Cohoes Bancorp Inc – IPO: ‘S-1’ on 9/16/98

As of:  Wednesday, 9/16/98   ·   Accession #:  950164-98-134   ·   File #:  333-63539

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Initial Public Offering (IPO):  Registration Statement (General Form)   —   Form S-1
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: S-1         Registration Statement (General Form)                321   1.62M 
 2: EX-1        Exhibit 1.1                                            7     30K 
 3: EX-2        Plan of Acquisition, Reorganization, Arrangement,     20     91K 
                          Liquidation or Succession                              
 4: EX-3        Exhibit 3.1                                           17     70K 
 5: EX-3        Exhibit 3.2                                           14     49K 
 6: EX-3        Exhibit 3.3                                           10     34K 
 7: EX-3        Exhibit 3.4                                           15     54K 
 8: EX-4        Instrument Defining the Rights of Security Holders     4     16K 
 9: EX-5        Opinion re: Legality                                   3     15K 
10: EX-8        Exhibit 8.3                                            2±    11K 
11: EX-10       Exhibit 10.1                                          54    171K 
12: EX-10       Exhibit 10.2                                          39    152K 
13: EX-10       Exhibit 10.3                                          33    132K 
14: EX-10       Exhibit 10.4                                           9     31K 
15: EX-10       Exhibit 10.5                                          71    232K 
16: EX-21       Subsidiaries of the Registrant                         1      8K 
17: EX-23       Exhibit 23.1                                           2     10K 
18: EX-23       Exhibit 23.2                                           2      9K 
19: EX-23       Exhibit 23.3                                           1     10K 
20: EX-27       Financial Data Schedule                                2±    10K 
21: EX-99       Exhibit 99.2                                           2     10K 
22: EX-99       Exhibit 99.3                                          13     38K 
23: EX-99       Exhibit 99.4                                           5     34K 
24: EX-99       Exhibit 99.5                                           1      9K 
25: EX-99       Exhibit 99.6                                           2     11K 

S-1   —   Registration Statement (General Form)
Document Table of Contents

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As filed with the Securities and Exchange Commission on September 16, 1998

                                                 Registration No. 333-__________
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

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

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

        Delaware                          6035                   Applied For
       (State or other                (Primary Standard          I.R.S. Employer
jurisdiction of incoporation      Industrial Classification       Identification
 or organization)                   Code Number)                  No.)

 75 Remsen Street, Cohoes, New York 12047 (518) 233-6575
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)

 Harry L. Robinson
 President and Chief Executive Officer
Cohoes Bancorp, Inc.
75 Remsen Street
 Cohoes, New York 12047 (518) 233-6575
 (Name, address, including zip code, and telephone number,
including area code, of agent for service)

Please send copies of all communications to:
Robert L. Freedman, P.C.
 Martin L. Meyrowitz, P.C.
Beth A. Freedman, Esq.
 James M. Larkins, III, Esq.
 SILVER, FREEDMAN & TAFF, L.L.P.
 (A limited liability partnership including professional corporations)
1100 New York Avenue, N.W.
 Seventh Floor, East Tower
Washington, DC 20005
(202) 414-6100

     Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.                

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

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

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

     If delivery of the  prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]                                             

                                                        [Enlarge/Download Table]

                         CALCULATION OF REGISTRATION FEE                                                               

Title of Each Class                   Amount to be     Proposed Maximum Offering  Proposed Aggregate  Maximum Amount of
Securities to be Registered            Registered         Price Per Share (2)       Offering Price     Registration Fee
---------------------------           ------------     -------------------------  ------------------  -----------------
                                                                                                                       
Common Stock, $.01 par value (1)   12,778,790 shares             $10.00              $127,787,900          $37,698     

----------                                                                      
(1)  Estimated solely for the purpose of calculating the registration fee.      

(2)  Includes shares to be issued to the Cohoes Savings Bank Foundation.        

     The Registrant  hereby amends this  Registration  Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further  amendment  which  specifically  states  that  this  Registration
Statement shall  thereafter  become effective in accordance with Section 8(a) of
the  Securities  Act of 1933 or until the  Registration  Statement  shall become
effective on such date as the Commission,  acting pursuant to said Section 8(a),
may determine.                                                                  
================================================================================

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Explanatory Note

     The following  pages  constitute  the  preliminary  proxy  statement of SFS
Bancorp, Inc. ("SFS"). Such proxy statement will "wrap around" the prospectus of
Cohoes Bancorp, Inc. enclosed in this Registration Statement.                   

[SFS BANCORP, INC. LOGO]  

251-263 State Street      
 Schenectady, New York 12305
(518) 395-2300            

                                                              September 16, 1998

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[SFS BANCORP, INC. letterhead]

                                                               November __, 1998

Dear Fellow Stockholder:                                                        

     We cordially  invite you to attend a special meeting of the stockholders of
SFS Bancorp,  Inc. ("SFS").  The meeting is to be held at the main office of the
Company  located at 251-263 State Street,  Schenectady,  New York, on _________,
December __, 1998, at 10:00 a.m., Eastern Time.                                 

     We have  called the  meeting to seek your  approval  of a Merger  Agreement
which  provides  for  SFS  to be  merged  with  Cohoes  Bancorp,  Inc.  ("Cohoes
Bancorp"),  which is the proposed holding company for Cohoes Savings Bank, a New
York-chartered  savings bank.  Immediately following completion of the Merger of
SFS into Cohoes Bancorp,  SFS' subsidiary  Schenectady Federal Savings Bank will
be merged into Cohoes Savings Bank.                                             

     Upon  completion  of the  Merger,  each share of SFS  common  stock will be
converted  into a number of shares of Cohoes  Bancorp  common stock equal to the
lesser of (a) $26.50 divided by the initial public  offering price of the Cohoes
Bancorp common stock,  or (b) $35.00 divided by the average closing price of the
Cohoes  Bancorp  common stock for the first ten trading days on which such stock
is  traded.  Cash  will be paid in lieu of  fractional  shares.  The  investment
banking firm of Charles Webb & Company,  a Division of Keefe,  Bruyette & Woods,
Inc. has advised your Board of Directors  that in its opinion dated November __,
1998,  the  exchange  ratio is fair to the  holders of SFS  common  stock from a
financial point of view.                                                        

     Completion  of the  Merger is  subject  to  certain  conditions,  including
receipt of bank regulatory approvals and approval of the Merger Agreement by the
affirmative vote of a majority of the outstanding shares of common stock of SFS.

     We urge you to read the attached Proxy  Statement/Prospectus  carefully. It
describes  the  Merger  Agreement  in detail  and  includes a copy of the Merger
Agreement as Appendix I.                                                        

     Your Board of Directors has unanimously  approved the Merger  Agreement and
unanimously recommends that you vote"FOR" approval of the Merger Agreement.     

     It is very  important  that  your  shares  be  represented  at the  special
meeting.  Whether or not you plan to attend, please complete,  date and sign the
enclosed proxy card and return it promptly in the postage-paid  envelope we have
provided.                                                                       

                               On behalf of your Board of Directors,

                                     Joseph H. Giaquinto, Chairman of the Board,
                               President and Chief Executive Officer

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 SFS BANCORP, INC.
251-263 State Street
 Schenectady, New York 12305
(518) 395-2300

 NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
 To be Held on December __, 1998

     Notice  is  hereby  given  that a  Special  Meeting  of  Stockholders  (the
"Meeting") of SFS Bancorp,  Inc.  ("SFS") is scheduled to be held at 10:00 a.m.,
Eastern Time, on December __, 1998, at the main office of SFS located at 251-263
State Street, Schenectady, New York.                                            

     A proxy card and a Proxy Statement/Prospectus for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:                  

          1. The adoption of the Agreement and Plan of Merger,  dated as of July
     31, 1998, between Cohoes Savings Bank ("Cohoes Savings") and SFS, a copy of
     which  is  included  in  the  accompanying  Proxy  Statement/Prospectus  as
     Appendix I and  incorporated  by  reference  herein,  and the  transactions
     contemplated  thereby,  including  the  merger of SFS with and into  Cohoes
     Bancorp,  Inc. (the  "Company"),  the proposed  holding  company for Cohoes
     Savings,  pursuant to which each share of SFS common stock  outstanding  at
     the time of the merger (except for treasury  shares and certain shares held
     by the Company or Cohoes Savings) will be converted into a number of shares
     of Company  common  stock equal to the lesser of (a) $26.50  divided by the
     initial  public  offering  price of Company  common  stock (or 2.65  shares
     assuming an initial  public  offering  price of $10.00 per  share),  or (b)
     $35.00 divided by the average closing price of Company common stock for the
     first ten  trading  days on which such  stock is traded,  in each case with
cash paid in lieu of fractional share interests; and                  

          2. Such other  matters as may properly  come before the Meeting or any
     adjournments or postponements  thereof. The Board of Directors is not aware
of any other business to come before the Meeting.                     

     Any action may be taken on any of the foregoing proposals at the Meeting on
the date  specified,  or on any dates to which the Meeting may be  adjourned  or
postponed.  Stockholders of record at the close of business on __________,  1998
are the  stockholders  entitled to vote at the Meeting and any  adjournments  or
postponements thereof.                                                          

     You are requested to complete, sign and date the enclosed proxy card, which
is solicited on behalf of the Board of Directors, and to mail it promptly in the
enclosed  postage-paid  envelope.  The proxy card will not be used if you attend
and vote at the Meeting in person. If you are a stockholder whose shares are not
registered in your name, you will need additional  documentation from the holder
of record of your shares to vote in person at the Meeting.  The prompt return of
proxies will save SFS the expense of further requests for proxies.              

                                  By Order of the Board of Directors

                   Joseph H. Giaquinto
                                Chairman of the Board, President
                               and Chief Executive Officer

Schenectady, New York                                                           
November __, 1998                                                               

YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT 
AND RECOMMENDS THAT  YOU VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT. 

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PROXY STATEMENT                                    PROSPECTUS           
OF                                              OF        
SFS BANCORP, INC.                               COHOES BANCORP, INC       
FOR THE SPECIAL MEETING                  Up to 3,202,451 Shares of Common Stock,
OF STOCKHOLDERS                              par value $.01 per share   
to be Held on                              (to be issued pursuant to  
December __, 1998                           the Merger described herein)  

     This  Proxy  Statement/Prospectus  relates  to  the  proposed  merger  (the
"Merger") of SFS Bancorp,  Inc., a Delaware corporation  ("SFS"),  with and into
Cohoes  Bancorp,  Inc., a Delaware  corporation  (the  "Company"),  the proposed
holding  company for Cohoes  Savings  Bank,  a New  York-chartered  savings bank
("Cohoes Savings"),  as contemplated by the Agreement and Plan of Merger,  dated
as of July 31, 1998 (the "Merger  Agreement"),  between  Cohoes Savings and SFS.
The Merger  Agreement  is included as Appendix I hereto and is  incorporated  by
reference herein.                                                               

     This Proxy Statement/Prospectus is being furnished to the holders of shares
of common  stock,  par value  $.01 per  share,  of SFS ("SFS  Common  Stock") in
connection  with the  solicitation  of proxies by the Board of  Directors of SFS
(the "SFS Board") for use at a Special Meeting of Stockholders  (the "Meeting"),
scheduled to be held at 10:00 a.m.,  Eastern  Time, on December __, 1998, at the
main office of SFS located at 251-263 State Street,  Schenectady,  New York, and
at any and all adjournments and postponements thereof.                          

     This  Proxy  Statement/Prospectus  also  constitutes  a  prospectus  of the
Company with respect to up to 3,202,451  shares of common stock,  par value $.01
per  share,  of  the  Company   ("Company  Common  Stock")  to  be  issued  upon
consummation  of the Merger pursuant to the terms of the Merger  Agreement.  The
Prospectus  of the  Company  is a part of this Proxy  Statement/Prospectus  (see
"Table of Contents") and is referred to herein as the "Prospectus."             

     At the Meeting, the holders of SFS Common Stock will consider and vote upon
a  proposal  to adopt the Merger  Agreement  and the  transactions  contemplated
thereby.                                                                        

     Subject to the terms,  conditions  and  procedures  set forth in the Merger
Agreement,  each share of SFS Common  Stock issued and  outstanding  immediately
prior to the Merger  (except for treasury  shares and certain shares held by the
Company or Cohoes  Savings) will be converted into the right to receive a number
of shares (the "Exchange  Ratio") of Company Common Stock equal to the lesser of
(a)  $26.50  divided  by the  initial  public  offering  price for the shares of
Company  Common Stock to be issued in connection  with the  conversion of Cohoes
Savings  from  mutual to stock form and the  organization  of the Company as the
holding company for Cohoes Savings (the "Conversion"),  or (b) $35.00 divided by
the average  closing price of the Company Common Stock for the first ten trading
days on  which  such  stock is  traded  on The  Nasdaq  Stock  Market  following
consummation  of the Conversion  ("Average  Closing  Price").  Each share of SFS
Common Stock will be converted  into 2.65 shares of Company  Common Stock in the
Merger based on the initial public  offering price of $10.00 per share,  subject
to downward  adjustment if the initial public offering price is $10.00 per share
and the Average Closing Price of the Company Common Stock exceeds  $13.21.  Cash
will be paid in lieu of  fractional  share  interests.  Because  the Company has
never  publicly  issued any capital  stock,  there can be no  assurance  that an
active and liquid  trading market for the Company Common Stock will develop upon
the  Conversion and Merger or that the Company Common Stock will trade above its
initial public offering price. SFS' financial advisor has rendered an opinion to
the  effect  that as of  November  __,1998  the  Exchange  Ratio is fair  from a
financial  point of view to the  stockholders  of SFS.  The Merger is subject to
certain  conditions,  including  the  approval  of the  stockholders  of SFS and
consummation of the Conversion.  For additional information regarding the Merger
Agreement and the terms of the Merger, see "The Merger."                        

     This Proxy  Statement/Prospectus,  and the accompanying  notice and form of
proxy,  are first being mailed to  stockholders  of SFS on or about November __,
1998.                                                                           

 The date of this Proxy Statement/Prospectus is November __, 1998.

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 AVAILABLE INFORMATION

     SFS is subject to the information  requirements of the Securities  Exchange
Act of 1934, as amended (the "Exchange Act") and, in accordance therewith, files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "SEC").  Such reports,  proxy  statements and other  information
filed by SFS can be obtained,  upon payment of prescribed  fees, from the Public
Reference  Section  of the SEC at  Judiciary  Plaza,  450  Fifth  Street,  N.W.,
Washington D.C. 20549. In addition, such information can be inspected and copied
at the public reference facilities of the SEC located at 450 Fifth Street, N.W.,
Room 1024,  Washington,  D.C. 20549 and at the SEC's Regional Offices located at
Citicorp  Center,  500  West  Madison  Street,  Suite  1400,  Chicago,  Illinois
60661-2511 and 7 World Trade Center,  13th Floor,  New York, New York 10048. The
SEC maintains a web site that contains reports, proxy and information statements
and other information  regarding  registrants that file  electronically with the
SEC (such as SFS). The address of the SEC's web site is  http://www.sec.gov.  In
addition, the SFS Common Stock is quoted on The Nasdaq Stock Market, and certain
materials  regarding  SFS  can be  inspected  at  the  offices  of the  National
Association  of Securities  Dealers,  Inc. (the  "NASD"),  1735 K Street,  N.W.,
Washington, D.C. 20006.                                                         

     All information contained in this Proxy  Statement/Prospectus  with respect
to the Company and Cohoes Savings and its  subsidiaries has been supplied by the
Company and Cohoes  Savings,  and all  information  with  respect to SFS and its
subsidiaries has been supplied by SFS.                                          

     The Company  has filed with the SEC a  Registration  Statement  on Form S-1
under the Securities Act of 1933, as amended (the  "Securities  Act")  (together
with all amendments and supplements thereto, the "Registration Statement"), with
respect  to  the  securities   being  offered  by  this  document  (this  "Proxy
Statement/Prospectus,"  sometimes  referred  to as this "Proxy  Statement").  As
permitted   by  the   rules   and   regulations   of   the   SEC,   this   Proxy
Statement/Prospectus  omits  certain  information,   exhibits  and  undertakings
contained in the Registration Statement. For further information with respect to
the  Company  and  the  securities  offered  hereby,  reference  is  made to the
Registration Statement, including the exhibits thereto.                         

     Statements contained in this Proxy  Statement/Prospectus as to the contents
of any document  referred to herein are not  necessarily  complete,  and in each
instance  reference is made to the copy of such document  filed as an exhibit to
the  Registration  Statement or such other  document,  each such statement being
qualified in all respects by such reference.                                    

     THE SECURITIES  OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SEC NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS  DOCUMENT.  ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.                           

     THE SECURITIES  OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,  DEPOSITS OR OTHER
OBLIGATIONS OF A BANK OR SAVINGS  ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION (THE "FDIC") OR ANY OTHER GOVERNMENTAL AGENCY.    

     NO  PERSON  HAS  BEEN  AUTHORIZED  TO GIVE ANY  INFORMATION  OR TO MAKE ANY
REPRESENTATION OTHER THAN WHAT IS INCLUDED IN THIS DOCUMENT. IF SUCH INFORMATION
OR  REPRESENTATION  IS GIVEN OR MADE,  IT MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.                                                                     

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     THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN
OFFER TO SELL,  OR A  SOLICITATION  OF AN OFFER  TO BUY,  TO ANY  PERSON  IN ANY
JURISDICTION  IN WHICH IT WOULD BE UNLAWFUL TO MAKE SUCH OFFER OR  SOLICITATION.
NEITHER THE  DELIVERY  OF THIS  DOCUMENT AT ANY TIME,  NOR ANY  DISTRIBUTION  OF
SHARES OF COMPANY  COMMON STOCK,  SHALL UNDER ANY  CIRCUMSTANCES  IMPLY THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.     

 TABLE OF CONTENTS

                                                                            Page
                                                                            ----

AVAILABLE INFORMATION.....................................................   ii 
TABLE OF CONTENTS.........................................................  iii 
SUMMARY...................................................................    1 
 The Parties to the Merger...............................................    1
   SFS Bancorp, Inc. and Schenectady Federal Savings Bank................    1
   Cohoes Bancorp, Inc. and Cohoes Savings Bank..........................    2
 The Special Meeting.....................................................    3
   Meeting Date; Record Date.............................................    3
   Matters to Be Considered..............................................    3
   Vote Required.........................................................    3
   Security Ownership....................................................    3
 The Merger..............................................................    3
   General...............................................................    3
   Reasons for the Merger; Recommendation of the Board of Directors......    4
   Merger Consideration..................................................    4
   Opinion of Charles Webb...............................................    4
   Treatment of SFS Stock Options........................................    4
   Effective Time and Closing Date.......................................    5
   Interests of Certain Persons in the Merger............................    5
   Representations and Warranties........................................    5
   Conditions to the Merger..............................................    5
   Conduct of Business Prior to the Closing Date.........................    6
   Required Approvals....................................................    6
   Waiver and Amendment..................................................    6
   Termination...........................................................    6
   Certain Federal Income Tax Consequences of the Merger.................    7
   Accounting Treatment..................................................    7
   No Dissenters' Rights of Appraisal....................................    7
   Expenses of the Merger................................................    7
   Management After the Merger...........................................    7
   Effects of the Merger on Rights of Stockholders.......................    7
   Nasdaq Listing........................................................    8

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SFS BANCORP, INC. STOCK PRICES AND DIVIDEND INFORMATION...................    8 
THE SPECIAL MEETING.......................................................    9 
   Place, Time and Date..................................................    9
   Matters to Be Considered..............................................    9
   Record Date; Vote Required............................................   10
   Beneficial Ownership of SFS Common Stock..............................   10
   Proxies...............................................................   13
THE MERGER................................................................   14 
   General...............................................................   14
   Background of the Merger..............................................   14
   Reasons for the Merger; Recommendation of the Board of Directors......   16
   Merger Consideration..................................................   16
   Opinion of Charles Webb...............................................   17
   Treatment of SFS Stock Options........................................   20
   Effective Time and Closing Date.......................................   20
   Interests of Certain Persons in the Merger............................   21
   Delivery of Certificates..............................................   22
   Representations and Warranties........................................   22
   Conditions to the Merger..............................................   23
   Conduct of Business Prior to the Closing Date.........................   23
   Required Approvals....................................................   23
   Waiver and Amendment..................................................   24
   Termination...........................................................   24
   Certain Federal Income Tax Consequences of the Merger.................   25
   Accounting Treatment..................................................   27
   No Dissenters' Rights of Appraisal....................................   27
   Expenses of the Merger................................................   27
   Management after the Merger...........................................   27
COMPARISON OF RIGHTS OF STOCKHOLDERS OF SFS BANCORP, INC.                       
 AND COHOES BANCORP, INC.................................................   28
   Introduction..........................................................   28
   Capital Stock.........................................................   28
   Special Meetings of Stockholders......................................   28
Advance Notice Requirements for Nominations of Directors and            
     Presentation of New Business at Annual Meetings of Stockholders.....   29
   Number and Term of Directors..........................................   30
   Removal of Directors..................................................   30
   Business Combinations with Certain Persons............................   30
   Amendment of Certificate of Incorporation and Bylaws..................   31
   Control Share Acquisitions............................................   31
   Evaluation of Offers..................................................   31
   Prevention of Greenmail...............................................   31
INDEPENDENT ACCOUNTANTS...................................................   32 
STOCKHOLDER MATTERS.......................................................   32 
OTHER MATTERS.............................................................   32 

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APPENDICES                                                                      

I.   Agreement and Plan of Merger (omitting schedules and exhibits)             
II.  Fairness Opinion of Charles Webb & Company                                 

PROSPECTUS                                                                      
SUMMARY...................................................................    1 
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF COHOES SAVINGS BANK.....    7 
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF SFS BANCORP, INC........    8 
SELECTED PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL                             
 DATA OF THE HOLDING COMPANY.............................................   10
RISK FACTORS..............................................................   11 
COHOES BANCORP, INC.......................................................   17 
COHOES SAVINGS BANK.......................................................   17 
USE OF PROCEEDS...........................................................   18 
DIVIDENDS.................................................................   19 
MARKET FOR COMMON STOCK...................................................   20 
REGULATORY CAPITAL........................................................   21 
CAPITALIZATION............................................................   23 
PRO FORMA UNAUDITED FINANCIAL INFORMATION.................................   25 
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH NO                       
 FOUNDATION BUT WITH MERGER..............................................   35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND                 
 RESULTS OF OPERATIONS OF COHOES SAVINGS.................................   37
BUSINESS OF THE HOLDING COMPANY...........................................   52 
BUSINESS OF THE BANK......................................................   52 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION                     
 AND RESULTS OF OPERATIONS OF SFS BANCORP, INC . ........................   76
BUSINESS OF SFS BANCORP, INC..............................................      
REGULATION................................................................      
TAXATION..................................................................      
MANAGEMENT OF THE HOLDING COMPANY.........................................      
MANAGEMENT OF THE BANK....................................................      
THE CONVERSION AND THE MERGER.............................................      
THE OFFERING .............................................................      
RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY AND THE BANK...........      
DESCRIPTION OF CAPITAL STOCK OF THE HOLDING COMPANY.......................      
DESCRIPTION OF CAPITAL STOCK OF THE BANK..................................      
EXPERTS...................................................................      
LEGAL AND TAX OPINIONS....................................................      
ADDITIONAL INFORMATION....................................................      
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................      

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 SUMMARY

     The following is a brief summary of certain information contained elsewhere
or  incorporated  by  reference  in  this  Proxy  Statement/Prospectus.  Certain
capitalized  terms used in this  summary  are  defined  elsewhere  in this Proxy
Statement/Prospectus.  This summary is not intended to be a complete description
of all material  facts  regarding  SFS,  the Company and Cohoes  Savings and the
matters to be considered at the Meeting and is qualified in its entirety by, and
reference is made to, the more detailed information  contained elsewhere in this
Proxy Statement/Prospectus and the accompanying Appendices.                     

 The Parties to the Merger

SFS Bancorp, Inc. and Schenectady Federal Savings Bank                          

     SFS is a Delaware  corporation  which was  organized  in 1995 to become the
holding company for Schenectady  Federal Savings Bank  ("Schenectady  Federal").
SFS  owns  all of the  outstanding  stock of  Schenectady  Federal.  Schenectady
Federal is principally  engaged in the business of attracting  deposits from the
general  public and using such  deposits,  together  with funds  generated  from
operations,  to originate one-to four-family  residential mortgage,  home equity
and,  to a much lesser  extent,  consumer  and other  loans in its market  area.
Schenectady  Federal  also  invests in  mortgage-backed  securities,  investment
securities  (consisting primarily of U.S. government and agency obligations) and
other permissible investments.                                                  

     Schenectady Federal is a community-oriented  financial institution offering
a variety of financial  services to meet the needs of the communities it serves.
Schenectady  Federal  conducts  business in Schenectady  County through its main
office located at 251-263 State Street in Schenectady, New York and three branch
offices  located  in the  Hannaford  Plaza  in  Glenville,  New  York and in the
Bellevue  and Upper Union  Street areas of  Schenectady,  New York.  Schenectady
County is part of the  four-county  Capital  District Region which also includes
the counties of Albany,  Rensselaer and Saratoga.  Schenectady Federal's primary
market area for deposits  consists of  communities  within  Schenectady  County,
while the Bank's primary market area for lending  extends to Albany,  Rensselaer
and Saratoga Counties and, to a lesser extent, Warren County.                   

     Schenectady  Federal is a federally  chartered  stock  savings bank and its
operations  are regulated by the Office of Thrift  Supervision  (the "OTS").  At
June 30, 1998, SFS had total assets of $178.1 million,  total deposits of $152.9
million and total stockholders' equity of $21.9 million.  Schenectady Federal is
a member of the Federal Home Loan Bank ("FHLB")  System and a stockholder in the
FHLB  of New  York.  Schenectady  Federal  is  also  a  member  of  the  Savings
Association Insurance Fund ("SAIF"),  and its deposit accounts are insured up to
applicable limits by the Federal Deposit Insurance Corporation ("FDIC").        

     The executive offices of SFS and Schenectady Federal are located at 251-263
State Street,  Schenectady,  New York 12305,  and its telephone  number is (518)
395-2300.                                                                       

     For additional  information concerning SFS and Schenectady Federal, see the
following  sections  of  the  Prospectus:   "Summary",   "Selected  Consolidated
Financial and Other Data of SFS Bancorp,  Inc.,"  "Management's  Discussion  and
Analysis of Financial Condition and Results of Operations of SFS Bancorp, Inc.,"
"Business  of  SFS  Bancorp,   Inc.,"  and  "Index  to  Consolidated   Financial
Statements."                                                                    

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Cohoes Bancorp, Inc. and Cohoes Savings Bank                                    

     Cohoes Bancorp,  Inc. is a Delaware corporation organized in September 1998
to be the holding company for Cohoes  Savings.  The Company will purchase all of
the capital stock of Cohoes  Savings to be issued in the  Conversion in exchange
for 50% of the Conversion  proceeds (net of Conversion  expenses and the loan to
be made to the Company's Employee Stock Ownership Plan (the "Company ESOP")) and
will  retain  the  remaining   net  proceeds  as  its  initial   capitalization.
Immediately following the Conversion, the only significant assets of the Company
will be the capital stock of Cohoes  Savings,  a note  evidencing  the Company's
loan to the Company  ESOP,  and the  remainder  of the net  Conversion  proceeds
retained by the Company.  The business and  management of the Company  initially
will consist primarily of the business and management of Cohoes Savings.        

     The Company's executive office is located at the executive office of Cohoes
Savings at 75 Remsen  Street,  Cohoes,  New York  12047-2892,  and its telephone
number is (518) 233-6500.                                                       

     Cohoes Savings is a New  York-chartered,  federally-insured  mutual savings
bank conducting  business through 15 full service banking offices and one public
accommodation office located throughout Albany, Columbia, Saratoga,  Schenectady
and Rensselaer  Counties in New York. At June 30, 1998, Cohoes Savings had total
assets of $535.7  million,  deposits of $449.5 million and total equity of $53.3
million.                                                                        

     Cohoes  Savings has been,  and  intends to continue to be, an  independent,
community  oriented  financial  institution.  Cohoes Savings'  business involves
attracting  deposits from the general public and using such  deposits,  together
with other funds, to originate  primarily  residential  mortgage loans, and to a
lesser extent,  commercial and multi-family real estate, consumer and commercial
business loans. Cohoes Savings originates its loans in the Bank's primary market
area and has, in the past,  originated  multi-family and commercial loans in New
York City.  At June 30, 1998,  $258.4  million or 62.1% of the Bank's total loan
portfolio  consisted of  residential  mortgage  loans.  The Bank also invests in
government   agency  and  corporate  debt   securities  and  other   permissible
investments.                                                                    

     Cohoes Savings is subject to examination  and  comprehensive  regulation by
the New  York  State  Banking  Department  ("NYSBD"),  which  is its  chartering
authority and primary  regulator.  Cohoes Savings is also regulated by the FDIC,
the administrator of the SAIF. Cohoes Savings is also subject to certain reserve
requirements established by the Board of Governors of the Federal Reserve System
("FRB") and is a member of the FHLB of New York, which is one of the 12 regional
banks comprising the FHLB System.                                               

     For additional  information  concerning the Company and Cohoes Savings, see
the following  sections of the  Prospectus:  "Summary,"  "Selected  Consolidated
Financial and Other Data of Cohoes Savings Bank,"  "Selected Pro Forma Unaudited
Consolidated  Financial Data of the Holding  Company," "Risk  Factors,"  "Cohoes
Bancorp,  Inc," "Cohoes Savings Bank,"  "Dividends,"  "Market for Common Stock,"
"Regulatory   Capital,"   "Capitalization,"   "Pro  Forma  Unaudited   Financial
Information,"  "Comparison  of  Valuation  and  Pro  Forma  Information  With No
Foundation But With Merger," "Management's  Discussion and Analysis of Financial
Condition and Results of Operations of Cohoes Savings," "Business of the Holding
Company," "Business of the Bank," "Regulation,"  "Taxation,"  "Management of the
Holding Company,"  "Management of the Bank," "Restrictions on Acquisition of the
Holding  Company  and the Bank,"  "Description  of Capital  Stock of the Holding
Company,"  "Description of Capital Stock of the Bank," "Additional  Information"
and "Index to Consolidated Financial Statements."                               

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 The Special Meeting

Meeting Date; Record Date                                                       

     The  Meeting  is  scheduled  to be held at 10:00  a.m.,  Eastern  Time,  on
December __, 1998, and any and all adjournments or postponements  thereof.  Only
holders of record of SFS Common  Stock at the close of business  on  __________,
1998 (the  "Record  Date") are entitled to notice of and to vote at the Meeting.
See  "The  Special  Meeting--Place,  Time  and  Date"  and  "Record  Date;  Vote
Required."                                                                      

Matters to Be Considered                                                        

     At the  Meeting,  holders  of shares  of SFS  Common  Stock  will vote on a
proposal  to  adopt  the  Merger  Agreement  and the  transactions  contemplated
thereby.  SFS stockholders also may consider and vote upon such other matters as
are properly brought before the Meeting. See "The Special Meeting--Matters to Be
Considered."                                                                    

Vote Required                                                                   

     The  affirmative  vote  of  the  holders  of at  least  a  majority  of the
outstanding  shares of SFS  Common  Stock  entitled  to vote at the  Meeting  is
required for adoption of the Merger Agreement. As of the Record Date, there were
1,208,472  shares  of SFS  Common  Stock  entitled  to be voted at the  Meeting.
Adoption of the Merger  Agreement by the  stockholders of SFS is a condition to,
and required for,  consummation of the Merger but not the  Conversion.  See "The
Special Meeting--Record Date; Vote Required."                                   

Security Ownership                                                              

     As of the Record Date,  the  directors  and  executive  officers of SFS and
their affiliates  beneficially  owned in the aggregate 74,623 shares  (excluding
stock options),  or 6.2% of the outstanding  shares of SFS Common Stock entitled
to vote at the  Meeting.  As of the Record  Date,  the  trustees  and  executive
officers of Cohoes Savings and their affiliates  beneficially  owned ____ shares
of SFS Common Stock. See "The Special Meeting--Record Date; Vote Required."     

The Merger

     The following summary is qualified in its entirety by reference to the full
text of the  Merger  Agreement,  which is  attached  hereto  as  Appendix  I and
incorporated by reference herein.                                               

General                                                                         

     The  stockholders  of SFS are  being  asked to  consider  and  vote  upon a
proposal  to adopt the Merger  Agreement,  pursuant  to which SFS will be merged
with and into the Company, with the Company being the surviving entity. The name
of the surviving  entity  following  consummation  of the Merger will be "Cohoes
Bancorp, Inc." See "The Merger--General."                                       

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Reasons for the Merger; Recommendation of the Board of Directors                

     The Board of Directors of SFS (the "SFS Board") has unanimously adopted the
Merger  Agreement  and approved the  transactions  contemplated  thereby and has
determined that the Merger is in the best interests of SFS and its stockholders.
The SFS Board therefore  recommends that  stockholders  vote FOR the adoption of
the Merger Agreement at the Meeting.                                            

     For a discussion of the factors considered by the SFS Board in reaching its
decision to adopt the Merger Agreement and approve the transactions contemplated
thereby,  see "The  Merger--Background  of the  Merger" and  "--Reasons  for the
Merger; Recommendation of the Board of Directors."                              

Merger Consideration                                                            

     Subject to the terms,  conditions  and  procedures  set forth in the Merger
Agreement,  each share of SFS Common  Stock issued and  outstanding  immediately
prior to the Merger  (except for treasury  shares and certain shares held by the
Company or Cohoes  Savings) will be converted into the right to receive a number
of  shares of  Company  Common  Stock  (the  "Exchange  Ratio"  and the  "Merger
Consideration,"  respectively)  equal to the lesser of (a) $26.50 divided by the
initial  public  offering  price for the  shares of Company  Common  Stock to be
issued in connection with the  Conversion,  or (b) $35.00 divided by the Average
Closing Price of the Company Common Stock.  Assuming an initial public  offering
price of $10.00 per share,  each share of SFS Common  Stock  would be  converted
into 2.65  shares of Company  Common  Stock in the  Merger,  subject to downward
adjustment  if the Average  Closing  Price  exceeds  $13.21 per share.  See "The
Merger--Merger Consideration."                                                  

Opinion of Charles Webb                                                         

     SFS has retained  Charles Webb & Company,  a Division of Keefe,  Bruyette &
Woods, Inc.  ("Charles Webb" or "Webb"),  as its financial advisor in connection
with the  transactions  contemplated  by the Merger  Agreement  to evaluate  the
financial terms of the Merger.  See "The  Merger--Background  of the Merger" and
"--Reasons for the Merger; Recommendation of the Board of Directors."           

     Charles Webb has  delivered a written  opinion that as of November __, 1998
the Merger  Consideration  is fair from a financial point of view to the holders
of SFS Common Stock.  A copy of Charles Webb's opinion is attached to this Proxy
Statement/Prospectus  as Appendix II and is  incorporated  by reference  herein.
See "The Merger--Opinion of Charles Webb."                                      

Treatment of SFS Stock Options                                                  

     If any of the stock options  granted under SFS' Amended and Restated  Stock
Option and Incentive Plan remain  outstanding  immediately prior to consummation
of the  Conversion  and Merger,  they will be converted into options to purchase
Company  Common Stock,  with the number of shares  subject to the option and the
exercise price per share to be adjusted based upon the Exchange Ratio.  See "The
Merger--Treatment of SFS Stock Options."                                        

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Effective Time and Closing Date                                                 

     The Merger shall become effective at the time and on the date of the filing
of a certificate  of merger with the Secretary of State of the State of Delaware
(the "Certificate of Merger"),  unless a later date and time is specified as the
effective  time in such  Certificate  of  Merger  (the  "Effective  Time").  The
Effective  Time will  occur  simultaneously  with,  or  immediately  after,  the
consummation  of the  Conversion.  A closing  (the  "Closing")  shall take place
immediately prior to the Effective Time at 10:00 a.m.,  Eastern Time,  following
the satisfaction or waiver,  to the extent  permitted,  of the conditions to the
consummation  of the Merger  specified  in  Article  VI of the Merger  Agreement
(other than the delivery of  certificates,  opinions and other  instruments  and
documents to be delivered at the Closing)  (the "Closing  Date"),  at such place
and  at  such  time  as  the  parties  may   mutually   agree  upon.   See  "The
Merger--Effective Time and Closing Date."                                       

Interests of Certain Persons in the Merger                                      

     Upon consummation of the Conversion and the Merger,  the Company and Cohoes
Savings will appoint Joseph H. Giaquinto, President, Chief Executive Officer and
the Chairman of the Board of SFS and Schenectady  Federal,  to their  respective
Boards of Directors,  and the Company will nominate Mr.  Giaquinto to be elected
to a three-year  term at the next annual meeting of the Company's  stockholders.
The remaining  directors and certain  officers of Schenectady  Federal as of the
Effective  Time will be  appointed  to an  advisory  board of the  Company for a
three-year  term  (four  years,  with  respect  to the  appointment  of David J.
Jurczynski).  Upon  consummation  of the Merger,  all unvested stock options and
restricted  stock awards held by the directors and officers of SFS will continue
to vest in  accordance  with  their  terms  for as long as the  holders  of such
options and awards are either a director,  advisory  director or employee of the
Company and/or Cohoes  Savings.  In addition,  provisions of certain  employment
agreements and Supplemental Executive Retirement Agreements with officers of SFS
will result in cash payments  aggregating  approximately $___ million to certain
of SFS' officers,  including  $________ to Mr.  Giaquinto.  The Company has also
agreed to indemnify the directors, officers and employees of SFS and each of its
subsidiaries  for a period of six years after the Effective  Time to the fullest
extent which SFS or any SFS subsidiary would have been permitted to do so and to
provide  liability  insurance to SFS' directors and officers for a period of six
years after the Effective Time. See "The Merger--Interests of Certain Persons in
the Merger."                                                                    

Representations and Warranties                                                  

     The Merger  Agreement  contains  representations  and warranties of SFS and
Cohoes   Savings   which  are  customary  in  merger   transactions.   See  "The
Merger--Representations and Warranties."                                        

Conditions to the Merger                                                        

     The  respective  obligations  of the parties to  consummate  the Merger are
subject to the  satisfaction  or waiver of certain  conditions  specified in the
Merger  Agreement  including,  among other things,  the receipt of all necessary
regulatory,   stockholder   and  member   approvals,   the  compliance  with  or
satisfaction of all  representations,  warranties,  covenants and conditions set
forth  therein,  the absence of any order,  decree or  injunction  enjoining  or
prohibiting  consummation of either the Conversion or the Merger, the receipt by
the  parties  of tax  opinions  with  respect  to  certain  federal  income  tax
consequences of the Merger,  and the receipt by the parties of letters from KPMG
Peat Marwick LLP and Arthur Andersen that the Merger shall be accounted for as a
pooling of  interests.  There can be no  assurance  that the  conditions  to the
consummation   of  the  Merger   will  be   satisfied   or   waived.   See  "The
Merger--Conditions to the Merger."                                              

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Conduct of Business Prior to the Closing Date                                   

     Each of Cohoes  Savings and SFS has agreed to conduct its business prior to
the Effective Time in accordance with certain guidelines set forth in the Merger
Agreement. See "The Merger--Conduct of Business Prior to the Closing Date."     

Required Approvals                                                              

     Various  approvals of the FDIC, the NYSBD and the OTS are required in order
to consummate the Conversion and the Merger.  Applications  for these  approvals
have been filed and are currently  pending.  There can be no assurance  that the
requisite  approvals  will be  received in a timely  manner,  in which event the
consummation  of the Conversion and the Merger may be delayed.  In the event the
Conversion  and the Merger are not  consummated  on or before  March  1999,  the
Merger  Agreement may be terminated by either Cohoes Savings or SFS, except that
Cohoes Savings may not terminate  prior to April 15, 1999 if all conditions have
been  satisfied  or  waived  as of  March  31,  1999 but for the  expiration  of
statutory waiting periods. There can be no assurance as to the receipt or timing
of such approvals. See "The Merger--Required Approvals."                        

Waiver and Amendment                                                            

     Prior to the Effective Time, Cohoes Savings and SFS may extend the time for
performance  of  any  obligations   under  the  Merger   Agreement,   waive  any
inaccuracies  in the  representations  and  warranties  contained  in the Merger
Agreement and waive  compliance  with any covenant,  agreement or, to the extent
permitted by law, any condition of the Merger Agreement,  provided that any such
waiver after the SFS  stockholders  have adopted the Merger  Agreement shall not
modify  the  amount  or  form  of  consideration  to  be  provided  to  the  SFS
stockholders or otherwise  materially adversely affect such stockholders without
the approval of the affected stockholders.                                      

     The Merger  Agreement may be amended or  supplemented at any time by mutual
agreement  of  Cohoes  Savings  and SFS,  provided  that any such  amendment  or
supplement  after the SFS  stockholders  have  adopted the Merger  Agreement  is
subject to the proviso in the preceding  paragraph.  See "The Merger--Waiver and
Amendment."                                                                     

Termination                                                                     

     The Merger  Agreement may be terminated prior to the Effective Time by: (i)
Cohoes  Savings or SFS in the event of (a) the  failure of SFS  stockholders  to
approve  the Merger  Agreement,  (b) the failure of Cohoes  Savings'  members to
approve the Conversion, (c) a material failure to perform or comply by the other
party with any covenant or undertaking,  which failure has not been timely cured
after notice, or (d) any material  inaccuracy or omission in the representations
or  warranties  of the other party which has not been timely cured after notice;
(ii) Cohoes Savings or SFS if any approval of a 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;  (iii) Cohoes Savings or SFS in the event that the Merger
is not  consummated  by March 31,  1999,  except  that  Cohoes  Savings  may not
terminate  prior to April 15,  1999 if all  conditions  have been  satisfied  or
waived as of March 31, 1999 but for the expiration of statutory waiting periods;
and (iv) Cohoes Savings in the event that there has occurred a "Purchase  Event"
(as defined in the Merger Agreement). See "The Merger--Termination."            

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Certain Federal Income Tax Consequences of the Merger                           

     It is a  condition  to  the  obligations  of  Cohoes  Savings  and  SFS  to
consummate the Merger that Cohoes Savings and SFS shall have received an opinion
of  Arthur   Andersen  to  the  effect  that  the  Merger  will   constitute   a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and that no gain or loss will be recognized as
a result of the Merger by any SFS  stockholder  upon  receipt  solely of Company
Common  Stock in the Merger  (except  with  respect to cash  received  by an SFS
stockholder  in lieu  of a  fractional  share  of  Company  Common  Stock).  SFS
stockholders are urged to consult their tax advisors concerning the specific tax
consequences to them of the Merger,  including the  applicability  and effect of
various  state,  local and foreign tax laws.  See "The  Merger--Certain  Federal
Income Tax Consequences of the Merger" and "--Conditions to the Merger."        

Accounting Treatment                                                            

     The Merger will be accounted  for as a "pooling of interests" in accordance
with generally accepted accounting  principles.  A condition to the consummation
of the  Merger  is the  receipt  by the  Company  and SFS of  letters  from  the
Company's  and SFS'  independent  accountants  to the  effect  that  the  Merger
qualifies   for   pooling   of   interests   accounting   treatment.   See  "The
Merger--Accounting Treatment."                                                  

No Dissenters' Rights of Appraisal                                              

     Under the Delaware  General  Corporation  Law (the "DGCL"),  holders of SFS
Common Stock are not entitled to  dissenters'  rights of appraisal in connection
with the Merger. See "The Merger--Dissenters' Rights of Appraisal."             

Expenses of the Merger                                                          

     The Merger  Agreement  provides,  in general,  that Cohoes  Savings and SFS
shall each bear and pay all their respective costs and expenses incurred by them
in  connection  with the  transactions  contemplated  by the  Merger  Agreement,
including  fees  and  expenses  of  their  respective   financial   consultants,
investment  bankers,  accountants  and  counsel.  If  the  Merger  Agreement  is
terminated under certain specified circumstances, Cohoes Savings is obligated to
pay SFS a break-up fee of up to $2 million, and if a Purchase Event (as defined)
occurs,  then  SFS  must  pay  Cohoes  Savings  a fee of $2  million.  See  "The
Merger--Expenses of the Merger."                                                

Management After the Merger                                                     

     The  members  of the  Board of  Directors  of the  Company  and  Joseph  H.
Giaquinto,  currently  a director  of SFS,  shall be the members of the Board of
Directors  of the  Company  immediately  after  the  Effective  Time.  See  "The
Merger--Interests  of Certain Persons in the Merger" and "--Management After the
Merger."                                                                        

Effects of the Merger on Rights of Stockholders                                 

     As a result of the Merger,  holders of SFS Common Stock who receive  shares
of Company Common Stock in the Merger will become  stockholders  of the Company.
For a comparison of the corporate  certificates of  incorporation  and bylaws of
the Company and SFS  governing  the rights of the Company and SFS  stockholders,
see  "Comparison  of Rights of  Stockholders  of SFS  Bancorp,  Inc.  and Cohoes
Bancorp, Inc."                                                                  

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Nasdaq Listing                                                                  

     The SFS  Common  Stock  currently  is quoted  on The  Nasdaq  Stock  Market
National  Market under the symbol "SFED." It is a condition to  consummation  of
the  Merger  that  the  shares  of  Company  Common  Stock to be  issued  to the
stockholders  of SFS in the Merger  shall have been  approved for listing on The
Nasdaq National Market. See "The Merger--Conditions to the Merger."             

 SFS BANCORP, INC. STOCK PRICES AND DIVIDEND INFORMATION

     The SFS Common  Stock is quoted on The  Nasdaq  National  Market  under the
symbol  "SFED." The Company and Cohoes  Savings have never issued capital stock.
The  Company  has  applied to have the  Company  Common  Stock,  to be issued in
connection with the Conversion and Merger, quoted on The Nasdaq National Market.

     The  following  table sets forth the reported  high and low sales prices of
shares of SFS Common  Stock as  reported on The Nasdaq  National  Market and the
quarterly  cash dividends per share  declared,  for the periods  indicated.  The
stock prices do not include retail mark-ups, markdowns or commissions.          

                                          SFS Common Stock
                                           -------------------------------------

                                             High          Low         Dividends
                                           -------       -------       ---------
1996 Calendar Year                                                              
------------------                                                              
First Quarter ..........................   $13.00        $11.50           $ --  
Second Quarter .........................    13.00         11.75             --  
Third Quarter ..........................    14.25         12.00            .06  
Fourth Quarter .........................    16.25         13.50            .06  

1997 Calendar Year                                                              
------------------                                                              
First Quarter ..........................    18.125        14.75            .06  
Second Quarter .........................    17.50         16.00            .07  
Third Quarter ..........................    23.25         16.875           .07  
Fourth Quarter .........................    28.00         21.50            .07  

1998 Calendar Year                                                              
------------------                                                              
First Quarter ..........................    27.50         20.75            .08  
Second Quarter .........................    26.25         21.00            .08  
Third Quarter (through _____, 1998) ....    29.00         19.75            .08  

     The last  reported  sales  prices per share of SFS Common Stock on (i) July
31, 1998, the last full trading day preceding public announcement of the signing
of the Merger  Agreement and (ii) November __, 1998, the last  practicable  date
prior to the mailing of this Proxy Statement/Prospectus,  were $20.00 and $_____
per share, respectively.                                                        

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     As of ______,  1998, the 1,208,472  outstanding  shares of SFS Common Stock
were held by approximately ___ record owners.                                   

     Assuming  an  initial  public  offering  price of $10.00  per share for the
Company Common Stock in the  Conversion,  the number of shares of Company Common
Stock to be received for each share of SFS Common Stock will be 2.65, unless the
Average Closing Price of the Company Common Stock for the first ten trading days
following  the  Conversion  is greater than $13.21 per share,  in which case the
Exchange Ratio would be reduced to $35.00 divided by such Average Closing Price.
Accordingly, any increase in the market value of Company Common Stock subsequent
to the  Conversion  will  increase the market value of the Company  Common Stock
received in the Merger,  up to an Average  Closing  Price of $13.21 per share of
Company  Common  Stock.  A decrease in the market value of Company  Common Stock
will have the opposite effect.  The market value of the Merger  Consideration at
the time of the Merger will  depend upon the market  value of a share of Company
Common  Stock at such time.  There can be no assurance  that the Company  Common
Stock will trade above the  initial  public  offering  price  subsequent  to the
Conversion.                                                                     

     The Company currently has no plans to pay dividends.  However, the Board of
Directors  of the  Company  may  consider  a policy of paying  dividends  on the
Company  Common  Stock  in the  future,  subject  to  statutory  and  regulatory
requirements.  See also  "Dividends" in the Prospectus.  Dividends,  when and if
paid, will be subject to determination and declaration by the Company's Board of
Directors  at its  discretion.  The Board will take into  account the  Company's
consolidated   financial   condition,   Cohoes   Savings'   regulatory   capital
requirements,  tax  considerations,  industry  standards,  economic  conditions,
regulatory  restrictions,  general  business  practices and other  factors.  The
Company also has no plans to make a return of capital distribution. In the event
the Company  intends to declare a return of capital  distribution  within  three
years following the Conversion,  it must first obtain the prior written approval
of the FDIC.                                                                    

     The Company will be subject to Delaware  law which  limits  dividends to an
amount equal to the excess of a  corporation's  net assets over paid-in  capital
or, if there is no excess,  to its net profits  for the current and  immediately
preceding fiscal years.                                                         

 THE SPECIAL MEETING

Place, Time and Date                                                            

     The  Meeting  is  scheduled  to be held at 10:00  a.m.,  Eastern  Time,  on
December __, 1998,  at the main office of the Company  located at 251-263  State
Street, Schenectady,  New York. This Proxy Statement/Prospectus is being sent to
holders of record,  and certain beneficial owners, of SFS Common Stock as of the
Record Date, and accompanies a form of proxy which is being solicited by the SFS
Board of  Directors  for use at the Meeting and at any and all  adjournments  or
postponements thereof.                                                          

Matters to Be Considered                                                        

     At the Meeting, holders of shares of SFS Common Stock as of the Record Date
will vote upon the proposal to adopt the Merger  Agreement and the  transactions
contemplated  thereby.  See "The  Merger."  Holders of SFS Common Stock also may
consider  and vote upon such other  matters as are properly  brought  before the
Meeting.  As of the date hereof, the SFS Board knows of no business that will be
presented for consideration at the Meeting,  other than the matters described in
this Proxy Statement/Prospectus.                                                

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Record Date; Vote Required                                                      

     The SFS Board has fixed the close of  business on  __________,  1998 as the
date for  determining  holders of SFS Common Stock who are entitled to notice of
and to vote at the  Meeting.  Only  holders of record of SFS Common Stock at the
close of  business  on the Record Date will be entitled to notice of and to vote
at the Meeting. As of the Record Date, there were 1,208,472 shares of SFS Common
Stock outstanding and entitled to vote at the Meeting.                          

