.16
Borrowed funds......... 17,734 5.65 17,795 505 5.68 18,004 512 5.69
-------- -------- ------- -------- -------
Total interest-bearing
liabilities........... 566,857 4.25% 567,655 $11,986 4.22% 544,323 $ 8,662 3.18%
-------- -------- ======= -------- =======
Checking accounts....... 10,811 11,288 10,821
Other non-interest
bearing liabilities.... 7,261 8,744 5,938
-------- -------- --------
Total liabilities...... 584,929 587,687 561,082
Equity.................. 80,258 78,909 70,903
-------- -------- --------
Total liabilities and
equity................ $665,187 $666,596 $631,985
======== ======== ========
Net interest
income/interest rate
spread(4).............. 3.73% $14,290 3.88% $15,799 4.80%
======= =======
Net interest-earning
assets/net interest
margin(5).............. $ 80,791 4.41% $ 68,874 5.15%
======== ========
Ratio of interest-
earning assets to
interest-bearing
liabilities............ 113.72% 114.23% 112.65%
</TABLE>
(Notes on following page)

66
<PAGE>

<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------------------------------------------------------------
1995 1994 1993
--------------------------- --------------------------- ---------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
--------- -------- ------- --------- -------- ------- --------- -------- -------
(DOLLAR IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Real estate loans(1)... $ 427,042 $38,375 8.99% $ 451,699 $40,596 8.99% $ 470,427 $42,662 9.07%
Other loans............ 3,803 307 8.07 4,006 337 8.41 3,935 369 9.38
Mortgage-backed
securities(2)......... 89,232 5,464 6.12 86,040 4,858 5.65 58,878 4,199 7.13
Investment
securities(2)(3)...... 84,188 4,402 5.23 69,975 3,454 4.94 63,954 3,808 5.95
Federal funds sold..... 12,179 675 5.54 18,000 576 3.20 11,747 355 3.02
--------- ------- --------- ------- --------- -------
Total interest-earning
assets................ 616,444 $49,223 7.99% 629,720 $49,821 7.91% 608,941 $51,393 8.44%
======= ======= =======
Allowance for loan
losses................ (4,404) (3,278) (2,643)
Non-interest-earning
assets................ 23,662 20,476 20,189
--------- --------- ---------
Total assets........... $ 635,702 $ 646,918 $ 626,487
========= ========= =========
LIABILITIES AND EQUITY:
Interest-bearing
liabilities:
NOW, Super NOW and
Money market
accounts.............. $ 33,583 $ 716 2.13% $ 37,334 $ 840 2.25% $ 37,701 $ 1,039 2.76%
Savings accounts....... 264,247 6,575 2.49 294,348 7,511 2.55 268,903 8,453 3.14
Certificates of
deposit............... 225,785 10,571 4.68 213,092 8,219 3.86 226,888 10,074 4.44
Mortgagors' escrow..... 3,253 71 2.18 3,183 67 2.10 2,740 57 2.08
Borrowed funds......... 17,922 1,013 5.65 16,819 957 5.69 19,072 1,628 8.54
--------- ------- --------- ------- --------- -------
Total interest bearing
liabilities........... 544,790 $18,946 3.48% 564,776 $17,594 3.11% 555,304 $21,251 3.83%
--------- ======= --------- ======= --------- =======
Checking accounts....... 10,950 10,926 9,087
Other non-interest
bearing liabilities.... 6,678 6,647 7,450
--------- --------- ---------
Total liabilities...... 562,418 582,349 571,841
Equity.................. 73,284 64,569 54,646
--------- --------- ---------
Total liabilities and
equity................ $ 635,702 $ 646,918 $ 626,487
========= ========= =========
Net interest
income/interest rate
spread(4).............. $30,277 4.51% $32,227 4.80% $30,142 4.61%
======= ======= =======
Net interest-earning
assets/net interest
margin(5).............. $ 71,654 4.91% $ 64,944 5.12% $ 53,637 4.95%
========= ========= =========
Ratio of interest-
earning assets to
interest-bearing
liabilities............ 113.15% 111.50% 109.66%
</TABLE>
--------
(1) In computing the average balance of loans, non-accrual loans have been
included.
(2) Includes securities classified "available for sale."
(3) Includes interest bearing deposits in other banks and FHLB stock.
(4) Net interest rate spread represents the difference between the average
rate on interest-earning assets and the average cost of interest-bearing
liabilities.
(5) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
(6) Real estate loans at December 31, 1995 include $267.8 million of multi-
family and underlying cooperative loans with a weighted average rate of
9.14%.

67
<PAGE>

RATE/VOLUME ANALYSIS

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

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 JUNE 30, 1995 JUNE 30, 1994
COMPARED TO COMPARED TO COMPARED TO
SIX MONTHS ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 JUNE 30, 1994 JUNE 30, 1993
INCREASE/(DECREASE) INCREASE/(DECREASE) INCREASE/(DECREASE)
DUE TO DUE TO DUE TO
------------------------ ----------------------- -------------------------
VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET
------ ------- ------- ------- ----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Interest-earning assets:
Real estate loans...... $ 200 $ 114 $ 314 $(2,216) $ (5) $(2,221) $(1,691) $ (375) $(2,066)
Other loans............ (5) 5 0 (17) (13) (30) 6 (38) (32)
Mortgage-backed
securities............ (19) 362 343 188 418 606 1,735 (1,076) 659
Investment securities.. 452 237 689 722 226 948 328 (682) (354)
Federal funds sold..... 411 58 469 (254) 353 99 195 26 221
------ ------- ------- ------- ----- ------- ------- ------- -------
Total................. $1,039 $ 776 $ 1,815 $(1,577) $ 979 $ (598) $ 573 $(2,145) $(1,572)
====== ======= ======= ======= ===== ======= ======= ======= =======
Interest-bearing
liabilities:
NOW, Super NOW and
money market
accounts.............. $ (49) $ (15) $ (64) $ (82) $ (42) $ (124) $ (9) $ (190) $ (199)
Savings accounts....... (622) 0 (622) (759) (177) (936) 725 (1,667) (942)
Certificate of deposit
and other............. 1,902 2,112 4,014 542 1,810 2,352 (572) (1,283) (1,855)
Mortgagors' escrow..... 5 (2) 3 2 2 4 9 1 10
Borrowed funds......... (6) (1) (7) 63 (7) 56 (160) (511) (671)
------ ------- ------- ------- ----- ------- ------- ------- -------
Total................. 1,230 2,094 3,324 (234) 1,586 1,352 (7) (3,650) (3,657)
------ ------- ------- ------- ----- ------- ------- ------- -------
Net change in net
interest income........ $ (191) $(1,318) $(1,509) $(1,343) $(607) $(1,950) $ 580 $ 1,505 $ 2,085
====== ======= ======= ======= ===== ======= ======= ======= =======
</TABLE>

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1995 AND JUNE 30, 1995

Asset growth amounted to $2.5 million in the six months ended December 31,
1995, increasing assets to $665.2 million, as compared to $662.7 million at
June 30, 1995. The growth was concentrated in the Bank's loan portfolio, which
increased by $11.1 million to $441.0 million at December 31, 1995, or 66.3% of
total assets. Management continued its strategy of emphasizing multi-family
lending as loans secured by multi-family and underlying cooperative apartment
buildings increased as a percentage of total loans, rising $15.4 million
during the period to $267.8 million, or 60.6% of gross loans. See "--
Management Strategy--Loan Originations with an emphasis on Multi-family
Lending." Growth in this segment of the portfolio was attributable to the
Bank's more competitive loan pricing during the period. During the six months
ended December 31, 1995, the Bank originated over $32.3 million, at an average
rate of 8.63%, in new multi-family and underlying cooperative building loans,
as compared to $36.3 million for all of fiscal year 1995.

The Bank's portfolio of other residential mortgage loans, which are mostly
adjustable-rate loans, continued to decline. The Bank's holdings of one- to
four-family and cooperative apartment loans declined by an aggregate of $8.0
million during the period, including repayments of principal. Substantially
all of the loans originated by the Bank in the one- to four-family and
cooperative apartment markets were fixed-rate loans. These loans were sold to
the secondary mortgage market as part of the Bank's overall interest rate risk
management strategy which focuses in part on selling fixed-rate loans in the
secondary market and retaining adjustable-rate loans in the Bank's portfolio.
See "--Management Strategy--Interest Rate Volatility."

68
<PAGE>

The Bank's portfolio of investment securities declined slightly between June
30, 1995 and December 31, 1995. Mortgage-backed securities, which totaled
$92.6 million, increased by $1.0 million during the period. Substantially all
of the increase was attributable to new purchases of adjustable-rate and short
term fixed-rate mortgage-backed securities backed by various federal agency
issuers. Other securities, however, declined by $3.5 million, the difference
being redeployed into new loans. Federal funds sold totaled $12.8 million at
December 31, 1995, a decrease of $5.0 million from June 30, 1995.

Total asset growth during the six-month period was funded by growth in the
Bank's deposits and by retained earnings. Total deposits were $557.1 million
at December 31, 1995, as compared to $554.8 million at June 30, 1995, an
increase of $2.3 million. The increase was attributable to the combined effect
of interest paid on deposits totaling $11.5 million and net deposit outflows
of $9.2 million during the period. The composition of the Bank's deposits
continued to change, as reflected in the shift of deposits out of savings
accounts and into certificates of deposit. The Bank's savings accounts, which
totaled $230.1 million at December 31, 1995, declined by $8.1 million during
the six month period ended December 31, 1995. Certificates of deposit, on the
other hand, increased by $9.8 million during the period to $284.9 million, or
51.1% of total deposits. This shift is at least partly attributable to the
Bank's deposit pricing strategy which, by paying competitive interest rates on
certificates of deposit with maturities beyond one year, has encouraged
depositors to extend the average maturity of their deposit liabilities. See
"--Management Strategy--Interest Rate Volatility."

Total equity of the Bank was $80.3 million at December 31, 1995, or 12.07%
of total assets, an increase of $3.2 million from June 30, 1995. The increase
was attributable to net income of $3.1 million during the period and a
$129,000 increase in the component recognizing the net unrealized gain on the
Bank's available for sale securities portfolio, net of taxes, as required by
SFAS No. 115.

COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1995 AND JUNE 30, 1994

Total assets increased to $662.7 million at June 30, 1995, from $646.5
million at June 30, 1994, an increase of $16.2 million. The annual growth that
occurred in fiscal year 1995 was funded by a combination of net income, which
was $8.4 million, and deposit growth, which totaled $8.1 million for the year.

Asset growth was concentrated in the Bank's securities portfolio, as weak
demand for new residential mortgages at the rates offered, and strong
prepayment activity in the existing mortgage loan portfolio, combined to lower
the Bank's loan holdings. Total loans fell $1.7 million to $429.9 million at
June 30, 1995. A portion of the liquidity created by the combination of the
increase in deposits (which was due to interest credited) and the reduction in
the size of the loan portfolio is reflected in the $10.8 million increase in
the size of the Bank's investment in federal funds sold, which was $17.8
million at June 30, 1995. The remaining liquidity was used for new security
purchases. Growth in the securities portfolio totaled $12.2 million, primarily
attributable to new purchases of short-term, fixed-rate securities backed by
GSEs, consistent with the Bank's supplemental strategy of seeking investments
that provide a stable source of liquidity and earnings. See "Management
Strategy--Stable Source of Liquidity and Earnings." At June 30, 1995, the
Bank's investment in mortgage-backed and investment securities had increased
to $193.2 million, as compared to $181.0 million at June 30, 1994.

Total equity of the Bank was $77.1 million at June 30, 1995, or 11.63% of
total assets. This compares with total equity of $67.9 million and an equity
to total assets ratio of 10.51% at June 30, 1994. Included in the equity
calculation is a component recognizing the net unrealized gain or loss on the
Bank's available for sale securities portfolio, as required by SFAS No. 115,
which the Bank adopted effective July 1, 1994. The net addition to equity
resulting from this requirement totaled $416,000, net of deferred taxes, at
June 30, 1995. Whether the application of SFAS No. 115 will result in an
addition to or a deduction from equity in the future is subject to change with
changes in market conditions and interest rates. See "--Impact of Accounting
Standards."

69
<PAGE>

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

General. Net income for the six months ended December 31, 1995 was $3.1
million as compared to $4.8 million for the six months ended December 31,
1994. Income before cumulative effect of change in accounting principles for
the six-month period ended December 31, 1995 was $4.1 million, a decrease of
$701,000 from $4.8 million for the same period of the prior year. An increase
in the average yield on interest-earning assets, which rose to 8.10% from
7.98% in 1994, was offset by a greater increase in the Bank's average cost of
funds, which rose to 4.22% from 3.18% the year before. The result was a
decrease of 92 basis points in the Bank's net interest rate spread, reducing
net interest income by $1.5 million. This was offset, in part, by a $574,000
savings in insurance premiums paid to the FDIC, a result of the FDIC's
decision to lower insurance premiums paid by well-capitalized BIF-insured
institutions from $0.23 to $0.04 per $100 of insured deposits, effective June
1, 1995.

Interest Income. Interest income amounted to $26.3 million for the six
months ended December 31, 1995, representing an increase of $1.8 million from
the same period in 1994. The increase was the result of the combined effect of
a $35.2 million increase in average interest-earning assets and a 12 basis
point increase in the yield on earning assets. The increase in the average
interest rate on interest earning assets was primarily due to the higher
interest rate environment which affected both repricing assets, mostly
adjustable-rate investment securities and whole loans, and new investments.
The increase in average interest-earning assets is reflected primarily in the
growth in investment securities and federal funds sold, consistent with the
Bank's supplemental strategy of seeking investments that provide a stable
source of liquidity and earnings. See "Management Strategy--Stable Source of
Liquidity and Earnings."

Interest Expense. Interest-bearing liabilities averaged $567.7 million for
the six months ended December 31, 1995, representing an increase of $23.3
million, or 4.29%, over the same period of the prior year. Total interest
expense of $12.0 million represented a $3.3 million increase from the six
months ended December 31, 1994, as the average rate paid on interest-bearing
liabilities increased 104 basis points, from 3.18% to 4.22%. The increase in
the average rate paid on interest-bearing liabilities resulted from the higher
interest rate environment and from a steady shift of deposits out of savings
accounts and into higher costing certificates of deposit. Management's
strategy of paying competitive interest rates on certificates of deposit with
maturities in excess of one year, which management believes should help to
stabilize the Bank's cost of funds over the longer term, contributed to a
higher cost of funds in the current period. Average savings account balances
decreased by $49.6 million from $281.1 million for the six months ended
December 31, 1994 to $231.5 million for the six months ended December 31,
1995, at the same time the average certificates of deposit balance increased
by $77.2 million from $206.8 million for the six months ended December 31,
1994 to $284.0 million for the six months ended December 31, 1995. The average
rate paid on certificates of deposit increased by 172 basis points over the
same period.

Provision for Loan Losses. The provision for loan losses totaled $950,000
for the six-month period ended December 31, 1995 as compared to $1.5 million
in the comparable 1994 period. At June 30, 1994 the Bank's allowance for loan
losses as a percentage of total loans was 0.84%. By December 31, 1995, the
allowance for loan losses represented 1.29% of total loans, reflecting the
fact that from June 30, 1994 to December 31, 1995 loan loss provisions
consistently exceeded loan charge-offs. In management's judgment, it was
prudent to continue to increase the loan loss allowance based upon an
evaluation of the adequacy of the reserve in the context of the Bank's
historical loan loss experience and the continuing emphasis on multi-family
lending. See "Management Strategy--Loan Originations with an emphasis on
Multi-family Lending" and "Asset Quality." At December 31, 1995, the Bank's
allowance for loan losses as a percentage of total non-performing loans was
74.9%, as compared to 80.8% at December 31, 1994. See "Risk Factors--Multi-
family and Non-residential Lending Risks," and "Business of the Bank--Asset
Quality."

Non-Interest Income. Non-interest income was $601,000 in the six months
ending December 31, 1995, a decrease of $204,000 from the same period in 1994.
This decrease reflects a $58,000 net gain on the sale of OREO and a $56,000
gain on bonds called, offset by a $195,000 loss attributable to the sale of
preferred

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stock, and a $105,000 decline in income provided by service charges primarily
due to a change in the way the Bank accounts for income from the rental of
safe deposit boxes.

Non-Interest Expense. Overall, non-interest expense was $6.4 million during
the six months ended December 31, 1995, a decrease of $142,000 from the
comparable 1994 period. A reduction in the rate paid by the Bank to the FDIC
for deposit insurance premiums, combined with a refund from the FDIC for
premiums previously paid in the amount of $319,000, lowered non-interest
expense by $574,000 during the period. This was partially offset by a $247,000
increase in compensation and benefits expense, which was attributable to an
increase in employee bonuses and normal salary increases, and a $250,000
provision for losses attributable to the Bank's holding of OREO. See "Risk
Factors--Recapitalization of SAIF, SAIF Premiums and Proposed BIF Premiums."

Income Tax Expense. Tax expense totaled $3.4 million for the six months
ended December 31, 1995, versus $3.8 million in 1994. The decrease was
attributable to lower pre-tax income, which fell from $8.6 million in the six
months ended December 31, 1994 to $7.5 million in 1995, and to the application
of tax loss carryforwards to capital gains totaling $183,000 in 1994, which
effectively lowered the Bank's tax rate for that year.

Cumulative Effect of Changes in Accounting Principles. On July 1, 1995, the
Bank adopted SFAS No. 106, which requires accrual of post-retirement benefits,
such as health care benefits, during the years an employee provides services.
The cumulative effect of the adoption of SFAS No. 106 on prior years was
$1,032,000, after a reduction for income taxes of $879,000. As permitted by
the Standard, the Bank elected to record this liability at the time of
adoption. See "--Impact of Accounting Standards."

COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED JUNE 30, 1995 AND
1994

General. Net income for fiscal year 1995 was $8.4 million, as compared to
$9.1 million during fiscal year 1994. Interest rates rose sharply beginning in
February, 1994, and then gradually declined after January, 1995. The result
was a higher yield on earning assets and a higher cost of interest-bearing
liabilities in 1995 than in fiscal year 1994. The effect on the Bank's
liabilities was greater, however, as more interest-bearing liabilities than
interest earning assets repriced during the year. The result was a decline in
both net interest income and net income for the Bank in fiscal year 1995. Net
income fell to $8.4 million, a decrease of $655,000 from the previous fiscal
year, due to (1) the decline in net interest income, which fell by $2.0
million, (2) a $494,000 decrease in non-interest income, and (3) a $1.3
million increase in non-interest expense. These were partially offset by a
$1.2 million decrease in the provision for loan losses and adoption of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"), effective July 1, 1993, whereby the Bank changed
prospectively from the deferred method to the liability method of accounting
for income taxes, which resulted in a charge of $383,000 during the fiscal
year ended June 30, 1994.

Interest Income. Total interest income was $49.2 million in fiscal year
1995, a decrease of $598,000 from fiscal year 1994. Despite an increase in the
average yield on earning assets during the year, interest income fell,
primarily because of a $13.3 million decrease in the amount of average
interest-earning assets. The Bank's average investment in real estate loans
was $427.0 million in fiscal year 1995 versus $451.7 million during the prior
year, as principal repayments exceeded new loan originations for the Bank's
portfolio. The result was a drop of $2.2 million in interest income from the
real estate loan portfolio during 1995. Interest income from mortgage-backed
securities increased by $606,000 to $5.5 million, due to the $3.2 million
growth in the Bank's average investment in these securities and to a 47 basis
point increase in the average yield on the mortgage-backed securities
portfolio. Similarly, interest income provided by the Bank's portfolio of
other securities increased by $948,000 from fiscal year 1994 to fiscal year
1995. A $14.2 million increase in the average balance invested in this
portfolio combined with an increase in yield to 5.23% in 1995 from 4.94% in
fiscal year 1994 accounted for the increase. Federal funds sold, despite
averaging $5.8 million less in fiscal year 1995, provided

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$99,000 more in interest income during the year due to a 234 basis point
increase in the average yield on federal funds.

Interest Expense. Average interest-bearing liabilities decreased by $20.0
million in fiscal year 1995, reflecting net deposit outflows during the year.
Total interest expense rose during the period, however, as rising funding
costs offset the drop in average interest-bearing liabilities. Throughout the
first half of the 1995 fiscal year, the Bank's depositors responded to higher
interest rates by extending their deposit maturities. Savings account
deposits, which had previously grown during a period of low rates existing in
1993 and 1992, began to shift into higher yielding certificates of deposit.
During fiscal year 1995, average savings account balances decreased by
$30.1 million from year earlier average balances. Meanwhile average balances
of certificates of deposit grew from $213.1 million during the 1994 fiscal
year, to $225.8 million during the 1995 fiscal year, an increase of $12.7
million. The net result was an increase in deposit expense of $1.3 million.
Interest expense attributable to borrowed funds increased by $56,000 on a $1.1
million increase in average borrowings.

Net Interest Income. Net interest income for the 1995 fiscal year was $30.3
million, a decline of $1.95 million, or 6.1%, from 1994's results. A lower
average interest rate spread and a $11.2 million reduction in the average
assets of the Bank combined to reduce net interest income. The interest rate
spread and net interest margin were 4.51% and 4.91%, respectively, in 1995, as
compared with 4.80% and 5.12% in 1994. Generally, the Bank's assets repriced
less quickly than the Bank's liabilities during the year, a result due in
large part to the high volume of deposit flows out of savings accounts and
into higher cost certificates of deposit.

Provision for Loan Losses. The provision for loan losses was $2.95 million
in 1995 as compared to $4.11 million in the 1994 fiscal year. The change in
the level of loan loss provisions reflected the general improvement in the
overall credit quality of the Bank's balance sheet during fiscal year 1995. By
June 30, 1995, both non-performing loans and non-performing assets had
declined significantly from year earlier levels. During the period, total non-
performing loans declined by $1.2 million, or 18.8%. Non-performing assets
showed similar improvement, falling from $14.4 million at June 30, 1994, to
$9.5 million a year later. In addition, net charge-offs for the fiscal year
1995 were $1.4 million, representing a decline of $2.1 million from fiscal
year 1994. At June 30, 1995, the allowance for loan losses totaled 101.99% of
non-performing loans and 1.20% of total loans, up from 58.15% and 0.84%,
respectively, at June 30, 1994. See "Business of the Bank--Asset Quality--
Non-performing Assets and Troubled-Debt Restructurings."

Non-Interest Income. Non-interest income for the 1995 fiscal year decreased
to $1.8 million from $2.3 million in 1994, a reduction of $494,000. Bonds
called in the low interest rate environment of the 1994 fiscal year provided
$342,000 in non-interest income, as compared to the $52,000 generated in
fiscal year 1995 by the sale of securities, a decline of $290,000.
Additionally, net gains on the sale of fixed-rate loans to the secondary
mortgage market fell by $184,000 in fiscal year 1995 as compared with fiscal
year 1994, due to the change in direction of interest rates during each
respective period.

Non-Interest Expense. Total non-interest expense increased $1.3 million, or
10.5%, in the 1995 fiscal year to $14.1 million, as compared to $12.7 million
in fiscal year 1994. The primary factor behind this increase was a $565,000
charge taken during 1995 for possible losses from the Bank's investment in the
capital stock and debentures of Nationar, which was one of the Bank's primary
correspondent banks. Additionally, the Bank established a $75,000 reserve
against the possibility of losses relating to its federal funds held by
Nationar at February 6, 1995. See "Business of the Bank--Legal Proceedings."

Other factors contributing to the increase in total non-interest expense in
the 1995 fiscal year were a $418,000 increase in compensation and benefits and
a $112,000 increase in expenses associated with managing the Bank's portfolio
of OREO. The increase in OREO expenses in fiscal year 1995 was due to the
payment of maintenance arrears on four cooperative apartments on which the
Bank foreclosed during 1995. The increase in compensation and benefits
expenses reflects, in part, the Bank's establishment of a Supplemental
Executive Retirement Plan ("SERP") in February of 1994 in the middle of the
Bank's 1994 fiscal year. Thus, fiscal 1995 was the first full year for SERP
expense accruals. Expenses attributable to the SERP were $64,000 higher in

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fiscal year 1995 than in fiscal year 1994 as a result. In addition, there was
a $312,000 increase in employee salaries and benefits expense in fiscal year
1995 due to normal salary increases.

Income Tax Expense. Income tax expense declined by $1.6 million in fiscal
year 1995 as compared to fiscal year 1994 due to a decrease in pre-tax income.
The Bank's effective income tax rates for the fiscal year 1995 and fiscal year
1994 were 44.0% and 46.5%, respectively. The effective rate was higher in
fiscal year 1994 due to several factors, the most important of which were the
application of accrued tax loss carryforwards to a capital gain on one of the
Bank's mutual fund investments, and the impact of a graduated federal tax rate
schedule, which increased the Bank's marginal tax rate in fiscal year 1994 due
to higher pre-tax earnings.

COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED JUNE 30, 1994 AND
1993

General. Net income fell slightly during the year ended June 30, 1994,
declining $117,000 to $9.1 million as compared to $9.2 million in fiscal year
1993. A $2.1 million increase in net interest income was offset by a $710,000
increase in the provision for loan losses, a $928,000 decrease in non-interest
income, and a $500,000 increase in non-interest expense.

Interest Income. Total income from interest-earning assets declined in the
1994 fiscal year to $49.8 million from $51.4 million in 1993, a reduction of
$1.6 million. During the year, a $20.8 million increase in average earning
assets was offset by a 53 basis point decline in the average yield on earning
assets. Interest income on real estate loans, the largest component of
interest income, fell $2.1 million to $40.6 million. In the lower interest
rate environment which prevailed throughout most of fiscal year 1994, the new
loans originated by the Bank generally carried interest rates which were lower
than the average rate on the loan portfolio. A second factor contributing to
the declining yield on the bank's loan portfolio was loan prepayment activity,
which removed higher yielding loans, on average, from the Bank's portfolio.
Additionally, the yield on the Bank's sizeable investment in adjustable-rate
mortgage and cooperative apartment loans fell steadily during the year as the
indices upon which their rate adjustments are based declined.

New investment securities purchased during the year in the low interest rate
environment contributed to the yield reduction on the Bank's investment
securities portfolio. In addition, the Bank's portfolio of adjustable-rate
mortgage-backed securities repriced during the year, lowering the yield on
that segment of the portfolio. The yield on mortgage-backed securities fell to
5.65% in fiscal year 1994 as compared to 7.13% in fiscal year 1993, while the
yield on the Bank's other securities fell to 4.94% from 5.95%. Interest income
from the securities portfolio increased, however, to $8.3 million in fiscal
year 1994 as compared to $8.0 million in fiscal year 1993, due to a $33.2
million increase in the average balance invested in securities.

Interest Expense. Interest expense was $17.6 million in fiscal year 1994, a
decrease of $3.7 million from fiscal year 1993. There was a 72 basis point
decrease in the Bank's average cost of funds, and a $9.5 million increase in
average interest-bearing liabilities. The declining interest rate environment
had a significant effect on the composition of the Bank's deposit liabilities
during the year, as reflected in the sizeable shift of deposits out of
certificates of deposit and into savings accounts. The average balance of
certificates of deposit declined by $13.8 million in the 1994 fiscal year
while the average balance of savings accounts, which generally cost less than
certificates of deposit, increased by $25.4 million, with the result being a
net decrease in the Bank's overall cost of funds.

Net Interest Income. The cost of the Bank's liabilities, primarily short-
term certificates of deposit and savings accounts, fell from 3.83% during 1993
to 3.11% in 1994. During this period, substantially all new certificates of
deposit and all savings, money market, NOW and Super NOW accounts repriced at
lower interest rates. In contrast, because proportionately more of the Bank's
interest earning assets carried maturities or repricing periods in excess of
one year, the yield on the Bank's assets fell less quickly in the declining
interest rate environment. The result was a widening interest rate spread, and
an increase in net interest income, which increased by $2.1 million to $32.2
million in fiscal year 1994 as compared to $30.1 million in fiscal year 1993.

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Provision for Loan Losses. The Bank's provision for loan losses totaled $4.1
million in the 1994 fiscal year, as compared to $3.4 million in 1993. For the
year the Bank's net charge-offs were $3.5 million, compared to $2.5 million in
the 1993 fiscal year necessitating additional provisions to replenish and
increase the reserve balance. Management of the Bank continued to focus on
increasing the loan loss reserve balance given its ongoing emphasis on multi-
family lending and its judgment regarding the need for higher reserve levels
based upon an evaluation of the adequacy of the reserve in the context of the
Bank's historical loan loss experience. See "Risk Factors--Multi-family and
Non-residential Lending Risks." At June 30, 1994, the allowance for loan
losses totaled $3.6 million, a net increase of $637,000 compared to June 30,
1993. The allowance at June 30, 1994 represented 58.15% of non-performing
loans and 0.84% of total loans, as compared to ratios of 25.76% and 0.65%,
respectively, at June 30, 1993.

Non-Interest Income. Non-interest income was $2.3 million in fiscal year
1994, a decrease of $928,000 from fiscal year 1993, due mostly to lower gains
from the sale of loans and other assets. In November 1992, the Bank sold its
Huntington, New York branch resulting in a one-time gain of $716,000, which
was comprised of a deposit premium of $527,000, and a net gain of $189,000 on
the sale of the physical assets of the branch. Gains from the sale of loans to
the secondary mortgage market decreased by $411,000 on lower volumes of loans
sold as compared to 1993. Gains from the sale of securities, however, were
$190,000 higher in fiscal year 1994, due to an increase in the volume of bonds
called at a premium to the Bank's carrying value.

Non-Interest Expense. Non-interest expense increased in 1994 to $12.7
million, as compared to $12.2 million in the 1993 fiscal year. Compensation
and benefits increased $573,000 above year earlier levels, due mostly to
normal salary increases and an increase in employee bonuses. Other operating
expenses remained substantially unchanged from the prior year.

Income Tax Expense. Income taxes were $319,000 lower in 1994 than during the
prior year due to lower pre-tax income, and the effect of an accounting change
required by SFAS No. 109. Effective July 1, 1993 the Bank adopted the
provisions of SFAS No. 109, which requires, among other things, a change from
the deferred method to the asset and liability method of accounting for
deferred taxes. The increase in the effective tax rate was attributable to the
classification, required by SFAS No. 109, of the Bank's post-1987 additions to
its bad debt reserve as "temporary differences."

Cumulative Effect of Changes in Accounting Principles. In February 1992, the
FASB issued SFAS No. 109. SFAS No. 109 required a change from the deferred
method to the asset and liability method of accounting for income taxes. Under
the asset and liability method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences of the differences
between the tax bases and financial reporting bases of assets and liabilities.
SFAS No. 109 also requires an adjustment to deferred tax assets and
liabilities for the effect of changes in tax laws and rates in the year of
enactment. While SFAS No. 109 allows for the recognition of deferred tax
assets for future deductible amounts, it also requires the establishment of a
valuation allowance to reduce the deferred tax assets if it is more likely
than not that all or a portion of the related tax benefits will not be
realized. Among the provisions of SFAS No. 109 which significantly affected
the Bank is the recognition of deferred tax assets for the estimated future
tax consequences of allowances for losses for financial reporting purposes
which were not previously recognized. SFAS No. 109 was effective for fiscal
years beginning after December 15, 1992. The Bank adopted SFAS No. 109
effective July 1, 1993 which resulted in recording a cumulative charge to
earnings of $383,000 and a corresponding increase in the Bank's net deferred
tax asset.

LIQUIDITY AND CAPITAL RESOURCES

The Bank's primary sources of funds are deposits, proceeds from principal
and interest payments on loans, mortgage-backed securities and investments,
and, to a lesser extent, proceeds from the sale of fixed-rate mortgage loans
to the secondary mortgage market. While maturities and scheduled amortization
of loans and investments are a predictable source of funds, deposit flows,
mortgage prepayments and mortgage loan sales are influenced by general
interest rates, economic conditions and competition.

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The Bank is required to maintain an average daily balance of liquid assets
and short-term liquid assets as a percentage of net withdrawable deposit
accounts plus short-term borrowings as defined by OTS regulations. The minimum
required liquidity and short-term liquidity ratios are currently 5.0% and
1.0%, respectively. At December 31, 1995, the Bank's liquidity ratio and
short-term liquid asset ratios were 19.16% and 12.34%, respectively. The
levels of the Bank's short-term liquid assets are dependent on the Bank's
operating, financing and investing activities during any given period.

The primary investing activities of the Bank are the origination of multi-
family and single-family mortgage loans, and the purchase of mortgage-backed
and other securities. During the six months ended December 31, 1995 and the
fiscal years ended June 30, 1995, 1994 and 1993, the Bank's loan originations
totaled $46.6 million, $47.4 million, $64.7 million and $64.4 million,
respectively. Purchases of mortgage-backed and other securities totaled $52.7
million, $55.4 million, $101.3 million and $120.5 million for the six months
ended December 31, 1995 and the fiscal years ended June 30, 1995, 1994, and
1993, respectively. These activities were funded primarily by principal
repayments on loans, mortgage-backed securities and other securities. Loan
sales provided additional liquidity to the Bank, totaling $4.7 million, $2.8
million, $19.9 million and $38.4 million for the six months ended December 31,
1995 and the fiscal years ended June 30, 1995, 1994 and 1993, respectively.
During fiscal year 1993, the Bank consummated the sale of its Huntington, New
York branch, and the purchase of its Avenue M branch in Brooklyn, New York.
The net deposit increase provided by these two transactions during the 1993
fiscal year was $11.8 million.

The Bank experienced a net increase in total deposits of $2.2 million and
$8.1 million in the six months ended December 31, 1995 and the fiscal year
ended June 30, 1995, respectively, while fiscal years 1994 and 1993 produced
decreases in total deposits of $17.3 million and $410,000, respectively.
Deposit flows are affected by the level of interest rates, the interest rates
and products offered by local competitors, and other factors.

The Bank closely monitors its liquidity position on a daily basis. Excess
short-term liquidity is invested in overnight federal funds sales and various
money market investments. In the event that the Bank should require funds
beyond its ability to generate them internally, additional sources of funds
are available through the use of the Bank's $96.0 million borrowing limit at
the FHLBNY. At December 31, 1995, the Bank had $15.7 million in medium term
borrowings outstanding at the FHLBNY and additional overall borrowing capacity
from the FHLBNY of $80.3 million.

The Bank expects to fund the Acquisition through existing liquidity, the
proceeds of the Offerings and, if necessary, short-term borrowings. Upon
completion of the Acquisition the Bank will receive Pioneer's liquid assets
and upon completion of the Conversion the Bank will receive not less than 50%
of the net conversion proceeds. See "Use of Proceeds," and "Management of
Conestoga's Discussion and Analysis of Financial Condition and Results of
Operations of Conestoga."

Loan commitments totaled $26.6 million at December 31, 1995, comprised of
$25.9 million in multi-family commitments and residential mortgage loan
commitments totaling $728,000. Management of the Bank anticipates that it will
have sufficient funds available to meet its current loan commitments.
Certificates of deposit which are scheduled to mature in one year or less from
December 31, 1995 totaled $190.7 million. From October 1, 1994 to December 31,
1995, the Bank experienced an 80.2% retention rate of funds from maturing
certificates of deposit. Based upon this experience and the Bank's current
pricing strategy, management believes that a significant portion of such
deposits will remain with the Bank.

At December 31, 1995, the Bank was in compliance with all applicable
regulatory capital requirements. Tangible capital totaled $79.5 million, or
11.97% of total tangible assets, compared to a 1.50% regulatory requirement;
core capital, at 11.99%, exceeded the required 3.0% regulatory minimum, and
total risk-based capital, at 22.31% of risk weighted assets, exceeded the 8.0%
regulatory requirement.

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IMPACT OF INFLATION AND CHANGING PRICES

The Financial Statements and Notes thereto presented herein have been
prepared in accordance with GAAP, which require the measurement of financial
position and operating results in terms of historical dollars 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 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 price of goods and
services.

IMPACT OF ACCOUNTING STANDARDS

In December, 1990 the FASB issued SFAS No. 106, which significantly changed
the prevailing practice of accounting for post-retirement benefits (such as
health care benefits) on a cash basis to requiring an accrual, during the
years that the employee renders the necessary service, of the expected cost of
providing those benefits to an employee and the employee's beneficiaries and
covered dependents. The Bank adopted SFAS No. 106 effective July 1, 1995,
electing to record the entire accumulated benefit obligations immediately. The
net cumulative effect of the adjustment of $1.0 million (after reduction for
income taxes of $879,000) to apply retroactively to prior years was included
as a charge to net income for the six months ended December 31, 1995.

In May 1993, the FASB issued Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan" ("SFAS No. 114").
Under the provisions of SFAS No. 114, a loan is considered impaired when,
based on current information and events, it is probable that the lender will
be unable to collect all principal and interest due according to the
contractual terms of the loan agreement. SFAS No. 114 requires lenders to
measure impairment of a loan based on (i) the present value of expected future
cash flows discounted at the loan's effective interest rate, (ii) the loan's
observable market price or (iii) the fair value of the collateral if the loan
is collateral-dependent. SFAS No. 114 also applies to restructured loans and
eliminates the requirement to classify loans that are in-substance
foreclosures as foreclosed assets except for loans where the creditor has
physical possession of the underlying collateral, but not legal title. As
amended by SFAS No. 118, SFAS No. 114 allows a creditor to use existing
methods for recognizing interest income on impaired loans. The Bank adopted
SFAS No. 114 effective July 1, 1995. Adoption of this standard did not have a
material effect upon the Bank's financial condition or results from
operations.

In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" which
requires that long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment and reported at the
lower of carrying amount or fair value, less cost to sell, whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. SFAS No. 121 is effective for fiscal years beginning after
December 15, 1995. Management anticipates that the adoption of SFAS No. 121
will not have a material impact on the financial condition or results of
operations of the Bank.

In May 1995, the FASB issued Statement of Financial Accounting Standards No.
122, "Accounting for Mortgage Servicing Rights" ("SFAS 122"). SFAS No. 122
amends Statement of Financial Accounting Standards No. 65, "Accounting for
Certain Mortgage Banking Activities," requiring separate capitalization of the
costs of rights to service mortgage loans for others regardless of whether
these rights are acquired through a purchase or loan origination activity.
SFAS No. 122 is effective for fiscal years beginning after December 15, 1995,
and applies only to servicing rights on loans sold subsequent to adoption.
Management anticipates that the adoption of SFAS No. 122 will not have a
material impact upon the financial condition or results of operations of the
Bank.

In October, 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123").
SFAS No. 123 encourages a fair value based method of

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accounting for an employee stock option or similar equity instrument and
encourages all entities to adopt this method for all employee stock
compensation plans. Under the fair value based method, compensation cost is
measured at the grant date based on the value of the award and is recognized
over the service period, which is usually the vesting period. SFAS No. 123 is
effective for fiscal years beginning after December 15, 1995.

On November 15, 1995, the FASB issued a special report entitled: "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities, Questions and Answers" ("The Guide"). The Guide
permitted a one-time reassessment and related reclassifications from the held
to maturity category (no later than December 31, 1995) that will not call into
question the intent of the enterprise to hold other debt securities at
maturity in the future. In December, 1995, the Bank performed a reassessment
of its investment and mortgage-backed securities portfolios which resulted in
a reclassification of approximately $3.3 million of investment securities from
held-to-maturity into available for sale. The impact upon the Bank's financial
condition resulting from this transfer was not material. There was no impact
on the Bank's results from operations resulting from this transfer.

In November 1993, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position No. 93-6, "Employers' Accounting for
Employee Stock Ownership Plans" ("SOP 93-6") which is effective for fiscal
years beginning after December 15, 1993. SOP 93-6 will apply to the Bank's
ESOP and requires the recognition of compensation expense by employers based
on the fair value of ESOP shares. Under SOP 93-6, the Bank will recognize
compensation expense equal to the fair value of the ESOP shares that become
committed to be released to participant accounts. To the extent that the fair
value of the Bank's ESOP shares at the time they become committed to be
released differs from the original cost of such shares, the difference will be
charged or credited to shareholders' equity. The cost of the stock acquired by
the ESOP which has not yet been committed to be released to participant
accounts will be reflected as a reduction of shareholders' equity.

In December 1994, the AICPA issued Statement of Position No. 94-6,
"Disclosure of Certain Significant Risks and Uncertainties" ("SOP 94-6") which
is effective for fiscal years ending after December 15, 1995. SOP 94-6
requires disclosure in the financial statements about certain risks and
uncertainties that could significantly affect the amounts reported in the
financial statements in the near term and relate to: (i) the nature of
operations; (ii) the necessary use of estimates in the preparation of
financial statements, and; (iii) significant concentrations in certain aspects
of operations. Management does not anticipate that the adoption of SOP 94-6
will have a material impact upon the financial condition or results of
operations of the Bank.

77
<PAGE>

BUSINESS OF THE COMPANY

GENERAL

The Company was organized in December, 1995 at the direction of the Board of
Directors of the Bank for the purpose of becoming a holding company to own all
of the outstanding capital stock of the Bank. Upon consummation of the
Conversion, it is anticipated that the Bank will become a wholly-owned
subsidiary of the Company. The Company filed an application with the OTS to
become a savings association holding company and to acquire the Bank. Upon
Conversion, the Company will be a unitary savings association holding company
and, as such, will be subject to the regulations of the OTS. See "Regulation--
Regulation of Holding Company."

BUSINESS

The Company is not an operating company. Following the Conversion, in
addition to directing, planning and coordinating the business activities of
the Bank, the Company will initially invest primarily in U.S. Government and
federal agency securities, federal funds and investment grade corporate debt
obligations, or in other debt and equity securities which are permissible to a
unitary saving association holding company. In addition, the Company intends
to fund the loan to the ESOP to enable the ESOP to subscribe for up to 8% of
the Common Stock in the Conversion; however, a third party lender may be
utilized to lend funds to the ESOP. In the future, the Company may acquire or
organize other operating subsidiaries, including other financial institutions
or it may merge with or acquire other financial institutions and financial
services related companies, although there are no current arrangements,
understandings or agreements, written or oral, regarding any such expansion,
other than the Acquisition. See "Use of Proceeds." Presently, there are no
agreements or understandings for an expansion of the Company's operations.
Initially, the Company will neither own nor lease any property, but will
instead use the premises and equipment of the Bank. At the present time, the
Company does not intend to employ any persons other than certain officers of
the Bank who will not be separately compensated by the Company. The Company
may utilize the support staff of the Bank from time to time, if needed.
Additional employees will be hired as appropriate to the extent the Company
expands its business in the future.

BUSINESS OF THE BANK

GENERAL

The Bank's principal business has been, and continues to be, gathering
deposits from customers within its market area, and investing those deposits,
primarily in multi-family and one- to four-family residential mortgage loans,
mortgage-backed securities, and obligations of the U.S. Government and GSEs.
The Bank's revenues are derived principally from interest on its loan and
securities portfolios. The Bank's primary sources of funds are: deposits; loan
amortization, prepayments and maturities; amortization, prepayments and
maturities of mortgage-backed and investment securities; and, to a lesser
extent, the sale of fixed-rate mortgage loans to the secondary market. For a
description of the Bank, see "The Dime Savings Bank of Williamsburgh."

MARKET AREA AND COMPETITION

The Bank has been, and intends to continue to be, a community-oriented
financial institution providing financial services and loans for housing
within its market areas. The Bank maintains its headquarters in the
Williamsburgh section of the borough of Brooklyn. Six additional offices are
located in the boroughs of Brooklyn, Queens, and the Bronx, and in Nassau
County. The Bank gathers deposits primarily from the communities and
neighborhoods in close proximity to its branches. The Bank's delineated
lending area is larger, and includes much of New York City and Nassau County.
Most of the Bank's mortgage loans are secured by properties located in its
delineated lending area.

The New York City metropolitan area has historically benefited from having a
large number of corporate headquarters and a diversity of financial services
industries. However, due to (1) the lingering effects of the

78
<PAGE>

decline of the stock market in 1987, (2) the resulting decline in the regional
economy and (3) layoffs and corporate relocations in the financial services
industry, the New York City metropolitan area experienced reduced levels of
employment and an overall decline in the underlying values of local properties
from 1987 to 1993. The local economy and real estate values have recovered
somewhat since then. The rise and decline of the Bank's non-performing asset
portfolio closely parallels the trend of the local economy during this period.
See "Risk Factors--Weakness in the Local Economy."

The Bank faces significant competition both in making loans and in
attracting deposits. The Bank's market area has a high density of financial
institutions, many of which have greater financial resources than the Bank,
and all of which are competitors of the Bank to varying degrees. The Bank's
competition for loans comes principally from commercial banks, savings banks,
credit unions, savings and loan associations, mortgage banking companies and
insurance companies. The Bank has recently faced increased competition for the
origination of multi-family loans, which comprised 60.6% of the Bank's loan
portfolio at December 31, 1995. Management anticipates that competition for
both multi-family and one- to four-family loans will continue to increase in
the future. Thus, no assurances can be made that the Bank will be able to
maintain its current level of such loans. The Bank's most direct competition
for deposits has historically come from savings and loan associations, savings
banks, commercial banks and credit unions. The Bank faces additional
competition for deposits from short-term money market funds and other
corporate and government securities funds, direct purchases of government
securities, and from other financial institutions such as brokerage firms and
insurance companies. Competition may also increase as a result of the lifting
of restrictions on the interstate operations of financial institutions.

LENDING ACTIVITIES

Loan Portfolio Composition. The Bank's loan portfolio consists primarily of
multi-family loans, secured by both apartment buildings and underlying
cooperatives, conventional first mortgage loans secured primarily by one- to
four-family residences, including condominiums and cooperative apartments, and
non-residential (commercial) property loans. At December 31, 1995, the Bank's
loan portfolio totaled $442.3 million. Within the loan portfolio, $267.8
million or 60.6% were multi-family loans, $117.8 million or 26.6% were loans
to finance the purchase of one- to four-family properties and cooperative
apartments, $33.9 million or 7.7% were loans to finance the purchase of
commercial properties, primarily small shopping centers, warehouses and
nursing homes, and $19.0 million or 4.3% were loans to finance multi-family
and residential properties with either full or partial credit guarantees
provided by either the Federal Housing Administration ("FHA") or the Veterans'
Administration ("VA"). Of the total mortgage loan portfolio outstanding at
that date, 10.5% were fixed-rate loans and 89.5% were adjustable-rate loans
("ARMs"), of which 72.2% are multi-family and non-residential property loans
which have ten year terms and reprice in the fifth year for the final five
years. At that date, the Bank's loan portfolio also included $1.6 million in
passbook loans, $1.2 million in student loans, and $1.0 million in other
consumer loans.

The types of loans that the Bank may originate are subject to federal and
state law and regulations. Interest rates charged by the Bank on loans are
affected principally by the demand for such loans and the supply of money
available for lending purposes and the rates offered by its competitors. These
factors are, in turn, affected by general and economic conditions, the
monetary policy of the federal government, including the Federal Reserve
Board, legislative tax policies and governmental budgetary matters.

79
<PAGE>

The following table sets forth the composition of the Bank's mortgage and
other loan portfolios in dollar amounts and percentages at the dates
indicated.

<TABLE>
<CAPTION>
AT AT JUNE 30,
DECEMBER 31, -----------------------------------------------------------------------------------------
1995 1995 1994 1993 1992 1991
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
PERCENT PERCENT PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL 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> <C> <C>
MORTGAGE LOANS:(1)
One- to four-
family........... $ 54,361 12.29% $ 58,291 13.52% $ 59,461 13.74% $ 75,248 16.26% $ 86,175 17.91% $ 91,645 19.94%
Multi-family and
underlying
cooperative...... 267,839 60.55 252,436 58.56 242,088 55.92 243,803 52.67 238,018 49.48 192,780 41.95
Non-residential.. 33,850 7.65 26,972 6.26 26,896 6.21 25,873 5.59 26,988 5.61 28,009 6.09
FHA/VA insured... 19,023 4.30 22,061 5.12 27,264 6.30 33,421 7.22 37,334 7.76 44,230 9.63
Cooperative
apartment........ 63,483 14.35 67,524 15.67 73,250 16.92 80,469 17.39 88,438 18.38 98,284 21.38
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total mortgage
loans............ 438,556 99.14 427,284 99.13 428,959 99.09 458,814 99.13 476,953 99.14 454,948 98.99
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------
OTHER LOANS:
Student loans.... 1,220 0.28 1,431 0.33 1,506 0.35 1,696 0.37 1,879 0.39 2,118 0.46
Passbook savings
(secured by
savings and time
deposits)........ 1,550 0.35 1,510 0.35 1,516 0.35 1,375 0.30 1,194 0.25 1,276 0.28
Consumer
installment
loans............ 348 0.08 336 0.08 362 0.08 302 0.06 284 0.06 460 0.10
Home improvement
loans............ 661 0.15 475 0.11 550 0.13 665 0.14 747 0.16 801 0.17
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total other
loans............ 3,779 0.86 3,752 0.87 3,934 0.91 4,038 0.87 4,104 0.86 4,655 1.01
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Gross loans..... 442,335 100.00% 431,036 100.00% 432,893 100.00% 462,852 100.00% 481,057 100.00% 459,603 100.00%
-------- ====== -------- ====== -------- ====== -------- ====== -------- ====== -------- ======
LESS:
Unearned
discounts and net
deferred loan
fees............. 1,306 1,182 1,300 1,434 1,447 1,066
Allowance for
loan losses...... 5,710 5,174 3,633 2,996 2,094 1,340
-------- -------- -------- -------- -------- --------
Loans, net...... $435,319 $424,680 $427,960 $458,422 $477,516 $457,197
======== ======== ======== ======== ======== ========
LOANS SERVICED FOR
OTHERS:
One- to four-
family and
cooperative
apartment........ $ 65,331 $ 63,192 $ 65,063 $ 59,403 $ 30,578 $ 10,208
Multi-family and
underlying
cooperative...... 29,892 30,264 34,396 44,079 49,644 57,553
-------- -------- -------- -------- -------- --------
Total loans
serviced for
others.......... $ 95,223 $ 93,456 $ 99,459 $103,482 $ 80,222 $ 67,761
======== ======== ======== ======== ======== ========
</TABLE>
----
(1) Includes loans held for sale.

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<PAGE>

Loan Originations, Purchases, Sales and Servicing. The Bank originates both
ARMs and fixed-rate loans, the amounts of which are dependent upon customer
demand and market rates of interest, and generally does not purchase whole
mortgage loans or loan participations. Generally, the Bank sells all
originated one- to four-family fixed-rate mortgage loans in the secondary
market to the Federal National Mortgage Association ("FNMA"), the Federal Home
Loan Mortgage Corporation ("FHLMC"), the State of New York Mortgage Agency
("SONYMA") and other private secondary market purchasers. ARMs, including
adjustable-rate multi-family loans, and fixed-rate multi-family and non-
residential mortgage loans with maturities up to 15 years are retained for the
Bank's portfolio. For the fiscal year ended June 30, 1995 and the six-month
period ended December 31, 1995, origination of ARMs totaled $43.8 million and
$41.0 million, respectively, or 92.4% and 88.0%, respectively, of all loan
originations. Originations of fixed-rate mortgage loans totaled $1.5 million
and $4.6 million, respectively, for the same periods, while sales of fixed-
rate loans totaled $1.9 million and $4.0 million, respectively, for those
periods. The Bank generally sells all fixed-rate loans without recourse and
retains the servicing rights. As of December 31, 1995, the Bank was servicing
$95.2 million of loans for others. The Bank is generally paid a fee equal to
0.25% of the outstanding principal balance for servicing loans sold.

On April 9, 1996, the Bank entered into a Community Reinvestment Banking
Agreement (the "CRB Agreement") with a local, Bronx-based community group. In
the CRB Agreement, if the Acquisition is consummated, the Bank has agreed to
use its best efforts, consistent with safe and sound banking practices, to
increase its dollar volume of lending in certain low and moderate income
neighborhoods to at least $46.8 million and a maximum of $86.0 million over
the three-year period ending December 31, 1998. Pursuant to the CRB Agreement,
the Bank also has agreed to use its best efforts to open three automated
teller machines ("ATMs") in the neighborhoods of East Brooklyn, Upper
Manhattan and the South Bronx in New York City. Regardless of consummation of
the Acquisition, the Bank has agreed to use its best efforts, consistent with
safe and sound banking practices, to increase its dollar volume of lending to
at least $42 million in such low and moderate income neighborhoods over the
three-year period ending December 31, 1998, to open at least two ATMs in the
neighborhoods identified, and to expand its Community Reinvestment Act service
territory to include the entirety of Brooklyn, Manhattan and the Bronx. All
lending pursuant to the CRB Agreement is conditioned upon conformance with the
Bank's underwriting policies and procedures, applied on a consistent basis, in
accordance with applicable laws and regulations and no occurrence of a
material adverse change in the business, financial condition or results of
operations of the Bank. Management believes that the CRB Agreement will not
have a material effect on the results of operations or financial condition of
the Bank.

The following table sets forth the Bank's loan originations, loan sales and
principal repayments for the periods indicated.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED DECEMBER 31, FOR THE YEARS ENDED JUNE 30,
-------------------- -------------------------------
1995 1994 1995 1994 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
LOANS (GROSS):
At beginning of
period................ $ 431,036 $ 432,893 $ 432,893 $ 462,852 $ 481,057
--------- --------- --------- --------- ---------
MORTGAGE LOANS ORIGINAT-
ED:
One- to four-family.... 4,647 881 5,509 17,111 40,670
Multi-family and
underlying
cooperative........... 32,316 22,405 36,326 41,595 17,161
Non-residential........ 8,464 1,950 2,563 3,584 4,848
Cooperative apartment.. 206 243 888 679 194
--------- --------- --------- --------- ---------
TOTAL MORTGAGE LOANS
ORIGINATED.......... 45,633 25,479 45,286 62,969 62,873
OTHER LOANS ORIGINATED:
Other loans............ 960 884 2,115 1,691 1,537
--------- --------- --------- --------- ---------
TOTAL LOANS
ORIGINATED.......... 46,593 26,363 47,401 64,660 64,410
Principal repayments... 31,256 29,699 45,988 72,831 41,104
Loans sold(1).......... 4,690 1,799 2,791 19,866 38,439
Loans transferred
to/(from) real estate
pending foreclosure... (875) (1,540) (2,316) (1,949) 868
Mortgage loans
transferred to OREO... 223 2,165 2,795 3,871 2,204
--------- --------- --------- --------- ---------
UNPAID PRINCIPAL BALANCES
AT END OF PERIOD........ $ 442,335 $ 427,133 $ 431,036 $ 432,893 $ 462,852
========= ========= ========= ========= =========
</TABLE>
--------
(1) Includes fixed-rate mortgage loans and student loans.

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<PAGE>

Loan Maturity and Repricing. The following table shows the maturity or
period to repricing of the Bank's loan portfolio at December 31, 1995. Loans
that have adjustable rates are shown as being due in the period during which
the interest rates are next subject to change. The table does not include
prepayments or scheduled principal amortization. Prepayments and scheduled
principal amortization on the Bank's loan portfolio totaled $31.3 million for
the six months ended December 31, 1995.

<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
----------------------------------------------------------
MORTGAGE LOANS
---------------------------------------------------
MULTI-
ONE- TO FAMILY AND
FOUR- UNDERLYING NON- COOPERATIVE OTHER TOTAL
FAMILY COOPERATIVE RESIDENTIAL FHA/VA APARTMENT LOANS LOANS
------- ----------- ----------- ------- ----------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
AMOUNT DUE:
One year or less...... $38,588 $ 33,723 $ 5,152 $ -- $58,949 $ 661 $137,073
------- -------- ------- ------- ------- ------ --------
AFTER ONE YEAR:
One to three years.... 7,064 96,911 9,027 -- 4,244 1,895 119,141
More than three years
to five years........ 532 124,260 9,791 10,426 184 866 146,059
More than five years
to ten years......... 3,987 11,507 6,833 197 19 309 22,852
More than ten years to
twenty years......... 3,152 1,438 2,506 6,675 16 48 13,835
Over twenty years..... 1,038 -- 541 1,725 71 -- 3,375
------- -------- ------- ------- ------- ------ --------
TOTAL DUE OR REPRICING
AFTER ONE YEAR......... 15,773 234,116 28,698 19,023 4,534 3,118 305,262
------- -------- ------- ------- ------- ------ --------
TOTAL AMOUNTS DUE OR
REPRICING, GROSS....... $54,361 $267,839 $33,850 $19,023 $63,483 $3,779 $442,335
======= ======== ======= ======= ======= ====== ========
</TABLE>

The following table sets forth the dollar amounts in each loan category at
December 31, 1995 that are due after December 31, 1996, and whether such loans
have fixed- or adjustable-interest rates.

<TABLE>
<CAPTION>
DUE AFTER DECEMBER 31, 1996
---------------------------
FIXED ADJUSTABLE TOTAL
------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
MORTGAGE LOANS:
One- to four-family.............................. $ 8,136 $ 7,637 $ 15,773
Multi-family and underlying cooperative.......... 7,261 226,855 234,116
Non-residential.................................. 8,596 20,102 28,698
FHA/VA........................................... 19,023 -- 19,023
Cooperative apartment............................ 220 4,314 4,534
Other loans........................................ 3,118 -- 3,118
------- -------- --------
TOTAL LOANS...................................... $46,354 $258,908 $305,262
======= ======== ========
</TABLE>
--------

Multi-family and Non-residential Lending. The Bank originates adjustable-
rate multi-family (five or more units) and non-residential loans which are
secured primarily by apartment buildings, underlying cooperative buildings,
mixed-use (residential and commercial properties) and other non-residential
properties, generally located in the Bank's delineated lending area. The main
competitors for loans in this market tend to be other small- to medium-sized
local savings institutions. Multi-family and non-residential loans in the
Bank's portfolio generally range in amount from $100,000 to $3.5 million, and
have an average loan size of approximately $550,000. Residential multi-family
loans in this range generally have between 5 and 100 apartments per building.
The Bank had a total of $184.5 million of multi-family loans in its portfolio
on buildings with under 100 units as of December 31, 1995. Mostly as a result
of rent control and rent stabilization, the associated rent rolls for
buildings of this type indicate a rent range that would be considered
affordable for low- to moderate-income households. In addition, at December
31, 1995, the Bank had a total of $63.5 million in loans secured by mortgages
on underlying cooperative apartment buildings.

At December 31, 1995, the Bank had multi-family loans totaling $267.8
million in its portfolio, comprising 60.6% of the gross loan portfolio. The
Bank follows a strict set of underwriting standards when approving new

82
<PAGE>

multi-family loans, generally requiring (1) a maximum loan-to-value ratio of
75% based on an appraisal performed by an independent, state-certified
appraiser, and (2) sufficient cash flow from the underlying property to
adequately service the debt. The Bank's current lending policy requires loans
in excess of $500,000 to be approved by the Board of Directors. The Bank's
maximum loan amount, which had been $3.5 million, was recently increased to
$5.0 million so that the Bank may participate in a broader segment of the
multi-family and non-residential lending markets. This change to the Bank's
loan size limitation is within the maximum loan size allowed by the OTS, the
Bank's primary regulator. See "Regulation--Regulation of Federal Savings
Associations--Loans to One Borrower."

In making such loans, the Bank bases its underwriting decision primarily on
the net operating income generated by the property in relation to the debt
service ratio. The Bank generally requires minimum debt service ratios of 1.15
on multi-family properties. The Bank also considers the financial resources
and income level of the borrower, the borrower's experience in owning or
managing similar properties, the market value of the property and the Bank's
lending experience with the borrower. The typical multi-family loan carries a
maturity of 10 years, and an amortization period of no longer than 25 years.
These loans have a fixed interest rate that adjusts after the fifth year
indexed to the 5-year FHLBNY advance rate, but may not adjust below the
initial interest rate of the loan. Prepayment penalties are assessed
throughout the life of the loans. In addition, the Bank recently has begun
offering fixed-rate, self-amortizing, multi-family and non-residential loans
with maturities of up to 15 years.

The Bank's loan portfolio also includes $33.9 million in non-residential
real estate mortgage loans which represented 7.7% of gross loans at December
31, 1995. Of this amount, $9.8 million was originated prior to 1990. This
portfolio is comprised of commercial and industrial properties, and shopping
centers. The Bank utilizes, where appropriate, rent or lease income, business
receipts, the borrower's credit history and business experience, and
comparable appraisal values when underwriting non-residential applications. As
of December 31, 1995, there were no non-performing non-residential loans in
the Bank's portfolio.

The Bank's three largest loans at December 31, 1995, consisted of a $3.5
million first mortgage loan, originated in November, 1995, secured by a three-
story catering hall located in the Howard Beach section of Queens; a $3.5
million first mortgage loan, originated in October, 1995, secured by mortgages
on three contiguous mixed-use properties in lower Manhattan combining both
residential and commercial space; and a $3.4 million first mortgage loan,
originated in 1992, secured by a mortgage underlying a cooperative apartment
building located in the Forest Hills section of Queens. As of December 31,
1995, all of these loans were performing in accordance with their terms.
Additionally, as of December 31, 1995, the Bank had an outstanding commitment
to originate a loan for portfolio in the amount of $3.6 million, to be secured
by a first mortgage on a twelve story apartment building located in midtown
Manhattan. The loan, which had a debt service ratio in excess of 1.50 and a
loan-to-value ratio of 72%, closed in February, 1996. More specifically, the
Bank has identified 52 large real estate loans or commitments, totaling $46.8
million, derived in connection with 15 principal parties, each of which has
certain financial interests in more than one real estate loan held by the
Bank. The principal parties, may, for example, be officers of corporations, or
sponsors of cooperative corporations, which own real estate on which the Bank
holds a mortgage. None of the 52 loans are in violation of the OTS limitations
on loans to one borrower. See "Regulation--Regulation of Federal Savings
Associations--Loans to One Borrower."

Loans secured by apartment buildings and other multi-family residential
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 properties are often dependent on successful operation or
management of the properties, repayment of such loans may be subject to a
greater extent to adverse conditions in the real estate market or the economy.
The Bank seeks to minimize these risks through its underwriting policies,
which generally limit originations of such loans to the Bank's primary lending
area and require such loans to be qualified on the basis of the property's
income and debt service ratio. See "Risk Factors--Multi-family and Non-
residential Lending Risks."

The Bank also currently services a total of $29.9 million in multi-family
loans for various private investors. These loans were sold in the late 1980s,
without recourse.

83
<PAGE>

One- to Four-Family Mortgage and Cooperative Apartment Lending. The Bank
offers residential first mortgage loans secured primarily by owner-occupied,
one- to four-family residences, including condominiums and cooperative
apartments. Lending is primarily confined to an area covered by a 50-mile
radius from the Bank's Main Office in Brooklyn. Loans originated outside this
area are considered on a loan-by-loan basis. Furthermore, special attention is
given to soliciting loans from areas which the Board of Directors has
designated as the Bank's Community Reinvestment Area. The Bank offers
conforming and non-conforming fixed-rate mortgage loans and adjustable-rate
mortgage loans with maturities of up to 30 years and a maximum loan amount of
$500,000. The Bank's residential mortgage loan originations are generally
obtained from existing or past loan customers, depositors of the Bank, members
of the local community and referrals from attorneys, realtors and independent
mortgage brokers who refer members of the communities located in the Bank's
primary lending area. The Bank is a participating seller/servicer with the two
largest government-sponsored mortgage agencies: the FNMA and FHLMC, and
generally underwrites its one- to four-family residential mortgage loans to
conform with standards required by these agencies. At December 31, 1995,
$117.8 million, or 26.6%, of the Bank's loans consisted of one- to four-family
and cooperative apartment mortgage loans. ARMs represented 92.7% of total one-
to four-family and cooperative apartment loans, while fixed-rate mortgages
comprised 7.3% of the total.

From 1985 to 1988, the Bank was an active lender in the cooperative
apartment share loan market. Although the collateral for cooperative apartment
loans is comprised of shares in a cooperative corporation (a corporation whose
primary asset is the underlying real estate), cooperative apartment loans
generally are treated as one- to four-family loans. From 1985 to 1988, the
Bank originated for portfolio over $117 million of cooperative apartment
loans, or 26.8% of total loans as of December 31, 1988. These were exclusively
one- and three-year adjustable-rate loans and were well-suited to the Bank's
asset/liability strategy. By the end of 1988, in response to the steep decline
in the market value of cooperative apartments, the Bank enacted more stringent
underwriting guidelines for cooperative apartment loans. Of particular
importance was the requirement that the number of units sold to owner-
occupants of the subject building be greater than 65% of total units available
in the building in order for a loan to be approved. Since 1988, originations
of cooperative apartment loans have significantly declined. Thus, as a result
of prepayments and amortization, the Bank's portfolio of such loans has
declined to $63.5 million, or 14.4% of total loans as of December 31, 1995.
The recent market for cooperative apartment loan financing has improved with
the support of certain government agencies, particularly SONYMA and FNMA, who
are insuring and purchasing, respectively, cooperative end loans in qualified
buildings. The Bank is conforming its underwriting guidelines to those set by
SONYMA and FNMA with the intent of originating for sale fixed-rate cooperative
apartment loans; adjustable-rate cooperative apartment loans will continue to
be originated both for portfolio and for sale.

The Bank currently offers one- to four-family ARMs secured by residential
properties with rates that adjust every one or three years. One- to four-
family ARMs are offered with terms of up to 30 years. The interest rate on
one- to four-family ARMs currently offered fluctuates based upon a spread
above the average yield on United States Treasury securities, adjusted to a
constant maturity which corresponds to the adjustment period of the loan (the
"U.S. Treasury constant maturity index") as published weekly by the Federal
Reserve Board. Additionally, one- and three-year one- to four-family ARMs are
generally subject to limitations on interest rate increases of 2% and 3%,
respectively, per adjustment period, and an aggregate adjustment of 6% over
the life of the loan. For the year ended June 30, 1995, the Bank originated
$4.9 million of one- to four-family ARMs. One- to four-family ARMs
originations declined to $471,000 in the six-month period ended December 31,
1995, as interest rates fell, thereby encouraging more borrowers to choose
long-term, fixed-rate mortgages.

The volume and types of ARMs originated by the Bank have been affected by
such market factors as the level of interest rates, competition, consumer
preferences and availability of funds. During fiscal 1995, demand for one- to
four-family ARMs was relatively weak due to the prevailing low interest rate
environment and consumer preference for fixed-rate loans. Accordingly,
although the Bank will continue to offer one- to four-family ARMs, there can
be no assurance that in the future the Bank will be able to originate a
sufficient volume of one- to four-family ARMs to increase or maintain the
proportion that these loans bear to total loans.