     Each holder of record of shares of SFS Common Stock on the Record Date will
be entitled to cast one vote per share on each  proposal  at the  Meeting.  Such
vote may be exercised in person or by properly executed proxy. The presence,  in
person or by  properly  executed  proxy,  of the  holders of a  majority  of the
outstanding  shares of SFS  Common  Stock  entitled  to vote at the  Meeting  is
necessary  to  constitute a quorum.  Abstentions  and broker  non-votes  will be
treated  as shares  present at the  Meeting  for  purposes  of  determining  the
presence of a quorum.                                                           

     The  affirmative  vote  of  the  holders  of at  least  a  majority  of the
outstanding  shares of SFS  Common  Stock  entitled  to vote at the  Meeting  is
required  for adoption of the Merger  Agreement.  As a result,  abstentions  and
broker  non-votes will have the same effect as votes against the adoption of the
Merger Agreement.                                                               

     Approval of the Merger  proposal by the  stockholders of SFS is a condition
to, and required for,  consummation  of the Merger but not  consummation  of the
Conversion. See "The Merger--Conditions to the Merger."                         

Beneficial Ownership of SFS Common Stock                                        

     As of the Record Date,  the  directors  and  executive  officers of SFS and
their affiliates beneficially owned in the aggregate 74,623 shares of SFS Common
Stock  (excluding  41,114 shares  underlying  stock options held by them,  which
shares may not be voted at the Meeting),  or 6.2% of the  currently  outstanding
shares (9.3%  assuming the exercise of the stock  options held by directors  and
executive  officers),  of SFS Common Stock entitled to vote at the Meeting.  The
directors and executive  officers of SFS have indicated  their intention to vote
such  shares for the Merger  proposal  at the  Meeting.  As of the Record  Date,
Cohoes Savings and its  subsidiaries did not own any shares of SFS Common Stock,
and the trustees and executive  officers of Cohoes Savings and their  affiliates
beneficially owned _____ shares or ____% of the outstanding SFS Common Stock.   

     The following table sets forth, as of _____ __, 1998,  certain  information
as to the  ownership of SFS Common Stock by (i) those  persons who were known by
management to be beneficial owners of more than 5% of the SFS Common Stock, (ii)
each director of SFS, and (iii) all directors and executive  officers of SFS and
Schenectady Federal as a group.                                                 

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                                                             Shares      Percent
                                                        Beneficially      of
Name of Beneficial Owner                                 Owned(1)(2)(3)   Class 
-------------------------------------------------------  --------------  -------

Wellington Management Company, LLP(4) .................      135,600      11.2% 
75 State Street                                                                 
Boston, Massachusetts 02109                                                     

First Financial Fund, Inc. ("FFF")(5) .................      125,600      10.4  
One Seaport Plaza-25th Floor                                                    
New York, New York 10022                                                        

First Manhattan Co.(6) ................................      105,378       8.7  
437 Madison Avenue                                                              
New York, New York 10022                                                        

John Hancock Advisers, Inc.(7) ........................       74,000       6.1  
John Hancock Mutual Life Insurance Company                                      
John Hancock Subsidiaries, Inc.                                                 
The Berkeley Financial Group                                                    
101 Huntington Avenue                                                           
Boston, Massachusetts 02199                                                     

Kennedy Capital Management, Inc.(8) ...................       63,200       5.2  
425 N. New Ballas Road, Suite 181                                               
St. Louis, Missouri 63141                                                       

Tontine Financial Partners, L.P.(9) ...................      107,100       8.9  
Tontine Management, L.L.C.                                                      
Tontine Overseas Associates, L.L.C.                                             
Jeffrey L. Gendell                                                              

SFS Bancorp, Inc. Employee Stock Ownership Plan(10) ...      119,600       9.9  
251-263 State Street                                                            
Schenectady, New York 12305                                                     

Directors and Executive Officers:                                               
Joseph H. Giaquinto .................................       34,152       2.8
John F. Assini, M.D. ................................       14,186       1.2
Gerald I. Klein .....................................       14,208       1.2
Robert A. Schlansker ................................       16,393       1.4
Richard D. Ammian ...................................       16,736       1.4

Directors and executive officers of SFS and                                     
Schenectady Federal as a group (8 persons) ..........      115,737       8.7

                                                    (Footnotes on the next page)

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----------                                                                      

(1)  Based upon  information  furnished by the  respective  entities or persons,
     including  filings  under the Exchange Act.  Pursuant to rules  promulgated
     under the Exchange  Act, a person is deemed to  beneficially  own shares of
     SFS Common  Stock if he or she  directly  or  indirectly  has or shares (i)
     voting power,  which  includes the power to vote or to direct the voting of
     the shares, or (ii) investment  power,  which includes the power to dispose
     or direct the disposition of the shares.  Unless otherwise  indicated,  the
     named beneficial owner has sole voting power and sole investment power with
respect to the indicated shares.                                      

(2)  Under  applicable  regulations,  a  person  is  deemed  to have  beneficial
     ownership of any shares of SFS Common Stock which may be acquired within 60
     days of the Record Date  pursuant  to the  exercise  of  outstanding  stock
     options.  Shares of SFS Common Stock which are subject to stock options are
     deemed to be  outstanding  for the purpose of computing  the  percentage of
     outstanding  SFS Common  Stock owned by such person or group but not deemed
     outstanding for the purpose of computing the percentage of SFS Common Stock
     owned by any  other  person or group.  The  amounts  set forth in the table
     include  shares which may be received  upon the  exercise of stock  options
     within 60 days of the Record Date based on their original  vesting schedule
     as follows: for each of Messrs. Assini, Klein and Schlansker, 2,990 shares;
     for Mr. Ammian, 7,476 shares; for Mr. Giaquinto, 14,950 shares; and for all
     directors and executive  officers as a group,  41,114 shares.  In addition,
     Messrs. Assini, Klein and Schlansker each hold unvested options to purchase
     4,485  shares of SFS  Common  Stock,  Messrs.  Ammian  and  Giaquinto  hold
     unvested  options  for  11,211  and 22,425  shares,  respectively,  and all
     directors  and  executive  officers  as a group hold  unvested  options for
71,010 shares.                                                        

(3)  Excludes  restricted  shares granted  pursuant to SFS' Amended and Restated
     Recognition  and  Retention  Plan  ("RRP") as follows:  for each of Messrs.
     Assini,  Klein and Schlansker,  1,794 shares;  for Mr. Ammian 4,485 shares;
     for Mr.  Giaquinto,  8,970  shares;  and for all  directors  and  executive
officers as a group, 28,405 shares.                                   

(4)  Wellington  Management  Company reported sole voting and dispositive  power
     over 0 shares, shared voting power over 10,000 shares and dispositive power
over 135,600 shares.                                                  

(5)  FFF reported sole voting power over 125,600  shares and shared  dispositive
power over 125,600 shares.                                            

(6)  First Manhattan  Company  reported sole voting and  dispositive  power over
  97,558 shares and shared voting and dispositive power over 7,820 shares.

(7)  John Hancock Advisers, Inc. reported sole voting and dispositive power over
     all 74,000 shares. John Hancock Mutual Life Insurance Company, John Hancock
     Subsidiaries,  Inc., and The Berkely  Financial Group (the parent companies
     of John Hancock Advisers,  Inc.) reported indirect beneficial  ownership of
these shares.                                                         

(8)  Kennedy  Capital  Management,  Inc.  reported sole voting power over 20,000
     shares,  shared  voting power over 0 shares,  sole  dispositive  power over
63,200 shares and shared dispositive power over 0 shares.             

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(9)  Tontine  Financial  Partners,   L.P.  reported  shared  voting  and  shared
     dispositive power over 87,800 shares.  Tontine Management,  L.L.C. reported
     shared  voting and shared  dispositive  power over 87,800  shares.  Tontine
     Overseas Associates,  L.L.C.  reported shared voting and shared dispositive
     power over 9,500 shares.  Jeffrey L. Gendell  reported sole voting and sole
     dispositive   power  over  9,800  shares  and  shared   voting  and  shared
dispositive power over 97,300 shares.                                 

(10) The amount reported represents shares held by SFS' Employee Stock Ownership
     Plan ("SFS  ESOP"),  35,880 of which have been  allocated  to  accounts  of
     participants  as of  the  Record  Date  (___________,  1998).  The  amounts
     reported for Messrs. Giaquinto,  Schlansker and Ammian include 4,534, 2,189
     and 2,649  shares of SFS Common  Stock,  respectively,  allocated  to their
     respective  accounts  under the ESOP.  First Bankers Trust  Company,  N.A.,
     Quincy,   Illinois,  the  trustee  of  the  SFS  ESOP,  may  be  deemed  to
     beneficially  own the  shares  held by the SFS  ESOP  which  have  not been
allocated to accounts of participants.                                

Proxies                                                                         

     Shares  of SFS  Common  Stock  represented  by  properly  executed  proxies
received prior to or at the Meeting will, unless such proxies have been revoked,
be voted  at the  Meeting  and any  adjournments  or  postponements  thereof  in
accordance with the  instructions  indicated in the proxies.  If no instructions
are  indicated on a properly  executed  proxy,  the shares will be voted FOR the
adoption of the Merger Agreement.                                               

     Any proxy given pursuant to this  solicitation  or otherwise may be revoked
by the person  giving it at any time before it is voted by delivering to Richard
D. Ammian,  Secretary of SFS, at 251-263  State  Street,  Schenectady,  New York
12305 or at the  Meeting on or before the taking of the vote at the  Meeting,  a
written  notice of  revocation  bearing  a later  date than the proxy or a later
dated proxy  relating to the same shares of SFS Common Stock or by attending the
Meeting  and  voting in person.  Attendance  at the  Meeting  will not in itself
constitute the revocation of a proxy.                                           

     If  any  other   matters  are   properly   presented  at  the  Meeting  for
consideration,  the persons  named in the proxy or acting  thereunder  will have
discretion to vote on such matters in accordance with their best judgment. As of
the date hereof, the SFS Board knows of no such other matters.                  

     In addition to solicitation by mail,  directors,  officers and employees of
SFS, who will not be  specifically  compensated  for such services,  may solicit
proxies from the  stockholders of SFS,  personally or by telephone,  telegram or
other forms of communication.  Brokerage houses, nominees, fiduciaries and other
custodians  will be requested  to forward  soliciting  materials  to  beneficial
owners and will be reimbursed for their reasonable  expenses incurred in sending
proxy  material  to  beneficial  owners.  SFS  will  bear  its own  expenses  in
connection with the solicitation of proxies for the Meeting.                    

     HOLDERS OF SFS COMMON STOCK ARE  REQUESTED  TO COMPLETE,  DATE AND SIGN THE
ACCOMPANYING   FORM  OF  PROXY  AND  TO  RETURN  IT  PROMPTLY  IN  THE  ENCLOSED
POSTAGE-PAID ENVELOPE.                                                          

     HOLDERS OF SFS COMMON  STOCK  SHOULD NOT FORWARD  STOCK  CERTIFICATES  WITH
THEIR PROXY CARDS.                                                              

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THE MERGER

     The information in this Proxy Statement/Prospectus  concerning the terms of
the Merger is  qualified  in its  entirety by  reference to the full text of the
Merger  Agreement,  which is attached  hereto as Appendix I and  incorporated by
reference herein. All stockholders are urged to read the Merger Agreement in its
entirety.                                                                       

General                                                                         

     Pursuant  to the  Merger  Agreement,  SFS will be merged  with and into the
Company,  with the Company being the surviving entity. The name of the surviving
entity following  consummation of the Merger will be "Cohoes  Bancorp,  Inc." As
soon as possible after the conditions to  consummation  of the Merger  described
below have been  satisfied or waived,  and unless the Merger  Agreement has been
terminated as provided  below,  SFS and the Company will file a  Certificate  of
Merger with the  Secretary  of State of the State of  Delaware.  The Merger will
become effective at the time and on the date of the filing of the Certificate of
Merger with the Secretary of State of Delaware,  unless a later date and time is
specified as the Effective Time in such Certificate of Merger. Immediately after
the Merger,  Schenectady  Federal  will merge with and into Cohoes  Savings with
Cohoes Savings being the survivor thereof.                                      

     Upon consummation of the Merger,  the stockholders of SFS shall be entitled
to receive the Merger  Consideration  in  consideration  for their shares of SFS
Common Stock held and thereupon  shall cease to be  stockholders of SFS, and the
separate  existence and corporate  organization of SFS shall cease.  The Company
shall succeed to all the rights and property of SFS. The members of the Board of
Directors of the Company and Joseph H.  Giaquinto,  currently  the President and
Chairman of the Board of SFS and  Schenectady  Federal,  shall be the members of
the Boards of Directors of the Company and Cohoes Savings  immediately after the
Effective Time. See also "--Interests of Certain Persons in the Merger" and "The
Conversion and the Merger--General" in the Prospectus.                          

Background of the Merger                                                        

     In January 1998,  following a presentation to the Board of Directors of SFS
by Charles Webb,  the Board  engaged  Charles Webb to assist SFS in evaluating a
possible sale or merger of SFS as a means to enhance  stockholder value.  During
February  1998,  Charles  Webb  assisted  in  the  preparation  of  confidential
marketing materials with respect to SFS.                                        

     In late February and early March 1998,  Charles Webb contacted 15 financial
institutions or their holding  companies to determine their initial  interest in
SFS. The confidential  marketing materials were sent to seven of those companies
after they executed a  confidentiality  agreement.  The companies were initially
instructed to provide their preliminary  indications of interest to Charles Webb
by March 27, 1998.                                                              

     One bank holding company provided a preliminary proposal by March 27, 1998,
which was reviewed by the Board of  Directors  of SFS on April 3, 1998.  The SFS
Board  authorized  further  negotiations  with the bank holding company and also
requested Charles Webb to contact additional institutions.                      

     During April and May 1998, Charles Webb contacted five additional financial
institutions or their holding companies, of which two (including Cohoes Savings)
signed  confidentiality  agreements.  The bank  holding  company  conducted  due
diligence in late April and early May and  submitted a revised  proposal in late
May.  Cohoes  Savings  also  expressed  interest  in late  May and  submitted  a
preliminary proposal in early June.                                             

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     The Board of Directors  reviewed  the two  proposals on June 10, 1998 via a
telephonic  conference  call. The Board further  reviewed the two proposals at a
meeting on June 12, 1998. At that time, the proposal from Cohoes Savings was for
2.2 shares of Company Common Stock for each share of SFS Common Stock  (assuming
an initial  public  offering  price of $10.00 per share for the  Company  Common
Stock).  The initial proposal from Cohoes Savings was comparable in value to the
proposal from the bank holding company only if one assumed that the market price
of the Company  Common  Stock  would  significantly  increase  above the initial
public offering price for such stock immediately  following  consummation of the
Conversion.  Because the Board of Directors  of SFS was  unwilling to fully rely
upon such  assumption,  the Board  authorized  management  and  Charles  Webb to
proceed with  negotiations  toward a definitive  agreement with the bank holding
company.                                                                        

     Over the next  several  weeks,  SFS and its  representatives  reviewed  and
revised several drafts of a definitive  agreement with the bank holding company.
On July 8, 1998, the Board of Directors of SFS met to discuss a number of issues
which remained unresolved, including issues relating to the exchange ratio. When
negotiations with the bank holding company subsequently stalled,  Cohoes Savings
was again contacted to determine  whether its preliminary price indication could
be increased.                                                                   

     The SFS Board was updated on the status of the negotiations at a meeting on
July 15,  1998.  Because  the  negotiations  with the bank  holding  company had
stalled,  and because Cohoes Savings  increased its offer, the SFS Board decided
to  terminate  the  negotiations  with the bank  holding  company  and to pursue
negotiations with Cohoes Savings.                                               

     SFS and Cohoes  Savings then  conducted a further due  diligence  review of
each other,  and the  management  of SFS  negotiated  the terms of a  definitive
agreement with the assistance of SFS' legal counsel and  investment  banker.  On
July 22, 1998, the Board of Directors of SFS reviewed and accepted  management's
due diligence report regarding Cohoes Savings.  The directors were also provided
with drafts of the definitive agreement.                                        

     On July 31, 1998,  the SFS Board  reviewed the proposed  definitive  Merger
Agreement  with SFS' legal  counsel and  Charles  Webb.  The Board of  Directors
considered  all factors  deemed  relevant,  including the Exchange Ratio of 2.65
shares of Company Common Stock for each share of SFS Common Stock  (assuming the
initial public  offering price of the Company Common Stock is $10.00 per share).
The Board of Directors also noted that if the market price of the Company Common
Stock increases over the initial public offering price for such stock,  then the
stockholders of SFS would realize the full benefit of such appreciation,  unless
the Average  Closing  Price for the first ten trading  days  exceeds  $13.21 per
share (assuming an initial public offering price of $10.00 per share),  in which
case the  Exchange  Ratio would be reduced to the  quotient  (calculated  to the
nearest  one-thousandth)  determined by dividing  $35.00 by the Average  Closing
Price. The SFS Board also considered and relied upon Charles Webb's opinion that
the Exchange Ratio is fair to the  stockholders of SFS from a financial point of
view. The Board of Directors  determined that the proposed Merger is in the best
interests of SFS and its stockholders,  and the Board  unanimously  approved the
Merger Agreement. SFS and Cohoes Savings publicly announced the Merger after the
close of trading on July 31, 1998.                                              

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Reason for the Merger; Recommendation of the Board of Directors                 

     SFS' Board of Directors  believes  that the terms of the Merger  Agreement,
which are the product of arm's length  negotiations  between  representatives of
Cohoes Savings and SFS, are in the best  interests of SFS and its  stockholders.
In the course of reaching its determination,  SFS' Board of Directors considered
a number of factors.  Without assigning any relative or specific weights,  these
factors included, among other things:                                           

          (a)  The  value  of  Company  Common  Stock  to be  received  by  SFS'
     stockholders  in light of the  Exchange  Ratio of 2.65  shares  of  Company
     Common Stock for each share of SFS Common Stock (assuming an initial public
     offering  price  of  $10.00  per  share),  as well as the  ability  of SFS'
     stockholders  to receive  the shares of Company  Common  Stock based on the
     initial public  offering  price of such shares and to  potentially  realize
     appreciation in the value of such shares (any appreciation in the first ten
     trading  days is capped  at 32% for the SFS  stockholders).  SFS'  Board of
     Directors  determined  the value of this  Exchange  Ratio to  significantly
     exceed the  potential  value of SFS  shares on a  stand-alone  basis  under
business strategies which could be reasonably implemented by SFS.     

          (b) The  similarity  of philosophy  and vision  between SFS and Cohoes
Savings.                                                              

          (c) The  geographic  complementarity  of the  areas  served by SFS and
     Cohoes   Savings,   and  the   synergies  to  be  obtained  by  a  combined
organization.                                                         

          (d) The continued  consolidation  and  increasing  competition  in the
banking and financial services industries.                            

(e) The advice of SFS' management and financial advisors.   

          (f) The opinion of Charles  Webb that the Merger  Consideration  to be
     received  by the  holders  of  SFS  Common  Stock  pursuant  to the  Merger
Agreement is fair to SFS stockholders from a financial point of view. 

     See also "The Conversion and the Merger--Purposes of the Conversion and the
Merger" in the Prospectus.                                                      

     THE SFS  BOARD  BELIEVES  THAT THE  MERGER IS IN THE BEST  INTEREST  OF SFS
STOCKHOLDERS  AND  UNANIMOUSLY  RECOMMENDS  THAT  SFS  STOCKHOLDERS  VOTE  "FOR"
ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.     

Merger Consideration                                                            

     Subject to the terms,  conditions  and  procedures  set forth in the Merger
Agreement,  each share of SFS Common  Stock issued and  outstanding  immediately
prior to the Merger (other than treasury  shares and certain  shares held by the
Company or Cohoes  Savings) will be converted into the right to receive a number
of shares of Company  Common Stock equal to the lesser of (a) $26.50  divided by
the initial  public  offering price for the shares of Company Common Stock to be
issued in connection with the  Conversion,  or (b) $35.00 divided by the Average
Closing  Price of the Company  Common  Stock for the first ten  trading  days on
which such stock is traded, as reported by The Nasdaq Stock Market.  Assuming an
initial public offering price of $10.00, each share of SFS Common Stock would be
converted  into 2.65 shares of Company  Common  Stock in the Merger,  unless the
Average Closing Price of the Company Common Stock for the first ten trading days
following  the  Conversion  is greater than  $13.21,  in which case the Exchange
Ratio would be reduced to $35.00  divided by such  Average  Closing  Price.  The
Exchange Ratio was determined through  arm's-length  negotiations between Cohoes
Savings and SFS, which was advised during such negotiations by Charles Webb, its
financial advisor.                                                              

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     Each share of Company Common Stock issued and  outstanding at the Effective
Time  will  remain  outstanding  and  unchanged  as a result of the  Merger.  No
fractional shares of Company Common Stock will be issued in the Merger,  and SFS
stockholders  who otherwise  would be entitled to receive a fractional  share of
Company  Common  Stock will  receive a cash  payment in lieu  thereof.  See also
"Summary--The Merger" in the Prospectus.                                        

Opinion of Charles Webb                                                         

     In January  1998,  Webb was  retained  by SFS to  evaluate  SFS'  strategic
alternatives  as part of a stockholder  enhancement  program and to evaluate any
specific proposals that might be received regarding an acquisition of SFS. Webb,
as  part  of its  investment  banking  business,  is  regularly  engaged  in the
evaluation  of  business  and   securities   in  connection   with  mergers  and
acquisitions, negotiated underwritings, and distributions of listed and unlisted
securities.  Webb is  familiar  with the market for  common  stocks of  publicly
traded  banks,  thrifts  and bank and thrift  holding  companies.  The SFS Board
selected  Webb on the basis of the  firm's  reputation  and its  experience  and
expertise  in  transactions  similar  to the  Merger  and its prior work for and
relationship with SFS.                                                          

     Pursuant to its  engagement,  Webb was asked to render an opinion as to the
fairness,  from a financial  point of view, of the Merger  Consideration  to the
stockholders of SFS. Webb delivered a fairness opinion to the SFS Board dated as
of July 31, 1998, and rendered an additional  updated opinion dated November __,
1998 (the "Opinion") , that the consideration is fair, from a financial point of
view, to the  stockholders of SFS. No limitations  were imposed by the SFS Board
upon Webb with respect to the investigations  made or procedures  followed by it
in rendering  its Opinion.  Webb has  consented to the  inclusion  herein of the
summary  of its  Opinion  to the SFS Board and to the  reference  to the  entire
Opinion attached hereto as Appendix II.                                         

     The full text of the Opinion of Webb,  updated as of the date of this Proxy
Statement/Prospectus,   which  sets  forth  certain  assumptions  made,  matters
considered and limitations on the reviews undertaken, is attached as Appendix II
to this  Proxy  Statement/Prospectus  and  should be read in its  entirety.  The
summary of the Opinion of Webb set forth in this Proxy  Statement/Prospectus  is
qualified in its  entirety by  reference  to the Opinion.  Such Opinion does not
constitute  a  recommendation  by  Webb to any SFS  stockholder  as to how  such
stockholder should vote with respect to the Merger.                             

     In rendering its Opinion, Webb (i) reviewed the financial and business data
supplied  to it by SFS,  including  SFS'  Annual  Reports  for the  years  ended
December 31, 1996 and 1997 and the Proxy Statements  relating to the 1996, 1997,
and 1998 annual stockholders meetings;  (ii) unaudited quarterly results for the
quarters ended March 31, 1998,  September 30, 1997,  June 30, 1997 and March 31,
1997; (iii) discussed with senior  management and the Boards of Directors of SFS
and its wholly-owned  subsidiary,  Schenectady Federal, the current position and
prospective outlook for SFS; (iv) considered  historical  quotations for the SFS
Common  Stock;  (v)  reviewed  the  financial  and  stock  market  data of other
financial  institutions,  particularly in the Mid-Atlantic  region of the United
States,  and  the  financial  and  structural  terms  of  several  other  recent
transactions  involving  mergers and  acquisitions of financial  institutions or
proposed changes of control of comparably situated companies;  and (vi) reviewed
certain other information which it deemed relevant. In addition, Webb considered
certain financial data and other information  provided by Cohoes Savings as well
as discussions with the senior management of Cohoes Savings.                    

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     In  rendering  its  Opinion,  Webb assumed and relied upon the accuracy and
completeness  of the  financial  information  provided  to it by SFS and  Cohoes
Savings and obtained by it from public sources.  In its review, with the consent
of the SFS Board, Webb did not undertake any independent appraisal or evaluation
of the assets and liabilities of SFS or Cohoes  Savings,  or of the potential or
contingent  liabilities of SFS or Cohoes Savings.  With respect to the financial
information,  including  forecasts  from SFS,  Webb assumed ( with SFS' consent)
that such information had been reasonably prepared reflecting the best currently
available  estimates and judgment of SFS' management.  Webb also assumed that no
restrictions or conditions would be imposed by regulatory authorities that would
have a material adverse effect on the contemplated benefits of the Merger to SFS
or the ability to consummate the Merger.                                        

     Webb's  review of  comparable  transactions  included  the  compilation  of
pending or recently completed acquisitions of savings institutions.  The results
of the analysis are summarized below along five industry  accepted  ratios.  The
information in the following table summarizes the material  information analyzed
by Webb with  respect  to the  Merger.  The  summary  does not  purport  to be a
complete description of the analysis performed by Webb in rendering its Opinion.
Selecting  portions  of Webb's  analysis  or  isolating  certain  aspects of the
comparable  transactions  without  considering  all analyses  and factors  could
create an incomplete or potentially misleading view of the evaluation process.  

     Webb's  review of  comparable  transactions  included  the  compilation  of
pending or recently completed  acquisitions of savings  institutions sorted into
five groups. The groups were identified with characteristics  similar to SFS and
complied as follows:  (i) all thrift  acquisitions since June 30, 1997; (ii) all
thrift  acquisitions  with a total  transaction value between $5 million and $50
million ("Comparable  Transaction Value"); (iii) all acquisitions since June 30,
1997 with the selling  thrift having equity to total assets of between 10.0% and
16.0% ("Comparable  Equity Ratio");  (iv) all thrift acquisitions since June 30,
1997 with the selling  thrift having assets between $70 million and $270 million
("Comparable Asset Size");  and (v) all thrift  acquisitions since June 30, 1997
located in the Mid-Atlantic region ("Comparable Regional Deals"). The results of
the analysis are summarized below:                                              

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                                                        [Enlarge/Download Table]

                                                            Price to                       
                                             -------------------------------------  CoreDep
                                             TangBook  LTMEPS(c)  Deposits  Assets  Premium
                                                (%)       (x)        (%)      (%)     (%)  
                                             --------  ---------  --------  ------  -------

                                                                                           
Consideration - $26.50 per share(a)            145.4      26.5      22.7     19.5      8.3 
Consideration - $35.00 per share(b)            194.6      35        30.3     26.1     16   

Recent Transactions                  Number     Median for all deals since June 30, 1997   
-------------------                  ------  ----------------------------------------------
  Completed                           105      191.3      23.1      18.1     24.8     13.2 
  Pending                              58      204.6      25.0      21.7     28.5     16.9 

Comparable Transaction Value                                                               
----------------------------                                                               
  Completed                            37      165.0      25.6      17.8     23.3      8.6 
  Pending                              22      160.2      22.0      18.2     21.4     10.8 

Comparable Equity Ratio                                                                    
-----------------------                                                                    
  Completed                            21      175.2      24.4      21.8     27.2     13.5 
  Pending                              12      188.1      24.8      25.0     34.4     18.6 

Comparable Asset Size                                                                      
---------------------                                                                      
  Completed                            21      175.2      24.4      21.8     27.2     13.5 
  Pending                              12      188.1      24.8      25.0     34.4     18.6 

Comparable Regional Deals                                                                  
-------------------------                                                                  
  Completed                            15      214.3      21.4      17.7     25.0     13.4 
  Pending                              16      203.6      26.6      25.0     31.5     19.5 

----------                                                                      
(a)  Based on holders of SFS Common Stock receiving $26.50 per share.           

(b)  Based on holders of SFS Common Stock receiving $35.00 per share.           

(c)  Last twelve  months  (LTM)  ending June 30,  1998  earnings  per share were
$1.00.                                                                

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     In preparing its analysis,  Webb made numerous  assumptions with respect to
industry  performance,  business and economic conditions and other matters, many
of which are beyond the control of Webb and SFS. The analyses  performed by Webb
are not necessarily  indicative of actual values or future results, which may be
significantly  more or less favorable than suggested by such analyses and do not
purport to be appraisals or reflect the prices at which a business may be sold. 

     SFS  engaged  Webb  to,  among  other  things,  assist  SFS in  determining
appropriate and desirable  values that could be realized in a merger,  prepare a
summary  of recent  merger  and  acquisition  trends in the  financial  services
industry,  advise SFS as to the structure and form of any proposed  merger,  and
render an  opinion as to the  fairness  of the  consideration  to be paid in any
proposed  merger.  SFS agreed to pay Webb a fee of  $50,000  for  delivery  of a
fairness   opinion,   which  fee  was  paid  as  of  the  date  of  this   Proxy
Statement/Prospectus.  Further, SFS agreed to pay Webb a success fee of 1.00% of
the transaction value less the fee paid for the fairness  opinion.  Such success
fee shall be paid  upon  consummation  of the  Merger.  Based  upon the range of
$26.50 to $35.00 per share for SFS stockholders,  the transaction value would be
between  approximately $27.5 million and $36.4 million.  SFS agreed to reimburse
Webb for its reasonable  out-of-pocket  expenses,  not to exceed $7,500. SFS has
further  agreed to  indemnify  Webb and its  affiliates,  and  their  respective
directors, officers and employees and each such other person controlling Webb or
any of its affiliates from and against certain claims and  liabilities.  Webb is
also  acting  as  underwriter  on a  best-efforts  basis in the  mutual to stock
conversion  transaction  for the  Company and Cohoes  Savings.  Webb will not be
involved in establishing the valuation range of the offering.  Webb will be paid
a fee equal to 1.20% of the aggregate purchase price of the Company Common Stock
sold in the  Conversion  (excluding  shares  purchased by  trustees,  directors,
executive  officers or employees of the Company or Cohoes  Savings or members of
their immediate  families or any employee  benefit plan of the Company or Cohoes
Savings).  See "The  Offering--Marketing  and Underwriting  Arrangements" in the
Prospectus.                                                                     

Treatment of SFS Stock Options                                                  

     If any of the stock options ("SFS Options")  granted under SFS' Amended and
Restated Stock Option and Incentive Plan ("SFS Option Plan") remain  outstanding
immediately  prior to  consummation  of the Conversion and Merger,  they will be
converted  into options to purchase  Company  Common  Stock,  with the number of
shares  subject to the option and the  exercise  price per share to be  adjusted
based upon the  Exchange  Ratio.  The number of shares of Company  Common  Stock
subject to each  converted  SFS Option shall be equal to the number of shares of
SFS Common Stock subject to such SFS Option  immediately  prior to the Effective
Time  multiplied by the Exchange Ratio,  provided that any fractional  shares of
Company Common Stock resulting from such multiplication  shall be rounded to the
nearest share,  and the per share exercise price under each converted SFS Option
shall be adjusted by dividing the per share  exercise  price under each such SFS
Option by the Exchange Ratio, provided that such exercise price shall be rounded
up to the next cent.  Notwithstanding  the preceding  sentence,  each SFS Option
which is an  "incentive  stock  option" shall be adjusted as required by Section
424 of the  Code,  and  the  regulations  promulgated  thereunder,  so as not to
constitute a modification, extension or renewal of the option within the meaning
of Section 424(h) of the Code.                                                  

Effective Time and Closing Date                                                 

     The Merger shall become effective at the time and on the date of the filing
of the  Certificate  of  Merger  with the  Secretary  of  State of the  State of
Delaware,  unless a later date and time is  specified as the  effective  time in
such Certificate of Merger. The Effective Time will occur  simultaneously  with,
or immediately after, the consummation of the Conversion. The Closing shall take
place  immediately  prior to the  Effective  Time at 10.00 a.m.,  Eastern  Time,
following the satisfaction or waiver, to the extent permitted, of the conditions
to  the  consummation  of the  Merger  specified  in  Article  VI of the  Merger
Agreement  (other  than  the  delivery  of  certificates,   opinions  and  other
instruments and documents to be delivered at the Closing),  at such place and at
such time as the parties may mutually agree upon.  See also "The  Conversion and
the  Merger--Closing  Date of the  Merger;  Termination  and  Amendment"  in the
Prospectus.                                                                     

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Interests of Certain Persons in the Merger                                      

     Upon consummation of the Conversion and the Merger,  the Company and Cohoes
Savings will appoint Joseph H. Giaquinto, President, Chief Executive Officer and
the Chairman of the Board of SFS and Schenectady  Federal,  to their  respective
Boards of Directors,  and the Company will nominate Mr.  Giaquinto to be elected
to a three-year  term at the next annual meeting of the Company's  stockholders.
The remaining  directors and certain  officers of Schenectady  Federal as of the
Effective  Time will be  appointed  to an  advisory  board of the  Company for a
three-year  term  (four  years,  with  respect  to the  appointment  of David J.
Jurczynski).                                                                    

     As of _______,  1998,  there were an aggregate of 125,579  stock options to
purchase SFS Common  Stock  outstanding  under SFS' Stock Option Plan.  Of these
stock  options,  46,496 are  currently  exercisable.  If any of the SFS  Options
remain outstanding immediately prior to consummation of the Merger, they will be
converted  into options to purchase  Company  Common  Stock,  with the number of
shares  subject to the option and the  exercise  price per share to be  adjusted
based upon the  Exchange  Ratio so that the  aggregate  exercise  price  remains
unchanged,  and with the  duration of the option  remaining  unchanged.  See "--
Treatment  of SFS Stock  Options."  SFS Options  which have not vested as of the
Effective Time will continue to vest in accordance  with their terms for as long
as the  holders of the  options  are either a  director,  advisory  director  or
employee  of the Company  and/or  Cohoes  Savings.  See "The  Special  Meeting -
Beneficial  Ownership  of SFS Common  Stock" for the  amount of  unvested  stock
options held by the directors and executive officers of SFS.                    

     As of September  ___,  1998,  an  aggregate of 32,530  shares of SFS Common
Stock have been  awarded to the  directors  and  officers of SFS pursuant to the
Recognition and Retention Plan and have not yet vested. Upon consummation of the
Merger,  all unvested  awards will be converted  into Company Common Stock based
upon the Exchange Ratio and will continue to vest in accordance with their terms
for as long as the  holders  of the  awards  are  either  a  director,  advisory
director or employee of the Company  and/or Cohoes  Savings.  See "Summary - The
Special Meeting - Security Ownership" for the amount of unvested awards.        

     As of  September  30, 1998,  the SFS ESOP held 83,720  shares of SFS Common
Stock which had not yet been allocated to participants and which were pledged as
collateral for the remaining $837,200 loan to the SFS ESOP. The ESOP is expected
to be terminated in accordance with its terms six months following  consummation
of the  Merger,  at  which  time  the  loan  will be  repaid  and the  remaining
unallocated shares will be allocated to the participants.                       

     Pursuant  to the  Merger  Agreement,  Cohoes  Savings  has agreed to retain
employees of SFS and Schenectady Federal after the Effective Time, provided that
the Company and Cohoes  Savings  shall not have any  obligation  to continue the
employment  of such  persons.  The Merger  Agreement  provides that officers and
employees of SFS and Cohoes Savings who become employees of Cohoes Savings after
the Merger will be entitled to participate in Cohoes Savings'  employee  benefit
plans  maintained  generally for the benefit of its  employees.  Cohoes  Savings
shall  treat  SFS'  employees  who  become  employees  of Cohoes  Savings as new
employees,  but shall amend its employee  benefit plans to provide  credit,  for
purposes of vesting and  eligibility to participate  for service with SFS to the
extent that such service was recognized  for similar  purposes under SFS' plans.
In addition,  the provisions of certain  employment  agreements and Supplemental
Executive  Retirement  Agreements  with  officers  of SFS  will  result  in cash
payments  aggregating   approximately  $________  million  to  certain  of  SFS'
officers,  including $_______ to Mr. Giaquinto. See also "The Conversion and the
Merger--Interests of Certain Persons in the Merger" in the Prospectus.          

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     In the Merger Agreement, the Company has agreed to indemnify the directors,
officers and employees of SFS and each of its  subsidiaries  for a period of six
years  after  the  Effective  Time to the  fullest  extent  which SFS or any SFS
subsidiary  would have been permitted to do so under its respective  Certificate
of Incorporation,  Charter or Bylaws. In addition,  all limitations of liability
existing  in favor of such  individuals  in the  Certificate  of  Incorporation,
Charter or Bylaws of SFS or any SFS subsidiary,  arising out of matters existing
or occurring at or prior to the  Effective  Time,  shall  survive the Merger and
shall continue in full force and effect. The Company has also agreed to maintain
SFS' existing  directors' and officers'  liability insurance policy (or purchase
another policy  providing  substantially  the same coverage) for a period of six
years following the Effective Time, subject to certain limits on the cost to the
Company.                                                                        

Delivery of Certificates                                                        

     After  consummation  of the  Conversion  and the  Merger,  each holder of a
certificate or certificates theretofore evidencing issued and outstanding shares
of SFS Common Stock,  upon surrender of the same to an agent,  duly appointed by
the Company,  which is  anticipated  to be the transfer agent for Company Common
Stock (the "Exchange Agent"), shall be entitled to receive in exchange therefore
a certificate or certificates  representing the number of full shares of Company
Common Stock for which the shares of SFS Common Stock theretofore represented by
the certificate or  certificates so surrendered  shall have been converted based
on the Exchange  Ratio.  The Exchange Agent shall,  after  expiration of the ten
trading day period  required to determine the Exchange  Ratio,  promptly mail to
each such holder of record of an outstanding certificate which immediately prior
to the  consummation  of the Conversion and the Merger  evidenced  shares of SFS
Common Stock, and which is to be exchanged for Company Common Stock based on the
Exchange  Ratio  as  provided  in the  Merger  Agreement,  a form of  letter  of
transmittal  (which shall specify that delivery  shall be effected,  and risk of
loss and  title to such  certificate  shall  pass,  only upon  delivery  of such
certificate  to the  Exchange  Agent)  advising  such holder of the terms of the
exchange  effected by the  Conversion  and the Merger and of the  procedure  for
surrendering  to  the  Exchange  Agent  such   certificate  in  exchange  for  a
certificate or certificates evidencing Company Common Stock. The stockholders of
SFS should not  forward  SFS Common  Stock  certificates  to the  Company or the
Exchange Agent until they have received the  transmittal  letter.  See also "The
Conversion and the Merger--Delivery of Certificates" in the Prospectus.         

Representations and Warranties                                                  

     The Merger  Agreement  contains  representations  and warranties of SFS and
Cohoes Savings which are customary in merger  transactions,  including,  but not
limited to, representations and warranties concerning:  (i) the organization and
capitalization of SFS and Cohoes Savings and their respective subsidiaries; (ii)
the due  authorization,  execution,  delivery and  enforceability  of the Merger
Agreement;  (iii) the consents or approvals required,  and the lack of conflicts
or violations under applicable certificates of incorporation,  charters, bylaws,
instruments  and laws,  with  respect to the  transactions  contemplated  by the
Merger  Agreement;  (iv)  the  absence  of  material  adverse  changes;  (v) the
documents filed by the parties with the SEC and other regulatory agencies;  (vi)
the conduct of business in the ordinary  course and absence of certain  changes;
(vii) the financial statements of the respective parties; (viii) compliance with
laws by the respective parties;  and (ix) the allowance for loan losses and real
estate owned. The  representations and warranties of Cohoes Savings and SFS will
not survive beyond the Effective Time if the Merger is consummated,  and, if the
Merger Agreement is terminated without consummation of the Merger, there will be
no  liability  on the part of any party  except  that no party shall be relieved
from any liability arising out of a willful breach of any covenant, undertaking,
representation or warranty in the Merger Agreement and except as described under
"--  Termination"  and "-- Expenses of the Merger." See also "The Conversion and
the Merger--Representations and Warranties" in the Prospectus.                  

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Conditions to the Merger                                                        

     The  respective  obligations  of the parties to  consummate  the Merger are
subject to the  satisfaction  or waiver of certain  conditions  specified in the
Merger  Agreement  including,  among other things,  the receipt of all necessary
regulatory,   stockholder   and  member   approvals,   the  compliance  with  or
satisfaction of all  representations,  warranties,  covenants and conditions set
forth  therein,  the absence of any order,  decree or  injunction  enjoining  or
prohibiting  consummation of either the Conversion or the Merger, the receipt by
the  parties  of tax  opinions  with  respect  to  certain  federal  income  tax
consequences of the Merger and the receipt by the parties of a letter from their
respective  independent  accountants that the Merger shall be accounted for as a
pooling  of  interests.  There  can  be no  assurance  that  the  conditions  to
consummation of the Merger will be satisfied or waived. See also "The Conversion
and the Merger--Conditions to the Merger" in the Prospectus.                    

Conduct of Business Prior to the Closing Date                                   

     Under the terms of the Merger Agreement,  Cohoes Savings and SFS shall, and
shall cause each of their respective subsidiaries to, conduct its businesses and
engage in  transactions  only in the ordinary  course and  consistent  with past
practice or to the extent  otherwise  contemplated  under the Merger  Agreement,
except with the prior written  consent of Cohoes Savings or SFS, as the case may
be.  SFS also shall use its  reasonable  efforts to (i)  preserve  its  business
organization and that of its subsidiaries  intact, (ii) keep available to itself
and Cohoes  Savings  the  present  services  of its  employees  and those of its
subsidiaries,  and (iii)  preserve for itself and Cohoes Savings the goodwill of
its  customers  and those of its  subsidiaries  and  others  with whom  business
relationships exist.                                                            

     In addition,  under the terms of the Merger Agreement, SFS has agreed that,
except as  otherwise  approved  by Cohoes  Savings in  writing or as  permitted,
contemplated  or  required  by the Merger  Agreement,  it will not,  nor will it
permit  any of its  subsidiaries  to,  engage in  certain  activities.  See "The
Conversion and the Merger--Conduct of Business Prior to the Merger Closing Date"
in the Prospectus.                                                              

Required Approvals                                                              

     Various  approvals  of the  NYSBD  and the  FDIC are  required  in order to
consummate the  Conversion and the Merger.  The NYSBD and the FDIC have approved
the  Plan  of  Conversion,   subject  to  approval  by  Cohoes  Savings'  voting
depositors.  In  addition,  consummation  of the  Conversion  and the  Merger is
subject to OTS approval of the Company's holding company  application to acquire
all the SFS  Common  Stock  and  all of  Cohoes  Savings  common  stock  and the
applications  under the Home  Owners'  Loan Act, the Bank Merger Act and the New
York State Banking laws, with respect to the merger of Schenectady  Federal with
and into  Cohoes  Savings  with  Cohoes  Savings  being  the  surviving  entity.
Applications  for these  approvals  have been filed and are  currently  pending.
There can be no  assurances  that the  requisite  regulatory  approvals  will be
received in a timely manner,  in which event the  consummation of the Conversion
and the Merger may be delayed.  In the event the  Conversion  and the Merger are
not  consummated  on or before  March 31,  1999,  the  Merger  Agreement  may be
terminated  by  either  Cohoes  Savings  or SFS,  provided  that  this  right to
terminate shall not be available to Cohoes Savings until April 15, 1999 if as of
March 31, 1999 all of the  conditions  precedent  have been  satisfied or waived
other than the condition precedent that all statutory waiting periods shall have
expired.  There  can be no  assurance  as to  the  receipt  or  timing  of  such
approvals.                                                                      

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     It is a condition  to the  consummation  of the Merger that the  regulatory
approvals be obtained without any condition or requirement that, individually or
in the aggregate,  would so materially  reduce the economic or business benefits
of the transactions  contemplated by the Merger Agreement to Cohoes Savings that
had such condition or requirement been known,  Cohoes Savings, in its reasonable
judgment,  would not have  entered  into the Merger  Agreement.  There can be no
assurance  that any  such  approvals  will  not  contain  terms,  conditions  or
requirements which cause such approvals to fail to satisfy such condition to the
consummation of the Merger. In addition,  the Conversion must be approved by the
members of Cohoes Savings and the Merger Agreement  approved by the stockholders
of SFS. See also "The  Conversion  and the  Merger--Required  Approvals  for the
Conversion and the Merger" in the Prospectus.                                   

Waiver and Amendment                                                            

     Prior to the Effective Time, Cohoes Savings and SFS may extend the time for
performance  of  any  obligations   under  the  Merger   Agreement,   waive  any
inaccuracies  in the  representations  and  warranties  contained  in the Merger
Agreement and waive  compliance  with any covenant,  agreement or, to the extent
permitted by law, any condition of the Merger Agreement,  provided that any such
waiver after the SFS  stockholders  have adopted the Merger  Agreement shall not
modify  the  amount  or  form  of  consideration  to  be  provided  to  the  SFS
stockholders or otherwise  materially adversely affect such stockholders without
the approval of the affected stockholders.                                      

     The Merger  Agreement may be amended or  supplemented at any time by mutual
agreement  of  Cohoes  Savings  and SFS,  provided  that any such  amendment  or
supplement  after the SFS  stockholders  have  adopted the Merger  Agreement  is
subject to the proviso in the preceding paragraph.  See also "The Conversion and
the  Merger--[Closing  Date of the Merger];  Termination  and  Amendment" in the
Prospectus.                                                                     

Termination                                                                     

     The Merger  Agreement may be terminated prior to the Effective Time by: (a)
the mutual written  consent of the parties;  (b) by Cohoes Savings or SFS if (i)
the other party has in any material respect breached the Merger  Agreement,  and
such  breach  has not  been  timely  cured  after  notice;  (ii)  any  necessary
governmental  approval  is denied,  unless such denial is due to a breach of the
party seeking to terminate;  (iii) if a final, nonappealable order prohibits any
transaction  contemplated by the Merger Agreement;  (iv) the shareholders of SFS
do not approve the Merger  Agreement or the  depositors of Cohoes Savings do not
approve the Plan of Conversion,  unless the failure of such approval is due to a
breach of the party  seeking to  terminate;  or (v) the  Effective  Time has not
occurred  by March 31,  1999 (or in certain  circumstances,  April 15,  1999 for
Cohoes  Savings) unless the failure of such occurrence is due to a breach of the
party seeking to terminate;  or (c) by Cohoes Savings if a "Purchase  Event" (as
defined in the Merger Agreement) has occurred.                                  

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     In the  event  of the  termination  of the  Merger  Agreement,  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  and   directors,   except  that  (i)  certain   provisions   regarding
confidential information and expenses shall survive and remain in full force and
effect;  (ii) a  breaching  party shall not be  relieved  of  liability  for any
willful  breach giving rise to such  termination;  and (iii) certain  provisions
relating to expenses and termination fees shall survive and remain in full force
and effect.  Cohoes  Savings shall pay to SFS a termination  fee of $2.0 million
unless (i) Cohoes  Savings  terminates in response to a breach or Purchase Event
by  SFS;  (ii)  the  termination  is due to  failure  to  receive  any  required
governmental  approval,  failure  to receive  the  approval  of Cohoes  Savings'
depositors,  or failure of the Effective Time to occur by March 31, 1999;  (iii)
SFS shareholders do not approve the Merger Agreement;  (iv) the Merger Agreement
is terminated because certain closing conditions cannot be satisfied; or (v) SFS
exercises a right of termination before March 31, 1999. If termination is due to
failure to receive the approval of Cohoes Savings' depositors, or failure of the
Effective  Time to occur by March 31, 1999,  Cohoes Savings shall pay to SFS the
reasonable and verifiable expenses incurred by SFS in connection with the Merger
Agreement.  If  termination  is due to  (i)  failure  to  receive  any  required
governmental  approval  or (ii) all  other  conditions  are  satisfied,  but the
required  pooling  of  interest  letters  cannot  be  obtained  due to an act or
omission of Cohoes Savings,  the Company or a Cohoes Savings  affiliate,  Cohoes
Savings will pay to SFS a break up fee of $1.0 million.  SFS shall pay to Cohoes
Savings a fee of $2.0 million upon the occurrence of a Purchase Event prior to a
Fee Termination Event (as defined below).                                       

     A "Fee Termination Event" shall be the first to occur of the following: (i)
the Effective Date, (ii)  termination of the Merger Agreement in accordance with
the terms  thereof  prior to the  occurrence  of a Purchase  Event (other than a
termination  of the Merger  Agreement by Cohoes Savings as a result of a willful
breach  of  any  representation  warranty,  covenant  or  agreement  of  SFS  or
Schenectady  Federal),  or (iii) 12 months  following  termination of the Merger
Agreement by Cohoes  Savings  unless a Purchase  Event shall have occurred prior
thereto.                                                                        

     See also "The  Conversion  and the  Merger--[Closing  Date of the  Merger];
Termination and Amendment" in the Prospectus.                                   

Certain Federal Income Tax Consequences of the Merger                           

     Set forth below is a discussion of federal income tax  consequences  of the
Merger to the Company and SFS and SFS stockholders who are citizens or residents
of the United States. The following discussion does not purport to be a complete
analysis or listing of all potential tax effects  relevant to a decision whether
to vote in favor of the adoption of the Merger  Agreement  and the  transactions
contemplated  thereby.   Further,  the  discussion  does  not  address  the  tax
consequences  that may be relevant to a particular  SFS  stockholder  subject to
special  treatment  under certain  federal  income tax laws,  such as dealers in
securities,  banks, insurance companies,  tax-exempt  organizations,  non-United
States persons and stockholders  who acquired their shares as compensation,  nor
any  consequences  arising  under the laws of any  state,  locality  or  foreign
jurisdiction.  The  discussion  is based  upon the  Code,  Treasury  regulations
thereunder and administrative rulings and court decisions as of the date hereof.
All of the  foregoing are subject to change and any such change could affect the
continuing validity of this discussion.                                         

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     HOLDERS OF SFS COMMON  STOCK ARE URGED TO CONSULT  THEIR TAX ADVISERS AS TO
THE PARTICULAR  EFFECT OF THEIR OWN PARTICULAR  FACTS AND  CIRCUMSTANCES  ON THE
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO THEM, AND ALSO TO THE EFFECT OF
ANY STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.                                   

     Under  current  federal  income  tax law,  and based upon  assumptions  and
representations  of the  Company  and  SFS,  and  assuming  that the  Merger  is
consummated in the manner set forth in the Merger  Agreement,  it is anticipated
that the following federal income tax consequences would result:                

          (i) the Merger will constitute a reorganization  within the meaning of
Section 368(a) of the Code,                                           

          (ii) no gain or loss will be  recognized by any SFS  stockholder  upon
     the  exchange of SFS Common  Stock  solely for Company  Common Stock in the
     Merger  (except  in  connection  with  the  receipt  of  cash  in lieu of a
fractional share of Company Common Stock, as discussed below);        

          (iii) the aggregate tax basis of the Company  Common Stock received by
     each  stockholder  of SFS who exchanges SFS Common Stock for Company Common
     Stock in the Merger will be the same as the  aggregate tax basis of the SFS
     Common Stock  surrendered in exchange  therefor (subject to any adjustments
     required as the result of receipt of cash in lieu of a fractional  share of
Company Common Stock);                                                

          (iv) the holding period of the shares of Company Common Stock received
     by an SFS  stockholder in the Merger will include the holding period of the
     SFS Common  Stock  surrendered  in exchange  therefor  (provided  that such
     shares of SFS Common Stock were held as a capital asset by such stockholder
at the Effective Time); and                                           

          (v) cash  received  in the Merger by an SFS  stockholder  in lieu of a
     fractional share interest of Company Common Stock will be treated as having
     been  received  as a  distribution  in full  payment  in  exchange  for the
     fractional  share interest of Company  Common Stock which such  stockholder
     would otherwise be entitled to receive, and will qualify as capital gain or
     loss  (assuming the Company Common Stock  surrendered in exchange  therefor
 was held as a capital asset by such stockholder at the Effective Time).

     Based  upon  representations  to be made by the  Company  and  SFS,  Cohoes
Savings  and SFS must  receive  as a  condition  to closing an opinion of Arthur
Andersen,  the  independent  auditors for Cohoes  Savings,  that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code and
will have the effects set forth in  subparagraphs  (ii)-(iv)  above. The opinion
will be subject to various  assumptions and  qualifications,  including that the
Merger is  consummated  in the  manner and in  accordance  with the terms of the
Merger Agreement.  The opinion will be based entirely upon the Code, regulations
then in  effect or  proposed  thereunder,  current  administrative  rulings  and
practice  and  judicial  authority,  all of which  would be  subject  to change,
possibly with retroactive effect. Consummation of the Merger is conditioned upon
the  receipt  by the  Company  and  SFS,  respectively,  of  such  opinion.  See
"--Conditions to the Merger."                                                   

     No ruling has been or will be requested from the Internal  Revenue  Service
("IRS"),  including  any ruling as to federal  income  tax  consequences  of the
Merger to the  Company or SFS  stockholders.  Unlike a ruling  from the IRS,  an
opinion of  independent  certified  accountants is not binding on the IRS. There
can be no  assurance  that  the IRS will not  take a  position  contrary  to the
positions  reflected in such opinion or that such opinion would be upheld by the
courts if challenged.  See also "The Conversion and the Merger--Tax  Aspects" in
the Prospectus.                                                                 

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Accounting Treatment                                                            

     Consummation  of the  Merger  is  conditioned  upon the  receipt  by Cohoes
Savings and SFS of a letter from their respective independent accountants to the
effect that the Merger qualifies for pooling of interests accounting  treatment.
Under the pooling of interests  method of accounting,  the historical cost basis
of the assets and  liabilities  of the  Company  and SFS will be combined at the
Closing Date and carried forward at their previously  recorded amounts,  and the
stockholders' equity accounts of SFS and the Company will also be combined.  The
consolidated  income and other financial  statements of the Company issued after
consummation  of the  Merger  will be  restated  retroactively  to  reflect  the
consolidated  operations  of the  Company and SFS as if the  Conversion  and the
Merger  had  taken  place  prior  to  the  periods  covered  by  such  financial
statements.  See also  "--Conditions  to the Merger" and "The Conversion and the
Merger--Accounting Treatment" in the Prospectus.                                

     In the past,  SFS had made  certain  repurchases  of  shares of SFS  Common
Stock. SFS has made no repurchases  since October 22, 1997 and,  pursuant to the
terms  of  the  Merger  Agreement,  will  not  make  any  repurchases  prior  to
consummation  of the Merger.  In addition,  regulations of the FDIC restrict the
Company's  ability to  implement  any  repurchases  of stock  subsequent  to the
Conversion  and  Merger.  Any  repurchase  program  implemented  by the  Company
subsequent  to the  Conversion  and Merger also will be limited as  necessary to
preserve pooling-of-interests accounting treatment of the Merger.               

No Dissenters' Rights of Appraisal                                              

     Under Delaware law, holders of SFS Common Stock have no dissenters'  rights
of appraisal in connection with the Merger.                                     

Expenses of the Merger                                                          

     The Merger  Agreement  provides,  in general,  that Cohoes  Savings and SFS
shall each bear and pay all their respective  costs and expenses  incurred by it
in  connection  with the  transactions  contemplated  by the  Merger  Agreement,
including  fees  and  expenses  of  their  respective   financial   consultants,
investment  bankers,  accountants  and  counsel.  If  the  Merger  Agreement  is
terminated under certain specified circumstances, Cohoes Savings is obligated to
pay SFS a break-up fee of up to $2 million, and if a Purchase Event (as defined)
occurs,  then  SFS  must  pay  Cohoes  Savings  a fee  of $2  million.  See " --
Termination." See also "The Conversion and the  Merger--Expenses  of the Merger"
in the Prospectus.                                                              

Management after the Merger                                                     

     Upon consummation of the Conversion and the Merger,  the Company and Cohoes
Savings will appoint Joseph H. Giaquinto, President, Chief Executive Officer and
Chairman of the Board of SFS and Schenectady Federal, to their respective Boards
of Directors.  See also "The  Conversion  and the Merger  --Interests of Certain
Persons in the Merger" and "Management of the Company" in the Prospectus.       

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COMPARISON OF RIGHTS OF STOCKHOLDERS OF 
SFS BANCORP, INC. AND COHOES BANCORP, INC.

Introduction                                                                    

     Upon the  consummation  of the Merger,  holders of SFS Common Stock,  whose
rights  are  presently   governed  by  Delaware  law  and  SFS'  certificate  of
incorporation and bylaws (the "SFS Certificate" and "SFS Bylaws,"  respectively)
and,  indirectly,   Schenectady   Federal's  charter  and  bylaws,  will  become
stockholders of the Company,  also a Delaware  corporation.  Accordingly,  their
rights will be governed by the DGCL and the  certificate  of  incorporation  and
bylaws  of  the  Company  (the  "Company  Certificate"  and "  Company  Bylaws,"
respectively)  and,  indirectly,  Cohoes  Savings'  charter and bylaws.  Certain
differences  arise from the  differences  between the SFS Certificate and Bylaws
and the  Company  Certificate  and Bylaws and  between the charter and bylaws of
Schenectady  Federal and Cohoes  Savings.  The following  discussion  summarizes
material differences affecting the rights of stockholders but is not intended to
be a complete  statement of all  differences and is qualified in its entirety by
reference to the DGCL, the Company  Certificate and Bylaws,  the SFS Certificate
and Bylaws and the  respective  charters and bylaws of  Schenectady  Federal and
Cohoes Savings.                                                                 

     Each  SFS  stockholder  should  carefully  consider  these  differences  in
connection  with the  decision to vote for or against the adoption of the Merger
Agreement. See also "Restrictions on Acquisitions of the Holding Company and the
Bank" in the Prospectus.                                                        

Capital Stock                                                                   

     The SFS Certificate  authorizes the issuance of 2,500,000  shares of common
stock,  par value $.01 per share,  and 500,000 shares of serial preferred stock,
par  value  $.01 per  share,  and  provides  that the SFS  Board  may  issue any
authorized  shares from time to time and may fix the rights and  preferences  of
the serial  preferred stock, all without  stockholder  action.  As of the Record
Date,  there  were  1,208,472  shares of SFS  Common  Stock and no shares of SFS
preferred stock issued and outstanding.                                         

     The Company  Certificate  authorizes  the issuance of 40,000,000  shares of
common stock, par value $.01 per share, and 5,000,000 shares of serial preferred
stock,  par value $.01 per  share,  and  provides  that the  Company's  Board of
Directors  (the "Company  Board") may issue any  authorized  shares from time to
time and may fix the rights and preferences of the serial  preferred  stock, all
without stockholder  action. The Company,  which has never issued capital stock,
is offering up to __________  shares of Company Common Stock in connection  with
the Conversion and the Merger.                                                  

Special Meetings of Stockholders                                                

     The SFS  Certificate  and SFS  Bylaws  provide  that  special  meetings  of
stockholders  of SFS may be  called  only by the SFS  Board,  upon a  resolution
adopted by a majority of the total  number of  directors  that SFS would have if
there were no vacancies on the Board.  The Company  Certificate  and the Company
Bylaws also provide that special  meetings of stockholders of the Company may be
called  only by a majority  of the total  number of  directors  that the Company
would have if there were no vacancies on the Board.                             

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Advance Notice Requirements for Nominations of Directors and Presentation of New
Business at Annual Meetings of Stockholders                                     

     The  SFS  Bylaws  provide  that if a  stockholder  of SFS  desires  to make
nominations  for the election of directors,  SFS must receive  written notice of
such  nominations  that meets certain formal  requirements not less than 30 days
prior to the meeting for the election of directors;  provided,  however, if less
than 40 days  notice  of the date of the  meeting  is given to  stockholders  or
disclosed  publicly by SFS, notice by the stockholder must be received not later
than the tenth day following the date such notice of the meeting was mailed. The
notice shall include (i) all information  with respect to each nominee  required
under  the  Exchange  Act  to be  disclosed  in  proxy  solicitation  materials,
including a signed consent to being named in the proxy statement and to serve as
a director if elected,  (ii) the name and address, as they appear on SFS' books,
of the  stockholder  proposing to make the  nomination,  and (iii) the class and
number of shares  of SFS'  capital  stock  that are  beneficially  owned by such
stockholder.  In addition,  the SFS Bylaws provide that any stockholder desiring
to make a proposal for new business at the annual meeting of  stockholders  must
submit a  written  statement  of the  proposal  which  must be  received  by the
secretary  of SFS at least 60 days  prior to the  anniversary  of the  preceding
year's annual meeting; provided, however, that in the event that the date of the
annual  meeting is  advanced  by more than 20 days or delayed  more than 60 days
from such anniversary date, notice must be delivered not later than the close of
business on the later of the  sixtieth  day prior to such annual  meeting on the
tenth day  following  the day on which notice of the date of the annual  meeting
was mailed or public announcement of the date of such meeting is first made. The
stockholder's  notice  must  include  (i) a brief  description  of the  business
desired to be brought  before the annual  meeting and the reasons for conducting
such business at the annual meeting,  (ii) the name and address,  as they appear
on SFS' books, of the  stockholder  who proposed such business,  (iii) the class
and number of shares of SFS' capital stock that are  beneficially  owned by such
stockholder and (iv) any material interest of such stockholder in such business.
If a stockholder  fails to comply with these  advance  notice  requirements,  no
action will be taken on the proposal at the meeting.                            

     The Company's  Bylaws provide that if a stockholder of the Company  desires
to make  nominations  for the  election of  directors,  the Company must receive
written notice of such  nominations  that meets certain formal  requirements not
less than 60 days prior to the meeting for the election of directors;  provided,
however,  if less  than 70 days  notice of the date of the  meeting  is given to
stockholders  or disclosed  publicly by the Company,  notice by the  stockholder
must be received not later than the earlier of the tenth day  following the date
on which such notice of the  meeting was mailed or the date public  announcement
of the date of such  meeting was first made.  The notice  shall  include (i) all
information  with respect to each nominee  required under the Exchange Act to be
disclosed in proxy solicitation  materials,  including a signed consent to being
named in the proxy  statement  and to serve as a director if  elected,  (ii) the
name and address,  as they appear on the  Company's  books,  of the  stockholder
proposing to make the nomination and (iii) the class and number of shares of the
Company's  capital stock that are  beneficially  owned by such  stockholder.  In
addition,  the Company's Bylaws provide that any stockholder  desiring to make a
proposal for new business at the annual  meeting of  stockholders  must submit a
written statement of the proposal which must be received by the secretary of the
Company at least 60 days prior to the anniversary of the preceding year's annual
meeting;  provided,  however,  that in the  event  that the  date of the  annual
meeting is advanced by more than 20 days or delayed  more than 60 days from such
anniversary  date, notice must be delivered not later than the close of business
on the later of the sixtieth  day prior to such annual  meeting on the tenth day
following  the day on which notice of the date of the annual  meeting was mailed
or  public  announcement  of the  date  of  such  meeting  is  first  made.  The
stockholder's  notice  must  include  (i) a brief  description  of the  business
desired to be brought  before the annual  meeting and the reasons for conducting
such business at the annual meeting,  (ii) the name and address,  as they appear
on the Company's books, of the stockholder who proposed such business, (iii) the
class and number of shares of the Company's  capital stock that are beneficially
owned by such stockholder and (iv) any material  interest of such stockholder in
such  business.  If a  stockholder  fails to comply  with these  advance  notice
requirements, no action will be taken on the proposal at the meeting.           

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Number and Term of Directors                                                    

     Both the SFS  Certificate  and the  Company  Certificate  provide  that the
number  of  directors  shall  be  fixed  from  time to time  exclusively  by the
respective  Board  pursuant  to a  resolution  adopted  by  a  majority  of  the
respective Board.                                                               

     The SFS  Certificate  and SFS Bylaws and the  Company  Certificate  and the
Company  Bylaws  require  the  Boards  of  Directors  of SFS  and  the  Company,
respectively,  to be  divided  into three  classes as nearly  equal in number as
possible and that the members of each class shall be elected for a term of three
years and until their successors are elected and qualified, with one class being
elected annually.                                                               

Removal of Directors                                                            

     The DGCL  provides  that  directors  serving on a  classified  board may be
removed only for cause unless the corporation's charter provides otherwise.  The
SFS Certificate and the Company Certificate provide that any individual director
or directors may be removed,  but only for cause, by an affirmative  vote of the
holders of at least 80% of the outstanding  shares entitled to vote generally in
an election of directors.                                                       

Business Combinations with Certain Persons                                      

     The SFS Certificate  provides that the affirmative vote of 80% of the total
outstanding  shares of voting  stock of SFS is  required  to approve  any of the
following  transactions,  each of which is deemed a "Business Combination" under
the SFS  Certificate:  (i) any merger or  consolidation of SFS or any subsidiary
with an Interested  Stockholder (generally any person or entity controlling more
than 10% of the  outstanding  shares  of  voting  stock of SFS) or an  affiliate
thereof, (ii) any sale, lease,  exchange,  mortgage,  pledge,  transfer or other
disposition to or with an Interested  Stockholder or an affiliate thereof of any
assets of SFS having an aggregate  fair market value equal to or in excess of 25
% or more of the combined assets of SFS and its subsidiaries; (iii) the issuance
or transfer by SFS or any subsidiary to any Interested  Stockholder or affiliate
thereof in exchange for cash,  securities or other property  having an aggregate
fair market value equal to or in excess of 25% of the combined assets of SFS and
its subsidiaries;  (iv) the adoption of any plan or proposal for the liquidation
or dissolution of SFS proposed by or on behalf of any Interested  Stockholder or
any  affiliate  thereof;  or  (v)  any   reclassification   of  securities,   or
recapitalization  of  SFS,  or  any  merger  or  consolidation  with  any of its
subsidiaries  or any other  transaction  which has the effect of increasing  the
proportionate  share  of the  outstanding  shares  of any  class  of  equity  or
convertible  securities of SFS or any subsidiary which is directly or indirectly
owned by any Interested  Stockholder or any affiliate thereof. The supermajority
voting provision is inapplicable,  however,  if (i) with respect to any Business
Combination that does not involve any cash or other consideration being received
by the stockholders of SFS solely in their capacity as stockholders of SFS, such
Business Combination shall have been approved by a majority of the disinterested
directors of SFS, or (ii) in the case of any other Business Combination (A) such
Business Combination shall have been approved by a majority of the disinterested
directors  of SFS or (B)  certain  fair  price  criteria  set  forth  in the SFS
Certificate are met.                                                            

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     The Company  Certificate has identical  provisions with respect to business
combinations involving Interested Stockholders.                                 

Amendment of Certificate of Incorporation and Bylaws                            

     The DGCL  provides  that the  certificate  of  incorporation  of a Delaware
corporation may be amended only if first approved by the corporation's  board of
directors and thereafter by a majority of the outstanding stock entitled to vote
thereon, and, if applicable, a majority of each class of shares entitled to vote
thereon as a class.  The SFS Certificate  requires the  affirmative  vote of the
holders  of at  least  80%  of  the  total  votes  eligible  to be  cast  by SFS
stockholders  for approval of any amendment of  provisions  set forth in the SFS
Certificate  governing  (i) the vote of shares of SFS  Common  Stock held by one
person in excess of 10% of the outstanding shares, (ii) action without a meeting
of stockholders,  (iii) call of special meetings of stockholders, (iv) amendment
of the SFS  Certificate,  (v) SFS' internal  affairs,  (vi) amendment of the SFS
Bylaws, (vii) certain business combinations with principal stockholders,  (viii)
purchases  of SFS  capital  stock  from  certain  interested  persons,  and (ix)
indemnification.                                                                

     The  provisions  of the Company  Certificate  with respect to the amendment
thereof are identical.                                                          

     The SFS Certificate provides that the SFS Bylaws may be amended or repealed
by either the affirmative vote of at least a majority of the SFS Board or by the
affirmative  vote of the  holders of at least 80% of the stock  entitled to vote
generally in the election of directors. The provision of the Company Certificate
with respect to this matter are the same.                                       

Control Share Acquisitions                                                      

     The SFS Certificate provides that in no event shall any record owner of any
outstanding  SFS  Common  Stock  which  is  beneficially   owned,   directly  or
indirectly,  by a person who beneficially  owns more than 10% of the outstanding
shares of SFS Common Stock (the  "Limit"),  be entitled or permitted to any vote
in respect of the shares held in excess of the Limit.                           

The Company Certificate has an identical provision.                   

Evaluation of Offers                                                            

     The SFS Certificate  provides that the SFS Board, when evaluating any offer
of  another  person to (i) make a tender or  exchange  offer for any SFS  equity
security,  (ii) merge or  consolidate  SFS with  another  corporation,  or (iii)
acquire  substantially  all of the  assets  of  SFS,  may,  in  connection  with
determining what is in the best interest of SFS and its  stockholders,  give due
consideration to all relevant factors, including, without limitation, the effect
on present and future  customers  and  employees as well as the  communities  in
which SFS operates.                                                             

The Company Certificate has a substantially identical provision.      

Prevention of Greenmail                                                         

     The "anti-greenmail" provisions of the SFS Certificate require the approval
of the holders of at least 80% of the outstanding  shares of voting stock of SFS
not owned by an Interested  Person (generally any person or entity that directly
or indirectly is the beneficial owner of 5% or more of the outstanding shares of
voting stock of SFS) for any direct or indirect purchase or other acquisition of
the voting stock owned by such Interested Person. Such provisions,  however, are
inapplicable  to (i) self  tender  offers,  (ii)  purchases  pursuant to an open
market  repurchase  program  approved  by the  disinterested  members of the SFS
Board, and (iii) purchases approved by a majority of the SFS Board,  including a
majority  of the  disinterested  directors,  and made at a price at or below the
then current market price per share of the voting stock of SFS.                 

The Company Certificate has identical provisions.                     

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 INDEPENDENT ACCOUNTANTS

     A representative of KPMG Peat Marwick LLP is expected to attend the Meeting
to respond  to  appropriate  questions  and will have an  opportunity  to make a
statement if he so desires.                                                     

 STOCKHOLDER MATTERS

     SFS will hold a 1999 Annual Meeting of  Stockholders  only if the Merger is
not  consummated  before the time of such  meeting,  which  meeting is presently
expected to be held in April of 1999.                                           

     In order to be eligible for inclusion in SFS' proxy  materials for the 1999
Annual Meeting of Stockholders,  any stockholder proposal to take action at such
meeting must be received at the executive  office of SFS,  251-263 State Street,
Schenectady,  New York 12305, no later than November 17, 1998. Any such proposal
shall be  subject  to the  requirements  of the proxy  rules  adopted  under the
Exchange Act.                                                                   

 OTHER MATTERS

     The SFS Board is not aware of any business to come before the Meeting other
than those matters described above in this Proxy Statement/Prospectus.  However,
if any other matter should properly come before the Meeting, it is intended that
holders of the proxies will act in accordance with their best judgment.         

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AGREEMENT AND PLAN OF MERGER

INCLUDED AS EXHIBIT 2.2 
TO THE REGISTRATION STATEMENT 

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July 31, 1998                                                                   

Board of Directors                                                              
SFS Bancorp, Inc.                                                               
251-263 State Street                                                            
Schenectady, NY   12305-1889                                                    

Dear Gentlemen:                                                                 

You have  requested  our  opinion  as an  independent  investment  banking  firm
regarding the fairness,  from a financial point of view, to the  stockholders of
SFS Bancorp, Inc. ("SFED" or the "Company"), of the consideration to be received
by such stockholders in the merger (the "Merger") between the Company and Cohoes
Savings  Bank,  ("CSB").  We have not  been  requested  to opine as to,  and our
opinion  does not in any  manner  address,  the  Company's  underlying  business
decision to proceed with or effect the Merger.                                  

Pursuant to the Agreement and Plan of Merger,  dated July 31,1998,  by and among
the Company and CSB (the "Agreement"),  at the Effective Time of the Merger, CSB
will acquire all of the Company's issued and outstanding shares of common stock.
The holders of the  Company's  common  stock will  receive in exchange  for each
share of Company  common stock,  shares of CSB common stock based on an Exchange
Ratio of CSB common  stock for each share of Company  common  stock  pursuant to
Section  2.3 of the  Agreement.  In  addition,  the holders of  unexercised  and
outstanding  options  awarded  pursuant to the Company's  Stock Option Plan will
receive merger  consideration as described in Section 2.6 of the Agreement.  The
complete terms of the proposed  transaction are described in the Agreement,  and
this summary is qualified in its entirety by reference thereto.                 

Charles Webb & Company, a Division of Keefe,  Bruyette & Woods, Inc., as part of
its  investment  banking  business,  is regularly  engaged in the  evaluation of
businesses  and  securities  in  connection   with  mergers  and   acquisitions,
negotiated  underwritings,  and distributions of listed and unlisted securities.
We are  familiar  with the market for common  stocks of publicly  traded  banks,
savings institutions and bank and savings institution holding companies.        

In connection with this opinion we reviewed certain financial and other business
data  supplied  to us  by  the  Company  including  (i)  Annual  Reports,  Proxy
Statements and Form 10-Ks for the years ended  December 31, 1996 and 1997,  (ii)
Form 10-Q for the quarter ended March 31, 1998, and other  information we deemed
relevant. We discussed with senior management and the boards of directors of the
Company and its wholly owned subsidiary,  Schenectady  Federal Savings Bank, the
current  position  and  prospective  outlook  for  the  Company.  We  considered
historical  quotations and the prices of recorded  transactions in the Company's
common stock since its initial public offering.  We reviewed financial and stock
market data of other savings institutions, particularly in the midwestern region
of the United States,                                                           

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Board of Directors                                                              
SFS Bancorp, Inc.                                                               
July 31, 1998                                                                   
Page 2                                                                          

and the financial  and  structural  terms of several  other recent  transactions
involving  mergers and acquisitions of savings  institutions or proposed changes
of control of comparably situated companies.                                    

For CSB, we reviewed the audited financial statements for the fiscal years ended
June 30,  1997,  and 1996,  and  1995,  and  certain  other  information  deemed
relevant.  We also discussed with senior management of CSB, the current position
and prospective outlook for CSB.                                                

For purposes of this opinion we have relied,  without independent  verification,
on the accuracy and completeness of the material  furnished to us by the Company
and CSB and the material  otherwise made available to us, including  information
from published  sources,  and we have not made any independent  effort to verify
such data. With respect to the financial  information,  including  forecasts and
asset  valuations we received  from the Company,  we assumed (with your consent)
that they had been reasonably  prepared  reflecting the best currently available
estimates and judgment of the  Company's  management.  In addition,  we have not
made or obtained any  independent  appraisals  or  evaluations  of the assets or
liabilities,  and potential and/or contingent liabilities of the Company or CSB.
We have further  relied on the  assurances  of management of the Company and CSB
that they are not aware of any facts that would make such information inaccurate
or misleading.  We express no opinion on matters of a legal, regulatory,  tax or
accounting  nature or the ability of the Merger,  as set forth in the Agreement,
to be consummated.                                                              

In rendering  our opinion,  we have assumed that in the course of obtaining  the
necessary  approvals  for the Merger,  no  restrictions  or  conditions  will be
imposed that would have a material adverse effect on the  contemplated  benefits
of the  Merger to the  Company or the  ability to  consummate  the  Merger.  Our
opinion is based on the market,  economic and other relevant  considerations  as
they exist and can be evaluated on the date hereof.                             

Consistent  with the  engagement  letter  with you,  we have acted as  financial
advisor to the Company in connection  with the Merger and will receive a fee for
such services,  a majority of which is contingent  upon the  consummation of the
Merger.  In  addition,  the  Company  has  agreed to  indemnify  us for  certain
liabilities  arising out of our engagement by the Company in connection with the
Merger.                                                                         

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Board of Directors                                                              
SFS Bancorp, Inc.                                                               
July 31, 1998                                                                   
Page 3                                                                          

Based upon and subject to the foregoing, as outlined in the foregoing paragraphs
and based on such other  matters as we  considered  relevant,  it is our opinion
that as of the date hereof, the consideration to be received by the stockholders
of the  Company in the Merger is fair,  from a financial  point of view,  to the
stockholders of the Company.                                                    

This  opinion may not,  however,  be  summarized,  excerpted  from or  otherwise
publicly  referred to without our prior written  consent,  although this opinion
may be included in its  entirety in the proxy  statement  of the Company used to
solicit stockholder approval of the Merger. It is understood that this letter is
directed to the Board of  Directors of the Company in its  consideration  of the
Agreement, and is not intended to be and does not constitute a recommendation to
any  stockholder  as to how such  stockholder  should  vote with  respect to the
Merger.                                                                         

Very truly yours,                                                               

/s/Charles Webb & Company,                                                      

Charles Webb & Company,                                                         
a Division of Keefe, Bruyette, & Woods, Inc.                                    

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PROSPECTUS                                                                      
[Logo]                                                                          
COHOES BANCORP, INC.
(Proposed Holding Company for Cohoes Savings Bank)
Minimum of 9,152,451 and Maximum of 11,252,451 Shares of Common Stock,
 Consisting of a Minimum of 5,950,000 and Maximum of 8,050,000 Shares of
 Conversion Stock and up to a Maximum of 3,202,451 Exchange Shares

Cohoes  Savings  Bank  is  converting  from  the  mutual  to the  stock  form of
organization.  As part of the  conversion,  Cohoes  Savings  Bank will  become a
wholly owned subsidiary of Cohoes Bancorp,  Inc. Cohoes Bancorp, Inc. was formed
in September,  1998 and upon  consummation of the conversion will own all of the
shares of Cohoes Savings Bank. The common stock of Cohoes Bancorp, Inc. is being
offered for sale to the public in  accordance  with a plan of  conversion  which
must be approved by the  Superintendent  of Banks of the State of New York,  the
Federal Deposit Insurance Corporation and by a majority of the votes eligible to
be cast by voting depositors of Cohoes Savings Bank.                            

 Terms of the Offering

An  independent  appraiser  has  estimated  the pro forma market value of Cohoes
Savings Bank, on a converted  basis, to be between  $59,500,000 and $80,500,000.
Based on this estimate, Cohoes Bancorp, Inc. will offer between 5,950,000 shares
and  8,050,000  shares to  depositors,  trustees and officers of Cohoes  Savings
Bank, the Employee  Stock  Ownership  Plan and the public.  In addition,  Cohoes
Bancorp, Inc. intends to issue a number of shares equal to 3% of the shares sold
in the conversion to a charitable foundation.  Cohoes Bancorp, Inc. may increase
the  number of shares  offered up to  9,257,500  shares,  subject to  regulatory
approval.  Based on these  estimates,  we are making the  following  offering of
shares of common stock:                                                         

                                                        [Enlarge/Download Table]

                                                                                     Adjusted  
                                               Minimum     Midpoint      Maximum      Maximum  
                                               -------     --------      -------      -------  
                                                                                               
Per Share Price.............................    $10.00      $10.00       $10.00       $10.00   
Number of Shares............................  5,950,000    7,000,000    8,050,000    9,257,500 
Underwriting Commission and Other Expenses.. $ 1,595,000  $ 1,711,000  $ 1,826,000  $ 1,959,000
Net Proceeds to Cohoes Bancorp, Inc......... $57,905,000  $68,289,000  $76,674,000  $90,616,000
Net Proceeds Per Share......................    $9.73        $9.76        $9.77        $9.79   

Please refer to Risk Factors beginning on page ___ of this document.            

These  securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency.  

Neither the Securities and Exchange  Commission,  the Superintendent of Banks of
the  State of New York,  the New York  State  Banking  Department,  the  Federal
Deposit Insurance  Corporation,  nor any state securities regulator has approved
or disapproved  these securities or determined if this prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.             

For information on how to subscribe for common stock, call the Stock Information
Center at (518) _____-_________.                                                

 Other Related Matters

On July 31, 1998,  Cohoes Savings Bank agreed to acquire SFS Bancorp,  Inc. in a
merger.  In  addition  to the  shares  to be  issued  in the  Conversion,  it is
anticipated  that the merger will result in an  aggregate of  approximately  3.2
million shares of Cohoes Bancorp, Inc. common stock being issued in exchange for
the shares of SFS  Bancorp,  Inc.,  the  savings  and loan  holding  company for
Schenectady  Federal  Savings Bank,  its  wholly-owned  subsidiary  (assuming no
outstanding  stock  options  are  exercised).  The merger is  expected  to occur
immediately  after the  conversion of Cohoes Savings Bank, but the conversion is
not contingent upon the merger being completed.                                 

 KEEFE, BRUYETTE & WOODS, INC.
--------------------

The date of this Prospectus is ___________________, 1998

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 SUMMARY

         This summary highlights selected information from this document and may
not contain all the  information  that is  important to you. To  understand  the
stock  offering  and the merger  fully,  you should  read this  entire  document
carefully,  including  the financial  statements  and the notes to the financial
statements of the Parties.  References in this document to "Cohoes Savings", the
"Bank", "we", "us", and "our" refer to Cohoes Savings Bank either in its present
form  or  as  a  stock  savings  bank  following  the  Conversion.   In  certain
circumstances  where  appropriate,  "we," "us," or "our" refer  collectively  to
Cohoes Savings Bank and Cohoes Bancorp,  Inc. References in this document to the
"Holding  Company" refer to Cohoes Bancorp,  Inc. All  information  contained in
this  Prospectus  with  respect  to  the  Holding  Company,  the  Bank  and  its
subsidiaries  has been  supplied  by the Holding  Company and the Bank,  and all
information  with respect to SFS,  Schenectady  Federal and its subsidiaries has
been supplied by SFS.                                                           

The Holding Company:                                                            
Cohoes Bancorp, Inc.
75 Remsen Street
 Cohoes, New York 12047-2892

         Cohoes Bancorp, Inc. is not an operating company and has not engaged in
any  significant  business  to  date.  It was  formed  in  September  1998  as a
Delaware-chartered  corporation  to be the  holding  company  for the Bank.  The
holding  company  structure  will  provide  greater   flexibility  in  terms  of
operations, expansion and diversification. See page ____.                       

The Bank:                                                                       
 Cohoes Savings Bank
75 Remsen Street
 Cohoes, New York 12047-2892

         Cohoes Savings Bank was established in Cohoes, New York in 1851. We are
a community and customer oriented New York chartered mutual savings bank serving
primarily  the Cohoes,  New York and  surrounding  area  through 16 full service
banking offices located throughout Albany, Saratoga,  Schenectady and Rensselaer
Counties,  and a portion  of Warren  County in New York.  We  provide  financial
services to individuals,  families and small businesses.  Historically,  we have
emphasized   residential  mortgage  lending,   primarily   originating  one-  to
four-family mortgage loans. Our deposits are insured up to the applicable limits
by the Federal  Deposit  Insurance  Corporation.  At June 30, 1998, we had total
assets of $535.7 million,  deposits of $449.5 million, and total equity of $53.3
million. See "Cohoes Savings Bank" on pages ____ to _____.                      

       Financial and operational highlights of the Bank include the following:

    o   Focus on Residential  lending.  A cornerstone of our lending program has
        long been one- to four-family  residential  lending. We believe that, in
        comparison  to  many  other  types  of  assets,   one-  to   four-family
        residential  loans carry acceptable yields and credit risk. In addition,
        such loans  create  strong  ties to  consumers  which can be utilized to
        market other financial products. At June 30, 1998, we had $258.4 million
        (or 62.1% of total loans) of one- to four-family  residential  loans and
        $22.0  million of home equity lines of credit.  See  "Business of Cohoes
        Savings  Bank -  Lending  Activities."  In  recent  years,  in  order to
        increase the yield on interest-earning assets and to increase the amount
        of our interest rate sensitive assets, we have increased originations of
        multi-family  and  commercial  real estate  loans which have  adjustable
        rates  and/or  shorter  terms  to  maturity  than  one-  to  four-family
        residential real estate loans. See "Risk Factors - Risks Associated with
Multi-Family and Commercial Real Estate Loans."                 

    o   Interest   Rate   Sensitivity.   We,  like   virtually   all   financial
        institutions,  are vulnerable to changes in interest  rates. In managing
        our  asset/liability  mix,  we may,  at times,  place more  emphasis  on
        enhancing our short-term net interest  margin than on limiting  interest
        rate risk. At June 30, 1998, based upon certain assumptions  utilized by
        us in  assessing  interest  rate  risk,  the value of our net  portfolio
        equity  would have  declined  by 7.7% and 14.8% if there would have been
        instantaneous  increases in interest  rates of 100 and 200 basis points,
        respectively.  See "Risk  Factors -  Interest  Rate Risk  Exposure"  and
        "Management's Discussion and Analysis of Financial Condition and Results
   of Operations of Cohoes Savings Bank - Asset/Liability Management."

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    o   Asset Quality.  Our ratio of  non-performing  assets to total assets was
        1.15% and our ratio of non-performing  loans to total loans was 1.36% at
        June 30, 1998. Reflecting our focus on residential lending, our ratio of
        net  charge-offs to average total loans was .24%,  .37%,  .10%, .06% and
        .01% for fiscal years 1998, 1997, 1996, 1995, and 1994, respectively. At
        June 30, 1998, our ratio of allowance for loan losses to total loans was
        .85% and our ratio of allowance for loan losses to total  non-performing
        loans  was  62.54%.  See  "Business   Delinquencies  and  Non-Performing
Assets."                                                        

    o   Commitment to Growth.  We believe that in order to remain an independent
        community-based  financial institution in the rapidly changing financial
        services  industry,   we  must  be  competitive.   In  order  to  remain
        competitive,  we are committed to growing the Bank through  acquisitions
        like the Merger and  through  other  facets of our  business,  including
        insurance  services,  which can increase  noninterest income for us. See
        "Business of Cohoes  Savings Bank -  Subsidiary  and Other  Activities."
        During fiscal 1998, we experienced a 4.7% increase in deposit  accounts.
        In  addition,   we  experienced  a  $14.5  million   increase  in  loans
receivable. See "Business of Cohoes Savings Bank - Lending."    

The Stock Offering                                                              

         We are offering between  5,950,000 and 8,050,000 shares of common stock
at $10.00 per share in the Conversion. We may increase the offering to 9,257,500
shares without  further notice to you. Any increase over 9,257,500  shares would
require the approval of the  Superintendent  and the FDIC. You may not change or
cancel any stock order previously  delivered to us as a result of an increase in
the offering within these limits. Completion of the Conversion is not contingent
on the Merger.                                                                  

         Stock Purchase  Priorities.  The shares of Holding Company Common Stock
will be  offered  on the  basis  of  priorities.  Our  depositors  and the  ESOP
established by us will receive  subscription rights to purchase shares of common
stock.  Any  remaining  shares  not  subscribed  for may be  offered in a direct
community  offering or a public  offering.  See "The Conversion and the Merger -
Offering of Holding Company Common Stock" on pages _____ to ____.               

         Prohibition  on Transfer of  Subscription  Rights.  You may not sell or
assign  your  subscription  rights.  Any  transfer  of  subscription  rights  is
prohibited by law and may result in the forfeiture of your subscription rights. 

         Stock  Pricing and Number of Shares to be Issued.  We set the  purchase
price per share of the common stock at $10.00.  This is the price most  commonly
used in recent years in stock offerings involving  Conversions of mutual savings
institutions.  The number or range of shares of common stock to be issued in the
offering is based on an  independent  appraisal of the pro forma market value of
the common stock by RP Financial, an appraisal firm experienced in appraisals of
savings  institutions.  RP Financial has estimated that as of September 4, 1998,
the  estimated  valuation  range of Holding  Company  Common  Stock was  between
$59,500,000  and  $80,500,000  (with a midpoint of  $70,000,000).  The Estimated
Valuation Range represents our estimated market value after giving effect to the
sale of the common stock in this offering and the issuance of a number of shares
equal to 3% of the shares issued in the Conversion to the  Foundation.  Based on
this  valuation  and the $10.00 per share price,  the number of shares of common
stock that we will issue in the  offering  will  range  from  between  5,950,000
shares and 8,050,000  shares.  The  establishment  of, and  contribution to, the
Cohoes Savings  Foundation had the effect of reducing our market valuation.  See
"Risk Factors - the Expense and Dilutive Effect of the Stock Contribution to the
Charitable Foundation" on pages ___ and ___ and "Comparison of Valuation and Pro
Forma Information With No Foundation but With Merger" on pages ___ to ___.      

         The appraisal  was based both upon our financial  condition and results
of  operations  and upon the effect of the  additional  capital we will raise in
this Offering.  The independent appraisal will be updated before we complete the
Conversion. Changes in market and financial conditions and demand for the common
stock may cause the estimated valuation range to increase by up to 15%, to up to
$92,575,000.  If this occurs,  the maximum  number of shares that can be sold in
this offering can increase to up to 9,257,500 shares (plus the 277,725 shares to
be issued to the Cohoes Savings Foundation). If the Estimated Valuation Range is
either below $59,500,000 or above $92,575,000, then you                         

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will be notified and will have the  opportunity  to modify or cancel your order.
See "The  Conversion  and the Merger  Stock  Pricing  and Number of Shares to be
Issued" on pages ____ to ____.                                                  

         The   independent   valuation   prepared  by  RP  Financial  is  not  a
recommendation  as to the  advisability of purchasing the Holding Company Common
Stock.  Accordingly,  you should not buy the Holding  Company Common Stock based
solely on the independent valuation.                                            

         Termination of the Offering.  The subscription  offering will terminate
at ___:____ __.m., Cohoes, New York time, on ________________,  1998. Any direct
community  offering or public offering may terminate at any time without notice,
but no later than ________________, 1998, without approval by the Superintendent
of Banks of the New York State Banking  Department and the FDIC. If the offering
is not  completed  by  _____________________,  1998,  all  subscribers  will  be
notified and will be given the opportunity to cancel or modify their order.     

         Benefits to Management and Employees  from the Offering.  Our employees
will  participate  in the  offering  through  individual  purchases  and through
purchases of stock through our employee stock ownership plan, which is a type of
retirement  plan.  We also  intend to  implement  a RRP and a Stock  Option  and
Incentive Plan, which may benefit the officers,  employees and directors.  If we
adopt the RRP, such  individuals  will be awarded stock at no cost to them.  The
RRP and Stock Option and  Incentive  Plan may not be adopted  until at least six
months after the  Conversion and are subject to  stockholder  approval.  We also
intend to enter into  employment  agreements  with  certain  executive  officers
following  completion of the  offering.  See  "Management  of the Bank - Benefit
Plans" on pages ___ to ___.                                                     

         The  Charitable  Foundation.  To further  our  commitment  to the local
community,  we intend to establish the Foundation as part of the Conversion.  We
will make a contribution  to the  Foundation,  in the form of common stock, in a
total amount equal to a number of shares equal to 3% of the shares issued in the
Conversion.   The  Foundation  will  be  dedicated   exclusively  to  supporting
charitable  causes and community  development in the Bank's primary market area.
Due to the  issuance  of  shares  of  common  stock to the  Foundation,  persons
purchasing  shares in the offering will have their ownership and voting interest
in the Holding  Company  diluted by 2.9%.  We will incur an expense equal to the
full amount of the contribution to the Cohoes Savings Foundation, offset in part
by a tax benefit,  during the quarter in which the  contribution  is made.  Such
expense will reduce our  earnings.  See "Risk Factors - The Expense and Dilutive
Effect of the Stock Contribution to the Charitable  Foundation" on pages ___ and
___, "Pro Forma Data" on pages ___ to ___ and "The  Conversion  and the Merger -
Stock Contribution to the Charitable Foundation" on pages ___ to ___.           

         Use of the  Proceeds  Raised  from the Sale of Holding  Company  Common
Stock in the Offering.  We will use the net proceeds  received from the offering
as follows. The percentages used are estimates.                                 

o   50% will be used to buy all of the capital stock of the Bank.       
    o   8% will be  loaned  to the  employee  stock  ownership  plan to fund its
purchase of common stock.                                       
    o   42% will be retained and initially be placed in short-term  investments,
        which  may  later  be used as a  possible  source  of  funds  for  stock
        repurchases,  the payment of  dividends to  stockholders,  and for other
general corporate purposes.                                     

         The proceeds received by the Bank will increase our capital and will be
available for expansion of our retail banking  franchise  through future lending
and investment, in addition to general corporate purposes. See "Use of Proceeds"
on pages ____ and ____.                                                         

The Merger                                                                      

         On July 31,  1998,  we entered into a merger  agreement  with SFS which
provides for SFS and its wholly owned  subsidiary,  Schenectady  Federal,  to be
acquired  by us.  SFS  stockholders  will  receive a number of shares of Holding
Company  Common  Stock  equal to the lesser of: (i) 2.65;  or (ii) the  quotient
determined by dividing $35.00 by the Average Closing Price, which is the average
of the daily last sales price of Holding Company Common Stock as reported on The
Nasdaq  Stock  Market for the first ten trading  days on which  Holding  Company
Common Stock is traded,  for each SFS share they own just before the Merger.  In
addition, each outstanding option to purchase SFS                               

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Common  Stock will be  exchanged  for an option to acquire our stock on the same
basis.  We estimate  that the total  number of  exchange  shares to be issued in
connection  with the Merger will be  approximately  3.2 million shares (based on
the maximum  exchange  ratio of 2.65 shares of Holding  Company Common Stock for
each share of SFS Common Stock outstanding).  As part of the Merger, Schenectady
Federal  will be merged  with and into us and we will be the  surviving  savings
bank.                                                                           

         Consummation  of the Merger is subject  to,  among  other  things:  (i)
receipt of all necessary  approvals and consents from regulators or governmental
entities,  including  approval of the plan of  Conversion  and the Merger by the
Superintendent  and the FDIC;  (ii) the approval of the merger  agreement by the
requisite vote of the  stockholders of SFS; (iii) approval of the Conversion and
the Merger by our voting  depositors,  (iv) consummation of the Conversion;  and
(v) the satisfaction or waiver of certain other conditions. The merger agreement
will be presented to SFS  stockholders  for their approval at a special  meeting
called for _____________,  1998. In addition,  we have applied for all necessary
regulatory  approvals in order to consummate the Merger.  The Merger is expected
to be completed immediately after the consummation of the Conversion.           

         The Merger will enable us to expand our banking services in communities
where we currently  only have a limited  presence.  Completion  of the Merger is
expected to increase our deposit base,  our loan portfolio and the number of our
full service banking centers.                                                   

         SFS Bancorp, Inc. is a Delaware corporation which was organized in 1995
by Schenectady  Federal for the purpose of becoming its savings and loan holding
company.   Schenectady  Federal  is  principally  engaged  in  the  business  of
attracting  deposits from the general public and using such  deposits,  together
with funds  generated  from  operations  and  borrowings,  to originate  one- to
four-family  residential loans.  Schenectady  Federal also originates  consumer,
construction,  multi-family and  commercial/non-residential  loans. In addition,
Schenectady  Federal  also  invests in  mortgage-backed  securities,  investment
securities  and  short-term  liquid assets.  Schenectady  Federal's  deposit and
lending market area encompasses Schenectady and Albany Counties in New York.    

         Schenectady  Federal's operations are regulated by the OTS. Schenectady
Federal  is a  member  of the FHLB and a  stockholder  in the FHLB of New  York.
Schenectady  Federal is also a member of the SAIF and its deposit  accounts  are
insured up to applicable limits by the FDIC.                                    

         The  executive  offices of SFS are  located at  251-263  State  Street,
Schenectady, New York 12305, and its telephone number is (518) 395-2300.        

The Holding Company and the Bank Following the Conversion and the Merger        

         Assuming the Conversion and the Merger had been  consummated as of June
30,  1998,  we would  have  had,  on a pro  forma  basis at the  maximum  of the
estimated  valuation range, total consolidated  assets of $783.5 million,  total
consolidated  liabilities  of  $643.4  million,   including  $602.4  million  of
deposits,  and total consolidated  stockholders'  equity of $140.1 million.  See
"Pro Forma Unaudited Financial  Information." In addition, at June 30, 1998, the
Bank  would  have had,  on a pro forma  basis at the  maximum  of the  estimated
valuation  range,  leverage  capital of $99.9 million or 13.5% of adjusted total
assets and risk-based capital of $104.3 million or 23.9% of total  risk-weighted
assets, respectively. See "Regulatory Capital."                                 

         The Bank and  Schenectady  Federal  currently serve  contiguous  market
areas. We currently  operate  primarily in Albany,  Saratoga,  Schenectady,  and
Rensselaer Counties, New York, and a portion of Warren County in New York, while
Schenectady  Federal operates in Albany and Schenectady  Counties,  New York. We
believe that the Merger will  enhance our ability to offer full service  banking
throughout the suburbs of Albany. In addition,  we believe that the expansion of
our office network will help our asset growth through an expanded market area in
which to offer our loans and other products.                                    