The retention of one- to four-family ARMs, as opposed to fixed-rate
residential mortgage loans, in the Bank's loan portfolio helps reduce the
Bank's exposure to increases in interest rates. However, one- to four-

84
<PAGE>

family ARMs generally pose credit risks different from the risks inherent in
fixed-rate loans, primarily because as interest rates rise, the underlying
payments of the borrower rise, thereby increasing the potential for default.
At the same time, the marketability of the underlying property may be
adversely affected. In order to minimize risks, borrowers of one- to four-
family ARMs are qualified at the rate which would be in effect after the first
interest rate adjustment, if that rate is higher than the initial rate. The
Bank has not in the past, nor does it currently originate, one- to four-family
ARMs which provide for negative amortization.

The Bank currently offers fixed-rate mortgage loans with terms of 10 to 30
years secured by one- to four-family residences and cooperative apartments.
Interest rates charged on fixed-rates loans are competitively priced based on
market conditions. The Bank generally originates fixed-rate loans for sale in
amounts up to the maximum allowed by FNMA and FHLMC, currently $207,000 for
one-family houses up to a maximum of $397,800 for four-family houses, with
private mortgage insurance required for loans with loan-to-value ratios in
excess of 80%. Fixed-rate loans generally are made in amounts up to the
maximum amount permitted by FNMA, FHLMC and SONYMA guidelines. For the year
ended June 30, 1995, and the six months ended December 31, 1995, the Bank
originated $1.4 million and $4.4 million, respectively, of fixed-rate, one- to
four-family residential mortgage and cooperative apartment loans.

The Bank generally sells its newly originated conforming fixed-rate mortgage
loans in the secondary market to federal and state agencies such as FNMA,
FHLMC and SONYMA and its non-conforming fixed-rate mortgage loans to various
private sector secondary market purchasers. With few exceptions, the Bank
retained the servicing rights on all such loans sold. For the year ended June
30, 1995, and the six months ended December 31, 1995, the Bank sold mortgage
loans totaling $1.9 million and $4.1 million, respectively. As of December 31,
1995, the Bank's portfolio of fixed-rate mortgage loans serviced for others
totaled $65.3 million. The Bank intends to continue to sell all of its newly-
originated fixed-rate mortgage loans to assist in managing its interest-rate
risk. No assurances can be made, however, that the Bank will be able to do so.

Originated mortgage loans in the Bank's portfolio generally include due-on-
sale clauses which provide the Bank with the contractual right to deem the
loan immediately due and payable in the event that the borrower transfers
ownership of the property without the Bank's consent. It is the Bank's policy
to enforce due-on-sale provisions within the applicable regulations and
guidelines imposed by New York law and secondary market purchasers.

Home equity loans currently are originated to a maximum of $100,000. When
combined with the balance of the first mortgage lien, the home equity loan may
not exceed 75% of the appraised value of the property at the time of the loan
commitment. The Bank's home equity loans outstanding at December 31, 1995
totaled $397,000 against total available credit lines of $611,000.

Other Lending. The Bank also originates other loans, primarily student and
passbook loans. Total other loans outstanding at December 31, 1995, amounted
to $3.8 million, or 0.86%, of the Bank's loan portfolio. Passbook loans,
totaling $1.6 million, and student loans, totaling $1.2 million, comprise the
majority of the Bank's other loan portfolio.

Loan Approval Authority and Underwriting. The Board of Directors establishes
lending authorities for individual officers as to its various types of loan
products. For multi-family and one- to four-family mortgage loans, including
cooperative apartment and condominium loans, the Loan Committee, which is
comprised of the Chief Executive Officer, Executive Vice President and Senior
Vice President, and the heads of both the residential loan and multi-family
loan origination departments, has the authority to approve loans in amounts up
to $500,000. Any loan in excess of $500,000, however, must be approved by the
Board of Directors. In addition, regulatory restrictions imposed on the Bank's
lending activities limit the amount of credit that can be extended to any one
borrower to 15% of total capital. See "Regulation--Regulation of Federal
Savings Associations--Loans to One Borrower."

For all one- to four-family loans originated by the Bank, upon receipt of a
completed loan application from a prospective borrower, a credit report is
ordered, income, assets and certain other information are verified by an

85
<PAGE>

independent credit agency, and if necessary, additional financial information
is required to be submitted by the borrower. An appraisal of the real estate
intended to secure the proposed loan is required, which currently is performed
by an independent appraiser designated and approved by the Board of Directors.
It is the Bank's policy to require appropriate insurance protection, including
title and hazard insurance, on all real estate mortgage loans prior to
closing. Borrowers generally are required to advance funds for certain items
such as real estate taxes, flood insurance and private mortgage insurance,
when applicable.

ASSET QUALITY

Delinquent Loans and Foreclosed Assets. Management does not expect to incur
significant losses on its delinquent mortgage loans. Loans in the process of
foreclosure and other non-accrual loans, 20 loans in all, totaled $7.6 million
at December 31, 1995 versus $5.1 million at June 30, 1995. The largest loan in
this group is a $2.4 million foreclosure on an underlying cooperative
apartment building located in Queens, New York. This loan was satisfied during
the quarter ended March 31, 1996 for $2.0 million, with the difference charged
to the allowance for loan losses. The Bank had 17 loans totaling $929,000
delinquent 60-89 days at December 31, 1995 as compared to seven loans totaling
$479,000 at June 30, 1995.

The Bank's real estate loan servicing policies and procedures require that
the Bank initiate contact with a delinquent borrower as soon after the tenth
day of delinquency as possible. Generally, the policy calls for a late notice
to be sent 10 days after the due date of the late payment. If payment has not
been received within 30 days of the due date, a letter is sent to the
borrower. Thereafter, periodic letters and phone calls are placed to the
borrower until payment is received. When contact is made with the borrower at
any time prior to foreclosure, the Bank will attempt to obtain the full
payment due, or work out a repayment schedule with the borrower to avoid
foreclosure. Generally, foreclosure proceedings are initiated by the Bank when
a loan is 90 days past due. If a foreclosure action is instituted and the loan
is not brought current, paid in full, or refinanced before the foreclosure
sale, the real property securing the loan is generally sold at foreclosure or
by the Bank as soon thereafter as practicable.

Management reviews delinquent loans on a continuous basis and reports
monthly to the Board of Directors regarding the status of all delinquent and
non-accrual loans in the Bank's portfolio. The Bank retains outside counsel
experienced in foreclosure and bankruptcy procedures to institute foreclosure
and other actions on the Bank's delinquent loans. It is the policy of the Bank
to initiate foreclosure proceedings after a loan becomes 90 days past due. In
addition, Bank policy calls for the cessation of interest accruals on loans
delinquent 60 days or more. As soon as practicable after initiating
foreclosure proceedings on a loan, the Bank prepares an estimate of the fair
value of the underlying collateral. In the event the carrying balance of the
loan, including all accrued interest, exceeds the estimate of fair value, the
loan is considered to be impaired and a reserve is established pursuant to
SFAS No. 114. It is the Bank's general policy to dispose of properties
acquired through foreclosure or deeds in lieu thereof as quickly and as
prudently as possible in consideration of market conditions and the condition
of such property.

Under GAAP, the Bank is required to account for certain loan modifications
or restructurings as "troubled-debt restructurings." In general, the
modification or restructuring of a debt constitutes a troubled-debt
restructuring if the Bank for economic or legal reasons related to the
borrower's financial difficulties grants a concession to the borrower that the
Bank would not otherwise consider. Debt restructurings or loan modifications
for a borrower do not necessarily always constitute troubled-debt
restructurings, however, and troubled-debt restructurings do not necessarily
result in non-accrual loans. The Bank had five loans classified as troubled-
debt restructurings at December 31, 1995, totaling $5.0 million, and all are
currently performing. The largest restructured debt, a $2.7 million loan
secured by a mortgage on an underlying cooperative apartment building located
in Forest Hills, New York, was originated in 1987. The loan was first
restructured in 1988, and again in 1994.

86
<PAGE>

Non-performing Assets and Troubled-Debt Restructurings. The following table
sets forth information regarding the Bank's non-performing assets and
troubled-debt restructurings at the dates indicated.

<TABLE>
<CAPTION>
AT YEAR ENDED JUNE 30,
AT DECEMBER 31, -------------------------------------------
1995 1995 1994 1993 1992 1991
--------------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual mortgage
loans:
One- to four-family... $ 879 $ 572 $ 1,276 $ 3,449 $ 4,184 $ 3,103
Multi-family and
underlying
cooperative.......... 6,337 3,978 4,363 7,265 11,528 7,552
Non-residential....... -- -- -- -- -- --
Cooperative apart-
ment................. 410 523 609 918 1,001 797
Non-accrual other
loans.................. -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total non-performing
loans.............. 7,626 5,073 6,248 11,632 16,713 11,452
------- ------- ------- ------- ------- -------
Total OREO.............. 1,907 4,466 8,200 7,981 7,367 3,994
Total non-performing
assets............. $ 9,533 $ 9,539 $14,448 $19,613 $24,080 $15,446
======= ======= ======= ======= ======= =======
Troubled-debt
restructurings......... $ 5,043 $ 7,651 $ 7,421 $ 5,219 $ -- $ --
Total non-performing
assets and troubled-
debt restructurings.... $14,576 $17,190 $21,869 $24,832 $24,080 $15,446
Total non-performing
loans to total loans... 1.73% 1.18% 1.45% 2.52% 3.48% 2.50%
Total non-performing
assets to total
assets................. 1.43 1.44 2.23 3.04 3.74 2.47
Total non-performing
assets and troubled-
debt restructurings to
total assets........... 2.19 2.59 3.38 3.84 3.74 2.47
</TABLE>

The Bank recorded $62,000 and $185,000 of interest income on non-performing
loans and troubled-debt restructurings, respectively, for the six-month period
ended December 31, 1995, and $104,000 and $587,000, respectively, for the
fiscal year ended June 30, 1995. If the Bank's non-performing loans and
troubled-debt restructurings had been performing in accordance with their
terms, the Bank would have recorded additional interest income of $217,000 and
$71,000, respectively, for the six-month period ended December 31, 1995, and
$325,000 and $210,000, respectively, for the fiscal year ended June 30, 1995.

Other Real Estate Owned. Property acquired by the Bank as a result of a
foreclosure on a mortgage loan is classified as OREO and is recorded at the
lower of the recorded investment in the related loan or the fair value of the
property at the date of acquisition, with any resulting write down charged to
the allowance for loan losses. The Bank obtains an appraisal on a real estate
owned property as soon as practicable after it takes possession of the real
property. The Bank will generally reassess the value of OREO at least annually
thereafter.

Classified Assets. The Bank's Loan Loss Reserve Committee meets every other
month to review all problem loans in the portfolio to determine whether any
loans require reclassification in accordance with applicable regulatory
guidelines. Recommendations are reported by the Loan Loss Reserve Committee to
the Board of Directors on a quarterly basis. The Loan Loss Reserve Committee,
subject to Board approval, establishes policy relating to the internal
classification of loans and believes that its classification policies are
consistent with regulatory policies. All non-performing loans and OREO are
considered to be classified assets. In addition, the Bank maintains a "watch
list" comprised of loans totaling $10.0 million at December 31, 1995 which,
while performing, are characterized by weaknesses which require special
attention from management and are considered to be potential problem loans.
All loans on the watch list are considered to be classified assets or are
otherwise categorized as "Special Mention" as discussed below. As a result of
its bi-monthly review of the loan portfolio, the Loan Loss Reserve Committee
may decide to classify a portion of the loans on the watch list.

87
<PAGE>

Federal regulations and Bank policy require that loans and other assets
considered to be of lesser quality be classified 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 have a well-defined
weakness or weaknesses and are characterized by the distinct possibility that
the Bank will sustain "some loss" if 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 current
existing facts, conditions, and values, "highly questionable and improbable."
Assets classified as "Loss" are those considered "uncollectible" and of such
little value that their continuance as assets without the establishment of a
specific loss reserve is not warranted. Assets which do not expose the Bank to
sufficient risk to warrant classification in one of the aforementioned
categories but possess potential weaknesses that deserve management's
attention are designated "Special Mention" by management. At December 31, 1995
the Bank had $8.7 million of loans designated Special Mention.

When an insured institution classifies one or more assets, or proportion
thereof, as Substandard or Doubtful, it is required to establish a general
valuation for loan losses in an amount deemed prudent by management.
Generally, federally-insured institutions must maintain an allowance for loan
losses at a level that is "adequate to absorb estimated credit losses
associated with the loan portfolio." The general valuation allowance, which is
a regulatory term, represents a loss allowance which has been established to
recognize the inherent risk associated with lending activities, but which,
unlike the specific allowance, has not been allocated to particular problem
assets. When an insured institution classifies one or more assets, or
proportions thereof, as "Loss," it is required to establish a specific
allowance for losses equal to 100% of the amount of the asset so classified or
to charge-off such amount.

At December 31, 1995, the Bank had $9.7 million of assets classified
Substandard, consisting of 43 loans, no assets classified as Doubtful, and
$304,000 of assets classified as Loss, consisting of 13 loans.

The following table sets forth at December 31, 1995, the Bank's aggregate
carrying value of the assets classified as Substandard, Doubtful or Loss or
designated as Special Mention.

<TABLE>
<CAPTION>
SPECIAL MENTION SUBSTANDARD(1) DOUBTFUL LOSS
------------------ ---------------- ------------- -------------
NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT
------- --------- ------- -------- ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage Loans:
One- to four-family.... 3 $ 266 5 $ 803 -- $ -- -- $ --
Multi-family and under-
lying cooperative..... 10 8,022 7 6,788 -- -- 2 51
Non-residential........ -- -- -- -- -- -- -- --
Cooperative apartment.. 8 367 6 235 -- -- 2 99
------ --------- ----- -------- --- ----- --- -----
Total Mortgage Loans.... 21 8,655 18 7,826 -- -- 4 150
------ --------- ----- -------- --- ----- --- -----
Real Estate Owned:
One- to four-family.... -- -- 3 902 -- -- 1 54
Multi-family and under-
lying cooperative..... -- -- -- -- -- -- -- --
Non-residential........ -- -- -- -- -- -- -- --
Cooperative apartment.. -- -- 22 1,017 -- -- 8 100
------ --------- ----- -------- --- ----- --- -----
Total Real Estate
Owned.................. -- -- 25 1,919 -- -- 9 154
------ --------- ----- -------- --- ----- --- -----
Total................... 21 $ 8,655 43 $ 9,745 -- $ -- 13 $ 304
====== ========= ===== ======== === ===== === =====
</TABLE>
--------
(1) The Bank had $1,823,069 (net of $643,479 in reserves) of receivables from
Nationar, which are included in Other Assets. See "Business of the Bank--
Legal Proceedings."

88
<PAGE>

ALLOWANCE FOR LOAN LOSSES

The Bank has established a Loan Loss Reserve Committee and has charged it
with, among other things, specific responsibility for monitoring the adequacy
of the loan loss reserve. The Loan Loss Reserve Committee's findings, along
with recommendations for additional loan loss reserve provisions, if any, are
reported directly to senior management of the Bank, and to the Board of
Directors. The Allowance for Loan Losses is supplemented through a periodic
provision for loan losses based on the Loan Loss Reserve Committee's
evaluation of several variables, including the level of non-performing loans,
the ratio of reserves to total performing loans, the level and composition of
new loan activity, and an estimate of future losses determinable at the date
the portfolio is evaluated. Such evaluation, which includes a review of all
loans on which full collectibility may not be reasonably assured, considers
among other matters, the fair value of the underlying collateral, economic
conditions, historical loan loss experience and other factors that warrant
recognition in providing for an adequate loan loss allowance. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses, its valuation of
OREO, and both the level of loans in foreclosure and pending foreclosure.
Based on their judgments about information available to them at the time of
their examination, the regulators may require the Bank to recognize additions
to the allowance.

Loan loss reserves are established based upon a review of the two components
of the Bank's loan portfolio, performing loans and non-performing loans.
Performing loans are reviewed based upon the premise that, over time, the loan
portfolio will generate losses and that some portion of the loan portfolio
which is currently performing will default. The evaluation process is thus
based upon the Bank's historical loss experience.

Non-performing loans are reviewed individually to determine if the
liquidation value of the underlying collateral is sufficient to pay off the
existing debt. Should the bank determine that a non-performing loan is likely
to produce a principal loss, the loan is then placed into one of four
classifications. The particular classification assigned to any one loan, or
proportion thereof, (loss, doubtful, substandard or special mention) is based
upon the actual level of loss attributable to that loan, as determined by the
Loan Loss Reserve Committee. The Bank will then increase its general valuation
allowance in an amount established by the Loan Loss Reserve Committee to
appropriately reflect the anticipated loss from each loss classification
category.

Specific reserves are established against loans classified as "loss." Rather
than an estimation of potential loss, the establishment of a specific reserve
represents the identification of an actual loss which will result in a
chargeoff. This loss amount will be set aside on the Bank's balance sheet as a
specific reserve and will serve to reduce the carrying value of the associated
loan. The Bank's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review by various regulatory
agencies which can order the establishment of additional general or specific
loss allowances.

The Bank has increased its allowance for loan losses to a level which
management believes is adequate to absorb possible losses that may be incurred
within the Bank's loan portfolio. The Bank provided $2.95 million and $950,000
to its allowance for loan losses for the fiscal year ended June 30, 1995 and
the six months ended December 31, 1995, respectively. At December 31, 1995,
the total allowance was $5.7 million, which amounted to 74.9% of non-
performing loans and 1.29% of total loans. The increase in the allowance
reflects management's assessment of the risks inherent in its loan portfolio,
including those risks associated with the Bank's emphasis on multi-family
mortgage loans, which are considered to be at greater risk of loss than one-
to four-family loans. See "Risk Factors--Multi-family and Non-residential
Lending Risks." The Bank will continue to monitor and modify the level of its
allowance for loan losses in order to maintain such allowance at a level which
management considers adequate to provide for loan losses. For the fiscal year
ended June 30, 1995, and the six months ended December 31, 1995, the Bank had
charge-offs, net of recoveries, of $1.4 million and $414,000, respectively,
against the allowance. Since 1985, total principal losses attributable to the
Bank's loan portfolio have averaged 0.19% of the average outstanding loan
balance.

89
<PAGE>

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

<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS ENDED
DECEMBER 31, AT OR FOR THE YEAR ENDED JUNE 30,
------------------ ------------------------------------------------
1995 1994 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Total loans outstanding
at end of period(1).... $441,029 $425,958 $429,854 $431,593 $461,418 $479,610 $458,537
======== ======== ======== ======== ======== ======== ========
Average total loans out-
standing(1)............ $435,828 $431,489 $430,845 $455,705 $474,362 $468,594 $459,470
======== ======== ======== ======== ======== ======== ========
Balance at beginning of
year................... $ 5,174 $ 3,633 $ 3,633 $ 2,996 $ 2,094 $ 1,340 $ 856
Provision for loan loss-
es..................... 950 1,475 2,950 4,105 3,395 1,409 831
Charge-offs:
One- to four-family.... (20) (242) (146) (224) (272) (40) (27)
Multi-family and under-
lying cooperative..... (106) (629) (1,081) (2,203) (1,355) (114) (112)
Non-residential........ (274) -- (92) -- (19) -- --
F.H.A./V.A............. -- -- (9) -- (13) -- (2)
Cooperative apartment.. (19) (172) (328) (1,109) (876) (557) (122)
Other.................. -- -- -- -- -- (1) (88)
-------- -------- -------- -------- -------- -------- --------
Total charge-offs...... (419) (1,043) (1,656) (3,536) (2,535) (712) (351)
-------- -------- -------- -------- -------- -------- --------
Recoveries.............. 5 110 247 68 42 57 4
-------- -------- -------- -------- -------- -------- --------
Balance at end of peri-
od..................... $ 5,710 $ 4,175 $ 5,174 $ 3,633 $ 2,996 $ 2,094 $ 1,340
======== ======== ======== ======== ======== ======== ========
Allowance for loan
losses to total loans
at end of period....... 1.29% 0.98% 1.20% 0.84% 0.65% 0.44% 0.29%
Allowance for loan
losses to total non-
performing loans at end
of period(2)........... 74.88 80.83 101.99 58.15 25.76 12.53 11.70
Allowance for losses on
OREO:
Balance at beginning of
period................ $ -- $ -- $ -- $ -- $ -- $ -- $ --
Provision charged to
operations............ 250 -- -- -- -- -- --
Losses on sale of
OREO.................. (84) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Balance at end of peri-
od..................... $ 166 $ -- $ -- $ -- $ -- $ -- $ --
======== ======== ======== ======== ======== ======== ========
</TABLE>
--------
(1) Total loans represents loans, net, plus the allowance for loan losses.
(2) The Bank adopted SFAS No. 114 on July 1, 1995. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Impact of
Accounting Standards."

The following table sets forth the Bank's allowance for loan losses allocated
by loan category and the percent of loans in each category to total loans at
the dates indicated.

<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------------------------------------------
AT DECEMBER 31, 1995 1995 1994 1993
-------------------- -------------------- -------------------- --------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN LOANS IN
EACH EACH EACH EACH
CATEGORY CATEGORY CATEGORY CATEGORY
ALLOWANCE TO TOTAL ALLOWANCE TO TOTAL ALLOWANCE TO TOTAL ALLOWANCE TO TOTAL
AMOUNT LOANS(1) AMOUNT LOANS(1) AMOUNT LOANS(1) AMOUNT LOANS(1)
--------- ---------- --------- ---------- --------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family.... $ 559 12.84% $ 556 14.25% $ 398 14.66% $ 391 17.52%
Multi-family and
underlying
cooperative........... 3,855 63.27 3,372 61.72 2,267 59.68 1,773 56.77
Non-residential........ 139 8.00 103 6.60 72 6.63 54 6.02
Cooperative apartment.. 1,044 15.00 1,031 16.51 784 18.06 669 18.75
Other.................. 113 0.89 112 0.92 112 0.97 109 0.94
------ ------ ------ ------ ------ ------ ------ ------
Total.................. $5,710 100.00% $5,174 100.00% $3,633 100.00% $2,996 100.00%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
--------
(1) Total loans represent gross loans less FHA and VA loans.

90
<PAGE>

INVESTMENT ACTIVITIES

Investment Policies. The securities investment policy of the Bank, which is
established by the Board of Directors, is designed to help the Bank achieve
its fundamental asset/liability management objectives. Generally, the policy
calls for the Bank to emphasize principal preservation, liquidity,
diversification, short maturities and/or repricing terms, and a favorable
return on investment when selecting new investments for the Bank's portfolio.
In addition, the policy sets forth objectives which are designed to limit new
investments to those which further the Bank's goals with respect to interest
rate risk management. The Bank's current securities investment policy permits
investments in various types of liquid assets including obligations of the
U.S. Treasury and federal agencies, investment grade corporate obligations,
various types of mortgage-backed securities, commercial paper, certificates of
deposit, and federal funds sold to financial institutions approved by the
Board of Directors.

The Bank converted to a federally chartered mutual savings bank on November
1, 1995. Prior to that date, the Bank operated as a New York State chartered
mutual savings bank. While operating under its New York State charter, the
Bank was permitted to make certain investments in equity securities and stock
mutual funds. At December 31, 1995, these equity investments totaled $3.0
million, comprised primarily of a $1.9 million investment in a common stock
mutual fund designed specifically for New York State savings banks, and a
$1.1 million investment divided among two additional common stock mutual funds
and one fixed income mutual fund. Pursuant to current law, the Bank is
required to divest or transfer such securities. The Bank expects that it will
either dispose of such securities to a third-party or sell or transfer such
securities to the Company.

The Bank currently does not participate in hedging programs, interest rate
swaps, or other activities involving the use of off-balance sheet derivative
financial instruments. These activities are prohibited by the Bank's
securities investment policy. Similarly, the Bank has not and does not invest
in mortgage-backed securities which are deemed to be "high risk," or purchase
bonds which are not rated investment grade.

Mortgage-Backed Securities. In managing its securities investment portfolio
over the past few years the Bank has looked increasingly to the mortgage-
backed securities markets to provide it with investments with desirable
repricing, cash flow and credit quality characteristics. Mortgage-backed
securities generally yield less than the loans that underlie the securities
because of the cost of payment guarantees and credit enhancements that reduce
credit risk to the investor. In addition, mortgage-backed securities are more
liquid than individual mortgage loans and may be used to collateralize
borrowings of the Bank. The Bank's $92.6 million mortgage-backed securities
portfolio, which represented 13.9% of the Bank's total assets at December 31,
1995, was comprised entirely of securities backed by either the Governmental
National Mortgage Association ("GNMA"), FHLMC, or FNMA. In addition to the
superior credit quality provided by the agency backing, the mortgage-backed
securities portfolio also provides the Bank with important interest rate risk
management features. One year adjustable-rate mortgage-backed securities,
which total $35.0 million, are the single largest component of the Bank's
mortgage-backed securities portfolio. These securities are structured so that
the interest rate received by the Bank adjusts annually with changes in short-
term interest rates generally, a feature which minimizes the Bank's exposure
to interest rate risk. The Bank also has a $31.3 million investment in fixed-
rate balloon mortgage-backed securities which provide a return of principal
and interest on a monthly basis, and have original maturities of between five
to seven years, at which point the entire remaining principal balance is
repaid (the "balloon" payment). The remainder of the Bank's mortgage-backed
securities portfolio is split between a $22.9 million investment in seasoned
GNMA and FHLMC pass-through certificates, with an average remaining maturity
of 11.0 years, and a $3.3 million investment in CMOs secured by FNMA and FHLMC
mortgage-backed securities.

While mortgage-backed securities backed by federally sponsored agencies
carry a reduced credit risk as compared to whole loans, such securities remain
subject to the risk that fluctuating interest rates, along with other factors
such as the geographic distribution of the underlying mortgage loans, may
alter the prepayment rate of such mortgage loans and so affect both the
prepayment speed, and value, of such securities. The maturities on the Bank's
fixed-term mortgage-backed securities (balloons, seasoned GNMAs and FHLMCs)
are relatively short as compared to the final maturities on its ARMs and CMO
portfolios. For this reason, primarily, the Bank is

91
<PAGE>

confident of its ability to hold its fixed-term mortgage-backed securities to
final maturity and, in accordance with GAAP, carries these securities at their
amortized cost. The Bank classifies its ARMs and CMO portfolios as available
for sale, in recognition of the greater prepayment uncertainty associated with
these securities, and carries these securities at fair market value.

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

<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
DECEMBER 31, FOR THE YEAR ENDED JUNE 30,
----------------- -------------------------------
1995 1994 1995 1994 1993
-------- ------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Amortized cost at
beginning of period...... $90,543 $94,356 $94,356 $82,077 $58,404
Purchases/Sales (net)..... 13,176 2,046 10,067 29,753 36,454
Principal repayments...... (11,903) (8,522) (13,595) (16,906) (12,593)
Premium and discount
amortization, net........ (120) (193) (285) (568) (188)
-------- ------- --------- --------- ---------
Amortized cost at end of
period................... $91,696 $87,687 $90,543 $94,356 $82,077
======== ======= ========= ========= =========
</TABLE>

The following table sets forth the amortized cost and fair value of the
Bank's securities at the dates indicated.

<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------------------------------------
AT DECEMBER 31, 1995 1995 1994 1993
---------------------- ------------------ ------------------ ------------------
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>
Mortgage-backed
securities:
GNMA................... $ 22,533 $ 23,302 $ 24,402 $ 24,960 $ 29,764 $ 29,224 $ 37,049 $ 39,467
FNMA................... 14,761 15,018 7,417 7,599 5,941 5,965 -- --
FHLMC.................. 51,178 51,885 54,888 55,382 53,950 53,010 36,711 37,132
CMOs................... 3,225 3,272 3,836 3,964 4,701 4,738 8,317 8,546
---------- ---------- -------- -------- -------- -------- -------- --------
Total mortgage-backed
securities............. 91,697 93,477 90,543 91,905 94,356 92,937 82,077 85,145
---------- ---------- -------- -------- -------- -------- -------- --------
Investment securities:
U.S. Treasury and Agen-
cy.................... 31,219 31,259 25,834 25,694 18,989 18,684 937 989
Other.................. 59,122 59,252 67,991 67,909 61,352 60,379 50,339 50,986
---------- ---------- -------- -------- -------- -------- -------- --------
Total investment
securities............. 90,341 90,511 93,825 93,603 80,341 79,063 51,276 51,975
Equity securities....... 2,962 2,993 3,304 3,070 1,356 1,359 466 469
Net unrealized gain(1).. 1,009 -- 770 -- -- -- -- --
---------- ---------- -------- -------- -------- -------- -------- --------
Total securities, net... $ 186,009 $ 186,981 $188,442 $188,578 $176,053 $173,359 $133,819 $137,589
========== ========== ======== ======== ======== ======== ======== ========
</TABLE>
--------
(1) The net unrealized gain at June 30, 1995 and December 31, 1995 relates to
available for sale securities in accordance with SFAS No. 115. The net
unrealized gain is presented in order to reconcile the "Amortized Cost" of
the Bank's securities portfolio in the "Carrying Cost," as reflected in
the Consolidated Statements of Condition.

Corporate Debt Obligations. The Bank invests in the short-term investment
grade debt obligations of various corporations. Corporate debt obligations
generally carry both a higher rate of return and a higher degree of credit
risk than U.S. Treasury securities with comparable maturities. In addition,
corporate securities are generally less liquid than comparable U.S. Treasury
securities. In recognition of the additional risks associated with investing
in these securities, the Bank's investment policy limits new investments in
corporate obligations to those companies which are rated single "A" or better
by one of the nationally recognized rating agencies, and limits investments in
any one corporate entity to the lesser of 1% of total assets or 15% of the
Bank's equity. At December 31, 1995, the Bank's portfolio of corporate debt
obligations totaled $59.2 million, or 8.9% of total assets.

92
<PAGE>

The following table sets forth the amortized cost and fair value of the
Bank's securities, by accounting classification and by type of security, at
the dates indicated.

<TABLE>
<CAPTION>
AT JUNE 30,
--------------------------------------------------------
AT DECEMBER 31, 1995 1995 1994 1993
---------------------- ------------------ ------------------ ------------------
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>
Held to Maturity:
Mortgage-backed
securities:
Pass-through
securities............ $ 54,286 $ 55,179 $ 53,815 $ 54,172 $ 89,655 $ 88,199 $ 73,760 $ 76,599
CMOs................... -- -- -- -- 4,701 4,738 8,317 8,546
---------- ---------- -------- -------- -------- -------- -------- --------
Total mortgage-backed
securities............ 54,286 55,179 53,815 54,172 94,356 92,937 82,077 85,145
Investment
securities(1)......... 46,018 46,097 51,475 51,254 80,341 79,063 51,276 51,975
Equity securities...... -- -- -- -- 1,356 1,359 466 469
---------- ---------- -------- -------- -------- -------- -------- --------
Total held to
maturity............. $ 100,304 $ 101,276 $105,290 $105,426 $176,053 $173,359 $133,819 $137,589
========== ========== ======== ======== ======== ======== ======== ========
Available-for-Sale:
Mortgage-backed
securities:
Pass-through
securities............ $ 34,186 $ 35,026 $ 32,892 $ 33,769 $ -- $ -- $ -- $ --
CMOs................... 3,225 3,272 3,836 3,964 -- -- -- --
---------- ---------- -------- -------- -------- -------- -------- --------
Total Mortgage-backed
securities............ 37,411 38,298 36,728 37,733 -- -- -- --
Investment
securities(1)......... 44,323 44,414 42,350 42,349 -- -- -- --
Equity securities...... 2,962 2,993 3,304 3,070 -- -- -- --
Net unrealized gain(2).. 1,009 -- 770 -- -- -- -- --
---------- ---------- -------- -------- -------- -------- -------- --------
Total available-for-
sale................. $ 85,705 $ 85,705 $ 83,152 $ 83,152 $ -- $ -- $ -- $ --
========== ========== ======== ======== ======== ======== ======== ========
Total securities, net... $ 186,009 $ 186,981 $188,442 $188,578 $176,053 $173,359 $133,819 $137,589
========== ========== ======== ======== ======== ======== ======== ========
</TABLE>
--------
(1) Includes corporate debt obligations.
(2) The net unrealized gain at June 30, 1995 and December 31, 1995 relates to
available for sale securities in accordance with SFAS No. 115. The net
unrealized gain is presented in order to reconcile the "Amortized Cost" of
the Bank's securities portfolio to the "Carrying Cost," as reflected in
the Consolidated Statements of Condition.

93
<PAGE>

The following table sets forth certain information regarding the amortized
cost, fair value and weighted average yield of the Bank's debt securities at
December 31, 1995, by remaining period to contractual maturity. With respect
to mortgage-backed securities, the entire amount is reflected in the maturity
period that includes the final security payment date and, accordingly, no
effect has been given to periodic repayments or possible prepayments. Other
than obligations of federal agencies and GSEs, the Bank has no investments in
securities issued by any one entity in excess of 10% of equity at December 31,
1995.

<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
------------------------------------------------------
HELD-TO-MATURITY AVAILABLE-FOR-SALE
--------------------------- --------------------------
WEIGHTED WEIGHTED
AMORTIZED FAIR AVERAGE AMORTIZED FAIR AVERAGE
COST VALUE YIELD COST VALUE YIELD
--------- -------- -------- --------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed
securities:
Due within 1 year..... $ -- $ -- -- % $ -- $ -- -- %
Due after 1 year but
within 5 years....... 31,337 31,451 6.07 -- -- --
Due after 5 years but
within 10 years...... 2,930 2,949 6.59 3,225 3,272 7.00
Due after 10 years.... 20,019 20,779 7.96 34,186 35,026 6.50
-------- -------- -------- -------
Total............... 54,286 55,179 6.79 37,411 38,298 6.55
-------- -------- -------- -------
U.S. Treasury and
Agency:
Due within 1 year..... 3,000 2,978 4.50 3,408 3,410 5.72
Due after 1 year but
within 5 years....... 11,012 11,015 5.49 13,799 13,857 5.98
Due after 5 years but
within 10 years...... -- -- -- -- -- --
Due after 10 years.... -- -- -- -- -- --
-------- -------- -------- -------
Total............... 14,012 13,993 5.28 17,207 17,267 5.93
-------- -------- -------- -------
Corporate & Other:
Due within 1 year..... 18,173 18,146 5.16 16,898 16,898 5.66
Due after 1 year but
within 5 years....... 11,930 12,011 6.05 6,969 6,943 5.65
Due after 5 years but
within 10 years...... 479 515 5.79 1,251 1,256 7.27
Due after 10 years.... 1,424 1,432 7.41 1,998 2,050 8.32
-------- -------- -------- -------
Total............... 32,006 32,104 5.60 27,116 27,147 5.93
-------- -------- -------- -------
Total:
Due within 1 year..... 21,173 21,124 5.06 20,306 20,308 5.67
Due after 1 year but
within 5 years....... 54,279 54,477 5.95 20,768 20,800 5.87
Due after 5 years but
within 10 years...... 3,409 3,464 6.48 4,476 4,528 7.07
Due after 10 years.... 21,443 22,211 7.92 36,184 37,076 6.60
-------- -------- -------- -------
Total............... $100,304 $101,276 6.20% $ 81,734 $82,712 6.21%
======== ======== ======== =======
</TABLE>

SOURCES OF FUNDS

General. Deposits, repayments of loans and mortgage-backed securities,
investment security maturities and redemptions, and short- to medium-term
borrowings from the FHLBNY are the Bank's primary sources of funding for its
lending activities. The Bank is also active in the secondary mortgage market,
selling substantially all of its new long-term, fixed-rate residential
mortgage product to either FNMA or FHLMC.

Deposits. The Bank offers a variety of deposit accounts having a range of
interest rates and terms. The Bank presently offers savings accounts, money
market accounts, checking accounts, NOW and Super NOW accounts, and
certificates of deposit. The flow of deposits is influenced significantly by
general economic conditions, changes in prevailing interest rates, and
competition from other financial institutions and investment

94
<PAGE>

products. The Bank has not used brokers to attract and retain deposits,
relying instead on customer service, convenience and long-standing
relationships with customers. Consequently, the communities in which the bank
maintains branch offices have historically provided the Bank with nearly all
of its deposits. At December 31, 1995, the Bank had deposit liabilities of
$557.1 million, up $2.2 million from June 30, 1995. Within total deposits,
$22.9 million, or 4.1%, consisted of certificates of deposit with balances of
$100,000 or greater. Individual Retirement Accounts ("IRA's") totaled $58.2
million, or 10.4% of total deposits.

The following table presents the deposit activity of the Bank for the
periods indicated.

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
FOR THE SIX MONTHS ENDED -------------------------------
DECEMBER 31, 1995 1995 1994 1993
------------------------ --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Deposits................ $324,889 $ 699,479 $ 646,338 $ 627,471
Withdrawals............. 334,088 709,317 680,325 659,368
-------- --------- --------- ---------
(Withdrawals) in excess
of deposits............ (9,199) (9,838) (33,987) (31,897)
Deposits acquired in
purchase of branch..... -- -- -- 39,297
Deposits relinquished in
sale of branch......... -- -- -- (27,498)
Interest credited....... 11,442 17,918 16,638 19,688
-------- --------- --------- ---------
Total increase
(decrease) in
deposits............. $ 2,243 $ 8,080 $ (17,349) $ (410)
======== ========= ========= =========
</TABLE>

At December 31, 1995 the Bank had $22.9 million in Jumbo certificate of
deposits (accounts in amounts over $100,000) maturing as follows:

<TABLE>
<CAPTION>
WEIGHTED
AMOUNT AVERAGE RATE
------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
MATURITY PERIOD
Within three months....... $ 8,460 5.99%
After three but within six
months................... 2,791 5.20
After six but within 12
months................... 6,236 5.41
After 12 months........... 5,410 6.38
------------
Total................... $ 22,897 5.83%
============
</TABLE>

95
<PAGE>

The following table sets forth the distribution of the Bank's deposit
accounts and the related weighted average interest rates at the dates
indicated.

<TABLE>
<CAPTION>
AT JUNE 30,
---------------------------------------------------------
AT DECEMBER 31, 1995 1995 1994
---------------------------- ---------------------------- ----------------------------
PERCENT OF WEIGHTED PERCENT OF WEIGHTED PERCENT OF WEIGHTED
TOTAL AVERAGE TOTAL AVERAGE TOTAL AVERAGE
AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE
-------- ---------- -------- -------- ---------- -------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Checking
accounts........ $ 10,811 1.94% -- % $ 10,219 1.85% -- % $ 9,865 1.80% -- %
NOW accounts..... 15,004 2.69 1.50 13,877 2.50 1.50 13,596 2.49 1.50
Super NOW........ 485 0.09 1.50 674 0.12 1.50 416 0.08 1.50
Money market
accounts........ 15,783 2.83 2.65 16,698 3.01 2.65 22,145 4.05 2.66
Savings
accounts........ 230,076 41.30 2.50 238,217 42.93 2.50 294,387 53.84 2.50
Certificates of
deposit ........ 284,925 51.15 5.66 275,156 49.59 5.72 206,352 37.74 3.78
-------- ------ -------- ------ -------- ------
Totals.......... $557,084 100.00% $554,841 100.00% $546,761 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
<TABLE>
1993
----------------------------
PERCENT OF WEIGHTED
TOTAL AVERAGE
AMOUNT DEPOSITS RATE
-------- ---------- --------
<S> <C> <C> <C>
Checking
accounts........ $ 9,237 1.64% -- %
NOW accounts..... 13,099 2.32 2.00
Super NOW........ 645 0.11 2.00
Money market
accounts........ 23,237 4.12 2.79
Savings
accounts........ 297,884 52.81 2.90
Certificates of
deposit ........ 220,008 39.00 4.00
-------- ------
Totals.......... $564,110 100.00%
======== ======
</TABLE>

The following table presents, by interest rate ranges, the amount of
certificate accounts outstanding at the dates indicated and the period to
maturity of the certificate accounts outstanding at December 31, 1995.

<TABLE>
<CAPTION>
PERIOD TO MATURITY AT DECEMBER 31, 1995 TOTAL AT
------------------------------------------- ---------------------------------------
JUNE 30,
LESS THAN ONE TO FOUR TO DECEMBER 31, --------------------------
INTEREST RATE RANGE ONE YEAR THREE YEARS FIVE YEARS 1995 1995 1994 1993
------------------- ------------- -------------- ------------- ------------ -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
4.00% and below......... $ 4,303 $ 2,325 $ 43 $ 6,671 $ 20,646 $146,755 $148,399
4.01% to 5.00%.......... 76,204 941 -- 77,145 45,135 18,331 24,590
5.01% to 6.00%.......... 52,855 38,091 4,110 95,056 86,389 29,049 23,925
6.01% to 7.00%.......... 54,624 35,364 6,095 96,083 112,929 7,774 13,374
7.01% and above......... 2,668 903 6,399 9,970 10,057 4,443 9,720
------------- ------------ ------------ -------- -------- -------- --------
Total.................. $ 190,654 $ 77,624 $ 16,647 $284,925 $275,156 $206,352 $220,008
============= ============ ============ ======== ======== ======== ========
</TABLE>

Borrowings. The Bank has been a member of the FHLBNY since February 14, 1980
and is currently a shareholder in the FHLBNY. One of the privileges accorded
FHLBNY shareholders is the ability to borrow money under various lending
("advance") programs at competitive interest rates. The Bank's total borrowing
capacity at the FHLBNY at December 31, 1995 is in excess of $96 million. As
part of the total borrowing capacity at the FHLBNY, the Bank has been approved
for an "Overnight Line of Credit" of $32.1 million, and a $32.1 million "One-
Month Overnight Line of Credit," both priced at 0.125% over the prevailing
federal funds rate. At December 31, 1995, the Bank had a total of $15.7
million in fixed-rate advances outstanding with the FHLBNY with remaining
maturities of between two and three years, at an average rate of 5.40%.

SUBSIDIARY ACTIVITIES

The Bank has three wholly-owned subsidiary corporations. Havemeyer Brokerage
Corporation ("HBC") is currently engaged in the sale of insurance and annuity
products primarily to the Bank's customers and members of the local community.
As of December 31, 1995, HBC had $571,689 in consolidated assets and for the
six-months ended December 31, 1995, had pre-tax income of $25,345. Havemeyer
Equities Corporation ("HEC") and Boulevard Funding Corporation ("BFC") are
currently inactive. As of December 31, 1995, HEC had $8,092 and BFC had $1,364
of consolidated assets.

PROPERTIES

The Bank conducts its business through seven full-service offices and its
recently expanded administrative office in Williamsburgh. The Bank's Main
Office is located at 209 Havemeyer Street, Brooklyn, New York. The Bank

96
<PAGE>

believes that its current facilities are adequate to meet the present and
immediately foreseeable needs of the Bank and the Company.

<TABLE>
<CAPTION>
DATE
LEASED OR LEASED OR LEASE EXPIRATION NET BOOK VALUE AT
OWNED ACQUIRED DATE DECEMBER 31, 1995
--------- --------- ---------------- -----------------
<S> <C> <C> <C> <C>
Main Office ............ Owned 1906 -- $ 422,709
209 Havemeyer Street
Brooklyn, New York
11211
Avenue M Branch ........ Owned 1993 -- 504,156
1600 Avenue M at E.
16th Street
Brooklyn, New York
11230
Bayside Branch ......... Leased 1974 May, 2004 80,012
61-38 Springfield Bou-
levard
Bayside, New York 11364
Merrick Branch ......... Owned 1960 -- 267,263
1775 Merrick Avenue
Merrick, New York 11566
Hillcrest Branch ....... Leased 1971 May, 2001 80,107
176-47 Union Turnpike
Flushing, New York
11366
Bellmore Branch ........ Owned 1973 -- 543,411
2412 Jerusalem Avenue
Bellmore, New York
11710
Bronx Branch (1) ....... Leased 1965 October, 1996 63,330
1931 Turnbull Avenue
Bronx, New York 10473
Administrative Office .. Owned 1989 -- 3,802,818
275 South 5th Street
(Corner of Havemeyer
Street)
Brooklyn, New York
11211
</TABLE>
--------
(1) The Bank has an option to extend this lease for an additional ten year
term at fair market rent, as determined by the agreement of the parties
or, if the parties cannot agree, by arbitration.

LEGAL PROCEEDINGS

The Bank is involved in various legal actions arising in the ordinary course
of its business which, in the aggregate, involve amounts which are believed to
be immaterial to the financial condition and results of operations of the
Bank.

On February 6, 1995, the Superintendent of Banks of the State of New York
took possession of Nationar, a check-clearing and trust company, freezing all
of Nationar's assets. Subsequently, the Bank filed claims of, as adjusted,
approximately $2.2 million for demand accounts (including federal funds),
$77,829 for the recovery on certain forged checks, $130,688 for a debt
security, and interest earned thereon, held for payment of the Nationar
capital debentures, $4,346 for bond coupon collections and $384,000 for
capital debentures and revolving capital debentures. The Bank's SBLI
Department filed a claim of $3,600 for a demand account. The Bank also filed
proofs of interest for 147 shares of Nationar common stock and 372 shares of
preferred stock, which had a value on the Bank's books of $66,000.

The Superintendent has submitted four Interim Status Reports regarding the
business and affairs of Nationar to the Supreme Court of the State of New York
in accordance with the relevant provisions of the Banking Law of the State of
New York ("Banking Law"), including an Unaudited Statement of the Net Assets
and Liabilities in Liquidation for Nationar as of February 6, 1996 ("Unaudited
Statement") prepared for the Superintendent. The Unaudited Statement showed
total assets of $266,238,000, of which $229,787,000 were reported as cash and
cash equivalents, and total liabilities of $280,624,000, of which $118,545,000
were reported as entitled to a priority of payment or comparable special
treatment. The Superintendent also stated that the net deficit shown in the
Unaudited Statement may differ materially from that actually realized in the
liquidation of Nationar as a result of, among other things, the results of the
claims reconciliation process, litigation over rejected claims, resolution of
objections to claims, and the Court's determinations regarding priority of
payment of claims. Under the

97
<PAGE>

Banking Law, there may be certain preferences that might affect the percentage
recovery of any particular institution. Section 621 of the Banking Law accords
a preference to the deposits, within the meaning of that statute, of mutual
savings banks with Nationar.

Based upon the information set forth in these documents, management, as
advised by legal counsel, believes that there is a reasonable likelihood that
the Bank will not realize a full recovery from the liquidation of Nationar.
Although it is too early to determine the amount that ultimately will not be
recovered, management has established reserves for potential losses associated
with Nationar investments and deposits. As of December 31, 1995 the Bank had a
reserve of $565,000 relating to its investments in Nationar's capital and
preferred stocks and subordinated capital debentures and had a reserve of
$75,000 relating to its federal funds of $360,000 with Nationar. In addition,
during February 1996, the Bank increased its reserves for potential losses
associated with Nationar by $285,000 in order to fully reserve its federal
funds sold position at Nationar. In connection with its normal procedures for
monitoring asset quality, management continues to assess the adequacy of its
reserves for potential losses associated with Nationar. This assessment is
based upon management's evaluation of the Interim Reports and will be
reevaluated throughout the claims process. For the six months ended December
31, 1995, no additional provisions were considered necessary.

By letters dated February 2 and April 24, 1996, the Superintendent notified
the Bank that he will accept the Bank's claims in the amounts of $384,000 for
the capital debentures, of $60,104 for the debt security, and interest
thereon, held for payment of the Nationar capital debentures, of $2,231,811
for demand accounts, including the federal funds, of $4,346 for the bond
coupon claim, and of $3,600 for the SBLI Department's demand account claim.
The Superintendent also rejected $70,584 of the claim for the debt security,
and the interest earned thereon, held for payment of the Nationar capital
debentures. The Bank has received payment of the $77,829 claimed for the
recovery of the forged checks. The Superintendent also informed the Bank that
he intends to recommend to the Court that such accepted claims be treated as
claims entitled to priority of payment, except to the extent that the demand
account claim is for federal funds. Based on the various reports and
communications from the Superintendent, the Bank expects that accepted claims
for which a priority is granted will be paid in full, and other accepted but
nonpriority claims will be paid at a substantial fraction of the claim, with
the rate of such recovery dependent on the factors described above. The
Superintendent has also obtained judicial approval to pay in full the claims
entitled to priority and to pay 40% of the amount of accepted nonpriority
claims. Subject to the satisfaction of certain conditions, the Superintendent
will make such payment on June 27, 1996. The Bank intends that the reserves
established for potential losses will not be reduced until, and to the extent,
the Bank has received payment of the claim against which the reserves were
established. The foregoing events will not have any material effect on the
Company's or the Bank's liquidity needs. Management is continuing to take all
steps necessary to recover the amounts owed to the Bank by Nationar.

On December 4, 1995, a purported class action complaint was filed in the
Delaware Chancery Court, New Castle County, on behalf of the stockholders of
Conestoga by Jeffrey Simon ("Plaintiff") against Conestoga, each of the
members of the Conestoga Board, and Dime. The Plaintiff alleges that each of
the members of Conestoga's Board breached his fiduciary duties to Conestoga
stockholders by, among other things, agreeing to accept the Merger
Consideration, which Plaintiff alleges is inadequate. Dime is alleged to have
aided and abetted this breach. Plaintiff seeks various remedies, including an
injunction to prevent the consummation of the Acquisition and compensatory
damages in an unspecified amount. On February 9, 1996, Conestoga and the
director defendants filed an answer which denied the allegations of liability
raised in the complaint and raised affirmative defenses, as well as a motion
to dismiss the complaint. On February 12, 1996, Dime filed a motion to dismiss
the complaint. On or about March 12, 1996, Plaintiff served a motion for leave
to file an amended complaint. In his proposed amended complaint, Plaintiff
asserts, among other things, that the Proxy Statement distributed to
Conestoga's stockholders did not provide sufficient disclosure, and that the
Acquisition is unfair to Conestoga's stockholders and disproportionately
benefits Conestoga's Board and Dime. Conestoga and Dime each intend to
vigorously defend against the respective claims against them, but there can be
no assurance that Conestoga and/or Dime will be successful.

PERSONNEL

As of December 31, 1995, the Bank had 129 full-time employees and 55 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.

98
<PAGE>

FEDERAL AND STATE TAXATION

FEDERAL TAXATION

General. The following is a discussion of material tax matters and does not
purport to be a comprehensive description of the tax rules applicable to the
Bank or the Company. The Bank was last audited for its taxable year ended
December 31, 1988. For federal income tax purposes, after the Conversion, the
Company and the Bank will file consolidated income tax returns and 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 tax
reserve for bad debts, discussed below.

Tax Bad Debt Reserves. Savings institutions such as the Bank which meet
certain definitional tests primarily relating to their assets and the nature
of their business ("qualifying thrifts") are permitted to establish a tax
reserve for bad debts and to make annual additions thereto, which additions
may, within specified formula limits, be deducted in arriving at their taxable
income. The Bank's deduction with respect to "qualifying loans," which are
generally loans secured by certain interests in real property, may be computed
using an amount based on the Bank's actual loss experience (the "Experience
Method"), or a percentage equal to 8% of the Bank's taxable income (the "PTI
Method"), computed without regard to this deduction and with additional
modifications and reduced by the amount of any permitted addition to the non-
qualifying reserve. Use of the PTI Method has the effect of reducing the
marginal rate of federal tax on the Bank's income to 31.3%, exclusive of any
minimum or environmental tax, as compared to the generally applicable maximum
corporate federal income tax rate of 34%. (The marginal rate of tax would be
32.2% if the Bank's taxable income exceeds $10,000,000 and is therefore
subject to a maximum tax rate of 35%). The Bank's deduction with respect to
non-qualifying loans must be computed under the experience method which is
based on the Bank's actual charge-offs. Each year the Bank reviews the most
favorable way to calculate the deduction attributable to an addition to the
tax bad debt reserve. See "Risk Factors--Pending Legislation Regarding Bad
Debt Reserves."

The Bank presently satisfies the qualifying thrift definitional tests. If
the Bank failed to satisfy such tests in any taxable year, it would be unable
to make additions to its tax bad debt reserve. Instead, the Bank would be
permitted to deduct bad debts only as they occur and would be required to
recapture (i.e., take into income) its cumulative bad debt reserves over a
multi-year period. Such bad debt reserve recapture could cause the Bank to
incur substantial tax liability. Among other things, the qualifying thrift
definitional tests require the Bank to hold at least 60% of its assets as
"qualifying assets." Qualifying assets generally include cash, obligations of
the United States or any agency or instrumentality thereof, certain
obligations of a state or political subdivision thereof, loans secured by
interests in improved residential real property or by savings accounts,
student loans and property used by the Bank in the conduct of its banking
business. The Bank's ratio of qualifying assets to total assets exceeded 60%
through the close of its last taxable year. Although there can be no assurance
that the Bank will satisfy the 60% test in the future, management believes
that this level of qualifying assets can be maintained by the Bank.

The amount of the addition to the reserve for losses on qualifying real
property loans under the PTI Method cannot exceed the amount necessary to
increase the balance of the reserve for losses on qualifying real property
loans at the close of the taxable year to 6% of the balance of the qualifying
real property loans outstanding at the end of the taxable year. As of the
close of its last taxable year, the Bank's tax reserve for bad debts on
qualifying real property loans was less than 6% of its qualifying real
property loans outstanding. Also, if the Bank uses the PTI Method, its
aggregate addition to its reserve for losses on qualifying real property loans
cannot, when added to the addition to the reserve for losses on non-qualifying
loans, exceed the amount by which: (i) 12% of the amount that the total
deposits or withdrawable accounts of depositors of the Bank at the close of
the taxable year exceeds (ii) the sum of the Bank's surplus, undivided profits
and reserves at the beginning of such year. As of the close of its last
taxable year, 12% of the Bank's deposits and withdrawable accounts was not
greater than its surplus, undivided profits and reserves at the beginning of
its taxable year.

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Under pending legislative proposals, the Bank would be unable to make
additions to its tax bad debt reserve, would be permitted to deduct bad debts
only as they occur and would additionally be required to recapture (that is,
take into income) over a multi-year period, beginning with the Bank's taxable
year beginning on January 1, 1996, the excess of the balance of its bad debt
reserves (other than the supplemental reserve) as of December 31, 1995 over
the balance of such reserves as of December 31, 1987, or over a lesser amount
if the Bank's loan portfolio has decreased since December 31, 1987. However,
such recapture requirements would be suspended for each of two successive
taxable years beginning January 1, 1996 in which the Bank originates a minimum
amount of certain residential loans based upon the average of the principal
amounts of such loans made by the Bank during its six taxable years preceding
January 1, 1996. The Bank's federal bad debt reserve as of December 31, 1995
is equal to the balance of such reserves as of December 31, 1987. As a result,
no recapture would occur and no federal tax liability will arise. See "Risk
Factors--Pending Legislative Proposals Regarding Bad Debt Reserves."

Distributions. To the extent that: (i) the Bank's tax bad debt reserve for
losses on qualifying real property loans exceeds the amount that would have
been allowed under the experience method (the "Excess Bad Debt Reserve") or
the Bank maintains a supplemental reserve for losses on loans; and (ii) the
Bank makes "non-dividend distributions" to the Company, such distributions
will be considered to have been made from the Excess Bad Debt Reserve or the
supplemental reserve for losses on loans ("Excess Distributions"), and 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, as calculated for federal
income tax purposes, 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 will not be considered to result
in a distribution from the Bank's bad debt reserves.

The amount of additional taxable income created from an Excess Distribution
is an amount that, when reduced by the tax attributable to the income, is
equal to the amount of the Excess Distribution. Thus, if, after the
Conversion, the Bank makes a "non-dividend distribution" that is an Excess
Distribution, approximately one and one-half times the amount so used would be
includable in gross income for federal income tax purposes, assuming a 34%
federal corporate income tax rate. See "Regulation" and "Dividend Policy" for
limits on the payment of dividends by the Bank. The Bank does not intend to
pay dividends that would result in a recapture of any portion of its tax bad
debt reserves.

Under pending legislative proposals, if the Bank makes a non-dividend
distribution, as defined above, an amount, as computed above, will be included
in the Bank's taxable income, but the maximum amount of reserves subject to
such inclusion will be the balance of the Bank's bad debt reserves as of
December 31, 1987, or a lesser amount if the Bank's loan portfolio has
decreased since December 31, 1987.

Corporate Alternative Minimum Tax. The Code imposes a tax ("AMT") on
alternative minimum taxable income ("AMTI") at a rate of 20%. AMTI is
increased by certain preference items, including the excess of the tax bad
debt reserve deduction using the PTI Method over the deduction that would have
been allowable under the experience method. Only 90% of AMTI can be offset by
net operating loss carryovers of which the Bank currently has none. AMTI is
also adjusted by determining the tax treatment of certain items in a manner
that negates the deferral of income resulting from the regular tax treatment
of those items. Thus, the Bank's 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 adjustment and prior to reduction for net
operating losses). In addition, for taxable years beginning after December 31,
1986 and before January 1, 1996, an environmental tax of 0.12% of the excess
of AMTI (with certain modifications) over $2 million is imposed on
corporations, including the Bank, whether or not an AMT is paid. The Bank does
not expect to be subject to the AMT, but may be subject to the environmental
tax liability. Under pending legislative proposals, the environmental tax
would be extended to taxable years beginning before January 1, 2007.

Elimination of Dividends; Dividends Received Deduction. The Company may
exclude from its income 100% of dividends received from the Bank as a member
of the same affiliated group of corporations. A 70%

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dividends received deduction generally applies with respect to dividends
received from corporations that are not members of such affiliated group,
except that an 80% dividends received deduction applies if the Company and the
Bank own more than 20% of the stock of a corporation paying a dividend. Under
pending legislative proposals, the 70% dividends received deduction would be
reduced to 50% with respect to dividends paid after enactment of the
legislation.

STATE AND LOCAL TAXATION

State of New York. The Bank and the Company are subject to New York State
franchise tax on net income or one of several alternative bases, whichever
results in the highest tax. "Net income" means federal taxable income with
adjustments. The Bank and the Company will file combined returns. The New York
State tax rate for the fiscal year ending June 30, 1996 is 11.20% (including a
7.5% surcharge and 17% commuter transportation surcharge) of net income. In
general, the Company will not be required to pay New York State tax on
dividends and interest received from the Bank or on gains realized on the sale
of Bank stock. For a discussion of New York State tax liability resulting from
the Bank's recapture of its bad debt reserves, see "Risk Factors--Pending
Legislative Proposals Regarding Bad Debt Reserves."

New York City. The Bank and the Company are also subject to a similarly
calculated New York City banking corporation tax of 9% on income allocated to
New York City. For a discussion of New York City tax liability resulting from
the Bank's recapture of its bad debt reserves, see "Risk Factors--Pending
Legislative Proposals Regarding Bad Debt Reserves."

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

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REGULATION

GENERAL

The Bank is subject to extensive regulation, examination, and supervision by
the OTS, as its chartering agency, and the FDIC, as its deposit insurer. The
Bank's deposit accounts are insured up to applicable limits by the BIF
administered by the FDIC, and it is a member of the FHLBNY. The Bank must file
reports with the OTS and the FDIC concerning its activities and financial
condition, and it must obtain regulatory approvals prior to entering into
certain transactions, such as mergers with, or acquisitions of, other
depository institutions. The OTS and the FDIC conduct periodic examinations to
assess the Bank's compliance with various regulatory requirements. This
regulation and supervision establishes a comprehensive framework of activities
in which a savings association can engage and is intended primarily for the
protection of the insurance fund and depositors. Assuming that the holding
company form of organization is utilized, the Company, as a savings
association holding company, will also be required to file certain reports
with, and otherwise comply with, the rules and regulations of the OTS and of
the Securities and Exchange Commission (the "SEC") under the federal
securities laws.

The OTS and the FDIC have significant 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 the Company, the Bank, and the operations of both.

The following discussion is intended to be a summary of the material
statutes and regulations applicable to savings associations, and it does not
purport to be a comprehensive description of all such statutes and
regulations.

REGULATION OF FEDERAL SAVINGS ASSOCIATIONS

Business Activities. The Bank derives its lending and investment powers from
the Home Owner's Loan Act, as amended ("HOLA"), and the regulations of the OTS
thereunder. Under these laws and regulations, the Bank may invest in mortgage
loans secured by residential and commercial real estate, commercial and
consumer loans, certain types of debt securities, and certain other assets.
The Bank may also establish service corporations that may engage in activities
not otherwise permissible for the Bank, including certain real estate equity
investments and securities and insurance brokerage. These investment powers
are subject to various limitations, including (a) a prohibition against the
acquisition of any corporate debt security that is not rated in one of the
four highest rating categories; (b) a limit of 400% of an association's
capital on the aggregate amount of loans secured by non-residential real
estate property; (c) a limit of 10% of an association's assets on commercial
loans; (d) a limit of 35% of an association's assets on the aggregate amount
of consumer loans and acquisitions of certain debt securities; (e) a limit of
5% of assets on non-conforming loans (loans in excess of the specific
limitations of HOLA); and (f) a limit of the greater of 5% of assets or an
association's capital on certain construction loans made for the purpose of
financing what is or is expected to become residential property.

Loans to One Borrower. Under HOLA, savings associations are generally
subject to the same limits on loans to one borrower as are imposed on national
banks. Generally, under these limits, a savings association may not make a
loan or extend credit to a single or related group of borrowers in excess of
15% of the association's unimpaired capital and surplus. Additional amounts
may be lent, not in excess of 10% of unimpaired capital and surplus, if such
loans or extensions of credit are fully secured by readily-marketable
collateral. Such collateral is defined to include certain debt and equity
securities and bullion, but generally does not include real estate. At
December 31, 1995, the Bank's limit on loans to one borrower was $12.0
million. At December 31, 1995, the Bank's largest aggregate amount of loans to
one borrower was $7.2 million and the second largest borrower had an aggregate
balance of $5.1 million.

QTL Test. HOLA requires a savings association to meet a QTL test. Under the
QTL test, a savings association is required to maintain at least 65% of its
"portfolio assets" in certain "qualified thrift investments"

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in at least nine months of the most recent twelve-month period. "Portfolio
assets" means, in general, an association's total assets less the sum of (a)
specified liquid assets up to 20% of total assets, (b) certain intangibles,
including goodwill and credit card and purchased mortgage servicing rights,
and (c) the value of property used to conduct the association's business.
"Qualified thrift investments" includes various types of loans made for
residential and housing purposes, investments related to such purposes,
including certain mortgage-backed and related securities, and consumer loans
up to 10% of the association's portfolio assets. At December 31, 1995, the
Bank maintained 93.4% of its portfolio assets in qualified thrift investments.
The Bank had also met the QTL test in each of the prior 12 months and,
therefore, was a qualified thrift lender.

A savings association that fails the QTL test must either operate under
certain restrictions on its activities or convert to a bank charter. The
initial restrictions include prohibitions against (a) engaging in any new
activity not permissible for a national bank, (b) paying dividends not
permissible under national bank regulations, (c) obtaining new advances from
any FHLB, and (d) establishing any new branch office in a location not
permissible for a national bank in the association's home state. In addition,
within one year of the date a savings association ceases to meet the QTL test,
any company controlling the association would have to register under, and
become subject to the requirements of, the Bank Holding Company Act of 1956,
as amended. If the savings association does not requalify under the QTL test
within the three-year period after it failed the QTL test, it would be
required to terminate any activity and to dispose of any investment not
permissible for a national bank and would have to repay as promptly as
possible any outstanding advances from an FHLB. A savings association that has
failed the QTL test may requalify under the QTL test and be free of such
limitations, but it may do so only once.

Capital Requirements. The OTS regulations require savings associations to
meet three minimum capital standards: a tangible capital ratio requirement of
1.5% of total assets as adjusted under the OTS regulations, a leverage ratio
requirement of 3% of core capital to such adjusted total assets, and a risk-
based capital ratio requirement of 8% of core and supplementary capital to
total risk-based assets. In determining the amount of risk-weighted assets for
purposes of the risk-based capital requirement, a savings association must
compute its risk-based assets by multiplying its assets and certain off-
balance sheet items by risk-weights, which range from 0% for cash and
obligations issued by the United States Government or its agencies to 100% for
consumer and commercial loans, as assigned by the OTS capital regulation based
on the risks OTS believes are inherent in the type of asset.

Tangible capital is defined, generally, as common stockholder's equity
(including retained earnings), certain noncumulative perpetual preferred stock
and related earnings, minority interests in equity accounts of fully
consolidated subsidiaries, less intangibles other than certain purchased
mortgage servicing rights and investments in and loans to subsidiaries engaged
in activities not permissible for a national bank. Core capital is defined
similarly to tangible capital, but core capital also includes certain
qualifying supervisory goodwill and certain purchased credit card
relationships. Supplementary capital currently includes cumulative preferred
stock, long-term perpetual preferred stock, mandatory convertible securities,
subordinated debt and intermediate preferred stock, and the allowance for loan
and lease losses. The allowance for loan and lease losses includable in
supplementary capital is limited to a maximum of 1.25% of risk-weighted
assets, and the amount of supplementary capital that may be included as total
capital cannot exceed the amount of core capital.

When determining its compliance with the risk-based capital requirement, a
savings association with "above normal" interest rate risk is required to
deduct a portion of such capital from its total capital to account for the
"above normal" interest rate risk. 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) resulting from a hypothetical 2%
increase or decrease in market rates of interest, divided by the estimated
economic value of the association's assets, as calculated in accordance with
guidelines set forth by the OTS. At the times when the 3-month Treasury bond
equivalent yield falls below 4%, an association may compute its interest rate
risk on the basis of a decrease equal to one-half of that Treasury rate rather
than on the basis of 2%. A savings association whose measured interest rate
risk exposure exceeds 2% would be considered to have "above normal" risk. The
interest rate risk component is an

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amount equal to one-half of the difference between the association'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. Any required deduction for interest rate risk becomes effective
on the last day of the third quarter following the reporting date of the
association's financial data on which the interest rate risk was computed.

At December 31, 1995, the Bank met each of its capital requirements. See
"Regulatory Capital Compliance" for a table that sets forth, in terms of
dollars and percentages, the OTS tangible, leverage, and risk-based capital
requirements and the Bank's historical amounts and percentages at December 31,
1995, and pro forma amounts and percentages based upon the issuance of the
shares within the Estimated Price Range and assuming that a portion of the net
proceeds are retained by the Company.