         Upon  completion of the  Conversion  and the Merger,  we will be a well
capitalized,  independent community- oriented financial institution with 20 full
service branch offices in addition to our public accommodation  office, which is
expected to become a full service  branch office in October,  1998. Our business
strategy will be to operate as a                                                

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community oriented financial  institution dedicated to meeting the borrowing and
savings needs of our customers while providing superior service. We will seek to
implement this strategy by (i) increasing our origination of loans in our market
area and emphasizing retail banking,  including the origination of single-family
residential  mortgage loans and consumer  loans;  (ii)  continuing to expand our
insurance  and  investments  activities,  which provide  alternative  sources of
income to our traditional banking  activities;  (iii) maintaining asset quality;
(iv)  maintaining  a high level of capital;  and (v)  continuing  our pattern of
controlled growth.                                                              

         Assuming the Conversion and the Merger had been  consummated as of June
30, 1998, our net loan portfolio would have amounted to, on a pro forma basis at
the maximum of the estimated  valuation range,  $554.0 million or 70.7% of total
assets. Of our pro forma total loans at such date, $372.5 million or 66.7% would
consist of single-family residential loans, $99.3 million or 17.8% would consist
of multi-family  and commercial real estate loans,  $71.5 million or 12.8% would
consist of consumer  loans and $15.1 million or 2.7% would consist of commercial
business  loans.  In addition,  our total deposits would have amounted to $602.4
million.  Moreover,  we would have had $7.7 million of non-performing  assets or
0.98% of total assets. For additional  information with respect to our pro forma
consolidated  financial  condition and results of operations,  see "Selected Pro
Forma  Unaudited  Consolidated  Financial Data of the Holding  Company" and "Pro
Forma Unaudited Financial Information" on pages _____ to _____.                 

         Our board of  directors  currently  consists  of eleven  members.  Upon
completion of the Conversion and the Merger,  Joseph H.  Giaquinto,  Chairman of
the Board,  President and Chief  Executive  Officer of SFS, will be appointed to
the boards of  directors  of the  Holding  Company and the Bank.  The  remaining
directors and certain  officers of  Schenectady  Federal will be appointed to an
advisory board of the Holding Company for up to four-year terms  commencing upon
the completion of the Merger.                                                   

         As a New York chartered savings bank, we will continue to be subject to
comprehensive  regulation and examination by the  Department,  as our chartering
authority and primary  regulator,  and by the FDIC,  which  administers the Bank
Insurance Fund,  which will insure our deposits to the maximum extent  permitted
by law.  We will be a  member  of the FHLB of New  York,  which is one of the 12
regional  banks which  comprise the FHLB System.  We will be further  subject to
regulations  of the FRB governing  reserves  required to be  maintained  against
deposits and certain  other  matters.  The Holding  Company will be a registered
savings  and  loan  holding  company  and will be  subject  to  examination  and
regulation by both the OTS and the Department  and subject to various  reporting
and other  requirements of the SEC. Our principal  executive  offices  following
consummation  of the  Conversion  and the  Merger  will be  located at 75 Remsen
Street,  Cohoes,  New  York,  12047,  and our  telephone  number  will be  (518)
233-6500.                                                                       

Dividends                                                                       

         Cohoes Bancorp,  Inc. intends to pay dividends in the future.  However,
the  amount  and  timing  of  such  payments  has  yet  to  be  determined.  The
determination to pay a dividend is dependent upon a number of factors, including
(i) the  amount of the net  proceeds  retained  by the  Holding  Company  in the
Conversion, (ii) investment opportunities available, (iii) capital requirements,
(iv) regulatory limitations,  (v) results of operations and financial condition,
(vi) tax considerations,  and (vii) general economic conditions. See "Dividends"
on pages ___ and ___.                                                           

Market for the Common Stock                                                     

         We  anticipate  the Holding  Company  Common  Stock to be traded on The
Nasdaq National Market System under the symbol  "________".  It is possible that
an active and liquid trading market,  however, may not develop or be maintained.
Investors should have a long-term  investment intent.  Persons purchasing shares
may not be able to sell their  shares  when they  desire or sell them at a price
equal to or above  $10.00.  KBW has  informed  us that it has  agreed  to make a
market in the common stock. KBW will, however,  not be subject to any obligation
with respect to such efforts. See "Market for the Common Stock" on page ____.   

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Prospectus Delivery and Procedures for Common Stock                             

         To ensure that each person or entity is properly  identified as to such
party's stock purchase priorities,  such party must list all deposit accounts on
the order form  accompanying  this prospectus,  giving all names on each account
and the account numbers at the applicable  date. The failure to provide accurate
and complete account  information on the order form may result in a reduction or
elimination of your order.                                                      

         Only  orders  submitted  on original  order forms will be accepted  for
processing.  Photocopies  or  facsimile  copies  of  order  forms or the form of
certification  will not be accepted.  Payment by cash, check,  money order, bank
draft or withdrawal  from an existing  account at the Bank must  accompany  your
order form. No wire  transfers  will be accepted.  See "The  Conversion  and the
Merger - Method of Payment for Subscriptions" on pages ___ to ___.              

         To ensure that each  purchaser  receives a Prospectus at least 48 hours
prior to the respective  expiration  dates for the Offering,  in accordance with
Rule 15c2-8 of the Exchange Act, as amended,  no Prospectus will be mailed 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  and  a  certification   form  requiring  each
prospective  investor to  acknowledge,  among other  things,  that the shares of
Holding  Company Common Stock are not insured by the Bank, the FDIC or any other
governmental  agency and that such  prospective  investor has received a copy of
this Prospectus,  which, among other things, describes the risks involved in the
investment in the Holding Company Common Stock.                                 

Important Risks in Owning the Holding Company's Common Stock                    

         Before you decide to purchase  stock in the  offering,  you should read
the "Risk Factors"  section on pages ____ to ____ of this document,  in addition
to the other sections of this  Prospectus.  The Holding  Company Common Stock is
subject to investment risk, including the possible loss of the principal of your
investment.                                                                     

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 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF COHOES SAVINGS BANK

         The summary  information  presented below under "Selected  Consolidated
Financial Data" and "Selected Operating Data" for, and as of the end of, each of
the years ended June 30 is derived from the Bank's audited financial statements.
The  following  information  is only a summary and you should read it along with
our financial statements and notes beginning on page F-1.                       

                                                        [Enlarge/Download Table]

                                                                              At June 30,                            
                                                   ------------------------------------------------------------------
                                                      1998         1997          1996          1995          1994    
                                                      ----         ----          ----          ----          ----    
                                                                            (In Thousands)                           
Selected Consolidated Financial Data:                                                                                
                                                                                                                     
     Total assets................................. $   535,716   $   491,700  $   463,363   $   459,336   $   403,334
     Cash and cash equivalents....................      14,229        16,664        8,900        15,179        15,235
     Loans, net  .................................     412,759       398,530      393,970       379,088       313,419
     Investment securities........................      45,424        25,273       25,969        40,052        48,825
     Securities available-for-sale................      48,720        35,475       20,886        10,433        13,776
     Deposits.....................................     449,541       429,390      404,539       398,963       346,459
     FHLB borrowings..............................      19,897            --        2,116         6,117           105
     Total equity.................................      53,282        49,092       44,290        40,130        36,276
     Real estate owned............................         509         1,874          421           396           437
     Nonperforming loans..........................       5,649         6,688        7,793         5,063         4,892
                                                        [Enlarge/Download Table]

                                                                  For the Fiscal Year Ended June 30,                  
                                                   ------------------------------------------------------------------ 
                                                         1998          1997          1996          1995          1994 
                                                         ----          ----          ----          ----          ---- 
                                                                        (Dollars in Thousands)                        
Selected Operating Data:                                                                                              
                                                                                                                      
     Total interest income........................  $   38,423    $   36,285   $   35,383    $   32,100    $   27,560 
     Interest expense.............................      19,262        17,821       18,164        15,405        12,388 
                                                        ------        ------       ------        ------        ------ 
          Net interest income.....................      19,161        18,464       17,219        16,695        15,172 
     Provision for loan losses....................       1,400         1,325          490           330           750 
                                                         -----         -----       ------        ------        ------ 
          Net interest income after provision                                                                         
           for loan losses........................       7,761        17,139       16,729        16,365        14,422 
     Noninterest income                                                                                               
          Net gain (loss) on sale of mortgage                                                                         
           loans..................................          81           106         (20)         (102)           226 
          Other...................................       2,662         2,684        2,487         2,293         2,050 
     Noninterest expense..........................      13,767        12,314       11,919        12,152        11,114 
                                                     ---------     ---------    ---------     ---------     --------- 
     Income before income taxes...................       6,737         7,615        7,277         6,404         5,584 
     Income taxes.................................       2,650         2,972        2,882         2,565         2,194 
                                                    ----------    ----------   ----------    ----------    ---------- 
          Net income..............................   $   4,087     $   4,643    $   4,395     $   3,839     $   3,390 
                                                     =========     =========    =========     =========     ========= 
Selected Operating Ratios and Other Data:                                                                             
Performance Ratios:                                                                                                   
     Average yield on interest-earning assets.....        7.96%         8.04%        7.98%         7.76%         7.38%
     Average rate paid on interest-bearing                                                                            
       liabilities................................        4.33          4.27         4.42          3.99          3.57 
     Average interest rate spread.................        3.63          3.77         3.56          3.77          3.81 
     Net interest margin (1)......................        3.97          4.09         3.89          4.04          4.06 
     Net interest income after provision for                                                                          
      loan losses to noninterest expense..........      129.01        139.18       140.36        134.67        129.76 
     Noninterest expense as a percent of average                                                                      
       assets.....................................        2.75          2.62         2.59          2.82          2.86 
     Return on average assets (2).................        0.82          0.99         0.95          0.89          0.87 
     Return on average equity (3).................        7.88          9.87        10.28          9.95          9.85 
     Ratio of average equity to average assets....       10.35         10.03         9.28          8.95          8.85 
     Efficiency ratio (4).........................       62.85         57.94        60.55         64.34         63.70 
Asset Quality Ratios:                                                                                                 
     Nonperforming loans as a percent of total                                                                        
       loans......................................        1.36          1.66         1.96          1.32          1.54 
     Nonperforming assets as a percent of total                                                                       
       assets.....................................        1.15          1.74         1.77          1.19          1.32 
     Allowance for loan losses as a percent of                                                                        
       total loans................................        0.85          0.77         0.82          0.82          0.95 
     Allowance for loan losses as a percent of                                                                        
          nonperforming loans.....................       62.54         46.43        41.69         61.88         61.55 
     Net loans charged-off to average loans.......        0.24          0.37         0.10          0.06          0.01 
Branch Locations:                                                                                                     
     Traditional..................................           7             7            6             5             4 
     Supermarket..................................           9(6)          8            4             4             3 
     Public accommodation (5).....................           1             1            1             1             1 

                                                   (Footnotes on following page)

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(1) Net interest income as a percentage of average interest-earning assets.     

(2) Ratio of net earnings to average total assets.                              

(3) Ratio of net earnings to average total equity.                              

(4) The Efficiency Ratio is computed by dividing  noninterest expense by the sum
of net interest income and noninterest income.                          

(5) The public  accommodation office is expected to become a full service branch
office on October 1, 1998.                                              

(6) The Queensbury branch location opened for business in July, 1998.           

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 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF SFS BANCORP, INC.

                                                        [Enlarge/Download Table]

                                                                           December 31,                       
                                     June 30,  ---------------------------------------------------------------
                                       1998       1997         1996          1995          1994         1993  
                                       ----       ----         ----          ----          ----         ----  
                                                              (In Thousands)                                  
Selected Financial Condition Data                                                                             
                                                                                                              
Total assets........................ $178,093  $174,428      $164,888      $166,529      $150,837     $146,260
Cash and cash equivalents...........    6,580     2,176         2,896        10,453         6,468        3,481
Securities available for sale.......    8,062     4,067         1,990         7,976         7,776           --
Investment securities:                                                                                        
   Mortgage-backed securities.......   13,708    16,966        20,434        24,418        21,991       25,397
   Debt securities..................    3,202    12,013        15,746        18,658        16,902       20,842
FHLB stock..........................    1,338     1,338         1,215         1,117         1,123        1,092
Loans receivable, net...............  141,222   133,786       118,455       100,921        93,703       92,601
Real estate owned...................      151       111           178           200           204          128
Deposits............................  152,879   150,469       140,616       139,671       138,299      134,653
Advance payments by borrowers                                                                                 
   for taxes and insurance..........    1,861     1,281         1,160         1,402         1,270        1,129
Stockholders' equity................   21,915    21,431        21,671        24,261        10,046        9,642

                                                        [Enlarge/Download Table]

                                Six Months Ended                                                         
                              --------------------                  Year Ended December 31,              
                              June 30,    June 30,  -----------------------------------------------------
                                1998        1997      1997       1996        1995        1994      1993  
                                ----        ----      ----       ----        ----        ----      ----  
                                                             (In Thousands)                              
Selected Operations Data                                                                                 
                                                                                                         
Total interest income ......  $  6,391   $  6,047   $ 12,368   $ 11,867    $ 11,523   $  9,849   $  9,774
Total interest expense .....     3,460      3,188      6,623      6,187       6,236      5,077      5,275
                              --------   --------   --------   --------    --------   --------   --------
   Net interest income .....     2,931      2,859      5,745      5,680       5,287      4,772      4,499
Provision for loan losses ..        60         60        120        120         370        120        440
                              --------   --------   --------   --------    --------   --------   --------
Net interest income after                                                                                
   provision for loan losses     2,871      2,799      5,625      5,560       4,917      4,652      4,059
Noninterest income .........       226        168        504        403         321        170        599
Noninterest expense ........     2,131      2,150      4,369      5,239       4,027      4,096      4,239
                              --------   --------   --------   --------    --------   --------   --------
Income before taxes ........       966        817      1,760        724       1,211        726        419
Income tax expense (benefit)       399        324        692       (106)        356        215         13
                              --------   --------   --------   --------    --------   --------   --------
Net income .................  $    567   $    493   $  1,068   $    830    $    855   $    511   $    406
                              ========   ========   ========   ========    ========   ========   ========

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 SELECTED CONSOLIDATED FINANCIAL INFORMATION OF SFS BANCORP, INC., continued

                                                        [Enlarge/Download Table]

                                           Six Months Ended                                                  
                                           -----------------              Year Ended December 31,            
                                           June 30, June 30,   --------------------------------------------- 
                                            1998      1997     1997       1996      1995      1994      1993 
                                            ----      ----     ----       ----      ----      ----      ---- 
                                                                                                             
Selected Financial Ratios and Other Data                                                                     
Performance Ratios:                                                                                          
Return on assets (ratio of net income                                                                        
  to average total assets ...........       0.65%     0.59%     0.63%     0.50%     0.53%     0.34%     0.28%
Net interest rate spread ............       2.95      3.02      2.96      2.95      2.93      3.06      2.96 
Net interest margin .................       3.46      3.52      3.46      3.51      3.36      3.26      3.15 
Ratio of noninterest expense to                                                                              
  average total assets ..............       2.44      2.56      2.56      3.17      2.51      2.74      2.90 
Ratio of net interest income to                                                                              
  noninterest expense ...............     137.51    133.04    131.49    108.41    131.29    116.50    106.13 
Return on equity (ratio of net income                                                                        
  to average equity) ................       5.34      4.62      5.04      3.73      5.07      5.31      4.33 
Liquidity ratio at end of period ....      21.54     23.25     19.72     22.58     32.45     19.57     12.99 
Efficiency ratio ....................      67.50     71.30     69.92     86.13     71.81     82.88     83.15 

Asset Quality Ratios:                                                                                        

Non-performing assets to total                                                                               
  assets, at end of period ..........       0.85      0.68      0.84      0.61      0.62      1.93      1.80 
Allowance for loan losses to non- ...      63.16                                                             
  performing loans, at period end ...      66.08     55.78     77.07     68.18     31.79     32.02           
Allowance for loan losses to total                                                                           
  loans .............................       0.60      0.58      0.58      0.54      0.56      0.91      0.86 
Allowance for loan losses to total                                                                           
  assets ............................       0.48      0.42      0.45      0.39      0.34      0.57      0.55 

Number of full service offices ......          4         4         4         3         3         3         3 

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 SELECTED PRO FORMA UNAUDITED CONSOLIDATED
 FINANCIAL DATA OF THE HOLDING COMPANY
 (Dollars in Thousands, Except Per Share Data)

         The  following  presents  certain  pro  forma  unaudited   consolidated
financial  data with respect to the Holding  Company and its  subsidiaries.  The
financial  information  for each  period  presented  below  gives  effect to the
consummation of the Conversion and the Merger, including the sale of the Holding
Company  Common Stock sold in the  Conversion  (the  "Conversion  Shares"),  the
issuance of Holding  Company  Common Stock  issued in the Merger (the  "Exchange
Shares") and the  contribution  of shares of Holding Company Common Stock to the
Foundation and excludes the  anticipated  expenses  associated  with the Holding
Company's ESOP and RRP. Data from the pro forma  statement of condition  assumes
that these transactions occurred at the date indicated.  Data from the pro forma
statement of income assumes that these transactions occurred at the beginning of
each of the periods  presented.  It is also  assumed that  8,050,000  Conversion
Shares are sold in the  Offering  at a price of $10.00 per share,  resulting  in
gross proceeds of $80.5 million (the maximum of the Estimated  Valuation Range),
that 3,202,451  Exchange Shares are issued (based on the maximum  exchange ratio
of 2.65  shares of  Holding  Company  Common  Stock for each share of SFS Common
Stock  outstanding)  and that 241,500 shares of Holding Company Common Stock are
contributed to the Foundation (based on the issuance of shares at the maximum of
the Estimated  Valuation Range). For additional  assumptions used in calculating
the pro forma data, see "Pro Forma Unaudited Financial Information."            

         In  accordance  with GAAP,  the Merger will be accounted  for using the
pooling-of-interests   method.   Under   the   pooling-of-interests   method  of
accounting,  the recorded  assets and liabilities of the Parties will be carried
forward at their recorded amounts, and the results of operations of the combined
Parties will include the results of  operations  of the Holding  Company and SFS
for the entire  year in which the Merger  occurs  and,  as  restated,  for prior
periods.  Such accounting treatment requires satisfaction of certain conditions,
including  the  condition  that  "affiliates"  of the Parties may not dispose of
shares of Holding  Company  Common Stock prior to the  publication  of financial
results  covering at least 30 days of  post-closing  combined  operations of the
Parties. See "Pro Forma Unaudited Financial Information" and "Use of Proceeds." 

         The following unaudited selected pro forma consolidated  financial data
should be read in conjunction  with the  consolidated  financial  statements and
related notes included in this Prospectus.                                      

                                           At or For the Twelve Months
                                              Ended June 30,
                                            ------------------------------
                                            1998        1997        1996
                                            ----        ----        ----
Financial Condition:                                                            
 Total assets ..............................$713,809    $664,549    $627,729
 Loans receivable, net ..................... 553,981     522,698     504,690
 Investment securities held to maturity ....  62,334      57,820      64,203
 Investment securities available for sale ..  58,120      42,844      26,070
 Deposits .................................. 602,420     577,391     543,926
 Total borrowings ..........................  19,897          --       2,116
 Total stockholders' equity ................  75,197      70,646      66,577

Results of Operations(1):                                                       
 Net interest income .......................$ 24,978    $ 24,152    $ 22,924
 Provision for losses on loans .............   1,520       1,445         760
Net interest income after provision for                                   
   losses on loans .........................  23,458      22,707      22,164
 Noninterest income ........................   3,224       3,168       2,744
 Noninterest expense .......................  18,036      17,478      16,136
 Income before taxes .......................   8,646       8,397       8,772
 Net income ................................   5,229       5,383       5,536
 Diluted earnings per share ................    0.44        0.47        0.49
 Basic earnings per share ..................    0.44        0.48        0.50

Selected Ratios:                                                                
Performance ratios:                                                       
        Return on average assets(2) .........    0.77%       0.85%       0.88%
        Return on average equity(2) .........    7.15%       7.87%       8.37%
Asset quality ratios (period end):                                        
Allowance for losses on loans to                              
          total loans .......................    0.79%       0.73%       0.76%
Non-performing assets as a percent                            
          of total assets(3) ................    1.07%       1.47%       1.49%
Allowance for losses on loans to non-                         
          performing assets(3) ..............   57.28%      39.26%      41.31%

                                                   (Footnotes on following page)

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(1) Does not reflect any cost savings or other  benefits of the  Conversion  and
the Merger.                                                             

(2) These  ratios  are based on average  daily  balances  during  the  indicated
    periods  and  do  not  reflect  an  increase  in  averages  relating  to the
anticipated proceeds from the Offerings.                                

(3) Nonperforming assets consist of non-accrual loans,  accruing loans more than
    90  days  past  due and  real  estate  acquired  through  foreclosure  or by
    deed-in-lieu   thereof  and  restructured  loans  which  are  performing  in
accordance with current terms.                                          

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RISK FACTORS

         In addition to other information in this document,  you should consider
carefully the  following  risk factors in evaluating an investment in our common
stock.                                                                          

Decreased  Return on Average  Equity and Increased  Expenses  Immediately  After
Conversion                                                                      

         As a result of the Conversion,  our equity will increase substantially.
Expenses are expected to increase due to the costs  associated with our employee
stock  ownership  plan, our restricted  stock plan, and being a public  company.
Because of the  increases in our equity and  expenses,  our return on equity may
decrease as compared to our  performance  in previous  years.  A lower return on
equity could limit the trading  price  potential of the Holding  Company  Common
Stock. See "Use of Proceeds" and "Pro Forma Data."                              

         In addition, we intend to initially invest the additional capital being
raised  through the offering  into  shorter-term,  lower-yielding  assets (i.e.,
federal  funds  sold)  and  gradually   reinvest  the  additional  capital  into
longer-term,   higher-   yielding  loans  and   mortgage-backed   securities  as
opportunities arise. Until the additional capital can be effectively reinvested,
our return on equity is expected to decrease from the Bank's historic levels.   

Risks Related to the Merger                                                     

         In recent  years,  the Bank has not  acquired  or merged  with  another
financial  institution.  The future  growth of the Bank and the Holding  Company
will depend,  in part, on the success of the Merger which will, in turn,  depend
on a  number  of  factors,  including:  the  Bank's  ability  to  integrate  the
Schenectady Federal branches into the current operations of the Bank; the Bank's
ability to limit the outflow of deposits  held by customers  in the  Schenectady
Federal  branches;  the Bank's ability to control the non-interest  expense from
the Merger in a manner that  enables  the Bank to improve its overall  operating
efficiencies;  and the Bank's  ability to retain and integrate  the  appropriate
personnel of  Schenectady  Federal into the operations of the Bank. No assurance
can be  given  that  the  Bank  will be able to  integrate  Schenectady  Federal
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  Merger  effectively.  See "Pro Forma
Unaudited Financial Information."                                               

Dilutive Effect of Issuance of Additional Shares                                

         The merger  agreement  provides  that each  share of SFS  Common  Stock
outstanding  as of the  Effective  Time  shall be  converted  into the  right to
receive a number of shares of Holding  Company  Common Stock equal to the lesser
of : (i) the  quotient  determined  by  dividing  $26.50 by the  Initial  Public
Offering price or (ii) the quotient determined by dividing $35.00 by the Average
Closing Price. In addition,  each SFS Option  outstanding at the Effective Time,
whether or not exercisable,  shall be converted into the right to acquire shares
of  Holding  Company  Common  Stock  equal to the number of shares of SFS Common
Stock subject to the SFS options  multiplied by the Exchange  Ratio.  Based upon
the number of shares of SFS Common Stock  outstanding  as of June 30, 1998,  the
Holding Company  estimates that the total number of Exchange Shares to be issued
in connection  with the Merger will be 3,202,451,  excluding any  adjustment for
fractional shares or the exercise of any options to acquire shares of SFS Common
Stock.  Giving effect to the  contribution  of 241,500 shares of Holding Company
Common Stock to the  Foundation,  based on the issuance of shares at the maximum
of the Estimated  Valuation  Range,  and assuming the exercise of all the vested
SFS Options,  the Merger will dilute the voting  interest of  subscribers in the
Offering by approximately 31.9% (assuming  8,050,000  Conversion Shares are sold
at the maximum of the Estimated Valuation Range).                               

         If a RRP is approved by  stockholders of the Holding  Company,  the RRP
intends to acquire an amount of Holding  Company Common Stock equal to 4% of the
Conversion  Shares sold in the  Conversion  and  including  shares issued to the
Foundation.  If such  shares  are  acquired  at a per share  price  equal to the
purchase  price,  the cost of such shares  would be $3.3  million,  assuming the
number of  Conversion  Shares  sold are equal to the  maximum  of the  Estimated
Offering  Range.  Such shares of Holding Company Common Stock may be acquired in
the open market with funds provided by the Holding Company,  if permissible,  or
from  authorized but unissued  shares of Holding  Company  Common Stock.  In the
event that the RRP acquires  authorized but unissued  shares of Holding  Company
Common Stock from the Holding  Company,  the interests of existing  stockholders
will be diluted. Assuming the issuance of 8,050,000                             

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Conversion Shares and 3,202,451  Exchange Shares and the contribution of 241,500
shares of Holding  Company  Common  Stock to the  Foundation,  the  issuance  of
authorized but unissued  shares of Holding  Company Common Stock to such plan in
an amount  equal to 4% of the  Conversion  Shares sold in the  Conversion  would
dilute the voting interests of existing  stockholders by approximately 2.8%, and
net income per share and stockholders'  equity per share would be decreased by a
corresponding   amount.  See  "Pro  Forma  Unaudited  Financial   Information  -
Additional  Pro  Forma  Data" and  "Management  -  Benefits  -  Recognition  and
Retention Plan."                                                                

         If a Stock Option and Incentive Plan is approved by stockholders of the
Holding  Company,  the Holding  Company  intends to reserve for future  issuance
pursuant to such plan a number of shares of Holding  Company  Common Stock equal
to an aggregate of 10% of the Conversion  Shares and the  contribution of shares
to the  Foundation  (829,150  shares,  based  on  the  issuance  of the  maximum
8,050,000 shares and the contribution of 241,500 shares to the Foundation). Such
shares may be authorized  but previously  unissued  shares,  treasury  shares or
shares  purchased  by the  Holding  Company in the open  market or from  private
sources.  Assuming  the issuance of 8,050,000  Conversion  Shares and  3,202,451
Exchange Shares and the contribution of 241,500 shares of Holding Company Common
Stock to the Foundation,  if only authorized but previously  unissued shares are
used under such plan, the issuance of the total number of shares available under
such plan  would  dilute  the  voting  interests  of  existing  stockholders  by
approximately 6.7%, and net income per share and stockholders'  equity per share
would be decreased by a corresponding amount. See "Pro Forma Unaudited Financial
Information - Additional Pro Forma Data" and "Management - Benefits."           

Interest Rate Risk Exposure                                                     

         The Bank's  profitability  is  dependent to a large extent upon its net
interest  income,  which is the  difference  between its  interest  and dividend
income on  earning  assets,  such as loans  and  investments,  and its  interest
expense  on  interest-bearing  liabilities,  such as  deposits  and  borrowings.
Changes in the level of interest rates affect the amount of loans  originated by
the Bank as well as the market  value of the Bank's  earning  assets.  Moreover,
increases in interest rates also can result in  disintermediation,  which is the
flow of funds away from savings  institutions  into other  investments,  such as
corporate securities and other investment  vehicles,  which generally pay higher
rates of return than savings  institutions.  Finally, a flattening of the "yield
curve" (i.e., a decline in the  difference  between long and short term interest
rates) or an inverted  yield curve (i.e.,  where short term  interest  rates are
higher than long term  interest  rates),  could  adversely  impact net  interest
income. As a result of a decline in the yield earned on average interest-earning
assets that exceeded a decline in the rate paid on its average liabilities,  the
Bank's average  interest rate spread  decreased from 3.77% for 1997 to 3.63% for
1998.  No assurance  can be given that the Bank's  average  interest rate spread
will not decrease  further in future  periods.  Any such  decrease in the Bank's
average  interest  rate spread  could  adversely  affect the Bank's net interest
income.  See  "Management's  Discussion and Analysis of Financial  Condition and
Results of Operations of Cohoes Savings Bank - Asset/Liability Management."     

         If an  institution's  interest-earning  assets  have  longer  effective
maturities than its interest-bearing liabilities, the yield on the institution's
interest-earning  assets  generally will adjust more slowly than the cost of its
interest-bearing  liabilities and, as a result,  the  institutions' net interest
income generally would be adversely affected by material and prolonged increases
in interest  rates and  positively  affected by comparable  declines in interest
rates.  The Bank  attempts  to reduce the  vulnerability  of its  operations  to
changes in interest  rates by maintaining  significant  amounts of liquid assets
and assets with relatively short estimated lives. Changes in interest rates also
can affect the average life of loans and  mortgage-related and other securities.
Decreases  in  interest  rates in recent  periods  have  resulted  in  increased
prepayments of loans and mortgage backed securities,  as borrowers refinanced to
reduce  borrowing  costs.  Under  these  circumstances,  the bank is  subject to
reinvestment risk to the extent that it is not able to reinvest such prepayments
at rates which are  comparable to the rates on the maturing loans or securities.
See "Business of Cohoes Savings Bank Lending Activities."                       

Risks Related to  Multi-Family  and  Commercial  Real Estate  Loans;  Geographic
Concentration of Loans                                                          

         The Bank  originates  multi-family  and  commercial  real estate loans,
which  amounted to $93.2  million (or 22.4% of the Bank's loan  portfolio) as of
June 30, 1998.  Multi-family  and commercial  real estate  lending  generally is
considered  to involve a higher  degree of risk than  single-family  residential
lending due to a variety of factors,  including  generally larger loan balances,
the dependency on successful operation of the project for repayment,  loan terms
which  often do not  require  full  amortization  of the loan  over its term and
successfully developing and/or selling the property.                            

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See "Business of Cohoes Savings Bank - Lending Activities." As of June 30, 1998,
the Bank had $823,000 of non-performing  multi-family and commercial real estate
loans (excluding  restructured loans which are performing under the restructured
terms).                                                                         

         In addition, the Bank had $25.9 million of commercial real estate loans
secured by property  located in New York City as of June 30, 1998. At that date,
the entire  commercial  real estate loan portfolio  located in New York City was
performing in accordance with its respective terms. However, no assurance can be
made that the New York City economy will continue at current levels or that such
loans will continue to perform in accordance with their terms in the future.    

Competition                                                                     

         The Bank experiences  significant  competition in its local market area
in both  originating real estate and other loans and attracting  deposits.  This
competition  arises from other savings  institutions  as well as credit  unions,
mortgage banks, commercial banks, mutual funds and national and local securities
firms.  Due to their size, many  competitors  can achieve  certain  economies of
scale and as a result offer a broader  range of products  and services  than the
Bank.  The Bank  attempts to mitigate the effect of such factors by  emphasizing
customer service and community  outreach.  Such competition may limit the Bank's
growth in the future. See "Business of the Bank - Competition."                 

Takeover Defensive Provisions                                                   

         Holding Company and Bank Governing  Instruments.  Certain provisions of
the Holding  Company's  Certificate of  Incorporation  and Bylaws and the Bank's
Restated Organization  Certificate and Bylaws assist the Holding Company and the
Bank in  maintaining  its status as an independent  publicly owned  corporation.
However,  such provisions may also block stockholders from approving a potential
takeover of the Holding Company which a majority of such stockholders believe to
be in their best interests.  These  provisions  provide for, among other things,
limiting  voting  rights of  beneficial  owners of more than 10% of the  Holding
Company Common Stock,  staggered terms for directors,  noncumulative  voting for
directors, limits on the calling of special meetings, a fair price/supermajority
vote   requirement  for  certain   business   combinations  and  certain  notice
requirements.  The 10% vote  limitation  would  not  affect  the  ability  of an
individual  who is not the  beneficial  owner of more  than  10% of the  Holding
Company Common Stock to solicit revocable  proxies in a public  solicitation for
proxies for a particular  meeting of stockholders and to vote such proxies.  Any
or all of these  provisions  may discourage  potential  proxy contests and other
takeover  attempts,  particularly  those which have not been negotiated with the
Board  of  Directors.   In  addition,   the  Holding  Company's  certificate  of
incorporation  also  authorizes  preferred stock with terms to be established by
the Board of Directors  which may rank prior to the Holding Company Common Stock
as to  dividend  rights,  liquidation  preferences,  or both,  may have  full or
limited voting rights and may have a dilutive effect on the ownership  interests
of holders of the Holding Company Common Stock. See "Restrictions on Acquisition
of the Holding Company and the Bank."                                           

         Provisions  in  Management   Contracts  and  Benefit   Plans.   Certain
provisions contained in the proposed management contracts and benefit plans that
provide for cash payments or the vesting of benefits upon a change of control of
the  Holding  Company  or the Bank may have an  anti-takeover  effect  and could
discourage an acquisition of the Holding Company.  See "Management of the Bank -
Employment Agreements."                                                         

         Voting  Control of Directors and Executive  Officers.  The trustees and
executive  officers (13 persons) of the Bank propose to purchase an aggregate of
approximately  310,000  shares,  representing  approximately  5.2% of the shares
offered in the Conversion at the minimum of the Estimated  Valuation  Range, and
4.0% of the shares  offered in the  Conversion  at the maximum of the  Estimated
Valuation  Range,  exclusive of shares that may be attributable to directors and
officers  through the RRP,  the Stock  Option and  Incentive  Plan and the ESOP,
which may give  directors,  executive  officers and  employees  the potential to
control the voting of  additional  Holding  Company  Common Stock and  including
shares issued to the Foundation. A number of shares equal to 4% of the shares of
Holding Company Common Stock issued in the Conversion,  including  shares issued
to the Foundation,  will be available for issuance under the RRP (331,660 shares
at the maximum of the Estimated  Valuation Range),  and a number of shares equal
to 10% of the shares issued in the  Conversion,  including  shares issued to the
Foundation,  will be available for issuance under the Stock Option and Incentive
Plan (829,150  shares at the maximum of the Estimated  Valuation  Range).  It is
intended that the ESOP will purchase 8% of the shares issued in the  Conversion,
including shares issued to the Foundation (663,320                              

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shares at the maximum of the Estimated  Valuation Range). In connection with the
Conversion, the Foundation will receive 241,500 shares of Holding Company Common
Stock at the maximum of the Estimated  Valuation Range which, if a waiver of the
voting restriction imposed on such Holding Company Common Stock is obtained from
the FDIC and the  Superintendent,  may be voted as  determined  by the  Board of
Directors of the Foundation who will initially  consist of four Directors of the
Holding  Company  and the  Bank  and two  outside  directors.  Thus,  after  the
Conversion,  the aggregate number of shares which may be controlled by directors
and executive  officers of the Holding Company,  including those to be issued to
the Foundation and those that may be issued under the Stock Option and Incentive
Plan and the RRP totaled  1,712,310  at the maximum of the  Estimated  Valuation
Range,  or 18.8% of the total  number of shares at the maximum of the  Estimated
Valuation Range,  including shares issued to the Foundation,  on a fully diluted
basis  (including  shares  available  for  issuance  under the Stock  Option and
Incentive  Plan and RRP).  Management's  voting  control  could,  together  with
additional  stockholder  support,  defeat  proposals  requiring  80% approval of
stockholders.  As a result,  this voting control may preclude  takeover attempts
that  certain  stockholders  deem  to be in  their  best  interest  and  tend to
perpetuate existing management.  See "Restrictions on Acquisition of the Holding
Company and the  Bank--Restrictions  in the  Holding  Company's  Certificate  of
Incorporation and Bylaws."                                                      

Post-Conversion Compensation and Other Expense                                  

         After completion of the Conversion,  the Holding Company's  noninterest
expense is likely to increase as a result of the financial accounting, legal and
tax  expenses  usually  associated  with  operating  as a  public  company.  See
"Regulation"  and "Taxation" and "Additional  Information."  In addition,  it is
currently  anticipated that the Holding Company will record  additional  expense
based on the proposed  RRP. See "Pro Forma Data" and  "Management  of the Bank -
Benefit  Plans" and "-- RRP."  Finally,  the  Holding  Company  will also record
additional  expense as a result of the adoption of the ESOP. See  "Management of
the Bank - Benefit Plans - Employee Stock Ownership Plan."                      

         Statement of Position 93-6  "Employers'  Accounting  for Employee Stock
Ownership  Plans"  ("SOP  93-6")  requires an  employer  to record  compensation
expense in an amount equal to the fair value of shares  committed to be released
to employees from an employee stock  ownership  plan.  Assuming shares of common
stock  appreciate  in value over  time,  SOP 93-6  would  increase  compensation
expense  relating  to  the  ESOP  to  be  established  in  connection  with  the
Conversion.  It is not  possible  to  determine  at this time the extent of such
impact on future net  income.  See  "Management's  Discussion  and  Analysis  of
Financial  Condition  and  Results  of  Operations  - Impact  of New  Accounting
Standards" and "Pro Forma Data."                                                

         In addition,  the Holding Company will experience additional expense in
the quarter in which the  Conversion is completed as a result of the shares that
are  contributed by the Holding Company to the charitable  foundation.  See "The
Conversion and the Merger -- Establishment of The Cohoes Savings Foundation."   

Absence of Active Market for the Common Stock                                   

         The Holding  Company,  as a newly organized  company,  has never issued
capital stock and, consequently,  there is no established market for the Holding
Company Common Stock at this time. The Holding Company has received  approval to
have its common  stock  listed on The Nasdaq  National  Market  under the symbol
"________"  conditioned on the consummation of the Conversion.  A public trading
market having the desirable  characteristics of depth, liquidity and orderliness
depends upon the existence of willing  buyers and sellers at any given time, the
presence  of which is  dependent  upon the  individual  decisions  of buyers and
sellers over which neither the Holding Company nor any market maker has control.
Accordingly,  there can be no assurance that an active and liquid trading market
for the Holding  Company  Common Stock will develop or that, if developed,  will
continue,  nor is there any assurance  that  purchasers  of the Holding  Company
Common Stock will be able to sell their  shares at or above the  purchase  price
for Holding  Company Common Stock.  In the event a liquid market for the Holding
Company  Common Stock does not develop or market makers for the Holding  Company
Common Stock discontinue their activities,  such occurrences may have an adverse
impact on the liquidity of the Holding Company Common Stock and the market value
of the Holding Company Common Stock. See "Market for Common Stock."             

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Year 2000 Compliance                                                            

         As the year 2000 approaches,  significant  concerns have been expressed
with respect to the ability of existing computer software programs and operating
systems to function  properly with respect to data containing  dates in the year
2000 and thereafter.  Many existing  application software products were designed
to  accommodate  only a two digit year (e.g.,  1998 is reflected  as "98").  The
Bank's operating,  processing and accounting operations are computer reliant and
could be affected by the Year 2000 issues. Both the Bank and Schenectady Federal
are reliant on third-party  vendors for their data  processing  needs as well as
certain other significant functions and services (e.g.,  securities  safekeeping
services, securities pricing data, etc.). The Bank currently is working with its
third-party  vendors  in order to assess  their  Year 2000  readiness.  While no
assurance  can be  given  that  such  third-party  vendors  will  be  Year  2000
compliant, management believes that such vendors are taking appropriate steps to
address the issues on a timely basis.  Based on certain  preliminary  estimates,
the Bank  believes  that its  expenses  related to  upgrading  its  systems  and
software  and  Schenectady  Federal's  systems and software for Year 2000 issues
will not be material. While the Bank currently has no reason to believe that the
cost of  addressing  such issues  will  materially  affect the Bank's  products,
services or ability to compete  effectively,  no assurance  can be made that the
Bank or the  third-party  vendors  on which it  relies  will  become  Year  2000
compliant in a successful and timely fashion.  Nevertheless, the Holding Company
does not  believe  that the cost of  addressing  the Year 2000  issues will be a
material event or uncertainty  that would cause reported  financial  information
not to be  necessarily  indicative  of future  operating  results  or  financial
condition,  nor does it believe that the costs or the consequences of incomplete
or untimely  resolution of the Year 2000 issues represent a known material event
or uncertainty that is reasonably likely to affect its future financial results,
or cause its reported financial information not to be necessarily  indicative of
future operating results or future financial condition.                         

Risks Associated with the Establishment of the Charitable Foundation            

         Pursuant to the Plan of  Conversion,  the Holding  Company and the Bank
intend to voluntarily  establish a charitable  foundation in connection with the
Conversion.  The  Foundation  has  been  incorporated  under  Delaware  law as a
non-stock corporation and will be funded with the Stock Contribution.  The Stock
Contribution  will  be  dilutive  to  the  ownership  and  voting  interests  of
stockholders  and will have an adverse  impact on the  earnings  of the  Holding
Company on a consolidated basis in the period the Foundation is established.    

         As a  condition  to  receiving  the  non-objection  of the  FDIC to the
Conversion  and  the  approval  of the  Conversion  by the  Superintendent,  the
Foundation  will commit in writing to the FDIC and the  Superintendent  that all
shares of Holding  Company Common Stock held by the Foundation  will be voted in
the same ratio as all other  shares of the Holding  Company  Common Stock on all
proposals considered by stockholders of the Holding Company; provided,  however,
that, consistent with the condition, the FDIC and the Superintendent shall waive
this voting  restriction  under certain  circumstances  if  compliance  with the
voting  restriction  would:  (i) cause a  violation  of the laws of the State of
Delaware;  (ii) cause the Foundation to lose its tax-exempt status, or cause the
IRS to deny the  Foundation's  request for a determination  that it is an exempt
organization  or otherwise  have a material and adverse tax  consequence  on the
Foundation;  or (iii) cause the  Foundation to be subject to an excise tax under
Section 4941 of the Code. In order for the FDIC and the  Superintendent to waive
such voting restriction, the Holding Company's or the Foundation's legal counsel
must  render  an  opinion  satisfactory  to  FDIC  and the  Superintendent  that
compliance  with the  voting  restriction  would have the  effect  described  in
clauses (i), (ii) or (iii) above.  Under those  circumstances,  the FDIC and the
Superintendent shall grant a waiver of the voting restriction upon submission of
such opinion(s) by the Holding Company or the Foundation  which are satisfactory
to the FDIC and the  Superintendent.  There  can be no  assurances  that a legal
opinion addressing these issues will be rendered, or if rendered,  that the FDIC
and  the  Superintendent  will  grant  an  unconditional  waiver  of the  voting
restriction.  As of the date hereof,  no event has occurred  which would require
the Holding Company to seek a waiver from the FDIC and the Superintendent of the
voting restriction.                                                             

         Adverse Impact on Earnings. The Stock Contribution will have an adverse
impact on the Holding Company's earnings.  The Holding Company will recognize an
expense in the amount of $2.4 million ($1.4 million net of taxes) in the quarter
in which the  Conversion  is  completed  based on the  issuance of shares at the
maximum of the  Estimated  Valuation  Range,  which is expected to be the second
quarter of fiscal 1999. Such expense will have a material  adverse impact on the
Holding Company's earnings in the fiscal quarter and year recorded.  The Holding
Company has been advised by its legal counsel that the Stock Contribution should
be tax deductible, subject to a limitation based on 10%                         

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of the Holding  Company's annual taxable income.  If the Stock  Contribution had
been made at June 30,  1998,  the Bank  would have  reported  net income of $2.7
million for the fiscal year rather than net income of $4.1 million.             

         In the future, the Holding Company may make additional contributions to
the Foundation,  although the Holding Company has no current plans regarding the
amount  or  timing  of any such  future  contributions.  The  amount  of  future
contributions,  if any, will be determined based upon,  among other factors,  an
assessment of the Holding Company's then current financial position, operations,
and  prospects  and on the need for  charitable  activities in the Bank's market
area. Any such contributions,  regardless of form, will result in an increase in
other operating expense and thus a reduction in net earnings.  In addition,  any
contributions  of authorized  but unissued  shares would dilute the interests of
outstanding  stockholders.  However,  the Holding Company currently  anticipates
that any future  contributions  of shares by it to the Foundation will be funded
through shares repurchased in the open market.                                  

         Dilution  of  Stockholders'  Interests.  The  Stock  Contribution  will
involve  the  donation  of a number of shares  equal to 3% of the  shares of the
Holding Company Common Stock issued in the Conversion or up to 241,500 shares of
Holding Company Common Stock, or the sale of such shares for their aggregate par
value  ($2,415 based on the maximum of the Estimated  Valuation  Range),  to the
Foundation.  Upon completion of the Conversion and the Stock  Contribution,  the
Holding Company will have 8,291,500 shares issued and outstanding at the maximum
of the  Estimated  Valuation  Range,  of which the  Foundation  will own 241,500
shares, or 3.0%. As a result,  persons  purchasing shares in the Conversion will
have their share ownership and voting interest in the Holding Company diluted by
2.9%. See "Pro Forma Data."                                                     

         Possible  Nondeductibility  of the Stock  Contribution.  It is expected
that the IRS will rule that the  Foundation  is exempt from  federal  income tax
under  Section  501(a)  of the  Code as an  organization  described  in  Section
501(c)(3)  of the Code.  As such,  the  Holding  Company  will be  entitled to a
deduction  in the  amount  of  the  Stock  Contribution,  subject  to an  annual
limitation  based on 10% of the Holding  Company's  annual taxable  income.  The
Holding Company,  however,  would be able to carry forward any unused portion of
the deduction for five years  following the Stock  Contribution  for Federal and
New York income tax purposes. Based on present information,  the Holding Company
currently  estimates that the Stock Contribution  should be fully deductible for
Federal and New York income tax purposes.  However,  no assurances  can be given
that the Holding Company will have sufficient  pre-tax income over the five-year
period  following  the year in which the Stock  Contribution  is made to utilize
fully the carryover related to the excess contribution.                         

         Potential Change in Valuation and Capital if the Stock  Contribution is
Not Made.  The Stock  Contribution  was taken into  account by RP  Financial  in
determining  the  estimated pro forma market value of the Holding  Company.  The
aggregate  price of the shares of Holding  Company Common Stock being offered in
the Offering is based upon the Appraisal.  The pro forma  aggregate price of the
shares being  offered for sale in the  Conversion  is currently  estimated to be
between $59.5 million and $80.5 million, with a midpoint of $70.0 million.      

         If the Stock Contribution is not part of the Conversion,  the Estimated
Valuation  Range of the shares being  offered is  estimated to be between  $62.9
million and $85.1  million.  This  represents an increase of $4.0 million at the
midpoint of the Estimated Valuation Range. In such event the estimated pro forma
stockholders'  equity  of the  Holding  Company  would be  approximately  $133.8
million at the midpoint  based on a pro forma price to book ratio of 79.3% and a
pro forma price to earnings ratio of 15.6x. See "Comparison of Valuation and Pro
Forma Information with No Stock Contribution."                                  

         The  decrease  in the  amount of Holding  Company  Common  Stock  being
offered  for  sale  as a  result  of the  Stock  Contribution  will  not  have a
significant effect on the Holding Company's or the Bank's capital position.  The
Bank's regulatory  capital is significantly in excess of its regulatory  capital
requirements and will further exceed such requirements following the Conversion.
See  "Comparison  of  Valuation  and  Pro  Forma   Information   with  No  Stock
Contribution."                                                                  

         Potential Anti-Takeover Effect. Upon completion of the Conversion,  the
Foundation  would own 2.9% of the Holding  Company's  outstanding  shares.  Such
shares will be owned solely by the Foundation;  however pursuant to the terms of
the Stock  Contribution  as  mandated  by the FDIC and the  Superintendent,  the
shares of Holding  Company Common Stock must be voted in the same  proportion as
all other shares of Holding Company Common Stock on all                         

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proposals considered by the Holding Company's stockholders.  See "The Conversion
and the Merger - Establishment of Cohoes Savings  Foundation." In the event that
the FDIC and the  Superintendent  were to waive  this  voting  restriction,  the
Foundation's  Board of  Directors  would  exercise  sole voting  power over such
shares and would no longer be subject to the voting  restriction.  However,  the
FDIC and the Superintendent  could impose additional  conditions at that time on
the  composition  of the Board of the  Foundation or which  otherwise  relate to
control of the Common Stock of the Holding Company held by the  Foundation.  See
"The  Conversion  and  the  Merger  -   Establishment   of  The  Cohoes  Savings
Foundation." If a waiver of the voting  restriction were granted by the FDIC and
the  Superintendent  and no further conditions were imposed on the Foundation at
that time,  management of the Holding  Company and the Bank could benefit to the
extent that the Board of  Directors  of the  Foundation  determines  to vote the
shares of  Holding  Company  Common  Stock  held by the  Foundation  in favor of
proposals supported by the Holding Company and the Bank.  Furthermore,  when the
Foundation's  shares are combined  with shares  purchased  directly by executive
officers  and  directors  of the  Holding  Company,  shares  issued  pursuant to
proposed stock benefit plans,  and shares held in the Bank's ESOP, the aggregate
of such shares  could  exceed 20% of the Holding  Company's  outstanding  Common
Stock,  which  could  enable  management  to  defeat  proposals   requiring  80%
stockholder approval. Consequently, this potential voting control might preclude
takeover attempts that other stockholders deem to be in their best interest, and
might tend to  perpetuate  management.  Since the ESOP shares are  allocated  to
eligible  employees of the Bank, and any unallocated  shares will be voted by an
independent  trustee,  and because awards under the proposed stock benefit plans
may be granted  to  employees  other  than  executive  officers  and  directors,
management of the Holding  Company does not expect to have voting control of all
shares held or to be allocated by the ESOP or other stock benefit plans. See "--
Takeover Defensive Provisions."                                                 

         There are no  agreements  or  understandings,  written  or tacit,  with
respect to the exercise of either direct or indirect control over the management
or policies  of the  Holding  Company by the  Foundation,  including  agreements
related to voting,  acquisition  or  disposition  of the Holding  Company Common
Stock.  Finally,  as the Foundation  sells its shares of Holding  Company Common
Stock over time, its ownership  interest and voting power in the Holding Company
is expected to decrease.                                                        

COHOES BANCORP, INC.