The table below presents the Bank's regulatory capital as compared to the
OTS regulatory capital requirements at December 31, 1995:

<TABLE>
<CAPTION>
CAPITAL EXCESS
BANK REQUIREMENTS CAPITAL
------- ------------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tangible capital................................... $79,544 $ 9,967 $69,577
Core capital....................................... 79,713 19,939 59,774
Risk-based capital................................. 84,265 30,213 54,052
</TABLE>

A reconciliation between regulatory capital and GAAP capital at December 31,
1995 in the accompanying financial statements is presented below:

<TABLE>
<CAPTION>
TANGIBLE CAPITAL CORE CAPITAL RISK-BASED CAPITAL
---------------- ------------ ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
GAAP capital................. $80,258 $80,258 $80,258
Net unrealized gain on
available-for-sale
securities, net of taxes.... (545) (545) (545)
Intangibles--core deposits... (169) -- (169)
Allowance for loan losses
includable in supplementary
capital..................... -- -- 4,721
------- ------- -------
Regulatory capital........... $79,544 $79,713 $84,265
======= ======= =======
</TABLE>

Limitation on Capital Distributions. OTS regulations currently impose
limitations upon capital distributions by savings associations, 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. At least 30-days written notice must be
given to the OTS of a proposed capital distribution by a savings association,
and capital distributions in excess of specified earnings or by certain
institutions are subject to approval by the OTS. An association that has
capital in excess of all fully phased-in regulatory capital requirements
before and after a proposed capital distribution and that is not otherwise
restricted in making capital distributions, could, after prior notice but
without the approval of the OTS, make capital distributions during a calendar
year equal to the greater of (a) 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 (b) 75% of its net
earnings for the previous four quarters. Any additional capital distributions
would require prior OTS approval. In addition, the OTS can prohibit a proposed
capital distribution, otherwise permissible under the regulation, if the OTS
has determined that the association is in need of more than normal supervision
or if it determines that a proposed distribution by an association would
constitute an unsafe or unsound practice. Furthermore, under the OTS prompt
corrective action regulations, the Bank would be prohibited from making any
capital distribution if, after the distribution, the Bank failed to meet its
minimum capital requirements, as described above. See "--Prompt Corrective
Regulatory Action."

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The OTS has proposed regulations that would simplify the existing procedures
governing capital distributions by savings associations. Under the proposed
regulations, the approval of the OTS would be required only for an association
that is deemed to be in troubled condition or that is undercapitalized or
would be undercapitalized after the capital distribution. A savings
association would be able to make a capital distribution without notice to or
approval of the OTS if it is not held by a savings association holding
company, is not deemed to be in troubled condition, has received either of the
two highest composite supervisory ratings, and would continue to be adequately
capitalized after such distribution. Notice would have to be given to the OTS
by any association that is held by a savings association holding company or
that had received a composite supervisory rating below the highest two
composite supervisory ratings. An association's capital rating would be
determined under the prompt corrective action regulations. See "--Prompt
Corrective Regulatory Action."

Liquidity. The Bank is required to maintain an average daily balance of
liquid assets (cash, certain time deposits, bankers' acceptances, specified
United States Government, state or federal agency obligations, shares of
certain mutual funds and certain corporate debt securities and commercial
paper) equal to a monthly average of not less than a specified percentage of
its net withdrawable deposit accounts plus short-term borrowings. This
liquidity requirement may be changed from time to time by the OTS to any
amount within the range of 4% to 10% depending upon economic conditions and
the savings flows of member institutions, and is currently 5%. OTS regulations
also require each savings association to maintain an average daily balance of
short-term liquid assets at a specified percentage (currently 1%) of the total
of its net withdrawable deposit accounts and borrowings payable in one year or
less. Monetary penalties may be imposed for failure to meet these liquidity
requirements. The Bank's average liquidity ratio for the month ended December
31, 1995 was 19.2%, which exceeded the applicable requirements. The Bank has
never been subject to monetary penalties for failure to meet its liquidity
requirements.

Assessments. Savings associations are required by OTS regulation to pay
assessments to the OTS to fund the operations of the OTS. The general
assessment, paid on a semi-annual basis, is computed upon the savings
association's total assets, including consolidated subsidiaries, as reported
in the association's latest quarterly Thrift Financial Report. During January
1996, the Bank paid its first assessment as a federal savings bank of $72,493.
Prior to that date, the Bank had not paid any OTS assessments as it converted
to a federal charter on November 1, 1995.

Branching. Subject to certain limitations, HOLA and the OTS regulations
permit federally chartered savings associations to establish branches in any
state of the United States. The authority to establish such a branch is
available (a) in states that expressly authorize branches of savings
associations located in another state and (b) to an association that qualifies
as a "domestic building and loan association" under the Internal Revenue Code
of 1986, which imposes qualification requirements similar to those for a
"qualified thrift lender" under HOLA. See "--QTL Test." The authority for a
federal savings association to establish an interstate branch network would
facilitate a geographic diversification of the association's activities. This
authority under HOLA and the OTS regulations preempts any state law purporting
to regulate branching by federal savings associations.

Community Reinvestment. Under the 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 association, to assess the association'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 association. The CRA also
requires all institutions to make public disclosure of their CRA ratings. The
Bank received a "Satisfactory" CRA rating in its most recent examination.

In April 1995, the OTS and the other federal banking agencies adopted
amendments revising their CRA regulations. Among other things, the amended CRA
regulations substitute for the prior process-based assessment

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factors a new evaluation system that would rate an institution based on its
actual performance in meeting community needs. In particular, the proposed
system would focus on three tests: (a) a lending test, to evaluate the
institution's record of making loans in its service areas; (b) an investment
test, to evaluate the institution's record of investing in community
development projects, affordable housing, and programs benefiting low or
moderate income individuals and businesses; and (c) a service test, to
evaluate the institution's delivery of services through its branches, ATMs,
and other offices. The amended CRA regulations also clarify how an
institution's CRA performance would be considered in the application process.

Transactions with Related Parties. The Bank's authority to engage in
transactions with its "affiliates" is limited by the OTS regulations and by
Sections 23A and 23B of the Federal Reserve Act ("FRA"). In general, an
affiliate of the Bank is any company that controls the Bank or any other
company that is controlled by a company that controls the Bank, excluding the
Bank's subsidiaries other than those that are insured depository institutions.
The OTS regulations prohibit a savings association (a) from lending to any of
its affiliates that is engaged in activities that are not permissible for bank
holding companies under Section 4(c) of the Bank Holding Company Act ("BHC
Act") and (b) from purchasing the securities of any affiliate other than a
subsidiary. Section 23A limits the aggregate amount of transactions with any
individual affiliate to 10% of the capital and surplus of the savings
association and also limits the aggregate amount of transactions with all
affiliates to 20% of the savings association's capital and surplus. Extensions
of credit to affiliates are required to be secured by collateral in an amount
and of a type described in Section 23A, and the purchase of low quality assets
from affiliates is generally prohibited. Section 23B provides that certain
transactions with affiliates, 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 association as those
prevailing at the time for comparable transactions with nonaffiliated
companies. In the absence of comparable transactions, such transactions may
only occur under terms and circumstances, including credit standards, that in
good faith would be offered to or would apply to nonaffiliated companies.

The Bank's authority to extend credit to its directors, executive officers,
and 10% shareholders, as well as to entities controlled by such persons, is
currently governed by the requirements of Sections 22(g) and 22(h) of the FRA
and Regulation O of the Federal Reserve Board ("FRB") thereunder. Among other
things, these provisions require that extensions of credit to insiders (a) be
made on terms that are substantially the same as, and follow credit
underwriting procedures that are not less stringent than, those prevailing for
comparable transactions with unaffiliated persons and that do not involve more
than the normal risk of repayment or present other unfavorable features and
(b) not exceed certain limitations on the amount of credit extended to such
persons, individually and in the aggregate, which limits are based, in part,
on the amount of the association's capital. In addition, extensions of credit
in excess of certain limits must be approved by the association's board of
directors.

Enforcement. Under the Federal Deposit Insurance Act ("FDI Act"), the OTS
has primary enforcement responsibility over savings associations and has the
authority to bring enforcement action against all "institution-affiliated
parties," including any controlling stockholder or any shareholder, attorney,
appraiser and accountant who knowingly or recklessly participates in any
violation of applicable law or regulation or breach of fiduciary duty or
certain other wrongful actions that causes or is likely to cause a more than a
minimal loss or other significant adverse effect on an insured savings
association. Civil penalties cover a wide range of violations and actions and
range from $5,000 for each day during which violations of law, regulations,
orders, and certain written agreements and conditions continue, up to $1
million per day for such violations if the person obtained a substantial
pecuniary gain as a result of such violation or knowingly or recklessly caused
a substantial loss to the institution. Criminal penalties for certain
financial institution crimes include fines of up to $1 million and
imprisonment for up to 30 years. In addition, regulators have substantial
discretion to take enforcement action against an institution that fails to
comply with its regulatory requirements, particularly with respect to its
capital requirements. Possible enforcement actions range from the imposition
of a capital plan and capital directive to receivership, conservatorship, or
the termination of deposit insurance. Under the FDI Act, the FDIC has the
authority to recommend to the Director of OTS that enforcement action be taken
with respect to a particular

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savings association. If action is not taken by the Director of the OTS, the
FDIC has authority to take such action under certain circumstances.

Standards for Safety and Soundness. The FDI Act, as amended by FDICIA and
the Riegle Community Development and Regulatory Improvement Act of 1994
("Community Development Act"), requires the OTS, together with the other
federal bank regulatory agencies, to prescribe standards, by regulations or
guidelines, relating to internal controls, information systems and internal
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, asset quality, earnings, stock valuation, and
compensation, fees and benefits and such other operational and managerial
standards as the agencies deem appropriate. The OTS and the federal bank
regulatory agencies have adopted, effective August 9, 1995, a set of
guidelines prescribing safety and soundness standards pursuant to FDICIA, as
amended. The guidelines establish general standards relating to internal
controls and information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth, and compensation,
fees and benefits. In general, the guidelines require, among other things,
appropriate systems and practices to identify and manage the risks and
exposures specified in the guidelines. The guidelines prohibit excessive
compensation as an unsafe and unsound practice and describe compensation as
excessive when the amounts paid are unreasonable or disproportionate to the
services performed by an executive officer, employee, director or principal
shareholder. The OTS and the other agencies determined that the adoption of
stock valuation standards was not appropriate. In addition, the OTS adopted
regulations pursuant that authorize, but do not require, the OTS to order an
institution that has been given notice by the OTS that it is not satisfying
any of such safety and soundness standards to submit a compliance plan. If,
after being so notified, an institution fails to submit an acceptable
compliance plan or fails in any material respect to implement an accepted
compliance plan, the OTS must issue an order directing action to correct the
deficiency and may issue an order directing other actions of the types to
which an undercapitalized association is subject under the "prompt corrective
action" provisions of FDICIA. If an institution fails to comply with such an
order, the OTS may seek to enforce such order in judicial proceedings and to
impose civil money penalties. The OTS and the federal bank regulatory agencies
also proposed guidelines for asset quality and earnings standards.

Real Estate Lending Standards. The OTS and the other federal banking
agencies adopted regulations to prescribe standards for extensions of credit
that (a) are secured by real estate or (b) are made for the purpose of
financing the construction of improvements on real estate. The OTS regulations
require each savings association to establish and maintain written internal
real estate lending standards that are consistent with safe and sound banking
practices and appropriate to the size of the association and the nature and
scope of its real estate lending activities. The standards also must be
consistent with accompanying OTS guidelines, which include loan-to-value
ratios for the different types of real estate loans. Associations are also
permitted to make a limited amount of loans that do not conform to the
proposed loan-to-value limitations so long as such exceptions are reviewed and
justified appropriately. The guidelines also list a number of lending
situations in which exceptions to the loan-to-value standards are justified.

Prompt Corrective Regulatory Action. Under the OTS prompt corrective action
regulations, the OTS is required to take certain, and is authorized to take
other, supervisory actions against undercapitalized savings associations. For
this purpose, a savings association would be placed in one of five categories
based on the association's capital. Generally, a savings association is
treated as "well capitalized" if its ratio of total capital to risk-weighted
assets is at least 10.0%, its ratio of core capital to risk-weighted assets is
at least 6.0%, its ratio of core capital to total assets is at least 5.0%, and
it is not subject to any order or directive by the OTS to meet a specific
capital level. A savings association will be treated as "adequately
capitalized" if its ratio of total capital to risk-weighted assets is at least
8.0%, its ratio of core capital to risk-weighted assets is at least 4.0%, and
its ratio of core capital to total assets is at least 4.0% (3.0% if the
association receives the highest rating on the CAMEL financial institutions
rating system). A savings association that has a total risk-based capital of
less than 8.0% or a leverage ratio or a Tier 1 capital ratio that is less than
4.0% (3.0% leverage ratio if the association receives the highest rating on
the CAMEL financial institutions rating system) is considered to be
"undercapitalized." A savings association that has a total risk-based capital
of less than 6.0% or a Tier 1 risk-based capital ratio or a leverage ratio of
less than 3.0% is considered to be "significantly undercapitalized." A

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savings association that has a tangible capital to assets ratio equal to or
less than 2% is deemed to be "critically undercapitalized." The elements of an
association's capital for purposes of the prompt corrective action regulations
are defined generally as they are under the regulations for minimum capital
requirements. See "--Capital Requirements."

The severity of the action authorized or required to be taken under the
prompt corrective action regulations increases as an association's capital
deteriorates within the three undercapitalized categories. All associations
are prohibited from paying dividends or other capital distributions or paying
management fees to any controlling person if, following such distribution, the
association would be undercapitalized. An undercapitalized association is
required to file a capital restoration plan within 45 days of the date the
association receives notice that it is within any of the three
undercapitalized categories. The OTS is required to monitor closely the
condition of an undercapitalized association and to restrict the asset growth,
acquisitions, branching, and new lines of business of such an association.
Significantly undercapitalized associations are subject to restrictions on
compensation of senior executive officers; such an association may not,
without OTS consent, pay any bonus or provide compensation to any senior
executive officer at a rate exceeding the officer's average rate of
compensation (excluding bonuses, stock options and profit-sharing) during the
12 months preceding the month when the association became undercapitalized. A
significantly undercapitalized association may also be subject, among other
things, to forced changes in the composition of its board of directors or
senior management, additional restrictions on transactions with affiliates,
restrictions on acceptance of deposits from correspondent associations,
further restrictions on asset growth, restrictions on rates paid on deposits,
forced termination or reduction of activities deemed risky, and any further
operational restrictions deemed necessary by the OTS.

If one or more grounds exist for appointing a conservator or receiver for an
association, the OTS may require the association to issue additional debt or
stock, sell assets, be acquired by a depository association holding company or
combine with another depository association. The OTS and the FDIC have a broad
range of grounds under which they may appoint a receiver or conservator for an
insured depositary association. Under FDICIA, the OTS is required to appoint a
receiver (or with the concurrence of the FDIC, a conservator) for a critically
undercapitalized association within 90 days after the association becomes
critically undercapitalized or, with the concurrence of the FDIC, to take such
other action that would better achieve the purposes of the prompt corrective
action provisions. Such alternative action can be renewed for successive 90-
day periods. However, if the association continues to be critically
undercapitalized on average during the quarter that begins 270 days after it
first became critically undercapitalized, a receiver must be appointed, unless
the OTS makes certain findings with which the FDIC concurs and the Director of
the OTS and the Chairman of the FDIC certify that the association is viable.
In addition, an association that is critically undercapitalized is subject to
more severe restrictions on its activities, and is prohibited, without prior
approval of the FDIC from, among other things, entering into certain material
transactions or paying interest on new or renewed liabilities at a rate that
would significantly increase the association's weighted average cost of funds.

When appropriate, the OTS can require corrective action by a savings
association holding company under the "prompt corrective action" provisions of
FDICIA.

Insurance of Deposit Accounts. Pursuant to FDICIA, the FDIC established a
new risk-based assessment system for determining the deposit insurance
assessments to be paid by insured depositary institutions. Under the new
assessment system, which began in 1993, the FDIC assigns an institution to one
of three capital categories based on the institution's financial information
as of the reporting period ending seven months before the assessment period.
The three capital categories consist of (a) well capitalized, (b) adequately
capitalized, or (c) undercapitalized. The FDIC also assigns an institution to
one of three supervisory subcategories within each capital group. The
supervisory subgroup to which an institution is assigned is based on a
supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information that the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance funds. An institution's assessment rate depends on the capital
category and supervisory category to which it is assigned. Under the
regulation, there are nine assessment risk classifications (i.e., combinations
of capital groups and supervisory subgroups) to which different assessment
rates are applied.

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<PAGE>

The FDI Act requires that the BIF and the SAIF funds each be recapitalized
until reserves are at least 1.25% of the deposits insured by that fund. After
a fund reached the 1.25% reserve ratio, the assessment rates for that fund
could be reduced. The FDIC has announced that the BIF reached the required
reserve ratio during May 1995. As a result of the recapitalization of the BIF,
the FDIC reduced BIF-assessment rates. Beginning in 1993, the assessment rates
for the BIF and the SAIF had ranged from 0.23% of deposits for an institution
in the highest category (i.e., well-capitalized and financially sound, with no
more than a few minor weaknesses) to 0.31% of deposits for an institution in
the lowest category (i.e., undercapitalized and substantial supervisory
concern). Effective June 1, 1995, the FDIC reduced the BIF assessment rates to
a range of 0.04% to 0.27% of deposits for such institutions. The Bank's
assessment rates for 1995 were 0.23% of deposits through May 31, 1995 and were
0.04% of deposits beginning on June 1, 1995.

On November 14, 1995, the FDIC again decided to reduce the BIF assessments.
Having determined that the BIF had sufficient reserves in excess of the
required 1.25% ratio, the FDIC decided that "well capitalized" institutions
without any significant supervisory concerns should begin paying assessments
at the statutory minimum of $2,000 annually. Beginning with the first quarter
of 1996, the BIF-assessment rates for other institutions will range from 0.03%
to 0.27% of deposits.

The FDIC has reported that, under current law and appropriate financial
projections, the SAIF is not expected to be recapitalized until 2002.
Accordingly, the FDIC has determined that SAIF-insured institutions should
continue to pay assessments at the current SAIF assessment rates, which range
from 0.23% of deposits to 0.31% of deposits. The assessment rates on the Oakar
Deposits were not subject to the decrease in assessment rates and continue to
be assessed at a rate of 0.23%. In addition, Pioneer's SAIF assessment rate
for 1995 was 0.23% of deposits. See "Risk Factors--Recapitalization of SAIF,
SAIF Premiums and Proposed BIF Premiums."

The resulting disparity in deposit insurance assessments rates between the
SAIF members and the BIF members is likely to provide institutions paying only
the BIF assessments with certain competitive advantages in the pricing of
loans and deposits, and in lowered operating costs, pending any legislative
action to remedy the disparity. Congress has adopted proposed legislation to
address these issues. See "Risk Factors--Recapitalization of SAIF, SAIF
Premiums and Proposed BIF Premiums."

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

Federal Home Loan Bank System. The Bank is a member of the FHLBNY, which is
one of the regional FHLBs composing the FHLB System. Each FHLB provides a
central credit facility primarily for its member institutions. The Bank, as a
member of the FHLBNY, is required to acquire and hold shares of capital stock
in the FHLB in an amount at least equal to the greater of 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 FHLBNY. The Bank was in compliance with this requirement with an
investment in FHLB stock at December 31, 1995, of $4.8 million. Any advances
from a FHLB must be secured by specified types of collateral, and all long-
term advances may be obtained only for the purpose of providing funds for
residential housing finance.

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 earnings that the FHLBs can pay as
dividends to their members and could also result in the FHLBs imposing a
higher rate of interest on advances to their members. The FHLBNY paid
dividends on the capital stock of $177,872 and $173,650 for the six months
ended December 31, 1995 and 1994 and $367,131, $422,943 and $469,009 during
the years ended June 30, 1995, 1994 and 1993, respectively. If dividends were
reduced, or interest on future FHLB advances increased, the

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Bank's net interest income would likely also be reduced. Further, there can be
no assurance that the impact of FDICIA and the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") on the FHLBs will not also
cause a decrease in the value of the FHLB stock held by the Bank.

Federal Reserve System. The Bank is subject to provisions of the FRA and the
FRB's regulations pursuant to which depositary institutions may be required to
maintain non-interest-earning reserves against their deposit accounts and
certain other liabilities. Currently, reserves must be maintained against
transaction accounts (primarily NOW and regular checking accounts). The FRB
regulations generally require that reserves be maintained in the amount of 3%
of the aggregate of transaction accounts up to $52.0 million. The amount of
aggregate transaction accounts in excess of $52.0 million are currently
subject to a reserve ratio of 10%, which ratio the FRB may adjust between 8%
and 12%. The FRB regulations currently exempt $4.3 million of otherwise
reservable balances from the reserve requirements, which exemption is adjusted
by the FRB at the end of each year. The Bank is in compliance with the
foregoing reserve 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 FRB, the effect of
this reserve requirement is to reduce the Bank's interest-earning assets. The
balances maintained to meet the reserve requirements imposed by the FRB may be
used to satisfy liquidity requirements imposed by the OTS. FHLB System members
are also authorized to borrow from the Federal Reserve "discount window," but
FRB regulations require such institutions to exhaust all FHLB sources before
borrowing from a Federal Reserve Bank.

REGULATION OF HOLDING COMPANY

The Company, if utilized, will be a non-diversified unitary savings
association holding company within the meaning of HOLA, as amended. As such,
the Company will be required to register with the OTS and will be subject to
OTS regulations, examinations, supervision and reporting requirements. In
addition, the OTS has enforcement authority over the Company and its non-
savings association subsidiaries, if any. Among other things, this authority
permits the OTS to restrict or prohibit activities that are determined to be a
serious risk to the financial safety, soundness, or stability of a subsidiary
savings association.

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

As a unitary savings association holding company, the Company generally will
not be restricted under existing laws as to the types of business activities
in which it may engage, provided that the Bank continues to satisfy the QTL
test. See "--Regulation of Federal Savings Associations--QTL Test" for a
discussion of the QTL requirements. Upon any non-supervisory acquisition by
the Company of another savings association or savings bank that meets the QTL
test and is deemed to be a savings association by the OTS and that will be
held as a separate subsidiary, the Company would become a multiple savings
association holding company and would be subject to limitations on the types
of business activities in which it could engage. HOLA limits the activities of
a multiple savings association holding company and its non-insured association
subsidiaries primarily to activities permissible for bank holding companies
under Section 4(c)(8) of the BHC Act, subject to the prior approval of the
OTS, and to other activities authorized by OTS regulation.

The OTS is prohibited from approving any acquisition that would result in a
multiple savings association holding company controlling savings associations
in more than one state, subject to two exceptions: an acquisition of a savings
association in another state (a) in a supervisory transaction, and (b)
pursuant to authority

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under the laws of the state of the association to be acquired that
specifically permit such acquisitions. The conditions imposed upon interstate
acquisitions by those states that have enacted authorizing legislation vary.
Some states impose conditions of reciprocity, which have the effect of
requiring that the laws of both the state in which the acquiring holding
company is located (as determined by the location of its subsidiary savings
association) and the state in which the association to be acquired is located,
have each enacted legislation allowing its savings associations to be acquired
by out-of-state holding companies on the condition that the laws of the other
state authorize such transactions on terms no more restrictive than those
imposed on the acquiror by the state of the target association. Some of these
states also impose regional limitations, which restrict such acquisitions to
states within a defined geographic region. Other states allow full nationwide
banking without any condition of reciprocity. Some states do not authorize
interstate acquisitions of savings associations.

Transactions between the Bank and the Company and its other subsidiaries
would be subject to various conditions and limitations. See "--Regulation of
Federal Savings Associations--Transactions with Related Parties." The Bank
would have to give 30-days written notice to the OTS prior to any declaration
of the payment of any dividends or other capital distributions to the Company.
See "--Regulation of Federal Savings Associations--Limitation on Capital
Distributions."

FEDERAL SECURITIES LAWS

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

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

In the event that the holding company form of organization is not utilized,
the shares of the Bank's common stock to be issued and sold in the Conversion
are exempt from registration under Section 3(a)(5) of the Securities Act.
Prior to the sale of all shares of its common stock, the Bank will register
its capital stock under Section 12(g) of the Exchange Act. Upon such
registration, the proxy rules, tender offer rules, insider trading
restrictions, annual and periodic reporting and other requirements of the
Exchange Act will also be applicable to the Bank but under the jurisdiction of
the OTS. The Bank is required by the OTS to maintain said registration for a
period of at least three years following Conversion. The Bank will, however,
register with and report to the OTS and not to the SEC.

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CONSOLIDATED STATEMENTS OF INCOME OF CONESTOGA

The following consolidated Statements of Income of Conestoga for each of the
years in the three-year period ended March 31, 1995 have been audited by
Arthur Andersen LLP, independent public accountants, whose report thereon
appears elsewhere herein. These statements should be read in conjunction with
the other Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus. The Consolidated Statements of Income for the
nine-month periods ended December 31, 1995 and 1994 were not audited by
Pioneer's independent auditors, but in the opinion of management, reflect all
adjustments necessary for a fair presentation of the results for such periods.
All such adjustments are of a normal recurring nature. The results for the
nine-month period ended December 31, 1995 are not necessarily indicative of
the results of Pioneer that may be expected for the entire year.

<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED DECEMBER 31, FOR THE YEAR ENDED MARCH 31,
------------------- ------------------------------
1995 1994 1995 1994 1993
--------- --------- --------- --------- ---------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans..................... $ 6,743 $ 6,261 $ 8,560 $ 8,495 $ 9,034
Mortgage-backed
securities............... 8,265 5,543 7,868 10,758 11,860
Investment securities..... 6,569 4,725 6,546 4,253 5,008
Securities available for
sale..................... 1,368 1,718 2,057 213 314
Federal funds sold........ 1,582 1,340 1,678 1,110 995
--------- --------- --------- --------- ---------
Total interest income... 24,527 19,587 26,709 24,829 27,211
--------- --------- --------- --------- ---------
Interest expense:
Deposits.................. 12,687 8,764 12,017 11,594 13,316
Escrow.................... 23 20 27 24 21
Securities sold with
agreement to repurchase.. 1,064 119 261 -- --
--------- --------- --------- --------- ---------
Total interest expense.. 13,774 8,903 12,305 11,618 13,337
--------- --------- --------- --------- ---------
Net interest income
before provision
(recoveries) for loan
losses............... 10,753 10,684 14,404 13,211 13,874
Provision (recoveries) for
loan losses.............. 37 10 (36) 39 105
--------- --------- --------- --------- ---------
Net interest income
after provision
(recoveries) for loan
losses............... 10,716 10,674 14,440 13,172 13,769
--------- --------- --------- --------- ---------
Non-interest income:
Recoveries on investment
securities............... -- -- -- 100 152
Fee income from service
charges.................. 432 430 617 522 421
Net gain on sale of
mortgage-backed and
investment securities.... 73 -- -- 409 915
Net gain on sale of other
assets................... 3 3 3 -- --
Net gain on sale of
securities available for
sale..................... 821 738 850 211 233
Other..................... 193 187 360 244 184
--------- --------- --------- --------- ---------
Total non-interest
income................. 1,522 1,358 1,830 1,486 1,905
--------- --------- --------- --------- ---------
Non-interest expense:
Salaries and employee
benefits................. 2,844 2,473 3,498 3,587 3,267
ESOP and RRP benefits..... 765 633 854 100 --
Premises and equipment.... 1,081 1,000 1,309 1,298 1,138
Advertising............... 127 148 184 176 51
Federal insurance
premiums................. 688 663 882 829 759
Other..................... 1,999 1,256 1,933 1,353 1,324
--------- --------- --------- --------- ---------
Total non-interest
expense................ 7,504 6,173 8,660 7,343 6,539
--------- --------- --------- --------- ---------
Income before income
taxes................ 4,734 5,859 7,610 7,315 9,135
Provision for income
taxes.................... 2,266 2,703 3,508 3,406 4,185
--------- --------- --------- --------- ---------
Net income.............. $ 2,468 $ 3,156 $ 4,102 $ 3,909 $ 4,950
========= ========= ========= ========= =========
</TABLE>

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

GENERAL

Conestoga was formed in November of 1993, as the holding company for Pioneer
in connection with the conversion of Pioneer from the mutual to stock form of
ownership. Conestoga is headquartered in Roslyn, New York and its principal
business currently consists of the operation of its wholly owned subsidiary,
Pioneer. Conestoga had no operations prior to March 30, 1994, and accordingly,
the results of operations prior to that date reflect only those of Pioneer.
Pioneer's results of operations are dependent primarily on net interest
income, which is the difference between the income earned on its loan,
mortgage-backed and mortgage-related securities and investment securities
portfolios, and its cost of funds, consisting of the interest paid on its
deposits and borrowings. Pioneer's results of operations are also affected by
its provision for loan losses. Pioneer's non-interest expenses principally
consist of employee compensation and benefits, occupancy and equipment
expenses, federal deposit insurance premiums and other general and
administrative expenses. Pioneer's results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.

MANAGEMENT STRATEGY

Pioneer operates a traditional savings institution and seeks to achieve
profitability while maintaining a relatively strong capital position by
emphasizing one- to four-family residential mortgage lending, managing
interest rate risk, and controlling expenses by improving operating
efficiency.

Pioneer has emphasized and continues to emphasize, originating for its
portfolio traditional one- to four-family residential mortgage loans in its
primary market area of Kings, Queens, Nassau, Suffolk and Westchester Counties
in the New York City metropolitan area. One- to four-family residential
mortgage loans have exceeded 90% of Pioneer's total loan portfolio in the nine
months ended December 31, 1995 and 1994 and in each of the five years ended
March 31, 1995 and totaled $111.0 million, or 95.11% of Pioneer's total loan
portfolio at December 31, 1995. As a result of Pioneer's long-term policy of
originating loans secured by one- to four-family, owner-occupied, primary
residences that meet Pioneer's underwriting standards, Pioneer has maintained
high asset quality. Pioneer's ratio of non-performing loans and real estate
owned to total assets did not exceed 0.34% at December 31, 1995 or at any
fiscal year end during the past five fiscal years. At December 31, 1995, this
ratio was 0.19%. At December 31, 1995, Pioneer had real estate owned totalling
$264,107 comprised of one single-family dwelling.

Pioneer's allowance for loan losses as a percent of total loans was 0.18% at
December 31, 1995. Pioneer originates primarily one- to four-family ARMs and
15 and 30 year fixed-rate loans. Pioneer has structured its pricing of
mortgage loans to attract primarily one- to four-family ARMs and 10 and 15
year fixed-rate loans as part of its strategy to reduce interest rate risk.
Pioneer's total net loan portfolio as a percentage of total assets has
decreased from 26.5% at December 31, 1994 to 23.7% at December 31, 1995, as
the fiscal year interest rate environment placed ARMs, for which Pioneer
competes, in less demand.

ASSET/LIABILITY MANAGEMENT

In an effort to manage Pioneer's vulnerability to interest rate changes,
management closely monitors interest rate risk on an ongoing basis. Pioneer's
overall asset/liability management policy is designed to maintain a balance
between interest-earning assets and interest-bearing liabilities such that
Pioneer's cumulative one-year gap ratio is within a range which the Board
believes is conducive to maintaining profitability without incurring undue
risk. However, large fluctuations in market interest rates are neither
predictable nor controllable and may have a materially adverse impact on the
operations and financial condition of Pioneer.

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Pioneer has limited its exposure to interest rate risk, in part, through its
emphasis on the origination of one- to four-family ARMs and shorter-term
fixed-rate loans. At December 31, 1995, 30% of Pioneer's one- to four-family
residential mortgage loans were ARMs. Management believes that, although
investment in one- to four-family ARMs may reduce short-term earnings below
amounts obtainable through investments in fixed-rate mortgage loans, a one- to
four-family ARMs portfolio reduces Pioneer's exposure to adverse interest rate
fluctuations and enhances longer-term profitability. In recent periods,
overall loan originations have decreased in Pioneer's market area. Although
Pioneer originates 10, 15 and 30 year fixed-rate, one- to four-family
residential mortgage loans, its emphasis in recent periods has been on the
origination of shorter-term fixed-rate loans. Pioneer believes that
originating a longer term, fixed-rate loan product for retention in its
portfolio would subject Pioneer to undue exposure to fluctuations in interest
rates but attempts to off-set this exposure to fluctuating interest rates by
investing in shorter-term securities. There is no assurance that any
substantial amount of one- to four-family ARMs meeting Pioneer's underwriting
standards will be available for origination in the future.

Pioneer has increased its investment in low risk mortgage-backed and
mortgage-related securities and investment securities with short and
intermediate average lives. The investment policy of Pioneer is designed to
manage the interest rate sensitivity of its overall assets and liabilities, to
generate a favorable return without incurring undue interest rate risk, to
supplement Pioneer's lending activities, and to provide and maintain
liquidity. At December 31, 1995, Pioneer's mortgage-backed and mortgage-
related securities portfolio (gross), including those available for sale,
consisted of $67.6 million with fixed rates and $93.9 million with adjustable
rates. Included in this total were $7.6 million of CMOs and REMICs, a type of
CMO. All of Pioneer's CMOs and REMICs had adjustable rates and $6.1 million
were insured or guaranteed by the FHLMC, FNMA or GNMA. At December 31, 1995,
Pioneer's investment securities included $51.4 million of securities maturing
in one year or less and $59.0 million of securities maturing in five years or
less. These investments are consistent with Pioneer's objective of controlling
interest rate risk through investments in instruments with shorter terms to
maturity or average lives to better match the repricing of liabilities.

Pioneer closely monitors its operating expenses and seeks to control
operating expense ratios while maintaining the necessary staff and facilities
to serve its customers. Pioneer's ratio of operating expenses to average
assets was 2.06%, 1.94%, 2.03%, 1.93%, 1.83%, 1.92% and 1.78% for the nine
months ended December 31, 1995 and 1994 and for the fiscal years ended March
31, 1995, 1994, 1993, 1992 and 1991, respectively. Pioneer has maintained low
operating costs primarily through controlling the growth in personnel, the
absence of large loan origination and servicing staffs and an efficient and
effective product delivery system. Pioneer's expenses have increased as a
result of its conversion from mutual to stock form because of increased
regulatory and reporting requirements. Management will continue to monitor all
expenses and attempt to control such expenses.

INTEREST RATE SENSITIVITY ANALYSIS

The matching of the repricing characteristics of assets and liabilities may
be analyzed by examining the extent to which such assets and liabilities are
"interest rate sensitive" and by monitoring an institution's interest rate
sensitivity "gap." An asset or liability is said to be interest rate sensitive
within a specific time period if it will mature or reprice within that same
time period. The interest rate sensitivity gap is defined as the difference
between the amount of interest-earning assets anticipated, based upon certain
assumptions, to mature or reprice within a specific time period and the amount
of interest-bearing liabilities anticipated, based upon certain assumptions,
to mature or reprice within that same time period. A gap is considered
positive when the amount of interest rate sensitive assets maturing or
repricing within a specific time frame exceeds the amount of interest rate
sensitive liabilities maturing or repricing within that same time frame. A gap
is considered negative when the amount of interest rate sensitive liabilities
maturing or repricing within a specific time frame exceeds the amount of
interest rate sensitive assets maturing or repricing within that same time
frame. Accordingly, in a rising interest rate environment, an institution with
a positive gap would be in a better position to invest in higher yielding
assets, which would result in the yield on its assets increasing at a pace
closer to the cost of its interest-bearing liabilities, than would be the case
if it had a negative gap. During a period of falling interest rates, an

114
<PAGE>

institution with a positive gap would tend to have its assets repricing at a
faster rate than one with a negative gap, which would tend to restrain the
growth of its net interest income.

In an effort to minimize interest rate risk exposure, Pioneer has
concentrated its efforts on investing in adjustable-rate mortgage-backed
securities; however, in the current interest rate environment Pioneer has
invested in shorter-term, fixed-rate products which produce a greater yield
while minimizing interest rate risk exposure. As a result of this strategy, at
December 31, 1995, net interest-earning assets maturing or repricing within
one year exceeded its total interest-bearing liabilities maturing or repricing
within the same time period by $80.0 million, representing a positive
cumulative one-year gap of 16.38% of total assets. Pioneer is currently
attempting to maintain a positive gap position; however, there can be no
assurances that Pioneer will be able to maintain its positive gap position or
that Pioneer's strategies will not result in a negative gap in the future.

Pioneer has recently attempted to increase deposits by maintaining interest
rates in line with those of its competitors. Pioneer has also attempted to
encourage long-term depositors to maintain their accounts with Pioneer through
expanded customer service and establishing branch offices in new market areas.
This policy has resulted in Pioneer's core deposits to total deposits ratio
being maintained at or above 44.60% during the past five fiscal years.
However, to the extent Pioneer's core deposits are reduced at a more rapid
rate than Pioneer's decay assumptions on such deposits, Pioneer's current
positive gap position could be negatively impacted.

115
<PAGE>

The following table sets forth the amount of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1995, which are
anticipated by Pioneer based upon certain assumptions described below, to
reprice or mature in each of the future time periods shown. Except as stated
below, the amounts of assets and liabilities shown which reprice or mature
during a particular period were determined in accordance with the earlier of
term to repricing or the contractual terms of the asset or liability. Pioneer
utilized the OTS's most recent national deposit decay rate assumptions, which
were published as of December 31, 1992, of 17% for passbook accounts and 79%
for money market deposit accounts. Those assumptions may not be indicative of
actual withdrawals experienced by Pioneer.

<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
-------------------------------------------------------------------------------------
MORE THAN MORE THAN
3 MONTHS 3 TO 6 6 MONTHS TO 1 YEAR TO 3 YEARS MORE THAN NON-INTEREST
OR LESS MONTHS 1 YEAR 3 YEARS TO 5 YEARS 5 YEARS BEARING TOTAL
-------- ------- ----------- --------- ---------- --------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Mortgage and other
loans................. $ 3,242 $ 3,407 $11,248 $ 28,926 $13,737 $ 56,483 $ -- $117,043
Investment securi-
ties(1)(2)............ 54,340 26,999 15,996 8,978 13,949 20,977 -- 141,239
Mortgage-backed
securities(1)(2)...... 28,148 19,973 63,200 17,297 9,105 23,274 -- 160,997
Money market invest-
ments................. 41,999 -- -- -- -- -- -- 41,999
FHLB capital stock..... 2,681 -- -- -- -- -- -- 2,681
-------- ------- ------- -------- ------- -------- ------- --------
Total interest-earning
assets................ 130,410 50,379 90,444 55,201 36,791 100,734 -- 463,959
Less:
Loan loss reserves,
unearned discount and
deferred fees on
loans(3).............. 89 35 62 38 25 69 -- 318
Net interest-earning
assets................ 130,321 50,344 90,382 55,163 36,766 100,665 -- 463,641
Non-interest-earning
assets................ -- -- -- -- -- -- 24,774 24,774
-------- ------- ------- -------- ------- -------- ------- --------
Total assets........... $130,321 $50,344 $90,382 $ 55,163 $36,766 $100,665 $24,774 $488,415
======== ======= ======= ======== ======= ======== ======= ========
INTEREST-BEARING LIABIL-
ITIES:
Savings accounts....... $ 5,487 $ 5,487 $10,974 $ 33,336 $21,732 $ 52,087 $ -- $129,103
NOW and Super NOW
accounts.............. -- -- -- -- -- -- -- --
Money market accounts.. 6,124 6,124 12,248 3,411 1,624 1,477 -- 31,008
Certificates of depos-
it.................... 41,012 32,762 65,524 56,401 21,809 -- -- 217,508
Borrowed funds......... -- -- 5,000 5,000 -- -- -- 10,000
Escrow deposits
(interest-bearing).... 70 70 139 424 276 662 -- 1,641
-------- ------- ------- -------- ------- -------- ------- --------
Total interest-bearing
liabilities........... 52,693 44,443 93,885 98,572 45,441 54,226 -- 389,260
Demand deposits......... -- -- -- -- -- -- 16,346 16,346
Other non-interest-
bearing liabilities.... -- -- -- -- -- -- 3,454 3,454
Equity.................. -- -- -- -- -- -- 79,355 79,355
-------- ------- ------- -------- ------- -------- ------- --------
Total liabilities and
equity................ $ 52,693 $44,443 $93,885 $ 98,572 $45,441 $ 54,226 $99,155 $488,415
======== ======= ======= ======== ======= ======== ======= ========
Interest rate sensitiv-
ity gap................ $ 77,628 $ 5,901 $(3,503) $(43,409) $(8,675) $ 46,439 $ 74,381
========
Cumulative interest rate
sensitivity gap........ $ 77,628 $83,529 $80,026 $ 36,617 $27,942 $ 74,381
======== ======= ======= ======== ======= ========
Cumulative interest rate
sensitivity gap as a
percentage of total
assets................. 15.89% 17.10% 16.38% 7.50% 5.72% 15.23%
======== ======= ======= ======== ======= ========
Cumulative total
interest-earning assets
as a percent of
interest-bearing
liabilities............ 247.32% 185.99% 141.89% 112.64% 108.34% 119.11%
======== ======= ======= ======== ======= ========
</TABLE>
--------
(1) Net of unearned discount and deferred fees.
(2) Includes securities available for sale.
(3) For purposes of the gap analysis, unearned discount and deferred fees are
pro-rated.

116
<PAGE>

Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on
certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while interest rates on other types may lag behind
changes in market rates. Additionally, certain assets, such as ARMs, have
features which limit changes in interest rates on a short-term basis and over
the life of the asset. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Finally, the ability of borrowers to
service their ARMs may decrease in the event of an interest rate increase.

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 depends upon the volume of interest-earning assets and interest-bearing
liabilities and the interest rates earned or paid on them.

The following table sets forth certain information relating to Conestoga's
average consolidated statement of financial condition and the consolidated
statement of operations for the nine-month period ended December 31, 1995 and
for the fiscal years ended March 31, 1995, 1994 and 1993 and reflects the
average yield on assets and average cost of liabilities for the periods
indicated. Such yields and costs are derived by dividing income or expense by
the average balance of assets or liabilities, respectively, for the periods
shown. Average balances are derived from month-end balances. The average
balance of loans receivable includes loans on which Pioneer has discontinued
accruing interest. The yields and costs include fees which are considered
adjustments to yields.

<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED DECEMBER 31,
AT DECEMBER 31, ----------------------------------------------------
1995 1995 1994
--------------- ------------------------- -------------------------
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 as-
sets:
Real estate loans...... $114,547 7.84% $112,765 $ 6,663 7.88% $105,544 $ 6,181 7.81%
Other loans............ 1,384 7.21 1,439 80 7.41 1,521 80 7.01
Mortgage-backed securi-
ties(2)............... 161,574 6.81 183,440 9,336 6.79 162,660 7,261 5.95
Investment securi-
ties(1)(2)............ 179,136 6.54 128,202 6,866 7.14 91,192 4,725 6.91
Federal funds sold..... 7,000 5.52 34,590 1,582 6.10 39,620 1,340 4.51
-------- -------- ------- -------- -------
Total interest-earning
assets............... 463,641 6.95 460,436 $24,527 7.10 400,537 $19,587 6.52
======= =======
Non-interest-earning
assets................ 24,774 25,572 23,589
-------- -------- --------
Total assets.......... $488,415 $486,008 $424,126
======== ======== ========
LIABILITIES AND EQUITY:
Interest-bearing lia-
bilities:
NOW and money market
accounts.............. $ 31,008 3.00% $ 29,640 $ 726 3.27% $ 32,422 $ 684 2.81%
Passbook savings(3).... 130,744 2.49 130,632 2,417 2.47 148,159 2,834 2.55
Certificates of depos-
it.................... 217,508 6.22 207,490 9,567 6.15 149,047 5,266 4.71
Borrowed funds......... 10,000 6.35 21,259 1,064 6.67 2,941 119 5.40
-------- -------- ------- -------- -------
Total interest-bearing
liabilities.......... 389,260 4.73 389,021 $13,774 4.72 332,569 $ 8,903 3.57
======= =======
Demand deposits........ 16,346 14,437 12,762
Other non-interest-
bearing liabilities... 3,454 4,680 4,012
-------- -------- --------
Total liabilities..... 409,060 408,138 349,343
Stockholders' equity... 79,355 77,870 74,783
-------- -------- --------
Total liabilities and
stockholders'
equity............... $488,415 $486,008 $424,126
======== ======== ========
Net interest
income/interest rate
spread(4).............. 2.22% $10,753 2.38% $10,684 2.95%
======= =======
Net interest-earning
assets/net interest
margin(5).............. $ 74,381 $ 71,415 3.11% $ 67,968 3.56%
======== ======== ========
Ratio of interest-
earning assets to
interest-bearing
liabilities............ 119.11% 118.36% 120.44%
</TABLE>
(Notes on following page)

117
<PAGE>

<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------
1995 1994 1993
------------------------- ------------------------- -------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
-------- -------- ------- -------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning
assets:
Real estate loans...... $107,317 $ 8,454 7.88% $ 99,822 $ 8,374 8.39% $ 98,020 $ 8,904 9.08%
Other loans............ 1,514 106 7.00 1,694 121 7.14 1,673 130 7.77
Mortgage-backed
securities(2)......... 163,999 9,860 6.01 156,241 10,758 6.89 143,689 11,860 8.25
Investment
securities(1)(2)...... 94,562 6,611 6.99 67,132 4,466 6.65 66,628 5,322 7.99
Federal funds sold..... 35,942 1,678 4.67 33,100 1,110 3.35 26,038 995 3.82
-------- ------- -------- ------- -------- -------
Total interest-earning
assets............... 403,334 $26,709 6.62 357,989 $24,829 6.94 336,048 $27,211 8.10
======= ======= =======
Non-interest-earning
assets................ 24,081 22,919 21,478
-------- -------- --------
Total assets.......... $427,415 $380,908 $357,526
======== ======== ========
LIABILITIES AND EQUITY:
Interest-bearing
liabilities:
NOW and money market
accounts.............. $ 31,928 $ 922 2.89% $ 35,647 $ 921 2.58% $ 37,388 $ 1,225 3.28%
Passbook savings(3).... 145,198 3,678 2.53 146,067 3,728 2.55 131,400 4,178 3.18
Certificates of
deposit............... 153,373 7,444 4.85 150,737 6,969 4.62 149,776 7,934 5.30
Borrowed funds......... 4,522 261 5.77 -- -- -- -- -- --
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities.......... 335,021 $12,305 3.67 332,451 $11,618 3.49 318,564 $13,337 4.19
======= ======= =======
Demand deposits........ 12,970 11,076 9,181
Other non-interest-
bearing liabilities... 4,086 3,652 4,001
-------- -------- --------
Total liabilities..... 352,077 347,179 331,746
Stockholders' equity... 75,338 33,729 25,780
-------- -------- --------
Total liabilities and
stockholders'
equity............... $427,415 $380,908 $357,526
======== ======== ========
Net interest
income/interest rate
spread(4)............. $14,404 2.95% $13,211 3.45% $13,874 3.91%
======= ======= =======
Net interest-earning
assets/net interest
margin(5)............. $ 68,313 3.57% $ 25,538 3.69% $ 17,484 4.13%
======== ======== ========
Ratio of interest-
earning assets to
interest-bearing
liabilities........... 120.39% 107.68% 105.49%
</TABLE>
--------
(1) Includes interest-bearing deposits in other banks and FHLB stock.
(2) Includes assets available for sale.
(3) Includes advance payment from borrowers for taxes and insurance of $1.6
million and $1.6 million for the nine months ended December 31, 1995 and
1994, respectively, which earns interest at a 2% annual rate.
(4) Net interest rate spread represents the difference between the average
rate on interest-earning assets and the average cost of interest-bearing
liabilities.
(5) Net interest margin represents net interest income as a percentage of
average interest-earning assets.

Rate/Volume Analysis. Net interest income can also be analyzed in terms of
the impact of changing interest rates on interest-earning assets and interest-
bearing liabilities and changing the volume or amount of these assets and
liabilities. The following table represents the extent to which changes in
interest rates and changes in the volume of interest-earning assets and
interest-bearing liabilities have affected Pioneer'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. Changes

118
<PAGE>

attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 MARCH 31, 1995 MARCH 31, 1994
COMPARED TO COMPARED TO COMPARED TO
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 MARCH 31, 1994 MARCH 31, 1993
----------------------- ----------------------- -----------------------
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:
Real estate loans...... $ 427 $ 55 $ 482 $ 590 $ (510) $ 80 $ 169 $ (699) $ (530)
Other loans............ (5) 5 -- (13) (2) (15) 2 (11) (9)
Mortgage-backed securi-
ties.................. 1,058 1,017 2,075 466 (1,364) (898) 1,242 (2,344) (1,102)
Investment securities.. 1,982 159 2,141 1,918 227 2,145 40 (896) (856)
Federal funds sold..... (230) 472 242 133 435 568 207 (92) 115
------ ------ ------ ------ ------- ------ ------ ------- ------
Total.................. 3,232 1,708 4,940 3,094 (1,214) 1,880 1,660 (4,042) (2,382)
------ ------ ------ ------ ------- ------ ------ ------- ------
INTEREST EXPENSE:
Money market deposits.. (68) 110 42 (107) 108 1 (54) (250) (304)
Savings deposits....... (324) (93) (417) (22) (28) (50) 581 (1,031) (450)
Certificates of depos-
it.................... 2,695 1,606 4,301 128 347 475 54 (1,019) (965)
Borrowed funds......... 917 28 945 261 -- 261 -- -- --
------ ------ ------ ------ ------- ------ ------ ------- ------
Total.................. 3,220 1,651 4,871 260 427 687 581 (2,300) (1,719)
------ ------ ------ ------ ------- ------ ------ ------- ------
Net change in interest
income................ $ 12 $ 57 $ 69 $2,834 $(1,641) $1,193 $1,079 $(1,742) $ (663)
====== ====== ====== ====== ======= ====== ====== ======= ======
</TABLE>

CHANGES IN FINANCIAL CONDITION FROM MARCH 31, 1995 TO DECEMBER 31, 1995

Total assets increased $43.2 million, or 9.7 percent, to $488.4 million at
December 31, 1995, primarily due to additional funds available for investment
as a result of a net increase in deposits of $41.0 million.

Mortgage-backed securities available for sale increased by $15.6 million, or
87.1 percent, which reflects a one-time reassessment and related
reclassification from the held to maturity category and purchases during the
period of Government National Mortgage Association ("GNMA") securities of
$63.6 million and $8.0 million, respectively, partially offset by sales of
U.S. agency mortgage-backed securities and principal repayments and
amortization of $55.4 million and $1.2 million, respectively. Investment
securities available for sale increased by $22.2 million from $51,000. This
increase was primarily due to a one-time reassessment and related
reclassification from the held to maturity category of $28.0 million partially
offset by sales of corporate bonds of $5.9 million. The one-time reassessment
and related reclassifications from the held-to-maturity category discussed
herein resulted from the Company's decision to utilize the window allowed by
the Financial Accounting Standards Board (the "FASB") to reclassify held-to-
maturity portfolios pursuant to FASB Statement No. 115 without affecting the
classification of the remaining portfolio (See "--Impact of New Accounting
Standards").

The increases in mortgage-backed securities and investment securities
available for sale were coupled with an increase in investment securities held
to maturity and partially offset by a decrease in mortgage-backed securities
held to maturity. Investment securities held to maturity increased by $17.6
million or 17.3 percent. This increase was primarily due to purchases of U.S.
agency securities and commercial paper of $76.1 million and $36.3 million,
respectively. This was partially offset by a one-time reassessment and
reclassification to available for sale and by calls and maturities of U.S.
agency securities and corporate bonds and sales of downgraded corporate bonds
of $28.0 million, $63.0 million and $4.0 million, respectively. The $4.0
million of downgraded corporate bonds were sold because there was evidence of
significant deterioration of the issuer's creditworthiness, and were therefore
sold in accordance with paragraph 8 of SFAS No. 115.

119
<PAGE>

Mortgage-backed securities held to maturity declined $20.5 million or 13.8
percent largely as a result of a one-time reassessment and reclassification to
available for sale and principal repayments of $63.6 million and $13.2
million, respectively. This was partially offset by purchases during the
period of GNMA, FNMA, FHLMC and Resolution Trust Corporation ("RTC")
securities of $20.3 million, $13.3 million, $21.2 million and $1.5 million,
respectively.

Pioneer's total deposit liabilities at December 31, 1995 were $394.0 million
compared to $353.0 million at March 31, 1995. During the nine months ended
December 31, 1995, new deposits before interest credited exceeded deposit
outflows by $28.2 million. Interest credited for the nine months ended
December 31, 1995 amounted to $12.8 million. The resulting net increase in
deposits of $41.0 million, or 11.6 percent, is attributable primarily to
Pioneer's decision during the first quarter to raise interest rates on many
time deposit products in celebration of Pioneer's 110th anniversary of
servicing the financial needs of its communities and Pioneer's expansion into
the Westbury, New York community with the grand opening of a full service
branch and mortgage center. Management has continued to monitor savings rates
and has reduced time account rates to a level management believes is still
competitive with other institutions in its market areas. At December 31, 1995,
32.8 percent of deposits were in savings accounts, 55.2 percent of deposits
were in time accounts, 7.9 percent were in money market accounts and 4.1
percent were in demand accounts.

Pioneer's securities sold with agreement to repurchase at December 31, 1995
were $10.0 million compared to $9.8 million at March 31, 1995, an increase of
$205,000 or 2.1 percent. These U.S. Government and agency and mortgage-backed
securities sold with agreement to repurchase mature during July of 1996 and
July of 1997. Borrowings under such reverse repurchase agreements involve the
delivery of securities to broker-dealers who arrange the transactions. The
securities remain registered in the name of Pioneer, and are returned upon the
maturities of the agreements. Securities sold with agreement to repurchase
reflect management's decision to leverage the balance sheet in an effort to
increase net interest income. Funds to repay at maturity Pioneer's securities
sold with agreement to repurchase will primarily be provided by cash received
from maturing U.S. agency securities.

CHANGES IN FINANCIAL CONDITION FROM MARCH 31, 1994 TO MARCH 31, 1995

Total assets increased $16.8 million, or 3.9%, to $445.2 million at March
31, 1995, primarily due to increases in mortgage-backed and investment
securities held to maturity. Mortgage-backed securities held to maturity
increased by $50.2 million, or 51.1%, which reflects purchases during the
period of GNMA, FNMA and FHLMC securities of $35.9 million, $21.4 million and
$980,000, respectively, partially offset by principal repayments and
amortization of $8.1 million. Investment securities held to maturity increased
by $46.8 million, or 85.2%. This increase was primarily due to purchases of
U.S. Government and agency securities, corporate commercial paper and
corporate bonds of $46.8 million, $12.9 million and $3.9 million,
respectively, partially offset by maturities of corporate commercial paper,
U.S. agency securities and corporate bonds of $13.0 million, $2.0 million and
$2.0 million, respectively. In addition, net loans receivable increased $14.8
million, or 14.9%, primarily as a result of originations of residential
mortgage and other loans of $26.8 million, offset in part by principal
collections of $12.0 million.

The increases in mortgage-backed securities and investment securities held
to maturity and net loans receivable were partially offset by decreases in
available-for-sale securities as well as cash and cash equivalents. The
decline in Pioneer's securities available-for-sale portfolio of $62.0 million,
or 77.5%, since March 31, 1994, was primarily due to sales of U.S. agency
mortgage-backed securities, various corporate securities and U.S. Treasury
securities in the amount of $39.9 million, $11.8 million and $3.0 million,
respectively, coupled with principal repayments and amortization of $7.3
million during the period. In addition, cash and cash equivalents, including
federal funds sold, declined $55.1 million, or 71.7%, which is primarily the
result of increases in investment and mortgage-backed securities and loans
receivable.

Effective April 1, 1994, Conestoga adopted Statement of Financial Accounting
Standards SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." As a result, Pioneer classified certain of

120
<PAGE>

its investment and mortgage-backed securities as available-for-sale
securities. Pioneer has subsequently reduced its available-for-sale portfolio
through sales of mostly fixed-rate securities and redeployment of the proceeds
into shorter-term investments and repricing vehicles in an effort to reduce
interest rate risk. Through a strategy of matching the maturities and
repricing periods of its interest-sensitive assets and liabilities, Pioneer
has attempted to protect itself from the adverse effects of rising interest
rates and to stabilize its net interest income.

Pioneer's total deposit liabilities at March 31, 1995, were $353.0 million
compared to $350.8 million at March 31, 1994, a net increase in deposits of
$2.2 million, or .6%. Interest credited for the twelve months ended March 31,
1995, amounted to $12.0 million. During the twelve months ended March 31,
1995, deposit outflows before interest credited exceeded new deposits by $9.7
million. This is reflective of the fiscal year rate environment and Pioneer's
decision to maintain interest rates competitive with other institutions in its
market area and not to offer greater than the prevailing market interest rates
to increase the deposit base. Instead Pioneer has attempted to encourage long-
term depositors to maintain their accounts with Pioneer through expanded
customer service and establishing branch offices in new market areas, such as
the addition of the new Westbury, New York, branch which opened April 29,
1995. At March 31, 1995, 37.6% of deposits were in savings accounts, 50.2% of
deposits were in time accounts, 8.4% were in money market accounts and 3.8%
were in demand accounts.

During October 1994, Pioneer sold $9.8 million in U.S. Government and agency
securities with agreement to repurchase. These agreements were still
outstanding at March 31, 1995, and matured during April and May of 1995.
Borrowings under such reverse repurchase agreements involve the delivery of
securities to broker-dealers who arrange the transactions. The securities
remain registered in the name of Pioneer, and are returned upon the maturities
of the agreements. Securities sold with agreement to repurchase reflects
management's decision to leverage the balance sheet in an effort to increase
net interest income.

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

General. For the nine months ended December 31, 1995 and 1994, net income
was $2.5 million and $3.2 million, respectively. Comments regarding the
material changes in the components of net income are discussed below.

Interest Income. Interest income increased $4.9 million, or 25.2 percent, to
$24.5 million for the nine months ended December 31, 1995, from $19.6 million
in the same period in 1994, primarily due to an increase in the average
balance of interest-earning assets of $59.9 million, or 15.0 percent,
representing investment of the proceeds from the increases in total deposits
and securities sold with agreement to repurchase. Increases of $482,000, $2.7
million, $1.8 million and $242,000 in interest income on loans, mortgage-
backed securities held to maturity, investment securities held to maturity and
federal funds sold, respectively, were offset by a decrease in interest income
on securities available for sale of $350,000.

Interest Expense. Interest expense increased $4.9 million, or 54.7 percent,
to $13.8 million for the nine months ended December 31, 1995, from $8.9
million in the same period in 1994. The increase is primarily attributable to
the interest expense on the securities sold with agreement to repurchase
coupled with an increase in certificate rates, which resulted in the average
cost of interest-bearing liabilities increasing to 4.72 percent for the nine
months ended December 31, 1995, from 3.57 percent for the same period in 1994.
Securities sold with agreement to repurchase reflect management's decision to
leverage the balance sheet in an effort to increase net interest income. The
increase in the average cost of interest-bearing liabilities was coupled with
an increase in the average balance of interest-bearing liabilities of $56.5
million, or 17.0 percent to $389.0 million from $332.5 million.

Net Interest Income. Net interest income remained virtually unchanged at
$10.8 million for the nine months ended December 31, 1995. The net interest
spread declined to 2.38 percent for the nine months ended December 31, 1995,
from 2.95 percent for the same period in 1994. This is largely due to the
increased cost of interest-bearing liabilities discussed above. Due to the
current interest rate environment, although management

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cannot predict with certainty the effects of changes, if any, in interest
rates on future yields in the near term, it is likely the net interest margin
will continue to narrow.

Provision for Loan Losses. Pioneer maintains an allowance for loan losses at
a level considered adequate to absorb loan losses. Management of Pioneer, in
determining the provision 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 specific economic environment of the New York metropolitan area
and its impact on real estate market conditions in Pioneer's market area.
Pioneer maintains a loan review system which allows for a periodic review of
its loan portfolio and the early identification of potential problem loans.
Such system takes into consideration, among other things, delinquency status,
size of loan, type of collateral and financial condition of the borrower.
Specific loan loss allowances are established for identified loans based on a
review of such information and/or appraisals of the underlying collateral.
General loan loss allowances are based upon a combination of factors
including, but not limited to, actual loan loss experience, composition of
loan portfolio and current economic conditions. Although management believes
that adequate general loan losses are established, actual losses are dependent
upon future events and, as such, further additions to the level of the general
loan loss allowance may be necessary. No specific reserves for loan losses
were established for the nine months ended December 31, 1995 and 1994. The
general and specific reserve terms are used for regulatory and internal
purposes only. In the calculation of the risk-based capital ratio, the general
valuation reserves are added back to stockholders' equity.

For the nine months ended December 31, 1995 and 1994, the provision for loan
losses was $37,000 and $10,000, respectively. Pioneer's history of loan losses
has been minimal, which it believes is a reflection of its conservative
underwriting standards. The ratio of allowance for loan losses as a percentage
of total loans receivable was 0.18% and 0.19% at December 31, 1995 and 1994,
respectively.

Non-Interest Income. Non-interest income consists primarily of fee income
from service charges and gains on sales of mortgage-backed and investment
securities. Non-interest income totalled $1.5 million for the nine months
ended December 31, 1995, an increase of $164,000, or 12.1 percent, from $1.4
million for the same period in 1994. The increase primarily reflects gains of
$821,000 on sales of securities available for sale in 1995 as compared to
gains of $738,000 in 1994. The 1995 sales were undertaken as a result of
management's decision to reduce the available-for-sale portfolio and, thus,
the accompanying gains were recorded in accordance with SFAS No. 115. The 1994
sales were a result of management's decision to eliminate higher-risk
corporate bonds from Pioneer's securities portfolio as well as mortgage-backed
securities with high prepayment risk.

Non-Interest Expense. For the nine months ended December 31, 1995, non-
interest expense was $7.5 million, an increase of $1.3 million or 21.6
percent, as compared to $6.2 million for the same period in 1994. The increase
was attributable to expenses of $595,000 incurred in connection with the
anticipated merger of the company with Dime. The rise was also a result of an
increase in salaries and employee benefits of $371,000 primarily reflecting
annual salary increases and increased payroll taxes, as well as increases in
legal and accounting fees and various other increased costs associated with
being a public company.

Income Tax Expense. Income taxes decreased $437,000 to $2.3 million for the
nine months ended December 31, 1995, from $2.7 million for the same period in
1994. This decrease was a result of the decrease in pre-tax income for the
period.

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

General. For the twelve months ended March 31, 1995 and 1994, net income was
$4.1 million and $3.9 million, respectively. Comments regarding the material
changes in the components of net income are discussed below.

Interest Income. Interest income increased $1.9 million, or 7.6%, to $26.7
million for the twelve months ended March 31, 1995, from $24.8 million in the
same period in 1994, primarily due to an increase in the average balance of
interest-earning assets of $45.3 million, or 12.7%, representing investment of
the proceeds from the

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stock conversion. A decrease of $2.9 million in interest income on mortgage-
backed securities was offset by increases in interest income of $65,000, $2.3
million, $1.8 million and $568,000 on loans, investment securities, securities
available for sale and federal funds sold, respectively. The increase in
interest income on securities available for sale and the related decrease in
interest income on mortgage-backed securities reflect Pioneer's adoption of
SFAS No. 115 effective April 1, 1994, requiring the reclassification of
certain mortgage-backed securities from held to maturity to available for
sale.

Interest Expense. Interest expense increased $687,000, or 5.9%, to $12.3
million for the twelve months ended March 31, 1995, from $11.6 million in the
same period in 1994. The increase is primarily attributable to the interest
expense on the securities sold with agreement to repurchase coupled with an
increase in certificate rates, which resulted in the average cost of interest-
bearing liabilities increasing to 3.67% for the twelve months ended March 31,
1995, from 3.49% for the same period in 1994. Securities sold with agreement
to repurchase reflect management's decision to leverage the balance sheet in
an effort to increase net interest income. The increase in the average cost of
interest-bearing liabilities was coupled with an increase in the average
balance of interest-bearing liabilities of $2.5 million, or .8%, to $335.0
million from $332.5 million.

Net Interest Income. Net interest income increased $1.2 million, or 9.0%, to
$14.4 million for the twelve months ended March 31, 1995, from $13.2 million
for the same period in 1994. However, the net interest spread declined to
2.95% for the twelve months ended March 31, 1995, from 3.45% for the same
period in 1994. This is indicative of a decreased yield of 32 basis points on
interest-earning assets due to increased investments in lower-risk, lower-
yielding assets such as mortgage-backed and investment securities, as well as
the increased cost of interest-bearing liabilities discussed above. Due to the
current interest rate environment, management cannot predict with certainty
the effects of changes, if any, in interest rates on future yields.

Provision for Loan Losses. Pioneer maintains an allowance for loan losses at
a level considered adequate to absorb loan losses. Management of Pioneer, in
determining the provision 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 specific economic environment of the New York metropolitan area
and its impact on real estate market conditions in Pioneer's market area.
Pioneer maintains a loan review system which allows for a periodic review of
its loan portfolio and the early identification of potential problem loans.
Such system takes into consideration, among other things, delinquency status,
size of loan, type of collateral and financial condition of the borrower.
Specific loan loss allowances are established for identified loans based on a
review of such information and/or appraisals of the underlying collateral.
General loan loss allowances are based upon a combination of factors
including, but not limited to, actual loan loss experience, composition of
loan portfolio and current economic conditions. Although management believes
that adequate general loan losses are established, actual losses are dependent
upon future events and, as such, further additions to the level of the general
loan loss allowance may be necessary. For the twelve months ended March 31,
1995, specific reserves for loan losses totaling $14,000 were established. No
specific reserves for loan losses were established for the twelve months ended
March 31, 1994. The general and specific reserve terms are used for regulatory
and internal purposes only. In the calculation of the risk-based capital
ratio, the general valuation reserves are added back to stockholders' equity.

Pioneer was able to realize a net recovery for loan losses of $36,000 for
the twelve months ended March 31, 1995, as compared to a provision of $39,000
for the same period in 1994. Pioneer's history of loan losses has been
minimal, which it believes is a reflection of its conservative underwriting
standards. The ratio of allowance for loan losses as a percentage of total
loans receivable was .15% and .21% at March 31, 1995 and 1994, respectively.

Non-Interest Income. Non-interest income consists primarily of fee income
from service charges and gains on sales of mortgage-backed and investment
securities. Non-interest income totaled $1.8 million for the twelve months
ended March 31, 1995, an increase of $344,000, or 23.1%, from $1.5 million for
the same period in 1994. The increase primarily reflects gains of $850,000 on
sales of securities available for sale in 1995 as compared to gains of
$620,000 on sales of mortgage-backed securities and investments and securities
available for sale in 1994. The 1995 sales were undertaken to reduce the
available-for-sale portfolio and, in an increasing

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interest rate environment, the accompanying unrealized losses which would
likely be required to be recorded in accordance with SFAS No. 115. The 1994
sales were a result of management's decision to eliminate higher-risk
corporate bonds from Pioneer's securities portfolio as well as mortgage-backed
securities with high prepayment risk.

Non-Interest Expense. For the twelve months ended March 31, 1995, non-
interest expense was $8.6 million, an increase of $1.3 million, or 17.9%, as
compared to $7.3 million for the same period in 1994. The rise was primarily a
result of an increase in Pioneer's Employee Stock Ownership Plan ("Pioneer
ESOP") and Pioneer's Recognition and Retention Plan ("Pioneer RRP") benefits
of $754,000, as well as increases of $128,000 and $93,000, respectively, in
legal and accounting fees and various other increased costs associated with
being a public company.