         The  Holding  Company  was  formed  at the  direction  of the  Bank  in
September  1998 for the purpose of becoming a savings and loan  holding  company
and owning all of the  outstanding  stock of the Bank issued in the  Conversion.
The Holding Company is incorporated under the laws of the State of Delaware. The
Holding  Company is  authorized  to do  business  in the State of New York,  and
generally  is  authorized  to engage in any  activity  that is  permitted by the
Delaware General  Corporation Law. The business of the Holding Company initially
will consist  only of the  business of the Bank and the business of  Schenectady
Federal.  The  holding  company  structure  will,  however,  provide the Holding
Company with  greater  flexibility  than the Bank has to diversify  its business
activities,   through  existing  or  newly  formed   subsidiaries,   or  through
acquisitions  or  Mergers of stock  financial  institutions,  as well as,  other
companies.  Although  there  are  no  current  arrangements,  understandings  or
agreements regarding any such activity or acquisition other than the Merger, the
Holding  Company  will  be  in a  position  after  the  Conversion,  subject  to
regulatory  restrictions,   to  take  advantage  of  any  favorable  acquisition
opportunities that may arise.                                                   

         The assets of the Holding  Company will consist  initially of the stock
of the Bank, a note evidencing the Holding  Company's loan to the ESOP and up to
50% of the net proceeds  from the  Conversion  (less the amount used to fund the
ESOP loan).  See "Use of  Proceeds."  Initially,  any  activities of the Holding
Company are  anticipated  to be funded by such retained  proceeds and the income
thereon and dividends from the Bank, if any. See  "Dividends"  and "Regulation -
The Holding Company." Thereafter,  activities of the Holding Company may also be
funded through sales of additional  securities,  through  borrowings and through
income generated by other activities of the Holding Company. At this time, there
are no plans regarding such other activities other than the intended loan to the
ESOP  to  facilitate  its  purchase  of  Holding  Company  Common  Stock  in the
Conversion. See "Management of the Bank - Benefit Plans Employee Stock Ownership
Plan."                                                                          

         The  executive  office of the  Holding  Company is located at 75 Remsen
Street,  Cohoes,  New York  12047-2892.  Its telephone number at that address is
(518) 233-6500.                                                                 

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 COHOES SAVINGS BANK

         The Bank serves the financial  needs of  communities in its market area
through its main office and 15 other full service  branch offices and one public
accommodation  office  located  throughout  the Bank's  primary market area. Its
deposits are insured up to applicable  limits by the FDIC. At June 30, 1998, the
Bank had total assets of $535.7  million,  deposits of $449.5  million and total
equity of $53.3 million (or 9.95% of total assets).                             

         The Bank has been,  and  intends  to  continue  to be, an  independent,
community   oriented  financial   institution.   The  Bank's  business  involves
attracting  deposits from the general public and using such  deposits,  together
with other funds, to originate  primarily  residential  mortgage loans, and to a
lesser extent,  commercial and multi-family real estate, consumer and commercial
business  loans.  The Bank  originates its loans  primarily in the Bank's market
area and to a lesser  extent,  it has in the past  originated  multi-family  and
commercial  real estate loans in New York City.  However,  depending upon market
conditions  and as a result of the  somewhat  depressed  economy  in the  Bank's
primary  market area,  the Bank may explore  lending  opportunities  outside its
primary market area in the future. At June 30, 1998, $258.4 million,  or 62.07%,
of the Bank's total loan portfolio consisted of residential  mortgage loans. See
"Business of the Bank - Lending Activities." The Bank also invests in government
agency and corporate debt  securities  and other  permissible  investments.  See
"Business of the Bank - Investment Activities."                                 

         The  executive  office  of the Bank is  located  at 75  Remsen  Street,
Cohoes,  New York  12047-2892.  Its  telephone  number at that  address is (518)
233-6500.                                                                       

 USE OF PROCEEDS

         Although the actual net proceeds from the sale of the Conversion Shares
cannot  be  determined  until  the  Conversion  is  completed,  it is  presently
anticipated  that such net  proceeds  will be between  $57.9  million  and $76.7
million (or up to $90.6 million in the event of an increase in the aggregate pro
forma  market value of the Holding  Company  Common Stock of up to 15% above the
maximum  of the  Estimated  Valuation  Range).  See "Pro  Forma  Data"  and "The
Conversion and the Merger - Stock Pricing" and "--Number of Shares to be Issued"
as to the assumptions used to arrive at such amounts.                           

         In  exchange  for all of the  common  stock of the Bank  issued  in the
Conversion,  the Holding  Company will contribute  approximately  50% of the net
proceeds  from the sale of the  Conversion  Shares  to the Bank.  On an  interim
basis,  the  proceeds  will be invested  by the Holding  Company and the Bank in
short-term  investments similar to those currently in the Bank's portfolio.  The
specific  types and amounts of  short-term  assets will be  determined  based on
market conditions at the time of the completion of the Conversion.  In addition,
the Holding Company intends to provide the funding for the ESOP loan. Based upon
the initial  purchase  price of $10.00 per share,  the dollar amount of the ESOP
loan would range from $4.9 million (based upon the sale of shares at the minimum
of the Estimated Valuation Range) to $6.6 million (based upon the sale of shares
at the  maximum of the  Estimated  Valuation  Range).  The  interest  rate to be
charged  by the  Holding  Company  on the ESOP loan will be based upon the prime
rate  of  interest  as  reported  in the  Wall  Street  Journal  at the  time of
origination.  It is  anticipated  that  the ESOP  will  repay  the loan  through
periodic tax-deductible contributions from the Bank over a fifteen-year period. 

         The net  proceeds  received  by the Bank will become part of the Bank's
general  funds for use in its  business  and will be used to support  the Bank's
existing operations, subject to applicable regulatory restrictions.  Immediately
upon the  completion of the  Conversion,  it is  anticipated  that the Bank will
invest such proceeds into short-term assets.  Subsequently,  the Bank intends to
redirect  the net  proceeds  to the  origination  of  loans,  subject  to market
conditions.                                                                     

         After the  completion  of the  Conversion,  the  Holding  Company  will
redirect the net proceeds  invested by it in short-term assets into a variety of
securities  similar  to those  already  held by the Bank,  as well as in deposit
accounts  with the Bank.  Also,  the  Holding  Company  may use a portion of the
proceeds  to fund  the  RRP,  subject  to  stockholder  approval  of such  plan.
Compensation expense related to the RRP will be recognized as share awards vest.
See "Pro Forma Data."  Following  stockholder  ratification  of the RRP, the RRP
will  be  funded  either  with  shares  purchased  in the  open  market  or with
authorized but unissued shares.  Based upon the initial purchase price of $10.00
per share,  the amount  required to fund the RRP through  open-market  purchases
would range from approximately $2.5 million (based                              

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upon the sale of shares at the  minimum  of the  Estimated  Valuation  Range and
including shares issued to the Foundation) to approximately  $3.3 million (based
upon the sale of shares at the maximum of the Estimated Valuation Range). In the
event that the per share price of the Holding  Company  Common  Stock  increases
above the $10.00 per share purchase price following  completion of the Offering,
the amount necessary to fund the RRP would also increase.  The use of authorized
but unissued  shares to fund the RRP could  dilute the holdings of  stockholders
who purchase  Holding  Company  Common Stock in the  Conversion  and who receive
Exchange Shares in the Merger.  See "Business of the Bank - Lending  Activities"
and " - Investment  Activities"  and  "Management  of the Bank - Benefit Plans -
Employee Stock Ownership Plan" and "- RRP."                                     

         The proceeds may also be utilized by the Holding  Company to repurchase
(at prices which may be above or below the initial offering price) shares of the
Holding Company Common Stock through an open market  repurchase  program subject
to  applicable  regulations,  although  the  Holding  Company  currently  has no
specific plan to repurchase any of its stock  (although the Holding  Company and
the Bank do not intend to take any actions in the future which would prevent the
Merger from being  accounted for as a  pooling-of-interests  under GAAP). In the
future, the Board of Directors of the Holding Company will make decisions on the
repurchase  of the  Holding  Company  Common  Stock  based  on its  view  of the
appropriateness  of the price of the Holding Company Common Stock as well as the
Holding Company's and the Bank's investment opportunities and capital needs.    

         The Bank may use a portion of the  proceeds to fund the creation of one
or more new branch offices within its primary market area, although the Bank has
no specific  plans  regarding any new branch  offices at this time. In addition,
the Holding Company or the Bank might consider expansion through the acquisition
of other financial services providers (or branches, deposits or assets thereof),
although there are no specific plans, negotiations or written or oral agreements
regarding any acquisitions at this time (other than the Merger).                

 DIVIDENDS

         The Holding  Company  currently  plans to pay  dividends in the future.
However,  the  amount  and  timing of such  payments  has yet to be  determined.
Dividends, when and if paid, will be subject to determination and declaration by
the Board of Directors at its  discretion.  The Board will take into account the
Holding  Company's  consolidated  financial  condition,  the  Bank's  regulatory
capital   requirements,   tax  considerations,   industry  standards,   economic
conditions,  regulatory  restrictions,  general  business  practices  and  other
factors.                                                                        

         It is not presently  anticipated  that the Holding Company will conduct
significant  operations independent of those of the Bank for some time following
the  Conversion.  As such,  the  Holding  Company  does not  expect  to have any
significant  source of income other than  earnings on the net proceeds  from the
Conversion  retained  by the  Holding  Company  (which  proceeds  are  currently
estimated to range from $57.9  million to $76.7 million based on the minimum and
the maximum of the Estimated  Valuation Range,  respectively) and dividends from
the Bank, if any.  Consequently,  the ability of the Holding Company to pay cash
dividends to its stockholders  will be dependent upon such retained proceeds and
earnings  thereon,  and upon the  ability  of the Bank to pay  dividends  to the
Holding  Company.  See  "Description  of Capital Stock - Holding Company Capital
Stock - Dividends."  The Bank,  like all savings  associations  regulated by the
FDIC, is subject to certain  restrictions  on the payment of dividends  based on
its net income, its capital in excess of the regulatory capital requirements and
the amount of  regulatory  capital  required for the  liquidation  account to be
established in connection with the Conversion. In addition, under New York state
banking  law,  a New York  chartered  stock  savings  bank may  declare  and pay
dividends out of its net profits,  unless there is an impairment of capital, but
approval of the Department is required if the total of all dividends declared in
a calendar year would exceed the total of its net profits for that year combined
with its retained  net profits of the  preceding  two years,  subject to certain
adjustments.  See "The  Conversion  and the  Merger - Effects of  Conversion  --
Deposit Accounts and Loans" and "Regulation - The Bank -- Capital  Requirements"
and "- Limitations on Dividends."  Earnings allocated to the Bank's "excess" bad
debt reserves and deducted for federal income tax purposes cannot be used by the
Bank  to  pay  cash  dividends  to  the  Holding  Company  without  adverse  tax
consequences. See "Regulation" and "Taxation."                                  

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 MARKET FOR COMMON STOCK

         The Bank, as a mutual savings bank, and the Holding Company, as a newly
organized company, have never issued capital stock.  Consequently,  there is not
at this time an  existing  market for the  Holding  Company  Common  Stock.  The
Holding  Company has been  approved  for listing of the Holding  Company  Common
Stock on the Nasdaq Stock Market under the symbol  "_______" upon  completion of
the  Conversion.  In order to be quoted on the Nasdaq Stock Market,  among other
criteria,  there must be at least three  market  makers for the Holding  Company
Common  Stock.  KBW has agreed to act as a market maker for the Holding  Company
Common Stock following the Conversion,  and assist in securing additional market
makers  to  do  the  same.  A  public   trading   market  having  the  desirable
characteristics of depth, liquidity and orderliness depends upon the presence in
the marketplace of both willing buyers and sellers of the Holding Company Common
Stock at any given time.  Accordingly,  there can be no assurance that an active
and liquid  market  for the  Holding  Company  Common  Stock will  develop or be
maintained or that resales of the Holding Company Common Stock can be made at or
above the purchase price.  See "The Conversion and the Merger Stock Pricing" and
"-- Number of Shares to be Issued."                                             

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REGULATORY CAPITAL

         At June 30, 1998, the Bank and Schenectady Federal each exceeded all of
the regulatory capital requirements applicable to it. The table below sets forth
the historical  regulatory  capital of the Bank and Schenectady  Federal at June
30, 1998 and the pro forma regulatory capital of the Bank after giving effect to
the Conversion and the Merger, based upon the sale of the number of shares shown
in the table.  The pro forma  regulatory  capital amounts reflect the receipt by
the Bank of 50% of the net Conversion  proceeds,  minus the amounts to be loaned
to the ESOP and contributed to the RRP. The pro forma risk-based capital amounts
assume the  investment of the net proceeds  received by the Bank in assets which
have a risk-weight of 20% under applicable regulations,  as if such net proceeds
had been received at June 30, 1998.                                             

                                                        [Enlarge/Download Table]

                                                 Pro Forma Combined for Cohoes Savings Bank at June 30, 1998 Based on               
                                        --------------------------------------------------------------------------------------------
                                                Minimum                 Midpoint                Maximum        Maximum As Adjusted  
                                        ---------------------- ----------------------  ---------------------- ----------------------
                      Historical at     Conversion Shares Sold Conversion Shares Sold  Conversion Shares Sold Conversion Shares Sold
                      June 30, 1998       at $10.00 Per Share    at $10.00 Per Share     at $10.00 Per Share   at $10.00 Per Share  
                   --------------------   --------------------  ---------------------     -------------------   ------------------  
                             Percent of            Percent of            Percent of               Percent of           Percent of   
                    Amount    Assets(1)   Amount    Assets(1)   Amount    Assets(1)      Amount    Assets(1)   Amount   Assets(1)   
                    ------    ---------   ------    ---------   ------    ---------      ------    ---------   ------   ---------   
                                                        (Dollars in Thousands)                                                      
                                                                                                                                    
GAAP Capital.....   $53,282     9.95%     $74,880     13.32%    $78,775   13.86%         $82,669       14.46%    $87,148   15.10%   
                    =======     ====      =======     =====     =======   =====          =======       =====     =======   =====    
Leverage capital:                                                                                                                   
   Actual........   $53,270    10.13%     $74,868     13.56%    $78,763   14.14%         $82,657       14.71%    $87,136   15.36%   
   Requirement...    21,033     4.00       22,093      4.00      22,283    4.00           22,474        4.00%     22,693    4.00    
                   --------  -------     --------    ------    --------  ------         --------      ------    --------  ------    
   Excess........   $32,237     6.13%     $52,775      9.56%    $56,479   10.14%         $60,183       10.71%    $64,443   11.36%   
                    =======  =======      =======    ======     =======   =====          =======       =====     =======   =====    
Risk-based                                                                                                                          
 capital(3):                                                                                                                        
   Actual........   $56,803    17.08%     $78,401     23.21%    $82,296   24.29%         $86,190       25.37%    $90,669   26.60%   
   Requirement...    26,601     8.00       27,025      8.00      27,101    8.00           27,177        8.00      27,265    8.00    
                   --------  -------     --------    ------     --------  ------        --------      ------    --------  ------    
   Excess........   $30,202     9.08%     $51,376     15.21%    $55,194   16.29%         $59,013       17.37%    $63,404   18.60%   
                    =======  =======      =======     =====      =======  =====          =======       =====     =======   =====    

        SFS Historical at       Pro Forma Combined
          June 30, 1998          at June 30, 1998(2)
        ---------------------   ----------------------
                  Percent of                Percent of
         Amount    Assets(1)    Amount       Assets(1)
         ------    ----------   ------      ----------
GAAP Capital.....                                                               
      $19,618     11.01%      $99,887       13.36%
Leverage capital:    =======     =====       =======       =====                
Actual........                                                            
Requirement...    $19,612     11.01%      $99,869       13.54%            
       7,124      4.00        11,063        1.50
Excess........  ---------   -------      --------     -------             
      $12,488      7.01%      $88,806       12.04%
Risk-based           =======   =======       =======      ======                
capital(3):                                                                   
Actual........                                                            
Requirement...    $20,467     21.20%     $104,257       23.92%            
       7,725      8.00        34,864        8.00
Excess........  ---------   -------      --------     -------             
      $12,742     13.20%      $69,393       15.92%
     =======    ======       =======      ======

--------------                                                                  
(1) Adjusted total or adjusted risk-weighted assets, as appropriate.  As of June
    30,  1998,  the  adjusted  total and  risk-weighted  assets of the Bank were
    $525.8 million and $332.5 million,  respectively, and the adjusted total and
    risk-weighted  assets of  Schenectady  Federal were $178.1 million and $96.6
million, respectively.                                                  
(2) Assuming the sale of 8,050,000  Conversion Shares in the Offering,  which is
the maximum of the Estimated Valuation Range.                           
(3) Does  not  reflect  the  interest  rate  risk  component  to be added to the
    risk-based  capital  requirements  or,  in  the  case  of the  core  capital
    requirement,  the 4.0%  requirement to be met in order for an institution to
    be "adequately  capitalized"  under  applicable  laws and  regulations.  See
"Regulation - Regulatory Capital Requirements."                         

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         Presented  below is a  reconciliation  of the equity capital of each of
the Bank and  Schenectady  Federal at June 30, 1998 as  calculated in accordance
with GAAP ("GAAP  Capital") to their  respective  capital  amounts as calculated
under their respective regulatory capital requirements.                         

                                                      Cohoes         Schenectady
                                                    Savings          Federal
                                                    -------          -------
                                                      (In Thousands)
GAAP Capital .................................        $ 53,282       $ 19,618   
Unrealized (gain) loss on                                                       
securities available-for-sale ..............             (12)            (6)
                                                   --------       --------
Tangible capital .............................          53,270         19,612   
Qualifying intangible assets .................              --             --   
                                                   --------       --------
Core capital .................................          53,270         19,612   
Allowance for loan losses ....................           3,533            855   
                                                   --------       --------
Risk-based capital ...........................        $ 56,803       $ 20,467   
                                                   ========       ========

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CAPITALIZATION

         The following table presents the historical  capitalization of the Bank
at June 30, 1998 and the pro forma  consolidated  capitalization  of the Holding
Company after giving effect to the Conversion and Merger, based upon the sale of
shares at the maximum of the Estimated Valuation Range and the other assumptions
set forth under "Pro Forma  Unaudited  Financial  Information  - Additional  Pro
Forma Data."                                                                    

                                                        [Enlarge/Download Table]

                                                                          The Holding Company - Pro Forma Consolidated              
                                                                              Based Upon Sale at $10.00 Per Share                   
                                                      ------------------------------------------------------------------------------
                                                                                            9,257,500                               
                                                      5,950,000    7,000,000   8,050,000    Shares(1)                               
                                       Cohoes Savings    Shares      Shares      Shares     (15% above               Holding Company
                                            Bank      (Minimum of (Midpoint of (Maximum of   Maximum of                 Pro Forma   
                                         Historical     Range)        Range)      Range)       Range)  SFS-Historical    Consoli-   
                                                                                                                        dated)(2)   
                                         ----------     ------        ------      ------       ------  --------------  -------------
                                                                           (In Thousands)                                           
                                                                                                                                    
Deposits(3) ...........................  $ 449,541   $ 449,541    $ 449,541    $ 449,541    $ 449,541    $ 152,879      $ 602,420   
Borrowings ............................     19,897      19,897       19,897       19,897       19,897           --         19,897   
                                         ---------   ---------    ---------    ---------    ---------    ---------      ---------   
Total deposits and borrowings .........  $ 469,438   $ 469,438    $ 469,438    $ 469,438    $ 469,438    $ 152,879      $ 622,317   
                                         =========   =========    =========    =========    =========    =========      =========   

Stockholders' equity:                                                                                                               
 Common stock, $0.01 par value,                                                                                                     
   25,000,000 shares authorized;                                                                                                    
   shares to be issued as                                                                                                           
   reflected(4) .......................  $      --          61           72           83           95           15            115   
 Additional paid-in capital ...........         --      59,629       70,317       81,006       93,298       14,411         91,311   
 Treasury stock(5) ....................         --          --           --           --           --       (4,089)            --   
 Retained earnings(6)(7) ..............     53,270      52,199       52,010       51,821       51,604       12,795         59,816   
 Net unrealized gain on available-                                                                                                  
   for-sale securities,                                                                                                             
   net of taxes .......................         12          12           12           12           12            6             18   
Less:                                                                                                                               
 Common stock held or to be acquired                                                                                                
   by the ESOP(8) .....................         --      (4,903)      (5,768)      (6,633)      (7,628)        (837)        (7,470)  
 Common stock to be acquired by the                                                                                                 
   RRP(9) .............................         --      (2,451)      (2,884)      (3,317)      (3,814)        (386)        (3,703)  
                                         ---------   ---------    ---------    ---------    ---------    ---------      ---------   

Total stockholder's equity ............  $  53,282   $ 104,547    $ 113,759    $ 122,972    $ 133,567    $  21,915      $ 140,087   
                                         =========   =========    =========    =========    =========    =========      =========   

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----------                                                                      
(1) As adjusted  to give  effect to an  increase  in the number of shares  which
    could occur due to an increase in the Estimated Valuation Range of up to 15%
    to  reflect  changes  in  market  and  financial  conditions  following  the
commencement of the Offerings.                                          

(2) Assuming  the  Conversion  is  completed  at the  maximum  of the  Estimated
Valuation Range.                                                        

(3) Does not reflect  withdrawals  from  deposit  accounts  for the  purchase of
    Holding Company Common Stock in the Offerings. Such withdrawals would reduce
pro forma deposits by the amount of such withdrawals.                   

(4) Reflects  the issuance of the  Conversion  Shares to be sold in the Offering
    and the  issuance  of  Exchange  Shares.  No  effect  has been  given to the
    issuance of additional  shares of Holding  Company  Common Stock pursuant to
    the  proposed  Stock  Option and  Incentive  Plan or to the  exercise of any
    additional  options to acquire  shares of SFS Common  Stock.  See "Pro Forma
    Unaudited Financial Information Additional Pro Forma Data" and "Management -
    Benefits - Stock  Option and  Incentive  Plan."  Also  reflects  issuance of
additional shares of Holding Company Common Stock to the Foundation.    

(5) Assumes  the   cancellation  of  SFS's  treasury   shares   concurrent  with
consummation of the Merger.                                             

(6) The retained earnings of the Bank will be substantially restricted after the
    Conversion  by  virtue  of the  liquidation  account  to be  established  in
    connection  with  the  Conversion.  See  "The  Conversion  and the  Merger -
    Liquidation  Rights." In  addition,  certain  distributions  from the Bank's
    retained  earnings  may be treated as being  from its  accumulated  bad debt
    reserve for tax  purposes,  which  would  cause the Bank to have  additional
taxable income. See "Taxation."                                         

(7) Pro forma  stockholders'  equity includes the effects of estimated  one-time
    charges of approximately $5.9 million, $4.8 million net of tax effect, and a
    $1.8  million,  $2.1  million,  $2.4 million and $2.8 million  expense ($1.1
    million,  $1.3 million,  $1.5 million and $1.7 million, net of tax) relating
    to the  contribution  of 178,500,  210,000,  245,000  and 277,725  shares of
    Holding  Company  Common Stock to the  Foundation at the minimum,  midpoint,
    maximum and maximum as adjusted of the valuation range.  Since the estimated
    charges are  non-recurring,  they have not been  reflected  in the pro forma
    combined income  statement and related per share  calculations.  The charges
are expected to be incurred shortly following the Conversion and Merger.

(8) Assumes that an amount equal to 8% of the Holding  Company Common Stock sold
    in the  Offerings  will be  purchased  by the ESOP,  which is reflected as a
    reduction of  stockholders'  equity.  The ESOP shares will be purchased with
    funds loaned to the ESOP by the Holding  Company.  See "Pro Forma  Unaudited
    Financial  Information  -  Additional  Pro  Forma  Data" and  "Management  -
Benefits - Employee Stock Ownership Plan."                              

(9) The  Holding  Company  intends  to adopt the RRP and to submit  such plan to
    stockholders at an annual or special  meeting of stockholders  held at least
    six months  following the  consummation  of the  Conversion.  If the plan is
    approved by  stockholders,  the Holding Company intends to purchase a number
    of shares of Holding Company Common Stock equal to 4% of the Holding Company
    Common Stock sold in the  Offering.  Assumes that  stockholder  approval had
    been obtained and that the shares have been  purchased in the open market at
    the  purchase  price.  However,  in the event  the  Holding  Company  issues
    authorized but unissued shares of Holding Company Common Stock to the RRP in
    the amount of 4% of the Holding  Company  Common  Stock sold in the Offering
    (including  shares  issued  to the  Foundation),  the  voting  interests  of
    existing  stockholders  would be diluted  approximately  2.8%  (assuming the
    issuance of 8,050,000  Conversion  Shares and 3,202,451  Exchange Shares and
    the  contribution  of 241,500 shares of Holding  Company Common Stock to the
    Foundation).  The shares  are  reflected  as a  reduction  of  stockholders'
    equity. See "Pro Form Unaudited Financial Information - Additional Pro Forma
Data" and "Management - Benefits - Recognition and Retention Plan."     

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 PRO FORMA UNAUDITED FINANCIAL INFORMATION

         The following Pro Forma Unaudited  Consolidated  Statement of Financial
Condition at June 30, 1998 and the Pro Forma Unaudited  Consolidated  Statements
of Income for each of the years ended June 30,  1998,  1997 and 1996 give effect
to the proposed  Conversion  and the Merger based on the  assumptions  set forth
herein.  The pro forma unaudited  financial  statements are based on the audited
consolidated financial statements of the Bank for the years ended June 30, 1998,
1997 and 1996 and the unaudited consolidated financial statements of SFS for the
twelve  months  ended  June 30,  1998,  1997 and 1996.  The pro forma  unaudited
financial  statements  give effect to the  Conversion  and the Merger  using the
pooling-of-interests method of accounting.                                      

         The pro forma  adjustments  in the table  assume the sale of  8,050,000
Conversion  Shares in the Offering at a price of $10.00 per share,  which is the
maximum of the Estimated Valuation Range. In addition, the pro forma adjustments
in the tables assume the issuance of 3,202,451 Exchange Shares in the Merger and
the  contribution  of 241,500  shares of  Holding  Company  Common  Stock to the
Foundation.  The net proceeds are based upon the following assumptions:  (i) all
Conversion Shares will be sold in the Subscription  Offering;  (ii) no fees will
be paid to KBW on  shares  purchased  by (x) the  ESOP  and any  other  employee
benefit  plan of the  Holding  Company  or the Bank,  (y)  officers,  directors,
employees and members of their immediate  families or (z) the Foundation;  (iii)
KBW will receive a fee equal to 1.20% of the aggregate  purchase price for sales
in the Subscription Offering (excluding the sale of shares to the ESOP, employee
benefit  plans,  officers,  directors  and  their  immediate  families  and  the
Foundation); and (iv) total expenses of the Conversion,  including the marketing
fees paid to KBW,  will be $1.8  million.  Actual  expenses  may vary from those
estimated.  The actual amount of Conversion Shares sold may be more or less than
the midpoint of the Estimated Valuation Range, and the number of shares sold and
the actual  purchase  price may be more or less than the  assumptions  set forth
above.  For the effects of such possible  changes,  see "-- Additional Pro Forma
Data." In addition,  the expenses of the Conversion and the Merger may vary from
those estimated,  and the fees paid to KBW will vary from the amounts  estimated
if a Syndicated  Community  Offering becomes  necessary.  Additionally,  certain
one-time  charges to  operating  results  are  expected to occur  following  the
Merger.  These  items,  net of income tax  effects,  are shown as a reduction in
stockholders' equity in the following tables but are not shown as a reduction in
net income for the periods shown in the following tables.  However, no potential
cost savings have been  reflected in the  following  tables  because an accurate
estimate has not yet been determined.                                           

         Pro forma net income has been  calculated  for the years ended June 30,
1998, 1997 and 1996 as if the Conversion Shares to be issued in the Offering had
been sold (and the Exchange Shares  issued).  Historical and pro forma per share
amounts have been calculated by dividing historical and pro forma amounts by the
indicated number of shares of Holding Company Common Stock.                     

         The pro forma unaudited  consolidated  statement of financial condition
assumes the  Conversion  and Merger were  consummated  on June 30, 1998. The pro
forma unaudited consolidated statements of income assume that the Conversion and
Merger were consummated on July 1 of each indicated period.                     

         The pro forma  unaudited  statements  are  provided  for  informational
purposes only. The pro forma financial  information presented is not necessarily
indicative  of the  actual  results  that  would  have  been  achieved  had  the
Conversion and the Merger been  consummated on June 30, 1998 or at the beginning
of the periods presented, and is not indicative of future results. The pro forma
unaudited   financial   statements  should  be  read  in  conjunction  with  the
consolidated  financial  statements  and the notes  thereto  of the Bank and SFS
contained elsewhere in this Prospectus.                                         

         The  stockholders'  equity  represents  the combined  book value of the
common  stockholders'  ownership of the Bank and SFS computed in accordance with
GAAP.  This amount is not  intended to  represent  fair market value nor does it
represent  amounts,  if  any,  that  would  be  available  for  distribution  to
stockholders in the event of liquidation. The book value for the Bank and SFS on
a historical  and pro forma basis has not been changed to reflect any difference
between  the  carrying  value of  investments  held to maturity or loans held in
portfolio and their market value.                                               

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         THE  UNAUDITED  PRO FORMA NET INCOME AND  COMMON  STOCKHOLDERS'  EQUITY
DERIVED FROM THE ABOVE  ASSUMPTIONS  ARE QUALIFIED BY THE  STATEMENTS  SET FORTH
UNDER THIS CAPTION AND SHOULD NOT BE  CONSIDERED  INDICATIVE OF THE MARKET VALUE
OF THE HOLDING  COMPANY  COMMON  STOCK OR THE ACTUAL  RESULTS OF  OPERATIONS  OF
COHOES  SAVINGS  AND SFS FOR ANY PERIOD.  SUCH PRO FORMA DATA MAY BE  MATERIALLY
AFFECTED BY THE ACTUAL GROSS PROCEEDS FROM THE SALE OF CONVERSION  SHARES IN THE
CONVERSION AND THE ACTUAL  EXPENSES  INCURRED IN CONNECTION  WITH THE CONVERSION
AND THE MERGER. SEE "USE OF PROCEEDS."                                          

 Pro Forma Unaudited Consolidated Statement of Financial Condition
 June 30, 1998

                                                        [Enlarge/Download Table]

                                                             Pro Forma     Cohoes Savings                Pro Forma                  
                                            Cohoes Savings   Conversion        Bank,                       Merger      Pro Forma    
                                                 Bank        Adjustments   As Converted        SFS      Adjustments   Consolidated  
                                                 ----        -----------   ------------      -------    -----------   ------------  
                                                            (Dollars in thousands, except per share data)                           
Assets                                                                                                                              
                                                                                                                                    
     Cash...................................   $  8,653       $68,724(1)      $ 77,377       $    980                  $  78,357    
     Interest-bearing deposits..............        576                            576             --                        576    
     Federal funds sold.....................      5,000                          5,000          5,600                     10,600    
                                               --------                       --------       --------                    -------    
     Cash and cash equivalents..............     14,229                         82,953          6,580                     89,533    
     Investment securities available                                                                                                
      for sale..............................     45,168                         45,168          8,062                     53,230    
     Investment securities held to maturity.     45,424                         45,424         16,910                     62,334    
     Loans receivable, net..................    412,797                        412,797        141,222                    554,019    
     FHLB stock, at cost....................      3,552                          3,552          1,338                      4,890    
     Office properties and equipment........      7,303                          7,303          2,171                      9,474    
     Accrued interest receivable............      3,482                          3,482          1,061                      4,543    
     Real estate owned......................        509                            509            151                        660    
     Other assets...........................      3,252           966(2)         4,218            598                      4,816    
                                               --------                       --------       --------                    -------    
          Total Assets......................   $535,716        69,690         $605,401       $178,093                   $783,499    
                                               ========                       ========       ========                    =======    

Liabilities and Stockholders' Equity                                                                                                
Liabilities:                                                                                                                        
     Deposits...............................   $449,541                       $449,541       $152,879                   $602,420    
     Total borrowings.......................     19,897                         19,897             --                     19,897    
     Advances by borrowers for insurance                                                                                            
       and taxes............................      8,994                          8,994          1,861                     10,855    
     Other liabilities......................      4,002                          4,002          1,438      4,800 (5)      10,240    
                                               --------                       --------       --------                    -------    
          Total liabilities.................    482,434                        482,434        156,178      4,800         643,412    
                                               --------                       --------       --------                    -------    
Stockholders' Equity:                                                                                                               
     Common stock...........................         --            83(3)            83             15         17 (6)          115   
     Additional paid-in capital.............         --        81,006(3)        81,006         14,411     (4,106)(6)       91,311   
     Retained earnings partially restricted.     53,270       (1,449)(3)        51,821         12,795     (4,800)(6)       59,816   
     ESOP shares............................         --       (6,633)(3)        (6,633)          (837)                     (7,740)  
     RRP shares.............................         --       (3,317)(3)        (3,317)          (386)                     (3,703)  
     Treasury stock.........................         --                             --         (4,089)     4,089 (6)           --   
     Unrealized gain on available for sale                                                                                          
       securities...........................         12                             12              6     (4,800)              18   
                                               --------                       --------        -------                    --------   
          Total stockholders' equity........     53,282                        122,972         21,915                     140,087   
                                               --------                       --------        -------                    --------   
               Total Liabilities and                                                                                                
                 Stockholders' Equity.......   $535,716       69,690          $605,406       $178,093                    $783,499   
                                               ========                       ========       ========                    ========   

Book value per common share.................        N/A          N/A            $14.83       $   6.84(4)                   $12.17(4)

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

(1) Reflects gross proceeds of $80.5 million from the sale of Conversion Shares,
    minus (i) estimated  expenses of the Conversion equal to $1.8 million,  (ii)
    the  purchase  of $6.6  million  of  Conversion  Shares  by the ESOP  funded
    internally  by a loan  from the  Holding  Company  and  (iii)  the  proposed
    purchase of $3.3  million of the  Holding  Company  Common  Stock by the RRP
funded internally by the Holding Company.                               

(2) Adjustment  to record the New York state and  federal  tax  benefits  of the
    contribution  of  241,500  shares of  Holding  Company  Common  Stock to the
Foundation.                                                             

(3) Reflects  the  adjustments  set  forth in Notes  (1) and (2)  above  and the
    issuance of 241,500 shares of Holding Company Common Stock as a contribution
to the Foundation.                                                      

(4) Assuming a 2.65:1 Exchange Ratio. Adjusted outstanding shares of SFS used to
    calculate  book  value per common  shares are  3,202,451.  For  purposes  of
    calculating the pro forma  consolidated  book value per share, it is assumed
    that 11,493,951 shares of Holding Company Common Stock are outstanding based
    on the assumed issuance of 3,202,451 Exchange Shares,  8,050,000  Conversion
Shares and 241,500 shares issued to the Foundation.                     

(5) Adjustment  to  record  the  effects  of  estimated   one-time   charges  of
    approximately  $7.5  million,  $4.8  million  net  of  tax  effect  and  the
    termination of SFS' ESOP ($1.6  million),  which will be charged to earnings
    as incurred.  Since the estimated charges are  non-recurring,  they have not
    ben reflected in the pro forma  consolidated  income  statements and related
    per share  calculations.  The  charges are  expected to be incurred  shortly
following the Conversion and the Merger.                                

    The estimated non-recurring charges (in thousands) consist of the following:

    Merger related professional fees                                  $   850*
   Deductible employee severance and contract costs                    1,375
    Non deductible employee severance and contract costs                2,250*
    SFS Employee Stock Ownership Plan Termination                       1,600*
   SFS Pension Plan Termination                                        1,300
   Data processing Conversion and contract termination                   125
                                                                     -------
                                                                       7,500
   Tax benefit                                                         1,100
                                                                     -------
              Total estimated non-recurring charges                  $ 6,400
                                                                     =======
----------                                                      
        *   Amount not tax  effected  as it is not  deductible  for  federal and
state income tax purposes.                              

(6) Reflects the adjustments set forth in Note (5) above, plus  reclassification
    necessary  to  reflect  the  exchange  of each  share  of SFS  Common  Stock
    previously  held for 2.65 shares of the Holding  Company Common Stock with a
    par value of $0.01 (assuming no additional  exercises of options to acquired
    SFS  Common  Stock) and the  retirement  of SFS  shares  previously  held in
treasury.                                                               

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 Pro Forma Unaudited Consolidated Statements of Income
 (Dollars in thousands, except per share data)

                                            Year ended June 30, 1998
                                           -----------------------------------
                                          Cohoes                   Pro Forma
                                           Savings        SFS     Consolidated
                                           -------        ---     ------------
Interest income .........................   $38,423      $12,712      $51,135   
Interest expense ........................    19,262        6,895       26,157   
                                         -------      -------      -------
Net interest income before                                                      
provision for losses on loans ..........    19,161        5,817       24,978  

Provision for losses on loans ...........     1,400          120        1,520   
                                         -------      -------      -------
Net interest income after                                                   
provision for losses on loans ........    17,761        5,697       23,458
Noninterest income ......................     2,743          481        3,224   
Noninterest expense .....................    13,767        4,269       18,036   
                                         -------      -------      -------
Income before income taxes ...........     6,737        1,909        8,646
Income taxes ............................     2,650          767        3,417   
                                         -------      -------      -------
Net income ...........................   $ 4,087      $ 1,142      $ 5,229
                                         =======      =======      =======
Diluted earnings per share(1) ...........       N/A      $  0.32      $  0.44   
Basic earnings per share(2) .............       N/A      $  0.32      $  0.44   

                                        Year ended June 30, 1997
                                           -----------------------------------
                                          Cohoes                   Pro Forma
                                           Savings        SFS     Consolidated
                                           -------       -----    ------------
Interest income .........................   $36,285      $11,970      $48,255   
Interest expense ........................    17,821        6,282       24,103   
                                         -------      -------      -------
Net interest income before                                                      
provision for losses on loans ..........    18,464        5,688       24,152  

Provision for losses on loans ...........     1,325          120        1,445   
                                         -------      -------      -------
Net interest income after                                                     
provision for losses on loans .........    17,139        5,568       22,707 
Noninterest income ......................     2,790          378        3,168   
Noninterest expense .....................    12,314        5,164       17,478   
                                         -------      -------      -------
Income before income taxes ...........     7,615          782        8,397
Income taxes ............................     2,972           42        3,014   
                                         -------      -------      -------
Net income ...........................   $ 4,643      $   740      $ 5,383
                                         =======      =======      =======
Diluted earnings per share(1) ...........       N/A      $  0.24      $  0.47   
Basic earnings per share(2) .............       N/A      $  0.25      $  0.48   

                                                   (Footnotes on following page)

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 Pro Forma Unaudited Consolidated Statements of Income
 (Dollars in thousands, except per share data)

                                            Year ended June 30, 1996
                                              ----------------------------------

                                              Cohoes                 Pro Forma
                                             Savings      SFS   Consolidated
                                             -------      ---   ------------
Interest income .........................      $35,383    $12,033      $47,416  
Interest expense ........................       18,164      6,328       24,492  
                                             -------    -------      -------
Net interest income before                                                      
provision for losses on loans ..........       17,219      5,705       22,924 

Provision for losses on loans ...........          490        270          760  
                                             -------    -------      -------
Net interest income after                                                 
  provision for losses on loans .......       16,729      5,435       22,164
Noninterest income ......................        2,467        277        2,744  
Noninterest expense .....................       11,919      4,217       16,136  
                                             -------    -------      -------
 Income before income taxes ...........        7,277      1,495        8,772
Income taxes ............................        2,882        354        3,236  
                                             -------    -------      -------
 Net income ...........................      $ 4,395    $ 1,141      $ 5,536
                                             =======    =======      =======
Diluted earnings per share ..............          N/A    $  0.37      $  0.49  
Basic earnings per share ................          N/A    $  0.39      $  0.50  

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

(1) Historical weighted average number of shares outstanding as adjusted for the
2.65:1 Exchange Ratio used in the calculation of EPS as follows:        

                                                        [Enlarge/Download Table]

             Historical SFS Weighted  Historical SFS Weighted  Adjusted SFS Weighted  Adjusted SFS Weighted
                 Average Shares           Average Shares          Average Shares         Average Shares    
Year Ending      Outstanding -            Outstanding -           Outstanding -          Outstanding -     
 June 30,          Basic EPS               Diluted EPS              Basic EPS             Diluted EPS      
 --------          ---------               -----------              ---------             -----------      
                                                                                                           
   1998            1,344,537                1,344,537               3,563,023             3,563,023        
   1997            1,131,357                1,155,732               2,998,096             3,062,690        
   1996            1,091,033                1,151,519               2,891,237             3,051,525        

(2) The weighted  average  number of shares  outstanding  used to calculate  pro
forma consolidated EPS are as follows:                                  

                    Pro Forma Weighted            Pro Forma Weighted
Year Ending           Average Shares                 Average Shares 
       June 30,        Outstanding - Basic EPS         Outstanding - Diluted EPS
       --------        -----------------------         -------------------------

1998                 11,854,523                     11,854,523
1997                 11,289,596                     11,354,189
1996                 11,182,737                     11,343,025

    The  number of shares in this  table has been  computed  by  increasing  the
    weighted average number of SFS shares  outstanding,  adjusted for the 2.65:1
    Exchange  Ratio,  as shown in footnote (1) above,  by  8,050,000  Conversion
Shares and 241,500 shares issued to the Foundation.                     

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Additional Pro Forma Data                                                       

         The following  tables provide  unaudited pro forma data with respect to
the Holding  Company's  stockholders'  equity,  net income and related per share
amounts based upon the minimum,  midpoint,  maximum and 15% above the maximum of
the Estimated  Valuation Range both with the Merger and without the Merger.  The
actual net proceeds from the sale of the Conversion  Shares cannot be determined
until the Conversion is completed. However, net proceeds are currently estimated
to be between $57.9 million and $78.7 million (or $90.6 million in the event the
Estimated  Valuation  Range  is  increased  by 15%)  based  upon  the  following
assumptions:  (i)  all  Conversion  Shares  will  be  sold  in the  Subscription
Offering;  (ii) KBW will receive a fee equal to 1.20% of the aggregate  purchase
price for sales in the  Subscription  Offering  (excluding the sale of shares to
the ESOP,  employee  benefit  plans,  officers,  directors  and their  immediate
families and the  Foundation);  (iii) the Holding Company will contribute to the
Foundation  a number of shares  equal to 3.0% of the shares of  Holding  Company
Common Stock issued in the Conversion from authorized but unissued  shares;  and
(iv) total expenses, including the marketing fees paid to KBW, of the Conversion
will be between  $1.6 million and $1.8 million (or $2.0 million in the event the
Estimated  Valuation  Range is increased by 15%).  Actual expenses may vary from
those estimated.  It is also assumed that Conversion Shares had been sold at the
beginning of the period and the net proceeds from the Offering had been invested
at 5.37% which  represents the yield on one-year U.S.  Government  securities at
June 30, 1998. The yield on one-year U.S. Government  securities was used rather
than the  arithmetic  average  of the  average  yield on total  interest-earning
assets and the  average  rate paid on  deposits,  because the yields on one-year
U.S. Government securities are believed to be more reflective of market interest
rates.  The effect of  withdrawals  from  deposit  accounts  at the Bank for the
purchase of Conversion Shares in the Offering has not been reflected. A combined
effective  federal and state  income tax rate of 40.0% has been  assumed for the
period,  resulting  in an  after-tax  yield of 3.22% for the year ended June 30,
1998.                                                                           

         The following pro forma  unaudited  information  is based,  in part, on
historical information related to the Holding Company and SFS and assumptions as
to future events. For these and other reasons, the pro forma unaudited financial
data may not be  representative  of the financial  effects of the Conversion and
the Merger at the dates on which such transactions actually occur and should not
be taken as indicative of future results of operations.  Pro forma stockholders'
equity  represents  the  difference  between  the  stated  amount of assets  and
liabilities of the Holding Company computed in accordance with GAAP.            

         The following  tables give effect to the issuance of a number of shares
equal to 3.0% of the Common Stock of the Holding  Company sold in the Conversion
from  authorized  but unissued  shares to the Foundation  concurrently  with the
completion of the Conversion.  The Pro Forma Data With Merger give effect to the
issuance of  3,202,451  Exchange  Shares in the Merger and, as  indicated in the
footnotes,  certain one-time expenses expected to be incurred as a result of the
Merger. The pro forma stockholders' equity is not intended to represent the fair
market  value of the Holding  Company  Common  Stock and may be  different  than
amounts that would be available for distribution to stockholders in the event of
liquidation.                                                                    

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PRO FORMA DATA WITH MERGER

                                                        [Enlarge/Download Table]

                                                                         At or For the Year Ended June 30, 1998              
                                                      -----------------------------------------------------------------------
                                                         5,950,000        7,000,000         8,050,000          9,257,500     
                                                        Conversion       Conversion        Conversion          Conversion    
                                                      Shares Sold at   Shares Sold at    Shares Sold at      Shares Sold at  
                                                        $10.00 Per       $10.00 Per        $10.00 Per      $10.00 Per Share  
                                                      Share (Minimum   Share (Midpoint   Share (Maximum       (15% above     
                                                         of Range)        of Range)         of Range)      Maximum of Range) 
                                                         ---------        ---------         ---------      ----------------- 
                                                                    (Dollars in Thousands, Except Per Share Amounts)         
                                                                                                                             
Gross proceeds ......................................    $  59,500         $  70,000         $  80,500         $  92,575     
Plus: Shares acquired by Foundation .................        1,785             2,100             2,415             2,777     
                                                         ---------         ---------         ---------         ---------     
     Pro forma market capitalization ................    $  61,285         $  72,100         $  82,915         $  95,352     
                                                         =========         =========         =========         =========     
Gross proceeds ......................................    $  59,500         $  70,000         $  80,500         $  92,575     
Less offering expenses and commissions ..............        1,595             1,711             1,826             1,959     
                                                         ---------         ---------         ---------         ---------     
     Estimated net proceeds .........................    $  57,905         $  68,289         $  78,674         $  90,616     
Less: Shares purchased by the ESOP ..................       (4,903)           (5,768)           (6,633)           (7,628)    
     Shares purchased by the RRP ....................       (2,451)           (2,884)           (3,317)           (3,814)    
     One-time cash Merger-related expenses(1) .......       (6,400)           (6,400)           (6,400)           (6,400)    
                                                         ---------         ---------         ---------         ---------     
Total estimated net proceeds, as adjusted(1) ........    $  44,151         $  53,237         $  62,324         $  72,774     
                                                         =========         =========         =========         =========     
Net income(2):                                                                                                               
     Historical combined ............................    $   5,229         $   5,229         $   5,229         $   5,229     
     Pro forma income on net proceeds,                                                                                       
       as adjusted ..................................        1,423             1,715             2,008             2,345     
     Pro forma ESOP adjustment(3) ...................         (196)             (231)             (265)             (305)    
     Pro forma RRP adjustment(4) ....................         (294)             (346)             (398)             (458)    
                                                         ---------         ---------         ---------         ---------     
     Pro forma net income ...........................    $   6,162         $   6,367         $   6,574         $   6,811     
                                                         =========         =========         =========         =========     
Diluted net income per share(2)(5):                                                                                          
     Historical Combined ............................    $    0.58         $    0.52         $    0.48         $    0.43     
     Pro forma income on net proceeds,                                                                                       
       as adjusted ..................................         0.16              0.17              0.18              0.19     
     Pro forma ESOP adjustment(3) ...................        (0.02)            (0.02)            (0.02)            (0.03)    
     Pro forma RRP adjustment(4) ....................        (0.03)            (0.03)            (0.04)            (0.04)    
                                                         ---------         ---------         ---------         ---------     
     Pro forma diluted net income                                                                                            
       per share(4)(6) ..............................    $    0.69         $    0.64         $    0.60         $    0.55     
                                                         =========         =========         =========         =========     
Offering price to pro forma diluted net                                                                                      
 income per share(5) ................................        14.49x            15.63x            16.67x            18.18x    
                                                         =========         =========         =========         =========     
Stockholders' equity:                                                                                                        
     Historical Combined ............................    $  75,197         $  75,197         $  75,197         $  75,197     
     Estimated net proceeds .........................       57,905            68,289            78,674            90,616     
     Plus:  Shares issued to Foundation .............        1,785             2,100             2,415             2,777     
     Less:  Contribution to Foundation ..............       (1,785)           (2,100)           (2,415)           (2,777)    
     Plus:  Tax benefit of contribution                                                                                      
             to Foundation ..........................          714               840               966             1,111     
     Less:  Merger-related non-recurring                                                                                     
            expenses, net of tax(1) .................       (4,800)           (4,800)           (4,800)           (4,800)    
     Less:  Common stock acquired by                                                                                         
            the ESOP(3) .............................       (4,903)           (5,768)           (6,633)           (7,628)    
               Common stock to be acquired                                                                                   
                 by the RRP(4) ......................       (2,451)           (2,884)           (3,317)           (3,814)    
                                                         ---------         ---------         ---------         ---------     
     Pro forma stockholders' equity(4)(6)(7) ........    $ 121,662         $ 130,874         $ 140,087         $ 150,682     
                                                         =========         =========         =========         =========     
Stockholders' equity per share(5):                                                                                           
     Historical Combined ............................    $    8.06         $    7.22         $    6.54         $    5.90     
     Estimated net proceeds .........................         6.21              6.56              6.84              7.11     
     Plus:  Shares issued to Foundation .............         0.19              0.20              0.21              0.22     
     Less:  Contribution to Foundation ..............        (0.19)            (0.20)            (0.21)            (0.22)    
     Plus:  Tax benefit of contribution                                                                                      
              to Foundation .........................         0.08              0.08              0.08              0.09     
     Less:  Merger-related non-recurring                                                                                     
              expenses, net of tax(1) ...............        (0.51)            (0.46)            (0.42)            (0.38)    
     Less:  Common stock acquired by the                                                                                     
              ESOP(3) ...............................        (0.53)            (0.55)            (0.58)            (0.60)    
               Common stock to be acquired                                                                                   
                 by the RRP(4) ......................        (0.26)            (0.28)            (0.29)            (0.30)    
                                                         ---------         ---------         ---------         ---------     
     Pro forma stockholders' equity per                                                                                      
       share(4)(6)(7) ...............................    $   13.05         $   12.57         $   12.17         $   11.82     
                                                         =========         =========         =========         =========     
Purchase price as a percentage of pro forma                                                                                  
  stockholders' equity per share(5) .................        76.63%            79.55%            82.17%            84.60%    
                                                         =========         =========         =========         =========     

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

(1) Estimated net proceeds,  as adjusted,  consist of the estimated net proceeds
    from the Offering minus (i) the proceeds attributable to the purchase by the
    ESOP;  and (ii) the value of the shares to be purchased by the RRP,  subject
    to stockholder  approval,  after the Conversion at an assumed purchase price
    of $10.00 per share; and (iii) certain one-time Merger-related cash expenses
    expected to be paid concurrently with consummation of the Conversion and the
    Merger. For the purposes of this presentation,  one-time cash Merger-related
    expenses  of $7.5  million  (pre-tax)  which  are  expected  to be paid upon
    consummation of the Conversion and the Merger are reflected as an adjustment
    to net  proceeds  for purposes of the pro forma net income and pro forma net
    income per share information. For purposes of pro forma stockholders' equity
    and pro forma stockholders' equity per share, $4.8 million of Merger-related
non-recurring expenses, net of tax are deducted.                        