Income Tax Expense. Income taxes increased $102,000 to $3.5 million for the
twelve months ended March 31, 1995, from $3.4 million for the same period in
1994. This increase was a result of the increase in pre-tax income for the
period.

CHANGES IN RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MARCH 31, 1994 AND
1993

General. Net income decreased by $1.0 million, or 21.04%, to $3.9 million
for the fiscal year ended March 31, 1994 from $4.9 million for the same period
of 1993. Comments regarding the components of net income are detailed in the
following paragraphs.

Interest Income. Interest income decreased by $2.4 million, or 8.8%, to
$24.8 million for the fiscal year ended March 31, 1994 from $27.2 million for
the fiscal year ended March 31, 1993. The decrease was due primarily to a
decrease in the average yield on interest-earning assets, to 6.94% for the
fiscal year ended March 31, 1994 from 8.10% for the same period of 1993, as a
result of generally lower market interest rates, which decrease was partially
offset by a $21.9 million, or 6.5%, increase in average interest-earning
assets to $358.0 million. The average balance of mortgage loans receivable
increased $1.8 million due to a slowing of mortgage prepayments. The average
balance of federal funds sold increased $7.1 million, or 27.1%, investment
securities decreased $2.5 million, and mortgage-backed securities increased
$12.6 million during the fiscal year ended March 31, 1994 compared to the same
period of 1993, due to Pioneer's decision to purchase mortgage-backed
securities. The investment policy of Pioneer is designed to manage the
interest rate sensitivity of its overall assets and liabilities, to generate a
favorable return without incurring undo interest rate risk, to supplement
Pioneer's lending activities and to provide and maintain liquidity.

Interest Expense. Interest expense decreased $1.7 million, or 12.8%, to
$11.6 million for the fiscal year ended March 31, 1994 from $13.3 million in
the same period of 1993. The decrease is attributable to lower market interest
rates, which resulted in the average cost of interest-bearing liabilities
decreasing to 3.49% for the fiscal year ended March 31, 1994 from 4.19% for
the same period of 1993. The decrease in the average cost of interest-bearing
liabilities was partially offset by an increase in the average balance of
interest-bearing deposits of $13.9 million, or 4.4%, to $332.5 million from
$318.6 million. Pioneer has not borrowed funds over the last several years,
and therefore, has no corresponding expense category.

Net Interest Income. Net interest income decreased $700,000, or 4.8%, to
$13.2 million for the fiscal year ended March 31, 1994 from $13.9 million for
the same period of 1993. This decrease represents a decrease in the interest
rate spread to 3.45% for the fiscal year ended March 31, 1994 from 3.91% for
the same period of 1993.

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portfolio and the early identification of potential problem loans. Such system
takes into consideration, among other things, delinquency status, size of
loans, type of collateral and financial condition of the borrowers. Specific
loan loss allowances are established for identified loans based on a review of
such information and/or appraisals of the underlying collateral.

General loan loss allowances are based upon a combination of factors
including, but not limited to, actual loan loss experience, composition of
loan portfolio and current economic conditions. Although management believes
that adequate general loan losses are established, actual losses are dependent
upon future events and, as such, further additions to the level of the general
loan loss allowance may be necessary. No specific loan losses were established
for these periods. The general and specific reserve terms are used for
regulatory and internal purposes only. In the calculation of the risk-based
capital ratio, the general valuation reserves are added back to stockholders'
equity.

The provision for loan losses decreased $66,000 to $39,000 for the fiscal
year ended March 31, 1994 from $105,000 for the same period in 1993. Pioneer's
history of loan losses has been minimal, which it believes is a reflection of
its conservative underwriting standards. The ratio of allowance for loan
losses as a percentage of total loans receivable was 0.21% and 0.17% at March
31, 1994 and 1993, respectively.

Non-Interest Income. Non-interest income consists primarily of fee income
from service charges and gains on sales of mortgage-backed securities and
investment securities. Non-interest income totaled $1.5 million for the fiscal
year ended March 31, 1994, a decrease of $419,000, or 22.06%, from $1.9
million for the same period in 1993. The decrease was primarily attributable
to the gain on sale of mortgage-backed securities and investments and other
assets of $620,000 as compared to $1.1 million in 1993. The 1994 sales were a
result of management's decision to eliminate higher risk corporate bonds from
Pioneer's security portfolio, as well as mortgage-backed securities with high
pre-payment risk.

Non-Interest Expense. For the fiscal year ended March 31, 1994, non-interest
expense was $7.3 million, an increase of $804,000, or 12.29%, as compared to
the fiscal year ended March 31, 1993. The increase was primarily due to the
increase in compensation and employee benefits of $320,000 in connection with
Pioneer's conversion from mutual to stock form, an increase of $100,000 in the
Pioneer ESOP and the Pioneer RRP benefits, an increase in premises and
equipment expense of $160,000, and an increase in advertising expenses of
$125,000. The increase in premises, equipment and advertising expenses was due
to the acquisition and renovation of branch offices of Pioneer.

Income Tax Expense. Income tax expense for the fiscal year ended March 31,
1994 was $779,000 less than the same period of 1993 and is indicative of the
normal level of income tax expense attributable to pre-tax income for the
period.

LIQUIDITY AND CAPITAL RESOURCES

Pioneer's primary sources of funds are deposits and principal and interest
payments on loans and mortgage-backed and mortgage-related securities and
investment securities. While maturities and scheduled amortization of loans
and mortgage-backed and mortgage-related securities and investment securities
are predictable sources of funds, deposit flows and mortgage prepayments are
strongly influenced by changes in general interest rates, economic conditions,
competition and regulatory changes.

Pioneer is required to maintain an average daily balance of liquid assets
and short-term liquid assets as a percentage of net withdrawable deposit
accounts plus short-term borrowings as defined by OTS regulations. The minimum
required liquidity and short-term liquidity ratios, which vary periodically
depending upon economic conditions and deposit flows, are currently 5% and 1%,
respectively. Pioneer's liquidity ratios were 27.48% and 22.76% at December
31, 1995, and March 31, 1995, respectively, which were significantly higher
than required, primarily due to the greater opportunity for deposit gathering
than for loan origination within Pioneer's local market area. Liquid assets
consist of cash, cash equivalents and short-term and intermediate-term
investments,

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such as short- and intermediate-term U.S. Government and government agency
securities. The maintenance of liquid assets allows for the possibility of
disintermediation when interest rates fluctuate. The level of these assets is
dependent on Pioneer's operating, financing, lending and investing activities
during any given period. At December 31, 1995, and March 31, 1995, assets
qualifying for short-term liquidity, including cash and short-term
investments, totaled $67.5 million and $42.5 million, respectively.

The primary investment activity of Pioneer is the origination of one- to
four-family mortgage loans as well as investing in mortgage-backed and
mortgage-related securities. During the nine months ended December 31, 1995,
Pioneer's one- to four-family mortgage loan originations totaled $9.2 million,
while purchases of mortgage-backed securities were $64.3 million of which
$10.0 million was pledged at December 31, 1995 as collateral for reverse
repurchase agreements. Investments in U.S. Government and agency obligations
totaled $83.9 million and $66.8 million at December 31, 1995, and March 31,
1995, respectively. Additionally, investments were maintained in corporate
notes and bonds which at December 31, 1995, and March 31, 1995, amounted to
$57.3 million and $34.9 million, respectively. These activities were primarily
funded by principal repayments on loans and mortgage-backed securities,
coupled with sales of securities available for sale.

Pioneer's cash flows are comprised of three primary classifications: cash
flows from operating activities, investing activities and financing
activities. Cash flows provided by operating activities, which consisted
primarily of interest and dividends received less interest paid on deposits,
were $4.2 million and $3.0 million for the nine months ended December 31, 1995
and 1994, respectively. Net cash used in investing activities, which consisted
primarily of mortgage-backed and mortgage-related securities purchases,
disbursement of loan originations and investment purchases, offset by
principal collections on and proceeds from the sale of loans, mortgage-backed
and mortgage-related securities, securities available for sale, and investment
securities, was $52.0 million and $48.9 million for the nine months ended
December 31, 1995 and 1994, respectively. Net cash provided by financing
activities, which consisted primarily of net activity in deposits and
borrowings, was $39.1 million and $612,000 for the nine months ended December
31, 1995, and 1994, respectively.

Pioneer has other sources of liquidity, including short term investments in
bank and/or thrift certificates of deposit, commercial paper and federal
funds. While Pioneer has not had a need to borrow such funds, advances from
the FHLB are available. If needed, Pioneer could increase liquidity through
the sale of unencumbered mortgage-backed securities, which are readily
marketable, and its corporate debt portfolio. In that connection, Pioneer has
identified a portion of its mortgage-backed portfolio as available for sale.

At December 31, 1995, Pioneer had outstanding loan commitments of $1.4
million. Pioneer will have sufficient funds available to meet its current loan
origination commitments. Certificates of deposit that are scheduled to mature
in one year or less at December 31, 1995 totaled $139.3 million. Management
believes that a significant portion of such deposits will remain with Pioneer.

At December 31, 1995, Pioneer was in compliance with the fully phased-in OTS
capital requirements. Tangible capital and core capital were $57.0 million, or
12.1 percent, at December 31, 1995. Pioneer's risk-based capital was $57.2
million, or 34.1 percent, at December 31, 1995. Pioneer exceeded its tangible,
core and risk-based capital requirements by $49.9 million, $42.9 million and
$43.8 million, respectively, at December 31, 1995.

RECAPITALIZATION OF SAIF AND THRIFT RECHARTERING LEGISLATION

Deposits of Pioneer are presently insured by the SAIF. Both the SAIF and the
BIF, the deposit insurance fund that covers most commercial bank deposits, are
statutorily required to be recapitalized to a 1.25% of insured reserve
deposits ratio. Until recently, members of the SAIF and the BIF were paying
average deposit insurance premiums of between 24 and 25 basis points. The BIF
presently meets the required reserve ratio, whereas the SAIF is not expected
to meet or exceed the required level until 2002 at the earliest, which is
primarily due to the statutory requirement that the SAIF members make payments
on FICO bonds issued in the late 1980s to recapitalize the predecessor to the
SAIF.

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The FDIC recently adopted a new assessment rate schedule of 0 to 27 basis
points of insured deposits for the BIF members. Under the new schedule,
approximately 91% of the BIF members would pay the lowest assessment rate of 0
basis points with a minimum statutorily required payment of $2,000 annually.
With respect to SAIF-member institutions, the FDIC adopted a final rule
retaining the existing assessment rate schedule applicable to SAIF member
institutions of 23 to 31 basis points. As long as the premium differential
continues, it may have 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 Pioneer could be placed at a
substantial competitive disadvantage to the BIF members with respect to
pricing of loans and deposits and the ability to achieve lower operating
costs.

Several legislative bills have been introduced in Congress to mitigate the
effects of the BIF/SAIF premium disparity. As of the date hereof, pending
legislation would impose a one-time special assessment of an amount estimated
to be between 85 and 90 basis points on the amount of deposits held on March
31, 1995 by SAIF-member institutions, including the Bank, to recapitalize the
SAIF fund. The legislation would also require that the BIF and the SAIF be
merged by January 1, 1998 if subsequent legislation is enacted eliminating the
savings association charter and that the FICO payments be spread across all
the BIF and the SAIF members. The payment of the special assessment would have
the effect of immediately reducing the capital of SAIF-member institutions by
the amount of the assessment, net of any tax effect; however, it would not
affect Pioneer's compliance with its regulatory capital requirements.
Management cannot predict whether legislation imposing such an assessment will
be enacted, or, if enacted, the amount of any assessment, whether ongoing SAIF
premiums will be reduced to a level equal to that of BIF premiums, or whether
the BIF and SAIF will eventually be merged.

Pioneer's assessment rate for the fiscal year ended March 31, 1995, and the
first nine months of fiscal 1996 was 23 basis points for each of the periods
and the premiums paid for these periods were $783,000 and $612,000,
respectively. A significant increase in SAIF insurance premiums or a
significant special assessment to recapitalize the SAIF would likely have an
adverse effect on the operating expenses and results of operations of the
Bank. Based on Pioneer's deposit insurance assessment base as of March 31,
1995, an 85 to 90 basis point fee to recapitalize the SAIF would result in a
$1.6 million to 1.7 million payment on an after-tax basis.

Several pending bills would eliminate the federal thrift charter and abolish
the OTS. These bills would require that all federal savings associations
convert to national banks or state banks by no later than January 1, 1998 and
treat all state savings associations as state banks as of that date. All
savings association holding companies would become bank holding companies
under the pending legislative proposals and, subject to limited
grandfathering, would be subject to the activities restrictions applicable to
bank holding companies. Any such legislation, if enacted, could limit the
permissible activities for Pioneer and otherwise disrupt operations. The
pending legislation would also eliminate the bad debt reserve deduction for
financial institutions and, as at least one bill as presently drafted, would
not require savings associations that become national or state banks pursuant
to the legislation to recapture the bad debt reserve, provided the association
continues to have a certain percentage of its assets in residential related
loans. The outcome of this pending legislation and the effect of the
legislation on the bad debt reserve deduction of thrift institutions such as
the Bank is uncertain. Therefore, the Bank is unable to determine the extent
to which such legislation, if enacted, would affect its business or require
the recapture of the bad debt reserve if Pioneer is required to become a
national or state bank.

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 in terms of historical dollars
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 Pioneer's operations. Unlike industrial companies, nearly all of the
assets and liabilities of Pioneer are monetary in nature. As a result,
interest rates have a greater impact on Pioneer'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 price of goods and
services.

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IMPACT OF NEW ACCOUNTING STANDARDS

The Company adopted SFAS No. 114 "Accounting by Creditors for Impairment of
a Loan," and SFAS No. 118 "Accounting by Creditors for Impairment of a Loan--
Income Recognition and Disclosures," as of April 1, 1995. Both pronouncements
require that certain impaired loans be measured based on the present value of
expected cash flows discounted at the loan's original effective interest rate.
As a practical expedient, impairment may be measured based on the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. When the measure of the impaired loan is less than the
recorded investment in the loan, the impairment is recorded through a
valuation allowance. As a result of adopting these statements, no additional
allowance for loan losses was required as of April 1, 1995.

As of December 31, 1995, the Company's recorded investment in impaired loans
and the related valuation allowance calculated under SFAS No. 114 and 118 are
as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------
RECORDED VALUATION
INVESTMENT ALLOWANCE
---------- ---------
<S> <C> <C>
Impaired loans:
Requiring valuation allowance...................... $322,000 $14,000
Not requiring valuation allowance.................. -- --
-------- -------
Total impaired loans............................. $322,000 $14,000
======== =======
</TABLE>

Interest payments received on impaired loans are recorded as interest income
unless collection of the remaining recorded investment is doubtful at which
time payments received are recorded as reductions of principal. The average
balance of impaired loans was approximately $322,000 for nine months ended
December 31, 1995. If interest had been accrued on impaired loans, interest
income would have increased by approximately $21,000 for the nine months ended
December 31, 1995.

The FASB recently adopted or issued proposals and guidelines which may have
a significant impact on the accounting practices of commercial enterprises in
general and financial institutions in particular.

In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." This Statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The pronouncement is
effective for fiscal years beginning after December 15, 1995, although earlier
implementation is encouraged. In management's opinion, when adopted SFAS No.
121 will not have a material effect on Pioneer's financial position or results
of operations.

In May 1995, the Financial Accounting Standards Board issued SFAS No. 122,
"Accounting for Mortgage Servicing Rights," which is an amendment to SFAS No.
65, "Accounting for Certain Mortgage Banking Activities." This Statement
requires the recognition as separate assets rights to service mortgage loans
for others, however those servicing rights are acquired. The pronouncement is
effective for fiscal years beginning after December 15, 1995, although earlier
implementation is permitted. In management's opinion, when adopted Statement
No. 122 will not have a material effect on Pioneer's financial position or
results of operations.

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." This Statement establishes
financial accounting and reporting standards for stock-based employee
compensation plans. The pronouncement is effective for transactions entered
into for fiscal years that begin after December 15, 1995, though they may be
adopted on issuance. In management's opinion, when adopted SFAS No. 123 will
not have a material adverse effect on Pioneer's financial position or results
of operations.

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On November 15, 1995, the FASB issued a special report entitled: "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities, Questions and Answers" ("The Guide"). The Guide
permitted a one-time reassessment and related reclassifications from the held
to maturity category (no later than December 31, 1995) that will not call into
question the intent of the enterprise to hold other debt securities at
maturity in the future. In December, 1995, the Bank performed a reassessment
of its investment and mortgage-backed securities portfolio which resulted in a
reclassification of approximately $71.8 million of investment securities from
held-to-maturity into available for sale. The impact upon the Bank's financial
condition resulting from this transfer was not material. There was no impact
on the Bank's results from operations resulting from this transfer.

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BUSINESS OF CONESTOGA

GENERAL

Conestoga is the holding company of Pioneer and is subject to the regulation
of the OTS, FDIC and the SEC. Conestoga does not transact any material
business other than through its subsidiary, Pioneer. Pioneer's principal
business is attracting retail deposits from the general public and investing
those deposits, together with funds generated from operations, principal
repayments and borrowings, primarily in one- to four-family, owner-occupied,
residential mortgage loans and, to a lesser extent, consumer loans. In
addition, Pioneer invests in mortgage-backed and mortgage-related securities,
securities issued by the U.S. Government and agencies thereof, corporate
securities and other investments permitted by applicable laws and regulations.
Pioneer also invests to a limited extent in non-residential real estate loans
and construction and land loans. Pioneer will continue to enter into such
loans on a selective basis in the future. Pioneer's revenues are derived
primarily from interest on its mortgage loan and mortgage-backed and mortgage-
related securities portfolios and interest and dividends on its investment
securities portfolio. Pioneer's primary sources of funds are deposits,
principal and interest payments on loans and mortgage-backed and mortgage-
related securities and investment securities.

MARKET AREA AND COMPETITION

Pioneer's deposit gathering and lending markets are primarily concentrated
in the communities surrounding its full service offices in Kings, Queens, and
Nassau Counties and, to a lesser extent, parts of Suffolk and Westchester
Counties, all of which are in the New York City metropolitan area.

The New York City metropolitan area has a high density of financial
institutions, many of which are significantly larger and have greater
financial resources than Pioneer, and all of which are competitors of Pioneer
to varying degrees. Pioneer's competition for loans comes principally from
mortgage banking companies, commercial banks, savings banks, and savings and
loan associations. Pioneer's most direct competition for savings comes from
commercial banks, savings banks, savings and loan associations and credit
unions. Pioneer faces additional competition for savings from money market
mutual funds and other corporate and government securities funds as well as
from other financial intermediaries such as brokerage firms and insurance
companies.

Management considers Pioneer's strong branch network, together with its
reputation for financial strength and customer services as its major
competitive advantage in attracting and retaining customers in its market
areas. Pioneer also believes it benefits from its community orientation as
well as its established deposit base and levels of core deposits.

LENDING ACTIVITIES

Pioneer offers a variety of loans to serve the credit needs of its
communities. Pioneer's loan portfolio is comprised primarily of conventional
loans secured by one- to four-family residences and, to a much lesser extent,
by non-residential real estate, buildings under construction, and land. Non-
residential real estate loans are secured by multi-family and mixed-use
properties (i.e., residential and business) as well as some commercial real
estate. The remainder of the portfolio, at December 31, 1995, consisted of
consumer loans secured by deposits at Pioneer and loans made by Pioneer to the
Agency for International Development. Pioneer does not originate loans secured
by co-operative units.

Pioneer's total net loan portfolio had decreased as a percent of Pioneer's
total assets from 1991 until 1994 primarily because as interest rates had
decreased, there had been less demand for ARMs than 30-year fixed-rate loans,
for which Pioneer does not aggressively compete. In addition, prepayments
resulting from refinances of loans principally to 30-year fixed-rate loans had
also increased. Pioneer's total net loan portfolio as a percent of Pioneer's
total assets increased as of March 31, 1995 since the interest rate
environment had placed one- to four-family ARMs, for which Pioneer competes,
in greater demand. Since March 31, 1995 Pioneer's total net loan portfolio has
decreased due to a declining interest rate environment which again placed one-
to four-family ARMs in less demand.

130
<PAGE>

The following table sets forth the composition of Pioneer's loan portfolio
in dollar amounts and in percentages of the respective portfolios at the dates
indicated.

<TABLE>
<CAPTION>
AT MARCH 31,
AT DECEMBER 31, --------------------------------------------------------------------------------------
1995 1995 1994 1993 1992 1991
----------------- ----------------- ---------------- ----------------- ---------------- ----------------
PERCENT PERCENT PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL 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> <C> <C>
Real estate
loans:
Residential
mortgage loans.. $111,018 94.85% $110,344 95.60% $94,922 94.07% $ 96,276 93.39% $85,710 91.28% $89,213 92.10%
Non-residential
loans........... 4,201 3.59 3,312 2.87 3,648 3.62 3,635 3.53 3,976 4.24 4,319 4.46
Construction and
land............ 440 0.38 280 0.24 695 0.69 1,538 1.49 2,455 2.61 1,356 1.40
-------- ------ -------- ------ ------- ------ -------- ------ ------- ------ ------- ------
Total real es-
tate loans...... 115,659 98.82 113,936 98.71 99,265 98.38 101,449 98.41 92,141 98.13 94,888 97.96
-------- ------ -------- ------ ------- ------ -------- ------ ------- ------ ------- ------
Other loans:
Passbook sav-
ings............ 1,384 1.18 1,467 1.27 1,582 1.57 1,561 1.51 1,641 1.75 1,844 1.90
Agency for In-
ternational De-
velopment....... -- -- 22 0.02 55 0.05 85 0.08 113 0.12 138 0.14
-------- ------ -------- ------ ------- ------ -------- ------ ------- ------ ------- ------
Total other
loans........... 1,384 1.18 1,489 1.29 1,637 1.62 1,646 1.59 1,754 1.87 1,982 2.04
-------- ------ -------- ------ ------- ------ -------- ------ ------- ------ ------- ------
Total loans re-
ceivable........ 117,043 100.00% 115,425 100.00% 100,902 100.00% 103,095 100.00% 93,895 100.00% 96,870 100.00%
-------- ====== -------- ====== ------- ====== -------- ====== ------- ====== ------- ======
Less:
Undisbursed loan
proceeds........ 217 5 242 31 69 153
Unearned dis-
count and net
deferred loan
fees............ 567 590 621 570 630 644
Allowance for
loan losses..... 211 174 210 171 66 178
Unallocated
mortgage payment
and
satisfactions... 117 5 28 249 372 142
-------- -------- ------- -------- ------- -------
Total loans, re-
ceivable, net... $115,931 $114,651 $99,801 $102,074 $92,758 $95,753
======== ======== ======= ======== ======= =======
</TABLE>

131
<PAGE>

Loan Maturity. The following table shows the contractual maturity of
Pioneer's loans at December 31, 1995. The table reflects the entire unpaid
principal balance in the maturity period that includes the final loan payment
date and, accordingly, does not give effect to periodic principal repayments
or possible prepayments.

<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
---------------------------------------------------------
NON-
RESIDENTIAL RESIDENTIAL CONSTRUCTION
MORTGAGE LOANS LOANS AND LAND CONSUMER TOTAL
-------------- ----------- ------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Contractual maturity:
One year or less...... $ 1,332 $ 8 $ -- $1,384 $ 2,724
-------- ------ ---- ------ --------
After one year:
More than 1 year to
3 years............ 594 349 300 -- 1,243
More than 3 years to
5 years............ 1,187 -- -- -- 1,187
More than 5 years to
10 years........... 13,962 1,749 -- -- 15,711
More than 10 years
to 20 years........ 37,220 1,279 140 -- 38,639
More than 20 years.. 56,723 816 -- -- 57,539
-------- ------ ---- ------ --------
Total after one
year............. 109,686 4,193 440 -- 114,319
-------- ------ ---- ------ --------
Total amount due...... $111,018 $4,201 $440 $1,384 $117,043
======== ====== ==== ====== ========
</TABLE>

The following table sets forth the dollar amounts in each loan category at
December 31, 1995 that are contractually due after December 31, 1996, and
whether such loans have fixed interest rates or adjustable interest rates.

<TABLE>
<CAPTION>
DUE AFTER DECEMBER 31, 1996
---------------------------
FIXED ADJUSTABLE TOTAL
------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage loans:
Residential mortgage loans....................... $78,269 $31,417 $109,686
Non-residential loans............................ 2,875 1,318 4,193
Construction and land............................ 140 300 440
Consumer loans................................... -- -- --
------- ------- --------
Total.......................................... $81,284 $33,035 $114,319
======= ======= ========
</TABLE>

The following table sets forth Pioneer's loan originations, repayments and
other portfolio activity for the periods indicated.

<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED DECEMBER 31, FOR THE YEAR ENDED MARCH 31,
-------------------- -------------------------------
1995 1994 1995 1994 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans (gross):
At beginning of period.. $ 115,425 $ 100,902 $ 100,902 $ 103,095 $ 93,895
--------- --------- --------- --------- ---------
Real estate loans origi-
nated:
Residential mortgage
loans................ 8,855 21,526 25,771 15,639 28,183
Non-residential
loans................ 300 -- -- 528 250
--------- --------- --------- --------- ---------
Total real estate
loans originated... 9,155 21,526 25,771 16,167 28,433
Other loans originated:
Passbook loans........ 736 700 979 1,357 1,586
--------- --------- --------- --------- ---------
Total loans origi-
nated.............. 9,891 22,226 26,750 17,524 30,019
Principal repayments.... (8,009) (9,011) (12,018) (19,717) (20,819)
Loans transferred to
real estate owned...... (264) (207) (209) -- --
--------- --------- --------- --------- ---------
Net loans at end of pe-
riod................... $ 117,043 $ 113,910 $ 115,425 $ 100,902 $ 103,095
========= ========= ========= ========= =========
</TABLE>

132
<PAGE>

One- to Four-Family Mortgage Lending. Pioneer's primary lending emphasis is
on the origination of first mortgage loans in its lending areas secured by
one- to four-family residences that serve as the primary residence of the
owner. To a much lesser degree, Pioneer makes loans on non-owner occupied one-
to four-family properties acquired as an investment by the borrower. Loan
originations are generally obtained from existing or past customers, members
of the local communities served, or referrals from local real estate agents,
attorneys and builders.

At December 31, 1995, $111.0 million, or 94.9% of Pioneer's loan portfolio
consisted of one- to four- family residential loans, of which $33.5 million,
or 30.2% were one- to four-family ARMs. Pioneer currently offers one-year one-
to four-family ARMs with terms of up to 30 years and loans with terms of up to
30 years which are fixed for five years, seven years or ten years and convert
into one-year, three-year and one-year ARMs, respectively, at the end of the
fifth year, seventh year and tenth year, respectively. These one- to four-
family ARMs may carry an initial interest rate which is less than the fully
indexed rate for the loan. The initial discounted rate is determined by
Pioneer in accordance with market and competitive factors. All one- to four-
family ARMs offered by Pioneer have yearly caps of a maximum of 2% and
lifetime ceilings and floors, generally up to 6.0% over the initial rate.
Generally, ARMs pose credit risks somewhat greater than the risk inherent in
fixed-rate loans primarily because, as interest rates rise, the underlying
payments of the borrower rise, increasing the potential for default.

In recent years, Pioneer has originated fewer one- to four-family
residential mortgage loans due to the weak economy, Pioneer's conservative
underwriting standards, and the relatively low interest rate environment that
has existed in which borrowers prefer 30 year fixed-rate loans. Pioneer does
not aggressively compete for 30 year fixed-rate loans, however, these loans
are originated as are fixed-rate mortgage loans with terms of 10 to 15 years.
Pioneer currently does not sell loans in the secondary market. Pioneer has
been approved by FNMA to sell loans in the secondary market, and may sell
loans to the FNMA in the future; however, there is no assurance that Pioneer
will be able to originate loans for sale in the secondary market or, that if
originated, such loans will be sold in the secondary market.

One- to four-family residential mortgage loans are generally underwritten
according to FNMA and FHLMC guidelines. Pioneer's policy on owner-occupied,
one- to four-family residential mortgage loans is to lend up to 80% of the
appraised value of the property securing the loan on loans up to $250,000.
Loans in excess of $250,000 are made with loan-to-value ratios ranging from a
maximum of 70-75%, depending upon the size of the loan. During 1995, Pioneer
began to originate loans in excess of 80% of the appraised value of the
property securing the loan yet requires that private mortgage insurance be
obtained. In addition, although Pioneer does not currently purchase loans, it
has done so in the past and may do so in the future. At December 31, 1995,
loans held by Pioneer that were serviced by others totaled $2.7 million.

Non-Residential Real Estate and Construction and Land Loans. As of December
31, 1995, Pioneer's total loan portfolio contained $4.2 million, or 3.59%, of
non-residential real estate loans. Pioneer has only made these types of loans
on a selected basis in the past and intends to continue to limit its lending
in this area in the future.

The non-residential real estate loans in Pioneer's portfolio consist of both
fixed-rate and adjustable-rate loans which were originated at prevailing
market rates. Pioneer's policy has been to originate non-residential real
estate loans only in its market areas. In making such loans, Pioneer primarily
considers the ability of net operating income generated by the real estate to
support the debt service, the financial resources and income level and
managerial expertise of the borrower, the marketability of the property, and
Pioneer's lending experience with the borrower. Non-residential real estate
loans generally are secured by multi-family properties and multi-use
properties (more residential than business). The largest non-residential real
estate loan at December 31, 1995 had an outstanding balance of $515,996 was
current, and was secured by a mixed-used property consisting of three stores
and seven residential dwelling units.

Loans secured by non-residential real estate properties involve a greater
degree of risk than one- to four-family residential loans. This has been
particularly true for non-residential real estate loans during recent years

133
<PAGE>

due to a sharp increase in available space and a decrease in demand for mixed-
use properties in Pioneer's market area.

In addition, Pioneer originates loans on a selected basis to finance the
construction of one- to four-family homes in its market areas and to purchase
land on which one- to four-family homes are to be built. At December 31, 1995,
construction and land loans totaled $440,000, or 0.38% of Pioneer's total loan
portfolio. Construction and land loans generally provide for interest-only
payments and are originated for a short term. Borrowers must contribute equity
in the construction project to establish acceptable loan-to-value ratios.
Pioneer generally requires personal guarantees from the principals of the
borrowing entity. Loan proceeds are disbursed in stages as construction
progresses and as inspections warrant.

Consumer Loans. At December 31, 1995, $1.4 million or 1.18% of Pioneer's
total loan portfolio consisted of consumer loans, all of which were secured by
funds on deposit at Pioneer.

Loan Approval Procedures and Authority. Loans up to $500,000 that meet all
aspects of Pioneer's underwriting criteria are approved by a majority of the
management loan committee consisting of three senior officers and are then
ratified by the Board of Directors. All other loans must be approved by the
Board of Directors.

Upon receipt of a completed loan application from a prospective borrower,
Pioneer generally orders a credit report, verifies income and other
information and, if necessary, obtains additional financial or credit-related
information. An appraisal of the real estate used for collateral is also
obtained. All appraisals are performed by licensed or certified appraisers.
Most appraisals are currently performed by licensed independent third party
appraisers. The Board annually approves the independent appraisers used by
Pioneer and reviews Pioneer's appraisal policy.

Pioneer's policy is to require either title insurance or an attorney's
opinion of title, and hazard insurance on all real estate loans. Borrowers
generally are required to advance funds together with each payment of
principal and interest to a mortgage escrow account from which Pioneer makes
disbursements for items such as real estate taxes, hazard insurance premiums
and private mortgage insurance premiums, if required.

ASSET QUALITY

Loan Collection. When a borrower fails to make a required payment on a loan,
Pioneer takes a number of steps to induce the borrower to cure the delinquency
and restore the loan to a current status. In the case of residential mortgage
loans and consumer loans, Pioneer generally sends the borrower a written
notice of non-payment when the loan first becomes delinquent. In the event
payment is not then received, additional letters and phone calls generally are
made. If the loan is still not brought current and it becomes necessary for
Pioneer to take legal action, which typically occurs after a loan is
delinquent 90 days or more, Pioneer may commence foreclosure proceedings
against 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 real property securing the loan is generally
sold at foreclosure or by Pioneer as soon thereafter as practicable. Pioneer
takes pride in working with the borrower to assist in bringing the loan to a
current status within a reasonable time period. Decisions as to when to
commence foreclosure actions for non-residential real estate and construction
and land loans are made on a case by case basis.

On mortgage loans or loan participations purchased by Pioneer, Pioneer
receives monthly reports from its loan servicers with which it monitors the
loan portfolio. Based upon servicing agreements with the servicers of the
loans, Pioneer relies upon the servicer to contact delinquent borrowers,
collect delinquent amounts and to initiate foreclosure proceedings, when
necessary, all in accordance with applicable laws, regulations and the terms
of the servicing agreements between Pioneer and its servicing agents.

134
<PAGE>

The following table sets forth delinquencies in Pioneer's loan portfolio at
the dates indicated:

<TABLE>
<CAPTION>
AT DECEMBER 31, 1995 AT MARCH 31, 1995
------------------------------------- -------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
------------------ ------------------ ------------------ ------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS BALANCE OF LOANS BALANCE OF LOANS BALANCE OF LOANS BALANCE
-------- --------- -------- --------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family..... 5 $371 5 $554 6 $586 3 $ 351
Delinquent loans to to-
tal loans.............. 0.3% 0.5% 0.5% 0.3%
<CAPTION>
AT MARCH 31, 1994 AT MARCH 31, 1993
------------------------------------- -------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
------------------ ------------------ ------------------ ------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS BALANCE OF LOANS BALANCE OF LOANS BALANCE OF LOANS BALANCE
-------- --------- -------- --------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family..... 8 $275 4 $542 6 $299 9 $1,023
Delinquent loans to to-
tal loans.............. 0.3% 0.5% 0.3% 1.0%
</TABLE>

Non-performing Loans and Other Real Estate Owned. The following table sets
forth information regarding non-performing loans (loans delinquent 90 days or
more) and other real estate owned. If a borrower fails to make a scheduled
payment on a loan and the delinquency exceeds 90 days and is not cured through
Pioneer's normal collection procedures, then the loan is placed on non-accrual
status. In certain circumstances, management may place a loan on non-accrual
status before 90 days if it determines that there exists an inability by the
borrower to repay the current interest due. When a loan is placed on non-
accrual status, previously accrued but unpaid interest is deducted from
interest income. Interest income that would have been recorded for the nine
months ended December 31, 1995 if loans classified as non-accrual had been
current in accordance with their original terms and had been outstanding
throughout the year amounted to approximately $32,206, and interest income on
those loans included in net income for the same period was $0.

Non-Accrual and Other Past Due Loans. The following table sets forth
information regarding non-accrual loans, other past due loans and REO. There
were no troubled-debt restructurings within the meaning of SFAS No. 15 at any
of the dates presented below.

<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED MARCH 31,
AT DECEMBER 31, ----------------------------------------
1995 1995 1994 1993 1992 1991
--------------- ------ ------ -------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans:
Mortgage loans......... $661 $ 351 $ 542 $ 1,023 $ 311 $ 630
Other loans............ -- -- -- -- -- --
---- ------ ------ -------- ------ ------
Total non-performing
loans............... 661 351 542 1,023 311 630
Total real estate
owned.................. 264 -- -- 213 377 --
---- ------ ------ -------- ------ ------
Total non-performing
assets................ $925 $ 351 $ 542 $ 1,236 $ 688 $ 630
==== ====== ====== ======== ====== ======
Total non-performing
loans to loans, net.... 0.57% 0.31% 0.54% 1.00% 0.34% 0.66%
Total non-performing
assets to total
assets................. 0.19% 0.08% 0.13% 0.34% 0.20% 0.22%
</TABLE>

Classified Assets. Federal regulations and Pioneer's policy require the
classification of loans and other assets, such as debt and equity securities
considered to be of lesser quality, as "substandard," "doubtful" or "loss"
assets. An asset is considered "substandard" if it is inadequately protected
by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. "Substandard" assets include those characterized
by the "distinct possibility" that the 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.
Assets which do not currently expose the insured

135
<PAGE>

institution to sufficient risk to warrant classification in one of the
aforementioned categories but possess weaknesses are required to be designated
"special mention" by management.

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,
recently 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 allowances. Generally,
the policy statement requires that institutions have effective systems and
controls to identify, monitor and address asset quality problems; have
analyzed all significant factors that affect the collectibility of the
portfolio in a reasonable manner; and have established acceptable allowance
evaluation processes that meet the objectives set forth in the policy
statement.

Pioneer's Asset Classification Committee reviews Pioneer's loan portfolio
and determines whether to classify assets. At December 31, 1995, Pioneer had
eight loans with an aggregate balance of $1.2 million classified as
substandard. No loans were classified as special mention, doubtful or loss.

ALLOWANCES FOR LOAN LOSSES

Pioneer's allowance for loan losses is established and maintained through a
provision for loan losses based on management's evaluation of the risk
inherent in Pioneer's loan portfolio and the condition of the local economy in
Pioneer's market areas. Such evaluation, which includes a review of all loans
on which full collectibility is not reasonably assured, considers among other
matters, the estimated fair value of the underlying collateral, economic and
regulatory conditions, and other factors that warrant recognition of an
adequate loan loss allowance. Although management believes it uses the best
information available to make determinations with respect to Pioneer's
allowance for loan losses, future adjustments may be necessary if economic and
other conditions differ substantially from the economic and other conditions
in the assumptions used in making the initial determinations. Other real
estate owned, including in-substance foreclosed loans and investments in real
estate, are carried at net carrying value, net of all allowances for losses,
which is the lower of cost or fair value less estimated selling costs.
Pursuant to Pioneer's policy, loan losses must be charged-off in the period
the loans, or portion thereof, are deemed uncollectible.

As a result of the declines in local and regional real estate market values
and the significant losses experienced by many financial institutions, there
has been a greater level of scrutiny by regulatory authorities of the loan
portfolios of financial institutions undertaken as part of the examination of
the institutions by the OTS and the FDIC. While Pioneer believes it has
established an adequate allowance for loan losses, there can be no assurance
that regulators, in reviewing Pioneer's loan portfolio, will not request
Pioneer to materially increase at that time its allowance for loan losses,
thereby negatively affecting Pioneer's financial condition and earnings at
that time.

136
<PAGE>

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

<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS ENDED
DECEMBER 31, AT OR FOR THE YEAR ENDED MARCH 31,
-------------------- ----------------------------------------------
1995 1994 1995 1994 1993 1992 1991
--------- --------- -------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Total loans outstanding
at end of period(1).... $ 117,043 $ 113,910 $115,425 $100,902 $103,095 $93,895 $96,870
========= ========= ======== ======== ======== ======= =======
Average total loans out-
standing(1)............ $ 114,204 $ 107,065 $108,831 $101,516 $ 99,693 $95,683 $95,573
========= ========= ======== ======== ======== ======= =======
Allowance balance at be-
ginning of period...... $ 174 $ 210 $ 210 $ 171 $ 66 $ 178 $ 65
Charge-offs............ -- -- -- -- -- -- --
Provision (recoveries)
for loan losses....... 37 10 (36) 39 105 (112) 113
--------- --------- -------- -------- -------- ------- -------
Balance at end of year.. $ 211 $ 220 $ 174 $ 210 $ 171 $ 66 $ 178
========= ========= ======== ======== ======== ======= =======
Allowance for loan
losses as a percent of
total loans receivable
at end of period....... 0.18% 0.19% 0.15% 0.21% 0.17% 0.07% 0.18%
Ratio of allowance for
loan losses to total
non-performing loans at
end of period.......... 31.92 35.66 49.53 38.75 16.72 21.22 28.25
Ratio of allowance for
loan losses to total
non-performing loans
and REO at end of
period................. 22.81 26.70 49.53 38.75 13.83 9.59 28.25
</TABLE>
--------
(1) Total loans represent gross loans less unearned discounts and net deferred
fees.

The following table sets forth Pioneer's allowance for loan losses allocated
by loan category and the percent of loans in each category to total loans at
the dates indicated.

<TABLE>
<CAPTION>
AT MARCH 31,
AT DECEMBER 31, -----------------------------------------------------------------
1995 1995 1994 1993
--------------------- --------------------- --------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN LOANS IN
EACH EACH EACH EACH
ALLOWANCE CATEGORY TO ALLOWANCE CATEGORY TO ALLOWANCE CATEGORY TO ALLOWANCE CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
--------- ----------- --------- ----------- --------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family.... $186 95.23% $147 95.84% $197 94.76% $166 94.88%
Non-residential........ 25 3.59 27 2.87 13 3.62 5 3.53
Other.................. -- 1.18 -- 1.29 -- 1.62 -- 1.59
---- ------ ---- ------ ---- ------ ---- ------
Total.................. $211 100.00% $174 100.00% $210 100.00% $171 100.00%
==== ==== ==== ====
</TABLE>

INVESTMENT ACTIVITIES

General. The investment policy of Pioneer, which is approved by the Board of
Directors and implemented by two executive officers as authorized by the
Board, is designed primarily to manage the interest rate sensitivity of its
overall assets and liabilities, to generate a favorable return without
incurring undue interest rate and credit risk, to complement Pioneer's lending
activities and to provide and maintain liquidity. In establishing its
investment strategies, Pioneer considers its business and growth plans, the
economic environment, its interest rate sensitivity "gap" position, the types
of securities to be held, and other factors. Federally chartered savings and
loan associations have authority to invest in various types of assets,
including U.S. Treasury obligations, securities of various federal agencies,
mortgage-backed and mortgage-related securities, certain certificates of
deposit of insured banks and savings institutions, certain bankers
acceptances, repurchase agreements, loans of federal funds, and, subject to
certain limits, corporate securities, commercial paper and mutual funds.

Investment Securities. Pioneer invests in U.S. Treasury notes, U.S.
Government agency securities and corporate notes and bonds. U.S. Treasury
notes are backed by the full faith and credit of the U.S. Government. U.S.
Government agency securities are the next highest in credit quality. Typically
these issues are backed by collateral in the form of cash, U.S. Government
securities, and the debt obligations that the issuing agency has

137
<PAGE>

acquired through its lending activities. The more common types of U.S.
Government agency securities include obligations of the Federal Home Loan
Banks ("FHLB"), FNMA, FHLMC, GNMA and Student Loan Marketing Association
("Sallie Mae"). Obligations of the U.S. Government and federal agencies are
characterized by safety and liquidity. Federal agency securities (with the
exceptions of GNMA's) generally do not bear the full faith and credit of the
U.S. Government, but they do bear the full faith and credit of the U.S.
Government agency that sponsored them. A federal institution such as Pioneer
is also permitted to invest in the top four grades of corporate bonds.
Corporate debt securities face the same risks as loans to a business entity.
Corporate bonds are issued in many varieties with differing features and
characteristics. Bonds have a wide range of credit quality and can be secured
or unsecured. Collateralized bonds are usually secured by a real estate
mortgage or capital equipment that the proceeds of the bond issuance were used
to acquire. The collateral could be sold by the bondholder to satisfy a claim
if the bond issuer fails to pay principal and interest when due. An unsecured
bond is backed by the full faith and credit of the issuer, but not by any
specific collateral. At December 31, 1995, Pioneer had $5.0 million or 1.0% of
total assets in U.S. Treasury notes (gross), $78.9 million or 16.2% of total
assets in U.S. Government agency securities (gross), and $57.3 million or
11.7% of total assets in corporate notes and bonds (gross).

Mortgage-Backed and Mortgage-Related Securities. Pioneer invests in
mortgage-backed securities and uses such investments to complement its
mortgage lending and supplement such activities at times of low loan demand.
At December 31, 1995, Pioneer had $161.0 million in mortgage-backed
securities, all of which were insured or guaranteed by either the FNMA, FHLMC
or GNMA. FNMA and FHLMC provide the certificate holder a guarantee of timely
payments of interest and scheduled principal payments, whether or not they
have been collected. GNMA mortgage-backed securities guarantee to the holder
the timely payments of principal and interest and are backed by the full faith
and credit of the U.S. Government. Of the $161.5 million of mortgage-backed
securities (gross) held by Pioneer at December 31, 1995, $93.9 million were
adjustable-rate and $67.6 million were fixed-rate mortgage-backed securities.
The market value of Pioneer's mortgage-backed securities totaled $163.4
million at December 31, 1995 as compared to gross book value of $161.5
million. At December 31, 1995, Pioneer had $7.6 million, or 1.6% of total
assets in REMICs and CMOs. REMICs are a type of CMO. CMOs are a special type
of pass-through debt in which the stream of principal and interest payments on
the underlying mortgages or mortgage-backed securities is used to create
classes with different maturities and, in some cases, amortization schedules
with each such class possessing different risk characteristics. Of the amount
invested in REMICs and CMOs, all had floating rates, which adjust monthly,
quarterly, or annually with rates ranging from 5.92% to 7.18%. $6.1 million or
77.5% of Pioneer's REMICs and CMOs were insured or guaranteed either directly
or indirectly by the FNMA, FHLMC or GNMA. Pioneer's current policy is to
purchase REMICs and CMOs rated AAA by nationally recognized rating services or
issued by U.S. government agencies. Pioneer attempts to limit its purchases of
CMOs to first, second or third sequential tranches, which are generally less
volatile and of shorter average lives than other tranches and longer-term
floating rate CMOs. Management believes these securities represent attractive
and limited risk alternatives relative to other investments due to the wide
variety of maturity and repayment options available. As of December 31, 1995,
Pioneer has classified $32.9 million of its mortgage-backed securities
portfolio as available for sale. The OTS's "Statement of Policy on Securities
Activities," set forth in Thrift Bulletin 52 ("Bulletin") requires depository
institutions to establish prudent policies and strategies for securities
transactions, describes securities trading and sales practices that are
unsuitable when conducted in an investment portfolio and sets forth certain
factors that must be considered when evaluating whether the reporting of an
institution's investments is consistent with its intent and ability to hold
such investments. The Bulletin also establishes a framework for identifying
when certain mortgage derivative products are high-risk mortgage securities
that must be reported in a "trading" or "held for sale" account. Pioneer
believes that it currently holds and reports its securities and loans in a
manner consistent with the Bulletin.

Mortgage-backed securities generally yield less than the loans that underlie
such securities, because of the cost of payment guarantees or credit
enhancements that result in nominal credit risk. In addition, mortgage-backed
securities are more liquid than individual mortgage loans and may be used to
collateralize obligations of

138
<PAGE>

Pioneer. In general, mortgage-backed securities issued or guaranteed by FNMA
and FHLMC and certain AA-rated mortgage-backed pass-through securities are
weighted at no more than 20% for risk-based capital purposes, and mortgage-
backed securities issued or guaranteed by GNMA are weighted at 0% for risk-
based capital purposes, compared to an assigned risk weighting of 50% to 100%
for whole residential mortgage loans. As a result, these types of securities
allow Pioneer to optimize regulatory capital to a greater extent than
nonsecuritized whole loans.

While mortgage-backed securities carry a reduced credit risk as compared to
whole loans, such securities remain subject to the risk that a fluctuating
interest rate environment, along with other factors such as the geographic
distribution of the underlying mortgage loans, may alter the prepayment rate
of such mortgage loans and so affect both the prepayment speed, and value, of
such securities. In contrast to mortgage-backed securities in which cash flow
is received (and, hence, prepayment risk is shared) pro rata by all securities
holders, the cash flows from the mortgages or mortgage-backed securities
underlying REMICs or CMOs are segmented and paid in accordance with a
predetermined priority to investors holding various tranches of such
securities or obligations. A particular tranche of REMICs or CMOs may
therefore carry prepayment risk that differs from that of both the underlying
collateral and other tranches.

Pioneer's Investing Committee, which is comprised of two executive officers,
meets regularly to monitor Pioneer's investment transactions and to establish
investment strategy. The Board of Directors reviews Pioneer's investment
policy on an annual basis and Pioneer's investment activity twice monthly.

OTS guidelines regarding investment portfolio policy and accounting require
insured institutions to categorize securities and certain other assets as held
for "investment," "sale," or "trading." The portion of Pioneer's investment
securities portfolio, which Pioneer intends to hold to maturity, is accounted
for on an amortized cost basis. At December 31, 1995, Pioneer had $128.1
million in investment securities held for investment, consisting primarily of
U.S. Government and agency securities and corporate notes and bonds rated A or
better.

The following table sets forth activity in Pioneer's mortgage-backed
securities portfolio for the periods indicated.

139
<PAGE>

The following table sets forth the amortized cost and fair value of
Pioneer's securities at the dates indicated.

<TABLE>
<CAPTION>
AT MARCH 31,
AT DECEMBER 31, ---------------------------------------------------------
1995 1995 1994 1993
------------------ ------------------- ------------------ ------------------
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>
Mortgage-backed
securities:
Pass-through
securities............ $153,426 $155,858 $156,594 $153,996 $154,418 $154,740 $145,915 $153,675
CMOs................... 7,571 7,553 9,945 9,673 9,719 9,653 4,155 4,240
-------- -------- -------- -------- -------- -------- -------- --------
Total mortgage-backed
securities............ 160,997 163,411 166,539 163,669 164,137 164,393 150,070 157,915
Other debt securities:
U.S. Treasury and
Agency................ 83,935 84,457 66,783 65,598 24,640 24,315 11,975 12,360
Other.................. 57,304 57,992 34,886 34,364 37,379 37,217 34,716 36,643
-------- -------- -------- -------- -------- -------- -------- --------
Total debt securities.. 141,239 142,449 101,669 99,962 62,019 61,532 46,691 49,003
Equity securities...... -- -- 49 51 7,000 6,895 7,001 7,002
Net unrealized gain
(loss)(1)............. 794 -- (35) -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total securities, net.. $303,030 $305,860 $268,222 $263,682 $233,156 $232,820 $203,762 $213,920
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
--------
(1) The net unrealized loss at March 31, 1995 and December 31, 1995 relates to
available-for-sale securities in accordance with SFAS No. 115 which
Pioneer adopted on April 1, 1994. The net unrealized loss at March 31,
1994 and March 31, 1993 relates to equity securities in accordance with
SFAS No. 12.

The following table sets forth the amortized cost and fair value of
Pioneer's securities, by accounting classification and by type of security, at
the dates indicated:

<TABLE>
<CAPTION>
AT MARCH 31,
AT DECEMBER 31, ---------------------------------------------------------
1995 1995 1994 1993
------------------ ------------------- ------------------ ------------------
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>
HELD TO MATURITY/HELD
FOR INVESTMENT
Mortgage-backed
securities:
Pass-through
securities............ $122,215 $124,083 $140,660 $138,094 $ 91,281 $ 89,237 $ 44,124 $ 45,238
CMOs................... 5,871 5,840 7,945 7,678 7,074 6,936 1,000 1,016
-------- -------- -------- -------- -------- -------- -------- --------
128,086 129,923 148,605 145,772 98,355 96,173 45,124 46,254
Other debt securities... 119,247 120,240 101,669 99,962 54,898 54,896 46,691 49,003
-------- -------- -------- -------- -------- -------- -------- --------
Total.................. $247,333 $250,163 $250,274 $245,734 $153,253 $151,069 $ 91,815 $ 95,257
======== ======== ======== ======== ======== ======== ======== ========
AVAILABLE-FOR-SALE
Mortgage-backed
securities:
Pass-through
securities: $ 31,211 $ 31,775 $ 15,934 $ 15,902 $ 63,137 $ 65,503 $101,791 $108,437
CMOs................... 1,700 1,713 2,000 1,995 2,645 2,717 3,155 3,224
-------- -------- -------- -------- -------- -------- -------- --------
32,911 33,488 17,934 17,897 65,782 68,220 104,946 111,661
Other debt securities... 21,992 22,209 -- -- 7,121 6,636 -- --
Equity securities....... -- -- 49 51 7,000 6,895 7,001 7,002
Net unrealized gain
(loss)................. 794 -- (35) -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total.................. $ 55,697 $ 55,697 $ 17,948 $ 17,948 $ 79,903 $ 81,751 $111,947 $118,663
======== ======== ======== ======== ======== ======== ======== ========
Total securities, net.. $303,030 $305,860 $268,222 $263,682 $233,156 $232,820 $203,762 $213,920
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>

140
<PAGE>

The following table sets forth certain information regarding the amortized
cost, fair value and weighted average yield of Pioneer's debt securities at
December 31, 1995, by remaining period to contractual maturity. With respect
to mortgage-backed securities, the entire amount is reflected in the maturity
period that includes the final security payment date and, accordingly, no
effect has been given to periodic repayments or possible prepayments.

<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
------------------------------------------------------
HELD-TO-MATURITY AVAILABLE-FOR-SALE
--------------------------- --------------------------
WEIGHTED WEIGHTED
AMORTIZED FAIR AVERAGE AMORTIZED FAIR AVERAGE
COST VALUE YIELD COST VALUE YIELD
--------- -------- -------- --------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed
securities:
Due within 1 year...... $ 8 $ 8 5.75% $ -- $ -- -- %
Due after 1 year but
within 5 years........ 13,396 13,431 6.34 -- -- --
Due after 5 years but
within 10 years....... 4,998 5,059 6.62 -- -- --
Due after 10 years..... 109,684 111,425 6.87 32,911 33,488 7.00
-------- -------- ------- -------
Total.................. $128,086 $129,923 6.81 $32,911 $33,488 7.00
======== ======== ======= =======
U.S. Treasury and
Agency:
Due within 1 year...... $ 3,999 $ 4,025 7.43 $ 3,000 $ 3,004 7.05
Due after 1 year but
within 5 years........ 43,956 44,173 6.39 2,998 3,007 7.03
Due after 5 years but
within 10 years....... 15,987 16,126 7.51 -- -- --
Due after 10 years..... -- -- -- 13,995 14,122 7.73
-------- -------- ------- -------
Total.................. $ 63,942 $ 64,324 6.73 $19,993 $20,133 7.53
======== ======== ======= =======
Corporate and Other:
Due within 1 year...... $ 44,343 $ 44,430 6.11 $ -- $ -- --
Due after 1 year but
within 5 years........ 10,962 11,486 7.00 999 1,079 8.25
Due after 5 years but
within 10 years....... -- -- -- 1,000 997 6.25
Due after 10 years..... -- -- -- -- -- --
-------- -------- ------- -------
Total.................. $ 55,305 $ 55,916 6.29 $ 1,999 $ 2,076 7.25
======== ======== ======= =======
Total:
Due within 1 year...... $ 48,350 $ 48,463 6.22 $ 3,000 $ 3,004 7.05
Due after 1 year but
within 5 years........ 68,314 69,090 6.40 3,997 4,086 7.34
Due after 5 years but
within 10 years....... 20,985 21,185 7.30 1,000 997 6.25
Due after 10 years..... 109,684 111,425 6.87 46,906 47,610 7.22
-------- -------- ------- -------
Total.................. $247,333 $250,163 6.65% $54,903 $55,697 7.21%
======== ======== ======= =======
</TABLE>

SOURCES OF FUNDS

General. Deposits, loan and mortgage-backed and mortgage related securities
principal and interest payments are the primary sources of Pioneer's funds for
use in lending, investing and for other general purposes. See "Management of
Conestoga's Discussion and Analysis of Financial Condition and Results of
Operations of Conestoga--Management Strategy" and "--Asset/Liability
Management."

Deposits. Pioneer offers a variety of deposit accounts having a range of
interest rates and terms. Pioneer presently offers regular savings and non-
interest-bearing checking, money market, and certificate accounts. Of the
deposit accounts, $40.0 million, or 10.1%, consist of Individual Retirement
Accounts ("IRA"). The flow of deposits is influenced significantly by general
economic conditions, changes in prevailing interest rates, pricing of deposits
and competition. Pioneer's deposits are primarily obtained from areas
surrounding its offices, and Pioneer relies primarily on marketing new
products, service and long-standing relationships with customers to attract
and retain these deposits. Pioneer does not use brokers to obtain deposits.
While levels of demand accounts and money market accounts have remained
relatively stable, balances of regular savings accounts have decreased
substantially and balances of certificate accounts have increased
substantially as interest rates have increased. Funds on deposit in regular
savings accounts decreased from $132.7 million or 37.59% of total

141
<PAGE>

deposits for the year ended March 31, 1995 to $129.1 million or 32.8% of
deposits for the nine months ended December 31, 1995. Funds on deposit in
certificate accounts increased from $177.3 million or 50.22% of total deposits
for the year ended March 31, 1995 to $217.5 million or 55.21% of deposits for
the nine months ended December 31, 1995. There can be no assurance that
Pioneer can maintain these levels of deposits in certificate accounts,
particularly if interest rates decrease.

When management determines the levels of Pioneer's deposit rates,
consideration is given to local competition, U.S. Treasury securities
offerings and the rates charged on other sources of funds. Pioneer has
maintained a high level of core deposits, which has contributed to its low
cost-of-funds. Core deposits represented 44.79%, 49.78%, 57.46% and 55.69% of
total deposits at December 31, 1995 and March 31, 1995, 1994 and 1993,
respectively.

The following table presents the deposit activity of Pioneer for the periods
indicated.

<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR ENDED MARCH 31,
MONTHS ENDING ------------------------------
DECEMBER 31, 1995 1995 1994 1993
----------------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Deposits..................... $332,938 $ 404,265 $ 380,250 $ 354,906
Withdrawals.................. 304,659 414,001 375,525 349,929
-------- --------- --------- ---------
(Withdrawals) in excess of
deposits.................... 28,279 (9,736) 4,725 4,977
Interest credited............ 12,681 11,988 11,525 13,252
-------- --------- --------- ---------
Total increase (decrease) in
deposits.................... $ 40,960 $ 2,252 $ 16,250 $ 18,229
======== ========= ========= =========
</TABLE>

At December 31, 1995, Pioneer had $20.7 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>
Within three months................................. $ 8,784 5.57%
After three but within six months................... 2,108 5.87
After six but within 12 months...................... 4,029 6.01
After 12 months..................................... 5,743 5.19
------------
Total............................................... $ 20,664 5.58%
============
</TABLE>

142
<PAGE>

The following table sets forth the distribution of Pioneer's deposit
accounts and the related weighted average interest rates at the dates
indicated.

<TABLE>
<CAPTION>
AT MARCH 31,
--------------------------------------------------------------------------------
AT DECEMBER 31, 1995 1995 1994 1993
-------------------------- -------------------------- -------------------------- --------------------------
PERCENT WEIGHTED PERCENT WEIGHTED PERCENT WEIGHTED PERCENT WEIGHTED
OF TOTAL AVERAGE OF TOTAL AVERAGE OF TOTAL AVERAGE OF TOTAL AVERAGE
AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Checking
accounts......... $ 16,346 4.15% -- % $ 13,526 3.83% -- % $ 12,839 3.66% -- % $ 9,892 2.96% -- %
Money market
accounts......... 31,008 7.87 3.00 29,526 8.36 3.00 32,899 9.38 2.50 37,210 11.12 2.65
Savings and club
accounts......... 129,103 32.77 2.50 132,668 37.59 2.50 155,806 44.42 2.50 139,179 41.61 2.65
Certificate
accounts......... 217,508 55.21 6.22 177,285 50.22 4.48 149,209 42.54 2.99 148,222 44.31 3.75
-------- ------ -------- ------ -------- ------ -------- ------
Totals.......... $393,965 100.00% $353,005 100.00% $350,753 100.00% $334,503 100.00%
======== ====== ======== ====== ======== ====== ======== ======
</TABLE>

<TABLE>
<CAPTION>
PERIOD TO MATURITY AT DECEMBER
31, 1995
------------------------------- TOTAL AT TOTAL AT TOTAL AT TOTAL AT
LESS
THAN ONE TO FOUR TO DEC. 31, MARCH 31, MARCH 31, MARCH 31,
INTEREST RATE RANGE ONE YEAR THREE YEARS FIVE YEARS 1995 1995 1994 1993
------------------- -------- ----------- ---------- -------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
4.00% and below......... $ 13,894 $ -- $ -- $ 13,894 $ 12,050 $ 53,109 $ 61,992
4.01% to 5.00%.......... -- -- -- -- 41,298 56,642 32,493
5.01% to 6.00%.......... 86,734 7,412 3,294 97,440 51,748 -- 12,806
6.01% to 7.00%.......... 38,674 48,989 13,811 101,474 68,644 24,778 23,587
7.01% and above......... -- -- 4,700 4,700 3,545 14,680 17,344
-------- ------- ------- -------- -------- -------- --------
Total.................. $139,302 $56,401 $21,805 $217,508 $177,285 $149,209 $148,222
======== ======= ======= ======== ======== ======== ========
</TABLE>

143
<PAGE>

BORROWINGS

Pioneer may obtain advances from the FHLBNY, which generally are secured by
a blanket lien against Pioneer's mortgage portfolio and Pioneer's investment
in the stock of the FHLBNY. The maximum amount that the FHLBNY will advance
for purposes other than for meeting withdrawals, fluctuates from time to time
in accordance with the policies of the FHLBNY. Pioneer has not relied upon
such borrowings to fund its operations for the past 10 years.

Pioneer's securities sold with agreement to repurchase at December 31, 1995
were $10.0 million. These U.S. Government, agency and mortgage-backed
securities sold with agreement to repurchase mature during July of 1996 and
July of 1997. Borrowings under such reverse repurchase agreements involve the
delivery of securities to broker-dealers who arrange the transactions. The
securities remain registered in the name of Pioneer, and are returned upon the
maturities of the agreements. Funds to repay at maturity Pioneer's securities
sold with agreement to repurchase will be provided primarily by cash received
from maturing U.S. agency securities.

Presented below is information concerning securities sold with agreement to
repurchase for the nine months ended December 31, 1995 and 1994 and for the
year ended March 31, 1995:

<TABLE>
<CAPTION>
DEC. 31, 1995 DEC. 31, 1994 MARCH 31, 1995
------------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average amounts outstanding........ $21,259 $2,941 $4,522
Total interest cost................ 1,064 119 261
Average interest rate paid......... 6.67% 5.40% 5.77%
Maximum amount outstanding at any
month end......................... $39,509 $9,795 $9,795
Ending balance..................... 10,000 9,795 9,795
Weighted average interest rate on
balance outstanding............... 6.35% 6.45% 5.95%
</TABLE>

There were no securities sold with agreement to repurchase for the years
ended March 31, 1994 and 1993.

SUBSIDIARY ACTIVITIES

Pioneer has no subsidiaries.

PERSONNEL

As of December 31, 1995, Pioneer had 92 full-time employees and 33 part-time
employees. The employees are not represented by a collective bargaining unit
and Pioneer considers its relationship with its employees to be good.

144
<PAGE>

PROPERTIES

Pioneer conducts its business through its executive office and seven banking
offices.

<TABLE>
<CAPTION>
ORIGINALLY NET BOOK VALUE OF PROPERTY
LEASED OR ACQUIRED OR LEASEHOLD IMPROVEMENTS
LOCATION OWNED OR LEASED AT DECEMBER 31, 1995
-------- --------- ---------- --------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
EXECUTIVE/MAIN OFFICE:(1)
1075 Northern Boulevard........ Owned 1990 $5,680
Roslyn, New York 11576
BRANCH OFFICES:
1012 Gates Avenue.............. Owned 1905 52
Brooklyn, New York 11221
2172 Coyle Street(2)........... Owned 1993 1,577
Brooklyn, New York 11229
1902-1904 Kings Highway(3)..... Owned 1976 497
Brooklyn, New York 11229
1000 Port Washington Owned 1971 524
Boulevard......................
Port Washington, New York 11050
1545 86th Street............... Owned 1978 622
Brooklyn, New York 11228
24-44 Francis Lewis Boulevard.. Owned 1979 1,149
Whitestone, New York 11357
622 Old Country Road(3)(4)..... (5) 1994 873
Westbury, New York 11590
</TABLE>
--------
(1) This property serves as a branch office as well as a loan closing office.
(2) Prior to October 2, 1993, this branch office was located at 2161 Coyle
Street, Brooklyn, New York.
(3) This property also serves as a loan closing office.
(4) This branch office opened April 29, 1995.
(5) Building owned, land leased.

LEGAL PROCEEDINGS

On February 6, 1995, the Superintendent of Banks for the State of New York
seized Nationar, a check-clearing and trust company, freezing all of
Nationar's assets. On that date, Pioneer had demand accounts of approximately
$2.2 million. On April 5, 1995, Pioneer received $739,000 from the New York
State Banking Department representing a partial release of its funds with
Nationar. On April 26, 1995, the Superintendent submitted an Interim Status
Report ("Interim Report") regarding the business and affairs of Nationar to
the Supreme Court of the State of New York, in accordance with the relevant
provisions of the Banking Law of the State of New York. Attached to the
Interim Report was a preliminary Statement of the Net Assets and Liabilities
in Liquidation for Nationar as of February 6, 1995 ("Preliminary Statement"),
which showed a net deficit of liabilities in excess of assets of approximately
$29.4 million. The Superintendent indicated in the Interim Report that the
review of potential claims against Nationar is not yet complete and that any
estimate of the net deficit of Nationar (and potential creditor recoveries)
may differ materially from the amounts shown in the Preliminary Statement as a
result of, among other things, the ultimate realization on the assets of the
estate, the total amount of claims presented, the results of the claims
reconciliation process, the valuation of collateral and the review and
classification of priority claims. Under the Banking Law, there may be certain
preferences that might affect the percentage recovery of any particular
institution. The Interim Report did not indicate whether or the extent to
which Pioneer or a similarly situated institution would recover amounts owed
by Nationar. By a letter dated April 3 and Notice of Hearing on April 24,
1996, the Superintendent notified Pioneer that he will accept the claims in
the amount of $2.2 million for the demand account of which Pioneer has
received payment of $739,000. The

145
<PAGE>

Superintendent also informed Pioneer that he intends to recommend to the court
that such accepted claims be treated as claims entitled to priority payment.
Based on the various reports and communications from the Superintendent,
Pioneer expects accepted claims for which priority is granted will be paid in
full. The Superintendent has also obtained judicial approval to pay in full
claims entitled to priority. Subject to satisfaction of certain conditions,
the Superintendent will make such payment on June 27, 1996. Management has
provided $197,000 as a reserve against the possibility of loss in accordance
with Conestoga's normal procedures for monitoring asset quality. Pioneer
intends that the reserves established for potential losses will not be reduced
until and to the extent, Pioneer has received payment. The foregoing events
will not have any material effect on Conestoga's or Pioneer's ability to meet
their liquidity needs. Management is taking all steps necessary to recover the
amounts owed Pioneer by Nationar.

On December 4, 1995, a purported class action complaint was filed in the
Delaware Chancery Court, New Castle County, on behalf of the stockholders of
Conestoga by Jeffrey Simon ("Plaintiff") against Conestoga, each of the
members of the Conestoga Board, and Dime. The Plaintiff alleges that each of
the members of Conestoga's Board breached his fiduciary duties to Conestoga
stockholders by, among other things, agreeing to accept the Merger
Consideration, which Plaintiff alleges is inadequate. Dime is alleged to have
aided and abetted this breach. Plaintiff seeks various remedies, including an
injunction to prevent the consummation of the Acquisition and compensatory
damages in an unspecified amount. On February 9, 1996, Conestoga and the
director defendants filed an answer which denied the allegations of liability
raised in the complaint and raised affirmative defenses, as well as a motion
to dismiss the complaint. On February 12, 1996, Dime filed a motion to dismiss
the complaint. On or about March 12, 1996, Plaintiff served a motion for leave
to file an amended complaint. In his proposed amended complaint, Plaintiff
asserts, among other things, that the Proxy Statement distributed to
Conestoga's shareholders did not provide sufficient disclosure, and that the
Acquisition is unfair to Conestoga's stockholders and disproportionately
benefits Conestoga's Board and Dime. Conestoga and Dime each intend to
vigorously defend against the respective claims against them, but there can be
no assurance that Conestoga and/or Dime will be successful.

Pioneer is not involved in any other pending legal proceedings other than
legal proceedings incident to Pioneer's business, which involve amounts in the
aggregate which management believes are immaterial to the financial condition
and results of operations of Pioneer.

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<PAGE>

MANAGEMENT OF THE COMPANY

The Board of Directors of the Company is divided into three classes, each of
which contains approximately one-third of the Board. The directors shall be
elected by the shareholders of the Company for staggered three-year terms, or
until their successors are elected and qualified. One class of directors,
consisting of Messrs. Clark, Cohn, Farrell, Flynn and Palagiano, has a term of
office expiring at the first annual meeting of shareholders; a second class,
consisting of Messrs. Bergamo, Devine, Fox and Varone, has a term of office
expiring at the second annual meeting of shareholders; and a third class,
consisting of Messrs. Curtin, Fehrenbach, Kitson and Meisels, has a term of
office expiring at the third annual meeting of shareholders. Their names and
biographical information are set forth under "Management of the Bank--
Directors."

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

<TABLE>
<CAPTION>
NAME POSITION HELD WITH THE COMPANY
---- ------------------------------
<S> <C>
Vincent F. Palagiano.... Chairman of the Board, President and Chief Executive Officer
Michael P. Devine....... Executive Vice President, Chief Operating Officer and Secretary
Kenneth J. Mahon........ Senior Vice President and Chief Financial Officer
Timothy B. King......... Vice President and Treasurer
Michael Pucella......... Vice President and Comptroller
</TABLE>

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

Since the formation of the Company, none of the executive officers,
directors or other personnel has received remuneration from the Company. It is
currently expected that unless and until the Company becomes actively involved
in business activities separate from those conducted by the Bank, no separate
compensation will be paid to the directors and employees of the Company.
However, directors of the Company or the Bank who are not employees of the
Company or the Bank or any of their subsidiaries ("Outside Directors") may be
entitled to participate in certain retirement and stock incentive plans
established by the Company. See "Management of the Bank." The Company will
also guarantee certain obligations of the Bank to the Bank's executive
officers, employees and directors, as described below. Information concerning
the principal occupations, employment and compensation of the directors and
officers of the Company during the past five years is set forth under
"Management of the Bank--Biographical Information."

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MANAGEMENT OF THE BANK

DIRECTORS

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

<TABLE>
<CAPTION>
POSITIONS HELD WITH DIRECTOR TERM
NAME AGE(1) THE BANK SINCE(2) EXPIRES
---- ------ ------------------- -------- -------
<C> <C> <S> <C> <C>
Vincent F. Palagiano.................. 55 Chairman of the Board, 1978 1999
President and Chief
Executive Officer
Michael P. Devine..................... 49 Executive Vice 1980 1997
President, Chief
Operating Officer and
Secretary
Anthony Bergamo....................... 49 Director 1986 1997
George L. Clark, Jr. ................. 54 Director 1980 1999
Steven D. Cohn........................ 47 Director 1994 1999
Patrick E. Curtin..................... 50 Director 1986 1998
Joseph H. Farrell..................... 65 Director 1969 1999
Fred P. Fehrenbach.................... 59 Director 1987 1998
John J. Flynn......................... 59 Director 1994 1999
James M. Fox.......................... 58 Director 1994 1997
Malcolm T. Kitson..................... 67 Director 1990 1998
Stanley Meisels....................... 65 Director 1990 1998
Louis V. Varone....................... 65 Director 1985 1997
</TABLE>
--------
(1) As of December 31, 1995.
(2) Includes service as a Director or Trustee with The Dime Savings Bank of
Williamsburgh as a New York State savings bank.

EXECUTIVE OFFICERS

The executive officers of the Bank are Mr. Palagiano and Mr. Devine, who are
directors of the Bank, Kenneth J. Mahon, Timothy B. King, Gasper Messana,
Peter J. Castelli, Stephen Varriale and Michael Pucella, who are not directors
of the Bank. Each of the executive officers of the Bank will retain his office
in the converted Bank until the annual meeting of the Board of Directors of
the Bank held immediately after the first annual meeting of shareholders
subsequent to Conversion and until their successors are elected and qualified
or until they are removed or replaced. Officers are re-elected by the Board of
Directors annually.

BIOGRAPHICAL INFORMATION

Positions held by a director or officer have been held for at least the past
five years unless stated otherwise.

DIRECTORS

Vincent F. Palagiano has served as Chairman of the Board, President and
Chief Executive Officer of the Bank since 1989. He has served as a Trustee or
Director of the Bank since 1978 and has served on the Board of Directors of
the Institutional Investors Mutual Fund since 1996. Mr. Palagiano joined the
Bank in 1970 as an appraiser and has also served as the Bank's Executive Vice
President, Chief Operating Officer, and Chief Lending Officer. Prior to 1970,
Mr. Palagiano served in the real estate and mortgage departments at other
financial institutions and title companies.

Michael P. Devine has served as Executive Vice President, Chief Operating
Officer and Secretary of the Bank since 1989, and has served as a Trustee or
Director of the Bank since 1980. Mr. Devine joined the Bank in 1971 and has
served as the Internal Auditor, Comptroller and Investment Officer. Prior to
1971, Mr. Devine served as a Senior Accountant with the firm of Peat Marwick
Mitchell & Co.

Anthony Bergamo has served as a Trustee or Director of the Bank since 1986.
Mr. Bergamo is a licensed attorney in New York and New Jersey and is an
independent fiduciary.

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<PAGE>

George L. Clark, Jr. has served as a Trustee or Director since 1980. Mr.
Clark is President of George L. Clark Inc. (Realtors), a New York State
licensed real estate firm. Mr. Clark is a former director of the Federal
National Mortgage Association, and a former Chairman of the New York
Republican State Committee. Mr. Clark has been a licensed real estate broker
for 33 years.

Steven D. Cohn has served as a Trustee or Director of the Bank since 1994.
Mr. Cohn is the managing partner in the law firm of Goldberg and Cohn Esq., in
Brooklyn Heights, New York. Mr. Cohn is also a member of the Board of
Directors of Complete Management, Inc., a medical management firm.

Patrick E. Curtin has served as a Trustee or Director of the Bank since
1986. Mr. Curtin is a senior partner in the law firm of Conway Farrell Curtin
& Kelly, P.C. in New York, New York.

Joseph H. Farrell has served as a Trustee or Director of the Bank since
1969. Mr. Farrell is Chairman of the law firm of Conway Farrell Curtin &
Kelly, P.C. Mr. Farrell is also President of the William F. Casey Foundation,
which is a not-for-profit real estate holding foundation. Mr. Farrell is a
trial attorney for the Roman Catholic Diocese of Brooklyn and Vice-President
of the New York State Bar Association.

Fred P. Fehrenbach has served as a Trustee or Director of the Bank since
1987. Mr Fehrenbach is President of Consolidated Brokerage Corp. located in
Great Neck, New York, which is a retail insurance brokerage business, and has
formed a joint venture with the firm of Forman International, a general
insurance firm in Great Neck, New York. Mr. Fehrenbach has been with
Consolidated Brokerage Corp. since 1990.

John J. Flynn has served as a Trustee or Director of the Bank since October
1994 and before that from February 1983 to February 1993. From February 1993
through August 1994, Mr. Flynn was Executive Vice President of Flushing
Savings Bank, FSB in Flushing, New York. From 1990 to February 1993, and since
September 1994, Mr. Flynn has been a self-employed real estate mortgage
broker.

James M. Fox has served as a Trustee or Director since January 1994. Since
January 1994, Mr. Fox has been Executive Vice President of Mutual of America
Life Insurance Company, in internal audits and real estate management. From
December 1987 to January 1994, Mr. Fox was Director of the New York unit of
the United States Federal Bureau of Investigation in New York City, and was
responsible for all investigative and administrative operations of the New
York unit of the Federal Bureau of Investigation.

Malcolm T. Kitson has served as a Trustee or Director since 1990. Mr. Kitson
served as a Vice President of Citibank, N.A. until his retirement in 1990.

Stanley Meisels has served as a Trustee or Director since 1990. Mr. Meisels
has been a stockbroker with Gruntal & Co. in Hewlett, New York since 1986. Mr.
Meisels is also President and sole owner of Small Business Electronics
Investment Corp., a private investment company.

Louis V. Varone has served as a trustee since 1985. Mr. Varone has been a
licensed real estate broker for over 30 years. Mr. Varone is self-employed as
a principal in the firm of Century 21 Lewis & Clark Realty.

EXECUTIVE OFFICERS

Kenneth J. Mahon, age 44, was promoted to Senior Vice President in 1987, and
to Chief Financial Officer in 1995. He has been with the Bank since 1980, and
has administrative responsibility for the financial, lending, and operations
areas. Mr. Mahon has spent his career in savings banking, and has a total of
23 years banking experience.

Peter J. Castelli, age 55, was promoted to First Vice President in 1987. He
is responsible for marketing and advertising, security, banking facilities,
and community and public relations. Mr. Castelli has served the Bank in
numerous capacities during his career, which spans 31 years in banking.

149
<PAGE>

Timothy B. King, age 37, has over 16 years of banking experience, and has
been with the Bank since 1983. Mr. King was promoted to Vice President and
Treasurer in 1992, and manages the securities investment, corporate planning,
and interest rate risk functions of the Bank.

Gasper Messana, age 54, has served as Vice President since 1988. He manages
the underwriting and loan administration functions of the Bank's multi-family
lending department. Mr. Messana is a licensed real estate broker and has over
26 years of banking and real estate experience.

Michael Pucella, age 42, was promoted to Comptroller in 1989, and to Vice
President in 1995. He has been with the Bank since 1981, and is responsible
for financial reporting, budgeting, and tax administration. Mr. Pucella has
over 20 years of banking experience.

Stephen Varriale, age 39, joined the Bank in 1979 and was promoted to Vice
President in 1992. He is responsible for the Branch Retail and Operations
Support Departments, and the Pension Department. Mr. Varriale has over 19
years of banking experience.

COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS OF THE BANK AND COMPANY

The Board of Directors of the Bank meets on a monthly basis and may have
additional special meetings upon the request of the Chairman of the Board.
During the fiscal year ended June 30, 1995, the Board of Directors met 12
times. No current director attended fewer than 75% of the total number of
Board meetings and committee meetings of which such director was a member.

The Board of Directors of the Bank has established the following committees:

The Mortgage Review Committee consists of Messrs. Clark (Chairman), Curtin,
Varone, Cohn and Flynn. This committee meets periodically to review and
monitor the Bank's loan quality and risk profile and to make recommendations
concerning adequacy of the allowance for loan losses and other policy matters
in connection with underwriting standards.

The Budget and Planning Committee consists of Messrs. Fehrenbach (Chairman),
Fox, Farrell and Meisels. This committee, recently formed from a combination
of the Bank's Budget and Salary Committee and Planning Committee will meet
periodically to review and monitor operating expenses with a particular
emphasis on post- Acquisition expense savings. This committee will also
consider longer-term strategic and industry issues.

The Audit Committee consists of Messrs. Bergamo (Chairman), Kitson, Meisels
and Flynn. Prior to November 1, 1995, this committee was known as the
Examining Committee. This committee, which will meet at least quarterly,
arranges the Bank's annual financial statement audit through its independent
certified public accountants, reviews and evaluates recommendations made
during the annual audit, receives and analyzes all reports made by the Bank's
internal auditor and reports to the full Board of Directors the results of its
work.

The Nominating Committee consists of Messrs. Kitson, Curtin, Fehrenbach and
Meisels. The Nominating Committee nominates candidates for the election of
directors.

The Compensation Committee consists of Messrs. Bergamo (Chairman), Curtin
and Clark. This committee which is newly established will meet periodically to
evaluate compensation and fringe benefits of the directors and executive
officers of the Bank, as well as other personnel.

The Community Reinvestment Act ("CRA") Committee consists of Messrs. Fox
(Chairman), Farrell, Varone and Bergamo. The CRA Committee reviews compliance
with the Community Reinvestment Act and monitors the Bank's lending and
ensures that the Bank meets the credit needs of its community.

In addition to the committees described above, the Bank has established the
Executive Committee consisting of Messrs. Palagiano, Devine, Clark, Farrell
and Varone which did not meet during the fiscal year ended June 30, 1995.

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<PAGE>

Mr. Palagiano and Mr. Devine are ex officio members of all committees except
the Audit Committee. Additionally, as ex officio members of the Compensation
Committee, Mr. Palagiano and Mr. Devine as President and Secretary,
respectively, are without any power to vote.

DIRECTORS' COMPENSATION

Fee Arrangements. Currently, each non-officer director of the Bank receives
an annual retainer of $15,000 and a fee of $1,000 per meeting attended. All
committee members receive a fee of $400 for attendance at each committee
meeting. It is anticipated that directors will also be covered by the Stock
Option Plans and Stock Programs expected to be implemented by the Company. See
"--Benefits--Stock Option Plans" and "--Benefits--Stock Programs."

Directors' Retirement Plan. The Company has adopted, subject to the non-
objection of the OTS and to be effective upon the date of the Bank's
Conversion, a non-qualified Retirement Plan for Outside Directors of the
Company and the Bank (the "Directors' Retirement Plan"), which will provide
benefits to each eligible Outside Director commencing on his termination of
Board service at or after age 65. Each Outside Director who serves or has
agreed to serve as an Outside Director subsequent to the completion of the
Conversion will automatically become a participant in the Plan. An eligible
Outside Director retiring at or after age 65 will be paid an annual retirement
benefit equal to the amount of the aggregate compensation for services as a
director (excluding stock compensation) paid to him for the twelve-month
period immediately prior to his termination of Board service, multiplied by a
fraction, the numerator of which is the number of his years of service as an
Outside Director (including service as a director or trustee of the Bank or
any predecessor) and the denominator of which is 10. An individual who
terminates Board service after having served as an Outside Director for 10
years may elect to begin collecting benefits under the Directors' Retirement
Plan at or after attainment of age 50, but the annual retirement benefits
payable to him will be reduced pursuant to the Plan's early retirement
reduction formula to reflect the commencement of benefit payments prior to age
65. An Outside Director may elect to have his benefits distributed in any one
of the following forms: (i) a single life annuity; (ii) a 50% or 100% joint
and survivor annuity; or (iii) a single life annuity with a 5, 10, or 15 year
guaranteed term. In the event an Outside Director dies prior to the
commencement of benefit payments under the Directors' Retirement Plan, a 50%
survivor annuity will automatically be paid to his surviving spouse.

151
<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 fiscal year
ended June 30, 1995, to the executive officers of the Bank who received
compensation in excess of $100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION(1) AWARDS PAYOUTS
------------------------------------ ------------------ -------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER RESTRICTED
ANNUAL STOCK LTIP ALL OTHER
COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITIONS YEAR SALARY($) BONUS($) ($)(2) ($)(3) (#)(3) ($)(3) ($)(4)
---------------------------- ---- --------- -------- ------------ ---------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vincent F. Palagiano,
Chairman of the Board,
President and Chief
Executive Officer...... 1995 $380,000 -- -- -- -- -- $24,288
Michael P. Devine,
Executive Vice
President, Chief
Operating Officer and
Secretary.............. 1995 $287,500 -- -- -- -- -- $17,988
Kenneth J. Mahon, Senior
Vice President and
Chief Financial
Officer................ 1995 $156,500 $22,500 -- -- -- -- $10,878
</TABLE>
--------
(1) Under Annual Compensation, the column titled "Salary" includes base
salary, amounts deferred under the Bank's 401(k) plan and payroll
deductions for health insurance under the Bank's health insurance plan.
(2) For 1995, there were no: (a) perquisites with an aggregate value for any
named individual in excess of the lesser of $50,000 or 10% of the total of
the individual's 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. For 1995, the Bank had no restricted stock or stock related
plans in existence.
(3) During the fiscal year ended June 30, 1995, neither the Bank nor the
Company maintained any restricted stock, stock options or other long-term
incentive plans.
(4) Includes (i) the dollar value of premiums, if any, paid by the Bank with
respect to term life insurance (other than group term insurance coverage,
a plan available to substantially all salaried employees) for the benefit
of the executive officer and (ii) the Bank's contributions on behalf of
the executive officer to the Bank's 401(k) plan and the defined
contribution portion of the Bank's Supplemental Executive Retirement Plan
("SERP"). See "--Retirement Plan" and "--Supplemental Executive Retirement
Plan."

EMPLOYMENT AGREEMENTS

The Bank is a party to an Employment Agreement with each of Messrs.
Palagiano, Devine and Mahon ("Senior Executives") which, subject to the non-
objection of the OTS, will continue after the Conversion. These agreements
with the Bank replace employment agreements entered into with the Bank before
the Bank became a federally chartered savings bank, and were intended to
conform to rules applicable to federally chartered savings banks. Effective
upon the Conversion, the Company also intends to enter into Employment
Agreements with Messrs. Palagiano, Devine and Mahon. These Employment
Agreements establish the respective duties and compensation of the Senior
Executives and are intended to ensure that the Bank and the Company will be
able to maintain a stable and competent management base after the Conversion.
The continued success of the Bank and the Company depends to a significant
degree on the skills and competence of the Senior Executives. OTS policy is
not to object to holding company compensation arrangements unless they are
likely to adversely affect the financial or managerial condition of the
subsidiary bank. OTS policy is to defer to healthy institutions' board of
directors in compensation matters. Review of the Employment Agreements by the
OTS does not indicate, and should not be construed to indicate, that the OTS
has passed upon the merits thereof.

The Employment Agreements provide for three-year terms. The Bank's
Employment Agreements provide that, commencing on the first anniversary date
and continuing each anniversary date thereafter, the Board of

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<PAGE>

Directors may, with the Senior Executive's concurrence, extend its Employment
Agreements for an additional year, so that the remaining terms shall be three
years, after conducting a performance evaluation of the Senior Executive. The
Company's Employment Agreements provide for automatic daily extensions such
that the remaining terms of the Employment Agreements shall be three years
unless written notice of non-renewal is given by the Board of Directors or the
Senior Executive. The Employment Agreements provide that the Senior
Executive's base salary will be reviewed annually. It is anticipated that this
review will be performed by the Compensation Committee of the Board and the
Senior Executive's base salary may be increased on the basis of his job
performance and the overall performance of the Bank. The base salaries for
Messrs. Palagiano, Devine and Mahon as of January 1, 1996 were $450,000,
$340,000 and $178,000, respectively. In addition to the base salary, the
Employment Agreements provide for, among other things, entitlement to
participation in stock, retirement and welfare benefit plans and eligibility
for fringe benefits applicable to executive personnel such as a company car
and fees for club and organization memberships deemed appropriate by the Bank
or Company and the Senior Executive. The Employment Agreements provide for
termination by the Bank or the Company at any time for cause as defined in the
Employment Agreements.

In the event the Bank or the Company chooses to terminate the Senior
Executive's employment for reasons other than for cause, or in the event of
the Senior Executive's resignation from the Bank and the Company for "good
reason" as defined in the Employment Agreements, the Senior Executive or, in
the event of death, his beneficiary would be entitled to a lump sum cash
payment in an amount equal to the remaining base salary and bonus payments due
to the Senior Executive and the additional contributions or benefits that
would have been earned under any employee benefit plans of the Bank or the
Company during the remaining terms of the Employment Agreements and payments
that would have been made under any incentive compensation plan during the
remaining terms of the Employment Agreements. The Senior Executive would also
have the right to receive a lump sum cash payment of benefits to which the
Senior Executive is entitled under the Bank's SERP. The Bank and the Company
would also continue the Senior Executive's life, health and disability
insurance coverage for the remaining terms of the Employment Agreements. "Good
reason" for purposes of the Employment Agreements generally means (i)
assignment of duties inconsistent with the Senior Executive's status or a
substantial adverse alteration in the nature or status of responsibilities or
a requirement to report to a different position, (ii) reduction in annual base
salary (unless mandated at the initiation of applicable regulatory authority),
(iii) failure to pay compensation or deferred compensation when due unless
inadvertent, immaterial and cured after notice, (iv) failure to continue in
effect compensation plans material to total compensation (or substitute plans)
with respect to the Senior Executive or to fail to provide certain benefits or
materially reduce benefits (unless mandated at the initiation of applicable
regulatory authority), (v) failure of the Bank to obtain a satisfactory
agreement from a successor to assume and agree to perform the Employment
Agreements, (vi) any purported termination by the Bank not for cause or
disability, (vii) failure of the Bank to provide usual and customary stock-
based compensation and benefits in connection with a conversion to stock form,
(viii) any or no reason during the period of 60 (sixty) days beginning on the
first anniversary of the effective date of a change of control, as defined in
the Employment Agreement, (ix) a change in the majority of the Board, unless
approved by a vote of at least two-thirds of the members of the Board at the
time the Employment Agreements were entered into or members elected or
nominated by such members, (x) a relocation of the Senior Executive's
principal place of employment outside of the New York metropolitan area or
(xi) a material breach of the Employment Agreements, unless cured within 30
days.

Payments to the Senior Executives under the Bank's Employment Agreements
will be guaranteed by the Company in the event that payments or benefits are
not paid by the Bank. For example, the Bank's Employment Agreements will have
restrictions on the dollar amount of compensation and benefits payable to a
Senior Executive in the event of termination following a "change of control."
In general, for purposes of the Employment Agreements and the plans maintained
by the Company or the Bank, a "change of control" will generally be deemed to
occur when a person or group of persons acting in concert acquires beneficial
ownership of 25% or more of any class of equity security, such as Common Stock
of the Company or the Bank, or in the event of certain mergers or
consolidations of assets or contested election of directors which results in a
change

153
<PAGE>

of control of the majority of the Board of Directors of the Company or the
Bank or liquidation or sale of substantially all the assets of the Company or
the Bank. The Company's Employment Agreements will not have these
restrictions. Payment under the Company's Agreements would be made by the
Company. To the extent that payments under the Company's Employment Agreements
and the Bank's Employment Agreements are duplicative, payments due under the
Company's Employment Agreements would be offset by amounts actually paid by
the Bank. Senior Executives would be entitled to reimbursement of certain
costs incurred in interpreting or enforcing the Employment Agreements up to
$50,000 for each Senior Executive.

Cash and benefits paid to a Senior Executive under the Employment Agreements
together with payments under other benefit plans following a "change of
control" of the Bank or the Company may constitute an "excess parachute"
payment under Section 280G of the Code, resulting in the imposition of a 20%
excise tax on the recipient and the denial of the deduction for such excess
amounts to the Company and the Bank. The Company's Employment Agreements would
include a provision indemnifying each Senior Executive on an after-tax basis
for any "golden parachute" excise taxes.

EMPLOYEE RETENTION AGREEMENTS

Effective upon the Conversion, the Bank and the Company intend to enter into
Employee Retention Agreements with fifteen additional employees including the
following five officers: Messrs. Castelli, King, Messana, Pucella and Varriale
("Contract Employee" or "Contract Employees"), subject to the non-objection of
the OTS. OTS policy is to defer to healthy institutions' board of directors in
compensation matters and not to object to holding company compensation
arrangements unless they are likely to adversely affect the financial or
managerial condition of the bank. The purpose of the Retention Agreements is
to secure the Contract Employees' continued availability and attention to the
Bank's affairs, relieved of distractions arising from the possibility of a
corporate change of control. The Retention Agreements do not impose an
immediate obligation on the Bank to continue the Contract Employees'
employment but provide for a period of assured employment ("Assurance Period")
following the change of control of the Bank or Company. The Retention
Agreements provide for initial Assurance Periods of one or two years
commencing on the date of a change of control. The Bank and Company intend to
enter into Employee Retention Agreements with an initial Assurance Period of
two years with each of the five officers listed above. The applicable
Assurance Periods will be automatically extended on a daily basis under the
Retention Agreements until written notice of non-extension is given by the
Bank or the Contract Employee, in which case the Assurance Period would end on
the first or second anniversary of the date such notice is given.

If, upon a change of control, or within twelve months of, and in connection
with, a change of control, a Contract Employee is discharged without "cause"
(as defined in the Retention Agreements) or he voluntarily resigns within one
year following a material adverse change in his position, duties, salary or
due to a material breach of the Agreement by the Bank or Company, the Contract
Employee (or, in the event of his death, his estate) would be entitled to a
lump sum cash payment equal to the remaining base salary and bonus payments
due during the Assurance Period plus any additional contributions and benefits
that the Contract Employee would have earned under the Bank or Company's
employee benefit plans during the Assurance Period. Each Contract Employee's
life, health, and disability coverage would also be continued during the
Assurance Period. The total amount of termination benefits payable to each
Contract Employee under the Retention Agreements is limited to three times the
Contract Employee's average total compensation for the prior five years.
Payments to the Contract Employees under their respective Retention Agreements
will be guaranteed by the Company to the extent that the required payments are
not made by the Bank.

EMPLOYEE SEVERANCE COMPENSATION PLAN

The Bank has adopted, subject to the non-objection of the OTS, an Employee
Severance Pay Plan (the "Severance Plan") which will provide eligible
employees of the Bank with severance benefits in the event of a change of
control as defined in the Severance Plan. OTS policy is to defer to healthy
institutions' board of directors in compensation matters. Conversion to stock
form is not considered a change in control under the Severance Plan.
Management and other personnel with Employment or Employee Retention
Agreements will

154
<PAGE>

not be eligible to participate in the Severance Plan. The purpose of the
Severance Plan is to recognize the valuable services and contributions of
these employees and the uncertainties relating to continuing employment,
reduced employee benefits, management changes and relocations in the event of
a change of control. The Bank believes that the Severance Plan will assist it
in attracting and retaining highly qualified individuals and reduce the
distractions and other adverse effects on employees' performance in the event
of a change of control. Eligible salaried employees of the Bank with one year
of service will automatically participate in the Severance Plan and will have
a contractual right to severance benefits if they are terminated from or
terminate their employment within one year (for reasons specified under the
Severance Plan) following a change of control of the Bank or the Company. A
participating employee would be eligible to receive a severance payment upon
an employment termination equal to one week's pay for each year of service up
to a maximum of 26 weeks pay. A participating officer would be eligible for a
severance payment upon employment termination equal to two weeks of pay for
each year of service up to a maximum of 39 weeks pay. Payments under the
Severance Plan increase the costs to be incurred in acquiring the Bank or the
Company. Management cannot estimate the potential financial effect of the
Severance Plan in the event of a change of control. The Severance Plan may be
amended or terminated by the Board of Directors provided participants are
given 6 months' advance written notice of any adverse change to current or
prospective rights. Payments required to be made by the Bank to participants
due under the Severance Plan will be guaranteed by the Company.

BENEFITS

Retirement Plan. The Bank maintains a non-contributory, tax-qualified
defined benefit pension plan (the "Retirement Plan") for eligible employees.
All salaried employees at least age 21 who have completed at least one year of
service are eligible to participate in the Retirement Plan. The Retirement
Plan provides for a benefit for each participant, including executive officers
named in the Executive Compensation Table above, equal to 2% of the
participant's average annual earnings (average W-2 compensation plus salary
deferrals under the 401(k) Plan during the highest 36 consecutive months of
the participant's final 120 months of employment) multiplied by the
participant's years (and any fraction thereof) of eligible employment (up to a
maximum of 30 years). A participant is fully vested in his or her benefit
under the Retirement Plan after five years of service. The Retirement Plan is
funded by the Bank on an actuarial basis and all assets are held in trust by
the Retirement Plan trustee.

The following table illustrates the annual benefit payable upon normal
retirement at age 65 (in single life annuity amounts with no offset for Social
Security benefits) at various levels of compensation and years of service
under the Retirement Plan and the SERP:
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------
REMUNERATION(1) 15 20 25 30 35(4)
--------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
150,000(2) $ 45,000 $ 60,000 $ 75,000 $ 90,000 $ 90,000
175,000(2) 52,500 70,000 87,500 105,000 105,000
200,000(2) 60,000 80,000 100,000 120,000 120,000
225,000(2) 67,500 90,000 112,500 135,000(3) 135,000(3)
250,000(2) 75,000 100,000 125,000(3) 150,000(3) 150,000(3)
300,000(2) 90,000 120,000 150,000(3) 180,000(3) 180,000(3)
400,000(2) 120,000 160,000(3) 200,000(3) 240,000(3) 240,000(3)
450,000(2) 135,000(3) 180,000(3) 225,000(3) 270,000(3) 270,000(3)
500,000(2) 150,000(3) 200,000(3) 250,000(3) 300,000(3) 300,000(3)
</TABLE>
--------
(1) The annual retirement benefits shown in the table do not reflect a
deduction for Social Security benefits and there are no other offsets to
benefits.
(2) For the fiscal year of the Retirement Plan beginning on October 1, 1995,
the average final compensation for computing benefits under the Retirement
Plan cannot exceed $150,000 (as adjusted for subsequent years pursuant to
Code provisions). Benefits in excess of the limitation are provided
through the SERP.
(3) For the fiscal year of the Retirement Plan beginning on October 1, 1995,
the maximum annual benefit payable under the Retirement Plan cannot exceed
$120,000 (as adjusted for subsequent years pursuant to Code provisions).
(4) The maximum years of service credited for benefit purposes is 30 years.

155
<PAGE>

The following table sets forth the years of credited service and the average
annual earnings (as defined above) determined as of December 31, 1995, the end
of the 1995 plan year, for each of the individuals named in the Executive
Compensation Table.

<TABLE>
<CAPTION>
AVERAGE
YEARS OF CREDITED SERVICE ANNUAL EARNINGS
--------------------------- ---------------
YEARS MONTHS
------------ -------------
<S> <C> <C> <C>
Vincent F. Palagiano.......... 25 3 $ 353,333
Michael P. Devine............. 24 5 $ 266,667
Kenneth J. Mahon.............. 15 5 $ 150,000
</TABLE>

401(k) Plan. The Bank maintains the 401(k) Plan, which is a tax-qualified
defined contribution plan which permits salaried employees with at least one
year of service to make pre-tax salary deferrals under section 401(k) of the
Code. Salary deferrals are made by election and are limited to 9% of
compensation up to $150,000 (for 1995), or to a limit imposed under the Code
($9,240 for 1995). The Bank makes matching contributions based on the
employee's salary deferrals, up to 6% of salary, under the following formula:
for employees with less than 48 months of participation, the match is 50% of
salary deferrals and for employees with more than 48 months of participation,
the match is 100% of salary deferrals. Employees are fully vested in their
salary deferrals, and become 25% vested in the Bank's contribution after two
years, and an additional 25% vested in each of the next three years. The
401(k) Plan provides that employees select the investment of their accounts
between several options. In connection with the Conversion, the Board of
Directors of the Company intends to add a choice of investing accounts in
stock of the Company.

The Bank has amended the Plan in connection with the Conversion to provide
for the investment of 401(k) Plan assets in Common Stock. The Bank intends to
cease matching contributions as of May 31, 1996. In addition, participating
employees may elect to invest all or any part of their 401(k) Plan account
balances in Common Stock. Common Stock held by the 401(k) Plan may be newly
issued or treasury shares acquired from the Company or outstanding shares
purchased on the open market or in privately negotiated transactions. All
Common Stock held by the 401(k) Plan will be held by an independent trustee
and allocated to the accounts of individual participants. Participants will
control the exercise of voting and tender rights relating to the Common Stock
held in their accounts.

Supplemental Executive Retirement Plan. The Bank has adopted the SERP to
provide for eligible employees benefits that would be due under its Retirement
Plan and 401(k) Plan, if such benefits were not limited under the Code. SERP
benefits provided with respect to the Retirement Plan are reflected in the
pension table. The Board of Directors of the Bank intends to adopt an
amendment to the SERP to provide eligible employees with benefits that would
be due under the ESOP if such benefits were not limited under the Code. See
"Management of the Bank--Benefits--Retirement Plan." SERP benefits provided to
the Named Executive Officers for the fiscal year ended June 30, 1995 are
included in the Summary Compensation Table under the column "All Other
Compensation". See "--Executive Compensation--Cash Compensation."

Employee Stock Ownership Plan and Trust. The Company has established, and
the Bank has adopted, for the benefit of eligible employees, an ESOP and
related trust to become effective upon Conversion. All salaried employees of
the Bank or the Company may be eligible to become participants in the ESOP.
The ESOP intends to purchase eight percent (8%) (7% in the absence of OTS
approval) of the Common Stock issued in the Conversion. As part of the
Conversion and in order to fund the ESOP's purchase of the Common Stock to be
issued in the Conversion, the Bank or the Company expects to contribute to the
ESOP sufficient funds to pay the par value of the Common Stock to be purchased
and the ESOP intends to borrow funds from the Company equal to the balance of
the aggregate purchase price of the Common Stock. It is expected that this
loan will be for a term of 10 years, will bear interest at the rate of 8% per
annum and will call for level annual payments of principal and interest
designed to amortize the loan over its term, except that payments in any year
may be deferred if the Company determines that it does not have sufficient
profits to make the payments so long as all payments have been made by the end
of the ten-year period. Although contributions to the ESOP will be

156
<PAGE>

discretionary, the Company or the Bank intends to make annual contributions to
the ESOP in an aggregate amount at least equal to the principal and interest
requirement on the debt and intends to repay the loan in eight years.

Shares purchased by the ESOP will initially be pledged as collateral for the
loan, and will be held in a suspense account until released for allocation
among participants in the ESOP as the loan is repaid. The pledged shares will
be released annually from the suspense account in an amount proportional to
the repayment of the ESOP loan for each plan year. The released shares will be
allocated among the accounts of participants on the basis of the participant's
compensation for the year of allocation. Benefits generally become vested at
the rate of 25% per year after two years with 100% vesting after five years of
service. Participants also become immediately vested upon termination of
employment due to death, retirement at age 65, permanent disability or upon
the occurrence of a change of control. Forfeitures will be reallocated among
remaining participating employees, in the same proportion as contributions.
Vested benefits may be paid in a single sum or installment payments and are
payable upon death, retirement at age 65, disability or separation from
service.

In connection with the establishment of the ESOP, a Committee of the
Company's Board of Directors was appointed to administer the ESOP (the "ESOP
Committee"). An unrelated corporate trustee for the ESOP will be appointed
prior to the Conversion and will continue thereafter. The ESOP Committee may
instruct the trustee regarding investment of funds contributed to the ESOP.
The ESOP trustee, subject to its fiduciary duty, must vote all allocated
shares held in the ESOP in accordance with the instructions of the
participating employees. Under the ESOP, unallocated shares will be voted in a
manner calculated to most accurately reflect the instructions it has received
from participants regarding the allocated stock as long as such vote is in
accordance with the provisions of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA").

The ESOP may purchase additional shares of Common Stock in the future, and
may do so either on a leveraged basis with borrowed funds or with cash
dividends, periodic employer contributions or other cash flow. Whether such
purchases will be made and the terms and conditions of any such purchases will
be determined by the ESOP's fiduciaries taking into account such factors as
they consider relevant at the time, including their judgment as to the
attractiveness of the Common Stock as an investment, the price at which Common
Stock may be purchased and, in the case of leveraged purchases, the terms and
conditions on which borrowed funds are available and the willingness of the
Company or the Bank to offer purchase money financing or guarantee purchase
money financing offered by third parties.

Stock Option Plans. Following Conversion, the Board of Directors of the
Company intends to adopt the Stock Option and Incentive Plan for Employees
(the "Employees' Option Plan") and the Stock Option Plan for Outside Directors
(the "Directors' Option Plan") (collectively, the "Stock Option Plans"). The
adoption of the Stock Option Plans will be subject to shareholder approval
obtained at a meeting of shareholders to be held no earlier than six months
after the completion of the Conversion. An amount of shares of Common Stock
equal to 10% of the shares of Common Stock to be issued in the Conversion is
expected to be reserved for issuance under the Stock Option Plans. No
determinations have been made by the Board of Directors as to the specific
terms of the Stock Option Plans or the amount of awards thereunder. However,
OTS regulations provide that no individual officer or employee may receive
more than 25% of the options granted, and Outside Directors may not receive
more than 5% individually or more than 30% in the aggregate of the options
granted under option plans implemented within one year after the Conversion.

The purpose of the anticipated adoption of the Employees' Option Plan will
be to attract and retain qualified personnel in key positions, provide
officers and key employees with a propriety interest in the Company as an
incentive to contribute to the success of the Company and its subsidiaries and
reward officers and key employees for outstanding performance. It is expected
that all employees of the Company and its subsidiaries will be eligible to
participate in the Employees' Option Plan. Although the terms of the
Employees' Option Plan have not yet been determined, it is expected that the
Employees' Option Plan will provide for the grant of: (i) options to purchase
the Company's Common Stock intended to qualify as incentive stock options
under Section 422 of the Code ("Incentive Stock Options"); (ii) options that
do not so qualify ("Non-Statutory Stock Options"); and

157
<PAGE>

(iii) Limited Rights (discussed below) which will be exercisable only upon a
change of control of the Bank or the Company. Unless sooner terminated, any
Employees' Option Plan adopted will be in effect for a period of ten years
from the earlier of adoption by the Board of Directors or approval by the
Company's shareholders.

Any Employees' Option Plan will be administered by a Committee of the Board
of Directors (the "Stock Option Committee") and such committee will determine
which officers and employees will be granted options and Limited Rights,
whether such options will be incentive or non-statutory stock options, the
number of shares subject to each option, the exercise price of each non-
statutory stock option, whether such options may be exercised by delivering
other shares of Common Stock and when such options become exercisable. It is
expected that any Employees' Option Plan will permit options to be granted for
terms of up to 10 years (5 years in the case of Incentive Stock Options
granted to employees who are 5% shareholders) and at exercise prices no less
than the fair market value at date of grant (110% of fair market value in the
case of Incentive Stock Options granted to employees who are 5% shareholders).

The Stock Option Plans are expected to provide for the exercisability and
vesting of options granted thereunder in the manner specified by the Stock
Option Committee. OTS regulations generally require that options granted under
plans implemented within one year after the Conversion 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.

It is anticipated that the Stock Option Plans will also provide for Limited
Rights which, upon a change of control, will allow the holder to exercise such
Limited Rights to the extent that the underlying options are then exercisable
and thereby be entitled to receive a lump sum cash payment equal to the
difference between the exercise price of the related option and the fair
market value of the shares of Common Stock subject to the option on the date
of exercise of the right in lieu of purchasing the stock underlying the
option. In the event of death, disability or normal retirement, the Company,
if requested by the optionee, may elect, in exchange for vested options, to
pay the optionee, or 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.

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

Under the Directors' Option Plan, it is anticipated that the exercise price
per share of each option granted thereunder will be equal to the fair market
value of the shares of Common Stock on the date the option is granted. Any
Options granted under the Directors' Option Plan shall be Non-Statutory Stock
Options and the terms thereof will be specified in a plan document approved by
shareholders.

Stock Programs. Following the Conversion, the Company also intends to
establish Stock Programs as a method of providing officers, employees and
Outside Directors of the Bank and Company with a proprietary

158
<PAGE>

interest in the Company in a manner designed to encourage such persons to
remain with the Bank and the Company. It is anticipated that one Stock Program
would cover eligible officers and employees of the Bank and the Company and
the other would cover eligible Outside Directors of the Bank and the Company.
The adoption of the Stock Programs and awards thereunder will be subject to
shareholder approval obtained at a meeting of shareholders held no earlier
than six months after the completion of the Conversion.

Subject to shareholder approval, the Company expects to contribute funds to
the Stock Programs to enable their related trusts to acquire, in the
aggregate, an amount up to 4% (3% unless OTS approval is obtained) of the
shares of Common Stock issued in the Conversion. Shares used to fund the Stock
Programs may be acquired through open market purchases, if permitted, or from
authorized but unissued shares. No determinations have been made as to the
specific terms of the Stock Programs or the amount of awards thereunder.
Although no specific award determinations have been made, the Company
anticipates that, if shareholder approval is obtained, it will provide awards
to eligible officers, employees and directors to the extent permitted by
applicable regulations. OTS regulations provide that no individual employee
may receive more than 25% of the shares of any plan and non-employee directors
may not receive more than 5% of any plan individually or 30% in the aggregate
for all directors in the case of plans implemented within one year following
the Conversion.

Any Stock Programs adopted shall be administered by a Committee of the Board
of Directors (the "Stock Programs Committee"). Any Stock Programs for the
benefit of Outside Directors are expected to be self-administered with respect
to grants or allocations made thereunder. Under the Stock Programs, awards are
expected to be granted in the form of shares of Common Stock held by the Stock
Programs. The Board intends to appoint an independent fiduciary to serve as
trustee of the trusts to be established pursuant to any Stock Programs. The
Stock Programs are expected to provide for the exercisability and vesting of
awards granted thereunder in the manner specified by the Stock Programs
Committee and consistent with OTS conversion regulations, which currently
require that awards under plans implemented within one year following the
Conversion begin vesting no earlier than one year from the date of shareholder
approval and thereafter vest at a rate of no more than 20% per year. It is
also expected that in the event of death, grants would be 100% vested, and, in
the event of disability, grants would be 100% vested upon termination of
employment of an officer or employee, or upon termination of service as a
director.

When shares become vested in accordance with the Stock Programs, the
participants will recognize income equal to the fair market value of the
Common Stock at that time. The amount of income recognized by the participants
may be a deductible expense for tax purposes for the Company. When shares
become vested and are actually distributed in accordance with the Stock
Programs, the participants will also receive amounts equal to any accrued
dividends with respect thereto. Prior to vesting, recipients of grants may
direct the voting of the shares awarded to them. Shares not subject to grants
will be voted by the trustee of the Stock Programs 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 are vested. Any awards to Outside Directors under the Stock
Programs and the material terms and conditions thereof, will be specified in a
plan document approved by shareholders.

In the event that additional authorized but unissued shares are acquired by
the Stock Programs after the Conversion, the interests of existing
shareholders will be diluted. See "Pro Forma Data."

TRANSACTIONS WITH CERTAIN RELATED PERSONS

The FIRREA requires 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. The Bank has made
loans or extended credit to executive officers and also to certain persons
related to executive officers and directors. All such loans were made by the
Bank in the ordinary course of business and were not made with more favorable
terms nor involved more than the normal risk of collectibility or presented
unfavorable features. The outstanding principal balance of such loans to
executive

159
<PAGE>

officers and associates of executive officers or directors totaled $712,579,
or 0.89% of the Bank's total equity as of December 31, 1995, and 0.38% of the
Bank's pro forma stockholders' equity at December 31, 1995, after giving
effect to the Conversion and Acquisition, and assuming the sale of Common
Stock at the maximum of the Valuation Price Range.

Messrs. Curtin and Farrell are partners in the law firm of Conway, Farrell,
Curtin & Kelly, P.C., which the Bank retains to provide certain legal
services. In each of the fiscal years ended June 30, 1995, 1994 and 1993, the
Bank paid this firm $255,000, $206,000 and $175,000, respectively, for legal
services provided during such periods. In addition, the firm received fees in
the amount of approximately $321,000, $423,000 and $337,000 from third parties
pursuant to its representation of the Bank in loan closings and other legal
matters for each of the fiscal years ended June 30, 1995, 1994 and 1993,
respectively.

The Company intends that all transactions in the future between the Company
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 the Company than could have been obtained by it in arm's-
length negotiations with unaffiliated persons and will be approved by a
majority of independent outside directors of the Company not having any
interest in the transaction.

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 in the Offerings,
assuming shares of Common Stock are issued at the minimum and maximum of the
Estimated Price 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 ESTIMATED OF THE ESTIMATED
PRICE RANGE(1) PRICE RANGE(1)
---------------------- ----------------------
AS A PERCENT AS A PERCENT
NUMBER OF SHARES NUMBER OF SHARES
NAME AMOUNT OF SHARES OFFERED OF SHARES OFFERED
---- ---------- --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
Vincent F. Palagiano.... $ 440,000 44,000 0.47% 44,000 0.35%
Michael P. Devine....... 375,000 37,500 0.40 37,500 0.29
Anthony Bergamo......... 50,000 5,000 0.05 5,000 0.04
George L. Clark, Jr..... 500,000 50,000 0.53 50,000 0.40
Steven D. Cohn.......... 100,000 10,000 0.11 10,000 0.08
Patrick E. Curtin....... 250,000 25,000 0.27 25,000 0.19
Joseph H. Farrell....... 300,000 30,000 0.32 30,000 0.24
Fred P. Fehrenbach...... 500,000 50,000 0.53 50,000 0.40
John J. Flynn........... 100,000 10,000 0.11 10,000 0.08
James M. Fox............ 30,000 3,000 0.03 3,000 0.02
Malcolm T. Kitson....... 75,000 7,500 0.08 7,500 0.06
Stanley Meisels......... 250,000 25,000 0.27 25,000 0.19
Louis V. Varone......... 100,000 10,000 0.11 10,000 0.08
Kenneth J. Mahon........ 200,000 20,000 0.21 20,000 0.17
Peter J. Castelli....... 150,000 15,000 0.16 15,000 0.12
Timothy B. King......... 85,000 8,500 0.09 8,500 0.07
Gasper Messana.......... 250,000 25,000 0.27 25,000 0.19
Michael Pucella......... 100,000 10,000 0.11 10,000 0.08
Stephen Varriale........ 75,000 7,500 0.08 7,500 0.06
All directors and
executive officers as a
group.................. $3,930,000 393,000 4.20% 393,000 3.11%
</TABLE>
--------
(1) Includes proposed subscriptions, if any, by associates. Does not include
subscription orders by the ESOP. The ESOP is expected to purchase 8% (7%
if OTS approval is not obtained) of the shares issued in the Conversion.
See "--Executive Compensation."

160
<PAGE>

THE CONVERSION

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

GENERAL

On November 1, 1995, the Bank's Board of Directors unanimously adopted,
subject to approval by the OTS, the Plan pursuant to which the Bank will be
converted from a federally chartered mutual savings bank to a federally
chartered stock savings bank. It is currently intended that all of the
outstanding capital stock of the Bank will be held by the Company, which is
incorporated under Delaware law. The Plan was approved by the OTS, subject to,
among other things, approval of the Plan by the Bank's members. A special
meeting of members has been called for this purpose to be held on June 21,
1996.

The Company has applied for approval from the OTS to become a savings
association holding company and to acquire all of the Common Stock of the Bank
to be issued in the Conversion. The Company plans to retain up to 50% of the
net proceeds from the sale of the Common Stock and to use the remaining net
proceeds to purchase all of the then to be issued and outstanding capital
stock of the Bank. The Conversion will be effected only upon completion of the
sale of all of the shares of Common Stock of the Company or the Bank, if the
Company's form of organization is not utilized, to be issued pursuant to the
Plan.

The Plan provides that the Board of Directors of the Bank may, at any time
prior to the issuance of the Common Stock and for any reason, decide not to
use a holding company form. Such reasons may include possible delays resulting
from overlapping regulatory processing or policies which could adversely
affect the Bank's or the Company's ability to consummate the Conversion and
transact its business as contemplated herein and in accordance with the Bank's
operating policies. In the event such a decision is made, the Bank will
withdraw the Company's registration statement from the SEC and take steps
necessary to complete the Conversion without the Company, including filing any
necessary documents with the OTS. In such event, and provided there is no
regulatory action, directive or other consideration upon which basis the Bank
determines not to complete the Conversion, if permitted by the OTS, the Bank
will issue and sell the common stock of the Bank and subscribers will be
notified of the elimination of the holding company and resolicitation (i.e.,
be permitted to affirm their orders, in which case they will need to
affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation offering or their funds will be promptly refunded with interest
at the Bank's passbook rate of interest; or be permitted to modify or rescind
their subscriptions), and notified of the time period within which the
subscriber must affirmatively notify the Bank of his intention to affirm,
modify or rescind his subscription. The following description of the Plan
assumes that a holding company form of organization will be used in the
Conversion. In the event that a holding company form of organization is not
used, all other pertinent terms of the Plan as described below will apply to
the conversion of the Bank from the mutual to stock form of organization and
the sale of the Bank's common stock.

The Plan provides generally that (i) the Bank will convert from a mutual
savings bank to a capital stock savings bank and (ii) the Company will offer
shares of Common Stock for sale in the Subscription Offering to the Bank's
Eligible Account Holders, the Employee Plans, the Bank's Supplemental Eligible
Account Holders, and the Bank's Other Members. Persons who are depositors of
Pioneer will not receive subscription rights with respect to the Common Stock
except to the extent that they independently qualify as Eligible Account
Holders, Supplemental Eligible Account Holders and Other Members, as specified
below. The Plan also provides for the offering of shares in the Community
Offering to certain members of the general public, subject to the prior rights
of holders of subscription rights, with a preference to be given, in the event
of an oversubscription in the Community Offering, to natural persons residing
in Kings, Queens, Bronx and Nassau Counties, New York, the counties in which
the Bank's offices are located. The Company and the Bank have an option to
reserve 25% of

161
<PAGE>

the stock available in the Community Offering for sale to certain
institutional investors. It is anticipated that all shares not subscribed for
in the Subscription and Community Offerings will be offered for sale by the
Company to the general public in a Syndicated Community Offering. The Bank has
the right to accept or reject, in whole or in part, any orders to purchase
shares of the Common Stock received in the Community Offering or in the
Syndicated Community Offering. See "--Community Offering" and "--Syndicated
Community Offering."

The aggregate price of the shares of Common Stock to be issued in the
Conversion within the Estimated Price Range, currently estimated to be between
$93.5 million and $126.5 million, will be determined based upon an independent
appraisal of the estimated pro forma market value of the Common Stock of the
Company, prepared by RP Financial, a consulting firm experienced in the
valuation and appraisal of savings institutions. All shares of Common Stock to
be issued and sold in the Conversion will be sold at the same price. The
independent appraisal will be affirmed or, if necessary, updated at the
completion of the Subscription and Community Offerings, if all shares are
subscribed for, or at the completion of the Syndicated Community Offering. See
"--Stock Pricing" for additional information as to the determination of the
estimated pro forma market value of the Common Stock.

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

PURPOSES OF CONVERSION

The Bank, as a federally chartered mutual savings bank, does not have
shareholders and has no authority to issue capital stock. By converting to the
capital stock form of organization, the Bank will be structured in the form
used by commercial banks, other business entities and a growing number of
savings institutions. The Conversion will enhance the Bank's ability to access
capital markets, expand its current operations, acquire other financial
institutions or branch offices, provide affordable home financing
opportunities to the communities it serves or diversify into other financial
services to the extent allowable by applicable law and regulation.

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

The proceeds of the Conversion received by the Bank will serve to replenish
the Bank's capital after engaging in the Acquisition and, to fund a portion of
the Merger Consideration or pay down short-term borrowings that may be
incurred to finance a portion of the Merger Consideration. The potential
impact of the Conversion upon the Bank's capital base is significant. The Bank
had equity in accordance with GAAP of $80.3 million, or 12.07% of assets at
December 31, 1995. Assuming that $126.5 million (the maximum of the Estimated
Price Range established by the Board of Directors based on the estimated pro
forma market value of the Common Stock which has been estimated by RP
Financial to be from a minimum of $93,500,000 to a maximum of $126,500,000) of
gross proceeds are realized from the sale of Common Stock (see "Pro Forma
Data" for the basis of this assumption) and assuming that $49.5 million of the
net proceeds are used by the Company to purchase the capital stock of the
Bank, the Bank's ratio of GAAP capital to adjusted assets, on a pro forma
basis, will increase to 12.22% after the Conversion and taking into account
the Acquisition. The investment of the net proceeds from the sale of the
Common Stock will provide the Bank with additional income to further increase
its capital position. The additional capital may also assist the Bank in
offering new programs and expanded services to its customers.

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

EFFECTS OF CONVERSION

General. Each depositor in a mutual savings bank has both a deposit account
in the institution and a pro rata ownership interest in the equity 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. 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 equity 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 equity of
the institution, which is lost to the extent that the balance in the account
is reduced.

Consequently, mutual bank 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 bank is liquidated. In such event, the
depositors of record at that time, as owners, would share pro rata in any
residual surplus and reserves after other claims, including claims of
depositors to the amounts of their deposits, are paid.

When a mutual savings bank converts to stock form, permanent non-
withdrawable capital stock is created to represent the ownership of the
institution's equity. Such common stock is separate and apart from deposit
accounts and cannot be and is not insured by the FDIC or any other
governmental agency. Certificates are issued to evidence ownership of the
capital stock. The stock certificates are transferable and, therefore, the
stock may be sold or traded if a purchaser is available with no effect on any
account the seller may hold in the institution.

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

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

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

Furthermore, no loan outstanding from the Bank will be affected by the
Conversion, and the amount, interest rate, maturity and security for each loan
will remain as they were contractually fixed prior to the Conversion.

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 Conversion, depositors will cease to be
members and will no longer be entitled to vote at meetings of the Bank. Upon
Conversion, all voting rights in the Bank will be vested in the Company as the
sole shareholder of the Bank. Exclusive voting rights with

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respect to the Company will be vested in the holders of Common Stock.
Depositors of the Bank will not have voting rights after the Conversion except
to the extent that they become shareholders of the Company through the
purchase of Common Stock.

Liquidation Rights. In the unlikely event of a complete liquidation of the
Bank in its present mutual form, each depositor would receive his pro rata
share of any assets of the Bank remaining after payment of claims of all
creditors (including the claims of all depositors to the withdrawal value of
their accounts). Each depositor's pro rata share of such remaining assets
would be in the same proportion as the value of his deposit account was to the
total value of all deposit accounts in the Bank at the time of liquidation.
After the Conversion, each depositor, in the event of a complete liquidation,
would have a claim as a creditor of the same general priority as the claims of
all other general creditors of the Bank. However, except as described below,
his claim would be solely in the amount of the balance in his deposit account
plus accrued interest. He would not have an interest in the value or assets of
the Bank above that amount.

The Plan provides for the establishment, upon the completion of the
Conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in an amount equal
to the surplus and reserves of the Bank as of the date of its latest balance
sheet contained in the final Prospectus used in connection with the
Conversion. Each Eligible Account Holder and Supplemental Eligible Account
Holder, if he were to continue to maintain his deposit account at the Bank,
would be entitled, on a complete liquidation of the Bank after the Conversion,
to an interest in the liquidation account prior to any payment to the
shareholders of the Bank. Each Eligible Account Holder and Supplemental
Eligible Account Holder would have an initial interest in such liquidation
account for each deposit account, including regular accounts, transaction
accounts such as NOW accounts, money market deposit accounts, and certificates
of deposit, with a balance of $50 or more held in the Bank on October 31, 1994
(with respect to an Eligible Account Holder) and March 31, 1996 (with respect
to a Supplemental Eligible Account Holder), ("Qualifying Deposit"). Each
Eligible Account Holder and Supplemental Eligible Account Holder will have a
pro rata interest in the total liquidation account for each of his deposit
accounts based on the proportion that the balance of such person's Qualifying
Deposits on the Eligibility Record Date or Supplemental Eligibility Record
Date, respectively, bore to the total amount of all Qualifying Deposits of all
Eligible Account Holders and Supplemental Eligible Account Holders in the
Bank. For deposit accounts in existence at both dates separate subaccounts
shall be determined on the basis of the Qualifying Deposits in such deposit
accounts on each such record date.

If, however, on any annual closing date of the Bank, commencing October 31,
1995, the amount in any deposit account is less than the amount in such
deposit account on October 31, 1994 (with respect to an Eligible Account
Holder) and March 31, 1996 (with respect to a Supplemental Eligible Account
Holder) or any other annual closing date, then the interest in the liquidation
account relating to such deposit account would be reduced from time to time by
the proportion of any such reduction, and such interest will cease to exist if
such deposit account is closed. In addition, no interest in the liquidation
account would ever be increased despite any subsequent increase in the related
deposit account. Any assets remaining after the above liquidation rights of
Eligible Account Holders and Supplemental Eligible Account Holders are
satisfied would be distributed to the Company as the sole shareholder of the
Bank.

Tax Aspects. Consummation of the Conversion is expressly conditioned upon
the receipt by the Bank of either a favorable ruling from the IRS and New York
State taxing authorities or opinions of counsel with respect to federal income
and New York State taxation, to the effect that the Conversion will not be a
taxable transaction to the Company, the Bank, Eligible Account Holders or
Supplemental Eligible Account Holders, except as noted below.

No private ruling will be received from the IRS with respect to the proposed
Conversion. Instead, the Bank has received an opinion of its counsel, Thacher
Proffitt & Wood, to the effect that for federal income tax purposes, among
other matters: (i) the Bank's change in form from mutual to stock ownership
will constitute a reorganization under section 368(a)(1)(F) of the Internal
Revenue Code and neither the Bank nor the Company

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will recognize any gain or loss as a result of the Conversion; (ii) no gain or
loss will be recognized by the Bank or the Company upon the purchase of the
Bank's capital stock by the Company or by the Company upon the purchase of its
Common Stock in the Conversion; (iii) no gain or loss will be recognized by
Eligible Account Holders or by Supplemental Eligible Account Holders upon the
issuance to them of deposit accounts in the Bank in its stock form plus their
interests in the liquidation account in exchange for their deposit accounts in
the Bank; (iv) the tax basis of the depositors' deposit accounts in the Bank
immediately after the Conversion will be the same as the basis of their
deposit accounts immediately prior to the Conversion; (v) the tax basis of
each Eligible Account Holder's and each Supplemental Eligible Account Holder's
interest in the liquidation account will be zero; (vi) no gain or loss will be
recognized by Eligible Account Holders or by Supplemental Eligible Account
Holders upon the distribution to them of nontransferable subscription rights
to purchase shares of the Common Stock, provided, that the amount to be paid
for the Common Stock is equal to the fair market value of such stock; and
(vii) the tax basis to the shareholders of the Common Stock of the Company
purchased in the Conversion pursuant to the subscription rights will be the
amount paid therefore and the holding period for the shares of Common Stock
purchased by such persons will begin on the date on which their subscription
rights are exercised.

Thacher Proffitt & Wood has also opined, subject to the limitations and
qualifications in its opinion, that the Conversion will not be a taxable
transaction to the Company or to the Bank for New York State franchise tax
purposes or to Eligible Account Holders for New York State and New York City
income or franchise tax purposes. Although the matter is not free from doubt,
it appears unlikely that the Conversion will cause the Bank or the Company to
incur any New York State or New York City real estate transfer tax or real
property gains tax; if any such tax is incurred, it is unlikely to be in a
material amount.

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

Certain portions of both the federal and the state and local tax opinions
are based upon the opinion of RP Financial that subscription rights issued in
connection with the Conversion will have no value. In the opinion of RP
Financial, which opinion is not binding on the IRS, 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 unsubscribed shares of Common Stock. 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 would be
taxable probably only to those Eligible Account Holders or Supplemental
Eligible Account Holders who exercise the subscription rights (either as a
capital gain or ordinary income) 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.

STOCK PRICING

The Plan of Conversion requires that the purchase price of the Common Stock
must be based on the appraised pro forma market value of the Common Stock, as
determined on the basis of an independent valuation. The Bank and the Company
have retained RP Financial to make such valuation. For its services in making
such appraisal, RP Financial will receive a fee of $77,500, plus out-of-pocket
expenses. The Bank and the Company have agreed to indemnify RP Financial and
its employees and affiliates against certain losses (including any losses in
connection with claims under the federal securities laws) arising out of its
services as appraiser, except where RP Financial's liability results from its
negligence or acting in bad faith.

An appraisal has been made by RP Financial in reliance upon the information
contained in this Prospectus, including the Financial Statements. RP Financial
also considered the following factors, among others: the present

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and projected operating results and financial condition of the Company and the
Bank, giving effect to the Acquisition, and the economic and demographic
conditions in the Bank's existing marketing area; certain historical,
financial and other information relating to the Bank; a comparative evaluation
of the operating and financial statistics of the Bank with those of other
similarly situated publicly-traded savings associations and savings
institutions located in the Bank's primary market area and the State of New
York; the aggregate size of the offering of the Common Stock; the impact of
Conversion on the Bank's equity and earnings potential; the proposed dividend
policy of the Company and the Bank; and the trading market for securities of
comparable institutions and general conditions in the market for such
securities.

On the basis of the foregoing, RP Financial has advised the Company and the
Bank that, in its opinion, dated December 15, 1995 and updated as of March 15,
1996, the estimated pro forma market value of the Common Stock ranged from a
minimum of $93,500,000 to a maximum of $126,500,000 with a midpoint of
$110,000,000. Based upon the Valuation Range and the Purchase Price of $10.00
per share for the Common Stock established by the Board of Directors, the
Board of Directors has established the Estimated Price Range of $93.5 million
to $126.5 million, with a midpoint of $110.0 million, and the Company expects
to issue between 9,350,000 and 12,650,000 shares of Common Stock. The Board of
Directors of the Company and the Bank have reviewed the appraisal of
RP Financial and in determining the reasonableness and adequacy of such
appraisal consistent with OTS regulations and policies, have reviewed the
methodology and reasonableness of the assumptions utilized by RP Financial in
the preparation of such appraisal. The Estimated Price Range may be amended
with the approval of the OTS (if required), if necessitated by subsequent
developments in the financial condition of the Company or the Bank or market
conditions generally.

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

Following commencement of the Subscription and Community Offerings, the
maximum of the Estimated Price Range may be increased up to 15% and the number
of shares of Common Stock to be issued in the Conversion may be increased to
14,547,500 shares due to regulatory considerations, changes in the market and
general financial and economic conditions, without the resolicitation of
subscribers. See "--Limitations on Common Stock Purchases" as to the method of
distribution and allocation of additional shares that may be issued in the
event of an increase in the Estimated Price Range to fill unfilled orders in
the Subscription and Community Offerings.

No sale of shares of Common Stock may be consummated unless, prior to such
consummation, RP Financial confirms to the Bank and the OTS that, to the best
of its knowledge, nothing of a material nature has occurred which, taking into
account all relevant factors, would cause RP Financial 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 Subscription and Community Offerings.

If, based on RP Financial's estimate, the pro forma market value of the
Common Stock as of such date is not more than 15% above the maximum and not
less than the minimum of the Estimated Price Range then, (1) with the approval
of the OTS, the number of shares of Common Stock to be issued in the
Conversion may be increased or decreased, pro rata to the increase or decrease
in value, without resolicitation of subscriptions, to no more than 14,547,500
shares or no less than 9,350,000 shares, and (2) all shares purchased in the
Subscription and Community Offerings will be purchased for the Purchase Price
of $10.00 per share. If the number of shares issued in the Conversion is
increased due to an increase of up to 15% in the Estimated Price Range to
reflect

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changes in market or financial conditions, persons who subscribed for the
maximum number of shares will not be given the opportunity to subscribe for an
adjusted maximum number of shares, except for the Employee Plans which will be
able to subscribe for such adjusted amount. See "--Limitations on Common Stock
Purchases."

If the pro forma market value of the Common Stock is either more than 15%
above the maximum of the Estimated Price Range or less than the minimum of the
Estimated Price Range, the Bank and the Company, after consulting with the
OTS, may terminate the Plan and return all funds promptly with interest at the
Bank's passbook rate of interest on payments made by check, bank draft or
money order, extend or hold a new Subscription and Community Offering,
establish a new Estimated Price Range, commence a resolicitation of
subscribers or take such other actions as permitted by the OTS in order to
complete the Conversion. In the event that a resolicitation is commenced,
unless an affirmative response is received within a reasonable period of time,
all funds will be promptly returned to investors as described above. A
resolicitation, if any, following the conclusion of the Subscription and
Community Offerings would not exceed 45 days unless further extended by the
OTS for periods of up to 90 days not to extend beyond June 21, 1998.

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

No sale of shares of Common Stock may be consummated unless, prior to such
consummation, RP Financial confirms to the Bank, the Company and the OTS that,
to the best of its knowledge, nothing of a material nature has occurred which,
taking into account all relevant factors, including those which would be
involved in a cancellation of the Syndicated Community Offering, would cause
RP Financial 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 the Company at the time of the Syndicated Community
Offering. Any change which would result in an aggregate purchase price which
is below or more than 15% above the Estimated Price Range would be subject to
OTS approval. If such confirmation is not received, the Bank may extend the
Conversion, extend, reopen or commence new Subscription and Community
Offerings or a Syndicated Community Offering, establish a new Estimated Price
Range and commence a resolicitation of all subscribers with the approval of
the OTS or take such other actions as permitted by the OTS in order to
complete the Conversion, or terminate the Plan and cancel the Subscription and
Community Offerings and/or the Syndicated Community Offering. In the event
market or financial conditions change so as to cause the aggregate purchase
price of the shares to be below the minimum of the Estimated Price Range or
more than 15% above the maximum of such range, and the Company and the Bank
determine to continue the Conversion, subscribers will be resolicited (i.e.,
be permitted to continue their orders, in which case they will need to
affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation offering or their subscription funds will be promptly refunded
with interest at the Bank's passbook rate of interest, or be permitted to
decrease or cancel their subscriptions). Any change in the Estimated Price
Range must be approved by the OTS. A resolicitation, if any, following the
conclusion of the Subscription and Community Offerings would not exceed 45
days, or if following the Syndicated Community Offering, 90 days, unless
further extended by the OTS for periods up to 90 days not to extend beyond
June 21, 1998. If such resolicitation is not effected, the Bank will return
with interest all funds promptly at the Bank's passbook rate of interest on
payments made by check, bank draft or money order.

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

NUMBER OF SHARES TO BE ISSUED

Depending upon market or financial conditions following the commencement of
the Subscription and Community Offerings, the total number of shares to be
issued in the Conversion may be increased or decreased

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without a resolicitation of subscribers; provided, that the product of the
total number of shares times the price per share is not below the minimum or
more than 15% above the maximum of the Estimated Price Range, and the total
number of shares to be issued in the Conversion is not less than 9,350,000 or
greater than 12,650,000 (or 14,547,500 if the Estimated Price Range is
increased by 15%).