(2) Does not give effect to the non-recurring expense that will be recognized in
    1998 as a result of the establishment of the Foundation. The Holding Company
    will recognize an after-tax  expense for the amount of the  contribution  to
    the  Foundation  which is expected to be $1.1 million,  $1.3  million,  $1.4
    million and $1.7 million at the minimum,  midpoint,  maximum and maximum, as
    adjusted.  Assuming the  contribution  to the Foundation was expensed during
    the year ended June 30, 1998, pro forma net earnings  (loss) per share would
    be $0.57,  $0.51,  $0.47 and $0,42,  at the minimum,  midpoint,  maximum and
    maximum,  as adjusted,  respectively.  Per share net income data is based on
    8,982,199,  9,980,063,  10,977,927 and 12,125,471  shares  outstanding which
    represents Conversion Shares sold in the Offering, shares contributed to the
    Foundation,  Exchange Shares issued in the Merger and shares to be allocated
    or   distributed   under  the  ESOP  and  RRP  for  the  period   presented.
    Additionally,  SFS stock  options are  incorporated  into earnings per share
calculations based on the treasury method.                              

                                              (Footnotes continued on next page)

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(3) It is assumed that 8.0% of the  Conversion  Shares sold in the Offering will
    be  purchased  by the ESOP with funds  loaned by the  Holding  Company.  The
    Holding Company and the Bank intend to make annual contributions to the ESOP
    in an amount at least equal to the principal and interest requirement of the
    debt.  The pro forma net  earnings  assumes (i) that the loan to the ESOP is
    payable over 15 years,  with the ESOP shares having an average fair value of
    $10.00  per  share  in  accordance  with  SOP  93-6,  entitled   "Employers'
    Accounting for Employee Stock Ownership  Plans," of the AICPA,  and (ii) the
    effective  tax rate was 40.0% for the period.  See  "Management - Benefits -
Employee Stock Ownership Plan."                                         

(4) It is assumed that the RRP will purchase,  following stockholder approval of
    such plan, a number of shares of Holding  Company Common Stock equal to 4.0%
    of the Conversion Shares for issuance to directors,  officers and employees.
    Funds used by the RRP to purchase the shares  initially  will be contributed
    to the RRP by the Holding  Company.  It is further  assumed  that the shares
    were  acquired by the RRP at the  beginning of the period  presented in open
    market  purchases  at the  purchase  price  and  that  20.0%  of the  amount
    contributed,  net of taxes,  was an amortized  expense during the year ended
    June 30, 1998.  The issuance of  authorized  but unissued  shares of Holding
    Company  Common  Stock  pursuant  to the  RRP in the  amount  of 4.0% of the
    Conversion  Shares sold in the Offering would dilute the voting interests of
    existing stockholders by approximately 3.0% and under such circumstances pro
    forma net  earnings  per share for the year  ended  June 30,  1998  would be
    $0.68,  $0.63,  $0.59 and $0.55, at the minimum,  midpoint,  maximum and 15%
    above the maximum of the Estimated  Valuation Range,  respectively,  and pro
    forma  stockholders'  equity  per share at June 30,  1998  would be  $12.96,
    $12.50,  $12.13 and $11.78 at the minimum,  midpoint,  maximum and 15% above
    the maximum of such range, respectively.  There can be no assurance that the
    actual  purchase  price of shares  purchased by or issued to the RRP will be
    equal to the purchase  price.  See  "Management - Benefits - Recognition and
Retention Plan."                                                        

(5) The diluted per share  calculations  are  determined by adding the number of
    Conversion  Shares assumed to be issued in the  Conversion,  Exchange Shares
    issued in the Merger as well as shares of Holding Company Common Stock to be
    contributed to the Foundation and, for purposes of calculating  earnings per
    share, in accordance  with SOP 93-6,  subtracting  473,937  shares,  557,573
    shares, 641,209 shares, and 737,391 shares,  respectively,  representing the
    ESOP shares which have not been  committed for release during the year ended
    June 30, 1998.  The  calculation of ESOP shares  released  assumes that such
    shares  are  earned  and  released  ratably  over the year,  using a 15-year
    amortization period.  Additionally,  SFS stock options are incorporated into
    earnings per share  calculations  based on the treasury method.  Thus, it is
    assumed  at  June  30,  1998  that  8,982,199,   9,980,063,  10,977,927  and
    12,125,471  shares of Holding  Company  Common Stock are  outstanding at the
    minimum,  midpoint,  maximum  and 15% above  the  maximum  of the  Estimated
    Valuation Range, respectively. Assuming the uncommitted ESOP shares were not
    subtracted  from the  number of  shares  of  Holding  Company  Common  Stock
    outstanding  at June 30, 1998, the offering price as a multiple of pro forma
    net  earnings  per share would be 15.35x,  16.55x,  17.67x and 18.89x at the
    minimum,  midpoint,  maximum  and 15% above  the  maximum  of the  Estimated
    Valuation  Range,  respectively.  For  purposes  of  calculating  pro  forma
    stockholders'  equity per share, it is assumed that shares outstanding total
    9,330,951,  10,412,451,  11,493,951  and  12,737,676  shares at the minimum,
    midpoint,  maximum  and 15% above the  maximum  of the  Estimated  Valuation
Range.                                                                  

(6) No effect has been given to the  issuance  of  additional  shares of Holding
    Company Common Stock pursuant to the Stock Option and Incentive Plan,  which
    will  be  adopted  by the  Holding  Company  following  the  Conversion  and
    presented for approval by  stockholders  at an annual or special  meeting of
    stockholders  of the  Holding  Company  held  no  earlier  than  six  months
    following the consummation of the Conversion. If the Option Plan is approved
    by the stockholders, an amount equal to 10% of the Conversion Shares sold in
    the  Offering,  including  shares  issued  to the  Foundation,  or  612,850,
    721,000,  829,150 and 953,522 shares at the minimum,  midpoint,  maximum and
    15% above the maximum of the Estimated Valuation Range,  respectively,  will
    be reserved for future  issuance  upon the exercise of options to be granted
    under the Option Plan. The issuance of Holding Company Common Stock pursuant
    to the exercise of options under the Option Plan will result in the dilution
    of existing  stockholders'  interests.  Assuming stockholder approval of the
    Option Plan,  that all these options were  exercised at the beginning of the
    period at an exercise  price of $10.00 per share and that the shares to fund
    the RRP are acquired  thorough open market  purchases at the purchase price,
    pro forma  diluted net  earnings  per share for the year ended June 30, 1998
    would be $0.66, $0.62, $0.58 and $0.54 at the minimum, midpoint, maximum and
    15% above the maximum of the Estimated  Valuation Range,  respectively,  and
    pro forma  stockholders'  equity per share at June 30, 1998 would be $12.85,
    $12.40,  $12.04 and $11.70 at the minimum,  midpoint,  maximum and 15% above
    the maximum of such range, respectively.  See "Management - Benefits - Stock
Option and Incentive Plan."                                             

(7) The retained earnings of the Bank will be substantially restricted after the
    Conversion  by  virtue  of the  liquidation  account  to be  established  in
    connection  with the Conversion.  See "Dividend  Policy" and "The Conversion
    and the  Merger - Effects  of the  Conversion  and the  Merger - Effects  on
    Liquidation  Rights." In  addition,  certain  distributions  from the Bank's
    retained  earnings  may be treated as begin  from its  accumulated  bad debt
    reserve for tax  purposes,  which  would  cause the Bank to have  additional
    taxable income. See "Taxation - Federal  Taxation." Pro forma  stockholders'
    equity  and pro forma  stockholders'  equity per share (i)  reflect  certain
    nonrecurring  charges,  net of tax (see  Note 5 to the Pro  Forma  Unaudited
    Consolidated  Statement of Financial  Condition) and (ii) do not give effect
    to the liquidation account or the bad debt reserves  established by the Bank
  for federal income tax purposes in the event of a liquidation of the Bank.

(8) As adjusted  to give  effect to an  increase  in the number of shares  which
    could occur due to an increase in the Estimated Valuation Range of up to 15%
    to  reflect  changes  in  market  and  financial  conditions  following  the
commencement of the Offering.                                           

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 PRO FORMA DATA WITHOUT MERGER

                                                        [Enlarge/Download Table]

                                                                  At or For the Year Ended June 30, 1998                  
                                                   -----------------------------------------------------------------------
                                                       5,950,000        7,000,000         8,050,000         9,257,500     
                                                      Conversion       Conversion        Conversion        Conversion     
                                                    Shares Sold at   Shares Sold at    Shares Sold at    Shares Sold at   
                                                      $10.00 Per       $10.00 Per        $10.00 Per     $10.00 Per Share  
                                                    Share (Minimum   Share (Midpoint   Share (Maximum      (15% above     
                                                       of Range)        of Range)         of Range)     Maximum of Range) 
                                                       ---------        ---------         ---------     ----------------- 
                                                                (Dollars in Thousands, Except Per Share Amounts)          
                                                                                                                          
Gross proceeds ...................................    $  59,500         $  70,000         $  80,500         $  92,575     
Plus: Shares acquired by Foundation ..............        1,785             2,100             2,415             2,777     
                                                      ---------         ---------         ---------         ---------     
     Pro forma market capitalization .............    $  61,285         $  72,100         $  82,915         $  95,352     
                                                      =========         =========         =========         =========     
Gross proceeds ...................................    $  59,500         $  70,000         $  80,500         $  92,575     
Less offering expenses and commissions ...........        1,595             1,711             1,826             1,959     
                                                      ---------         ---------         ---------         ---------     
     Estimated net proceeds ......................    $  57,905         $  68,289         $  78,674         $  90,616     
Less: Shares purchased by the ESOP ...............       (4,903)           (5,768)           (6,633)           (7,628)    
     Shares purchased by the RRP .................       (2,451)           (2,884)           (3,317)           (3,814)    
                                                      ---------         ---------         ---------         ---------     
Total estimated net proceeds,                                                                                             
  as adjusted(1) .................................    $  50,551         $  59,637         $  68,724         $  79,174     
                                                      =========         =========         =========         =========     
Net income(2):                                                                                                            
     Historical combined .........................    $   4,087         $   4,087         $   4,087         $   4,087     
     Pro forma income on net proceeds,                                                                                    
      as adjusted ................................        1,629             1,922             2,214             2,551     
     Pro forma ESOP adjustment(3) ................         (196)             (231)             (265)             (305)    
     Pro forma RRP adjustment(4) .................         (294)             (346)             (398)             (458)    
                                                      ---------         ---------         ---------         ---------     
     Pro forma net income ........................    $   5,226         $   5,432         $   5,638         $   5,875     
                                                      =========         =========         =========         =========     
Diluted net income per share(2)(5):                                                                                       
     Historical Combined .........................    $    0.72         $    0.61         $    0.53         $    0.46     
     Pro forma income on net proceeds,                                                                                    
      as adjusted ................................         0.29              0.29              0.29              0.29     
     Pro forma ESOP adjustment(3) ................        (0.03)            (0.03)            (0.03)            (0.03)    
     Pro forma RRP adjustment(4) .................        (0.05)            (0.05)            (0.05)            (0.05)    
                                                      ---------         ---------         ---------         ---------     
     Pro forma diluted net income                                                                                         
       per share(4)(6) ...........................    $    0.93         $    0.82         $    0.74         $    0.67     
                                                      =========         =========         =========         =========     
Offering price to pro forma diluted                                                                                       
  net income per share(5) ........................        10.75x            12.20x            13.51x            14.93x    
                                                      =========         =========         =========         =========     
Stockholders' equity:                                                                                                     
     Historical Combined .........................    $  53,282         $  53,282         $  53,282         $  53,282     
     Estimated net proceeds ......................       57,905            68,289            78,674            90,616     
     Plus:  Shares issued to Foundation ..........        1,785             2,100             2,415             2,777     
     Less:  Contribution to Foundation ...........       (1,785)           (2,100)           (2,415)           (2,777)    
     Plus:  Tax benefit of contribution                                                                                   
             to Foundation .......................          714               840               966             1,111     
     Less:  Common stock acquired by                                                                                      
              the ESOP(3) ........................       (4,903)           (5,768)           (6,633)           (7,628)    
            Common stock to be acquired                                                                                   
              by the RRP(4) ......................       (2,451)           (2,884)           (3,317)           (3,814)    
                                                      ---------         ---------         ---------         ---------     
     Pro forma stockholders' equity(4)(6)(7) .....    $ 104,547         $ 113,759         $ 122,972         $ 133,567     
                                                      =========         =========         =========         =========     
Stockholders' equity per share(5):                                                                                        
     Historical Combined .........................    $    8.69         $    7.39         $    6.43         $    5.59     
     Estimated net proceeds ......................         9.45              9.47              9.49              9.50     
     Plus:  Shares issued to Foundation ..........         0.29              0.29              0.29              0.29     
     Less:  Contribution to Foundation ...........        (0.29)            (0.29)            (0.29)            (0.29)    
     Plus:  Tax benefit of contribution                                                                                   
              to Foundation ......................         0.12              0.12              0.12              0.12     
     Less:  Common stock acquired by                                                                                      
              the ESOP(3) ........................        (0.80)            (0.80)            (0.80)            (0.80)    
            Common stock to be acquired                                                                                   
              by the RRP(4) ......................        (0.40)            (0.40)            (0.40)            (0.40)    
                                                      ---------         ---------         ---------         ---------     
     Pro forma stockholders' equity                                                                                       
       per share(4)(6)(7) ........................    $   17.06         $   15.78         $   14.84         $   14.01     
                                                      =========         =========         =========         =========     
Purchase price as a percentage of pro forma                                                                               
  stockholders' equity per share(5) ..............        58.62%            63.37%            67.39%            71.38%    
                                                      =========         =========         =========         =========     

----------                                                                      

(1) Estimated net proceeds,  as adjusted,  consist of the estimated net proceeds
    from the Offering minus (i) the proceeds attributable to the purchase by the
    ESOP;  and (ii) the value of the shares to be purchased by the RRP,  subject
    to stockholder  approval,  after the Conversion at an assumed purchase price
of $10.00 per share.                                                    

(2) Does not give effect to the non-recurring expense that will be recognized in
    1998 as a result of the establishment of the Foundation. The Holding Company
    will recognize an after-tax  expense for the amount of the  contribution  to
    the  Foundation  which is expected to be $1.1 million,  $1.3  million,  $1.4
    million and $1.7 million at the minimum,  midpoint,  maximum and maximum, as
    adjusted.  Assuming the  contribution  to the Foundation was expensed during
    the year ended June 30, 1998, pro forma net earnings  (loss) per share would
    be $0.73,  $0.63,  $0.55 and $0,48,  at the minimum,  midpoint,  maximum and
    maximum,  as adjusted,  respectively.  Per share net income data is based on
    5,654,563,  6,652,427,  7,650,291 and  8,797,834  shares  outstanding  which
    represents Conversion Shares sold in the Offering, shares contributed to the
    Foundation and shares to be allocated or distributed  under the ESOP and RRP
for the period presented.                                               

                                              (Footnotes continued on next page)

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(3) It is assumed that 8.0% of the  Conversion  Shares sold in the Offering will
    be  purchased  by the ESOP with funds  loaned by the  Holding  Company.  The
    Holding Company and the Bank intend to make annual contributions to the ESOP
    in an amount at least equal to the principal and interest requirement of the
    debt.  The pro forma net  earnings  assumes (i) that the loan to the ESOP is
    payable over 15 years,  with the ESOP shares having an average fair value of
    $10.00  per  share  in  accordance  with  SOP  93-6,  entitled   "Employers'
    Accounting for Employee Stock Ownership  Plans," of the AICPA,  and (ii) the
    effective  tax rate was 40.0% for the period.  See  "Management - Benefits -
Employee Stock Ownership Plan."                                         

(4) It is assumed that the RRP will purchase,  following stockholder approval of
    such plan, a number of shares of Holding  Company Common Stock equal to 4.0%
    of the Conversion Shares for issuance to directors,  officers and employees.
    Funds used by the RRP to purchase the shares  initially  will be contributed
    to the RRP by the Holding  Company.  It is further  assumed  that the shares
    were  acquired by the RRP at the  beginning of the period  presented in open
    market  purchases  at the  purchase  price  and  that  20.0%  of the  amount
    contributed,  net of taxes,  was an amortized  expense during the year ended
    June 30, 1998.  The issuance of  authorized  but unissued  shares of Holding
    Company  Common  Stock  pursuant  to the  RRP in the  amount  of 4.0% of the
    Conversion  Shares sold in the Offering would dilute the voting interests of
    existing stockholders by approximately 3.0% and under such circumstances pro
    forma net  earnings  per share for the year  ended  June 30,  1998  would be
    $0.90,  $0.80,  $0.72 and $0.65, at the minimum,  midpoint,  maximum and 15%
    above the maximum of the Estimated  Valuation Range,  respectively,  and pro
    forma  stockholders'  equity  per share at June 30,  1998  would be  $16.79,
    $15.56,  $14.15 and $13.85 at the minimum,  midpoint,  maximum and 15% above
    the maximum of such range, respectively.  There can be no assurance that the
    actual  purchase  price of shares  purchased by or issued to the RRP will be
    equal to the purchase  price.  See  "Management - Benefits - Recognition and
Retention Plan."                                                        

(5) The diluted per share  calculations  are  determined by adding the number of
    Conversion Shares assumed to be issued in the Conversion,  as well as shares
    of Holding Company Common Stock to be contributed to the Foundation and, for
    purposes of  calculating  earnings per share,  in accordance  with SOP 93-6,
    subtracting  473,937  shares,  557,573 shares,  641,209 shares,  and 737,391
    shares,  respectively,  representing  the ESOP  shares  which  have not been
    committed for release during the year ended June 30, 1998.  The  calculation
    of ESOP shares  released  assumes  that such shares are earned and  released
    ratably over the year,  using a 15-year  amortization  period.  Thus,  it is
    assumed at June 30, 1998 that 5,654,563, 6,652,427, 7,650,291 and 8,797,8341
    shares of Holding  Company  Common  Stock are  outstanding  at the  minimum,
    midpoint,  maximum  and 15% above the  maximum  of the  Estimated  Valuation
    Range,   respectively.   Assuming  the  uncommitted  ESOP  shares  were  not
    subtracted  from the  number of  shares  of  Holding  Company  Common  Stock
    outstanding  at June 30, 1998, the offering price as a multiple of pro forma
    net  earnings  per share would be 11.73x,  13.27x,  14.71x and 16.23x at the
    minimum,  midpoint,  maximum  and 15% above  the  maximum  of the  Estimated
    Valuation  Range,  respectively.  For  purposes  of  calculating  pro  forma
    stockholders'  equity per share, it is assumed that shares outstanding total
    6,128,500,  7,210,000,  8,291,500  and  9,535,225  shares  at  the  minimum,
    midpoint,  maximum  and 15% above the  maximum  of the  Estimated  Valuation
Range.                                                                  

(6) No effect has been given to the  issuance  of  additional  shares of Holding
    Company Common Stock pursuant to the Stock Option and Incentive Plan,  which
    will  be  adopted  by the  Holding  Company  following  the  Conversion  and
    presented for approval by  stockholders  at an annual or special  meeting of
    stockholders  of the  Holding  Company  held  no  earlier  than  six  months
    following  the  consummation  of the  Conversion.  If the Stock  Option  and
    Incentive  Plan is approved by the  stockholders,  an amount equal to 10% of
    the Conversion  Shares sold in the Offering,  including shares issued to the
    Foundation,  or 612,850, 721,000, 829,150 and 953,522 shares at the minimum,
    midpoint,  maximum  and 15% above the  maximum  of the  Estimated  Valuation
    Range, respectively,  will be reserved for future issuance upon the exercise
    of options to be granted  under the Stock  Option and  Incentive  Plan.  The
    issuance of Holding Company Common Stock pursuant to the exercise of options
    under the Stock  Option and  Incentive  Plan will result in the  dilution of
    existing stockholders' interests. Assuming stockholder approval of the Stock
    Option and  Incentive  Plan,  that all these  options were  exercised at the
    beginning  of the period at an  exercise  price of $10.00 per share and that
    the shares to fund the RRP are acquired  thorough  open market  purchases at
    the purchase  price,  pro forma  diluted net earnings per share for the year
    ended June 30, 1998 would be $0.87,  $0.77,  $0.70 and $0.63 at the minimum,
    midpoint,  maximum  and 15% above the  maximum  of the  Estimated  Valuation
    Range,  respectively,  and pro forma stockholders'  equity per share at June
    30,  1998  would be  $16.42,  $15.25,  $14.39  and  $13.64  at the  minimum,
    midpoint, maximum and 15% above the maximum of such range, respectively. See
"Management - Benefits - Stock Option and Incentive Plan."              

(7) The retained earnings of the Bank will be substantially restricted after the
    Conversion  by  virtue  of the  liquidation  account  to be  established  in
    connection  with the Conversion.  See "Dividend  Policy" and "The Conversion
    and the  Merger - Effects  of the  Conversion  and the  Merger - Effects  on
    Liquidation  Rights." In  addition,  certain  distributions  from the Bank's
    retained  earnings  may be treated as begin  from its  accumulated  bad debt
    reserve for tax  purposes,  which  would  cause the Bank to have  additional
    taxable income. See "Taxation - Federal  Taxation." Pro forma  stockholders'
    equity  and pro forma  stockholders'  equity per share (i)  reflect  certain
    nonrecurring  charges,  net of tax (see  Note 5 to the Pro  Forma  Unaudited
    Consolidated  Statement of Financial  Condition) and (ii) do not give effect
    to the liquidation account or the bad debt reserves  established by the Bank
  for federal income tax purposes in the event of a liquidation of the Bank.

(8) As adjusted  to give  effect to an  increase  in the number of shares  which
    could occur due to an increase in the Estimated Valuation Range of up to 15%
    to  reflect  changes  in  market  and  financial  conditions  following  the
commencement of the Offering.                                           

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COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH
 NO FOUNDATION BUT WITH MERGER

         In the event that the Foundation were not being  established as part of
the Conversion and the Merger was consummated  immediately after the Conversion,
RP Financial has estimated that the pro forma aggregate market capitalization of
the Holding Company would be approximately $117.1 million at the maximum,  which
is  approximately  $2.2  million  greater  than the pro forma  aggregate  market
capitalization  of the Holding Company if the Foundation is included,  and would
result in an  approximately  $4.6  million  increase  in the  amount of  Holding
Company Common Stock offered for sale in the Conversion.  The pro forma price to
book ratio and pro forma price to earnings ratio would be approximately the same
under both the current  appraisal  and the  estimate of the value of the Holding
Company without the Foundation.  Further,  assuming the maximum of the Estimated
Valuation Range, pro forma stockholders' equity per share and pro forma earnings
per share would be  substantially  the same at $12.17 and $12.25,  respectively,
and $0.60 and $0.60 respectively, with the Foundation or without the Foundation.
The pro forma price to book ratio and the pro forma price to earnings  ratio are
substantially  the same with and without the Foundation at the maximum at 82.17%
and  81.63%,  respectively,  and 16.67x and  16.67x,  respectively.  There is no
assurance  that in the event the  Foundation  was not formed that the  appraisal
prepared at the time would have concluded that the pro forma market value of the
Holding  Company  would be the same as that  estimated  herein.  Any  appraisals
prepared at that time would be based on the facts and circumstances  existing at
the time, including, among other things, market and economic conditions.        

         For  comparative  purposes  only,  set forth below are certain  pricing
ratios and  financial  data and ratios,  at the minimum,  midpoint,  maximum and
maximum, as adjusted,  of the Estimated Valuation Range, assuming the Conversion
and the Merger were completed at June 30, 1998.                                 

                                                        [Enlarge/Download Table]

                                                                                                             At the Maximum    
                                At the Minimum           At the Midpoint            At the Maximum            As Adjusted      
                             -----------------------  ----------------------   -----------------------  -----------------------
                               With          No         With         No          With          No         With          No     
                             Foundation   Foundation  Foundation  Foundation   Foundation   Foundation  Foundation   Foundation
                             ----------   ----------  ----------  ----------   ----------   ----------  ----------   ----------
                                                         (Dollars in thousands, except per share amounts)                      
                                                                                                                               
Estimated offering amount .  $ 59,500     $ 62,900    $ 70,000     $ 74,000   $ 80,500     $ 85,100     $ 92,575    $ 97,865   
Pro forma market                                                                                                               
 capitalization ...........    93,310       94,925     104,125      106,025    114,940      117,125      127,377     129,890   
Total assets ..............   765,074      767,527     774,286      777,172    783,499      786,817      794,094     797,910   
Total liabilities .........   643,412      643,412     643,412      643,412    643,412      643,412      643,412     643,412   
Pro forma stockholders'                                                                                                        
 equity ...................   121,662      124,115     130,874      133,760    140,087      143,405      150,682     154,498   
Pro forma consolidated net                                                                                                     
  earnings ................     6,162        6,251       6,367        6,472      6,574        6,695        6,811       6,950   
Pro forma stockholders'                                                                                                        
 equity per share .........     13.05        13.06       12.57        12.61      12.17        12.25        11.82       11.90   
Pro forma consolidated net                                                                                                     
 earnings per share .......      0.69         0.69        0.64         0.64       0.60         0.60         0.55        0.55   

Pro forma pricing ratios:                                                                                                      
 Offering price as a                                                                                                           
  percentage of pro                                                                                                            
  forma stockholders'                                                                                                          
  equity per share ........     76.63%       76.57%      79.55%       79.30%     82.17%       81.63%       84.60%      84.03%  
 Offering price to pro                                                                                                         
  forma net earnings                                                                                                           
  per share(1) ............     14.49        14.49       15.63        15.63      16.67        16.67        18.18       18.18   

 Pro forma market                                                                                                              
  capitalization                                                                                                               
  to assets ...............     12.20        12.37       13.45        13.64      14.67        14.89        16.04       16.28   
Pro forma financial ratios:                                                                                                    
   Return on assets(2) ....      0.81         0.81        0.84         0.85       0.84         0.85         0.86        0.87   
   Return on stockholders'                                                                                                     
    equity(3) .............      5.06         5.04        4.69         4.67       4.69         4.67         4.52        4.50   
   Stockholders' equity to                                                                                                     
    assets ................     15.90        16.17       17.88        18.23      17.88        18.23        18.98       19.36   

                                                   (Footnotes on following page)

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

(1) If the  contribution  to the  Foundation  had been expensed  during the year
    ended June 30, 1998,  the offering price to pro forma net earnings per share
    would have been 17.64x, 19.54x, 21.42x and 23.57x at the minimum,  midpoint,
maximum and maximum, as adjusted, respectively.                         

(2) If the  contribution  to the  Foundation  had been expensed  during the year
    ended June 30,1998, return on assets would have been 0.67%, 0.66%, 0.65% and
    0.65%  at  the  minimum,   midpoint,   maximum  and  maximum,  as  adjusted,
respectively.                                                           

(3) If the  contribution  to the  Foundation  had been expensed  during the year
    ended June 30,1998,  return on  stockholders'  equity would have been 4.18%,
    3.90%,  3.66% and 3.41% at the minimum,  midpoint,  maximum and maximum,  as
adjusted, respectively.                                                 

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 COMPARISON OF VALUATION AND PRO FORMA INFORMATION
 WITH NO FOUNDATION AND WITHOUT MERGER

         In the event that the Foundation were not being  established as part of
the  Conversion  and the Merger did not take place,  RP Financial  has estimated
that the pro forma aggregate market  capitalization of the Holding Company would
be  approximately  $85.1  million at the maximum,  which is  approximately  $2.2
million  greater  than the pro  forma  aggregate  market  capitalization  of the
Holding  Company  if  the  Foundation  is  included,  and  would  result  in  an
approximately  $4.6  million  increase in the amount of Holding  Company  Common
Stock offered for sale in the Conversion.  The pro forma price to book ratio and
pro forma price to earnings ratio would be approximately the same under both the
current  appraisal and the estimate of the value of the Holding  Company without
the Foundation.  Further, assuming the maximum of the Estimated Valuation Range,
pro forma stockholders'  equity per share and pro forma earnings per share would
be  substantially  the same at $14.84 and  $14.84,  respectively,  and $0.74 and
$0.74 respectively, with the Foundation or without the Foundation. The pro forma
price to book ratio and the pro forma price to earnings ratio are  substantially
the same with and  without the  Foundation  at the maximum at 67.39% and 67.39%,
respectively, and 13.51x and 13.51x, respectively. There is no assurance that in
the event the Foundation was not formed that the appraisal  prepared at the time
would have  concluded  that the pro forma  market  value of the Holding  Company
would be the same as that estimated herein. Any appraisals prepared at that time
would be based on the facts and circumstances  existing at the time,  including,
among other things, market and economic conditions.                             

         For  comparative  purposes  only,  set forth below are certain  pricing
ratios and  financial  data and ratios,  at the minimum,  midpoint,  maximum and
maximum, as adjusted,  of the Estimated Valuation Range, assuming the Conversion
and the Merger were completed at June 30, 1998.                                 

                                                        [Enlarge/Download Table]

                                                                                                               At the Maximum    
                                 At the Minimum            At the Midpoint            At the Maximum            As Adjusted      
                              -----------------------   ----------------------   -----------------------  -----------------------
                                With          No          With         No          With          No         With          No     
                              Foundation   Foundation   Foundation  Foundation   Foundation   Foundation  Foundation   Foundation
                              ----------   ----------   ----------  ----------   ----------   ----------  ----------   ----------
                                                           (Dollars in thousands, except per share amounts)                      
                                                                                                                                 
Estimated offering amount .  $ 59,500     $ 62,900    $ 70,000     $ 74,000     $ 80,500   $ 85,100    $ 92,575       $ 97,865   
Pro forma market                                                                                                                 
 capitalization ...........    61,285       62,900      72,100       74,000       82,915     85,100      95,352         97,865   
Total assets ..............   586,981      589,434     596,193      599,079      605,406    608,724     616,001        619,817   
Total liabilities .........   482,434      482,434     482,434      482,434      482,434    482,434     482,434        482,434   
Pro forma stockholders'                                                                                                          
 equity ...................   104,547      107,000     113,759      116,645      122,972    126,290     133,567        137,383   
Pro forma consolidated net                                                                                                       
 earnings .................     5,226        5,315       5,432        5,537        5,638      5,759       5,875          6,014   
Pro forma stockholders'                                                                                                          
 equity per share .........     17.06        17.01       15.78        15.76        14.84      14.84       14.01          14.03   
Pro forma consolidated net                                                                                                       
 earnings per share .......      0.93         0.92        0.82         0.82         0.74       0.74        0.67           0.67   
Pro forma pricing ratios:                                                                                                        
   Offering price as a                                                                                                           
    percentage of pro forma                                                                                                      
    stockholders' equity                                                                                                         
    per share .............     58.62%       58.79%      63.37%       63.45%       67.39%     67.39%      71.38%         71.28%  
   Offering price to pro                                                                                                         
    forma net earnings                                                                                                           
    per share(1) ..........     10.75%       10.87%      12.20%       12.20%       13.51%     13.51%      14.93%         14.93%  
   Pro forma market                                                                                                              
    capitalization to                                                                                                            
    assets ................     10.44%       10.67%      12.09%       12.35%       13.70%     13.98%      15.48%         15.79%  
Pro forma financial ratios:                                                                                                      
   Return on assets(2) ....      0.89%        0.90%       0.91%        0.92%        0.93%      0.95%       0.96%          0.97%  
   Return on stockholders'                                                                                                       
    equity(3) .............      5.00%        4.97%       4.78%        4.75%        4.58%      4.56%       4.40%          4.38%  
   Stockholders' equity                                                                                                          
    to assets .............     17.81%       18.15%      19.08%       19.47%       20.31%     20.75%      21.68%         22.17%  

---------------                                                                 
(1) If the  contribution  to the  Foundation  had been expensed  during the year
    ended June 30, 1998,  the offering price to pro forma net earnings per share
    would have been 13.58x, 15.90x, 18.20x and 20.81x at the minimum,  midpoint,
maximum and maximum, as adjusted, respectively.                         
(2) If the  contribution  to the  Foundation  had been expensed  during the year
    ended June 30,1998, return on assets would have been 0.71%, 0.70%, 0.69% and
    0.69%  at  the  minimum,   midpoint,   maximum  and  maximum,  as  adjusted,
respectively.                                                           
(3) If the  contribution  to the  Foundation  had been expensed  during the year
    ended June 30,1998,  return on  stockholders'  equity would have been 3.99%,
    3.68%,  3.42% and 3.17% at the minimum,  midpoint,  maximum and maximum,  as
adjusted, respectively.                                                 

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COHOES SAVINGS BANK AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
 (000's omitted)

                                                        [Enlarge/Download Table]

                                                                      1998           1997           1996   
                                                                      ----           ----           ----   
INTEREST INCOME:                                                                                           
                                                                                                           
    Interest and fees on mortgage loans ...................... $      28,793  $      28,236  $      26,587 
    Consumer and other loans .................................         4,780          4,930          5,516 
    Investment securities and securities available for sale ..         4,108          2,847          3,096 
    Federal funds sold and interest-bearing deposits .........           742            272            184 
                                                               -------------  -------------  ------------- 
                 Total interest income .......................        38,423         36,285         35,383 
                                                               -------------  -------------  ------------- 

INTEREST EXPENSE:                                                                                          
    Deposits (Note 11) .......................................        18,816         17,568         17,741 
    Mortgagors' escrow deposits ..............................           114            120            126 
    Borrowings ...............................................           332            133            297 
                                                               -------------  -------------  ------------- 
                 Total interest expense ......................        19,262         17,821         18,164 
                                                               -------------  -------------  ------------- 
                 Net interest income .........................        19,161         18,464         17,219 

PROVISION FOR LOAN LOSSES (Note 7) ...........................         1,400          1,325            490 
                                                               -------------  -------------  ------------- 
                 Net interest income after provision                                                       
                   for loan losses ...........................        17,761         17,139         16,729 
                                                               -------------  -------------  ------------- 
NONINTEREST INCOME:                                                                                        
    Service charges on deposits ..............................           746            765            741 
    Loan servicing revenue ...................................           495            568            605 
    Net gain (loss) on sale of mortgage loans ................            81            106            (20)
    Other ....................................................         1,421          1,351          1,141 
                                                               -------------  -------------  ------------- 
                 Total noninterest income ....................         2,743          2,790          2,467 
                                                               -------------  -------------  ------------- 

NONINTEREST EXPENSE:                                                                                       
    Compensation and benefits ................................         7,322          6,253          6,286 
    Occupancy ................................................         2,686          2,493          2,247 
    FDIC deposit insurance premium ...........................            65             37             33 
    Advertising ..............................................           430            307            291 
    Other ....................................................         3,264          3,224          3,062 
                                                               -------------  -------------  ------------- 
                 Total noninterest expense ...................        13,767         12,314         11,919 
                                                               -------------  -------------  ------------- 
                 Income before income tax expense ............         6,737          7,615          7,277 

INCOME TAX EXPENSE (Note 15) .................................         2,650          2,972          2,882 
                                                               -------------  -------------  ------------- 
                 Net income .................................. $       4,087  $       4,643  $       4,395 
                                                               =============  =============  ============= 

The accompanying notes are an integral part of these statements.

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

General                                                                         

         The Holding  Company has only recently been formed and  accordingly has
no results of  operations at this time.  As a result,  the following  discussion
principally reflects the operations of the Bank and its subsidiaries. The Bank's
primary market area, with 16 full-service  branches and one public accommodation
office (a limited purpose  convenience office) which is expected to be converted
into a branch office in October, 1998, consists of Albany, Saratoga, Schenectady
and Rensselaer  counties in New York and a portion of Warren county in New York.
The Bank has been, and intends to continue to be, a community-oriented financial
institution  offering  a variety of  financial  services.  The Bank's  principal
business  is  attracting  deposits  from  customers  within its market  area and
investing those funds, together with funds from operations and, to a much lesser
extent,  borrowings,  in primarily  residential  mortgage loans,  including home
equity loans, and to a lesser extent, in consumer loans, commercial real estate,
construction  loans and  commercial  business loans and government and corporate
debt securities. See "Business of the Bank - Lending Activities".  The financial
condition  and  operating  results of the Bank are dependent on its net interest
income which is the difference between the interest income earned on its assets,
primarily loans and  investments,  and the interest  expense on its liabilities,
primarily  deposits  and  borrowings.  Net  income  is also  affected  by  other
operating  income,  such as loan  servicing  income,  fees  on  deposit  related
services,  gains on sales  of  securities,  other  operating  expenses,  such as
compensation and occupancy expenses, provisions for loan losses, and Federal and
state income taxes.                                                             

         The Bank's results of operations are 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.   Future  changes  in  applicable  laws,   regulations  or
government  policies may have a material impact on the Bank.  Lending activities
are  substantially   influenced  by  the  demand  for  and  supply  of  housing,
competition  among lenders,  and level of interest rates and the availability of
funds.  The ability to gather  deposits and the cost of funds are  influenced by
prevailing market interest rates, fees and terms on deposit products, as well as
the availability of alternative investments, including mutual funds and stocks. 

Market Risk and Asset/Liability Management                                      

         Interest rate risk is the most  significant  market risk  affecting the
Bank.  Other types of market risk, such as foreign  currency  exchange rate risk
and  commodity  price  risk,  do not arise in the  normal  course of the  Bank's
business activities.                                                            

         Interest  rate risk is defined as an exposure to a movement in interest
rates that could have an adverse effect on the Bank's net interest  income.  Net
interest  income  is  susceptible  to  interest  rate  risk to the  degree  that
interest-bearing  liabilities  mature  or  reprice  on a  different  basis  than
interest-earning  assets.  When  interest-bearing  liabilities mature or reprice
more quickly  than  interest-earning  assets in a given  period,  a  significant
increase  in  market  rates of  interest  could  adversely  affect  net  income.
Similarly,   when   earning   assets   mature  or  reprice   more  quickly  than
interest-bearing liabilities,  falling interest rates could result in a decrease
in net income.                                                                  

         In an attempt  to manage its  exposure  to changes in  interest  rates,
management monitors the Bank's interest rate risk. Management's  asset/liability
committee  meets  monthly to review the Bank's  interest  rate risk position and
profitability,  and to recommend  adjustments for  consideration by the Board of
Trustees.  Management  also  reviews  loan and deposit  pricing,  and the Bank's
securities  portfolio,  formulates investment strategies and oversees the timing
and  implementation  of transactions.  Notwithstanding  the Bank's interest rate
risk  management  activities,  the potential for changing  interest  rates is an
uncertainty that can adversely affect net income.                               

         In  adjusting  the  Bank's  asset/liability  position,  the  Board  and
management  attempt to manage the Bank's  interest rate risk while enhancing net
interest  margins.  At times,  depending on the level of general interest rates,
the relationship  between long- and short-term interest rates, market conditions
and competitive  factors, the Board and management may determine to increase the
Bank's  interest  rate  risk  position  somewhat  in order to  increase  its net
interest  margins.  The Bank's  results of operations  and net portfolio  values
remain  vulnerable  to  changes in  interest  rates and to  fluctuations  in the
difference between long- and short-term interest rates.                         

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         Consistent with the  asset/liability  management  philosophy  described
above, the Bank has taken several steps to manage its interest rate risk. First,
the Bank has structured the security  portfolio to shorten the maturities of its
earning  assets.  The Bank's recent  purchases of  securities  have had terms to
maturity of seven years or less. At June 30, 1998, the Bank had securities  with
a carrying value of $76.2 million with  contractual  maturities of five years or
less. The Bank's  residential  real estate  portfolio is composed of either one,
three or five year adjustable rate mortgages or floating-rate home equity loans,
except for  approximately  $103.5 million of fixed rate products.  The Bank also
manages  interest  rate risk by  emphasizing  lower cost,  more stable  non-time
deposit accounts. In the current low rate environment, longer-term time deposits
are welcomed although not particularly popular with the Bank's customer base.   

         One  approach  used to  quantify  interest  rate risk is the net market
value analysis.  In essence, this analysis calculates the difference between the
present value of  liabilities  and the present value of expected cash flows from
assets and  off-balance  sheet  contracts.  A second approach is to quantify the
impact on net interest income due to changes in cash flows,  interest income and
interest  expense  resulting from shifts in interest rates. The following tables
set forth,  at June 30, 1998,  an analysis of the Bank's  interest  rate risk as
measured  by the  estimated  changes  in net  market  value  of its  assets  and
liabilities and net interest income resulting from  instantaneous  and sustained
parallel shifts in interest rates (+ or - 200 basis points, measured in 50 basis
point increments).                                                              

Assumed Change             Net                                          
in Interest Rates        Interest            Dollar            Percent    
(Basis Points)           Income             Change            Change    
                     ------             ------            ------
-200                 $ 19,986         $    826                4.31% 
-150                   19,770              610                3.18  
-100                   19,244               84                0.44  
-50                   19,204               44                0.23 
 0                   19,160               --                0.00
+50                   19,153               (7)              (0.04)
+100                   19,137              (23)              (0.12) 
+150                   19,056             (104)              (0.54) 
+200                   18,918             (242)              (1.26) 

Assumed Change             Net                                          
in Interest Rates         Market             Dollar             Percent   
(Basis Points)            Value             Change             Change   
                       -----             ------             ------

 -200                  $ 99,941         $  10,985               12.35%
-150                    97,343             8,387                9.43
-100                    94,643             5,687                6.39
 -50                    91,845             2,889                3.25
   0                    88,956                --                0.00
  +50                    85,741            (3,215)              (3.61)
 +100                    82,151            (6,805)              (7.65)
 +150                    79,056            (9,900)             (11.13)
 +200                    75,804           (13,152)             (14.78)

         Certain  assumptions  utilized by  management in assessing the interest
rate risk of the Bank were employed in preparing  data included in the preceding
table. These assumptions were based upon proprietary data selected by management
and are  reflective of historical  results or current market  conditions.  These
assumptions relate to interest rates,  repayment rates, deposit decay rates, and
the market values of certain assets under the various interest rate scenarios.  

         Prepayment  assumptions for mortgage-backed  securities and residential
mortgage loans were based upon industry  standards for  prepayments.  The Bank's
mortgage-backed  securities  and  residential  mortgages  are the only assets or
liabilities  which  management  assumed  possess  optionality  for  purposes  of
determining market value changes.                                               

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         Management assumed that non-maturity  deposits could be maintained with
rate  adjustments  not directly  proportionate  to the change in market interest
rate.  These  assumptions are based upon  management's  analysis of its customer
base and competitive factors.                                                   

         The net market value and net interest income tables presented above are
predicated  upon a stable  balance  sheet  with no  growth or change in asset or
liability mix. In addition, the net market value table is based upon the present
value  of  discounted  cash  flows  using  management's   estimates  of  current
replacement  rates to discount the cash flows.  The net interest income table is
based upon a cash flow simulation of the Bank's existing assets and liabilities.
It was also  assumed  that  delinquency  rates  would not  change as a result of
changes in interest  rates  although there can be no assurance that this will be
the case. Even if interest rates change in the designated amounts,  there can be
no assurance that the Bank's assets and  liabilities  would perform as set forth
above.  Also,  a  change  in the US  Treasury  rates in the  designated  amounts
accompanied  by a change in the shape of the  Treasury  yield  curve would cause
changes  to the net  market  value and net  interest  income  other  than  those
indicated above.                                                                

         The  Bank  does not  currently  engage  in  trading  activities  or use
derivative  instruments  to  manage  interest  rate  risk.  Instruments  such as
interest rate swaps, caps and floors may be utilized under certain interest rate
risk  scenarios in order to manage  interest rate risk.  Such  activities may be
permitted with the approval of the Board of Trustees, and management continually
evaluates the usefulness of such instruments in managing interest rate risk.    

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 is affected by the relative amounts of  interest-earning  assets
and interest-bearing liabilities, and the interest rates earned or paid on them.