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

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

SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS

In accordance with the Plan of Conversion, rights to subscribe for the
purchase of Common Stock have been granted under the Plan of Conversion to the
following persons in the following order of descending priority: (1) holders
of deposit accounts with a balance of $50 or more as of October 31, 1994
("Eligible Account Holders"), (2) the Employee Plans, (3) holders of deposit
accounts with a balance of $50 or more as of March 31, 1996 ("Supplemental
Eligible Account Holders"), and (4) members of the Bank, consisting of
depositors of the Bank as of May 9, 1996, the Voting Record Date, other than
Eligible Account Holders or Supplemental Eligible Account Holders ("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 of Conversion 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 (i) the amount permitted to be purchased in the Community Offering,
which amount is currently $250,000 (25,000 shares) of the Common Stock
offered, (ii) one-tenth of one percent (0.10%) of the total offering of shares
of Common Stock or (iii) 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 and the denominator is the total
amount of qualifying deposits of all Eligible Account Holders, in each case on
the Eligibility Record Date, subject to the overall purchase limitation and
exclusive of an increase in the shares issued pursuant to an increase in the
Estimated Price Range of up to 15%. See "--Limitations on Common Stock
Purchases."

In the event that Eligible Account Holders exercise subscription rights for
a number of shares in excess of the total number of shares eligible for
subscription, the shares will be allocated so as to permit each subscribing
Eligible Account Holder to purchase a number of shares sufficient to make his
total allocation equal to the lesser of 100 shares or the number of shares
subscribed for. Thereafter, unallocated shares will be allocated among the

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remaining subscribing Eligible Account Holders whose subscriptions remain
unfilled in the proportion that the amounts of their respective eligible
deposits bear to the total amount of eligible deposits of all remaining
Eligible Account Holders whose subscriptions remain unfilled, exclusive of any
increase in the shares issued pursuant to an increase in the Estimated Price
Range of up to 15%.

To ensure proper allocation of stock, each Eligible Account Holder must list
on his or her stock order form all accounts in which such Eligible Account
Holder 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 one-year period preceding October
31, 1994.

Priority 2: Employee Plans. To the extent that there are sufficient shares
remaining after satisfaction of the subscriptions by Eligible Account Holders,
the Employee Plans will receive, without payment therefor, second priority,
nontransferable subscription rights to purchase, in the aggregate, up to 10%
of Common Stock issued in the Conversion, including any increase in the number
of shares of Common Stock to be issued in the Conversion after the date hereof
as a result of an increase of up to 15% in the maximum of the Estimated Price
Range subject to the purchase limitations set forth in the Plan of Conversion
and as described below under "--Limitations on Common Stock Purchases." The
ESOP intends to purchase 8% of the shares to be issued in the Conversion, or
748,000 shares and 1,012,000 shares, based on the issuance of 9,350,000 shares
and 12,650,000, 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
Offerings, including subscriptions of any of the Bank's directors, officers,
employees or associates thereof. See "Management of the Bank--Benefits--
Employee Stock Ownership Plan and Trust."

Priority 3: Supplemental Eligible Account Holders. Each Supplemental
Eligible Account Holder will receive, without payment therefor, third
priority, nontransferable subscription rights to subscribe for in the
Subscription Offering up to the greater of (i) the amount permitted to be
purchased in the Community Offering, which amount is currently $250,000
(25,000 shares) of the Common Stock offered, (ii) one-tenth of one percent
(0.10%) of the total offering of shares of Common Stock or (iii) 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 Estimated Price Range of up to 15%. See "--Limitations on
Common Stock Purchases."

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

To ensure proper allocation of stock, each Supplemental Eligible Account
Holder must list on his or her stock order form all accounts in which such
Supplemental Eligible Account Holder has an ownership interest.

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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 of 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 Employee Plans 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 (i) greater of the amount permitted to be purchased in the Community
Offering, which amount is currently $250,000 (25,000 shares) of the Common
Stock offered, or (ii) one-tenth of one percent (0.10%) 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 exercise subscription rights for a number of
shares in excess of the total number of shares eligible for subscription, the
shares will be allocated so as to permit each subscribing Other Member, to the
extent possible, to purchase a number of shares sufficient to make his total
allocation equal to the lesser of 100 shares or the number of shares
subscribed for. Thereafter, unallocated shares will be allocated among the
remaining subscribing Other Members whose subscriptions remain unfilled on a
100 share per order basis until all such orders have been filled or the
remaining shares have been allocated.

Expiration Date for the Subscription Offering. The Subscription Offering
will expire on June 17, 1996, 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 Subscription 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 Subscription 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. Such
extensions may not go beyond June 21, 1998.

COMMUNITY OFFERING

To the extent that shares remain available for purchase after satisfaction
of all subscriptions of the Eligible Account Holders, the Employee Plans, 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. Any excess of shares available will be available for purchase
by the general public, with natural persons residing in Kings, Queens, Bronx
and Nassau Counties, New York (such natural persons referred to as "Preferred
Subscribers") having first priority, subject to the right of the Company to
accept or reject any such orders, in whole or in part, in its sole discretion.
Such persons, together with associates of and persons acting in concert with
such persons, may purchase up to $250,000 (25,000 shares) of Common Stock
subject to the maximum purchase limitation and exclusive of shares issued
pursuant to an increase in the Estimated Price Range by up to 15%. See "--
Limitations on Common Stock Purchases." This amount may be increased up to a
maximum of 5% of the shares offered at the discretion of the Company and 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 THE COMPANY, IN
THEIR 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 SUBSCRIPTION EXPIRATION DATE. IF THE COMPANY REJECTS A SUBSCRIPTION IN
PART, THE SUBSCRIBER WILL NOT HAVE THE RIGHT TO CANCEL THE REMAINDER OF HIS OR
HER SUBSCRIPTION.

Subject to the foregoing, if the amount of stock remaining is insufficient
to fill the orders of Preferred Subscribers after completion of the
Subscription and Community Offerings, such stock will be allocated first to

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each Preferred 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 Preferred Subscriber, if possible. Thereafter, unallocated shares
will be allocated among the Preferred 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. To the extent that there
are shares remaining after all subscriptions by Preferred Subscribers have
been filled, shares will be allocated, applying the same allocation as
described above for Preferred Subscribers, to natural persons maintaining an
office or a residence in the State of New York. Thereafter, if there are any
shares remaining, shares will be allocated to other persons of the general
public who purchase in the Community Offering applying the same allocation
described above for Preferred Subscribers.

In offering the unsubscribed for shares to the public in the Community
Offering, a number of shares equal to the lesser of 25% of the Common Stock
offered in the Conversion or the Common Stock not subscribed for in the
Subscription Offering, at the option of the Company and the Bank, may be
initially reserved for certain institutional investors.

PERSONS IN NON-QUALIFIED 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 Bank and the
Company are not required to offer stock in the Subscription Offering to any
person who resides in a foreign country or resides in a state of the United
States with respect to which the Company 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
Company and the Bank or their officers, directors or trustees register as a
broker, dealer, salesman or selling agent, under the securities laws of such
state, or a request to register or otherwise qualify the subscription rights
or 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 and the Company will base their 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 holders in the state, the cost
of registering or qualifying the shares or the need to register the Company,
its officers, directors or employees as brokers, dealers or salesmen.

MARKETING AND UNDERWRITING ARRANGEMENTS

The Bank and the Company have engaged Sandler O'Neill as a financial and
marketing advisor in connection with the offering of the Common Stock and
Sandler O'Neill has agreed to use its best efforts to assist the Company with
the solicitation of subscriptions and purchase orders for shares of Common
Stock in the Offerings. Based upon negotiations with the Bank and the Company,
Sandler O'Neill will receive a fee equal to 1.625% of the aggregate Purchase
Price of Common Stock sold in the Subscription Offering to Eligible Account
Holders, current depositors of the Bank and in the Community Offering. No fees
will be paid to Sandler O'Neill with respect to any shares of Common Stock
purchased by any director, officer or employee of the Bank or the Company or
members of their immediate families or the Employee Plans. 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 dealer, any sponsoring dealers' fees,
and a management fee to Sandler O'Neill of 1.5% for shares sold by an NASD
member firm 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 dealer's agreement shall not exceed 1.625% of the Purchase
Price in the aggregate; and provided further, that the aggregate fees payable
to Sandler O'Neill and any other selected dealer will not exceed 7% of the
aggregate Purchase Price of the Common Stock sold by the selected dealer. 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. Sandler O'Neill will also be reimbursed for its reasonable
out-of-pocket expenses, including legal fees, in an amount not to exceed
$75,000. Notwithstanding the foregoing, in the event the Offerings are not
consummated or Sandler O'Neill ceases, under certain circumstances after the
subscription solicitation activities are commenced, to provide assistance to
the Company, Sandler O'Neill will be entitled to reimbursement for its
reasonable out-of-pocket expenses as described above. The Company and the Bank
have agreed to indemnify Sandler O'Neill for costs and expenses in connection
with certain claims or

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liabilities related to or arising out of the services to be provided by
Sandler O'Neill pursuant to its engagement by the Bank and the Company as
financial advisor in connection with the Conversion, including certain
liabilities under the Securities Act. Sandler O'Neill has received advances
towards its fees totaling $50,000. Total marketing fees to Sandler O'Neill are
estimated to be $1.3 million and $1.8 million at the minimum and the maximum
of the Estimated Price Range, respectively. See "Pro Forma Data" for the
assumptions used to arrive at these estimates.

The Bank also has engaged Sandler O'Neill as its conversion agent. Pursuant
to such engagement, Sandler O'Neill will perform conversion and records
management services for the Bank in the Conversion and will receive a fee for
this service of $27,500, plus reimbursement of reasonable out-of-pocket
expenses, to be billed to the Bank, and indemnification against liabilities.

Prior to its engagement by the Bank, Sandler O'Neill served as financial
advisor to Conestoga and Pioneer in connection with the Acquisition and will
receive a fee from Conestoga for its services. A significant portion of such
fee is contingent upon consummation of the Acquisition.

Directors and executive officers of the Company and 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 Company will rely on Rule 3a4-1 under the Exchange Act, and sales
of Common Stock will be conducted within the requirements of Rule 3a4-1, so as
to permit officers, directors and employees to participate in the sale of
Common Stock. No officer, director or employee of the Company or 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 SUBSCRIPTION AND COMMUNITY OFFERINGS

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

To purchase shares in the Subscription and Community Offerings, an executed
order 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 one of its offices by 5:00 p.m., New
York 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 Company and Bank are not obligated to accept orders submitted on
photocopied or facsimiled order forms and will not accept order forms
unaccompanied by an executed certification form. The Company and the Bank have
the right to waive or permit the correction of incomplete or improperly
executed forms, but do not represent that they will do so. Once received, an
executed order form may not be modified, amended or rescinded without the
consent of the Bank unless the Conversion has not been completed within 45
days after the end of the Subscription and Community Offerings, unless such
period has been extended.

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Payment for subscriptions may be made (i) in cash if delivered in person to
an 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
Conversion. If payment is made by authorization of withdrawal from deposit
accounts, the funds authorized to be withdrawn from a deposit account will
continue to accrue interest at the contractual rates until completion or
termination of the Conversion, but a hold will be placed on such funds,
thereby making them unavailable to the depositor until completion or
termination of the Conversion. Notwithstanding the foregoing, the Company
shall have the right, in its sole discretion, to permit institutional
investors to submit irrevocable orders together with a legally binding
commitment for payment and to thereafter pay for the shares of Common Stock
for which they subscribe in the Community Offering at any time prior to 48
hours before the completion of the Conversion.

If a subscriber authorizes the Bank to withdraw the amount of the purchase
price from his deposit account, the Bank will do so as of the effective date
of the Conversion. 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 passbook rate. Upon completion of the Conversion, funds withdrawn from
depositors' accounts to purchase Common Stock will no longer be insured by the
FDIC.

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

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

Certificates representing shares of Common Stock purchased will be mailed to
purchasers at the last address of such persons appearing on the records of the
Bank, or to such other address as may be specified in properly completed 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.

RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES

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

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an announcement of an offer or an intent to make an offer to purchase such
subscription rights or shares of Common Stock prior to the completion of the
Conversion.

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

SYNDICATED COMMUNITY OFFERING

As a final step in the Conversion, 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 the Company.
There are no agreements between Sandler O'Neill and any broker-dealer in
connection with a possible Syndicated Community Offering. As an alternative to
a Syndicated Community Offering, the Company and the Bank may instead elect to
offer for sale such remaining shares to or through underwriters in a public
offering, as described under "--Public Offering Alternative." The Company and
the Bank have the right to reject orders in whole or in part in their sole
discretion in the Syndicated Community Offering. If the Company rejects an
order in part, the subscriber will not have the right to cancel the remainder
of his subscription. 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." Subject to
overall purchase limitations, no person, together with any associate or group
of persons acting in concert, will be permitted to subscribe in the Syndicated
Community Offering for more than $250,000 (25,000 shares) of shares offered in
the Conversion, exclusive of an increase in shares issued pursuant to an
increase in the Estimated Price Range of up to 15%; provided, however, that
shares of 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 a maximum purchase limitation of $250,000 (25,000 shares) of the
shares offered, exclusive of an increase in shares issued pursuant to an
increase in the Estimated Price Range by up to 15%.

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

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

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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 Subscription Expiration Date, unless extended by the Company
with the approval of the OTS. Such extensions may not go beyond June 21, 1998.
See "--Stock Pricing" above for a discussion of rights of subscribers, if any,
in the event an extension is granted.

PUBLIC OFFERING ALTERNATIVE

Shares of Common Stock not sold in the Subscription Offering or the
Community Offering may, as an alternative to a Syndicated Community Offering
as described above, be offered for sale by the Company to or through
underwriters (the "Public Offering"). Certain provisions restricting the
purchase and transfer of Common Stock shall not be applicable to sales to
underwriters for purposes of such Public Offering. Any such underwriter shall
agree to purchase such shares from the Company with a view to reoffering them
to the general public, use their best efforts to sell, for the account of the
Company, such shares to the general public or a combination of the preceding
two provisions, subject to certain terms and conditions described in the Plan.

LIMITATIONS ON COMMON STOCK PURCHASES

The Plan includes the following limitations on the number of shares of
Common Stock which may be purchased during the Conversion:

(1) No less than 25 shares;

(2) Each Eligible Account Holder may subscribe for and purchase in the
Subscription Offering up to the greater of (a) the amount permitted to be
purchased in the Community Offering, currently $250,000 (25,000 shares) of
the Common Stock offered, (b) one-tenth of one percent (0.10%) of the total
offering of shares of Common Stock or (c) fifteen times the product
(rounded down to the net 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 limitation in (8) below and exclusive of an increase
in the total number of shares issued due to an increase in the Estimated
Price Range of up to 15%;

(3) The Employee Plans are permitted to purchase in the aggregate up to
10% of the shares of Common Stock issued in the Conversion, including
shares issued in the event of an increase in the Estimated Price Range of
up to 15%, and the ESOP, as an Employee Plan, intends to purchase 8% of the
shares of Common Stock issued in the Conversion;

(4) Each Supplemental Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the greater of (a) the amount
permitted to be purchased in the Community Offering, currently $250,000
(25,000 shares) of the Common Stock Offered, (b) one-tenth of one percent
(0.10%) of the total offering of shares of Common Stock or (c) fifteen
times the product (rounded down to the net 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 limitation in (8) below and exclusive of an increase in the total
number of shares issued due to an increase in the Estimated Price Range of
up to 15%; provided, that the subscription rights received as an Eligible
Account Holder will be applied in partial satisfaction of the subscription
rights to be received as a Supplemental Eligible Account Holder;

(5) Each Other Member may subscribe for and purchase in the Subscription
Offering up to the greater of the amount permitted to be purchased in the
Community Offering, currently $250,000 (25,000 shares) of

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the Common Stock offered, or one-tenth of one percent (0.10%) of the total
offering of shares of Common Stock subject to the overall limitation in (8)
below and exclusive of an increase in the total number of shares issued due
to an increase in the Estimated Price Range of up to 15%;

(6) Persons purchasing shares of 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 up to $250,000 (25,000
shares) of the Common Stock offered in the Conversion subject to the
overall limitation in (8) below and exclusive of an increase in the total
number of shares issued due to an increase in the Estimated Price Range of
up to 15%;

(7) Persons purchasing shares of Common Stock in the Syndicated Community
Offering, or the Public Offering Alternative (exclusive of underwriters),
together with associates of and persons acting in concert with such
persons, may purchase in the Syndicated Offering up to $250,000 (25,000
shares) of the shares of Common Stock offered in the Conversion subject to
the overall limitation in (8) below and exclusive of an increase in the
total number of shares issued due to an increase in the Estimated Price
Range of up to 15%; provided, that shares of Common Stock purchased in the
Community Offering by any persons, together with associates of and persons
acting in concert with such persons, will be aggregated with purchases in
the Syndicated Community Offering in applying the $250,000 (25,000 shares)
purchase limitation.

(8) Eligible Account Holders, Supplemental Eligible Account Holders,
Other Members and certain members of the general public may purchase stock
in the Community Offering and Syndicated Community Offering or Public
Offering Alternative subject to the purchase limitations described in (6)
and (7) above; provided, that, except for the Employee Plans, the maximum
number of shares of Common Stock subscribed for or purchased in all
categories of the Conversion by any person, together with associates of and
groups of persons acting in concert with such persons, shall not exceed
1.0% of the shares of Common Stock offered in the Conversion (with
exception of Eligible Account Holders and Supplemental Eligible Account
Holders which may subscribe for or purchase shares as described above); and

(9) No more than 25% of the total number of shares offered for sale in
the Conversion may be purchased by directors and officers of the Bank and
their associates in the aggregate, excluding purchases by the ESOP.

Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the members
of the Bank, both the individual amount permitted to be subscribed for and the
overall maximum purchase limitation may be increased to up to a maximum of 5%
at the sole discretion of the Company 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 the Company 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 offered in 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 in the Plan and described herein.

The overall maximum purchase limitation may not be reduced to less than 1.0%
and the individual amount permitted to be subscribed for may not be reduced by
the Bank to less than $250,000 (25,000 shares) of the Common Stock offered. 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 1.0% of the shares offered, but may make
such purchase together with associates of and persons acting in concert with
such person, and by also purchasing in other available categories of the
Conversion, subject to availability of shares and the maximum overall purchase
limit for purchases in the Conversion.

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In the event of an increase in the total number of shares offered in the
Conversion due to an increase in the Estimated Price Range of up to 15% (the
"Adjusted Maximum"), the additional shares will be allocated in the following
order or priority in accordance with the Plan: (i) to fill the ESOP's
subscription of 8% of the Adjusted Maximum number of shares and to fill the
subscriptions of the other Employee Plans; (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 to Preferred
Subscribers.

The term "Associate" of a person is defined to mean: (i) any corporation or
organization (other than the Company, the Bank or a majority-owned subsidiary
of the Bank) of which such person is an officer, partner or is directly or
indirectly, either alone or with one or more members of his or her immediate
family, 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 employee stock benefit plan maintained by the Company or the Bank 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 acquired or held by officers and directors and their
Associates, 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 Company or the Bank. Directors and officers are not
treated as associates of each other solely by virtue of holding such
positions. For a further discussion of limitations on purchases of a
converting institution's stock at the time of Conversion and subsequent to
Conversion, see "--Certain Restrictions on Purchase or Transfer of Shares
After Conversion," "Management of the Bank--Subscriptions by Executive
Officers and Directors" and "Restrictions on Acquisition of the Company and
the Bank."

CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF SHARES AFTER CONVERSION

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

Unless approved by the OTS, the Company, pursuant to OTS regulations, will
be prohibited from repurchasing any shares of the Common Stock for three years
except (i) for an offer to all shareholders on a pro rata basis; or (ii) for
the repurchase of qualifying shares of a director. Notwithstanding the
foregoing, beginning one year following completion of the Conversion the
Company may repurchase its Common Stock so long as (i) the repurchases within
the following two years are part of an open-market program not involving
greater than 5% of its outstanding capital stock during a twelve-month period;
(ii) the repurchases do not cause the Company

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to become undercapitalized; and (iii) the Company provides to the Regional
Director of the OTS no later than 10 days prior to the commencement of a
repurchase program written notice containing a full description of the program
to be undertaken and such program is not disapproved by the Regional Director.
However, the OTS Regional Directors have the authority to approve stock
repurchases during the first three years after the Conversion that are in
excess of these limits.

RESTRICTIONS ON ACQUISITION OF THE COMPANY AND THE BANK

GENERAL

The Bank's Plan of Conversion provides for the Conversion of the Bank from
the mutual to the stock form of organization and, in connection therewith, a
new Federal Stock Charter and Bylaws to be adopted by members of the Bank. The
Plan also provides for the concurrent formation of a holding company, which
form of organization may or may not be utilized at the option of the Board of
Directors of the Bank. See "The Conversion--General." As described below,
certain provisions in the Company's Certificate of Incorporation and Bylaws
and in its management remuneration entered into in connection with the
Conversion, together with provisions of Delaware corporate law, may have anti-
takeover effects. The Bank's Stock Charter and Bylaws and management
remuneration entered into in connection with the Conversion also may have
anti-takeover effects as described below. In addition, regulatory restrictions
may make it difficult for persons or companies to acquire control of either
the Company or the Bank.

RESTRICTIONS IN THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS

A number of provisions of the Company's Certificate of Incorporation and
Bylaws deal with matters of corporate governance and certain rights of
shareholders. The following discussion is a general summary of certain
provisions of the Company's Certificate of Incorporation and Bylaws and
certain other statutory and regulatory provisions relating to stock ownership
and transfers, the Board of Directors and business combinations, that might
have a potential "anti-takeover" effect. These provisions might have the
effect of discouraging a future takeover attempt which is not approved by the
Board of Directors but which individual Company shareholders may deem to be in
their best interests or in which shareholders may receive a substantial
premium for their shares over then current market prices. As a result,
shareholders who might desire to participate in such a transaction may not
have an opportunity to do so. Such provisions will also render the removal of
the current Board of Directors or management of the Company more difficult.
The following description of certain of the provisions of the Certificate of
Incorporation and Bylaws of the Company is necessarily general and reference
should be made in each case to such Certificate of Incorporation and Bylaws,
which are incorporated herein by reference. See "Additional Information" as to
how to obtain a copy of these documents.

Limitation on Voting Rights. The Certificate of Incorporation of the Company
provides that any record owner of any outstanding Common Stock which is
beneficially owned, directly or indirectly, by a person who beneficially owns
in excess of 10% of the then outstanding shares of Common Stock (the "Limit")
shall be entitled or permitted to only one hundredth (1/100) of a vote with
respect of each share held in excess of the Limit. Beneficial ownership is
determined pursuant to Rule 13d-3 of the General Rules and Regulations
promulgated pursuant to the Exchange Act, and includes shares beneficially
owned by such person or any of his affiliates, shares which such person or his
affiliates have the right to acquire upon the exercise of conversion rights or
options and shares as to which such person and his affiliates have or share
investment or voting power, but shall not include shares beneficially owned by
the ESOP or shares that are subject to a revocable proxy and that are not
otherwise beneficially owned or deemed by the Company to be beneficially owned
by such person and his affiliates. The Certificate of Incorporation of the
Company further provides that this provision limiting voting rights may only
be amended upon the vote of two-thirds of the votes eligible to be cast by
holders of all outstanding shares of voting stock (after giving effect to the
limitation on voting rights).

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Board of Directors. The Board of Directors of the Company is divided into
three classes, each of which shall contain approximately one-third of the
whole number of members of the Board. Each class shall serve a staggered term,
with approximately one-third of the total number of directors being elected
each year. The Company's Certificate of Incorporation and Bylaws provide that
the size of the Board shall be determined by a majority of the directors. The
Certificate of Incorporation and the Bylaws provide that any vacancy occurring
in the Board, including a vacancy created by an increase in the number of
directors or resulting from death, resignation, retirement, disqualification,
removal from office or other cause, shall be filled for the remainder of the
unexpired term exclusively by a majority vote of the directors then in office.
The classified Board is intended to provide for continuity of the Board of
Directors and to make it more difficult and time consuming for a shareholder
group to fully use its voting power to gain control of the Board of Directors
without the consent of the incumbent Board of Directors of the Company. The
Certificate of Incorporation of the Company provides that a director may be
removed from the Board of Directors prior to the expiration of his term only
for cause, upon the vote of 80% of the outstanding shares of voting stock.

In the absence of these provisions, the vote of the holders of a majority of
the shares could remove the entire Board, with or without cause, and replace
it with persons of such holders' choice.

Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of shareholders of the Company may be
called only by the Board of Directors of the Company. The Certificate of
Incorporation also provides that any action required or permitted to be taken
by the shareholders of the Company may be taken only at an annual or special
meeting and prohibits shareholder action by written consent in lieu of a
meeting.

Authorized Shares. The Certificate of Incorporation authorizes the issuance
of forty-five million (45,000,000) shares of Common Stock and nine million
(9,000,000) shares of preferred stock (the "Preferred Stock"). The shares of
Common Stock and Preferred Stock were authorized in an amount greater than
that to be issued in the Conversion to provide the Company's Board of
Directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and
employee stock options. However, these additional authorized shares may also
be used by the Board of Directors consistent with its fiduciary duty to deter
future attempts to gain control of the Company. The Board of Directors also
has sole authority to determine the terms of any one or more series of
Preferred Stock, including voting rights, conversion rates, and liquidation
preferences. As a result of the ability to fix voting rights for a series of
Preferred Stock, the Board has the power, to the extent consistent with its
fiduciary duty, to issue a series of Preferred Stock to persons friendly to
management in order to attempt to block a post-tender offer merger or other
transaction by which a third party seeks control, and thereby assist
management to retain its position. The Company's Board of Directors currently
has no plans for the issuance of additional shares, other than the issuance of
additional shares pursuant to the terms of the Stock Programs and upon
exercise of stock options to be issued pursuant to the terms of the Stock
Option Plans, all of which are to be established and presented to shareholders
at a meeting of shareholders to be held no earlier than six months after
completion of the Conversion.

Shareholder Vote Required to Approve Business Combinations with Principal
Shareholders. The Certificate of Incorporation requires the approval of the
holders of at least 80% of the Company's outstanding shares of voting stock,
together with the affirmative vote of the Company's outstanding shares not
beneficially owned by an Interested Shareholder (as defined below) to approve
certain "Business Combinations," as defined therein, and related transactions.
Under Delaware law, absent this provision, Business Combinations, including
mergers, consolidations and sales of all or substantially all of the assets of
a corporation must, subject to certain exceptions, be approved by the vote of
the holders of only a majority of the outstanding shares of Common Stock of
the Company and any other affected class of stock. Under the Certificate of
Incorporation, at least 80% approval of shareholders is required in connection
with any transaction involving an Interested Shareholder except (i) in cases
where the proposed transaction has been approved in advance by a majority of
those members of the Company's Board of Directors who are unaffiliated with
the Interested Shareholder and were directors prior to the time when the
Interested Shareholder became an Interested Shareholder or (ii) if the
proposed transaction meets certain conditions set forth therein which are
designed to afford the shareholders a fair price in

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consideration for their shares in which case, if a shareholder vote is
required, approval of only a majority of the outstanding shares of voting
stock would be sufficient. The term "Interested Shareholder" is defined to
include any individual, corporation, partnership or other entity (other than
the Company or its subsidiary) which owns beneficially or controls, directly
or indirectly, 10% or more of the outstanding shares of voting stock of the
Company. This provision of the Certificate of Incorporation applies to any
"Business Combination," which is defined to include (i) any merger or
consolidation of the Company or any of its subsidiaries with or into any
Interested Shareholder or Affiliate (as defined in the Certificate of
Incorporation) of an Interested Shareholder; (ii) any sale, lease, exchange,
mortgage, pledge, transfer, or other disposition to or with any Interested
Shareholder or Affiliate of 5% or more of the assets of the Company or
combined assets of the Company and its subsidiary; (iii) the issuance or
transfer to any Interested Shareholder or its Affiliate by the Company (or any
subsidiary) of any securities of the Company other than on a pro rata basis to
all shareholders; (iv) the adoption of any plan for the liquidation or
dissolution of the Company proposed by or on behalf of any Interested
Shareholder or Affiliate thereof; and (v) any reclassification of securities,
recapitalization, merger or consolidation of the Company which has the effect
of increasing the proportionate share of Common Stock or any class of equity
or convertible securities of the Company owned directly or indirectly by an
Interested Shareholder or Affiliate thereof. The directors and executive
officers of the Bank are expected to purchase in the aggregate approximately
3.11% of the shares of the Common Stock at the maximum of the Estimated Price
Range. In addition, the ESOP intends to purchase 8% of the Common Stock sold
in the Conversion. Additionally, if, at a meeting of shareholders to be held
no earlier than six months after completion of the Conversion, shareholder
approval of the proposed Stock Programs and Stock Options Plans is received,
the Company expects to acquire 4% of the Common Stock issued in the Conversion
on behalf of the Stock Programs and expects to issue an amount equal to 10% of
the Common Stock issued in the Conversion under the Stock Option Plans to
directors and executive officers. As a result, assuming the Stock Programs and
Stock Option Plans are approved by shareholders, directors, executive officers
and employees have the potential to control the voting of approximately 25.11%
of the Company's Common Stock, thereby enabling them to prevent the approval
of the transactions requiring the approval of at least 80% of the Company's
outstanding shares of voting stock described hereinabove.

Evaluation of Offers. The Certificate of Incorporation of the Company
further provides that the Board of Directors of the Company, when evaluating
any offer to the Company from another party to (i) make a tender or exchange
offer for any equity security of the Company, (ii) merge or consolidate the
Company with another corporation or entity or (iii) purchase or otherwise
acquire all or substantially all of the properties and assets of the Company,
may, in connection with the exercise of its judgment in determining what is in
the best interest of the Company and the shareholders of the Company, give due
consideration to the extent permitted by law to all relevant factors,
including, without limitation, the financial and managerial resources and
future prospects of the other party, the possible effects on the business of
the Company and its subsidiaries and on the employees, customers, suppliers
and creditors of the Company and its subsidiaries, and the effects on the
communities in which the Company's and its subsidiaries' facilities are
located. By having these standards in the Certificate of Incorporation of the
Company, the Board of Directors may be in a stronger position to oppose such a
transaction if the Board concludes that the transaction would not be in the
best interest of the Company, even if the price offered is significantly
greater than the then market price of any equity security of the Company.

Amendment of Certificate of Incorporation and Bylaws. The Certificate of
Incorporation provides that certain provisions of the Certificate of
Incorporation may not be altered, amended, repealed or rescinded without the
affirmative vote of either (1) not less than a majority of the authorized
number of directors and, if one or more Interested Shareholders exist, by not
less than a majority of the Disinterested Directors or (2) the holders of not
less than two-thirds of the total votes eligible to be cast by the holders of
all outstanding shares of the capital stock of the Company entitled to vote
thereon and, if the alteration, amendment, repeal, or rescission is proposed
by or on behalf of an Interested Shareholder, or an Affiliate or Associate
thereof, by the affirmative vote of the holders of not less than a majority of
the total votes eligible to be cast by holders of all outstanding shares
entitled to vote thereon not beneficially owned by an Interested Shareholder
or an Affiliate or Associate thereof. Amendment of the provision relating to
business combinations must also be approved by either (i) a

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majority of the Disinterested Directors, or (ii) the affirmative vote of not
less than eighty percent (80%) of the total number of votes eligible to be
cast by the holders of all outstanding shares of the Voting Stock, voting
together as a single class, together with the affirmative vote of not less
than fifty percent (50%) of the total number of votes eligible to be cast by
the holders of all outstanding shares of the Voting Stock not beneficially
owned by any Interested Shareholder or Affiliate or Associate thereof, voting
together as a single class. Furthermore, the Company's Certificate of
Incorporation provides that provisions of the Bylaws that contain
supermajority voting requirements may not be altered, amended, repealed or
rescinded without a vote of the Board or holders of capital stock entitled to
vote thereon that is not less than the supermajority specified in such
provision. Absent these provisions, the Delaware General Corporation Law
provides that a corporation's certificate of incorporation and by-laws may be
amended by the holders of a majority of the corporation's outstanding capital
stock. The Certificate of Incorporation also provides that the Board of
Directors is authorized to make, alter, amend, rescind or repeal any of the
Company's Bylaws in accordance with the terms thereof, regardless of whether
the Bylaw was initially adopted by the shareholders. However, this
authorization neither divests the shareholders of their right, nor limits
their power to adopt, amend, rescind or repeal any Bylaw under the Delaware
General Corporation Law. These provisions could have the effect of
discouraging a tender offer or other takeover attempt where the ability to
make fundamental changes through Bylaw amendments is an important element of
the takeover strategy of the acquiror.

Certain Bylaw Provisions. The Bylaws of the Company also require a
shareholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at a shareholder meeting, to give
approximately 90 days advance notice to the Secretary of the Company. The
notice provision requires a shareholder who desires to raise new business to
provide certain information to the Company concerning the nature of the new
business, the shareholder and the shareholder's interest in the business
matter. Similarly, a stockholder wishing to nominate any person for election
as a director must provide the Company with certain information concerning the
nominee and the proposing shareholder.

ANTI-TAKEOVER EFFECTS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
AND MANAGEMENT REMUNERATION ADOPTED IN CONVERSION

The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions which have
not been negotiated with and approved by members of its Board of Directors.
The provisions of the employment agreements with officers, the Stock Programs,
and the Stock Option Plans to be established may also discourage takeover
attempts by increasing the costs to be incurred by the Bank and the Company in
the event of a takeover. See "Management of the Bank--Employment Agreements,"
"--Benefits--Stock Options Plans" and "--Benefits--Stock Programs."

The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation, Bylaws and management remuneration plans to be
established are in the best interests of the Company and its shareholders. An
unsolicited non-negotiated proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Accordingly, the Board
of Directors believes it is in the best interests of the Company and its
shareholders to encourage potential acquirors to negotiate directly with
management and that these provisions will encourage such negotiations and
discourage non-negotiated takeover attempts. It is also the Board of
Directors' view that these provisions should not discourage persons from
proposing a merger or other transaction at a price that reflects the true
value of the Company and that otherwise is in the best interests of all
shareholders.

DELAWARE CORPORATE LAW

The State of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The
takeover statute, which is codified in Section 203 of the Delaware General
Corporate Law ("Section 203"), is intended to discourage certain takeover
practices by impeding the ability of a hostile acquiror to engage in certain
transactions with the target company.

In general, Section 203 provides that a "Person" (as defined therein) who
owns 15% or more of the outstanding voting stock of a Delaware corporation (an
"Interested Stockholder") may not consummate a

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merger or other business combination transaction with such corporation at any
time during the three-year period following the date such "Person" became an
Interested Stockholder. The term "business combination" is defined broadly to
cover a wide range of corporate transactions including mergers, sales of
assets, issuances of stock, transactions with subsidiaries and the receipt of
disproportionate financial benefits.

The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person
became an Interested Stockholder, the Board of Directors approved either the
business combination or the transaction which resulted in the stockholder
becoming an Interested Stockholder; (ii) any business combination involving a
person who acquired at least 85% of the outstanding voting stock in the
transaction in which he became an Interested Stockholder, with the number of
shares outstanding calculated without regard to those shares owned by the
corporation's directors who are also officers and by certain employee stock
plans; (iii) any business combination with an Interested Stockholder that is
approved by the Board of Directors and by a two-thirds vote of the outstanding
voting stock not owned by the Interested Stockholder; and (iv) certain
business combinations that are proposed after the corporation had received
other acquisition proposals and which are approved or not opposed by a
majority of certain continuing members of the Board of Directors. A
corporation may exempt itself from the requirement of the statute by adopting
an amendment to its Certificate of Incorporation or Bylaws electing not to be
governed by Section 203. At the present time, the Board of Directors does not
intend to propose any such amendment.

RESTRICTIONS IN THE BANK'S NEW CHARTER AND BYLAWS

Although the Board of Directors of the Bank is not aware of any effort that
might be made to obtain control of the Bank after the Conversion, the Board of
Directors believes that it is appropriate to adopt certain provisions
permitted by federal regulations to protect the interests of the converted
Bank and its shareholders from any hostile takeover. Such provisions may,
indirectly, inhibit a change in control of the Company, as the Bank's sole
shareholder. See "Risk Factors--Certain Anti-Takeover Provisions."

The Bank's Federal Stock Charter will contain a provision whereby the
acquisition of or offer to acquire beneficial ownership of more than 10% of
the issued and outstanding shares of any class of equity securities of the
Bank by any person (i.e., any individual, corporation, group acting in
concert, trust, partnership, joint stock company or similar organization),
either directly or through an affiliate thereof, will be prohibited for a
period of five years following the date of completion of the Conversion. Any
stock in excess of 10% acquired in violation of the Federal Stock Charter
provision will not be counted as outstanding for voting purposes. This
limitation shall not apply to any transaction in which the Bank forms a
holding company, including the Conversion as described herein, without a
change in the respective beneficial ownership interests of its shareholders
other than pursuant to the exercise of any dissenter or appraisal rights. In
the event that holders of revocable proxies for more than 10% of the shares of
the Common Stock of the Company seek, among other things, to elect one-third
or more of the Company's Board of Directors, to cause the Company's
shareholders to approve the acquisition or corporate reorganization of the
Company or to exert a continuing influence on a material aspect of the
business operations of the Company, which actions could indirectly result in a
change in control of the Bank, the Board of Directors of the Bank will be able
to assert this provision of the Bank's Federal Stock Charter against such
holders. Although the Board of Directors of the Bank is not currently able to
determine when and if it would assert this provision of the Bank's Federal
Stock Charter, the Board of Directors, in exercising its fiduciary duty, may
assert this provision if it were deemed to be in the best interests of the
Bank, the Company and its shareholders. It is unclear, however, whether this
provision, if asserted, would be successful against such persons in a proxy
contest which could result in a change in control of the Bank indirectly
through a change in control of the Company. Finally, for five years,
shareholders will not be permitted to call a special meeting of shareholders
relating to a change of control of the Bank or a charter amendment or to
cumulate their votes in the election of directors. Furthermore, the staggered
terms of the Board of Directors could have an anti-takeover effect by making
it more difficult for a majority of shares to force an immediate change in the
Board of Directors since only one-third of the Board is elected each year. The
purpose of these provisions is to assure stability and continuity of
management of the Bank in the years immediately following the Conversion.

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Although the Bank has no arrangements, understandings or plans at the
present time, except as described in "Description of Capital Stock of the
Company--Preferred Stock," for the issuance or use of the shares of
undesignated Preferred Stock proposed to be authorized, the Board of Directors
believes that the availability of such shares will provide the Bank with
increased flexibility in structuring possible future financings and
acquisitions and in meeting other corporate needs which may arise. In the
event of a proposed merger, tender offer or other attempt to gain control of
the Bank of which management does not approve, it might be possible for the
Board of Directors to authorize the issuance of one or more series of
Preferred Stock with rights and preferences which could impede the completion
of such a transaction. An effect of the possible issuance of such Preferred
Stock, therefore, may be to deter a future takeover attempt. The Board of
Directors does not intend to issue any Preferred Stock except on terms which
the Board deems to be in the best interests of the Bank and its then existing
shareholders.

REGULATORY RESTRICTIONS

The Plan of Conversion prohibits any person, prior to the completion of the
Conversion, from transferring, or from entering into any agreement or
understanding to transfer, to the account of another, legal or beneficial
ownership of the subscription rights issued under the Plan or the Common Stock
to be issued upon their exercise. The Plan also prohibits any person, prior to
the completion of the Conversion, from offering, or making an announcement of
an offer or intent to make an offer, to purchase such subscription rights or
Common Stock.

For three years following the Conversion, OTS regulations prohibit any
person from acquiring or making an offer to acquire more than 10% of the stock
of any converted savings institution, except for: (i) offers that, if
consummated, would not result in the acquisition by such person during the
preceding 12-month period of more than 1% of such stock; (ii) offers for up to
25% in the aggregate by the ESOP or other tax qualified plans of the Bank or
the Company; or (iii) offers which are not opposed by the Board of Directors
of the Bank and which receive the prior approval of the OTS. Such prohibition
is also applicable to the acquisition of the stock of the Company. Such
acquisition may be disapproved by OTS if it is found, among other things, that
the proposed acquisition (a) would frustrate the purposes of the provisions of
the regulations regarding conversions, (b) would be manipulative or deceptive,
(c) would subvert the fairness of the conversion, (d) would be likely to
result in injury to the savings institution, (e) would not be consistent with
economical home financing, (f) would otherwise violate law or regulation, or
(g) would not contribute to the prudent deployment of the savings
institution's conversion proceeds. In the event that any person, directly or
indirectly, violates this regulation, the securities beneficially owned by
such person in excess of 10% shall not be counted as shares entitled to vote
and shall not be voted by any person or counted as voting shares in connection
with any matters submitted to a vote of stockholders. The definition of
beneficial ownership for this regulation extends to persons holding revocable
or irrevocable proxies for the Company's stock under circumstances that give
rise to a conclusive or rebuttable determination of control under the OTS
regulations.

In addition, any proposal to acquire 10% of any class of equity security of
the Company generally would be subject to approval by the OTS under the Change
in Bank Control Act. The OTS requires all persons seeking control of a savings
institution, directly or indirectly through control of its holding company, to
obtain regulatory approval prior to offering to obtain control. Federal law
generally provides that no "person," acting directly or indirectly or through
or in concert with one or more other persons, may acquire "control," as that
term is defined in OTS regulations, of a federally-insured savings institution
without giving at least 60 days written notice to the OTS and providing the
OTS an opportunity to disapprove the proposed acquisition. Such acquisitions
of control may be disapproved by the OTS if it is determined, among other
things, that (i) the acquisition would substantially lessen competition; (ii)
the financial condition of the acquiring person might jeopardize the financial
stability of the savings institution or prejudice the interests of its
depositors; or (iii) the competency, experience or integrity of the acquiring
person or the proposed management personnel indicates that it would not be in
the interest of the depositors or the public to permit the acquisition of
control by such person. Such change in control

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restrictions on the acquisition of holding company stock are not limited to
three years after conversion but will apply for as long as the regulations are
in effect. Persons holding revocable or irrevocable proxies may be deemed to
be beneficial owners of such securities under OTS regulations and therefore
prohibited from voting all or the portion of such proxies in excess of the 10%
aggregate beneficial ownership limit. Such regulatory restrictions may prevent
or inhibit proxy contests for control of the Company or the Bank which have
not received prior regulatory approval.

DESCRIPTION OF CAPITAL STOCK OF THE COMPANY

GENERAL

The Company is authorized to issue forty-five million (45,000,000) shares of
Common Stock having a par value of $.01 per share and nine million (9,000,000)
shares of Preferred Stock having a par value of $.01 per share. The Company
currently expects to issue 12,650,000 shares of Common Stock (or 14,547,500 in
the event of an increase of 15% in the Estimated Price Range) and no shares of
Preferred Stock in the Conversion. Except as discussed above in "Restrictions
on Acquisition of the Company and the Bank," each share of the Company's
Common Stock will have the same relative rights as, and will be identical in
all respects with, each other share of Common Stock. Upon payment of the
Purchase Price for the common stock, in accordance with the Plan, all such
stock will be duly authorized, fully paid and nonassessable.

THE COMMON STOCK OF THE COMPANY WILL REPRESENT NON-WITHDRAWABLE CAPITAL,
WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE AND WILL NOT BE INSURED BY THE
FDIC.

COMMON STOCK

Dividends. The Company can pay dividends out of statutory surplus or from
certain net profits if, as and when declared by its Board of Directors. The
payment of dividends by the Company is subject to limitations which are
imposed by law and applicable regulation. See "Dividend Policy" and
"Regulation." The holders of Common Stock of the Company will be entitled to
receive and share equally in such dividends as may be declared by the Board of
Directors of the Company out of funds legally available therefor. If the
Company issues Preferred Stock, the holders thereof may have a priority over
the holders of the Common Stock with respect to dividends.

Voting Rights. Upon Conversion, the holders of Common Stock of the Company
will possess exclusive voting rights in the Company. They will elect the
Company's Board of Directors and act on such other matters as are required to
be presented to them under Delaware law or the Company's Certificate of
Incorporation or as are otherwise presented to them by the Board of Directors.
Except as discussed in "Restrictions on Acquisition of the Company and the
Bank," each holder of Common Stock will be entitled to one vote per share and
will not have any right to cumulate votes in the election of directors. If the
Company issues Preferred Stock, holders of the Preferred Stock may also
possess voting rights. Certain matters require an 80% or two-thirds
shareholder vote. See "Restrictions on Acquisition of the Company and the
Bank."

As a federal mutual savings bank, corporate powers and control of the Bank
are vested in its Board of Directors, who elect the officers of the Bank and
who fill any vacancies on the Board of Directors as it exists upon Conversion.
Subsequent to Conversion, voting rights will be vested exclusively in the
owners of the shares of capital stock of the Bank, which owner will be the
Company, and voted at the direction of the Company's Board of Directors.
Consequently, the holders of the Common Stock will not have direct control of
the Bank.

Liquidation. In the event of any liquidation, dissolution or winding up of
the Bank, the Company, as holder of the Bank's capital stock, would be
entitled to receive, after payment or provision for payment of all debts and
liabilities of the Bank (including all deposit accounts and accrued interest
thereon) and after distribution of the balance in the special liquidation
account to Eligible Account Holders and Supplemental Eligible Account Holders
(see "The Conversion--Effects of Conversion--Liquidation Rights"), all assets
of the

184
<PAGE>

Bank available for distribution. In the event of liquidation, dissolution or
winding up of the Company, the holders of its Common Stock would be entitled
to receive, after payment or provision for payment of all its debts and
liabilities, all of the assets of the Company available for distribution. If
Preferred Stock is issued, the holders thereof may have a priority over the
holders of the Common Stock in the event of liquidation or dissolution.

Preemptive Rights. Holders of the Common Stock of the Company will not be
entitled to preemptive rights with respect to any shares which may be issued.
The Common Stock is not subject to redemption.

PREFERRED STOCK

None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion. Such stock may be issued with such preferences and
designations as the Board of Directors may from time to time determine. The
Board of Directors can, without shareholder approval, issue preferred stock
with voting, dividend, liquidation and conversion rights which could dilute
the voting strength of the holders of the Common Stock and may assist
management in impeding an unfriendly takeover or attempted change in control.

DESCRIPTION OF CAPITAL STOCK OF THE BANK

GENERAL

The Federal Stock Charter of the Bank, to be effective upon the Conversion,
authorizes the issuance of capital stock consisting of twenty million
(20,000,000) shares of Common Stock, par value $1.00 per share, and five
million (5,000,000) shares of Preferred Stock, par value $1.00 per share,
which Preferred Stock may be issued in series and classes having such rights,
preferences, privileges and restrictions as the Board of Directors may
determine. Each share of Common Stock of the Bank will have the same relative
rights as, and will be identical in all respects with, each other share of
common stock. After the Conversion, the Board of Directors will be authorized
to approve the issuance of Common Stock up to the amount authorized by the
Federal Stock Charter without the approval of the Bank's shareholders. All of
the issued and outstanding common stock of the Bank will be held by the
Company as the Bank's sole shareholder. THE CAPITAL STOCK OF THE BANK WILL
REPRESENT NON-WITHDRAWABLE CAPITAL, WILL NOT BE AN ACCOUNT OF AN INSURABLE
TYPE, AND WILL NOT BE INSURED BY THE FDIC.

COMMON STOCK

Dividends. The holders of the Bank's common stock will be entitled to
receive and to share equally in such dividends as may be declared by the Board
of Directors of the Bank out of funds legally available therefor. See
"Dividend Policy" for certain restrictions on the payment of dividends and
"Federal and State Taxation--Federal Taxation" for a discussion of the
consequences of the payment of cash dividends from income appropriated to bad
debt reserves.

Voting Rights. Immediately after the Conversion, the holders of the Bank's
common stock will possess exclusive voting rights in the Bank. Each holder of
shares of common stock will be entitled to one vote for each share held,
subject to the right of shareholders to cumulate their votes for the election
of directors. During the five-year period after the effective date of the
Conversion, cumulation of votes will not be permitted. See "Restrictions on
Acquisition of the Company and the Bank--Anti-Takeover Effects of the
Company's Certificate of Incorporation and Bylaws and Management Remuneration
Adopted in Conversion."

Liquidation. In the event of any liquidation, dissolution, or winding up of
the Bank, the holders of common stock will be entitled to receive, after
payment of all debts and liabilities of the Bank (including all deposit
accounts and accrued interest thereon), and distribution of the balance in the
special liquidation account to Eligible Account Holders and Supplemental
Eligible Account Holders, all assets of the Bank available for distribution in
cash or in kind. If additional preferred stock is issued subsequent to the
Conversion, the holders thereof may also have priority over the holders of
common stock in the event of liquidation or dissolution.

185
<PAGE>

Preemptive Rights; Redemption. Holders of the common stock of the Bank will
not be entitled to preemptive rights with respect to any shares of the Bank
which may be issued. The common stock will not be subject to redemption. Upon
receipt by the Bank of the full specified purchase price therefor, the common
stock will be fully paid and nonassessable.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is Chemical Mellon
Shareholder Services, L.L.C.

EXPERTS

The financial statements of the Bank included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein, and are included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.

The financial statements of Conestoga included in this Prospectus have been
audited by Arthur Andersen LLP, independent accountants, as stated in their
reports appearing herein, and are included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.

RP Financial, LC. has consented to the publication herein of the summary of
its report to the Bank and Company setting forth its opinion as to the
estimated pro forma market value of the Common Stock upon Conversion and its
opinion with respect to subscription rights.

LEGAL AND TAX OPINIONS

The legality of the Common Stock and the federal income tax and New York
State tax consequences of the Conversion will be passed upon for the Bank and
the Company by Thacher Proffitt & Wood, New York, New York, special counsel to
the Bank and the Company. Certain legal matters will be passed upon for
Sandler O'Neill by Elias, Matz, Tiernan & Herrick L.L.P., Washington, D.C.

ADDITIONAL INFORMATION

The Company has filed with the SEC a registration statement (the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. As permitted by the rules and regulations of the SEC,
this Prospectus does not contain all the information set forth in the
Registration Statement. Such information, including the Conversion Valuation
Appraisal Report which is an exhibit to the Registration Statement, can be
examined without charge at the public reference facilities of the SEC located
at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of such material
can be obtained from the SEC at prescribed rates.

The Bank has filed an application for conversion with the OTS with respect
to the Conversion. Pursuant to the rules and regulations of the OTS, this
Prospectus omits certain information contained in that application. The
application may be examined at the principal office of the OTS, 1700 G Street,
N.W., Washington, D.C. 20552 and at the Office of the Regional Director of the
OTS located at 10 Exchange Place Centre, Jersey City, New Jersey 07302.

In connection with the Conversion, the Company has registered its Common
Stock with the SEC under Section 12(g) of the Exchange Act. Consequently, the
Company is, and upon completion of the Conversion 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

186
<PAGE>

reporting and certain other requirements of the Exchange Act. Under the Plan,
the Company has undertaken that it will not terminate such registration for a
period of at least three years following the Conversion. In the event that the
Bank amends the Plan to eliminate the concurrent formation of the Company as
part of the Conversion, the Bank will register its stock with the OTS under
Section 12(g) of the Exchange Act and, upon such registration, the Bank and
the holders of its stock will become subject to the same obligations and
restrictions.

Copies of the Certificate of Incorporation and the Bylaws of the Company and
the Federal Stock Charter and Bylaws of the Bank are available without charge
from the Bank.

187
<PAGE>

INDEX TO FINANCIAL STATEMENTS

THE DIME SAVINGS BANK OF WILLIAMSBURGH

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report.............................................. F-1
Consolidated Statements of Condition December 31, 1995 (Unaudited) June
30, 1995 and 1994........................................................ F-2
Consolidated Statements of Operations for the Six Months Ended December
31, 1995 and 1994 (Unaudited) and for each of the Years in the Three Year
Period Ended June 30, 1995............................................... 62
Consolidated Statements of Changes in Equity for the Six Months Ended
December 31, 1995 (Unaudited) and for each of the Years in the Three Year
Period Ended June 30, 1995............................................... F-3
Consolidated Statements of Cash Flows for the Six Months Ended December
31, 1995 and 1994 (Unaudited) and for each of the Years in the Three Year
Period Ended June 30, 1995............................................... F-4
Notes to Consolidated Financial Statements................................ F-5
</TABLE>

--------
All schedules are omitted because they are not required or applicable, or
the required information is shown in the consolidated financial statements or
notes thereto.

The financial statements of Dime Community Bancorp, Inc. have been omitted
because Dime Community Bancorp, Inc. has not yet issued any stock, has no
assets and no liabilities, and has not conducted any business other than of an
organizational nature.

CONESTOGA BANCORP, INC. AND SUBSIDIARY

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................. G-1
Consolidated Statements of Financial Condition as of December 31, 1995
(Unaudited) and March 31, 1995 and 1994................................. G-2
Consolidated Statements of Income for the Nine Months Ended December 31,
1995 and 1994 (Unaudited) and for each of the Years in the Three-year
Period Ended March 31, 1995............................................. 112
Consolidated Statements of Changes in Stockholders' Equity for the Nine
Months Ended
December 31, 1995 (Unaudited) and for each of the Years in the Three-
year Period
Ended March 31, 1995.................................................... G-3
Consolidated Statements of Cash Flows for the Nine Months Ended December
31, 1995 and 1994 (Unaudited) and for each of the Years in the Three-
year Period Ended March 31, 1995........................................ G-4
Notes to Consolidated Financial Statements............................... G-5
</TABLE>

--------
All schedules are omitted because they are not required or applicable, or
the required information is shown in the consolidated financial statements or
notes thereto.

188
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Examining Committee of
the Board of Trustees of The Dime Savings Bank of Williamsburgh

We have audited the accompanying consolidated statements of condition of The
Dime Savings Bank of Williamsburgh and Subsidiaries (the "Bank") as of June
30, 1995 and 1994, and the related consolidated statements of income (set
forth elsewhere herein), changes in equity and cash flows for each of the
three years in the period ended June 30, 1995. These financial statements are
the responsibility of the Bank's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Dime
Savings Bank of Williamsburgh and Subsidiaries as of June 30, 1995 and 1994,
and the results of their operations and their cash flows for each of the three
years in the period ended June 30, 1995 in conformity with generally accepted
accounting principles.

As discussed in Notes A and L, effective July 1, 1993, the Bank changed its
method of accounting for income taxes to comply with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."

Deloitte & Touche LLP

New York, New York September 1, 1995

F-1
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, 1995, JUNE 30, 1995 AND 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, ------------------
1995 1995 1994
------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Cash and due from banks..................... $ 7,004 $ 6,807 $ 5,776
Investment securities held to maturity
(estimated market value of $46,097, $51,254
and $80,422 at December 31, 1995, June 30,
1995 and 1994, respectively) (Note B)...... 46,018 51,475 81,697
Investment securities available for sale
(Note B):
Bonds and notes (amortized cost of $44,324
and $42,350 at December 31, 1995 and June
30, 1995, respectively).................. 44,414 42,349 --
Marketable equity securities (amortized
cost of $2,962 and $3,304 at December 31,
1995 and June 30, 1995, respectively).... 2,993 3,070 --
Mortgage-backed securities held to maturity
(estimated market value of $55,179, $54,172
and $92,937 at December 31, 1995, June 30,
1995 and 1994, respectively) (Notes C and
J)......................................... 54,286 53,815 94,356
Mortgage-backed securities available for
sale (amortized cost of $37,410 and $36,728
at December 31, 1995 and June 30, 1995,
respectively).............................. 38,298 37,733 --
Federal funds sold.......................... 12,802 17,809 7,029
Loans (Note D):
Real estate............................... 436,825 425,965 426,977
Other loans............................... 3,779 3,751 3,933
Less allowance for loan losses............ (5,710) (5,174) (3,633)
-------- -------- --------
Total loans............................. 434,894 424,542 427,277
-------- -------- --------
Loans held for sale......................... 425 138 683
Premises and fixed assets (Note G).......... 5,764 5,921 6,255
Federal Home Loan Bank of New York capital
stock (Note H)............................. 4,801 4,801 4,989
Other real estate owned (Note E)............ 1,907 4,466 8,200
Other assets................................ 11,581 9,813 10,196
-------- -------- --------
TOTAL ASSETS.................................. $665,187 $662,739 $646,458
======== ======== ========
LIABILITIES AND EQUITY
LIABILITIES:
Due to depositors (Note I).................. $557,084 $554,841 $546,761
Escrow and other deposits................... 6,933 12,109 13,296
Securities sold under agreements to repur-
chase (Note J)............................. 2,024 2,110 2,161
Federal Home Loan Bank of New York Advances
(Note K)................................... 15,710 15,710 15,710
Accrued postretirement benefit obligation
(Note M)................................... 2,042 -- --
Other liabilities (Notes A and M)........... 1,136 902 611
-------- -------- --------
TOTAL LIABILITIES............................. 584,929 585,672 578,539
-------- -------- --------
</TABLE>
<TABLE>
COMMITMENTS AND CONTINGENCIES
<S> <C> <C> <C>
EQUITY:
Retained earnings (Note L)........................ 79,713 76,651 67,919
Unrealized gain on securities available for sale,
net of deferred taxes............................ 545 416 --
-------- -------- --------
TOTAL EQUITY........................................ 80,258 77,067 67,919
-------- -------- --------
TOTAL LIABILITIES AND EQUITY........................ $665,187 $662,739 $646,458
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

F-2
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
SIX MONTHS ENDED DECEMBER 31, 1995 AND
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
MARKETABLE UNREALIZED
EQUITY GAIN (LOSS) ON
SECURITIES SECURITIES
RETAINED VALUATION AVAILABLE FOR
EARNINGS RESERVE SALE TOTAL
-------- ---------- -------------- -------
<S> <C> <C> <C> <C>
BALANCE, JULY 1, 1992.............. $49,947 $(299) $ -- $49,648
Net income....................... 9,198 -- -- 9,198
Change in marketable equity secu-
rities valuation reserve........ -- 74 -- 74
------- ----- ----- -------
BALANCE, JUNE 30, 1993............. 59,145 (225) -- 58,920
Net income....................... 9,081 -- -- 9,081
Change in marketable equity secu-
rities valuation reserve........ -- (82) -- (82)
------- ----- ----- -------
BALANCE, JUNE 30, 1994............. 68,226 (307) -- 67,919
Effect of adoption of SFAS No.
115, net of deferred taxes...... -- 307 (146) 161
Net income....................... 8,425 -- -- 8,425
Change in unrealized gain (loss)
on securities available for sale
during the year, net of deferred
taxes........................... -- -- 562 562
------- ----- ----- -------
BALANCE, JUNE 30, 1995............. 76,651 -- 416 77,067
Net income....................... 3,062 -- -- 3,062
Change in unrealized gain (loss)
on securities available for sale
during the period, net of
deferred taxes.................. -- -- 129 129
------- ----- ----- -------
BALANCE, DECEMBER 31, 1995 (UNAU-
DITED)............................ $79,713 $ -- $ 545 $80,258
======= ===== ===== =======
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994 AND
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
------------------ ----------------------------
1995 1994 1995 1994 1993
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING AC-
TIVITIES:
Net income.................. $ 3,062 $ 4,795 $ 8,425 $ 9,081 $ 9,198
Adjustments to reconcile net
income to net cash provided
by operating activities:
Net gain on investment and
mortgage-backed securities
called..................... (56) -- -- (342) (153)
Net loss on investment and
mortgage-backed securities
sold....................... 195 -- 11 -- --
Net gain on sale of loans
held for sale.............. (22) (5) (33) (217) (628)
Depreciation and amortiza-
tion....................... 406 880 1,510 1,662 (2,307)
Provision for loan losses... 950 1,475 2,950 4,105 3,395
Decrease (increase) in loans
held for sale.............. (265) 303 580 902 520
Decrease (increase) in other
assets and other real es-
tate owned................. 681 3,450 3,762 (1,260) (370)
Increase in accrued
postretirement benefit ob-
ligation................... 2,042 -- -- -- --
Increase (decrease) in other
liabilities................ 234 (62) 291 53 79
-------- -------- -------- -------- --------
Net cash provided by oper-
ating activities.......... 7,227 10,836 17,496 13,984 9,734
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING AC-
TIVITIES:
Net (increase) decrease in
Federal funds sold......... 5,007 3,576 (10,780) 14,008 (11,689)
Proceeds from maturities of
investment securities held
to maturity................ 35 2,030 2,060 29,800 93,700
Proceeds from maturities of
investment securities
available for sale......... 33,100 6,000 26,300 -- --
Proceeds from calls of in-
vestment securities held to
maturity................... 5,056 -- -- 11,420 8,163
Proceeds from calls of in-
vestment securities avail-
able for sale.............. 4,500 -- -- -- --
Proceeds from sale of in-
vestment securities avail-
able for sale.............. 500 -- -- -- --
Proceeds from sale of mort-
gage-backed securities held
to maturity................ -- -- 1,067 -- --
Purchases of investment se-
curities held to maturity.. (12,417) -- (1,000) (71,542) (84,024)
Purchases of investment se-
curities available for
sale....................... (27,148) (3,021) (43,251) -- --
Purchases of mortgage-backed
securities held to maturi-
ty......................... (5,695) -- (6,093) (29,753) (36,454)
Purchases of mortgage-backed
securities available for
sale....................... (7,482) (2,046) (5,053) -- --
Principal collected on mort-
gage-backed securities held
to maturity................ 4,879 4,968 7,905 16,906 12,593
Principal collected on mort-
gage-backed securities
available for sale......... 7,024 3,553 5,690 -- --
Net (increase) decrease in
loans...................... (11,302) 4,405 (215) 25,670 15,808
Purchases of fixed assets... (69) (91) (125) (226) (690)
Sale (purchase) of Federal
Home Loan Bank capital
stock...................... -- -- 188 (6) (76)
-------- -------- -------- -------- --------
Net cash (used in) provided
by investing activities... (4,012) 19,374 (23,307) (3,723) (2,669)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING AC-
TIVITIES:
Net increase (decrease) in
due to depositors.......... 2,243 (22,970) 8,080 (17,350) (409)
Net (decrease) increase in
escrow and other deposits.. (5,176) (6,568) (1,187) 2,967 (824)
Proceeds from FHLB advanc-
es......................... -- -- -- 6,005 9,705
Repayments of FHLB advanc-
es......................... -- -- -- -- (15,000)
Decrease in repurchase
agreements................. (85) (26) (51) (115) (44)
-------- -------- -------- -------- --------
Net cash (used in) provided
by financing activities... (3,018) (29,564) 6,842 (8,493) (6,572)
-------- -------- -------- -------- --------
INCREASE IN CASH AND DUE FROM
BANKS....................... 197 646 1,031 1,768 493
CASH AND DUE FROM BANKS, BE-
GINNING OF PERIOD........... 6,807 5,776 5,776 4,008 3,515
-------- -------- -------- -------- --------
CASH AND DUE FROM BANKS, END
OF PERIOD................... $ 7,004 $ 6,422 $ 6,807 $ 5,776 $ 4,008
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for income taxes.. $ 3,417 $ 2,817 $ 5,996 $ 9,689 $ 8,707
======== ======== ======== ======== ========
Cash paid for interest...... $ 12,031 $ 8,659 $ 18,932 $ 17,575 $ 21,374
======== ======== ======== ======== ========
Transfer of investment and
mortgage-backed securities
held-to-maturity to
available for sale......... $ 3,300 $ 70,000 $ 70,000 $ -- $ --
======== ======== ======== ======== ========
DEPOSITS ACQUIRED IN PURCHASE
OF BRANCH................... $ -- $ -- $ -- $ -- $ 39,297
======== ======== ======== ======== ========
DEPOSITS RELINQUISHED IN SALE
OF BRANCH................... $ -- $ -- $ -- $ -- $(27,498)
======== ======== ======== ======== ========
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994 AND THE
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(INFORMATION WITH RESPECT TO THE SIX-MONTH PERIODS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

A. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations--The Bank operates seven branches throughout the New
York City boroughs of Bronx, Brooklyn, Queens and Nassau County. The Bank is a
community-oriented financial institution providing financial services and
loans for housing within its market area.

Summary of Significant Accounting Policies--The accounting and reporting
policies of The Dime Savings Bank of Williamsburgh and Subsidiaries (the
"Bank") conform to generally accepted accounting principles. The following is
a description of the significant policies:

Principles of Consolidation--The consolidated financial statements include
the accounts of the Bank and its wholly-owned subsidiaries, Havemeyer Equities
Corp. ("HEC"), Boulevard Funding Corp. ("BFC") and Havemeyer Brokerage Corp.
("HBC"). HEC is currently engaged in the sale of insurance and annuity
products primarily to the Bank's customers and members of the local community.
BFC and HBC were established in order to invest in real estate joint ventures
and other real estate assets. BFC and HEC had no investments in real estate at
December 31, 1995 and are currently inactive. All significant intercompany
accounts and transactions have been eliminated in consolidation.

Cash and Due from Banks--Cash and due from banks includes amounts
representing cash held in escrow on behalf of the Bank's mortgagors.

Investment Securities and Mortgage-Backed Securities--On July 1, 1994, the
Bank adopted SFAS No. 115, "Accounting for Investments in Debt and Equity
Securities" ("SFAS 115"). The Statement requires that debt and equity
securities that have readily determinable fair values be carried at fair value
unless they are held to maturity. Debt securities are classified as held to
maturity and carried at amortized cost only if the reporting entity has a
positive intent and ability to hold these securities to maturity. If not
classified as held to maturity, such securities are classified as securities
available for sale or as trading securities. Unrealized holding gains or
losses on securities available for sale are excluded from earnings and
reported net of income taxes as a separate component of equity. The effect of
adopting this statement was not material. At June 30, 1994, all debt
securities were carried at amortized cost and all equity securities were
carried at lower of cost or market.

Loans Held for Sale--Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of aggregate cost or estimated
market value.

Allowance for Loan Losses--It is the policy of the Bank to provide a
valuation allowance for estimated losses on loans based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations which may affect the borrower's ability to repay, estimated value
of underlying collateral and current economic conditions in the Bank's lending
area. The allowance is increased by provisions for loan losses charged to
operations and is reduced by charge-offs, net of recoveries. Management's
periodic evaluation of the adequacy of the allowance is based on the Bank's
past loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, and current economic conditions. While
management uses available information to estimate losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions beyond management's control. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the Bank's allowance for loan losses. Such agencies may require the
Bank to recognize additions to the allowance based on judgments different from
those of management. Management believes, based upon all relevant and
available information, that the allowance for loan losses is adequate to
absorb losses inherent in the portfolio.

F-5
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

On July 1, 1995, the Bank adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS
114"). The Statement requires all creditors to account for impaired loans,
except those loans that are accounted for at fair value or at the lower of
cost or fair value, at the present value of expected future cash flows
discounted at the loan's effective interest rate. As an expedient, creditors
may account for impaired loans at the fair value of the collateral or at the
observable market price of the loan if one exists. The adoption of SFAS No.
114, as amended by SFAS No. 118, did not have a material effect on the Bank's
financial condition or results of operations.

Loan Fees--Loan origination fees and certain direct loan origination costs
are deferred and amortized as a yield adjustment over the contractual loan
terms.

Other Real Estate Owned--Properties acquired through foreclosure, or a deed
in lieu of foreclosure, are recorded at the lower of fair value less estimated
costs to sell or cost.

Prior to July 1, 1995, the Bank was required to include in other real estate
owned loans which have been in substance foreclosed. Effective July 1, 1995,
the Bank adopted SFAS 114. The provisions of this Statement eliminated the
Bank's requirement to include in substance foreclosed loans in other real
estate, except where the Bank has physical possession of the collateral. In
substance foreclosed real estate is not material to the financial condition or
results of operations of the Bank.

Premises and Fixed Assets--Land is stated at original cost. Buildings and
furniture and equipment are stated at cost less accumulated depreciation.
Depreciation is computed by the straight-line method over the estimated useful
lives of the properties as follows:

<TABLE>
<S> <C>
Buildings......................................... 2.22% to 2.50% per year
Furniture and equipment........................... 10% per year
</TABLE>

Leasehold improvements are amortized over the remaining noncancelable terms
of the related leases.

Income Taxes--Pursuant to Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109"), on July 1, 1993, the Bank
changed prospectively from the deferred method to the liability method of
accounting for income taxes. The effect of the adoption of this standard is
reflected in the financial statements as the cumulative effect of adopting a
change in accounting principle.

Cash Flows--For purposes of the Consolidated Statement of Cash Flows, the
Bank considers cash and due from banks to be cash equivalents.

Recently Issued Accounting Standards--On July 1, 1995, the Bank adopted
Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." This Statement requires
accrual of postretirement benefits (such as health care benefits) during the
years an employee provides services. The cumulative effect of the adoption of
this standard on prior years was approximately $1,032 (after reduction for
income taxes of $879). As permitted by the Statement, the Bank elected to
record the full liability at the time of adoption.

F-6
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights." The Statement which amends Statement of Financial Accounting
Standards No. 65, "Accounting for Certain Mortgage Banking Activities,"
requires separate capitalization of the costs of rights to service mortgage
loans for others regardless of whether these rights are acquired through a
purchase or loan origination activity. Adoption of this Statement is required
for fiscal years beginning after December 15, 1995. Given the current level of
the Bank's mortgage banking activities, adoption of this Standard is not
expected to have a material effect upon the Bank's financial condition or
results of operations.

Unaudited Financial Information--Information as of December 31, 1995 and for
the six-month periods ended December 31, 1995 and 1994 is unaudited. The
unaudited information furnished reflects all adjustments, which consist solely
of normal recurring accruals, which are, in the opinion of management,
necessary for a fair presentation of the financial position at December 31,
1995 and the results of operations and cash flows for the six-month periods
ended December 31, 1995 and 1994. The results of the six-month periods are not
necessarily indicative of the results of the Bank which may be expected for
the entire year.

Use of Estimates in the Preparation of Financial Statements--The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Areas in the accompanying financial
statements where estimates are significant include the allowance for loans
losses and the carrying value of other real estate.

Reclassification--Certain June 30, 1995, 1994 and 1993 amounts have been
reclassified to conform to the December 31, 1995 presentation.

B. INVESTMENT SECURITIES HELD TO MATURITY AND AVAILABLE FOR SALE

The carrying value, gross unrealized gains and losses and estimated market
value of investment securities held to maturity at December 31, 1995 were as
follows:

<TABLE>
<CAPTION>
INVESTMENT SECURITIES HELD TO MATURITY
----------------------------------------
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Debt securities:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies.......... $14,012 $ 23 $(41) $13,994
Obligations of state and political
subdivisions....................... 2,078 53 -- 2,131
Corporate securities................ 25,627 91 (28) 25,690
Public utilities.................... 4,301 -- (19) 4,282
------- ---- ---- -------
$46,018 $167 $(88) $46,097
======= ==== ==== =======
</TABLE>

F-7
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

The amortized cost and estimated market value of investment securities held
to maturity at December 31, 1995, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.

<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less..................................... $21,173 $21,123
Due after one year through five years....................... 22,941 23,027
Due after five years through ten years...................... 479 515
Due after ten years......................................... 1,425 1,432
------- -------
$46,018 $46,097
======= =======
</TABLE>

During the six months ended December 31, 1995, calls of investment
securities held to maturity totaled $5,000. A gain of $56 was realized on
these calls. There were no sales of investment securities held to maturity
during the six months ended December 31, 1995.

The amortized cost, gross unrealized gains and losses and estimated market
value of investment securities available for sale at December 31, 1995 were as
follows:

<TABLE>
<CAPTION>
INVESTMENT SECURITIES AVAILABLE FOR SALE
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Debt securities:
U.S. Treasury securities and obli-
gations of U.S. government corpo-
rations and agencies.............. $17,207 $ 60 $ -- $17,267
Corporate securities............... 23,868 5 (32) 23,841
Public utilities................... 3,248 67 (9) 3,306
------- ---- ----- -------
44,323 132 (41) 44,414
Equity securities:
Mutual funds....................... 2,962 165 (134) 2,993
------- ---- ----- -------
$47,285 $297 $(175) $47,407
======= ==== ===== =======
</TABLE>

During the six months ended December 31, 1995, sales and calls of investment
securities available for sale totaled $696 and $4,500, respectively. A loss of
$195 resulted from the sales. No gain or loss resulted from the calls.

The amortized cost and estimated market value of investment securities
available for sale at December 31, 1995, by contractual maturity, are shown
below. Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.

<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less..................................... $20,306 $20,309
Due after one year through five years....................... 20,769 20,800
Due after five years through ten years...................... 1,251 1,256
Due after ten years......................................... 4,960 5,043
------- -------
$47,286 $47,408
======= =======
</TABLE>

F-8
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

The carrying value, gross unrealized gains and losses and estimated market
value of investment securities held to maturity at June 30, 1995 were as
follows:

<TABLE>
<CAPTION>
INVESTMENT SECURITIES HELD TO MATURITY
----------------------------------------
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Debt securities:
U.S. Treasury securities and obliga-
tions of U.S. government corpora-
tions and agencies................. $15,000 $ 2 $(170) $14,832
Obligations of state and political
subdivisions....................... 2,168 44 -- 2,212
Corporate securities................ 23,712 47 (150) 23,609
Public utilities.................... 10,595 82 (76) 10,601
------- ---- ----- -------
$51,475 $175 $(396) $51,254
======= ==== ===== =======
</TABLE>

The amortized cost and estimated market value of investment securities held
to maturity at June 30, 1995, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.

<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less............................... $13,175 $13,081
Due after one year through five years................. 31,113 30,886
Due after five years through ten years................ 1,675 1,700
Due after ten years................................... 5,512 5,587
------- -------
$51,475 $51,254
======= =======
</TABLE>

The amortized cost, gross unrealized gains and losses and estimated market
value of investment securities available for sale at June 30, 1995 were as
follows:

<TABLE>
<CAPTION>
INVESTMENT SECURITIES AVAILABLE FOR SALE
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Debt securities:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies......... $15,821 $ 50 $ (10) $15,861
Corporate securities............... 25,516 10 (47) 25,479
Public utilities................... 1,013 -- (4) 1,009
------- ---- ----- -------
42,350 60 (61) 42,349
------- ---- ----- -------
Equity securities:
Preferred stock.................... 694 -- (265) 429
Mutual funds....................... 2,610 99 (68) 2,641
------- ---- ----- -------
3,304 99 (333) 3,070
------- ---- ----- -------
$45,654 $159 $(394) $45,419
======= ==== ===== =======
</TABLE>

F-9
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

There were no calls or sales of investment securities held to maturity or
available for sale during the year ended June 30, 1995.

The amortized cost and estimated market value of investment securities
available for sale at June 30, 1995, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.

<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less............................... $21,565 $21,535
Due after one year through five years................. 20,785 20,814
Due after five years through ten years................ -- --
Due after ten years................................... 3,304 3,070
------- -------
$45,654 $45,419
======= =======
</TABLE>

The carrying value, gross unrealized gains and losses and estimated market
value of investment securities at June 30, 1994 were as follows:

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Debt securities:
U.S. Treasury securities and obliga-
tions of U.S. government corpora-
tions and agencies................. $18,989 $ 4 $ (309) $18,684
Obligations of state and political
subdivisions....................... 2,228 27 -- 2,255
Corporate securities................ 47,379 6 (684) 46,701
Public utilities.................... 11,746 30 (352) 11,424
------- ---- ------- -------
80,342 67 (1,345) 79,064
------- ---- ------- -------
Equity securities:
Preferred stock..................... 1,665 -- (307) 1,358
Valuation reserve................... (310) -- 310 --
------- ---- ------- -------
1,355 -- 3 1,358
------- ---- ------- -------
$81,697 $ 67 $(1,342) $80,422
======= ==== ======= =======
</TABLE>

Proceeds from calls on investment securities were approximately $11,420 for
the year ended June 30, 1994. Gross gains of approximately $342, were realized
on these calls.

There were no sales of investment securities during the year ended June 30,
1994.

F-10
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

C. MORTGAGE-BACKED SECURITIES HELD TO MATURITY AND AVAILABLE FOR SALE

The carrying value, gross unrealized gains and losses and the estimated
market value of mortgage-backed securities held to maturity at December 31,
1995 were as follows:

<TABLE>
<CAPTION>
MORTGAGE-
BACKED SECURITIES HELD TO MATURITY
----------------------------------------
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
GNMA pass-through certificates........ $22,533 $769 $-- $23,302
FHLMC pass-through certificates....... 28,030 140 (63) 28,107
FNMA pass-through certificates........ 3,723 47 -- 3,770
------- ---- ---- -------
$54,286 $956 $(63) $55,179
======= ==== ==== =======
</TABLE>

The amortized cost, gross unrealized gains and losses and the estimated
market value of mortgage-backed securities available for sale at December 31,
1995 were as follows:

<TABLE>
<CAPTION>
MORTGAGE-
BACKED SECURITIES AVAILABLE FOR SALE
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Collateralized mortgage
obligations............ $ 3,225 $ 48 $-- $ 3,273
FHLMC pass-through cer-
tificates.............. 23,147 635 (5) 23,777
FNMA pass-through cer-
tificates.............. 11,038 215 (5) 11,248
------- ---- ---- -------
$37,410 $898 $(10) $38,298
======= ==== ==== =======
</TABLE>

Collateralized mortgage obligations held at December 31, 1995, and June 30,
1995 and 1994 are backed by mortgage-backed securities guaranteed by FNMA and
FHLMC.

There were no sales of mortgage-backed securities held to maturity or
available for sale during the six months ended December 31, 1995.

The carrying value, gross unrealized gains and losses and the estimated
market value of mortgage-backed securities held to maturity at June 30, 1995
were as follows:

<TABLE>
<CAPTION>
MORTGAGE-
BACKED SECURITIES HELD TO MATURITY
----------------------------------------
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
GNMA pass-through certificates........ $24,402 $562 $ (4) $24,960
FHLMC pass-through certificates....... 28,429 28 (244) 28,213
FNMA pass-through certificates........ 984 15 -- 999
------- ---- ----- -------
$53,815 $605 $(248) $54,172
======= ==== ===== =======
</TABLE>

F-11
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

Proceeds from the sale of mortgage-backed securities held to maturity were
approximately $1,067 for the year ended June 30, 1995 and a gross loss of
approximately $11 was realized on these sales. The securities sold met the de
minimus exemption in SFAS No. 115, as their par value at date of sale was less
than 15% of their acquired par value.

The amortized cost, gross unrealized gains and losses and estimated market
value of mortgage-backed securities available for sale at June 30, 1995 were
as follows:

<TABLE>
<CAPTION>
MORTGAGE-
BACKED SECURITIES AVAILABLE FOR SALE
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Collateralized mortgage
obligations............ $ 3,836 $ 128 $ -- $ 3,964
FHLMC pass-through cer-
tificates.............. 26,458 710 -- 27,168
FNMA pass-through cer-
tificates.............. 6,434 167 -- 6,601
------- ------ ----- -------
$36,728 $1,005 $ -- $37,733
======= ====== ===== =======
</TABLE>

There were no sales of mortgage-backed securities available for sale during
the year ended June 30, 1995.

The carrying value, gross unrealized gains and losses and the estimated
market value of mortgage-backed securities held to maturity at June 30, 1994
were as follows:

<TABLE>
<CAPTION>
MORTGAGE-
BACKED SECURITIES HELD TO MATURITY
----------------------------------------
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
GNMA pass-through certificates........ $29,764 $ 4 $ (545) $29,223
FHLMC pass-through certificates....... 53,950 207 (1,147) 53,010
FNMA pass-through certificates........ 5,941 29 (5) 5,965
Collateralized mortgage obligations... 4,701 40 (2) 4,739
------- ---- ------- -------
$94,356 $280 $(1,699) $92,937
======= ==== ======= =======
</TABLE>

There were no sales of mortgage-backed securities during the year ended June
30, 1994.

D. LOANS

Real estate loans at December 31, 1995 and June 30, 1995 and 1994 consisted
of the following:

<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, ------------------
1995 1995 1994
------------ -------- --------
<S> <C> <C> <C>
One-to-four family............................. $ 54,006 $ 58,153 $ 58,777
Multi-family and underlying cooperative........ 267,839 252,436 242,088
Nonresidential................................. 33,850 26,972 26,896
F.H.A. insured mortgage loans.................. 16,158 18,890 23,166
V.A. guaranteed mortgage loans................. 2,865 3,171 4,098
Co-op loans.................................... 63,413 67,524 73,250
-------- -------- --------
438,131 427,146 438,275
Net unearned fees.............................. (1,306) (1,181) (1,298)
-------- -------- --------
$436,825 $425,965 $426,977
======== ======== ========
</TABLE>

F-12
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

Other loans at December 31, 1995, and June 30, 1995 and 1994 consisted of
the following:

<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, --------------
1995 1995 1994
------------ ------ ------
<S> <C> <C> <C>
Student loans.................................... $1,220 $1,431 $1,506
Passbook loans (secured by savings and time de-
posits)......................................... 1,550 1,510 1,516
Consumer installment loans....................... 348 336 362
Home improvement loans........................... 661 475 550
------ ------ ------
3,779 3,752 3,934
Unearned discount................................ -- (1) (1)
------ ------ ------
$3,779 $3,751 $3,933
====== ====== ======
</TABLE>

A concentration of credit risk exists within the Bank's loan portfolio, as
the majority of real estate loans are collateralized by properties located in
New York City and Long Island.

The Bank originates both adjustable and fixed interest rate real estate
loans. At December 31, 1995, the approximate composition of these loans was as
follows:

<TABLE>
<CAPTION>
FIXED RATE
----------
TERM TO MATURITY BOOK VALUE
---------------- ----------
<S> <C>
1 month-1 year.......... $ 12,586
1 year-3 years.......... 38,524
3 years-5 years......... 34,174
5 years-10 years........ 22,543
Over 10 years........... 17,162
--------
$124,989
========
</TABLE>
<TABLE>
<CAPTION>
ADJUSTABLE RATE
---------------
TERM OF ADJUSTMENT BOOK VALUE
------------------ ----------
<S> <C>
1 month-1 year.......... $123,826
1 year-2 years.......... 41,788
2 years-3 years......... 36,934
3 years-5 years......... 111,019
--------
$313,567
========
</TABLE>

The adjustable rate loans have interest rate adjustment limitations and are
generally indexed to the Federal Home Loan Bank of New York five-year
borrowing funds rate, the one-year constant maturity Treasury index, or the
Federal Home Loan Bank national mortgage contract rate.

Loans on which the accrual of interest has been discontinued or reduced
amounted to approximately $7,626, $5,073 and $6,248 at December 31, 1995 and
June 30, 1995 and 1994, respectively. If interest on those loans had been
accrued, interest income would have been increased by approximately $217 for
the six months ended December 31, 1995 and $325 and $565 for the years ended
June 30, 1995 and 1994, respectively.

The Bank had outstanding loans considered troubled-debt restructurings of
$5,043, $7,651 and $7,421 at December 31, 1995 and June 30, 1995 and 1994,
respectively. Income recognized on these loans was approximately $185, $587
and $495 for the six months ended December 31, 1995, and the years ended June
30, 1995 and 1994, respectively, compared to interest income of $256, $797 and
$788 calculated under the original terms of the loans for the six months ended
December 31, 1995 and the years ended June 30, 1995 and 1994, respectively.

F-13
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

At December 31, 1995, the recorded investment in loans for which impairment
has been recognized under the guidance of SFAS No. 114 was approximately
$6,337. The average balance of impaired loans was approximately $6,455 for the
six months ended December 31, 1995. The impaired portion of these loans is
represented by a specific reserve totaling $932 allocated within the allowance
for loan losses at December 31, 1995. Net principal received and interest
income recognized on impaired loans during the six months ended December 31,
1995 was not material. Loans identified as impaired for which no reserves were
provided approximated $289 at December 31, 1995.

The following assumptions were utilized in evaluating the loan portfolio
pursuant to the provisions of SFAS No. 114:

Homogenous Loans--One-to-four family residential mortgage loans and loans on
cooperative apartments having a balance of less than $203 and consumer loans
are considered to be small balance homogenous loan pools and, accordingly, are
not covered by SFAS No. 114.

Loans Evaluated for Impairment--All nonhomogeneous loans greater than $1,000
are individually evaluated for potential impairment. Additionally, residential
mortgage loans exceeding $203 and delinquent in excess of 60 days are
evaluated for impairment. At December 31, 1995, there were no such loans which
were delinquent in excess of 60 days. A loan is considered impaired when it is
probable that all contractual amounts due will not be collected in accordance
with the terms of the loan. A loan is not deemed to be impaired if a delay in
receipt of payment is expected to be less than 30 days or if, during a longer
period of delay, the Bank expects to collect all amounts due, including
interest accrued at the contractual rate during the period of the delay.
Factors considered by management include the property location, economic
conditions, and any unique circumstances effecting the loan. At December 31,
1995, all impaired loans were on nonaccrual status. In addition, at December
31, 1995, approximately $1,289 of one to four family residential mortgage
loans and loans on cooperative apartments with a balance of less than $203
were on nonaccrual status. These loans are considered as a homogeneous loan
pool not covered by SFAS No. 114.

Reserves and Charge-Offs--The Bank allocates a portion of its total
allowance for loan losses to loans deemed impaired under SFAS No. 114. All
charge-offs on impaired loans are recorded as a reduction in both loan
principal and the allowance for loan losses. Management evaluates the adequacy
of its allowance for loan losses on a regular basis. At December 31, 1995,
management believes that its allowance is adequate to provide for losses
inherent in the total loan portfolio, including impaired loans.

Measurement of Impairment--Due to the composition of the Bank's loan
portfolio, the fair value of collateral is utilized to measure virtually all
of the Bank's impaired loans.

Income Recognition--Accrual of interest is discontinued on loans identified
as impaired and past due ninety days. Subsequent cash receipts are applied
initially to the outstanding loan principal balance. Additional receipts
beyond the recorded outstanding balance at the time interest is discontinued
are recorded as recoveries in the Bank's allowance for loan losses.

F-14
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

Changes in the allowance for loan losses for the six months ended December
31, 1995 and 1994 and the years ended June 30, 1995, 1994 and 1993 were as
follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEARS ENDED JUNE 30,
----------------- -------------------------
1995 1994 1995 1994 1993
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance, beginning of period..... $ 5,174 $ 3,633 $ 3,633 $ 2,996 $ 2,094
Provision charged to opera-
tions......................... 950 1,475 2,950 4,105 3,395
Loans charged off.............. (419) (1,043) (1,656) (3,535) (2,535)
Recoveries..................... 5 110 247 67 42
------- -------- ------- ------- -------
Balance, end of period........... $ 5,710 $ 4,175 $ 5,174 $ 3,633 $ 2,996
======= ======== ======= ======= =======
</TABLE>

E. REAL ESTATE OWNED

Changes in the valuation allowance for losses on real estate owned for the
six months ended December 31, 1995 is summarized as follows:

<TABLE>
<S> <C>
Balance, beginning of period........................................ $--
Provision charged to operations..................................... 250
Losses on sales of real estate owned................................ (84)
----
Balance, end of period.............................................. $166
====
</TABLE>

Prior to July 1, 1995, no valuation allowance for real estate owned was
maintained by the Bank.

F. MORTGAGE SERVICING ACTIVITIES

At December 31, 1995 and 1994 and June 30, 1995, 1994 and 1993, the Bank was
servicing loans for others having principal amounts outstanding of
approximately $95,223, $94,826, $93,456, $99,459 and $103,482, respectively.
Servicing loans for others generally consists of collecting mortgage payments,
maintaining escrow accounts, disbursing payments to investors and foreclosure
processing. In connection with these loans serviced for others, the Bank held
borrowers' escrow balances of approximately $1,188, $1,192, $1,440 and $1,452
and $1,247 at December 31, 1995 and 1994 and June 30, 1995, 1994 and 1993,
respectively.

G. PREMISES AND FIXED ASSETS

The following is a summary of premises and fixed assets at December 31, 1995
and June 30, 1995 and 1994:

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
DECEMBER 31, ----------------------
1995 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
Land..................................... $ 990 $ 990 $ 990
Buildings................................ 6,068 6,033 5,956
Leasehold improvements................... 1,206 1,200 1,197
Furniture and equipment.................. 2,910 2,881 2,836
------- ---------- ----------
11,174 11,104 10,979
Less accumulated depreciation and amorti-
zation.................................. (5,410) (5,183) (4,724)
------- ---------- ----------
$ 5,764 $ 5,921 $ 6,255
======= ========== ==========
</TABLE>

F-15
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

Depreciation and amortization expense amounted to approximately $226 and
$231, for the six months ended December 31, 1995 and 1994, respectively, and
$459, $465 and $448 for the years ended June 30, 1995, 1994 and 1993,
respectively.

H. FEDERAL HOME LOAN BANK OF NEW YORK--CAPITAL STOCK

The Bank is a Savings Bank Member of the Federal Home Loan Bank of New York
(FHLBNY). Membership requires the purchase of shares of FHLBNY capital stock
at $100 per share. The Bank owned 48,006, 48,006 and 49,887 shares at December
31, 1995 and June 30, 1995 and 1994, respectively. The FHLBNY paid dividends
on the capital stock of 7.4% and 7.0% during the six months ended December 31,
1995 and 1994 and 7.5%, 8.5% and 9.5% during the years ended June 30, 1995,
1994 and 1993, respectively.

I. DUE TO DEPOSITORS

Deposits are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1995 JUNE 30, 1994
------------------- ------------------- -------------------
EFFECTIVE EFFECTIVE EFFECTIVE
COST LIABILITY COST LIABILITY COST LIABILITY
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Savings accounts:
Day of deposit/day of
withdrawal........... 2.53% $229,981 2.53% $237,957 2.53% $294,134
Club accounts......... 2.53 95 2.53 260 2.53 253
-------- -------- --------
Subtotal............ 230,076 238,217 294,387
-------- -------- --------
Certificates of deposit:
3-month............. 4.29 6,911 4.55 5,516 2.93 9,469
4-month............. 4.31 1,041 4.60 1,308 2.80 1,745
6-month............. 4.93 36,071 5.64 41,373 2.98 37,438
9-month............. 5.52 39,537 6.27 36,770 3.13 12,001
1-year.............. 5.93 77,326 5.67 80,087 3.23 61,101
Over 1 year to 3
years.............. 6.09 84,079 5.92 71,541 4.25 50,046
Over 3 years to 5
years.............. 6.43 39,960 6.45 38,561 6.03 34,552
-------- -------- --------
Subtotal.......... 284,925 275,156 206,352
-------- -------- --------
Money market accounts... 2.69 15,783 2.69 16,698 2.70 22,145
-------- -------- --------
NOW accounts............ 1.51 15,004 1.51 13,877 1.49 13,596
-------- -------- --------
Super NOW accounts...... 1.51 485 1.51 674 1.51 416
-------- -------- --------
Checking accounts....... -- 10,811 -- 10,219 -- 9,865
-------- -------- --------
4.14% $557,084 4.12% $554,841 2.97% $546,761
==== ======== ==== ======== ==== ========
</TABLE>

The remaining maturity distribution of time deposits at December 31, 1995
and June 30, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, -----------------
1995 1995 1994
------------ -------- --------
<S> <C> <C> <C>
Maturity in three months or less............. $ 70,801 $ 58,063 $ 55,183
Over 3 through 6 months...................... 49,945 58,093 43,174
Over 6 through 12 months..................... 69,908 68,459 51,116
Over 12 months............................... 94,271 90,541 56,879
-------- -------- --------
Total time deposits........................ $284,925 $275,156 $206,352
======== ======== ========
</TABLE>

F-16
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

The aggregate amount of time deposits with a minimum denomination of $100
was approximately $22,897, $21,659 and $17,221 at December 31, 1995 and June
30, 1995 and 1994, respectively.

Certificates of deposit greater than $100 are not insured by the Bank
Insurance Fund of the Federal Deposit Insurance Corporation for the amount
over $100.

The aggregate amount of noninterest-bearing deposits, including escrow
deposits, was approximately $14,894, $19,848 and $21,179 at December 31, 1995,
and June 30, 1995 and 1994, respectively.

J. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

The Bank has sold certain municipal securities with an average coupon rate
of 7.5% under agreements to repurchase. The transactions were accounted for as
borrowings since the securities can be put back to the Bank under certain
conditions. The amounts outstanding at December 31, 1995, June 30, 1995 and
1994 were $2,024, $2,110 and $2,161, respectively. The transactions were
further collateralized by GNMA/FNMA certificates with a carrying value of
$2,517, $2,767 and $3,215, and an approximate market value of $2,617, $2,843
and $3,192, at December 31, 1995, June 30, 1995 and June 30, 1994,
respectively.

K. FEDERAL HOME LOAN BANK OF NEW YORK ADVANCES

The Bank had borrowings ("Advances") from the Federal Home Loan Bank of New
York totaling $15,710 at December 31, 1995 and June 30, 1995 and 1994,
respectively. The advances mature within five years and bear interest at an
average rate of 5.40%. At December 31, 1995, in accordance with the Advances,
Collateral Pledge and Security Agreement, the Bank maintained in excess of
$15,710 of qualifying collateral (principally bonds and mortgage-backed
securities), as defined, to secure such advances.

L. INCOME TAXES

Effective July 1, 1993, the Bank adopted SFAS 109. Pursuant to SFAS 109,
deferred income taxes are provided for temporary differences in the bases of
certain assets and liabilities for income tax and financial reporting
purposes. The cumulative effect on prior years of the adoption of SFAS 109 was
an increase in the deferred tax liability of $383.

Federal and state and city tax provisions for the six months ended December
31, 1995 and 1994 and for the years ended June 30, 1995, 1994 and 1993 is
comprised of the following:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, 1995
-------------------------------
FEDERAL STATE AND CITY TOTAL
------- -------------- -------
<S> <C> <C> <C>
Current......................................... $2,790 $1,674 $ 4,464
Deferred........................................ (598) (419) (1,017)
------ ------ -------
$2,192 $1,255 $ 3,447
====== ====== =======
</TABLE>

F-17
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994 AND THE
YEARS ENDED JUNE 30, 1995, 1994 AND 1993--(CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX-MONTH PERIODS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,1994
------------------------------
FEDERAL STATE AND CITY TOTAL
------- -------------- ------
<S> <C> <C> <C>
Current.......................................... $2,022 $1,216 $3,238
Deferred......................................... 326 228 554
------ ------ ------
$2,348 $1,444 $3,792
====== ====== ======
<CAPTION>
YEAR ENDED
JUNE 30, 1995
------------------------------
FEDERAL STATE AND CITY TOTAL
------- -------------- ------
<S> <C> <C> <C>
Current.......................................... $4,328 $2,416 $6,744
Deferred......................................... (314) 191 (123)
------ ------ ------
$4,014 $2,607 $6,621
====== ====== ======
<CAPTION>
YEAR ENDED
JUNE 30, 1994
------------------------------
FEDERAL STATE AND CITY TOTAL
------- -------------- ------
<S> <C> <C> <C>
Current.......................................... $5,758 $3,183 $8,941
Deferred......................................... (537) (193) (730)
------ ------ ------
$5,221 $2,990 $8,211
====== ====== ======
<CAPTION>
YEAR ENDED
JUNE 30, 1993
------------------------------
FEDERAL STATE AND CITY TOTAL
------- -------------- ------
<S> <C> <C> <C>
Current.......................................... $5,833 $2,783 $8,616
Deferred......................................... (63) (23) (86)
------ ------ ------
$5,770 $2,760 $8,530
====== ====== ======
</TABLE>

The components of Federal and net State and City deferred income taxes as of
December 31, 1995 and June 30, 1995 and 1994, respectively, were as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------
FEDERAL STATE AND CITY
------- --------------
<S> <C> <C>
Deferred loan fees.................................... $ 71 $ 45
Excess book (tax) bad debts over (tax) book bad
debts................................................ 2,714 (1,607)
Reserve for loss on investments....................... 171 107
Tax effect of unrealized gain on securities available
for sale............................................. (283) (181)
Accumulated postretirement benefit obligation......... 576 361
Other................................................. 16 --
------ -------
Deferred tax asset (liability)........................ $3,265 $(1,275)
====== =======
</TABLE>

F-18
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994 AND THE
YEARS ENDED JUNE 30, 1995, 1994 AND 1993--(CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX-MONTH PERIODS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, 1995
-----------------------
FEDERAL STATE AND CITY
------- --------------
<S> <C> <C>
Deferred loan fees.................................... $ 100 $ 63
Excess book (tax) bad debts over (tax) book bad
debts................................................ 2,639 (1,707)
Reserve for loss on investments....................... 163 104
Tax effect of unrealized gain on securities available
for sale............................................. (216) (139)
Other................................................. 47 28
------ -------
Deferred tax asset (liability)........................ $2,733 $(1,651)
====== =======
<CAPTION>
JUNE 30, 1994
-----------------------
FEDERAL STATE AND CITY
------- --------------
<S> <C> <C>
Deferred loan fees.................................... $ 400 $ 252
Excess book (tax) bad debts over (tax) book bad
debts................................................ 2,500 (1,796)
Other................................................. (265) 223
------ -------
Deferred tax asset (liability)........................ $2,635 $(1,321)
====== =======
</TABLE>

The provision for income taxes for the six months ended December 31, 1995
and 1994 and for the years ended June 30, 1995, 1994 and 1993 differs from
that computed at the Federal statutory rate as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
DECEMBER 31, JUNE 30,
------------------ ----------------------
1995 1994 1995 1994 1993
-------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Tax at Federal statutory rate..... $ 2,639 $ 3,005 $5,266 $6,186 $6,028
State and local taxes, net of Fed-
eral income tax benefit.......... 816 939 1,694 1,944 1,822
Reserve for loss on sale of
loans............................ -- -- (185) -- --
Excess book bad debts over tax bad
debts............................ -- -- -- -- 295
Reversal of valuation allowance
for sale of securities........... -- (86) (86) -- --
Other, net........................ (8) (66) (68) 81 385
-------- -------- ------ ------ ------
$ 3,447 $ 3,792 $6,621 $8,211 $8,530
======== ======== ====== ====== ======
Effective rate.................... 45.7% 44.2% 44.0% 46.5% 48.1%
======== ======== ====== ====== ======
</TABLE>

Retained earnings at December 31, 1995 include approximately $7,617 for
which no provision for income taxes has been made. This amount represents an
allocation of income to bad debts deducted prior to January 1, 1988 for tax
purposes only. Reduction of amounts so allocated for purposes other than tax
bad debt losses or adjustments arising from carryback of net operating losses
would create income for tax purposes only, which would be subject to the
income tax rates then in effect.

M. EMPLOYEE BENEFIT PLANS

Retirement Plan--The Bank is a participant in a noncontributory defined
benefit retirement plan with the Savings Bank Retirement System. Substantially
all full-time employees are eligible for participation after one year of
service. In addition, a participant must be at least 21 years of age at the
date of enrollment.

F-19
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

The retirement cost (benefit) for the pension plan includes the following
components:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEARS ENDED JUNE 30,
------------------ ----------------------
1995 1994 1995 1994 1993
-------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Service cost........................ $ 95 $ 121 $ 216 $ 231 $ 219
Interest cost....................... 237 218 455 428 420
Actual return on plan assets........ (250) 23 (227) (339) (448)
Net amortization and deferral....... (35) (290) (325) (177) (49)
-------- -------- ------ ------ ------
Net periodic pension cost........... $ 47 $ 72 $ 119 $ 143 $ 142
======== ======== ====== ====== ======
</TABLE>

The funded status of the plan as of December 31, 1995, June 30, 1995 and
1994 was as follows:

<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, ---------------
1995 1995 1994
------------ ------ -------
<S> <C> <C> <C>
Accumulated benefit obligation, including vested
benefits of $5,563, $5,037 and $5,113,
respectively.................................... $5,858 $5,304 $ 5,394
====== ====== =======
Projected benefit obligation..................... $6,746 $6,180 $ 6,682
Plan assets at fair value (investments in trust
funds managed by RSI)........................... 6,670 6,284 5,412
------ ------ -------
Excess (deficiency) of plan assets over projected
benefit obligation.............................. (76) 104 (1,270)
Unrecognized loss from experience different from
that assumed.................................... 947 747 1,839
Unrecognized net transition asset................ (214) (261) (356)
Unrecognized net past service liability.......... (268) (284) 2
------ ------ -------
Prepaid retirement expense included in other
assets.......................................... $ 389 $ 306 $ 215
====== ====== =======
</TABLE>

Major assumptions utilized at December 31, 1995, June 30, 1995 and 1994 are
as follows:

<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, ----------
1995 1995 1994
------------ ---- ----
<S> <C> <C> <C>
Discount rate.......................................... 7.50% 8.25% 7.00%
Rate of increase in compensation levels................ 5.50 6.00 5.50
Expected long-term rate on plan assets................. 9.00 9.00 9.00
</TABLE>

Supplemental Executive Retirement Plan ("SERP")--The Bank established a
Supplemental Executive Retirement Plan ("SERP") for its executive officers.
The SERP was established to compensate the executive officers for any
curtailments in benefits due to the statutory limitations on benefit plans.
The SERP exists as a nonqualified plan which supplements the existing
qualified plans. Defined benefit and defined contribution costs are incurred
annually related to the SERP.

The defined benefit cost for the SERP plan for the six months ended December
31, 1995 and 1994 and the years ended June 30, 1995 and 1994 includes the
following components:

F-20
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

There were no defined contribution costs incurred by the Bank related to the
SERP plan for the six months ended December 31, 1995 and 1994. The defined
contribution costs incurred by the Bank related to the SERP plan for the years
ended June 30, 1995 and 1994 were $20 and $19, respectively.

The funded status of the defined benefit portion of the plan as of December
31, 1995, June 30, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------
DECEMBER 31,
1995 1995 1994
------------ ----- -----
<S> <C> <C> <C>
Accumulated benefit obligation, fully vested at De-
cember 31, 1995, June 30, 1995 and June 30, 1994,
respectively....................................... $ 348 $ 165 $ 262
======= ===== =====
Projected benefit obligation........................ $ 1,445 $ 870 $ 894
Plan assets at fair value........................... -- -- --
------- ----- -----
Deficiency of plan assets over projected benefit ob-
ligation........................................... (1,445) (870) (894)
Unrecognized loss from experience different from
that assumed....................................... 748 230 407
Unrecognized net past service liability............. 330 343 370
------- ----- -----
Accrued retirement expense included in other liabil-
ities.............................................. $ (367) $(297) $(117)
======= ===== =====
</TABLE>

Major assumptions utilized at December 31, 1995, June 30, 1995 and 1994 are
as follows:
<TABLE>
<CAPTION>
JUNE 30,
----------
DECEMBER 31,
1995 1995 1994
------------ ---- ----
<S> <C> <C> <C>
Discount rate.......................................... 7.50% 8.25% 7.00%
Rate of increase in compensation levels................ 5.50 6.00 5.50
</TABLE>

401(k) Plan--The Bank also has a 401(k) plan which covers substantially all
employees. Under such plan the Bank matches 50% of each participant's
contribution up to 6% of the participant's annual compensation for the first
four years of participation and thereafter 100% of the participant's
contribution up to a maximum of 6%. Participation in the 401(k) plan is
voluntary. A salaried employee becomes eligible for the plan after completion
of one year of service. The Bank contributed approximately $85 and $85 for the
six months ended December 31, 1995 and 1994, respectively, and $190, $170 and
$153 for the years ended June 30, 1995, 1994 and 1993, respectively, to the
plan.

The Bank offers additional postretirement benefits to its retired employees
who have provided at least five (5) consecutive years of credited service and
were active employees prior to April 1, 1991, as follows:

(1) Employees who retired prior to April 1, 1991 receive full medical
coverage in effect until their death at no cost to such retirees;

F-21
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

(2) Eligible employees retiring after April 1, 1991 will be eligible for
continuation of their medical coverage in effect at the time of such
employees' retirement until their death. Throughout an employee's
retirement, the Bank will continue to pay the premiums for this coverage up
to the premium amount paid for the first year of retirement coverage.
Should the premiums increase, the employee will have to pay the
differential to maintain full medical coverage.

Postretirement medical benefits are only available to those full-time
employees who, upon termination of service, start collecting retirement
benefits immediately from the Bank. The Bank reserves the right at any time,
and to the extent permitted by law, to change, terminate or discontinue any of
the group benefits, and can exercise the maximum discretion permitted by law,
in administering, interpreting, modifying or taking any other action with
respect to the plan or benefits.

The Bank accrues the cost of such benefits during the years an employee
renders the necessary service. The Bank adopted Statement of Financial
Accounting Standards No. 106, "Accounting for Postretirement Benefits Other
than Pensions," effective July 1, 1995. The Bank elected to record the full
accumulated postretirement benefit obligation upon adoption. This resulted in
a cumulative effect adjustment of $1,032 (after reduction for income taxes of
$879), which is shown in the consolidated statement of income for the six
months ended December 31, 1995.

The postretirement cost for the plan for the six months ended December 31,
1995 includes the following components:

<TABLE>
<S> <C>
Service cost........................................................ $ 31
Interest cost....................................................... 83
----
Net periodic postretirement cost.................................... $114
====
</TABLE>

The funded status of the plan as of December 31, 1995 was as follows:

<TABLE>
<S> <C>
Accumulated postretirement benefit obligation:
Retirees........................................................... $ 1,164
Fully eligible active participants................................. 154
Other active participants.......................................... 895
-------
Total............................................................ 2,213
Plan assets at fair value............................................ --
-------
Deficiency of plan assets over accumulated benefit obligation (funded
status)............................................................. (2,213)
Unrecognized loss.................................................... 171
-------
Accrued postretirement benefit obligation............................ $ 2,042
=======
</TABLE>

The assumed medical cost trend rates used in computing the accumulated
postretirement benefit obligation was 10% in 1995 and was assumed to decrease
gradually to 5.5% in 2005 and to remain at that level thereafter. Increasing
the assumed medical care cost trend rates by 1% in each year would increase
the accumulated postretirement benefit obligation by approximately $167.

The assumed discount rate and rate of compensation increase used to measure
the accumulated postretirement benefit obligation at December 31, 1995 were
7.5% and 5.5%, respectively.

F-22
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

N. COMMITMENTS AND CONTINGENCIES

Mortgage Loan Commitments and Lines of Credit--At December 31, 1995, June
30, 1995 and 1994, the Bank had outstanding commitments to make mortgage loans
aggregating approximately $26,625, $26,163 and $12,755, respectively.

At December 31, 1995, commitments to originate fixed rate and adjustable
rate mortgage loans were $825 and $25,800, respectively.

Interest rates on fixed rate commitments ranged between 7.625% to 8.0%.
Substantially all of the Bank's commitments will expire within two months.

The Bank had available at December 31, 1995 unused lines of credit with the
Federal Home Loan Bank of New York totaling $64,165, expiring on August 8,
1996.

Lease Commitments--At December 31, 1995, aggregate net minimum annual rental
commitments on leases are as follows:

<TABLE>
<CAPTION>
CALENDAR YEAR ENDING: AMOUNT
--------------------- ------
<S> <C>
1996............................................................ $ 270
1997............................................................ 155
1998............................................................ 158
1999............................................................ 172
2000............................................................ 184
Thereafter........................................................ 454
------
$1,393
======
</TABLE>

Net rental expense for the six months ended December 31, 1995 and 1994 and
for the years ended June 30, 1995, 1994 and 1993 approximated $141, $134,
$267, $206 and $240, respectively.

Outstanding Claims with Nationar--On February 8, 1995 the New York State
Banking Department took possession of Nationar. At that time, the Bank had
$2,500 invested in Nationar, comprised of approximately $1,900 in cash demand
accounts and Federal funds sold and approximately $566 in debenture bonds and
stock. At December 31, 1995 and June 30, 1995, a reserve of approximately $640
has been provided which is allocated primarily to the debenture bonds and
stock investments. While the ultimate amount of the loss may differ from the
amount provided, the current allowance is consistent with the Bank's internal
policy for establishing valuation allowances. As the liquidation of Nationar's
assets progresses, it may become necessary to make adjustments to the
allowances. Management is working with legal counsel to maximize the recovery
of the Bank's assets held by Nationar.

O. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Bank using available market
information and appropriate valuation methodologies. However, considerable
judgment is required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Bank could realize in a current market exchange.
The use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts.

F-23
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

Investment Securities, Securities Available for Sale and Mortgage-Backed
Securities--The fair value of these securities is based on quoted market
prices obtained from an independent pricing service.

Federal Funds Sold--The fair value of these assets, principally overnight
deposits, is assumed to be equal to their carrying value due to their short
maturity.

Federal Home Loan Bank of New York (FHLBNY) Stock--The fair value of FHLBNY
stock is assumed to be equal to the carrying value as the stock is carried at
par value and redeemable at par value by the FHLBNY.

Loans and Loans Held for Sale--The fair value of approximately 4.0% of loans
receivable is determined by utilizing secondary market prices. The fair value
of the remainder of the portfolio is determined by discounting the future cash
flows, net of prepayments of the loans using a rate for which similar loans
would be originated to new borrowers with similar terms.

Deposits--The fair value of savings, money market, NOW, Super NOW and
checking accounts is assumed to be their carrying amount. The fair value of
certificates of deposit is based upon the current rates for instruments of the
same remaining maturity.

Escrow, Other Deposits and Borrowed Funds--The estimated fair value of
escrow, other deposits and borrowed funds is assumed to be their carrying
amount.

Other Liabilities--The estimated fair value of other liabilities, which
primarily include trade accounts payable, is assumed to be their carrying
amount.

Commitments to Extend Credit--The fair value of 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 estimated fair values of the Bank's financial instruments at December
31, 1995, June 30, 1995 and 1994 were as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
CARRYING FAIR
AMOUNT VALUE
-------- --------
<S> <C> <C>
Assets:
Investment securities held to maturity.................... $ 46,018 $ 46,097
Investment securities available for sale.................. 47,407 47,407
Mortgage-backed securities held to maturity............... 54,286 55,179
Mortgage-backed securities available for sale............. 38,298 38,298
Loans and loans held for sale............................. 441,029 443,119
Federal funds sold........................................ 12,802 12,802
FHLB stock................................................ 4,801 4,801
Liabilities:
Savings, money market, NOW, Super NOW and checking ac-
counts .................................................. 272,159 272,159
Certificates of deposit................................... 284,925 283,878
Escrow, other deposits and borrowed funds................. 24,667 24,667
Other liabilities......................................... 3,178 3,178
Off-balance-sheet liability--commitments to extend credit... -- (224)
</TABLE>

F-24
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994 AND THE
YEARS ENDED JUNE 30, 1995, 1994 AND 1993--(CONTINUED)
(INFORMATION WITH RESPECT TO THE SIX-MONTH PERIODS ENDED
DECEMBER 31, 1995 AND 1994 IS UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, 1995
-----------------
CARRYING FAIR
AMOUNT VALUE
-------- --------
<S> <C> <C>
Assets:
Investment securities held to maturity.................... $ 51,475 $ 51,254
Investment securities available for sale.................. 45,419 45,419
Mortgage-backed securities held to maturity............... 53,815 54,172
Mortgage-backed securities available for sale............. 37,733 37,733
Loans and loans held for sale............................. 429,854 427,895
Federal funds sold........................................ 17,809 17,809
FHLB stock................................................ 4,801 4,801
Liabilities:
Savings, money market, NOW, Super NOW and checking ac-
counts................................................... 279,685 279,685
Certificates of deposit................................... 275,156 274,020
Escrow, other deposits and borrowed funds................. 29,929 29,929
Other liabilities......................................... 902 902
Off-balance-sheet liability--commitments to extend credit... -- (56)
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1994
-----------------
CARRYING FAIR
AMOUNT VALUE
-------- --------
<S> <C> <C>
Assets:
Investment securities held to maturity.................... $ 81,697 $ 80,422
Investment securities available for sale.................. -- --
Mortgage-backed securities held to maturity............... 94,356 92,937
Mortgage-backed securities available for sale............. -- --
Loans and loans held for sale............................. 431,593 431,167
Federal funds sold........................................ 7,029 7,029
FHLB stock................................................ 4,989 4,989
Liabilities:
Savings, money market, NOW, Super NOW and checking ac-
counts................................................... 340,409 340,409
Certificates of deposit................................... 206,352 205,764
Escrow, other deposits and borrowed funds................. 31,167 31,167
Other liabilities......................................... 611 611
Off-balance-sheet liability--commitments to extend credit... -- (101)
</TABLE>

P. REGULATORY MATTERS

At June 30, 1995 and 1994, the Bank was required under the FDIC risk-based
capital regulations to have minimum Tier 1 and total risk-based capital ratios
of 4% and 8%, respectively. The Bank's actual ratios were 20.93% and 22.18%,
at June 30, 1995 and 18.81% and 19.83%, at June 30, 1994. Under the FDIC
capital regulations, the minimum leverage ratio is 3% for banks with the
highest regulatory examination ratings and not contemplating or experiencing
significant growth or expansion. All other banks are required to maintain a
minimum leverage ratio of at least 1-2% above the stated minimum. The Bank's
leverage ratio was 11.63% and 10.51% at June 30, 1995 and 1994, respectively.

F-25
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

Effective November 1, 1995, the Bank converted from a state-chartered mutual
savings bank to a Federally chartered mutual savings bank. The Bank's primary
regulator is the Office of Thrift Supervision ("OTS"). Under OTS capital
regulations, the Bank is required to maintain minimum tangible capital, core
capital and total risk-based capital to risk of adjusted assets ratios of
1.5%, 3% and 8%, respectively. At December 31, 1995, the Bank's tangible, core
and total risk-adjusted capital ratios were 11.97%, 11.99% and 22.31%,
respectively, exceeding the OTS minimum requirements by 10.47%, 9.07% and
14.31%, respectively. Under its prompt corrective action regulations, the OTS
is required to take certain supervisory actions with respect to
undercapitalized institutions. These regulations establish a framework for the
classification of depository institutions into five capital categories--well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. Generally, an institution is
considered well capitalized if it has a leverage ratio of core capital of at
least 5.0%, a Tier I risk-based capital ratio of at least 6.0% and a total
risk-based capital ratio of at least 10.0%. At December 31, 1995, the Bank
exceeded the OTS requirements for a well capitalized institution. The Bank's
deposit accounts will continue to be insured by the Bank Insurance Fund of the
FDIC to the extent applicable by law.

The following is a reconciliation of generally accepted accounting
principles (GAAP) capital to regulatory capital for the Bank:

<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------
RISK-
TANGIBLE CORE BASED
CAPITAL CAPITAL CAPITAL
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
GAAP capital........................................ $80,258 $80,258 $80,258
------- ------- -------
Non-allowable assets:
Core deposit intangible........................... (169) -- (169)
Unrealized gain on AFS securities................. (545) (545) (545)
General valuation allowance....................... -- -- 4,721
------- ------- -------
Regulatory capital.................................. 79,544 79,713 84,265
Minimum capital requirement......................... 9,967 19,939 30,213
------- ------- -------
Regulatory capital--excess.......................... $69,577 $59,774 $54,052
======= ======= =======
</TABLE>

Q. CONVERSION TO STOCK FORM OF OWNERSHIP (UNAUDITED)

On November 1, 1995, the Board of Directors adopted a Plan of Conversion
("Plan") whereby the Bank will convert from a Federally chartered mutual
savings bank to a Federally chartered stock savings bank. The Plan is subject
to approval of regulatory authorities and members at a special meeting. The
Bank has the option to discontinue the conversion if the acquisition described
in Note Q below is not consummated in accordance with its terms. The stock of
the Bank will be issued to a holding company formed in connection with the
conversion. Pursuant to the Plan, shares of the holding company are expected
to be offered initially for subscription by eligible members of the Bank and
certain other persons as of specified dates subject to various subscription
priorities as provided in the Plan. The common stock will be offered at a
price to be determined by the Board of Directors based upon an appraisal to be
made by an independent appraisal firm. The exact number

F-26
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

of shares to be offered will be determined by the Board of Directors in
conjunction with the determination of the subscription price. At least the
minimum number of shares offered in the conversion must be sold. Any stock not
purchased in the subscription offering will be sold in a community offering to
be commenced simultaneously with the subscription offering.

The Plan provides that when the conversion is completed, a "Liquidation
Account" will be established in an amount equal to the net worth of the Bank
as of the latest practicable date prior to the conversion. The Liquidation
Account is established to provide a limited priority claim to the assets of
the Bank to Eligible Account Holders and Supplemental Eligible Account Holders
(as defined in the Plan) who continue to maintain deposits in the Bank after
conversion. In the unlikely event of a complete liquidation of the Bank, and
only in such event, each Eligible Account Holder would receive from the
Liquidation Account a liquidation distribution based on their proportionate
share of the then total remaining qualifying deposits.

Current regulations allow the Bank to pay dividends on its stock after the
conversion if its regulatory capital would not thereby be reduced below the
amount then required for the aforementioned Liquidation Account. Also, capital
distribution regulations limit the Bank's ability to make capital
distributions which include dividends, stock redemptions and repurchases and
other transactions charged to the capital account based on their capital level
and supervisory condition. Federal regulations also limit any repurchase of
the stock for the Bank or its holding company for three years after conversion
except for repurchases pursuant to an open-market stock repurchase program
that complies with certain regulatory criteria and approval of the Office of
Thrift Supervision.

Conversion costs will be deferred and reduce the proceeds from the shares
sold in the conversion. If the conversion is not completed, all costs will be
charged as an expense. As of December 31, 1995, conversion costs of
approximately $519 had been incurred.

R. BUSINESS ACQUISITION (UNAUDITED)

On November 2, 1995, the Bank entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Conestoga Bancorp, Inc., a Delaware corporation
("Conestoga") pursuant to which Conestoga and its wholly-owned financial
institution subsidiary Pioneer Savings Bank, F.S.B. ("Pioneer") will be merged
into the Bank (the "Acquisition"). The Merger Agreement provides that each
share of Conestoga's common stock, par value $.01 per share (the "Conestoga
Common Stock") outstanding as of the effective time of the Merger (the
"Effective Time") (other than shares held as treasury stock, unallocated
shares held by Conestoga's Recognition and Retention Plans and Trusts and any
shares as to which dissenters' rights may be exercised under applicable law)
will be converted into the right to receive $21.25 in cash without interest
(the "Merger Consideration"). In the event the transaction is not completed on
or prior to May 31, 1996, the Bank will be required to increase the Merger
Consideration by $.07 per share for each month, pro rated on a daily basis,
commencing on June 1, 1996 until completion of the transaction. Based on the
total number of shares of Conestoga Common Stock outstanding as of December
31, 1995 and the consideration to be paid in respect of options on Conestoga's
Common Stock outstanding on that date, assuming all such options are converted
into the right to receive cash, the Bank estimates that total cash
consideration to be paid to Conestoga's shareholders and option holders in the
Merger is approximately $105 million.

F-27
<PAGE>

THE DIME SAVINGS BANK OF WILLIAMSBURGH
AND SUBSIDIARIES

The Acquisition is subject to (i) approval by the requisite number of
shareholders of Conestoga of the Merger Agreement, (ii) the receipt of all
necessary consents, waivers, clearances, approvals and authorizations from
regulators or governmental bodies, including the OTS, (iii) the occurrence of
all material steps necessary to complete the Conversion as described in Note Q
and (iv) the satisfaction or waiver of certain other conditions.

* * * * * *

F-28
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of
Conestoga Bancorp, Inc.:

We have audited the accompanying consolidated statements of financial
condition of Conestoga Bancorp, Inc. and subsidiary (the "Company") as of
March 31, 1995 and 1994, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the years in the
three-year period ended March 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Conestoga Bancorp, Inc.
and subsidiary as of March 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 1995, in conformity with generally accepted accounting
principles.

As explained in Note 3 to the consolidated financial statements, effective
April 1, 1994, the Company changed its method of accounting for certain
investments in debt and equity securities.

Arthur Andersen LLP

New York, New York
May 12, 1995

G-1
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
MARCH 31,
DEC. 31, ------------------
1995 1995 1994
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CASH AND DUE FROM BANKS........................ $ 6,012 $ 7,566 $ 5,222
FEDERAL FUNDS SOLD............................. 7,000 14,200 71,600
INTEREST-BEARING DEPOSITS WITH BANKS........... 34,999 18,885 693
SECURITIES AVAILABLE FOR SALE--
Investment securities......................... 22,209 51 14,121
Mortgage-backed securities.................... 33,488 17,897 65,782
-------- -------- --------
Total securities available for sale........... 55,697 17,948 79,903
-------- -------- --------
SECURITIES HELD TO MATURITY--(market values of
$250,163, $245,734 and $151,069, respectively)
Investment securities......................... 119,247 101,669 54,898
Mortgage-backed securities.................... 128,086 148,605 98,355
-------- -------- --------
Total securities held to maturity............. 247,333 250,274 153,253
-------- -------- --------
LOANS, net..................................... 115,931 114,651 99,801
ACCRUED INTEREST RECEIVABLE.................... 3,523 3,655 2,845
PREMISES AND EQUIPMENT, net.................... 12,757 12,526 11,995
OTHER ASSETS:
Federal Home Loan Bank of New York--capital
stock........................................ 2,681 2,681 2,372
Other Real Estate Owned....................... 264 -- --
Other......................................... 2,218 2,795 745
-------- -------- --------
TOTAL ASSETS.................................. $488,415 $445,181 $428,429
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS:
Savings deposits.............................. $129,103 $132,668 $155,806
Time deposits................................. 217,508 177,285 149,209
Money market accounts......................... 31,008 29,526 32,899
Demand deposits............................... 16,346 13,526 12,839
-------- -------- --------
393,965 353,005 350,753
-------- -------- --------
SECURITIES SOLD WITH AGREEMENT TO REPURCHASE... 10,000 9,795 --
ADVANCES FROM BORROWERS FOR TAXES AND
INSURANCE..................................... 1,641 1,927 1,761
INCOME TAXES PAYABLE........................... 2,710 2,273 1,994
ACCRUED EXPENSES AND OTHER LIABILITIES......... 744 719 1,007
-------- -------- --------
TOTAL LIABILITIES............................. 409,060 367,719 355,515
-------- -------- --------
COMMITMENTS, CONTINGENCIES AND OTHER
INFORMATION (Note 16)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 2,000,000
shares authorized; none issued............... -- -- --
Common stock, $.01 par value; 11,000,000
shares authorized; 4,813,900 shares issued... 48 48 48
Additional paid-in capital.................... 45,934 45,845 45,851
Employee stock ownership plan................. (2,896) (3,240) (3,610)
Recognition and retention plan................ (1,204) (1,481) (1,852)
Treasury stock, at cost (71,965 shares and
19,369 shares, respectively)................. (1,062) (271) --
Retained earnings--subject to restrictions.... 38,102 36,579 32,477
Unrealized appreciation (depreciation) on
securities available for sale, net of taxes
of $361 and $(16), respectively.............. 433 (18) --
-------- -------- --------
Total stockholders' equity.................... 79,355 77,462 72,914
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.... $488,415 $445,181 $428,429
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

G-2
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
UNALLOCATED UNEARNED (DEPRECIATION)
ADDITIONAL COMMON COMMON ON SECURITIES
COMMON PAID-IN STOCK HELD STOCK HELD TREASURY RETAINED AVAILABLE
STOCK CAPITAL BY ESOP BY RRPS STOCK EARNINGS FOR SALE, NET TOTAL
------ ---------- ----------- ---------- -------- -------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, April 1, 1992.. $ -- $ -- $ -- $ -- $ -- $23,618 $ -- $23,618
Net income............. -- -- -- -- -- 4,950 -- 4,950
----- ------- ------- ------- ------- ------- ------- -------
BALANCE, March 31,
1993................... -- -- -- -- -- 28,568 -- 28,568
Net proceeds from
common stock issued in
stock conversion...... 48 45,844 -- -- -- -- -- 45,892
Purchase of common
stock by ESOP......... -- -- (3,703) -- -- -- -- (3,703)
Purchase of common
stock by RRPs......... -- -- -- (1,852) -- -- -- (1,852)
Compensation amortized
to expense............ -- 7 93 -- -- -- -- 100
Net income............. -- -- -- -- -- 3,909 -- 3,909
----- ------- ------- ------- ------- ------- ------- -------
BALANCE, March 31,
1994................... 48 45,851 (3,610) (1,852) -- 32,477 -- 72,914
Change in accounting
for certain
investments in debt
and equity
securities............ -- -- -- -- -- -- 989 989
Payments for conversion
costs................. -- (75) -- -- -- -- -- (75)
Compensation amortized
to expense............ -- 113 370 371 -- -- -- 854
Net income............. -- -- -- -- -- 4,102 -- 4,102
Unrealized depreciation
on securities
available for sale,
net................... -- -- -- -- -- -- (1,007) (1,007)
Acquisition of treasury
stock................. -- -- -- -- (315) -- -- (315)
Exercise of stock
options (8,958
shares)............... -- (44) -- -- 44 -- -- --
----- ------- ------- ------- ------- ------- ------- -------
BALANCE, April 1, 1995.. $ 48 $45,845 $(3,240) $(1,481) $ (271) $36,579 $ (18) $77,462
Compensation amortized
to expense
(unaudited)........... -- 209 277 277 -- -- -- 763
Net income
(unaudited)........... -- -- -- -- -- 2,468 -- 2,468
Cash dividends declared
on common stock
(unaudited)........... -- -- -- -- -- (945) -- (945)
Cash dividends received
on common stock
(unaudited)........... -- -- 67 -- -- -- -- 67
Unrealized appreciation
on securities
available for sale,
net (unaudited)....... -- -- -- -- -- -- 451 451
Acquisition of treasury
stock (unaudited)..... -- -- -- -- (1,548) -- -- (1,548)
Exercise of stock
options (55,087
shares) (unaudited)... -- (120) -- -- 757 -- -- 637
----- ------- ------- ------- ------- ------- ------- -------
BALANCE, December 31,
1995 (unaudited)....... $ 48 $45,934 $(2,896) $(1,204) $(1,062) $38,102 $ 433 $79,355
===== ======= ======= ======= ======= ======= ======= =======
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

G-3
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, YEAR ENDED MARCH 31,
------------------- ----------------------------
1995 1994 1995 1994 1993
--------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income................. $ 2,468 $ 3,156 $ 4,102 $ 3,909 $ 4,950
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization.............. 882 370 797 614 494
Provision (recoveries) for
loan losses............... 37 10 (36) 39 105
Recoveries on investment
securities................ -- -- -- (100) (152)
(Increase) decrease in
assets--
Accrued interest
receivable................ 132 (418) (810) 64 819
Other assets............... 577 115 (2,068) (69) (188)
Increase (decrease) in
liabilities--
Income taxes payable....... 60 99 279 (295) 833
Accrued expenses and other
liabilities............... 25 (378) (288) 265 (142)
--------- -------- -------- -------- --------
Net cash provided by
operating activities...... 4,181 2,954 1,976 4,427 6,719
--------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of premises and
equipment................. (626) (555) (941) (1,556) (293)
Sales (purchases) of
Federal Home Loan Bank of
NY capital stock.......... -- -- (309) 47 (214)
Decrease in investment in
real estate joint
venture................... -- -- -- -- 299
Purchases of investment
securities................ (112,406) (58,559) (63,560) (57,857) (39,485)
Purchases of securities
available for sale........ (7,998) -- (49) (42,995) (33,389)
Sales of investment
securities................ 3,995 -- -- 8,335 21,769
Maturities of investment
securities................ 63,039 14,000 17,000 41,415 25,018
Sales of securities
available for sale........ 61,385 50,198 54,737 37,079 50,050
Net (purchases) maturities
of interest-bearing
deposits with banks....... (16,114) (792) (18,192) 297 (495)
Loans made to customers.... (9,891) (22,226) (26,750) (17,524) (27,809)
Principal collected on
loans..................... 8,408 8,807 12,018 19,758 17,713
Purchases of mortgage-
backed securities......... (56,252) (53,543) (58,347) (69,601) (44,861)
Sales of mortgage-backed
securities................ -- -- -- 4,940 --
Principal collected on
mortgage-backed securities
and mortgage-backed
securities available for
sale...................... 14,435 13,810 15,538 49,390 22,425
Net decrease (increase) in
other investments......... -- -- -- 213 189
--------- -------- -------- -------- --------
Net cash used in investing
activities................ (52,025) (48,860) (68,855) (28,059) (9,083)
--------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase in securities
sold with agreement to
repurchase................ 205 9,795 9,795 -- --
Net increase in demand
deposits.................. 2,820 667 687 2,947 1,295
Net increase (decrease) in
money market accounts..... 1,482 (1,126) (3,373) (4,311) (169)
Net increase (decrease) in
advances from borrowers
for taxes and insurance... (286) (200) 166 45 242
Net increase (decrease) in
savings deposits.......... (3,565) (16,491) (23,138) 16,627 19,383
Net increase (decrease) in
time deposits............. 40,223 8,042 28,076 987 (2,280)
Acquisition of treasury
stock..................... (1,548) -- (315) -- --
Exercise of stock options.. 637 -- -- -- --
Cash dividends paid........ (945) -- -- -- --
Cash dividends received on
common stock held by
ESOP...................... 67 --
Payments for conversion
costs..................... -- (75) (75) (2,247) --
Purchase of common stock by
ESOP...................... -- -- -- (3,703) --
Purchase of common stock by
RRPs...................... -- -- -- (1,852) --
Proceeds from issuance of
common stock.............. -- -- -- 48,139 --
--------- -------- -------- -------- --------
Net cash provided by
financing activities...... 39,090 612 11,823 56,632 18,471
--------- -------- -------- -------- --------
Net (decrease) increase in
cash and cash
equivalents............... (8,754) (45,294) (55,056) 33,000 16,107
CASH AND CASH EQUIVALENTS,
beginnning of period....... 21,766 76,822 76,822 43,822 27,715
--------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS,
end of period.............. $ 13,012 $ 31,528 $ 21,766 $ 76,822 $ 43,822
========= ======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated statements.

G-4
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

(ALL AMOUNTS WITH RESPECT TO DECEMBER 31, 1995 AND 1994 AND FOR THE NINE
MONTHS THEN ENDED ARE UNAUDITED).

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The following is a description of the significant accounting and reporting
policies followed in preparing and presenting the accompanying consolidated
financial statements:

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
Conestoga Bancorp, Inc. (for purposes of these Notes, the "Company") and its
wholly-owned subsidiary, Pioneer Savings Bank, F.S.B. (for purposes of these
Notes, the "Bank"), a federally chartered stock savings bank. All significant
intercompany accounts and transactions are eliminated in consolidation.

As more fully discussed in Note 2, the Company, a Delaware corporation, was
organized by the Bank for the purpose of acquiring all of the capital stock of
the Bank pursuant to the conversion of the Bank from a federally chartered
mutual savings and loan association to a federally chartered stock savings
bank. The Company is subject to the financial reporting requirements of the
Securities Exchange Act of 1934, as amended.

Cash and Cash Equivalents

The Company generally considers short-term instruments, with original
maturities of three months or less, measured from their acquisition date, and
highly liquid instruments readily convertible to known amounts of cash, to be
cash equivalents.

For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and federal funds sold. Generally, federal
funds are sold for one-day periods.

The following is a supplemental disclosure of cash flow information and
noncash financing activities:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED DEC. 31, YEAR ENDED MARCH 31,
-------------- -----------------------
1995 1994 1995 1994 1993
------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Interest paid........................... $13,817 $8,784 $12,141 $11,656 $13,333
======= ====== ======= ======= =======
Income taxes paid....................... $ 2,078 $2,604 $ 3,229 $ 3,550 $ 3,352
======= ====== ======= ======= =======
Exercise of stock options............... $ 25 $ -- $ 44
======= ====== =======
</TABLE>

Investment Securities:

Securities Available for Sale

Effective April 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". Debt securities, mortgage-backed securities and
equity securities used as part of the Company's asset/liability management
that may be sold in response to changes in interest rates, prepayments, and
other factors have been classified as available for sale. Such securities are
reported at fair value, with unrealized gains and losses excluded from
earnings and reported in a separate component of stockholders' equity (on an
after-tax basis). Gains and losses on the disposition of

G-5
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
securities are recognized on the specific identification method in the period
in which they occur. In 1994, securities available for sale are carried at the
lower of aggregate cost or market values.

Securities Held to Maturity

Held to maturity investment securities are stated at cost adjusted for
accretion of discount or amortization of premium. Mortgage-backed securities
are stated at the unpaid principal amount net of unearned discount and
unamortized premiums. Discounts are accreted and premiums are amortized using
the interest method. The Company has the intent and ability to hold such
securities until maturity.

Loans

Loans are stated at the principal amount outstanding, net of unearned
income. Loan origination fees are recognized in interest income as an
adjustment to yield over the life of the loan. Loans are placed on nonaccrual
status when management has determined that the borrower will be unable to meet
contractual principal or interest obligations. When a loan is classified as
nonaccrual, the recognition of interest income ceases.

In May 1993, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 114, entitled "Accounting by Creditors for Impairment of a Loan." In
October 1994, this statement was amended by SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan--Income Recognition and Disclosures." Both
pronouncements establish the accounting by creditors for impairment of certain
loans with the latter adding as to how a creditor recognizes interest income
related to those impaired loans. When adopted on April 1, 1995, SFAS No. 114
as amended by SFAS No. 118, did not have a material effect on the Company's
financial position or results of operations.

Allowance for Loan Losses

The allowance for loan losses is established by management to absorb future
charge-offs of loans that may be uncollectible. The allowance is increased by
charges to operations and reduced by net charge-offs. The amount of the
allowance is based on estimates and the ultimate losses may vary from the
current estimates. These estimates are evaluated periodically and, as
adjustments become necessary, they are reflected in operations in the periods
in which they become known. Considerations in this evaluation include past and
anticipated loss experience, real estate collateral, as well as current and
anticipated economic conditions and maintenance of the allowance at a level
adequate to absorb unforeseeable losses, but which are inherent losses in the
loan portfolio at the reporting date.