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         The following  table  presents,  for the periods  indicated,  the total
dollar amount of interest  income from the average  interest-earning  assets and
the resultant  yields  earned,  the total dollar  amount of interest  expense on
average  interest-bearing  liabilities and the resultant  rates paid,  expressed
both in dollars and  percentages  as well as the weighted  average yields earned
and rates paid. No tax equivalent  adjustments  were made. All average  balances
are daily average balances. Nonaccruing loans have been included in the table as
loans carrying zero yield.                                                      

                                                        [Enlarge/Download Table]

                           Average                                           Year Ended June 30,                                    
                            Yield     --------------------------------------------------------------------------------------------- 
                           Earned/               1998                               1997                              1996          
                            Average   -----------------------------  -------------------------------   ---------------------------- 
                          Rate Paid at  Average  Interest             Average     Interest              Average      Interest       
                            June 30, Outstanding  Earned/    Yield/  Outstanding   Earned/    Yield/   Outstanding   Earned/ Yield/ 
                             1998      Balance     Paid       Rate     Balance      Paid       Rate      Balance      Paid    Rate  
                             ----      -------     ----       ----     -------      ----       ----      -------      ----    ----  
                                                                         (Dollars in Thousands)                                     
Interest-earning assets                                                                                                             
                                                                                                                                    
 Loans receivable .........  8.09%    $404,781   $ 33,573      8.29%   $401,262   $ 33,166      8.27%   $390,273   $ 32,104    8.23%
 Securities available                                                                                                               
  for sale ................  6.18       30,336      1,933      6.37      19,330      1,253      6.48      14,350        872    6.08 
 Investment securities ....  6.28       30,372      1,926      6.34      22,240      1,373      6.17      31,950      1,993    6.24 
 Federal funds sold .......  5.50       13,321        739      5.55       4,641        245      5.28       2,255        127    5.63 
 FHLB stock ...............  7.45        3,479        249      7.16       3,400        218      6.41       3,346        230    6.87 
 Other interest-earning                                                                                                             
  assets ..................  6.00          184          3      1.63         416         30      7.21         967         57    5.89 
                                       -------     ------               -------     ------               -------     ------         
  Total interest-earning                                                                                                            
   assets .................  7.72      482,473     38,423      7.96     451,289     36,285      8.04     443,141     35,383    7.98 
                                                   ------                           ------                           ------         
Non-earning assets ........             18,714                           17,919                           17,264                    
                                       -------                          -------                          -------                    
  Total assets ............           $501,187                         $469,208                         $460,405                    
                                      ========                         ========                         ========                    
Interest-bearing                                                                                                                    
 liabilities                                                                                                                        
 Savings accounts .........  3.00%    $120,959      3,623      3.00    $123,518      3,698      2.99    $123,976      3,718    3.00 
 School savings accounts ..  5.50       15,112        837      5.54      11,895        661      5.56       8,271        460    5.56 
 Money market accounts ....  3.32       18,163        569      3.13      15,607        447      2.86      17,089        488    2.86 
 Demand deposits ..........  0.59       47,075        304      0.65      41,124        275      0.67      35,073        246    0.70 
 Time deposits ............  5.78      230,794     13,483      5.84     215,183     12,487      5.80     214,420     12,829    5.98 
 Escrow accounts ..........  2.00        7,065        114      1.61       7,396        120      1.62       7,249        126    1.74 
 Borrowings ...............  6.05        5,467        332      6.07       2,392        133      5.56       4,694        297    6.33 
                                       -------     ------               -------     ------               -------     ------         
   Total interest-bearing                                                                                                           
    liabilities ...........  4.28      444,635     19,262      4.33     417,115     17,821      4.27     410,772     18,164    4.42 
                                                   ------                           ------                           ------         
Other liabilities .........              4,677                            5,033                            6,898                    
Net worth .................             51,875                           47,060                           42,735                    
                                       -------                          -------                           ------                    
  Total liabilities and                                                                                                             
   net worth ..............           $501,187                         $469,208                         $460,405                    
                                      ========                         ========                         ========                    
Net interest income .......                       $19,161                         $ 18,464                         $ 17,219         
                                                  =======                         ========                         ========         
Net interest rate                                                                                                                   
 spread(1) ................  3.44%                             3.63%                            3.77%                          3.56%
                             ====                              ====                             ====                           ==== 
Net earning assets(2) .....           $ 37,838                         $ 34,174                         $ 32,369                    
                                      ========                         ========                         ========                    
Net yield on average                                                                                                                
 interest-earning                                                                                                                   
 assets(3) ................                                    3.97%                            4.09%                          3.89%
                                                               ====                             ====                           ==== 
Average interest-earning                                                                                                            
 assets to average                                                                                                                  
 interest-bearing                                                                                                                   
 liabilities...............               1.09X                            1.08X                            1.08X                   


----------------                                                                
(1) Interest  rate  spread  represents  the  difference  between  the  yield  on
interest-earning assets and the cost of interest-bearing liabilities.   
(2) Net  earning  assets  represents  total  interest-earning  assets less total
interest-bearing liabilities.                                           
(3) Net  yield on  average  interest-earning  assets,  or net  interest  margin,
    represents net interest  income as a percentage of average  interest-earning
assets.                                                                 

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         The  following  schedule  presents  the  dollar  amount of  changes  in
interest  and  dividend  income and  interest  expense for major  components  of
earning assets and interest-bearing  liabilities.  It distinguishes  between the
changes related to outstanding balances and those due to the changes in interest
rates.  For each category of earning  assets and  interest-bearing  liabilities,
information is provided on changes  attributable to (i) changes in volume (i.e.,
changes in volume  multiplied  by  prior-period  rate) and (ii)  changes in rate
(i.e., changes in rate multiplied by prior-period  volume). For purposes of this
table, changes attributable to both rate and volume, which cannot be segregated,
have been  allocated  proportionally  to the change due to volume and the change
due to rate.                                                                    

                                                        [Enlarge/Download Table]

                                                Years Ended June 30,                          Years Ended June 30,          
                                                    1998 vs. 1997                                 1997 vs. 1996             
                                         ---------------------------------------    --------------------------------------- 
                                                 Increase                                   Increase                        
                                                (Decrease)                                 (Decrease)                       
                                                  Due to                 Total               Due to                Total    
                                         -----------------------       Increase     ---------------------         Increase  
                                           Volume         Rate        (Decrease)     Volume          Rate        (Decrease) 
                                           ------         ----        ----------     ------          ----        ---------- 
                                                                         (In Thousands)                                     
Interest and dividend income from:                                                                                          
                                                                                                                            
Loans receivable................         $     292      $     115      $     407     $     908      $     154      $  1,062 
Securities available for sale...               701            (21)           680           320             61           381 
Investment securities...........               515             38            553          (600)           (20)         (620)
Federal Funds sold..............               481             13            494           126             (8)          118 
FHLB............................                 5             26             31             4            (16)          (12)
Other interest-earning assets...               (11)           (16)           (27)          (38)            11           (27)
                                       -----------    -----------    -----------   -----------     ----------   ----------- 

   Total interest and dividend income        1,983            155          2,138           720            182           902 
                                         ---------     ----------      ---------    ----------     ----------    ---------- 

Interest expense for:                                                                                                       

Savings accounts................               (78)             2            (75)          (14)            (6)          (20)
School savings accounts.........               178             (2)           176           201             --           201 
Money market accounts...........                77             44            122           (42)             1           (41)
Demand deposits.................                39            (10)            29            41            (12)           29 
Time deposits...................               911             85            996            46           (385)         (342)
Escrow accounts.................                (5)            (1)            (6)            3             (9)           (6)
Borrowings......................               186             13            199          (131)           (33)         (164)
                                        ----------    -----------     ----------   -----------   ------------   ----------- 

               Total interest expense        1,310            131          1,441           104           (447)         (343)
                                        ----------    -----------     ----------   -----------    -----------  ------------ 

Net interest income.............        $      673    $        24     $      697    $      616     $      629     $   1,245 
                                        ==========    ===========     ==========    ==========     ==========     ========= 

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Financial Condition                                                             

Comparison of June 30, 1998 and June 30, 1997                                   

         Assets.  Total  assets at June 30,  1998 was $535.7  million,  up $44.0
million,  or 8.9% from the $491.7  million at June 30,  1997.  The  increase was
evenly divided with the loan portfolio,  up $14.3 million,  securities available
for sale up $13.2  million and  investment  securities  up $20.1  million.  This
growth in earning  assets was funded by an  increase  in  deposits  from  $429.4
million on June 30,  1997 to $449.5  million at June 30, 1998 and an increase in
borrowings of $19.9 million over the same period.  These  increases,  as well as
fluctuations in other asset and liability categories, are discussed below.      

         Loans.  The overall  increase in total  loans is  primarily  made up of
increases in one to four family real estate and commercial business loans offset
by a decrease in consumer loans. One- to four-family real estate loans increased
$14.8  million,  from  $243.6  million  to $258.4  million.  The  growth in this
portfolio  is  primarily  a result  of the  Bank's  decision  to  retain  in its
portfolio  a limited  amount of 15 to 30 year fixed rate one to four family real
estate loans at a time when adjustable rate loans are less popular. A portion of
these loans were retained and match funded using  long-term FHLB  advances.  See
"Business  of Cohoes  Savings Bank --  Borrowings."  Commercial  business  loans
increased  from $12.1  million at June 30,  1997,  to $15.0  million at June 30,
1998.  Consumer  loans  decreased  $2.5 million to a balance of $49.7 million at
June 30, 1998 from $52.2 million at June 30, 1997. Most of this decrease relates
to a reduction in outstanding balances on home equity lines of credit.          

         Allowance for Loan Losses. The allowance for loan losses increased from
$3.1 million at June 30, 1997 to $3.5  million at June 30, 1998,  an increase of
$428,000.  This  increase is the result of the $1.4 million  provision  for loan
losses  taken  in the year  ended  June  30,  1998  offset  by  $972,000  in net
charge-offs  for the same period.  The adequacy of the allowance for loan losses
is evaluated  quarterly by management based upon a review of significant  loans,
with particular  emphasis on nonperforming  and delinquent loans that management
believes  warrant  special  attention.  At June 30, 1998 the  allowance for loan
losses provided coverage of 62.5% of total nonperforming loans, up from 46.4% at
June 30, 1997.  The balance of the  allowance is maintained at a level which is,
in management's judgment,  reflective of the amount of risk inherent in the loan
portfolio.  See  "Business  of the Bank - Asset  Quality  -  Allowance  for Loan
Losses."                                                                        

         Securities Available for Sale and Investment  Securities.  The balances
of  securities  available  for  sale  and  investment  securities  (collectively
"securities") increased from $35.5 million and $25.3 million,  respectively,  at
June 30, 1997 to $48.7 million and $45.4 million,  respectively,  as of June 30,
1998.  These  increases  were the result of the purchase of securities  totaling
$82.9 million offset by paydowns,  maturities  and calls of securities  totaling
$49.5 million and sales  totaling  $60,000  during the year ended June 30, 1998.
Management's intention is to continue purchasing securities with available funds
in excess of loan demand.  During the year ended June 30, 1998,  loan demand was
stronger than in fiscal 1997.                                                   

         Bank Premises and Equipment. The balance of bank premises and equipment
decreased  from $7.7  million at June 30, 1997 to $7.3 million at June 30, 1998.
This  decrease  was a  result  of  approximately  $763,000  in  computer-related
expenditures offset by $1.1 million in depreciation.                            

         Other  Real  Estate  Owned.  The  balance of other  real  estate  owned
decreased  from $1.9  million at June 30, 1997 to $509,000 at June 30,  1998,  a
decrease of approximately $1.4 million. The majority of this decrease relates to
the sale in September 1997 of the Bank's largest ORE property that had a balance
of $1.0 million at June 30, 1997.                                               

         Deposits.  Total deposits increased $20.1 million, or 4.7%, from $429.4
million  at June 30,  1997 to $449.5  million  at June 30,  1998.  Of this total
increase,  time deposits  increased  $743,000 (.3%),  savings accounts increased
$1.7 million (1.4%),  school savings  accounts  increased $3.3 million  (24.1%),
money market  accounts  increased  $6.2  million  (40.3%),  and demand  accounts
increased $8.1 million (17.7%).                                                 

         Borrowings.  The balance of borrowings  increased  $19.9 million all of
which was the result of new  borrowings  during the year ended June 30,  1998 as
the bank matched financed portfolioed fixed-rate loans with these borrowings.   

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Ten year fixed rate,  fifteen year  amortizing FHLB borrowings were used to fund
certain fixed rate one to four family real estate loans.                        

Comparison of June 30, 1997 and June 30, 1996                                   

         Assets. Total assets at June 30, 1997 stood at $491.7 million, up $28.3
million,  or 6.1%,  from  $463.4  million at June 30,  1996.  The  increase  was
concentrated in the loan portfolio which increased $4.6 million, ending June 30,
1997 at $398.5 million and securities  available for sale which  increased $14.6
million,  ending  June 30,  1997 at $35.5  million.  This  growth  in loans  and
securities  was funded by an increase of $24.9  million in deposits  from $404.5
million on June 30, 1996 to $429.4 million at June 30, 1997.  These increases as
well as  fluctuations  in other asset and  liability  categories  are  discussed
below.                                                                          

         Loans.  The overall  increase in total  loans is  primarily  made up of
increases in one- to four-family  real estate loans,  offset by decreases in the
Bank's commercial real estate and commercial  business loans.  Total one to four
family real estate loans  increased $8.7 million,  or 3.7%,  which increased the
level of total residential real estate as a percentage of total loans from 59.1%
at June 30, 1996 to 60.6% at June 30,  1997.  Commercial  real estate loans fell
from $96.6  million at June 30, 1996 to $94.0  million at June 30, 1997. At June
30,  1997,  commercial  real  estate  loans  represented  23.4% of total  loans.
Commercial  business loans  decreased $1.2 million to a balance of $12.1 million
at June 30, 1997 from $13.3 million at June 30, 1996.  Commercial business loans
are loans to  businesses  which are either  unsecured or are secured by non-real
estate business assets.                                                         

         Allowance for Loan Losses. The allowance for loan losses decreased from
$3.2  million at June 30, 1996 to $3.1  million at June 30,  1997, a decrease of
$144,000.  This  decrease  is the result of a $1.3  million  provision  for loan
losses  taken in the year  ended  June 30,  1997  offset by $1.5  million in net
charge-offs for the same period. At June 30, 1997, the allowance for loan losses
provided coverage of 46.4% of total non-performing loans, up slightly from 41.7%
at June 30, 1996.  The balance of the  allowance is  maintained at a level which
is, in management's  judgment,  representative of the amount of risk inherent in
the Bank's loan portfolio.  See "Business of the Bank - Asset Quality  Allowance
for Loan Losses."                                                               

         Securities Available for Sale and Investment Securities. The balance of
securities  available for sale  increased from $20.9 million at June 30, 1996 to
$35.5  million  as of June  30,  1997.  The  balance  of  investment  securities
decreased  slightly  from $26.0  million at June 30, 1996 to $25.3 million as of
June 30, 1997. The increase in securities available for sale and slight decrease
in investment securities (collectively  "securities") during the year ended June
30, 1997 were driven by purchases of securities  totaling $28.7  million,  which
were offset by  paydowns,  maturities  and calls of  securities  totaling  $14.7
million and sales totaling $287,000.                                            

         Bank Premises and Equipment. The balance of Bank premises and equipment
increased  from $6.9  million at June 30, 1996 to $7.7 million at June 30, 1997.
This  increase was a result of  expenditures  totaling $1.8 million for the most
part relating to the opening of four new branch  locations during the year ended
June 30, 1997 offset by $1.1 million in depreciation.                           

         Other  Real  Estate  Owned.  The  balance of other  real  estate  owned
increased  from  $421,000 at June 30, 1996 to $1.9 million at June 30, 1997,  an
increase of approximately  $1.5 million.  This increase  directly relates to the
addition  during  the year  ended June 30,  1997 of an ORE  property  that had a
balance of $1.0 million at June 30, 1997.                                       

         Deposits.  Total deposits increased $24.9 million, or 6.2%, from $404.5
million  at June 30,  1996 to $429.4  million  at June 30,  1997.  Of this total
increase,  time deposits increased $20.6 million (9.8%), school savings accounts
increased $3.3 million (31.1%),  demand accounts increased $5.1 million (12.5%),
while savings  accounts  decreased $3.1 million (2.4%) and money market accounts
decreased $1.1 million (6.6%).                                                  

         Borrowings.  Borrowings  decreased  $2.1 million  during the year ended
June 30, 1997.  There were no borrowings  at June 30, 1997.  This decrease was a
result of an increase in deposit balances which exceeded loan demand.           

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Operating Results                                                               

Comparison of Year Ended June 30, 1998 and Year Ended June 30, 1997             

         Net  Income.  Net  income  for the year  ended  June 30,  1998 was $4.1
million,  down from $4.6 million for the year ended June 30,  1997.  Noninterest
expense  increased  $1.5 million for the year ended June 30, 1998 as compared to
the  previous  year.  This  increase  was in part  offset by an  increase in net
interest income of $697,000 and a reduction in income tax expense of $322,000.  

         Net Interest  Income.  Net interest  income for the year ended June 30,
1998 was $19.2  million,  up  $697,000  from the year  ended June  30,1997.  The
increase was  primarily  the result of the increase of $31.2  million in average
earning  assets from  $451.3  million for the year ended June 30, 1997 to $482.5
million for the same period in 1998. Average  interest-bearing  liabilities also
increased  $27.5 million during the same period.  The net impact of these volume
increases resulted in an increase in net interest income of $673,000. The Bank's
net  interest  margin for the year ended June 30, 1998 was 3.97%,  down 12 basis
points from 4.09% for the year ended June 30, 1997. The yield on average earning
assets  decreased  from  8.04%  to  7.96% ,  while  the  rate  paid  on  average
interest-bearing liabilities increased from 4.27% to 4.33%, producing a decrease
in net interest spread of 14 basis points from 3.77% during fiscal 1997 to 3.63%
during fiscal 1998.                                                             

         Interest  Income.  Interest income for the year ended June 30, 1998 was
$38.4  million,  up from $36.3 million for the  comparable  period in 1997.  The
largest  component of the Bank's interest income is interest on loans.  Interest
on loans  increased from $33.2 million for the year ended June 30, 1997 to $33.6
million  for the year ended June 30,  1998.  This  increase  of  $407,000 is the
result of both volume increases and rate increases. The average balance of loans
increased $3.5 million to $404.8  million,  while the yield on loans increased 2
basis points from 8.27% to 8.29%.  The increase in interest  earned on loans was
supplemented by increases in interest  earned on securities  available for sale,
investment  securities and federal funds. Interest income on these categories of
earning  assets  increased  $680,000,   $553,000  and  $494,000,   respectively.
Substantially  all of the  increases  in  interest  income on these  assets  are
attributed to increases in volume.  The average balance of securities  available
for sale  increased from $19.3 million for the year ended June 30, 1997 to $30.3
million for the year ended June 30, 1998. This increase in volume resulted in an
increase in interest  income of  $701,000.  The  average  balance of  investment
securities  increased  from  $22.2  million  in 1997 to $30.4  million  in 1998,
resulting in a $515,000  increase in interest income due to volume.  The average
balance of federal funds increased from $4.6 million in 1997 to $13.3 million in
1998.  The  increase  in the  volume of  federal  funds  resulted  in a $481,000
increase in  interest  income in the year ended June 30, 1998 as compared to the
year ended June 30, 1997. The changes in rates on securities available for sale,
investment  securities and federal  funds,  as well as the changes in volume and
rate on other categories of interest-earning assets was not significant.        

         Interest Expense. Interest expense increased during the year ended June
30, 1998 to $19.3 million,  up from $17.8 million for the  comparable  period in
1997.  Substantially  all of the  Bank's  interest  expense  is from the  Bank's
interest-bearing  deposits. The largest category of interest-bearing deposits is
time  deposits.  Interest paid on time deposits for the year ended June 30, 1998
was $13.5 million, up $1.0 million from the $12.5 million in 1997. This increase
is the result of an  increase  in the  average  balance of time  deposits,  from
$215.2  million  in 1997 to $230.8  million in 1998 and an  increase  of 4 basis
points in the rates paid on these  deposits from 5.80% in 1997 to 5.84% in 1998,
primarily due to  competitive  market  conditions.  Interest  expense on savings
accounts was  relatively  flat,  decreasing  $75,000  from 1997 to 1998,  almost
entirely attributed to a reduction in the average balance of savings accounts of
$2.6 million as depositors  sought  higher  yielding  investment  opportunities.
Interest on school savings accounts  increased  $176,000,  from $661,000 for the
year  ended  June 30,  1997 to  $837,000  for the  year  ended  June  30,  1998,
substantially  all of which was the result of an increase in the average balance
of school savings  accounts of $3.2 million.  Interest on money market  accounts
increased  $122,000,  from $447,000 for the year ended June 30, 1997 to $569,000
for the year ended June 30, 1998.  The increase is  attributed to an increase in
the  average  balance of money  market  accounts  of $2.6  million as well as an
increase of 27 basis  points in the rates paid on these money  market  accounts,
from 2.86% to 3.13% in  compliance  with the Bank's  strategy  to attract  money
market accounts and remain  competitive in its primary market area.  Interest on
borrowings  for the year ended June 30, 1998 was  $332,000,  up from $133,000 in
1997.  Most of this  increase  was  attributable  to an  increase in the average
balance of borrowings, from $2.4                                                

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million  in 1997 to $5.5  million  in 1998 as the Bank  attempted  to match fund
fixed rate residential  loans with borrowings.  Fluctuations in interest expense
on other categories of interest-bearing liabilities were not significant.       

         Provision  for Loan  Losses.  The  provision  for loan  losses  of $1.4
million  in the year  ended  June 30,  1998  remained  consistent  with the $1.3
million  provision in the year ended June 30, 1997.  The amount of the provision
is attributed to the $13.3 million increase in outstanding loans tempered by the
reduction in the level of net  charge-offs  from $1.5 million for the year ended
June 30, 1997 to $972,000 for the year ended June 30, 1998.                     

         Noninterest  Income.  Total noninterest  income for the year ended June
30, 1998 was $2.7 million,  relatively  unchanged  from the $2.8 million for the
year ended June 30, 1997.  Service charges on deposits declined only slightly to
$746,000 for the year ended June 30, 1998, from $765,000 for the year ended June
30, 1997.  Loan servicing  revenue  declined  $73,000 from $568,000 for the year
ended June 30, 1997 to $495,000  for the year ended June 30,  1998.  The decline
relates  to a  reduction  in the  balance  of loans  serviced  for others due to
repayments on such loans exceeding loan sales during 1998. Fluctuations in other
noninterest income categories were not significant.                             

         Noninterest  Expense.  Total noninterest expense increased $1.5 million
to $13.8 million for the year ended June 30, 1998, up from $12.3 million for the
comparable  period in 1997.  Increases  in  compensation  and  benefits  of $1.1
million,  occupancy of $193,000  and  advertising  of $123,000  were the primary
contributors to the overall increase.  The increase in compensation and benefits
is the result of a decrease  in the  post-retirement  benefit  expense  based on
revised  actuarial  assumptions in 1997, the recognition of a full year's salary
expense for employees at the four new branch  locations opened in the year ended
June 30, 1997, an increase in the cost of health insurance  benefits of $114,000
as well as general  merit  increases  for the Bank's  employees  during the year
ended June 30, 1998. The increase in occupancy is directly  attributed to a full
year's cost associated with the opening of the four branch  locations  mentioned
above.  The increase in  advertising  is generally the result of the  additional
cost of customer  binders,  brochures  and media print for the  introduction  of
imaging  for all demand  account  products  during  the month of June 1998.  The
remaining  categories  of  noninterest  expense did not  experience  significant
fluctuation.                                                                    

         Income Tax Expense.  Income tax expense decreased from $3.0 million for
the year ended June 30, 1997 to $2.7 million for the comparable  period in 1998.
The  reduction is primarily the result of less income before income tax expense,
$6.7 million in 1998 as compared to $7.6 million in 1997.                       

Comparison of Year Ended June 30, 1997 and Year Ended June 30, 1996             

         Net  Income.  Net  income  for the year  ended  June 30,  1997 was $4.6
million,  up from $4.4  million for the year ended June 30,  1996.  Net interest
income increased $1.2 million and noninterest  income increased $323,000 for the
year ended June 30, 1997 as compared to the previous year.  These increases were
in part  offset by  increases  in the  provision  for loan  losses of  $835,000,
noninterest expense of $395,000 and income tax expense of $90,000.              

         Net Interest  Income.  Net interest  income for the year ended June 30,
1997 was $18.5  million,  up $1.2 million from the year ended June 30,1996.  The
increase  was  partially  the result of the  increase of $8.2 million in average
earning  assets from  $443.1  million for the year ended June 30, 1996 to $451.3
million for the same period in 1997. Interest-bearing liabilities also increased
during  the same  period,  up $6.3  million.  The net  impact  of  these  volume
increases  resulted in an  increase  in net  interest  income of  $616,000.  Net
interest  income  also  increased  by  $629,000  due to  changes in the yield on
average  earning assets and rate paid on average  interest-bearing  liabilities.
The yield on average  earning assets  increased  from 7.98% to 8.04%,  while the
rate paid on average interest-bearing liabilities decreased from 4.42% to 4.27%.
The Bank's net interest margin for the year ended June 30, 1997 was 4.09%, up 20
basis points from 3.89% for the year ended June 30, 1996.                       

         Interest  Income.  Interest income for the year ended June 30, 1997 was
$36.3  million,  up from $35.4 million for the  comparable  period in 1996.  The
largest  component  of interest  income is interest on loans.  Interest on loans
increased  from $32.1  million for the year ended June 30, 1996 to $33.2 million
for the year ended June 30, 1997. This increase of $1.1 million is primarily the
result of an $11.0  million  increase in the average  balance of loans to $401.3
million,  while the yield on loans increased 4 basis points from 8.23% to 8.27%.
The increase in interest on loans was complemented by an increase in interest on
securities available for sale, offset by a decrease in interest on investment   

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securities.  Interest income on securities available for sale increased $381,000
while interest  income on investments  fell $620,000.  Substantially  all of the
increases in interest income on securities  available for sale are attributed to
higher volume.  The average  balance of securities  available for sale increased
from $14.4  million  for the year ended June 30,  1996 to $19.3  million for the
year ended June 30,  1997.  This  increase in volume  resulted in an increase in
interest  income of  $320,000.  The  average  balance of  investment  securities
decreased  from $32.0 million in 1996 to $22.2  million in 1997,  resulting in a
$600,000 decrease in interest income due to volume as the Bank used liquidity to
fund  increased  loan demand.  The changes in rates on securities  available for
sale and investment  securities account for the remainder of the fluctuations in
interest  income on these  asset  categories.  The changes in volume and rate on
other categories of interest-earning assets were not significant.               

         Interest Expense. Interest expense decreased during the year ended June
30, 1997 to $17.8 million,  down from $18.2 million for the comparable period in
1996.  Substantially  all of the  Bank's  interest  expense  is from the  Bank's
interest-bearing  deposits. The largest category of interest-bearing deposits is
time  deposits.  Interest on time  deposits for the year ended June 30, 1997 was
$12.5  million,  down $342,000 from the $12.8 million in 1996.  This decrease is
primarily the result of a decrease of 18 basis points in the rates paid on these
deposits from 5.98% in 1996 to 5.80% in 1997,  reflecting the general decline in
market  interest  rates,  offset by a slight  increase in the average balance of
time  deposits of $763,000 due to a decline in general  market  rates.  Interest
expense on savings accounts was relatively flat, decreasing $20,000 from 1996 to
1997,  primarily  attributable  to a reduction in the average balance of savings
accounts of $458,000.  Interest on school savings accounts  increased  $201,000,
from  $460,000  for the year ended June 30, 1996 to $661,000  for the year ended
June 30, 1997,  substantially  all of which was the result of an increase in the
average  balance  of  school  savings  accounts  of $3.6  million.  Interest  on
borrowings for the year ended June 30, 1997 was $133,000,  down from $297,000 in
1996.  Most of this  decrease  was  attributable  to a decrease  in the  average
balance  of  borrowings,  from $4.7  million  in 1996 to $2.4  million  in 1997.
Fluctuations  in  interest  expense  on  other  categories  of  interest-bearing
liabilities were not significant.                                               

         Provision for Loan Losses. The provision for loan losses increased from
$490,000 in the year ended June 30, 1996 to $1.3  million in the year ended June
30, 1997.  This increase is primarily the result of increases in net charge-offs
from  $374,000  for the year ended June 30,  1996 to $1.5  million  for the year
ended June 30, 1997. The increase in net charge-offs combined with the continued
growth of the loan portfolio, continued economic weaknesses in the Bank's market
area,  declining real estate values  securing much of the loan portfolio as well
as management's  evaluation of the prospects for its market area resulted in the
increase in the provision.  See "Business of the Bank - Asset Quality  Allowance
for Loan Losses."                                                               

         Noninterest Income. Total noninterest income increased $323,000 for the
year ended June 30, 1997 as  compared  to the same  period in 1996.  Income from
service  charges on deposits  increased  only  slightly to $765,000 for the year
ended June 30,  1997,  from  $741,000  for the year ended  June 30,  1996.  Loan
servicing  revenue  decreased  $37,000 from  $605,000 in the year ended June 30,
1996 to  $568,000  in the year ended June 30,  1997.  The  decline  relates to a
reduction in the balance of loans  serviced  for others.  Net gain (loss) on the
sale of mortgage loans  increased from a loss of $20,000 for the year ended June
30,  1996  to a gain of  $106,000  for the  year  ended  June  30,  1997.  Other
noninterest  income increased from $1.1 million for the year ended June 30, 1996
to $1.4 million for the year ended June 30, 1997.  This  increase was the result
of  increases  in  ATM  fees,  loan  assignment  fees,  rents  collected  on ORE
properties and gains on the sale of securities.                                 

         Noninterest  Expense.  Total noninterest  expense increased $395,000 to
$12.3  million for the year ended June 30, 1997,  up from $11.9  million for the
comparable  period in 1996.  The  increase in  occupancy  of $246,000  and other
noninterest  expense of $162,000  were the primary  contributors  to the overall
increase.  The decrease in compensation and benefits resulted from general merit
increases for the Bank's employees  during the year ended June 30, 1997,  offset
by a decrease in the post-retirement  benefit expense based on revised actuarial
assumptions.  The increase in occupancy was directly attributed to the increased
lease expense  associated  with the opening of four new branch  locations in the
year  ended  June 30,  1997.  The  increase  in other  noninterest  expense  was
generally attributed to an increase in legal fees associated with the collection
and foreclosure of delinquent loans.                                            

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         Income Tax Expense.  Income tax expense increased from $2.9 million for
the year ended June 30, 1996 to $3.0 million for the comparable  period in 1997.
The  increase  is the result of more  income  before  income tax  expense,  $7.6
million in 1997 as compared to $7.3 million in 1996.                            

Liquidity and Capital Resources                                                 

         Liquidity.  Liquidity is defined as the ability to generate  sufficient
cash  flow to  meet  all  present  and  future  funding  commitments,  depositor
withdrawals and operating  expenses.  Management  monitors the Bank's  liquidity
position  on  a  daily  basis  and  evaluates  its  ability  to  meet  depositor
withdrawals or make new loans or  investments.  The Bank's liquid assets include
cash and cash  equivalents,  investment  securities that mature within one year,
and its portfolio of securities available for sale. At June 30, 1998, the Bank's
liquid assets as a percentage of deposits which have no withdrawal restrictions,
time deposits which mature within one year, and short-term borrowings was 16.8%.

         The  Bank's  cash  inflows  result   primarily  from  loan  repayments,
maturities,  calls and paydowns of  securities,  new  deposits,  and to a lesser
extent,  drawing  upon the Bank's  credit  lines with the FHLB of New York.  The
Bank's  cash  outflows  are  substantially  new  loan  originations,  securities
purchases, and deposit withdrawals.  The timing of cash inflows and outflows are
closely  monitored by management  although  changes in interest rates,  economic
conditions,  and competitive  forces strongly impact the predictability of these
cash flows.  The Bank attempts to provide stable and flexible sources of funding
through the  management  of its  liabilities,  including  core deposit  products
offered  through its branch  network as well as with limited use of  borrowings.
Management  believes that the level of the Bank's  liquid  assets  combined with
daily  monitoring  of inflows and outflows  provide  adequate  liquidity to fund
outstanding  loan  commitments,   meet  daily  withdrawal  requirements  of  our
depositors, and meet all other daily obligations of the Bank.                   

         Capital.  Consistent  with its goals to operate a sound and  profitable
financial organization, the Bank actively seeks to maintain a "well capitalized"
institution  in accordance  with  regulatory  standards.  Total equity was $53.3
million at June 30, 1998, 9.9% of total assets on that date. As of June 30, 1997
and 1996,  total equity was $49.1 million and $44.3  million,  respectively,  or
10.0% and 9.6% of total assets at the respective dates. As of June 30, 1998, the
Bank exceeded all of the capital requirements of the FDIC. The Bank's regulatory
capital  ratios at June 30, 1998 were as  follows:  Tier I  (leverage)  capital,
10.6%; Tier I risk-based capital,  16.0%; and Total risk-based  capital,  17.1%.
The regulatory  capital minimum  requirements to be considered well  capitalized
are 5.0%, 6.0%, and 10.0%, respectively.                                        

Impact of the Year 2000                                                         

         The Bank has conducted a comprehensive  review of its computer  systems
to identify  applications  that could be affected by the "Year 2000" issue,  and
has  developed  an  implementation  plan to address  the issue.  The Bank's data
processing  is  performed  primarily  in-house;  however,  software and hardware
utilized is under maintenance agreements with third party vendors,  consequently
the Bank is very  dependent on those vendors to conduct its  business.  The Bank
has  already  contacted  each  vendor  to  request  time  tables  for Year  2000
compliance and expected  costs, if any, to be passed along to the Bank. To date,
the Bank has been informed that its primary  service  providers  anticipate that
all reprogramming  efforts will be completed by December 31, 1998,  allowing the
Bank  adequate time for testing.  Certain other vendors have not yet  responded;
however,  the Bank will pursue other  options if it appears  that these  vendors
will be unable to  comply.  Management  does not  expect  these  costs to have a
significant impact on its financial position or results of operations;  however,
there can be no assurance that the vendors' systems will be Year 2000 compliant.
Consequently,  the Bank  could  incur  incremental  costs to  convert to another
vendor.                                                                         

         The risks  associated  with this issue go beyond the Bank's own ability
to solve Year 2000 problems.  Should  significant  commercial  customers fail to
address  Year 2000  issues  effectively,  their  ability  to meet  debt  service
requirements could be impaired, resulting in increased credit risk and potential
increases  in loan  charge  offs.  In  addition,  should  suppliers  of critical
services fail in their efforts to become Year 2000 compliant,  or if significant
third party  interfaces fail to be compatible with the Bank's or fail to be Year
2000 compliant,  it could have significant adverse affects on the operations and
financial results of the Bank.                                                  

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Impact of Inflation and Changing Prices                                         

         The Bank's consolidated financial statements are prepared in accordance
with generally accepted  accounting  principles which require the measurement of
financial condition 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 increasing cost of the
Bank's  operations.  Unlike  most  industrial  companies,  nearly all assets and
liabilities of the Bank are monetary. As a result, interest rates have a greater
impact on the  Bank's  performance  than do the  effects  of  general  levels of
inflation. In addition, interest rates do not necessarily move in the direction,
or to the same extent as the price of goods and services.                       

Impact of New Accounting Standards/ Existing Pronouncements to be Adopted by the
Holding Company                                                                 

         In November  1993,  the AICPA issued  Statement of Position  93-6 ("SOP
93-6"),  "Employers'  Accounting for Employee Stock Ownership  Plans",  which is
effective for years  beginning  after  December 15, 1993.  SOP 93-6 requires the
measure of compensation  expense recorded by employers for leveraged ESOPs to be
the fair value of ESOP shares committed to be released.  The Holding Company has
adopted an ESOP in connection with the Conversion, which is expected to purchase
8% of the Holding  Company  Common  Stock  issued in the  Conversion,  including
shares  issued to the  Foundation.  Under SOP 93-6,  the  Holding  Company  will
recognize  compensation  cost equal to the average fair value of the ESOP shares
during the periods in which they become committed to be released. Employers with
internally  leveraged ESOPs such as the Holding Company will not report the loan
receivable  from the ESOP as an asset and will not report the ESOP debt from the
employer as a  liability.  The effects of SOP 93-6 on future  operating  results
cannot be determined at this time.                                              

         In November 1995, the FASB issued SFAS No. 123,  "Accounting  for Stock
Based  Compensation"  ("SFAS No. 123").  This  statement  establishes  financial
accounting standards for stock-based  employee  compensation plans. SFAS No. 123
permits the Holding  Company to choose  either a new fair value based  method or
the Accounting  Principles Board ("APB") Opinion 25 intrinsic value based method
of  accounting  for its  stock-based  compensation  arrangements.  SFAS No.  123
requires pro forma  disclosures of net income and earnings per share computed as
if the fair value  based  method had been  applied in  financial  statements  of
companies  that follow  accounting for such  arrangements  under APB Opinion 25.
SFAS No. 123 applies to all stock-based employee  compensation plans in which an
employer  grants  shares of its stock or other equity  instruments  to employees
except for employee stock ownership plans. SFAS No. 123 also applies to plans in
which the employer incurs liabilities to employees in amounts based on the price
of the  employer's  stock,  (e.g.,  stock option plans,  stock  purchase  plans,
restricted  stock plans,  and stock  appreciation  rights).  The Statement  also
specifies  the  accounting  for  transactions  in which a company  issues  stock
options or other equity instruments for services provided by non-employees or to
acquire goods or services from outside suppliers or vendors. The Holding Company
expects to utilize the  intrinsic  value based method  prescribed by APB Opinion
No. 25. Accordingly,  the impact of adopting this Statement will not be material
to the Holding Company's consolidated financial statements.                     

         In February 1997,  the FASB issued SFAS No. 128,  "Earnings per Share".
SFAS No. 128  establishes  standards for computing and  presenting  earnings per
share  ("EPS").  This  Statement  supersedes  APB Opinion No. 15,  "Earnings per
Share" and related  interpretations.  SFAS No. 128 replaces the  presentation of
primary  EPS  with  the  presentation  of  basic  EPS.  It  also  requires  dual
presentation  of basic and diluted EPS on the face of the income  statement  for
all entities with complex capital  structures and requires a  reconciliation  of
the numerator and denominator of the diluted EPS computation.                   

         Basic  EPS  excludes  dilution  and  is  computed  by  dividing  income
available to common stockholders by the weighted average number of common shares
outstanding  for the period.  Unvested  restricted  stock awards are  considered
outstanding common shares and included in the computation of basic EPS as of the
date that they are fully  vested.  Diluted EPS reflects the  potential  dilution
that could occur if  securities  or other  contracts  to issue common stock were
exercised or  converted  into common stock or resulted in the issuance of common
stock  that  then  shared in the  earnings  of the  entity.  This  Statement  is
effective for financial statements issued for periods ending after December 15, 

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1997,  including interim periods.  The Holding Company will adopt this Statement
for all financial statements prepared after the Conversion.                     

         In  February  1997,  the FASB  issued  SFAS  No.  129,  "Disclosure  of
Information about Capital Structure", which establishes standards for disclosure
about an entity's capital structure.  In accordance with SFAS No. 129, companies
will be required to provide in the financial  statements a complete  description
of all aspects of their  capital  structure,  including  call and put  features,
redemption requirements and Conversion options. The disclosures required by SFAS
No. 129 are for financial statements for periods ending after December 15, 1997.
The Holding  Company  will adopt this  Statement  for all  financial  statements
prepared after the Conversion                                                   

         In June 1997,  the FASB issued SFAS No. 130,  "Reporting  Comprehensive
Income".  SFAS No.  130  establishes  standards  for  reporting  and  displaying
comprehensive income. SFAS No. 130 states that comprehensive income includes the
reported  net income of an  enterprise  adjusted  for items  that are  currently
accounted for as direct entries to equity, such as the mark to market adjustment
on securities  available for sale,  foreign  currency items and minimum  pension
liability  adjustments.  This Statement is effective for both interim and annual
periods after December 15, 1997. Management  anticipates developing the required
information in accordance with this new Statement.                              

         In June 1997, the FASB issued SFAS No. 131,  "Disclosure about Segments
of an Enterprise and Related  Information".  SFAS No. 131 establishes  standards
for reporting by public  companies about  operating  segments of their business.
SFAS No. 131 also establishes  standards for related  disclosures about products
and services,  geographic areas and major customers. This Statement is effective
for periods beginning after December 15, 1997. At this time, management does not
anticipate  that the adoption of this  Statement will  significantly  impact the
Holding Company's financial reporting.                                          

         In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Post- retirement Benefits," which amends the disclosure
requirements of SFAS No. 87. "Employers'  Accounting for Pensions," SFAS No. 88,
"Employers'  Accounting for  Settlements  and  Curtailments  of Defined  Benefit
Pension  Plans and for  Termination  Benefits,"  and SFAS No.  106,  "Employers'
Accounting for Post-retirement  Benefits Other Than Pensions." Statement No. 132
standardizes the disclosure requirements of Statements No. 87 and No. 106 to the
extent  practicable and recommends a parallel format for presenting  information
about pensions and other post-retirement  benefits. This Statement is applicable
to all entities and addresses disclosure only. The Statement does not change any
of the measurement or recognition  provisions provided for in Statements No. 87,
No. 88, or No. 106. The Statement is effective for fiscal years  beginning after
December 15, 1997. Management  anticipates providing the required disclosures in
the June 30, 1999 consolidated financial statements.                            

         In June 1998, the FASB issued SFAS No. 133  "Accounting  for Derivative
Instruments and Hedging Activities." This Statement  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity  recognize all derivatives as either assets or liabilities in the
statement of financial  condition and measure those  instruments  at fair value.
The  accounting  for  changes in the fair value of a  derivative  depends on the
intended use of the derivative and the resulting designation.  SFAS No. 133 will
not impact the Bank's accounting or disclosures.                                

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 BUSINESS OF THE HOLDING COMPANY

     The Holding Company,  a Delaware  corporation,  was organized in September,
1998 at the  direction  of the Board of  Trustees of the Bank for the purpose of
owning all of the outstanding capital stock of the Bank upon consummation of the
Conversion.  Upon  consummation of the Conversion,  the Holding Company,  as the
sole  stockholder  of the  Bank,  will be a  savings  and loan  holding  company
regulated by the OTS. See "Regulation--Holding Company Regulation."             

     The Holding  Company is currently not an operating  company.  Following the
Conversion,  in addition to directing,  planning and  coordinating  the business
activities of the Bank, the Holding  Company will initially  invest the proceeds
of the  Conversion  primarily in federal  funds,  government  and federal agency
mortgage-backed securities, other debt securities,  equity securities,  deposits
of or loans to the Bank or a  combination  thereof.  In  addition,  the  Holding
Company  intends to fund the loan to the ESOP to enable the ESOP to  purchase up
to 8% of the  Common  Stock to be issued  in the  Conversion,  including  shares
issued to the  Foundation.  See "Use of  Proceeds."  In the future,  the Holding
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 plans for any such expansion. Although, other than the Merger, there are
no  current  arrangements,  understandings  or  agreements  regarding  any  such
opportunities or  transactions,  the Holding Company will be in a position after
the  Conversion,  subject to regulatory  limitations  and the Holding  Company's
financial  position,  to take  advantage of any such  acquisition  and expansion
opportunities  that may arise.  Initially,  the Holding Company will neither own
nor  lease  any  property  but will  instead  use the  premises,  equipment  and
furniture of the Bank. The Holding  Company does not currently  intend to employ
any persons  other than certain  officers of the Bank who will not be separately
compensated by the Holding Company.  The Holding 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 Holding  Company  expands its business in
the future.                                                                     

BUSINESS OF THE BANK

General                                                                         

     The Bank is a community-oriented mutual savings bank which was chartered by
the State of New York in 1851.  The  principal  business of the Bank consists of
attracting  retail  deposits  from the  general  public and using  those  funds,
together with funds from operations and, to a much lesser extent, borrowings, to
originate primarily one- to four-family  residential  mortgage loans,  including
home equity loans,  and, to a lesser extent,  multi-family  and commercial  real
estate,  consumer and commercial  business loans.  The Bank originates its loans
primarily in its market area and, to a lesser extent,  the Bank also  originates
commercial real estate loans in New York City. See "Management's  Discussion and
Analysis  of  Financial  Condition  and  Results of  Operations."  The Bank also
invests in mortgage-backed  securities,  U.S.  Government and agency obligations
and,  to a limited  extent,  corporate  debt  securities.  Revenues  are derived
primarily from interest on loans and securities.                                

     The Bank  offers a  variety  of  deposit  accounts  having a wide  range of
interest  rates and  terms.  The  Bank's  deposit  accounts  are  insured  up to
applicable  limits by the FDIC.  The Bank only solicits  deposits in its primary
market area and does not  currently  solicit  brokered  deposits.  The Bank is a
member of the FHLB of New York.                                                 

Market Area                                                                     

     The Bank has been,  and  intends to  continue  to be, a  community-oriented
financial institution offering a variety of financial services to meet the needs
of the  communities  it serves.  The Bank's  primary market area is comprised of
Albany, Saratoga,  Schenectady, and Rensselaer Counties, and a portion of Warren
County in New York,  which are  serviced  through  the Bank's main office and 15
other full service banking offices and one public accommodation office which the
Bank has applied to the FDIC and the Department and received approval to convert
to a full service banking  office.  The Bank expects to convert this office to a
full service branch office in October, 1998. The Bank's main office and seven of
its branch  offices  are  located  in Albany  County.  Based on the most  recent
information  available,  the  Bank had less  than 10% of total  bank and  thrift
deposits in its market area.                                                    

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     The Bank's primary  market area consists  principally of suburban and rural
communities with service,  wholesale/retail  trade, government and manufacturing
serving as the basis of the local economy.  Service jobs and  governmental  jobs
represent the largest type of employment in the Bank's primary market area, with
jobs in  wholesale/retail  trade  accounting  for one of the largest  employment
sectors.  Management  believes  that its market area  continues to show economic
weakness with declining real estate values.                                     

Lending Activities                                                              

     General. The Bank primarily originates fixed- and adjustable-rate,  one- to
four-family  mortgage  loans,  including  home equity lines of credit and second
mortgages,  secured by the  borrower's  primary  residence.  The Bank's  general
practice is to originate  fixed and adjustable rate mortgage loans with terms to
maturity between 5 and 30 years and until December 1997, sold  substantially all
its fixed rate mortgage loans on the secondary market.  Currently,  the Bank has
been  retaining  its  30-year  and  15-year  fixed rate  mortgage  loans for its
portfolio as the declining  interest rate environment has made it more difficult
to  originate  adjustable-rate  loans.  The Bank  retains  all  adjustable  rate
mortgage  loans in its  portfolio.  The Bank also  originates  multi-family  and
commercial real estate,  consumer and commercial business loans.  In-market loan
originations  are  generated  by eight  on-staff  loan  originators,  the Bank's
marketing efforts, which include print, radio and television advertising,  lobby
displays and direct  contact with local civic and  religious  organizations,  as
well as by the Bank's present  customers,  walk-in  customers and referrals from
real  estate  agents,  brokers  and  builders.  The Bank  also  has  established
relationships   with  certain  mortgage  brokers  that  take   applications  for
residential  mortgage loans (under Cohoes underwriting  guidelines) on behalf of
Cohoes.  During  fiscal 1998,  $5.2 million of the Bank's loans were  originated
through mortgage  brokers.  At June 30, 1998, the Bank's loan portfolio  totaled
approximately $416.3 million.                                                   

     The Bank  originates  fixed and  adjustable  rate consumer  loans.  ARM and
consumer  loans are originated in order to increase the percentage of loans with
more  frequent  terms  to  repricing  or  shorter   maturities   than  long-term
fixed-rate,   one-to   four-family   mortgage  loans.   See  "--Loan   Portfolio
Composition" and "-- One- to Four-Family Residential Real Estate Lending."      

     Loan  applications are initially  considered and approved at various levels
of authority,  depending on the type and amount of the loan. Bank employees with
lending authority are designated,  and their lending limit authority defined, by
the Board of  Trustees.  The  approval of the Bank's of Trustees is required for
any loans over $500,000.  Pursuant to the Bank's lending policy,  certain senior
officers may approve loans up to $500,000.                                      

     The Bank is not  subject  to  state  or  federal  regulation  limiting  the
aggregate  amount of mortgage  loans it is  permitted to make to one borrower or
affiliated groups of borrowers.  New York law does require lending policies that
avoid  imprudent  mortgage  concentrations.  However,  the  aggregate  amount of
commercial loans that the Bank is permitted to make to any one borrower or group
of related  borrowers  is  generally  limited to 15% of  unimpaired  capital and
surplus.  At  June  30,  1998,  the  Bank's   loans-to-one-borrower   limit  was
approximately  $8.0 million.  On the same date,  the Bank had no borrowers  with
outstanding balances in excess of this amount.                                  

     At June 30, 1998, the Bank's largest lending relationship consisted of five
loans to a group of borrowers  secured by  professional  buildings and warehouse
space,  and  totaling  $3.9  million.  The  next  largest  lending  relationship
consisted of six loans aggregating  approximately $3.3 million primarily secured
by an office  building and a self-storage  facility.  The third largest  lending
relationship  consisted  of eight  loans  totaling  approximately  $3.3  million
secured by two mobile  home parks and a car wash  facility.  The fourth  largest
lending relationship consisted of four loans totaling approximately $3.2 million
secured by a participation in a shopping center and  office/apartment  building.
The  fifth  largest  lending  relationship  consisted  of eight  loans  totaling
approximately $2.6 million secured by an office building and commercial building
lots. As of June 30, 1998, each of the five  relationships  discussed above were
performing in accordance with their applicable terms.                           

     The types of loans that the Bank may  originate  are subject to federal and
state  laws and  regulations.  Interest  rates  charged by the Bank on loans are
affected by the demand for such loans, the supply of money available for lending
purposes  and the  rates  offered  by  competitors.  These  factors  are in turn
affected by, among other things,  economic conditions,  monetary policies of the
federal government, including the FRB, and tax policies.                        

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

                                                        [Enlarge/Download Table]

                                                                           June 30,                                                 
                               -----------------------------------------------------------------------------------------------------
                                      1998               1997                  1996                 1995                 1994       
                               ------------------  ------------------  -------------------   ------------------   ------------------
                               Amount  % of Total  Amount  % of Total  Amount   % of Total   Amount  % of Total   Amount  % of Total
                               ------  ----------  ------  ----------  ------   ----------   ------  ----------   ------  ----------
                                                                       (Dollars in Thousands)                                       
                                                                                                                                    
Real estate loans:                                                                                                                  
  One- to four-family                                                                                                               
    real estate ............. $258,399   62.07%   $243,620     60.62%  $234,900     59.06%  $227,253     59.38%  $179,836     56.79%
  Multi-family and                                                                                                                  
    commercial real estate ..   93,229   22.39      93,979      23.39    96,623     24.29     86,659     22.65     77,642     24.52 
                              --------   -----    --------    -------  --------    ------   --------    ------   --------     ----- 
    Total real estate loans .  351,628   84.46     337,599      84.01   331,523     83.35    313,912     82.03    257,478     81.31 

Consumer loans:                                                                                                                     
  Home equity lines of                                                                                                              
    credit ..................   21,976    5.28      25,205       6.27    27,342      6.87     30,792      8.05     31,741     10.02 
  Conventional second                                                                                                               
    mortgages ...............   15,093    3.63      14,069       3.50    11,111      2.79     10,765      2.81     10,444      3.30 
  Automobile loans ..........    9,783    2.35       9,290       2.31     9,982      2.51      9,790      2.56      7,211      2.28 
  Credit cards ..............    1,655    0.40       2,152       0.54     2,767      0.70      3,350      0.88      3,093      0.97 
  Other consumer loans ......    1,184    0.28       1,438       0.36     1,776      0.45      2,117      0.55      2,131      0.67 
                              --------   -----    --------     ------   -------    ------   --------    ------   --------    ------ 
    Total consumer loans ....   49,691   11.94      52,154      12.98    52,978     13.32     56,814     14.85     54,620     17.24 

Commercial business loans ...   14,991    3.60      12,096       3.01    13,250      3.33     11,942      3.12      4,578      1.45 
                              --------   -----    --------     ------   -------    ------   --------    ------   --------    ------ 
    Total loans .............  416,310  100.00%    401,849    100.00%   397,751    100.00%   382,668    100.00%   316,676    100.00%
                                        ======                ======               ======               ======               ====== 
Less:                                                                                                                               
  Net deferred loan                                                                                                                 
    origination fees and                                                                                                            
    costs ...................      (18)               (214)                (532)                (447)                (246)          
  Allowance for loan                                                                                                                
    losses ..................   (3,533)             (3,105)              (3,249)              (3,133)              (3,011)          
                              --------            --------              -------              -------             --------           
    Total loans, net ........ $412,759            $398,530             $393,970             $379,088             $313,419           
                              ========            ========             ========             ========             ========           

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     The following  table shows the  composition of the Bank's loan portfolio by
fixed- and adjustable-rate at the dates indicated.                              