While management uses available information to recognize provisions for loan
losses as of the date of the statement of financial condition, future
additions to the allowance may be necessary based on changes in the borrowers'
economic conditions and the composition of the loan portfolio. In addition,
the Company's regulators, as an integral part of their examination process,
periodically review the Company's allowance for loan losses. Such regulators
may require the Company to provide additions to the allowance based on
judgments different from those of management.

Loan Origination Fees

Nonrefundable loan fees net of certain direct origination costs are
deferred, and recognized to income, using the level-yield method, as a yield
adjustment, over the contractual lives of the related loans adjusted for
estimated prepayments.

G-6
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
Premises and Equipment

Land is stated at original cost. Buildings and equipment are stated at cost
less accumulated depreciation. Depreciation is computed by the straight-line
method over the estimated useful lives of the assets as follows:

<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Buildings......................................................... 40
Furniture and equipment........................................... 10
On-line savings equipment......................................... 5
Other............................................................. Various
</TABLE>

Building improvements on leased property are amortized over the remaining
terms of the respective lease.

Income Taxes

During the fourth quarter of fiscal year ending March 31, 1993, the Company
adopted SFAS No. 109 "Accounting for Income Taxes," which requires the use of
the liability method of accounting for income taxes. Such change in accounting
was not material to the 1993 consolidated financial statements.

Earnings Per Common Share

Earnings per common share is computed based upon the weighted average number
of common shares outstanding during the period plus the effect of common
shares contingently issuable, primarily from the exercise of stock options
using the treasury stock method.

Fully diluted earnings per common share reflects additional dilution related
to common shares contingently issuable due to the use of the market price at
the end of the period, when higher than the average market price for the
period.

At December 31, 1995, earnings per common share reflect the operations for
the nine months ended December 31, 1995, divided by 4,480,753 shares (primary)
and 4,511,893 shares (fully diluted), which represent the weighted average
number of common shares and common share equivalents outstanding during the
period. Likewise, at December 31, 1994, earnings per common share reflect the
operations for the nine months ended December 31, 1994, divided by 4,381,728
shares (primary and fully diluted), which represent the weighted average
number of common shares and common share equivalents outstanding during the
period.

At March 31, 1995, earnings per common share reflect the operations for the
twelve months ended March 31, 1995, divided by 4,403,761 shares (primary) and
4,472,651 shares (fully diluted), which represent the weighted average number
of common shares and common share equivalents outstanding during the period.

The Company completed its initial public stock offering on March 30, 1994,
and accordingly, earnings per common share are not presented for periods prior
to conversion to stock form, as the Bank was a mutual savings and loan
association and no stock was outstanding.

Employee Stock Ownership Plan

On November 22, 1993, the American Institute of Certified Public Accountants
issued Statement of Position 93-6, "Employers' Accounting for Employee Stock
Ownership Plans" ("SOP 93-6"). SOP 93-6 provides guidance for accounting for
all ESOPs and it significantly changes the way employers report transactions
with leveraged ESOPs. SOP 93-6 requires that the issuance or sale of treasury
shares to the ESOP be reported when the issuance or sale occurs, and that
compensation expense be recognized for shares committed to be released to
directly compensate employees equal to the fair value of the shares committed.
The difference between the fair value of the shares committed to be released
and the cost of such shares should be charged or credited to

G-7
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
additional paid in capital. Additionally, ESOP shares that have been committed
to be released should be considered outstanding for earnings per share
computations. In addition, SOP 93-6 requires that leveraged ESOP debt and
related interest expense be reflected in the employer's financial statements.
Prior practice was to recognize compensation expense based on the employer's
contributions to the ESOP. SOP 93-6 is effective for fiscal years beginning
after December 15, 1993, for shares purchased by ESOPs after December 31,
1992. The Bank adopted SOP 93-6 on January 1, 1994.

Unaudited Financial Information

Information as of December 31, 1995 and for the nine-month periods ended
December 31, 1995 and 1994 is unaudited. The unaudited information furnished
reflects all adjustments, which consist solely of normal recurring accruals,
which are, in the opinion of management, necessary for a fair presentation of
the financial position at December 31, 1995 and the results of operations and
cash flows for the nine-month periods ended December 31, 1995 and 1994. The
results of the nine-month periods are not necessarily indicative of the
results of the Company which may be expected for the entire year.

Uses of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Areas in
the accompanying financial statements where estimates are significant include
the allowance for loan losses and the carrying value of other real estate.

Reclassifications

Certain reclassifications have been made to the March 31, 1994 consolidated
financial statements to conform with the current year presentation.

2. CONVERSION TO STOCK FORM OF OWNERSHIP:

On September 29, 1993, the Board of Directors of the Bank adopted a Plan of
Conversion to convert from mutual to stock form. As part of the conversion,
the Company was incorporated under Delaware law, for the purpose of acquiring
and holding all of the outstanding stock of the Bank. On March 30, 1994, the
Company completed its initial public offering and issued 4,628,750 shares of
common stock (par value $.01 per share) at a price of $10.00 per share and
185,150 shares were acquired by the RRPs, resulting in net proceeds of
approximately $45,892. The Company retained approximately $22,946 of the net
proceeds and used the remaining net proceeds to purchase all of the
outstanding stock of the Bank. Costs related to the conversion were charged
against the Company's proceeds from the sale of the stock.

At the time of conversion, the Bank established a liquidation account in an
amount equal to the retained earnings of the Bank as of the date of the most
recent financial statements contained in the final conversion prospectus. The
liquidation account will be reduced annually to the extent that eligible
account holders have reduced their qualifying deposits as of each anniversary
date. Subsequent increases will not restore an eligible account holder's
interest in the liquidation account. In the event of a complete liquidation,
each eligible account holder will be entitled to receive a distribution from
the liquidation account in an amount proportionate to the current adjusted
qualifying balances for accounts then held.

The Company may not declare or pay cash dividends on or repurchase any of
its shares of common stock if the effect thereof would cause stockholders'
equity to be reduced below applicable regulatory capital maintenance
requirements, the amount required for the liquidation account, or if such
declaration and payment would otherwise violate regulatory requirements.

G-8
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
3. ACCOUNTING CHANGE:

In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 requires that debt
and equity securities that have readily determinable fair values be carried at
fair value unless they are classified as held to maturity. Securities can be
classified as held to maturity and carried at amortized cost only if the
reporting entity has a positive intent and ability to hold those securities to
maturity. If not classified as held to maturity, such securities must be
classified as trading securities or securities available for sale. Unrealized
holding gains or losses for securities available for sale are to be excluded
from earnings and reported as a net amount as a separate component of
stockholders' equity. Unrealized holding gains and losses for trading
securities are to be included in earnings. On April 1, 1994, the Company
adopted SFAS No. 115 which resulted in an increase in stockholders' equity of
$989, on an after tax basis, which represents the net unrealized appreciation
on securities available for sale.

4. INTEREST-BEARING DEPOSITS WITH BANKS:

Interest-bearing deposits with banks generally represent short-term liquid
investments with maturities of one year or less. They are recorded at cost,
which approximates market value, and are generally held to maturity.

The components of interest-bearing deposits with banks are as follows:

<TABLE>
<CAPTION>
MARCH 31,
DEC. 31, ------------
1995 1995 1994
-------- ------- ----
<S> <C> <C> <C>
Federal Home Loan Bank (FHLB) overnight deposits......... $ 9,400 $ 6,900 $--
FHLB term deposits....................................... 25,500 10,500 --
Certificates of deposit.................................. 99 1,485 693
------- ------- ----
$34,999 $18,885 $693
======= ======= ====
</TABLE>

5. INVESTMENT SECURITIES:

The amortized cost and estimated market values of investment securities at
December 31, 1995, March 31, 1995 and 1994 were as follows:

Securities Held to Maturity

Securities held to maturity are summarized below:

<TABLE>
<CAPTION>
DEC. 31, 1995 MARCH 31, 1995
-------------------------------- -----------------------------------
GROSS GROSS
UNREALIZED ESTIMATED UNREALIZED ESTIMATED
AMORTIZED ------------ MARKET AMORTIZED -------------- MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ----- ------ --------- --------- ----- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities:
U.S. Treasury notes........ $ 4,957 $343 $ -- $ 5,300 $ 4,948 $ 61 $ -- $ 5,009
Government agencies........ 58,985 39 -- 59,024 61,835 -- (1,246) 60,589
Corporate notes and bonds.. 55,305 611 -- 55,916 34,886 -- (522) 34,364
-------- ---- ----- -------- -------- ---- -------- -------
Total.................... $119,247 $993 $ -- $120,240 $101,669 $ 61 $(91,768) $99,962
======== ==== ===== ======== ======== ==== ======== =======
</TABLE>

G-9
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, 1994
---------------------------------------
GROSS UNREALIZED ESTIMATED
AMORTIZED ----------------- MARKET
COST GAINS LOSSES VALUE
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Debt securities:
Government agencies...................... $21,952 $ -- $(320) $21,632
Corporate notes and bonds................ 32,946 318 -- 33,264
------- -------- -------- -------
Total................................ $54,898 $ 318 $(320) $54,896
======= ======== ======== =======
</TABLE>

The amortized cost and estimated market value of investment securities held
to maturity at Dec. 31, 1995, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.

<TABLE>
<CAPTION>
DEC. 31, 1995
-------------------
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------- ---------
<S> <C> <C>
Within 1 year............................................... $ 48,342 $ 48,455
After 1 year through 5 years................................ 54,918 55,659
After 5 years through 10 years.............................. 15,987 16,126
After 10 years.............................................. -- --
-------- --------
Total................................................... $119,247 $120,240
======== ========
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
DEC. 31, MARCH 31,
------------------ --------------------
1995 1994 1995 1994 1993
--------- -------- ----- ------ -------
<S> <C> <C> <C> <C> <C>
Proceeds received from sales of
investment securities held to
maturity............................ $ 3,995 $ -- $ -- $8,335 $21,769
========= ======== ===== ====== =======
Gross realized gains from sales of
investment securities held to
maturity............................ $ 94 $ -- $ -- $ 399 $ 866
========= ======== ===== ====== =======
Gross realized losses from sales of
investment securities held to
maturity............................ $ 21 $ -- $ -- $ -- $ 87
========= ======== ===== ====== =======
</TABLE>

Securities Available for Sale

Securities available for sale are summarized below:

<TABLE>
<CAPTION>
DEC. 31, 1995
--------------------------------------
GROSS UNREALIZED ESTIMATED
AMORTIZED ----------------- MARKET
COST GAINS LOSSES VALUE
--------- ------- -------- ---------
<S> <C> <C> <C> <C>
Debt securities:
Government agencies........................ $19,993 $140 $ -- $20,133
Corporate notes and bonds.................. 1,999 77 -- 2,076
------- ------- -------- -------
Total.................................. $21,992 $ 217 $ -- $22,209
======= ======= ======== =======
</TABLE>

G-10
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31,1995
---------------------------------------
GROSS UNREALIZED ESTIMATED
AMORTIZED ------------------ MARKET
COST GAINS LOSSES VALUE
--------- ------- --------- ---------
<S> <C> <C> <C> <C>
Marketable equity securities:
Common stock............................ $49 $ 2 $ -- $51
--- ------- --------- ---
Total............................... $49 $ 2 $ -- $51
=== ======= ========= ===
</TABLE>

<TABLE>
<CAPTION>
MARCH 31,1994
---------------------------------------
GROSS UNREALIZED ESTIMATED
AMORTIZED ----------------- MARKET
COST GAINS LOSSES VALUE
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Debt securities:
Government agencies..................... $ 2,688 $ -- $ (5) $ 2,683
Corporate notes and bonds............... 4,433 -- (480) 3,953
Marketable equity securities:
Mutual fund--
Asset management account................ 7,000 -- (105) 6,895
------- -------- -------- -------
Total............................... $14,121 $ -- $(590) $13,531
======= ======== ======== =======
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, YEAR ENDED MARCH 31,
------------------ -----------------------
1995 1994 1995 1994 1993
-------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Proceeds received from sales of
investment securities available
for sale.......................... $ 6,025 $ 14,500 $14,500 $29,232 $44,388
======== ========= ======= ======= =======
Gross realized gains from sales of
investment securities available
for sale.......................... $ 39 $ -- $ -- $ 75 $ 94
======== ========= ======= ======= =======
Gross realized losses from sales of
investment securities available
for sale.......................... $ -- $ 684 $ 685 $ -- $ --
======== ========= ======= ======= =======
</TABLE>

6. MORTGAGE-BACKED SECURITIES

Mortgage-Backed Securities Held to Maturity

Mortgage-backed securities held to maturity are summarized below:

<TABLE>
<CAPTION>
DEC. 31, 1995 MARCH 31, 1995
---------------------------------- ----------------------------------
GROSS GROSS
UNREALIZED ESTIMATED UNREALIZED ESTIMATED
AMORTIZED ------------- MARKET AMORTIZED ------------- MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ------ ------ --------- --------- ----- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pass-through
certificates guaranteed
by GNMA, FNMA and
FHLMC.................. $122,215 $1,868 $ -- $124,083 $140,660 $ -- $(2,566) $138,094
Real estate mortgage
investment conduit
obligations............ 5,871 -- (31) 5,840 7,945 -- (267) 7,678
-------- ------ ----- -------- -------- ----- ------- --------
$128,086 $1,868 $ (31) $129,923 $148,605 $ -- $(2,833) $145,772
======== ====== ===== ======== ======== ===== ======= ========
</TABLE>

G-11
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
MARCH 31, 1994
--------------------------------------
GROSS UNREALIZED ESTIMATED
AMORTIZED ----------------- MARKET
COST GAINS LOSSES VALUE
--------- ------- --------- ---------
<S> <C> <C> <C> <C>
Pass-through certificates guaranteed by
GNMA, FNMA and FHLMC.................. $91,281 $ -- $(2,044) $89,237
Real estate mortgage investment conduit
obligations........................... 7,074 -- (138) 6,936
------- ------- --------- -------
$98,355 $ -- $(2,182) $96,173
======= ======= ========= =======
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
DECEMBER 31, YEAR ENDED MARCH 31,
------------- ---------------------
1995 1994 1995 1994 1993
------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C>
Proceeds received from sales of mortgage-
backed securities held to maturity....... $ -- $ -- $ -- $ 4,940 $ --
====== ====== ====== ======= ======
Gross realized gains from sales of
mortgage-backed securities held to
maturity................................. $ -- $ -- $ -- $ 17 $ --
====== ====== ====== ======= ======
Gross realized losses from sales of
mortgage-backed securities held to
maturity................................. $ -- $ -- $ -- $ 7 $ --
====== ====== ====== ======= ======
</TABLE>

Mortgage-Backed Securities Available for Sale

Mortgage-backed securities available for sale are summarized below:

<TABLE>
<CAPTION>
DEC. 31, 1995 MARCH 31, 1995
-------------------------------- --------------------------------
GROSS GROSS
UNREALIZED ESTIMATED UNREALIZED ESTIMATED
AMORTIZED ------------ MARKET AMORTIZED ------------ MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ----- ------ --------- --------- ----- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pass-through
certificates guaranteed
by GNMA, FNMA and
FHLMC.................. $31,211 $564 $ -- $31,775 $15,934 $ -- $(32) $15,902
Real estate mortgage
investment conduit
obligations............ 1,700 13 -- 1,713 2,000 -- (5) 1,995
------- ---- ----- ------- ------- ----- ---- -------
$32,911 $577 $ -- $33,488 $17,934 $ -- $(37) $17,897
======= ==== ===== ======= ======= ===== ==== =======
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1994
-------------------------------------
GROSS UNREALIZED ESTIMATED
AMORTIZED ----------------- MARKET
COST GAINS LOSSES VALUE
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Pass-through certificates guaranteed by
GNMA, FNMA and FHLMC................... $63,137 $ 2,366 $ -- $65,503
Real estate mortgage investment conduit
obligations............................ 2,000 5 -- 2,005
Collateralized mortgage obligations..... 645 67 -- 712
------- -------- ------- -------
$65,782 $ 2,438 $ -- $68,220
======= ======== ======= =======
</TABLE>

G-12
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, YEAR ENDED MARCH 31,
----------------- ---------------------
1995 1994 1995 1994 1993
-------- -------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Proceeds received from sales of
mortgage-backed securities available
for sale............................ $ 55,360 $ 35,698 $40,237 $7,847 $5,662
======== ======== ======= ====== ======
Gross realized gains from sales of
mortgage-backed securities available
for sale............................ $ 782 $ 1,422 $ 1,535 $ 136 $ 139
======== ======== ======= ====== ======
Gross realized losses from sales of
mortgage-backed securities available
for sale............................ $ -- $ -- $ -- $ -- $ --
======== ======== ======= ====== ======
</TABLE>

7. LOANS, NET

Loans consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, -----------------
1995 1995 1994
------------ -------- -------
<S> <C> <C> <C>
Loans secured by mortgages on real estate:
Residential 1-4 family....................... $108,753 $107,593 $91,895
Nonresidential (multi-family and mixed-use).. 3,295 3,271 3,605
Participation investments in loans
purchased................................... 2,677 2,343 2,216
Partially guaranteed by Veterans
Administration (VA) or insured by Federal
Housing Authority (FHA)..................... 377 444 826
Land and building loans (net of loans in
process).................................... 223 275 453
Less: Discounts and fees, net................ (567) (590) (621)
-------- -------- -------
Net loans secured by mortgages on real
estate.................................... 114,758 113,336 98,374
-------- -------- -------
Other loans:
Passbook loans (secured by savings and time
deposits)................................... 1,384 1,467 1,582
Participation in loans fully guaranteed by
Agency for International Development (AID).. -- 22 55
-------- -------- -------
Net other loans............................ 1,384 1,489 1,637
-------- -------- -------
Less: Allowance for loan losses................ (211) (174) (210)
-------- -------- -------
Net loans.................................. $115,931 $114,651 $99,801
======== ======== =======
</TABLE>

The following is an analysis of the allowance for loan losses:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
DECEMBER 31, YEAR ENDED MARCH 31,
------------- ---------------------
1995 1994 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance, beginning........................ $ 174 $ 210 $ 210 $ 171 $ 66
Provision charged (credited) to
operations............................... 37 10 (36) 39 105
------ ------ ------ ------ ------
Balance, end.............................. $ 211 $ 220 $ 174 $ 210 $ 171
====== ====== ====== ====== ======
</TABLE>

The Company adopted SFAS No. 114 "Accounting by Creditors for Impairment of
a Loan", and SFAS No. 118 "Accounting by Creditors for Impairment of a Loan-
Income Recognition and Disclosures", as of

G-13
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
April 1, 1995. Both pronouncements require that certain impaired loans be
measured based on the present value of expected cash flows discounted at the
loan's original effective interest rate. As a practical expedient, impairment
may be measured based on the loan's observable market price or the fair value
of the collateral if the loan is collateral dependent. When the measure of the
impaired loan is less than the recorded investment in the loan, the impairment
is recorded through a valuation allowance. As a result of adopting these
statements, no additional allowance for loan losses was required as of April
1, 1995.

As of December 31, 1995, the Company's recorded investment in impaired loans
and the related valuation allowance calculated under SFAS No. 114 and 118 are
as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------
RECORDED VALUATION
INVESTMENT ALLOWANCE
---------- ---------
<S> <C> <C>
Impaired loans:
Requiring valuation allowance......................... $322 $ 14
Not requiring valuation allowance..................... -- --
---- ----
Total impaired loans................................ $322 $ 14
==== ====
</TABLE>

Interest payments received on impaired loans are recorded as interest income
unless collection of the remaining recorded investment is doubtful at which
time payments received are recorded as reductions of principal. The average
balance of impaired loans was approximately $322 for nine months ended
December 31, 1995. If interest had been accrued on impaired loans, interest
income would have increased by approximately $21 for the nine months ended
December 31, 1995.

Loans on a nonaccrual basis at March 31, 1995 and 1994, approximated $351
and $193, respectively.

Interest income on nonaccrual loans that would have been recorded under the
original terms of such loans, net of interest income actually received, is
summarized as follows:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
DECEMBER 31, YEAR ENDED MARCH 31,
-------------- ----------------------
1995 1994 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Interest income which would have been
recognized on nonaccrual loans (net of
interest income received)................. $ 32 $ 37 $ 36 $ 29 $ 35
====== ====== ====== ====== ======
</TABLE>

8. ACCRUED INTEREST RECEIVABLE

<TABLE>
<CAPTION>
MARCH 31,
DEC. 31, -------------
1995 1995 1994
-------- ------ ------
<S> <C> <C> <C>
Loans................................................... $ 787 $ 771 $ 739
Investment securities................................... 1,367 1,998 883
Securities available for sale........................... 609 86 746
Mortgage-backed securities.............................. 729 790 461
Other................................................... 31 10 16
------ ------ ------
$3,523 $3,655 $2,845
====== ====== ======
</TABLE>

G-14
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

9. PREMISES AND EQUIPMENT, NET

The following is a summary of premises and equipment:

<TABLE>
<CAPTION>
MARCH 31,
DEC. 31, ----------------
1995 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Land............................................... $ 2,974 $ 2,974 $ 2,974
Buildings and improvements......................... 10,653 10,408 9,778
Furniture and equipment............................ 2,212 1,941 1,807
On-line savings equipment.......................... 963 1,009 805
Other.............................................. 109 109 79
Construction in progress........................... -- -- 57
------- ------- -------
16,911 16,441 15,500
Less--Accumulated depreciation and amortization.... (4,154) (3,915) (3,505)
------- ------- -------
$12,757 $12,526 $11,995
======= ======= =======
</TABLE>

10. FEDERAL HOME LOAN BANK OF NEW YORK--CAPITAL STOCK:

The Bank is a member of the Federal Home Loan Bank of New York (FHLBNY).
Membership requires the purchase of shares of FHLBNY capital stock at $100 per
share, generally based on the value of the Bank's mortgage portfolio. As of
December 31, 1995, March 31, 1995 and 1994, the Bank owned 26,810, 26,810 and
23,722 shares, respectively. The FHLBNY paid dividends on the capital stock at
the weighted averages of 7.56% and 7.48% for the nine months ended December
31, 1995 and 1994, respectively, and 7.65%, 8.80% and 9.90% for the fiscal
years ended March 31, 1995, 1994 and 1993, respectively.

11. DEPOSITS:

Deposits are summarized as follows:

<TABLE>
<CAPTION>
MARCH 31,
DEC. 31, ---------------------------------------
1995 1995 1994
------------------- ------------------- -------------------
STATED STATED STATED
RATE AMOUNT RATE AMOUNT RATE AMOUNT
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest bearing:
Savings accounts...... 2.50% $129,103 2.50% $132,668 2.50% $155,806
Certificate accounts.. 4.34-5.65 217,508 4.58-7.13 177,285 2.80-5.00 149,209
Money market
accounts............. 3.00 31,008 3.00 29,526 2.50 32,899
Demand deposits....... -- 16,346 -- 13,526 -- 12,839
-------- -------- --------
$393,965 $353,005 $350,753
======== ======== ========
</TABLE>

The remaining maturity of certificate accounts are as follows:

<TABLE>
<CAPTION>
MARCH 31,
DEC. 31, -----------------
1995 1995 1994
-------- -------- --------
<S> <C> <C> <C>
12 months or less................................... $139,302 $101,601 $ 94,366
Over 12 months to 36 months......................... 56,401 60,162 30,065
Over 36 months...................................... 21,805 15,522 24,778
-------- -------- --------
$217,508 $177,285 $149,209
======== ======== ========
</TABLE>

G-15
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
The aggregate amount of certificates of deposit with a minimum denomination
of $100 was approximately $20,664, $14,754 and $8,757 as of December 31, 1995,
March 31, 1995 and 1994, respectively. Time deposit balances greater than $100
are not insured by the Savings Association Insurance Fund of the Federal
Deposit Insurance Corporation for the amount over $100.

Interest expense related to deposits is as follows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED MARCH 31,
----------------- -----------------------
12/31/95 12/31/94 1995 1994 1993
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Savings accounts.................... $ 2,394 $2,814 $ 3,651 $ 3,698 $ 4,175
Certificate and money market
accounts........................... 10,293 5,950 8,366 7,896 9,141
------- ------ ------- ------- -------
$12,687 $8,764 $12,017 $11,594 $13,316
======= ====== ======= ======= =======
</TABLE>

12. SECURITIES SOLD WITH AGREEMENT TO REPURCHASE:

Presented below is information concerning securities sold with agreement to
repurchase and the related weighted average interest rates for the nine months
ended December 31, 1995 and 1994 and for the year ended March 31, 1995:

<TABLE>
<CAPTION>
DEC. 31, 1995 DEC. 31, 1994 MARCH 31, 1995
------------- ------------- --------------
<S> <C> <C> <C>
Average amounts outstanding..... $21,259 $2,941 $4,522
Total interest cost............. 1,064 119 261
Average interest rate paid...... 6.67% 5.40% 5.77%
Maximum amount outstanding at
any month end.................. 39,509 9,795 9,795
Ending balance.................. 10,000 9,795 9,795
Weighted average interest rate
on balance outstanding......... 6.35% 6.45% 5.95%
</TABLE>

The underlying collateral, which consists of mortgage-backed securities,
U.S. Treasury notes and government agency securities, is held by a third-party
institution. As of December 31, 1995 and 1994 and March 31, 1995, the market
value of such collateral was approximately $11,279, $9,738 and $9,989,
respectively.

There were no securities sold with agreement to repurchase for the years
ended March 31, 1994 and 1993.

13. INCOME TAXES:

The provision for income taxes is as follows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, YEAR ENDED MARCH 31,
----------------- --------------------
1995 1994 1995 1994 1993
-------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Current:
Federal................................ $ 1,455 $ 1,586 $2,141 $1,788 $2,217
State and local........................ 699 823 1,094 1,392 1,625
-------- -------- ------ ------ ------
2,154 2,409 3,235 3,180 3,842
Deferred................................. 112 294 273 226 343
-------- -------- ------ ------ ------
$ 2,266 $ 2,703 $3,508 $3,406 $4,185
======== ======== ====== ====== ======
</TABLE>

G-16
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
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>
NINE MONTHS ENDED
DECEMBER 31, YEAR ENDED MARCH 31,
----------------- ---------------------
1995 1994 1995 1994 1993
-------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Federal income tax.................... $ 1,610 $ 1,992 $2,587 $2,487 $3,106
Increases in income taxes resulting
from:
State and local income taxes, net of
federal tax benefit................ 558 732 918 966 1,072
Other items, net.................... 98 (21) 3 (47) 7
-------- -------- ------ ------ ------
Effective federal income tax.......... $ 2,266 $ 2,703 $3,508 $3,406 $4,185
======== ======== ====== ====== ======
</TABLE>

The following is a summary of the income tax liability at December 31, 1995,
March 31, 1995 and 1994:

<TABLE>
<CAPTION>
MARCH 31,
DEC. 31, -------------
1995 1995 1994
-------- ------ ------
<S> <C> <C> <C>
Current taxes......................................... $ 699 $ 661 $ 633
Deferred taxes........................................ 2,011 1,612 1,361
------ ------ ------
$2,710 $2,273 $1,994
====== ====== ======
</TABLE>

The components of the Company's deferred tax assets and liabilities at
December 31, 1995, March 31, 1995 and 1994, are as follows:

<TABLE>
<CAPTION>
MARCH 31,
DEC. 31, ----------------
1995 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Deferred income tax assets:
Provision for losses on other assets.............. $ 93 $ 93 $ --
Other............................................. 50 136 155
Valuation allowance............................... -- -- --
------- ------- -------
Net deferred income tax assets.................. 143 229 155
======= ======= =======
Deferred income tax liabilities:
Tax over book depreciation........................ (550) (515) (452)
Bad debt deduction................................ (1,429) (1,305) (1,064)
Other............................................. (175) (21) --
------- ------- -------
Total deferred income tax liabilities........... (2,154) (1,841) (1,516)
------- ------- -------
Net deferred income taxes....................... $(2,011) $(1,612) $(1,361)
======= ======= =======
</TABLE>

Income taxes are deferred as a result of the temporary differences in the
timing of the recognition of certain income and expenses for income tax and
financial reporting purposes. The primary sources of these differences are
accelerated tax depreciation and bad debt deductions.

Bad Debt Deduction

The Company has qualified under certain provisions of the Internal Revenue
Code which permit the deduction from taxable income of an allowance for loan
losses based upon a percentage of taxable income before

G-17
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
such deduction. The maximum deduction allowed under current law is 8% of
taxable income provided that certain minimum levels of qualifying assets are
maintained. In accordance with SFAS No. 109, the Company provides deferred
taxes for this temporary difference.

At March 31, 1995, surplus included approximately $4,535 which represents
the accumulation of such statutory bad debt deduction for which no federal
income taxes have been provided. If this portion of surplus is charged for any
purpose other than bad debt losses, if the Company fails to maintain minimum
levels of qualifying assets, or if the Company is liquidated, a tax liability
will be created from the recapture of previous bad debt deductions.

Management of the Company does not anticipate that surplus will be used or
qualifying asset levels will be reduced in such a way as to result in the
recapture of these deductions.

14. BENEFIT PLANS:

Retirement Plan

The Company is a participant in a defined benefit, noncontributory, multiple
employer pension plan (the "Plan") with the New York State Bankers Retirement
System covering substantially all employees. Pension benefits are based on
length of service, average annual compensation, and other benefits. The
Company's funding policy, the entry age normal cost-frozen initial liability
method is consistent with the funding requirements of federal laws and
regulations. The Plan's assets consist principally of publicly traded stocks
and bonds.

The Company accounts for the Plan in accordance with SFAS No. 87,
"Employers' Accounting for Pensions."

The Company performs its pension valuation to coincide with the year-end of
the pension plan (September 30th). The Company estimates that its pension
status is not materially different at March 31, 1995 and 1994. The components
of net pension expense as determined by the Plan's actuary at the most recent
September 30th valuation dates are as follows:

<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Service cost--benefits earned during the period............ $ 183 $ 185 $ 163
Interest cost on projected benefit obligation.............. 239 225 201
Actual return on plan assets............................... (279) (238) (236)
Net amortization and deferral.............................. (5) 13 (15)
----- ----- -----
Net pension cost....................................... $ 138 $ 185 $ 113
===== ===== =====
</TABLE>

A comparison of accumulated plan benefit obligation and plan net assets as
of the most recent actuarial valuation is as follows:

<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of
$2,821 and $2,579.......................................... $ 2,841 $ 2,607
======= =======
Projected benefit obligation................................ (3,455) (3,162)
Plan assets at fair value................................... 3,800 3,355
------- -------
Excess (deficiency) of Plan assets over projected benefit
obligations................................................ 345 193
Unrecognized prior service cost............................. (12) (13)
Unrecognized loss from experience different from that
assumed.................................................... 497 510
Unrecognized net transition asset........................... (131) (148)
------- -------
Projected prepaid pension cost at September 30, 1996 and
1995....................................................... $ 699 $ 542
======= =======
</TABLE>

G-18
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
Major assumptions utilized as follows:

<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Discount rate.................................................... 7.75% 7.75%
Rate of increase in compensation levels.......................... 5.0 5.0
Expected long-term rate of return on Plan assets................. 8.5 8.5
</TABLE>

Savings Plan

The Company maintains a retirement savings plan for its employees which
allowed participants to make contributions by salary reduction pursuant to
Section 401(k) of the Internal Revenue Code through July 31, 1994. After July
31, 1994, no further contributions have been allowed due to the existence of
the Employee Stock Ownership Plan and Trust.

The Company's contributions to the retirement savings plan for the nine
months ended December 31, 1995 and 1994, and for the fiscal years ended March
31, 1995, 1994 and 1993 were $0, $12, $12, $45, and $42, respectively.

Supplemental Executive Retirement Plan

The Company adopted a Supplemental Executive Retirement Plan ("SERP") to
provide additional retirement benefits for certain employees who are
participants in the Company's qualified plans. For the nine months ended
December 31, 1995 and for the year ended March 31, 1995, $60 and $78,
respectively, of expenses related to the SERP are included in the consolidated
statement of income. No expenses related to the SERP are included in the
consolidated statements of income for the nine months ended December 31, 1994
and for the years ended March 31, 1994 and 1993.

OUTSIDE DIRECTORS' CONSULTATION AND RETIREMENT PLAN

The Company adopted an Outside Directors' Consultation and Retirement Plan
for certain outside directors. For the nine months ended December 31, 1995 and
for the year ended March 31, 1995, $68 and $75, respectively, of expenses
related to the plan are included in the consolidated statement of income. No
expenses related to the plan are included in the consolidated statements of
income for the nine months ended December 31, 1994 and for the years ended
March 31, 1994 and 1993. The plan is unfunded at March 31, 1995. The
components of net pension expense as determined by the plan's actuary at the
most recent April 1st valuation date is as follows:

<TABLE>
<CAPTION>
1995
----
<S> <C>
Service cost-benefits earned during the period....................... $19
Interest cost on projected benefit obligation........................ 23
Actual return on plan assets......................................... --
Net amortization and deferral........................................ 33
---
Net pension cost................................................. $75
===
</TABLE>

G-19
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

A comparison of accumulated plan benefit obligation and plan net assets as
of the most recent actuarial valuation is as follows:

<TABLE>
<CAPTION>
1995
-----
<S> <C>
Accumulated benefit obligation, including vested benefits of
$316............................................................ $ 333
=====
Projected benefit obligation..................................... $ 333
Plan assets at fair value........................................ --
-----
Excess (deficiency) of plan assets over projected benefit
obligations..................................................... (333)
Unrecognized prior service cost.................................. (258)
Adjustment required to recognize minimum liability............... 258
-----
Projected accrued pension cost at April 1, 1995.................. $(333)
=====
Major assumptions utilized as follows:
Discount rate.................................................. 8.0%
Rate of increase in compensation levels........................ N/A
Expected long-term rate of return on plan assets............... N/A
</TABLE>

15. STOCK BENEFIT PLANS:

The following plans became effective upon the conversion of the Bank from a
mutual to a stock form:

Employee Stock Ownership Plan and Trust

The Bank has established an Employee Stock Ownership Plan and Trust ("ESOP")
for eligible employees. Full-time employees employed with the Company or the
Bank after such date who have been credited with at least 1,000 hours during a
twelve-month period and who have attained age 21 are eligible to participate.

To fund the purchase of 370,300 shares of common stock issued in the
conversion, the ESOP borrowed funds from the Company. The loan to the ESOP
will be repaid principally from the Bank's contributions to the ESOP over a
period of 10 years and the collateral for the loan will be the common stock
purchased by the ESOP. At December 31, 1995, March 31, 1995 and 1994, the loan
had an outstanding balance of $2,896, $3,333 and $3,703 and an interest rate
of 8.50%, 9.00% and 6.75%, respectively. No contributions were made to the
ESOP for the nine months ended December 31, 1995 and 1994 and for the years
ended March 31, 1995 and 1994.

Shares purchased by the ESOP will be held by a trustee for allocations among
participants as the loan is repaid. As of December 31, 1995 and 1994 and as of
March 31, 1995 and 1994, 74,060 shares, 37,030 shares, 46,288 shares and 9,258
shares, respectively, are considered outstanding for earnings per common share
calculation. $487, $355, $484 and $100 of expenses related to the release of
the ESOP shares are included in the consolidated statements of income for the
nine months ended December 31, 1995 and 1994 and for the years ended March 31,
1995 and 1994, respectively.

Incentive Stock Option Plan

The Company has adopted the 1994 Incentive Stock Option Plan (the "Stock
Option Plan"). Pursuant to the Stock Option Plan, 306,799 stock options (which
expire ten years from the date of grant, March 30, 1994) have been granted to
officers and employees of the Company and the Bank. Options granted under the
Stock Option Plan may be either options that qualify as incentive stock
options, as defined in Section 422 of the Internal Revenue Code of 1986, as
amended, or non-statutory options. Each option entitles the holder to purchase
one

G-20
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
share of the common stock at an exercise price equal to $10.00 per share (the
initial public offering price). Options will be exercisable on a cumulative
basis in equal installments at a rate of 20% per year commencing one year from
the date of grant. All options granted will be exercisable in the event the
optionee terminates his employment due to death, disability or retirement, or
in the event of a change in control of the Bank or the Company. Simultaneously
with the grant of these options, the Board of Directors granted a "Limited
Right" with respect to the shares covered by the options. Limited rights
granted are subject to terms and conditions and can be exercised only in the
event of a change in control of the Company. Upon exercise of a limited right
the holder shall receive from the Company a cash payment equal to the
difference between the exercise price of the option ($10.00) and the fair
market value of the underlying shares of common stock. No options were
exercised or exercisable through March 31, 1994. As of the year ended March
31, 1995, 61,327 options were exercisable of which 8,958 options were
exercised. For the nine months ended December 31, 1995, 52,369 were
exercisable of which 46,323 were exercised.

Activity for the Incentive Stock Option Plan is as follows:

<TABLE>
<CAPTION>
SHARES UNDER OPTION
------------------------
NUMBER OF
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Balance, March 31, 1993............................. -- --
Granted........................................... 306,799 $10.00
Exercised......................................... -- --
Forfeited......................................... -- --
------- ------
Balance, March 31, 1994............................. 306,799 $10.00
Granted........................................... -- --
Exercised......................................... (8,958) $10.00
Forfeited......................................... -- --
------- ------
Balance, March 31, 1995............................. 297,841 $10.00
Granted........................................... -- --
Exercised......................................... (46,323) $10.00
Forfeited......................................... -- --
------- ------
Balance, December 31, 1995.......................... 251,518 $10.00
======= ======
</TABLE>

Stock Option Plan for Outside Directors

The Board of Directors of the Company has adopted the 1994 Stock Option Plan
for Outside Directors (the "Directors' Option Plan") for non-employee
directors of the Company. The Directors' Option Plan provided for the granting
of non-statutory options totalling 156,076. Contemporaneously with the
conversion, outside directors received fixed awards of options, depending upon
length of Board service, aggregating 137,284 shares. The balance of 18,792
options in the Directors' Option Plan are reserved for awards to future
outside directors. The exercise price per share of each currently outstanding
option is $10.00 per share (the initial public offering price). No options
were exercised or exercisable through March 31, 1994. As of the year ended
March 31, 1995, 45,761 options were exercisable of which no options were
exercised. For the nine months ended December 31, 1995, 45,761 options were
exercisable of which 8,764 were exercised.

All options granted under the Directors' Option Plan are exercisable in
three equal annual installments commencing in March 1995 and expire upon the
earlier of ten years following the date of grant or one year

G-21
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
following the date the optionee ceases to be a director for any reason other
than removal for cause. When options are exercised, the excess of the option
price over the par value is credited to additional paid-in capital. The
Directors' Option Plan does not provide for the granting of stock appreciation
rights in the event of a change of control of the Company or the Bank as
defined under the Directors' Option Plan.

Activity for the Stock Option Plan for Outside Directors is as follows:

<TABLE>
<CAPTION>
SHARES UNDER OPTION
------------------------
NUMBER OF
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Balance, March 31, 1993............................. -- --
Granted........................................... 137,284 $10.00
Exercised......................................... -- --
Forfeited......................................... -- --
------- ------
Balance, March 31, 1994............................. 137,284 $10.00
Granted........................................... -- --
Exercised......................................... -- --
Forfeited......................................... -- --
------- ------
Balance, March 31, 1995............................. 137,284 $10.00
Granted........................................... -- --
Exercised......................................... (8,764) $10.00
Forfeited......................................... -- --
------- ------
Balance, December 31, 1995.......................... 128,520 $10.00
======= ======
</TABLE>

Recognition and Retention Plans and Trusts

The Bank has established the Recognition and Retention Plan for Outside
Directors and the Recognition and Retention Plan for Officers and Employees
(the "RRPs") as a method of providing officers, employees and non-employee
directors of the Bank and Company with a proprietary interest in the Company
in a manner designed to encourage such persons to remain with the Bank. The
Bank contributed funds from available liquid assets to the RRPs to enable the
trusts to acquire 185,150 shares of common stock. The RRPs acquired the shares
at a per share cost of $10.00. As of December 31, 1995, March 31, 1995 and
1994, 55,545 of the total 63,480 shares have been awarded under the RRP for
Outside Directors and 120,384 shares of the total 121,670 shares which were
acquired by the RRP for Officers and Employees, have been awarded.

Under the RRPs, awards are granted in the form of shares of common stock
held by the RRPs. Awards to Outside Directors, Officers and Employees vest in
five equal annual installments commencing one year from the date of the grant
of awards. Awards will be 100% vested upon termination of employment due to
death or disability of the participant or following a change in the control of
the Bank or the Company, or in the case of Outside Directors mandatory
retirement in accordance with the Bank's bylaws. At March 31, 1994, no shares
awarded under the RRPs were vested. At December 31, 1995 and March 31, 1995,
11,109 shares and 24,068 shares for Outside Directors and for Officers and
Employees, respectively, were vested. $278, $278, $370 and $0 of expenses
related to the release of the RRP shares are included in the consolidated
statements of income for the nine months ended December 31, 1995 and 1994 and
for the years ended March 31, 1995 and 1994, respectively.

G-22
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

16. COMMITMENTS, CONTINGENCIES AND OTHER INFORMATION:

Loan Commitments and Line of Credit

In the normal course of its business, the Company is party to various types
of financial instruments which involve potential credit, liquidity, and
interest rate risk in excess of the amounts recognized in its statements of
financial condition. These risks are generally monitored and controlled in
conjunction with the Company's on-balance sheet activities.

The Company's collateral for mortgage and commercial loans is primarily
concentrated in Brooklyn, Queens, Staten Island and Long Island.

In meeting its customers' financing needs, the Company issues commitments to
extend credit. Additionally, the Company issues commitments to purchase
certain securities. For these types of commitments, the contractual amounts of
the financial instruments represent the maximum potential credit risk in the
event of nonperformance by the counterparty. However, since not all such
commitments are drawn down prior to their expiration, the contractual amounts
do not necessarily represent actual future liquidity and credit risk.
Moreover, the actual credit risk related to these activities is controlled by
the evaluation of the customer's creditworthiness and the need for and extent
of collateral wherever it is deemed appropriate.

The Company was party to the following outstanding financial instruments
involving off-balance sheet risk:

<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------
AMOUNT
CLOSING
VARIABLE WITHIN
FIXED RATE RATE TOTAL ONE YEAR
---------- -------- ------ --------
<S> <C> <C> <C> <C>
Loan originations......................... $1,244 $201 $1,445 $1,445
GNMA pass-through certificates purchase
commitments.............................. -- -- -- --
Government agency securities purchase
commitments.............................. 2,000 -- 2,000 2,000
------ ---- ------ ------
$3,244 $201 $3,445 $3,445
====== ==== ====== ======
</TABLE>

The range of interest rates of fixed-rate loan originations as of December
31, 1995 was 7.500% to 8.125%, with all originations closing within one year.

The Bank is a member of the Federal Home Loan Bank of New York, and has a
credit facility available (unused as of December 31, 1995) to meet deposit
outflows and mortgage commitments.

Lease Commitments

As of December 31, 1995, minimum annual rental commitments on leases are as
follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED: AMOUNT
------------------ ------
<S> <C>
1996................................................................. $ 62
1997................................................................. 64
1998................................................................. 65
1999................................................................. 67
2000................................................................. 69
Thereafter........................................................... 254
----
$581
====
</TABLE>

G-23
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
Rent expense for the nine months ended December 31, 1995, and 1994, and for
the fiscal years ended March 31, 1995, 1994 and 1993, approximated $49, $15,
$32, $43 and $55, respectively.

Other Non-Interest Expense

Other non-interest expense amounts which exceed one percent of aggregate
interest and other non-interest expense are as follows:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
DECEMBER 31, YEAR ENDED MARCH 31,
------------- --------------------
1995 1994 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Bank service fees........................... $ 583 $ 526 $ 803 $ 715 $ 663
Insurance, general.......................... 142 154 198 208 --
Merger-related expenses..................... 595 -- -- -- --
</TABLE>

Contingency

On February 6, 1995, the New York State Banking Department ("NYSBD") took
possession of Nationar, a trust company that served as a correspondent bank
and check processor for the Bank. In connection with the takeover of Nationar,
at March 31, 1995, the Bank had approximately $2,156, which is classified in
other assets, of funds with Nationar for which payment had been indefinitely
suspended by the NYSBD. It is currently uncertain as to the amount of loss, if
any, that will result from this event. At December 31, 1995 and March 31,
1995, the consolidated financial statements include a $197 reserve against the
possibility of loss. While the ultimate amount of the loss may differ from the
amount provided, the current allowance is consistent with the Company's
internal policy for establishing valuation allowances. On April 5, 1995, the
Bank received $739 from the NYSBD representing a partial release of its funds
with Nationar. In management's opinion, potential losses, if any that may
arise from this event could have a material effect on the Bank's results of
operations.

17. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:

Cash and Due from Banks, Federal Funds Sold and Interest-Bearing Deposits
with Banks

For those short-term instruments, the carrying amount is a reasonable
estimate of fair value.

Investment Securities Held to Maturity and Available for Sale

For investment securities held to maturity and available for sale, fair
values are based on quoted market prices or dealer quotes. If a quoted market
price is not available, fair value is estimated using quoted market prices for
similar securities.

Mortgage-Backed Securities Held to Maturity and Available for Sale

Fair value is determined by reference to quoted market prices, if available.
If quoted market prices are not available, fair value is estimated using
quoted market prices for similar securities.

G-24
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

Loans

For certain homogeneous categories of loans, such as residential mortgages,
fair value is estimated using the quoted market prices for securities backed
by similar loans, adjusted for differences in loan characteristics.

Accrued Interest and FHLB Stock

Carrying amount is a reasonable estimate of fair value.

Deposit Liabilities

The fair value of demand deposits and savings accounts is the amount payable
on demand at the reporting date. The fair value of fixed-maturity certificates
of deposit and money market deposits is estimated using the rates currently
offered for deposits of similar remaining maturities.

Securities Sold with Agreement to Repurchase and Advances from Borrowers for
Taxes and Insurance

Carrying amount is a reasonable estimate of fair value.

The estimated fair values of the Company's financial instruments are as
follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1995 MARCH 31, 1994
----------------- ----------------- -----------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and due from
banks................. $ 6,012 $ 6,012 $ 7,566 $ 7,566 $ 5,222 $ 5,222
Federal funds sold..... 7,000 7,000 14,200 14,200 71,600 71,600
Interest-bearing depos-
its with banks........ 34,999 34,999 18,885 18,885 693 693
Securities available
for sale--
Investment securities.. 22,209 22,209 51 51 14,121 13,531
Mortgage-backed securi-
ties.................. 33,488 33,488 17,897 17,897 65,782 68,220
-------- -------- -------- -------- -------- --------
Total securities avail-
able for sale......... 55,697 55,697 17,948 17,948 79,903 81,751
-------- -------- -------- -------- -------- --------
Securities held to ma-
turity--
Investment securities.. 119,247 120,240 101,669 99,962 54,898 54,896
Mortgage-backed securi-
ties.................. 128,086 129,923 148,605 145,772 98,355 96,173
-------- -------- -------- -------- -------- --------
Total securities held
to maturity........... 247,333 250,163 250,274 245,734 153,253 151,069
-------- -------- -------- -------- -------- --------
Loans.................. 115,931 118,076 114,825 112,620 100,011 99,336
Less--Allowance for
loan losses........... 211 -- 174 -- 210 --
Accrued interest re-
ceivable.............. 3,523 3,523 3,655 3,655 2,845 2,845
FHLB stock............. 2,681 2,681 2,681 2,681 2,372 2,372
Financial liabilities:
Savings and demand de-
posits................ 145,449 145,449 146,194 146,194 168,645 168,645
Time and money market
deposits.............. 248,516 251,095 206,811 203,772 182,108 184,657
Securities sold with
agreement to repur-
chase................. 10,000 10,000 9,795 9,795 -- --
Advances from borrowers
for taxes and insur-
ance.................. 1,641 1,641 1,927 1,927 1,761 1,761
Accrued interest pay-
able.................. 121 121 164 164 -- --
</TABLE>

G-25
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

18. REGULATORY MATTERS:

As required by the Office of Thrift Supervision ("OTS"), the Bank is
required to maintain minimum regulatory capital requirements which include a
"leverage limit," a "tangible capital requirement" and a "risk-based capital
requirement."

The leverage limit requires a savings institution to maintain "core capital"
in an amount not less than 3% of the savings institution's "adjusted total
assets." The tangible capital requirements call for a savings institution to
maintain "tangible capital" in an amount not less than 1.5% of the savings
institution's "adjusted total assets." The ability to include qualifying
supervisory goodwill for purposes of the core capital requirement has been
phased out as of January 1, 1995.

The risk-based capital requirement calls for a savings institution to
maintain capital in an amount equal to 8.0% of the value of its risk-weighted
assets.

In December 1992, the prompt corrective action provision under the Federal
Deposit Insurance Corporation Improvement Act of 1991 became effective. These
regulations established capital standards in five categories ranging from
"critically undercapitalized" to "well capitalized," and defined "adequately
capitalized" as at least 4% for core (leverage) capital. Institutions with a
core capital level less than 4% or risk-based capital less than 8% are
considered "undercapitalized," and subject to increasingly stringent prompt
corrective action measures.

The interest rate risk component of capital for thrift institutions, which
was to go into effect September 30, 1994, has been waived until the OTS
finalizes the process under which institutions may appeal such capital
deductions. Generally, a thrift would be required to maintain capital against
interest rate risk exposure in an amount equal to 50% of the estimated decline
in the net portfolio value that would result from an immediate 200 basis point
increase or decrease in interest rates.

The Company's management believes that, under the current and proposed
regulations, the Bank will continue to meet its minimum capital requirements
in the foreseeable future. However, events beyond the control of the Company,
such as increased interest rates or a downturn in the economy in areas where
the Company has most of its loans, could adversely affect future earnings and,
consequently, the ability of the Bank to meet its future minimum capital
requirements.

The information below is based upon the Bank's understanding of the
applicable regulations and related interpretations.

At December 31, 1995, March 31, 1995 and 1994, the Bank had the following
capital ratios:

<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1995 MARCH 31, 1994
-------------------------- -------------------------- --------------------------
ACTUAL % REQUIRED % ACTUAL % REQUIRED % ACTUAL % REQUIRED %
------- ---- -------- --- ------- ---- -------- --- ------- ---- -------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible capital........ $56,969 12.1% $ 7,037 1.5% $54,205 12.7% $ 6,380 1.5% $49,968 11.7% $ 6,426 1.5%
Core capital............ $56,969 12.1% $14,074 3.0% $54,205 12.7% $12,759 3.0% $49,968 11.7% $12,853 3.0%
Risk-based capital...... $57,166 34.1% $13,406 8.0% $54,365 39.5% $11,000 8.0% $50,178 37.4% $10,723 8.0%
</TABLE>

G-26
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

The following is a reconciliation of the Bank's stockholders' equity to
regulatory capital:

<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, ---------------
1995 1995 1994
------------ ------- -------
<S> <C> <C> <C>
Bank's stockholders' equity...................... $57,402 $54,185 $49,968
Add (subtract)--Unrealized losses (gains) on se-
curities available for sale..................... (433) 20 --
------- ------- -------
OTS tangible/core capital.................... $56,969 $54,205 $49,968
======= ======= =======
OTS tangible/core capital........................ $56,969 $54,205 $49,968
Add--Allowable supplementary capital:
General loan loss reserves on loans............ 197 160 210
------- ------- -------
OTS risk-based capital....................... $57,166 $54,365 $50,178
======= ======= =======
</TABLE>

G-27
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

19. CONESTOGA BANCORP, INC.--PARENT COMPANY ONLY FINANCIAL STATEMENTS:

The following statements of financial condition as of December 31, 1995,
March 31, 1995 and 1994, the statements of income for the nine months ended
December 31, 1995 and 1994, and for the year ended March 31, 1995, and the
related statements of cash flows for the nine months ended December 31, 1995
and 1994, and for the years ended March 31, 1995 and 1994, reflect the
Company's investment in its wholly-owned subsidiary, the Bank, using the
equity method of accounting.

CONESTOGA BANCORP, INC.
STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, ----------------
1995 1995 1994
------------ ------- -------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents....................... $ 334 $ 121 $ 10
Interest-bearing deposits with banks............ 15,700 5,600 --
Investment securities available for sale........ -- 51 --
Investment securities held to maturity.......... 2,992 13,862 --
Accrued interest receivable..................... 84 365 --
Due from Pioneer Savings Bank, F.S.B. .......... -- -- 19,233
ESOP loan to Pioneer Savings Bank, F.S.B. ...... 2,896 3,333 3,703
Investment in Pioneer Savings Bank, F.S.B. ..... 57,402 54,185 49,968
------- ------- -------
TOTAL ASSETS................................ $79,408 $77,517 $72,914
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Income taxes payable............................ 42 55 --
Accrued expense & other liabilities............. 11 -- --
------- ------- -------
TOTAL LIABILITIES........................... 53 55 --
------- ------- -------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 2,000,000
shares authorized; none issued............... -- -- --
Common stock, $.01 par value; 11,000,000
shares authorized; 4,813,900 shares issued... 48 48 48
Additional paid-in capital.................... 45,934 45,845 45,851
Employee stock ownership plan................. (2,896) (3,240) (3,610)
Recognition and retention plan................ (1,204) (1,481) (1,852)
Treasury stock, at cost (71,965 shares and
19,369 shares, respectively)................. (1,062) (271) --
Retained earnings............................. 38,102 36,579 32,477
Unrealized appreciation (depreciation) on
securities available for sale, net........... 433 (18) --
------- ------- -------
Total stockholders' equity.................. 79,355 77,462 72,914
------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.. $79,408 $77,517 $72,914
======= ======= =======
</TABLE>

G-28
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

STATEMENT OF INCOME

<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
-----------------
YEAR ENDED
1995 1994 MARCH 31, 1995
-------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
INTEREST INCOME:
ESOP loan to Pioneer Savings Bank, F.S.B. .. $ 224 $ 217 $ 291
Investment securities....................... 567 531 733
Federal funds sold.......................... 320 226 316
-------- -------- ------
Total interest income..................... 1,111 974 1,340
-------- -------- ------
INTEREST EXPENSE.............................. -- -- --
-------- -------- ------
Net interest income before provision for
loan losses................................ 1,111 974 1,340
PROVISIONS FOR LOAN LOSSES.................... -- -- --
-------- -------- ------
Net interest income after provision for loan
losses..................................... 1,111 974 1,340
-------- -------- ------
NON-INTEREST INCOME:
Net gains on sale of securities available
for sale................................... 10 -- --
-------- -------- ------
Equity in undistributed net income of sub-
sidiary bank............................... 1,933 2,678 3,457
-------- -------- ------
Total non-interest income................. 1,943 2,678 3,457
-------- -------- ------
NON-INTEREST EXPENSE.......................... 139 87 146
-------- -------- ------
INCOME BEFORE INCOME TAXES.................... 2,915 3,565 4,651
PROVISION FOR INCOME TAXES.................... 447 409 549
-------- -------- ------
Net income................................ $ 2,468 $ 3,156 $4,102
======== ======== ======
</TABLE>

The Company had no results of operations for the year ended March 31, 1994.

G-29
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, YEAR ENDED MARCH 31,
------------------ ----------------------
1995 1994 1995 1994
-------- -------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVI-
TIES:
Net income....................... $ 2,468 $ 3,156 $ 4,102 $ --
Adjustments to reconcile net in-
come to net cash provided by op-
erating activities:
Undistributed earnings of subsid-
iary bank....................... (1,933) (2,678) (3,457) --
Depreciation and amortization.... (31) (6) (10) --
(Increase) decrease in assets--
Accrued interest receivable...... 281 (139) (365) --
Due from Pioneer Savings Bank,
F.S.B. ......................... -- 19,233 19,233 (19,233)
Increase (decrease) in liabili-
ties--
Accrued expense & other liabili-
ties............................ 11 -- -- --
Income taxes payable............. (13) 409 55 --
-------- -------- ---------- ----------
Net cash provided by (used in)
operating activities.......... 783 19,975 19,558 (19,233)
-------- -------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVI-
TIES:
Payment made to purchase 100% of
the outstanding stock of the
Bank............................ -- -- -- (22,946)
Purchases of investment securi-
ties............................ (4,000) (13,853) (13,853) --
Purchases of securities available
for sale........................ -- -- (49) --
Net purchases of interest-bearing
deposits with banks............. (10,100) (6,350) (5,600) --
Maturities of investment securi-
ties............................ 14,900 -- -- --
Sales of securities available for
sale............................ 49 -- -- --
Decrease (increase) in ESOP loan
receivable...................... 437 370 370 (3,703)
-------- -------- ---------- ----------
Net cash provided by (used in)
investing activities.......... 1,286 (19,833) (19,132) (26,649)
-------- -------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVI-
TIES:
Acquisition of treasury stock.... (1,548) -- (315) --
Exercise of stock options........ 637 -- -- --
Cash dividends paid.............. (945) -- -- --
Proceeds from issuance of common
stock........................... -- -- -- 45,892
-------- -------- ---------- ----------
Net cash provided by (used in)
financing activities.......... (1,856) -- (315) 45,892
-------- -------- ---------- ----------
Net increase in cash and cash
equivalents................... 213 142 111 10
CASH AND CASH EQUIVALENTS, begin-
ning of period.................... 121 10 10 --
-------- -------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of
period............................ $ 334 $ 152 $ 121 $ 10
======== ======== ========== ==========
</TABLE>

G-30
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):

The following is a summary of the quarterly results of operations for the
nine months ended December 31, 1995 and 1994, and for the years ended March
31, 1995 and 1994:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------
DECEMBER 31, 1995 SEPTEMBER 30, 1995 JUNE 30, 1995
----------------- ------------------ -------------
<S> <C> <C> <C>
Total interest income...... $8,315 $8,481 $7,731
Total interest expense..... 4,616 4,831 4,327
Net interest income........ 3,699 3,650 3,404
Provision for loan losses.. 15 22 --
Non-interest income........ 869 232 421
Non-interest expense and
provision for income
taxes..................... 3,637 3,050 3,083
Net income................. 916 810 742
Primary earnings per common
share..................... 0.20 0.18 0.17
Fully diluted earnings per
common share.............. 0.20 0.18 0.17
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------
MARCH 31, 1995 DECEMBER 31, 1994 SEPTEMBER 30, 1994 JUNE 30, 1994
-------------- ----------------- ------------------ -------------
<S> <C> <C> <C> <C>
Total interest income... $7,122 $6,826 $6,412 $6,349
Total interest expense.. 3,402 3,187 2,886 2,830
Net interest income..... 3,720 3,639 3,526 3,519
Provision for loan
losses................. (46) -- 10 --
Non-interest income..... 472 225 287 846
Non-interest expense and
provision for income
taxes.................. 3,292 2,858 2,860 3,158
Net income.............. 946 1,006 943 1,207
Primary earnings per
common share........... 0.21 0.23 0.21 0.28
Fully diluted earnings
per common share....... 0.20 0.23 0.22 0.27
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------
MARCH 31, 1994 DECEMBER 31, 1993 SEPTEMBER 30, 1993 JUNE 30, 1993
-------------- ----------------- ------------------ -------------
<S> <C> <C> <C> <C>
Total interest income... $6,132 $6,099 $6,240 $6,358
Total interest expense.. 2,839 2,869 2,888 3,022
Net interest income..... 3,293 3,230 3,352 3,336
Provision for loan
losses................. -- 89 (50) --
Non-interest income..... 410 159 256 661
Non-interest expense and
provision for income
taxes.................. 2,976 2,319 2,881 2,573
Net income.............. 727 981 777 1,424
Earnings per common
share since
conversion............. 0.01 N/A N/A N/A
</TABLE>

G-31
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

21. EVENTS OCCURRING SUBSEQUENT TO THE DATE OF THE AUDITORS' REPORT
(UNAUDITED)

1. BUSINESS ACQUISITION.

On November 2, 1995, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with The Dime Savings Bank of Williamsburgh
(the "Dime") pursuant to which the Company and its wholly-owned financial
institution subsidiary Pioneer Savings Bank, F.S.B. ("Pioneer") will be merged
into the Dime (the "Acquisition"). The Merger Agreement provides that each
share of the Company's common stock, par value $.01 per share (the "Conestoga
Common Stock") outstanding as of the effective time of the Merger (the
"Effective Time") (other than shares held as treasury stock, unallocated
shares held by the Company's Recognition and Retention Plans and Trusts and
any shares as to which dissenters' rights may be exercised under applicable
law) will be converted into the right to receive $21.25 in cash without
interest (the "Merger Consideration"). In the event the transaction is not
completed on or prior to May 31, 1996, the Dime will be required to increase
the Merger Consideration by $.07 per share for each month, pro rated on a
daily basis, commencing on June 1, 1996 until completion of the transaction.
Based on the total number of shares of the Company's Common Stock outstanding
as of December 31, 1995 and the consideration to be paid in respect of options
of the Company's Common Stock outstanding on that date, assuming all such
options are converted into the right to receive cash, the Company estimates
that total cash consideration to be paid to the Company's shareholders and
option holders in the Merger is approximately $105 million.

The Acquisition is subject to (i) approval by the requisite number of
shareholders of the Company of the Merger Agreement, (ii) the receipt of all
necessary consents, waivers, clearances, approvals and authorizations from
regulators or governmental bodies, including the OTS, (iii) the occurrence of
all material steps necessary to complete the Dime's Conversion and (iv) the
satisfaction or waiver of certain other conditions.

2. SHAREHOLDERS' LAWSUIT.

3. INVESTMENT SECURITIES.

On November 15, 1995, the FASB issued a special report entitled, "A Guide to
Implementation of Statement No. 115 on Accounting for Certain Investments in
Debt and Equity Securities, Questions and Answers" ("the Guide"). The Guide
permitted a one-time reassessment and related reclassifications from the held
to maturity category (no later than December 31, 1995) that will not call into
question the intent of the enterprise to hold other debt securities at
maturity in the future. On November 30, 1995, the Company performed a
reassessment of its investment and mortgage-backed securities portfolio which
resulted in a reclassification of approximately $91.5 million of investment
securities from held to maturity into available for sale. There was no impact
on the Company's results from operations resulting from this transfer. This
transfer resulted in an increase to stockholders' equity of $423, net of
income taxes. Furthermore, all such reclassified securities have subsequently
been sold or are expected to be sold by March 31, 1996.

G-32
<PAGE>

CONESTOGA BANCORP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
4. SALES OF INVESTMENT SECURITIES HELD TO MATURITY.

As presented in footnote 5, sales of investment securities held to maturity
for the nine months ended December 31, 1995 approximated $4.0 million and
reflects sales of downgraded corporate bonds. The $4.0 million of downgraded
corporate bonds were sold because there was evidence of significant
deterioration of the issuer's creditworthiness, and were therefore sold in
accordance with paragraph 8 of SFAS 115.

5. RECAPITALIZATION OF SAVINGS ASSOCIATION INSURANCE FUND ("SAIF")

6. NATIONAR CONTINGENCY

By a letter dated April 3, 1996 and Notice of Hearing on April 24, 1996, the
Superintendent of Banks for the State of New York notified the Company that he
will accept the claims in the amount of $2.2 million for the demand account of
which the Company has previously received $739. The superintendent also
informed the Company that he intends to recommend to the court that such
accepted claims be treated as claims entitled to priority payment. The Company
expects accepted claims for which priority is granted will be paid in full.
The Superintendent has also obtained judicial approval to pay in full claims
entitled to priority. Subject to satisfaction of certain conditions, the
Superintendent will make such payment on June 27, 1996.

G-33
<PAGE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION 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 DIME COMMUNITY BANCORP, INC., THE BANK OR SANDLER O'NEILL & PARTNERS, L.P.
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 JURIS-
DICTION 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 JURIS-
DICTION. 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 DIME COMMUNITY BANCORP, INC. OR THE BANK SINCE ANY OF THE DATES
AS OF WHICH INFORMATION IS FURNISHED HEREIN OR SINCE THE DATE HEREOF.

---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 4
Selected Consolidated Financial and Other Data of the Bank............... 14
Selected Financial and Other Data of Conestoga........................... 16
Selected Pro Forma Unaudited Condensed Combined Financial Data of the
Company................................................................. 18
Recent Developments...................................................... 20
Recent Developments of Conestoga......................................... 24
Selected Pro Forma Unaudited Condensed Combined Financial Data of the
Recent Developments of the Company...................................... 27
Risk Factors............................................................. 29
Dime Community Bancorp, Inc.............................................. 37
The Dime Savings Bank of Williamsburgh................................... 37
Acquisition of Conestoga Bancorp, Inc.................................... 39
Unaudited Pro Forma Condensed Combined Financial Statements.............. 47
Use of Proceeds.......................................................... 52
Dividend Policy.......................................................... 53
Market for the Common Stock.............................................. 54
Regulatory Capital Compliance............................................ 55
Capitalization........................................................... 56
Pro Forma Data........................................................... 57
The Dime Savings Bank of Williamsburgh Consolidated Statements of
Operations.............................................................. 62
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 63
Business of the Company.................................................. 78
Business of the Bank..................................................... 78
Federal and State Taxation............................................... 99
Regulation............................................................... 102
Consolidated Statements of Income of Conestoga........................... 112
Management of Conestoga's Discussion and Analysis of Financial Condition
and Results of Operations of Conestoga.................................. 113
Business of Conestoga.................................................... 130
Management of the Company................................................ 147
Management of the Bank................................................... 148
The Conversion........................................................... 161
Restrictions on Acquisition of the Company and the Bank.................. 178
Description of Capital Stock of the Company.............................. 184
Description of Capital Stock of the Bank................................. 185
Transfer Agent and Registrar............................................. 186
Experts.................................................................. 186
Legal and Tax Opinions................................................... 186
Additional Information................................................... 186
Index to Financial Statements............................................ 188
</TABLE>

---------------
UNTIL JUNE 12, 1996, 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.

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

12,650,000 SHARES

DIME [LOGO] COMMUNITY
BANCORP, INC.

(PROPOSED HOLDING COMPANY FOR THE DIME SAVINGS BANK OF WILLIAMSBURGH)

COMMON STOCK

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

PROSPECTUS

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

MAY 14, 1996

Sandler O'Neill & Partners, L.P.

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

GRAPHICS APPENDIX LIST

PAGE WHERE
GRAPHIC
APPEARS DESCRIPTION OF GRAPHIC OR CROSS-REFERENCE
---------- -----------------------------------------

TX 3 Bank Logo and Map of the New York City Metropolitan Area,
identifying the locations of the headquarters and Branch
Offices of the Bank and Branch Offices of Pioneer
Savings Bank to be acquired.