                                                        [Enlarge/Download Table]

                                                                          June 30,                         
                                                -----------------------------------------------------------
                                                       1998                 1997                 1996      
                                                ------------------   ------------------   -----------------
                                                 Amount    Percent    Amount    Percent    Amount   Percent
                                                --------   -------   --------   -------   -------   -------
                                                                   (Dollars in Thousands)                  
                                                                                                           
Fixed Rate Loans                                                                                           
Real estate:                                                                                               
  One- to four-family real estate ............. $ 88,389    21.23%   $ 21,365     5.32%   $ 15,975    4.02%
  Multi-family and commercial real estate .....   42,274    10.15      51,859    12.90      64,369   16.18 
                                                --------   ------    --------   ------    --------  ------ 
    Total real estate loans ...................  130,663    31.38      73,224    18.22      80,344   20.20 

Consumer:                                                                                                  
  Home equity lines of credit .................       --       --          --       --          --      -- 
  Conventional second mortgages ...............   15,093     3.63      14,069     3.50      11,111    2.79 
  Automobile loans ............................    9,783     2.35       9,290     2.31       9,982    2.51 
  Credit cards ................................    1,655     0.40       2,152     0.54       2,767    0.70 
  Other consumer loans ........................    1,184     0.28       1,438     0.36       1,776    0.45 
                                                --------   ------    --------   ------    --------  ------ 
    Total consumer loans ......................   27,715     6.66      26,949     6.71      25,636    6.45 

Commercial business loans .....................    5,651     1.36       3,700     0.92       3,280    0.82 
                                                --------   ------    --------   ------    --------  ------ 
    Total fixed-rate loans ....................  164,029    39.40     103,873    25.85     109,260   27.47 

Adjustable-Rate Loans                                                                                      
Real estate:                                                                                               
  One- to four-family real estate .............  170,010    40.84     222,255    55.31     218,925   55.04 
  Multi-family and commercial real estate .....   50,955    12.24      42,120    10.48      32,254    8.11 
                                                --------   ------    --------   ------    --------  ------ 
    Total real estate loans ...................  220,965    53.08     264,375    65.79     251,179   63.15 

Consumer:                                                                                                  
  Home equity lines of credit .................   21,976     5.28      25,205     6.27      27,342    6.87 
  Conventional second mortgages ...............       --       --          --       --          --      -- 
  Automobile loans ............................       --       --          --       --          --      -- 
  Credit cards ................................       --       --          --       --          --      -- 
  Other consumer loans ........................       --       --          --       --          --      -- 
                                                --------   ------    --------   ------    --------  ------ 
    Total consumer loans ......................   21,976     5.28      25,205     6.27      27,342    6.87 

Commercial business loans .....................    9,340     2.24       8,396     2.09       9,970    2.51 
                                                --------   ------    --------   ------    --------  ------ 
    Total adjustable-rate loans ...............  252,281    60.60     297,976    74.15     288,491   72.53 
                                                 -------   ------    --------   ------    --------  ------ 
    Total loans ...............................  416,310   100.00%    401,849   100.00%    397,751  100.00%
                                                           ======               ======              ====== 
Less:                                                                                                      
Net deferred loan origination fees and costs ..      (18)                (214)                (532)        
Allowance for loan losses .....................   (3,533)              (3,105)              (3,249)        
                                                --------             --------             --------         
    Total loans receivable, net ............... $412,759             $398,530             $393,970         
                                                ========             ========             ========         

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     The following table illustrates the contractual maturity of the Bank's loan
portfolio at June 30, 1998.  Mortgages  which have  adjustable  or  renegotiable
interest rates are shown as maturing in the period in which the contract is due.
The schedule does not reflect the effects of possible prepayments or enforcement
of due-on-sale clauses.                                                         

                                                        [Enlarge/Download Table]

                                Real Estate Loans                                      Consumer Loans                
                           ---------------------------                  ---------------------------------------------
                           One- to four-  Multi-family    Commercial      Home equity      Conventional    Automobile
                              family       commercial   business loans  lines of credit  second mortgages     Loans  
                           -------------  ------------  --------------  ---------------  ----------------  ----------
                                                         (Dollars in Thousands)                                      
                                                                                                                     
Amounts Due:                                                                                                         
  0 months to 1 year .....   $     14        $18,965        $ 4,975         $    --           $   165        $  460  
After 1 year:                                                                                                        
  1 to 2 years ...........         51          7,874          2,825              --               456         1,703  
  2 to 3 years ...........         84          6,488          1,380              --               810         2,582  
  3 to 5 years ...........        742          5,395          3,068              --             4,593         4,982  
  5 to 10 years ..........      9,401         34,418          1,578             221             7,135            26  
  10 to 15 years .........     41,247         10,151            200           3,736             1,926            30  
  Over 15 years ..........    206,860          9,938            965          18,019                 8            --  
                             --------        -------        -------         -------           -------        ------  
Total due after 1 year ...    258,385         74,264         10,016          21,976            14,928         9,323  
                             --------        -------        -------         -------           -------        ------  
Total amount due .........   $258,399        $93,229        $14,991         $21,976           $15,093        $9,783  
                             ========        =======        =======         =======           =======        ======  
Less:                                                                                                                
  Net deferred loan                                                                                                  
    origination fees                                                                                                 
    and costs ............                                                                                           
  Allowance for loan                                                                                                 
    losses ...............                                                                                           

    Total loans                                                                                                      
      receivable, net ....                                                                                           

                 Consumer Loans                Total
                    -----------------------   ------------------
                                     Other              Weighted
                                   consumer              Average
                  Credit cards     loans     Amount     Rate
                    ------------   --------   --------  --------
                    (Dollars in Thousands)
Amounts Due:                                                                    
0 months to 1 year .....     $1,655       $   68    $ 26,302    8.52%       
After 1 year:                                                                   
1 to 2 years ...........         --          145      13,054    9.40        
2 to 3 years ...........         --          224      11,568    8.78        
3 to 5 years ...........         --          114      18,894    8.42        
5 to 10 years ..........         --          340      53,119    8.48        
10 to 15 years .........         --          100      57,390    7.90        
Over 15 years ..........         --          193     235,983    7.87        
             ------       ------    --------
Total due after 1 year ...         --        1,116     390,008    8.06          
             ------       ------    --------
Total amount due .........     $1,655       $1,184     416,310    8.09          
 ======       ======
Less:                                                                           
Net deferred loan                                                           
origination fees                                                        
and costs ............                                 (18)             
Allowance for loan                                                          
losses ...............                              (3,533)             
                                    --------
Total loans                                                             
receivable, net ....                            $412,759            
                                    ========

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     The following  table sets forth the dollar amounts in each loan category at
June 30, 1998 that are  contractually  due after June 30, 1999, and whether such
loans have fixed or adjustable interest rates.                                  

                                               Due after June 30, 1999
                                              ----------------------------------
                                              Fixed      Adjustable    Total
                                              (In Thousands)
Residential real estate .................     $ 85,919     $172,466     $258,385
Commercial real estate ..................       26,412       47,852       74,264
                                              --------     --------     --------
          Total real estate loans .......      112,331      220,318      332,649

Commercial business loans ...............        4,984        5,032       10,016

Consumer loans                                                                  
     Home equity lines of credit ........           --       21,976       21,976
     Conventional second mortgages ......       14,928           --       14,928
     Automobile loans ...................        9,323           --        9,323
     Credit cards .......................           --           --           --
     Other consumer loans ...............        1,116           --        1,116
                                              --------     --------     --------
          Total consumer loans ..........       25,367       21,976       47,343
                                              --------     --------     --------

          Total loans ...................     $142,682     $247,326     $390,008
                                              ========     ========     ========

Residential Real Estate Lending                                                 

     Cohoes'  residential  real  estate  loans  consist  of  primarily  one-  to
four-family, owner occupied mortgage loans. At June 30, 1998, $258.4 million, or
62.07% of Cohoes' total loans consisted of one- to four-family residential first
mortgage  loans.  At June 30,  1998,  approximately  $88.4  million or 21.23% of
Cohoes' one- to four-family  residential first mortgage loans provided for fixed
rates of interest  and for  repayment  of  principal  over a fixed period not to
exceed 30 years.  Cohoes does not  originate  fixed-rate  loans for terms longer
than 30 years. Cohoes' fixed-rate one- to four-family residential mortgage loans
are priced  competitively  with the  market.  Accordingly,  Cohoes  attempts  to
distinguish itself from its competitors based on quality of service.            

     Cohoes generally underwrites its fixed-rate one- to four-family residential
first mortgage loans using Fannie Mae guidelines.  Until December 1997, the Bank
sold  substantially all fixed-rate  residential  mortgage loans it originated to
the secondary  market,  and continues to service the loans it sells.  Currently,
the Bank  generally  holds for  investment all adjustable and fixed rate one- to
four-family residential first mortgage loans it originates. In underwriting one-
to four-family  residential first mortgage loans, Cohoes evaluates,  among other
things,  the  borrower's  ability to make monthly  payments and the value of the
property securing the loan. Properties securing real estate loans made by Cohoes
are  appraised by  independent  fee  appraisers  approved by the Bank's Board of
Trustees.  Cohoes  requires  borrowers to obtain title  insurance,  and fire and
property  insurance  (including flood insurance,  if necessary) in an amount not
less than the amount of the loan or the replacement cost of the dwelling.       

     The Bank currently offers one- and five-year  residential ARM loans with an
interest  rate that  adjusts  annually  after the initial  period,  based on the
change in the  corresponding  term United  States  Treasury  index.  These loans
provide  for up to a 2.0%  periodic  cap and a  lifetime  cap of 6.0%  over  the
initial rate. As a consequence  of using caps, the interest rates on these loans
may not be as rate sensitive as the Bank's cost of funds. Borrowers of ARM loans
are  generally  qualified at the initial  interest rate  (however,  for one-year
ARMs,  borrowers are qualified at the maximum rate after the first  adjustment).
The Bank offers one-year ARM loans that are convertible (from the second through
the fifth year of the loan) into fixed-rate loans with interest rates based upon
the then current  market rates.  ARM loans  generally  pose greater credit risks
than fixed-rate  loans,  primarily  because as interest rates rise, the required
periodic  payment by the borrower  rises,  increasing the potential for default.
However,  as of June 30, 1998, the Bank had not experienced higher default rates
on these loans relative to its other loans. See "--Asset  Quality-Non-Performing
Assets."                                                                        

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     The Bank's one- to  four-family  mortgage  loans do not contain  prepayment
penalties and do not permit  negative  amortization  of  principal.  Real estate
loans  originated by the Bank generally  contain a "due on sale" clause allowing
the Bank to declare the unpaid  principal  balance due and payable upon the sale
of the  security  property.  The Bank has waived the due on sale clause on loans
held in its portfolio  from time to time to permit  assumptions  of the loans by
qualified borrowers.                                                            

     Generally,  Cohoes does not originate  residential mortgage loans where the
ratio of the loan amount to the value of the  property  securing the loan (i.e.,
the "loan-to-value"  ratio) exceeds 95%. If the loan-to-value ratio exceeds 80%,
Cohoes generally requires that the borrower obtain private mortgage insurance in
amounts  intended  to reduce the Bank's  exposure to 80% or less of the lower of
the appraised value or the purchase price of the property securing the loan. See
"-- Loan Origination and Sale of Loans." In addition,  on occasion the Bank will
make a loan for the construction of the borrower's  primary  residence.  At June
30, 1998 the Bank had $1.7 million in loans  outstanding for the construction of
the borrower's residence.                                                       

Multi-Family and Commercial Real Estate Lending                                 

     The Bank has engaged in  multi-family  and  commercial  real estate lending
secured primarily by apartment buildings, office buildings, nursing homes, strip
shopping  centers and mobile  home parks  located in the Bank's  primary  market
area.  At June  30,  1998,  the Bank  had  $93.2  million  of  multi-family  and
commercial  real  estate  loans,  representing  22.39% of the Bank's  total loan
portfolio.  As of June 30, 1998,  $25.8 million of this portfolio was secured by
property located in New York City.                                              

     Multi-family  and  commercial  real estate  loans  generally  have terms to
maturity  that do not  exceed  20  years.  Cohoes'  current  lending  guidelines
generally  require that the property  securing a loan generate net cash flows of
at least  120% of debt  service  after the  payment of all  operating  expenses,
excluding  depreciation,  and the  loan-to-value  ratio not  exceed 80% on loans
secured  by such  properties.  As a result  of a  decline  in the  value of some
properties in the Bank's primary market area and due to economic conditions, the
current  loan-to-value  ratio of some commercial real estate loans in the Bank's
portfolio  may exceed the initial  loan-to-value  ratio,  and the  current  debt
service  ratio may  exceed the  initial  debt  service  ratio.  Adjustable  rate
multi-family and commercial real estate loans are generally  written as ten-year
balloon  loans,  which  adjust  after five years to a margin over the  five-year
United  States  Treasury  index,  and  amortize  over a term up to 20 years.  In
underwriting  commercial  real estate  loans,  the Bank  analyzes the  financial
condition of the borrower,  the borrower's  credit history,  the reliability and
predictability of the net income generated by the property securing the loan and
the  value  of  the  property  itself.  The  Bank  generally  requires  personal
guarantees  of the  borrowers in addition to the secured  property as collateral
for such loans.  Appraisals on properties  securing commercial real estate loans
originated by the Bank are performed by independent  fee appraisers  approved by
the Board of Trustees.                                                          

     Multi-family  and commercial real estate loans  generally  present a higher
level of risk than loans secured by one- to four-family residences. This greater
risk is due to several  factors,  including the  concentration of principal in a
limited number of loans and borrowers, the effect of general economic conditions
on income  producing  properties and the increased  difficulty of evaluating and
monitoring these types of loans. Furthermore,  the repayment of loans secured by
commercial real estate is typically  dependent upon the successful  operation of
the related  real estate  project.  If the cash flow from the project is reduced
(for  example,  if leases are not  obtained or renewed,  or a  bankruptcy  court
modifies  a lease  term,  or a major  tenant  is  unable  to  fulfill  its lease
obligations),  the borrower's  ability to repay the loan may be impaired and the
value of the property may be reduced.                                           

Consumer Lending                                                                

     The Bank  offers  a  variety  of  secured  and  unsecured  consumer  loans,
including  home  equity  lines of credit and second  mortgages  and, to a lesser
extent,  automobile  and  credit  card  loans.  Substantially  all of the Bank's
consumer loans are originated on property  located or for customers  residing in
the Bank's  primary  market area.  At June 30, 1998,  the Bank's  consumer  loan
portfolio totaled $49.7 million, or 11.94% of the Bank's total loan portfolio.  

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     The Bank's home equity lines of credit and second  mortgages are secured by
a lien on the borrower's residence and generally do not exceed $100,000.  Cohoes
uses the same underwriting  standards for home equity lines of credit and second
mortgages as it uses for one- to four-family  residential  mortgage loans.  Home
equity lines of credit and second mortgages are generally  originated in amounts
which, together with all prior liens on such residence, do not exceed 80% of the
appraised  value of the property  securing the loan. The interest rates for home
equity  loans and lines of credit  float at a stated  margin over the prime rate
and second mortgages  generally have fixed interest rates.  Home equity lines of
credit require  interest and principal  payments on the outstanding  balance for
the term of the loan.  The terms of the Bank's home  equity  lines of credit are
generally 25 years. As of June 30, 1998, the Bank had $22.0 million, or 5.28% of
the Bank's  total loan  portfolio  outstanding,  in home equity lines of credit,
with an  additional  $12.9  million of unused home equity  lines of credit,  and
$15.1 million, or 3.63% of the Bank's total loan portfolio, in second mortgages.

     The  underwriting  standards  employed by the Bank for consumer loans other
than home  equity  lines of credit  and  second  mortgages  generally  include a
determination  of  the  applicant's  payment  history  on  other  debts  and  an
assessment of ability to meet existing  obligations and payments on the proposed
loan. Although  creditworthiness of the applicant is the primary  consideration,
the underwriting process also includes a comparison of the value of the property
securing the loan, if any, in relation to the proposed loan amount.             

     The Bank's  automobile  loans are  originated as  installment  loans with a
fixed  interest  rate and terms of up to 60 months for new vehicles and up to 60
months for certain used  vehicles.  The Bank  originates  its  automobile  loans
directly and will loan up to 100% of the value of a new automobile and up to 90%
of the value of a used automobile.  At June 30, 1998, Cohoes had $9.8 million of
automobile loans.                                                               

     The Bank does not originate any consumer  loans on an indirect basis (i.e.,
where loan  contracts are purchased  from  retailers of goods or services  which
have extended credit to their customers).                                       

     Consumer  loans may entail greater  credit risk than  residential  mortgage
loans,  particularly  in the case of consumer  loans which are  unsecured or are
secured by assets  which may decline in value.  In such cases,  any  repossessed
collateral for a defaulted  consumer loan may not provide an adequate  source of
repayment  of  the  outstanding  loan  balance  as  a  result  of  high  initial
loan-to-value ratios,  repossession,  rehabilitation and carrying costs, and the
greater likelihood of damage, loss or depreciation of the property, and thus are
more  likely to be affected by adverse  personal  circumstances.  In the case of
automobile loans,  which may have loan balances in excess of the resale value of
the   collateral,   borrowers  may  abandon  the  collateral   property   making
repossession by the Bank and subsequent  losses more likely.  The application of
various federal and state laws,  including  bankruptcy and insolvency  laws, may
limit the amount which can be recovered on consumer loans,  including automobile
loans.                                                                          

Commercial Business Lending                                                     

     At June 30, 1998,  commercial  business loans comprised  $15.0 million,  or
3.60% of the Bank's total loan portfolio. Most of the Bank's commercial business
loans have been extended to finance local businesses and include primarily short
term loans to finance machinery and equipment purchases,  inventory and accounts
receivable.  Commercial  business  loans also involve the extension of revolving
credit for a combination of equipment acquisitions and working capital needs.   

     The terms of loans  extended on machinery  and  equipment  are based on the
projected  useful life of such machinery and equipment,  generally not to exceed
seven years.  Lines of credit generally are available to borrowers provided that
the  outstanding  balance  is paid in full  (i.e.,  the  credit  line has a zero
balance) for at least 30 days every year. All lines of credit are reviewed on an
annual basis.  In the event the borrower does not meet this 30 day  requirement,
the  line of  credit  may be  terminated  and  the  outstanding  balance  may be
converted into a fixed term loan.  The Bank has a few standby  letters of credit
outstanding  which are offered at competitive  rates and terms and are generally
on a secured basis.                                                             

     Unlike residential mortgage loans,  commercial business loans are typically
made on the basis of the borrower's ability to make repayment from the cash flow
of the borrower's business. As a result, the availability of funds for the      

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repayment of commercial  business  loans may be  substantially  dependent on the
success of the business itself (which,  in turn, is often dependent in part upon
general economic conditions).  The Bank's commercial business loans are usually,
but not always, secured by business assets. However, the collateral securing the
loans may  depreciate  over time, may be difficult to appraise and may fluctuate
in value based on the success of the business.                                  

     The  Bank   commercial   business   lending  policy  includes  credit  file
documentation and analysis of the borrower's  background,  capacity to repay the
loan,  the  adequacy  of the  borrower's  capital and  collateral  as well as an
evaluation  of  other  conditions  affecting  the  borrower.   Analysis  of  the
borrower's  past,  present and future cash flows is also an important  aspect of
the  Bank's  current  credit  analysis.  The  Bank  generally  obtains  personal
guarantees  on its  commercial  business  loans.  Nonetheless,  such  loans  are
believed to carry higher credit risk than more traditional savings bank loans.  

Loan Originations and Sales                                                     

     Mortgage and commercial loan originations are developed from the continuing
business with  depositors and borrowers,  soliciting  realtors and other brokers
and walk-in  customers.  Residential and commercial  loans are originated by the
Bank's staff of salaried and  commissioned  loan  personnel,  as well as through
established relationships with certain mortgage brokers.                        

     While the Bank  originates  both  fixed-  and  adjustable-rate  loans,  its
ability to originate  loans is dependent upon demand for loans in the markets in
which it serves.  Demand is affected  by the  applicable  local  economy and the
interest rate environment. Until December 1997, the Bank sold all its fixed-rate
loans to the secondary market, servicing retained. Currently, the Bank generally
retains its fixed-rate and  adjustable-rate  real estate loans in its portfolio.
At June 30, 1998,  the Bank serviced  approximately  $233.1 million of loans for
others.                                                                         

     During the year ended June 30, 1998, the Bank originated  $180.7 million of
loans, compared to $141.5 million in fiscal 1997.                               

     In periods of economic  uncertainty,  the Bank's ability to originate large
dollar  volumes of loans with  acceptable  underwriting  characteristics  may be
substantially  reduced or restricted which may result in a decrease in operating
earnings.                                                                       

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     The following table shows the loan origination and repayment  activities of
the Bank for the periods indicated.                                             

                                               Year Ended June 30,
                                              ----------------------------------
                                             1998        1997         1996
                                             ----        ----         ----
                                            (In Thousands)
Loans at beginning of period ............     $401,849     $397,751     $382,668
                                              --------     --------     --------
Originations by type:                                                           
Real estate loans:                                                          
     One- to four-family ................      107,991       74,641       73,829
Multi-family and commercial                                           
       real estate ......................       33,171       32,132       20,521
                                              --------     --------     --------
           Total real estate loans ......      141,162      106,773       94,350

Consumer loans:                                                             
     Home equity lines of credit ........        8,243        9,092       10,108
     Conventional second mortgages ......        5,918        7,069        4,240
     Automobile loans ...................        6,766        5,189        6,466
     Credit cards .......................        2,561        3,052        3,408
     Other consumer loans ...............          822          814        1,024
                                              --------     --------     --------
           Total consumer loans .........       24,310       25,216       25,246

     Commercial business loans ..........       15,195        9,461       10,726
                                              --------     --------     --------

     Total loans originated .............      180,667      141,450      130,322
                                              --------     --------     --------
Less:                                                                           
     Principal repayments ...............      155,969      123,732       98,618
     Loan sales .........................        8,105        9,567       15,747
     Charge-offs ........................        1,038        1,376          239
     Transfers to ORE ...................        1,094        2,677          635
                                              --------     --------     --------
        Total loan reductions ...........      166,206      137,352      115,239
                                              --------     --------     --------
Net Loan Activity .......................       14,461        4,098       15,083
                                              --------     --------     --------
Loans at end of period ..................     $416,310     $401,849     $397,751
                                              ========     ========     ========

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Asset Quality                                                                   

     Delinquency Procedures. When a borrower fails to make a required payment on
a one- to four-family  residential  mortgage loan, the Bank attempts to cure the
deficiency by contacting the borrower.  Written  contacts are made after payment
is 15 days past due and, in most cases,  deficiencies  are cured  promptly.  The
Bank  attempts to contact the borrower by  telephone  to arrange  payment of the
delinquency  between  the 16th  and the 30th  day.  If  these  efforts  have not
resolved the  delinquency  within 45 days after the due date,  a second  written
notice  is sent to the  borrower,  and on the 60th  day a notice  is sent to the
borrower  warning that  foreclosure  proceedings  will be  commenced  unless the
delinquent  amount  is paid.  If the  delinquency  has not been  cured  within a
reasonable  period of time after the foreclosure  notice has been sent, the Bank
may obtain a forbearance  agreement or may institute appropriate legal action to
foreclose upon the property. If foreclosed, property collateralizing the loan is
sold at a public sale and may be purchased  by the Bank.  If the Bank is in fact
the successful  bidder at the  foreclosure  sale,  upon receipt of a deed to the
property, the Bank generally sells the property at the earliest possible date.  

     Collection  efforts on consumer,  commercial  business and multi-family and
commercial  real  estate  loans are  similar to  efforts on one- to  four-family
residential  mortgage  loans,  except that  collection  efforts on consumer  and
multi-family  commercial  real estate loans generally begin within 15 days after
the  payment  date is missed.  The Bank also  maintains  periodic  contact  with
commercial  loan  customers  and monitors and reviews the  borrowers'  financial
statements and compliance with debt covenants on a regular basis.               

     Delinquent  Loans.  The following table sets forth  information  concerning
delinquent  loans as June 30, 1998, in dollar amounts and as a percentage of the
Bank's loan  portfolio.  The amounts  presented  represent  the total  remaining
principal balances of the related loans,  rather than the actual payment amounts
which are overdue.                                                              

                                                        [Enlarge/Download Table]

                                                                      June 30, 1998                                              
                              ---------------------------------------------------------------------------------------------------
                                                                                                        Total loans delinquent   
                                       60-89 days                   90 days or more                        60 days or more       
                             -----------------------------  ---------------------------------    --------------------------------
                                       Principal   Percent               Principal    Percent                Principal    Percent
                              Number    Balance    of Loan    Number      Balance     of Loan     Number      Balance     of Loan
                             of Loans  of Loans   Category   of Loans    of Loans    Category    of Loans    of Loans    Category
                             --------  --------   --------   --------    --------    --------    --------    --------    --------
                                                                          (Dollars in Thousands)                                 
                                                                                                                                 
Real estate loans:                                                                                                               
 One- to four-family                                                                                                             
   real estate ..............    9    $  757       0.29%         33      $2,635         1.02%       42        $3,392       1.31% 
 Multi-family and                                                                                                                
   commercial real estate ...    3       263       0.28           6         823         0.88         9         1,086       1.17  
                               ---    ------                    ---      ------                    ---        ------             
   Total real estate loans ..   12     1,020       0.29          39       3,458         0.98        51         4,478       1.27  

Consumer loans:                                                                                                                  
 Home equity lines                                                                                                               
   of credit ................    1        14       0.06           1          40         0.18         2            54       0.25  
 Conventional second                                                                                                             
   mortgages ................    1        41       0.27           3          35         0.23         4            76       0.50  
 Automobile loans ...........    3        10       0.10           6          32         0.33         9            42       0.43  
 Credit cards ...............    9        23       1.39          20          57         3.44        29            80       4.83  
 Other consumer loans .......    2         2       0.17           8          33         2.79        10            35       2.96  
                               ---       ---                    ---       -----                    ---         -----             
   Total consumer loans .....   16        90       0.18          38         197         0.40        54           287       0.58  

Commercial business loans ...   --        --         --           1          65         0.43         1            65       0.43  
                               ---    ------                    ---      ------                    ---        ------             
   Total delinquent loans ...   28    $1,110       0.27%         78      $3,720         0.89%      106        $4,830       1.16% 
                               ===    ======       ====         ===      ======         ====       ===        ======       ====  

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     Non-Performing   Assets.  The  table  below  sets  forth  the  amounts  and
categories of non-performing  assets.  Loans are generally placed on non-accrual
status  when  the  loan is  contractually  past  due 90 days or more or when the
collection of principal and/or interest in full becomes doubtful. When loans are
designated as non-accrual,  all accrued but unpaid interest is reversed  against
current  period income and, as long as the loan remains on  non-accrual  status,
interest  is  recognized  only  when  received,  if  considered  appropriate  by
management. ORE includes assets acquired in settlement of loans.                

                                                        [Enlarge/Download Table]

                                                                                           June 30,                           
                                                               ---------------------------------------------------------------
                                                                1998          1997          1996          1995          1994  
                                                                ----          ----          ----          ----          ----  
                                                                                   (Dollars in Thousands)                     
Non-accrual loans:                                                                                                            
                                                                                                                              
     One- to four-family real estate ......................... $2,635        $2,835        $1,852        $  441        $  891 
     Multi-family and commercial real estate .................    823         1,246         3,438         1,820         1,299 
     Conventional second mortgages ...........................     35            62            48            35            84 
     Consumer loans ..........................................    105           380           245            40            17 
     Commercial business loans ...............................     65           217            --            --            -- 
                                                               ------        ------        ------        ------        ------ 
               Total non-accrual loans .......................  3,663         4,740         5,583         2,336         2,291 

Loans contractually past due 90 days or more                                                                                  
 and still accruing interest:                                                                                                 
     Multi-family and commercial real estate .................     --            --            --           308           317 
     Consumer loans ..........................................     57            42           158            67            18 
                                                               ------        ------        ------        ------        ------ 
               Total loans 90 days or more past                                                                               
                 due and still accruing interest .............     57            42           158           375           335 

Troubled debt restructurings .................................  1,929         1,906         2,052         2,352         2,266 
                                                               ------        ------        ------        ------        ------ 
               Total non-performing loans ....................  5,649         6,688         7,793         5,063         4,892 

Real estate owned (ORE) ......................................    509         1,874           421           396           437 
                                                               ------        ------        ------        ------        ------ 
               Total non-performing assets ................... $6,158        $8,562        $8,214        $5,459        $5,329 
                                                               ======        ======        ======        ======        ====== 
Allowance for loan losses .................................... $3,533        $3,105        $3,249        $3,133        $3,011 
                                                               ======        ======        ======        ======        ====== 

Coverage of non-performing loans .............................  62.54%        46.43%        41.69%        61.88%        61.55%
                                                               ======        ======        ======        ======        ====== 
Total non-performing loans as a percentage                                                                                    
 of total loans ..............................................   1.36%         1.66%         1.96%         1.32%         1.54%
                                                               ======        ======        ======        ======        ====== 
Total non-performing loans as a percentage                                                                                    
 of total assets .............................................   1.05%         1.36%         1.68%         1.10%         1.21%
                                                               ======        ======        ======        ======        ====== 

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     Non-Accruing  Loans.  At June 30,  1998,  the Bank had  approximately  $3.7
million in non-accruing  loans,  which constituted 0.9% of the Bank's total loan
portfolio.  As of such  date,  there  were no  non-accruing  loans or  aggregate
non-accruing loans-to-one-borrower in excess of $750,000.                       

     For the year ended June 30, 1998 accumulated  interest income on nonaccrual
loans of approximately $214,000 was not recognized as income.                   

     Accruing Loans Contractually Past Due 90 Days or More. As of June 30, 1998,
the Bank had approximately  $57,000 in accruing loans  contractually past due 90
days or more.                                                                   

     Troubled  Debt   Restructurings.   As  of  June  30,  1998,  the  Bank  had
approximately  $1.9  million of  troubled  debt  restructurings  (which  involve
forgiving a portion of interest or principal on the loan or restructuring a loan
to a rate materially less than that of market rates).  At that date,  there were
no troubled debt restructurings in excess of $750,000.                          

     ORE. As of June 30, 1998,  the Bank had $509,000 of ORE. At that date,  ORE
consisted of 14 residential  and one commercial  property  located in the Bank's
primary  market  area.  Real estate and other  assets  acquired by the Bank as a
result of foreclosure or by  deed-in-lieu  of  foreclosure or  repossession  are
classified as ORE until sold. When property is classified as ORE, it is recorded
at the lower of cost or fair value (net of  disposition  costs) at that date and
any writedown  resulting  therefrom is charged to the allowance for loan losses.
Subsequent writedowns are charged to operating expenses. Net expense from ORE is
expensed as incurred.                                                           

     Other Loans of Concern.  As of June 30,  1998,  there was $636,000 of other
loans not included in the table or discussed above where known information about
the possible  credit or other  problems of borrowers  caused  management to have
doubts as to the ability of the borrower to comply with  present loan  repayment
terms.  These loans have been  considered by management in conjunction  with the
analysis of the adequacy of the allowance for loan losses.                      

     Allowance for Loan Losses.  The  allowance  for loan losses is  replenished
through a provision  for loan losses  charged to  operations.  Loans are charged
against  the  allowance  for  loan  losses  when  management  believes  that the
collectibility  of the  principal is unlikely.  Recoveries  on loans  previously
charged-off  are credited to the allowance for loan losses.  The allowance is an
amount that  management  believes  will be adequate to absorb losses on existing
loans that may become uncollectible.  Management's evaluation of the adequacy of
the  allowance  for loan losses is performed on a periodic  basis and takes into
consideration  such factors as the historical loan loss  experience,  changes in
the nature and volume of the loan portfolio,  overall portfolio quality,  review
of  specific  problem  loans and  current  economic  conditions  that may affect
borrowers' ability to pay.                                                      

     Although management believes that it uses the best information available to
determine  the  allowance,   unforeseen   market   conditions  could  result  in
adjustments and net earnings could be  significantly  affected if  circumstances
differ  substantially  from the assumptions used in determining the level of the
allowance.  Future  additions  to the  Bank's  allowance  will be the  result of
periodic loan,  property and collateral  reviews and thus cannot be predicted in
advance.  In  addition,   regulatory  agencies,  as  an  integral  part  of  the
examination  process,  periodically review the Bank's allowance for loan losses.
Such agencies may require the Bank to recognize additions to the allowance based
upon their  judgment of the  information  available to them at the time of their
examination. At June 30, 1998, the Bank had a total allowance for loan losses of
$3.5 million, representing 62.5% of total non-performing loans.                 

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     The following table sets forth an analysis of the Bank's allowance for loan
losses at the dates and for the periods indicated.                              

                                                        [Enlarge/Download Table]

                                                                        At or for the fiscal year ended June 30,              
                                                          ------------------------------------------------------------------  
                                                           1998            1997          1996           1995            1994  
                                                           ----            ----          ----           ----            ----  
                                                                                 (Dollars in Thousands)                       
                                                                                                                              
Allowance for loan losses, beginning period ............. $ 3,105        $ 3,249        $ 3,133        $ 3,011        $ 2,308 
Charged-off loans:                                                                                                            
  Real estate loans                                                                                                           
    One- to four-family real estate .....................     432            619            128             79             35 
    Multi-family and commercial real estate .............      93            343             21             --             -- 
                                                          -------        -------        -------        -------        ------- 
       Total real estate loan charge-offs ...............     525            962            149             79             35 

  Commercial business loans charge-offs .................     218            105              4             --             -- 

  Consumer loans                                                                                                              
    Home equity lines of credit .........................      84             39             18             --             -- 
    Conventional second mortgages .......................      16              1             --             --              7 
    Automobile loans ....................................     121             55             23             28              1 
    Credit cards ........................................     212            353            132             91              1 
    Other consumer loans ................................      41             56             75             37             14 
                                                          -------        -------        -------        -------        ------- 
       Total consumer loan charge-offs ..................     474            504            248            156             23 
                                                          -------        -------        -------        -------        ------- 
       Total charged-off loans ..........................   1,217          1,571            401            235             58 

Recoveries on loans previously charged-off:                                                                                   
    One- to four-family real estate .....................      78             28              4             --             -- 
    Multi-family and commercial real estate .............      93             40             13             --             -- 
                                                          -------        -------        -------        -------        ------- 
       Total real estate loan recoveries ................     171             68             17             --             -- 

    Commercial business loan recoveries .................      35             --              1             --             -- 

    Consumer loans                                                                                                            
      Home equity lines of credit .......................      --              4             --             --             -- 
      Conventional second mortgages .....................      --             --              3              8             -- 
      Automobile loans ..................................       8              5             --              3              1 
      Credit cards ......................................      23             16              4              2             -- 
      Other consumer loans ..............................       8              9              2             14             10 
                                                          -------        -------        -------        -------        ------- 
        Total consumer loan recoveries ..................      39             34              9             27             11 
                                                          -------        -------        -------        -------        ------- 
        Total recoveries ................................     245            102             27             27             11 
                                                          -------        -------        -------        -------        ------- 
Net loans charged-off ...................................    (972)        (1,469)          (374)          (208)           (47)

Provision for loan losses ...............................   1,400          1,325            490            330            750 
                                                          -------        -------        -------        -------        ------- 
Allowance for loan losses, end of period ................ $ 3,533        $ 3,105        $ 3,249        $ 3,133        $ 3,011 
                                                          =======        =======        =======        =======        ======= 
Net charged-off loans to average loans ..................    0.24%          0.37%          0.10%          0.06%          0.01%
                                                          =======        =======        =======        =======        ======= 
Allowance for loan losses to total loans ................    0.85%          0.77%          0.82%          0.82%          0.95%
                                                          =======        =======        =======        =======        ======= 
Allowance for loan losses to                                                                                                  
  nonperforming loans ...................................   62.54%         46.43%         41.69%         61.88%         61.55%
                                                          =======        =======        =======        =======        ======= 
Net charged-off loans to allowance                                                                                            
  for loan losses       .................................   27.51%         47.31%         11.51%          6.64%          1.56%
                                                          =======        =======        =======        =======        ======= 
Recoveries to charged-offs ..............................   20.13%          6.49%          6.73%         11.49%         18.97%
                                                          =======        =======        =======        =======        ======= 

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Allocation of the Allowance for Loan Losses                                     

     The  following  table sets forth the  allocation  of the allowance for loan
losses  by  category  as  prepared  by the  Bank.  This  allocation  is based on
management's  assessment as of a given point in time of the risk characteristics
of each of the  component  parts of the total loan  portfolio  and is subject to
changes as and when the risk factors of each such  component  part  change.  The
allocation  is not  indicative  of  either  the  specific  amounts  or the  loan
categories in which future  charge-offs may be taken,  nor should it be taken as
an indicator of future loss trends.  The  allocation  to each  category does not
restrict the use of the allowance to absorb losses in any category.             

                                                        [Enlarge/Download Table]

                                                                                 June 30,                                           
                                      ----------------------------------------------------------------------------------------------
                                                   1998                            1997                            1996             
                                      ------------------------------  ------------------------------  ------------------------------
                                                            Percent                         Percent                         Percent 
                                                            of Loans                        of Loans                        of Loans
                                                Percent of  in Each             Percent of  in Each             Percent of  in Each 
                                      Allowance  Allowance  Category  Allowance  Allowance  Category  Allowance  Allowance  Category
                                       for Loan  to Total   to Total   for Loan  to Total   to Total   for Loan  to Total   to Total
                                        Losses   Allowance Allowance    Losses   Allowance Allowance    Losses   Allowance Allowance
                                      --------- ---------- ---------  --------- ---------- ---------  --------- ---------- ---------
                                                                          (Dollars in Thousands)                                    
                                                                                                                                    
Real estate loans                                                                                                                   
  One- to four-family real estate ...   $  649     18.37%    62.07%     $  493     15.88%    60.62%     $  591     18.19%    59.06% 
  Multi-family and commercial                                                                                                       
    real estate .....................    1,438     40.70     22.39       1,339     43.12     23.39       1,848     56.88     24.29  
                                        ------    ------    ------      ------    ------    ------      ------    ------    ------  
      Total real estate loans .......    2,087     59.07     84.46       1,832     59.00     84.01       2,439     75.07     83.35  

Consumer loans                                                                                                                      
  Home equity lines of credit .......       41      1.16      5.28          24      0.77      6.27         158      4.86      6.87  
  Conventional second mortgages .....       26      0.74      3.63          22      0.71      3.50           9      0.28      2.79  
  Automobile loans ..................       74      2.09      2.35          35      1.13      2.31          40      1.23      2.51  
  Credit cards ......................      154      4.36      0.40         132      4.25      0.54         183      5.63      0.70  
  Other consumer loans ..............       45      1.27      0.28          56      1.80      0.36         102      3.14      0.45  
                                        ------    ------    ------      ------    ------    ------      ------    ------    ------  
      Total consumer loans ..........   $  340      9.62     11.94         269      8.66     12.98         492     15.14     13.32  

Commercial business loans ...........      164      4.64      3.60         215      6.93      3.01         227      6.99      3.33  
Unallocated .........................      942     26.67        --         789     25.41        --          91      2.80        --  
                                        ------    ------    ------      ------    ------    ------      ------    ------    ------  
      Total .........................   $3,533    100.00%   100.00%     $3,105    100.00%   100.00%     $3,249    100.00%   100.00% 
                                        ======    ======    ======      ======    ======    ======      ======    ======    ======  
                                                        [Enlarge/Download Table]

                                                                   June 30,                             
                                      ------------------------------------------------------------------
                                                    1995                              1994              
                                      --------------------------------  --------------------------------
                                                              Percent                           Percent 
                                                              of Loans                          of Loans
                                                 Percent of   in Each              Percent of   in Each 
                                      Allowance   Allowance   Category  Allowance   Allowance   Category
                                       for Loan   to Total    to Total   for Loan   to Total    to Total
                                        Losses    Allowance  Allowance    Losses    Allowance  Allowance
                                      ---------  ----------  ---------  ---------  ----------  ---------
                                                            (Dollars in Thousands)                      
                                                                                                        
Real estate loans                                                                                       
  One- to four-family real estate ...   $  861      27.48%     59.38%     $  292       9.70%     56.78% 
  Multi-family and commercial                                                                           
    real estate .....................    1,426      45.52      22.65       1,610      53.47      24.52  
                                        ------     ------     ------      ------     ------     ------  
      Total real estate loans .......    2,287      73.00      82.03       1,902      63.17      81.30  

Consumer loans                                                                                          
  Home equity lines of credit .......       --         --       8.05          --         --      10.02  
  Conventional second mortgages .....       75       2.39       2.81          15       0.50       3.30  
  Automobile loans ..................       66       2.11       2.56          15       0.50       2.28  
  Credit cards ......................      382      12.19       0.88         263       8.73       0.98  
  Other consumer loans ..............      158       5.04       0.55          71       2.36       0.67  
                                        ------     ------     ------      ------     ------     ------  
      Total consumer loans ..........      681      21.73      14.85         364      12.09      17.25  

Commercial business loans ...........      102       3.26       3.12          --         --       1.45  
Unallocated .........................       63       2.01         --         745      24.74         --  
                                        ------     ------     ------      ------     ------     ------  
      Total .........................   $3,133     100.00%    100.00%     $3,011     100.00%    100.00% 
                                        ======     ======     ======      ======     ======     ======  

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Investment Activities                                                           

     The Bank is  authorized  to  invest  in  various  types of  liquid  assets,
including  United States  Treasury  obligations,  securities of various  federal
agencies,   certain  certificates  of  deposit  of  insured  banks  and  savings
institutions,  certain bankers'  acceptances,  repurchase agreements and federal
funds. Subject to various  restrictions,  the Bank may also invest its assets in
investment grade commercial paper and corporate debt securities and mutual funds
whose assets conform to the investments that the Bank is otherwise authorized to
make directly.                                                                  

     Generally,  the  investment  policy  of the Bank is to invest  funds  among
various  categories of investments and maturities based upon the Bank's need for
liquidity, to achieve the proper balance between its desire to minimize risk and
maximize  yield,  and,  to a much  lesser  extent,  to  provide  collateral  for
borrowings and to fulfill the Bank's  asset/liability  management  policies.  To
date,  the Bank's  investment  strategy has been  directed  toward  high-quality
assets (primarily  federal agency  obligations and  mortgage-backed  securities)
with short and intermediate terms (five years or less) to maturity.  At June 30,
1998,  the  weighted  average  term to maturity  or  repricing  of the  security
portfolio was 3.8 years. This did not take into account  securities which may be
called prior to their  contractual  maturity or repricing.  See Notes 5 and 6 of
the Notes to Consolidated  Financial  Statements for  information  regarding the
maturities of the Bank's investment and mortgage-backed securities.             

     Management  determines the appropriate  classification of securities at the
time of  purchase.  If  management  has the  intent  and  ability  to hold  debt
securities to maturity,  they are stated at amortized  cost.  If securities  are
purchased for the purpose of selling them in the near term,  they are classified
as trading  securities  and are reported at fair value with  unrealized  holding
gains and losses  reflected in current  earnings.  All other debt and marketable
equity  securities  are  classified  as  securities  available  for sale and are
reported at fair value,  with net unrealized  gains or losses  reported,  net of
income taxes, as a separate  component of equity. As a member of the FHLB of New
York,  the Bank is  required  to hold  stock  in the  FHLB of New York  which is
carried at cost since there is no readily available market value.  Historically,
the Bank has not held any securities considered to be trading securities.       

     The following  table sets forth the  composition  of the Bank's  securities
available for sale and investment securities at the dates indicated.            

                                                        [Enlarge/Download Table]

                                                                          June 30,                           
                                               --------------------------------------------------------------
                                                      1998                  1997                  1996       
                                               ------------------    ------------------    ------------------
                                               Carrying     % of     Carrying     % of     Carrying     % of 
                                                 Value     Total       Value     Total       Value     Total 
                                               --------   -------    --------   -------    --------   -------
                                                                   (Dollars in Thousands)                    
                                                                                                             
Securities available for sale, at fair value:                                                                
Debt securities                                                                                              
  US Government and Agency obligations ......   $23,237    47.69%     $18,437    51.97%     $ 7,302    34.96%
  Other obligations .........................       276     0.57          493     1.39          764     3.65 
  Mortgage-backed securities ................    16,946    34.78        6,762    19.06           --       -- 
  Collateralized mortgage obligations .......     4,003     8.22        6,302    17.77        9,404    45.03 
                                                -------   ------      -------   ------      -------   ------ 
    Total debt securities ...................    44,462    91.26       31,994    90.19       17,470    83.64 

Equity securities ...........................     4,258     8.74        3,481     9.81        3,416    16.36 
                                                -------   ------      -------   ------      -------   ------ 
    Total securities available for sale .....   $48,720   100.00      $35,475   100.00      $20,886   100.00 
                                                =======   ======      =======   ======      =======   ====== 
Investment securities at amortized cost:                                                                     
  US Government and Agency obligations ......   $22,025    48.49        6,049    23.93       10,339    39.81 
  Other obligations .........................       388     0.85          848     3.36        1,923     7.41 
  Mortgage-backed securities ................    23,011    50.66       18,376    72.71       12,073    46.49 
  Industrial and financial ..................        --       --           --       --        1,634     6.29 
                                                -------   ------      -------   ------      -------   ------ 
    Total investment securities .............   $45,424   100.00%     $25,273   100.00%     $25,969   100.00%
                                                -------   ======      -------   ======      -------   ====== 
Investment securities at fair value .........   $45,547               $25,186               $25,520          
                                                =======               =======               =======          

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     The  following  table  sets  forth  information   regarding  the  scheduled
maturities,   amortized  cost,  and  weighted  average  yields  for  the  Bank's
securities portfolios at June 30, 1998 by contractual  maturity.  The table does
not take into  consideration  the effects of  scheduled  repayments  or possible
prepayments.                                                                    

                                                        [Enlarge/Download Table]

                                                                             At June 30, 1998                                 
                                            ----------------------------------------------------------------------------------
                                              Less than 1 year       1 to 5 years        5 to 10 years        Over 10 years   
                                            -------------------  -------------------  -------------------  -------------------
                                                       Weighted             Weighted             Weighted             Weighted
                                            Amortized   Average  Amortized   Average  Amortized   Average  Amortized   Average
                                               Cost      Yield      Cost      Yield      Cost      Yield      Cost      Yield 
                                            ---------  --------  ---------  --------  ---------  --------  ---------  --------
                                                                          (Dollars in Thousands)                              
                                                                                                                              
Securities available for sale:                                                                                                
  US Government and Agency obligations ....    $ --        --%    $23,296     6.05%    $    --       --%     $   --       --% 
  Other obligations .......................      --        --          71     5.09         200     6.60          --       --  
  Mortgage-backed securities ..............      --        --      16,855     6.39          --       --          --       --  
  Collateralized mortgage obligations .....     179      6.91       2,432     5.85       1,408     6.65          --       --  
  Other equity securities .................      --        --          --       --          --       --         708     5.63  
                                               ----      ----     -------     ----     -------     ----      ------     ----  
    Sub-total .............................     179      6.91      42,654     6.17       1,608     6.64         708     5.63  
  FHLB stock ..............................      --        --          --       --          --       --       3,552     7.45  
                                               ----      ----     -------     ----     -------     ----      ------     ----  
    Total securities available for sale ...    $179      6.91     $42,654     6.17     $ 1,608     6.64      $4,260     7.15  
                                               ====      ====     =======     ====     =======     ====      ======     ====  
Investment securities:                                                                                                        
  US Government and Agency obligations ....    $ 25      7.38     $22,000     6.08     $    --       --      $   --       --  
  Other obligations .......................      --        --         271     6.40         117     7.25          --       --  
  Mortgage-backed securities ..............     657      6.85      10,452     6.68      11,519     6.23         383     7.05  
                                               ----      ----     -------     ----     -------     ----      ------     ----  
    Total investment securities ...........    $682      6.87%    $32,723     6.27%    $11,636     6.24%     $  383     7.05% 
                                               ====      ====     =======     ====     =======     ====      ======     ====  

                                                                [Download Table]

                                                  At June 30, 1998      
                                            ----------------------------
                                                  Total Securities      
                                            ----------------------------
                                                       Weighted         
                                            Amortized   Average    Fair 
                                               Cost      Yield    Value 
                                            ---------  --------  -------
                                               (Dollars in Thousands)   
                                                                        
Securities available for sale:                                          
  US Government and Agency obligations ....  $23,296     6.05%   $23,237
  Other obligations .......................      271     6.20        276
  Mortgage-backed securities ..............   16,855     6.39     16,946
  Collateralized mortgage obligations .....    4,019     6.18      4,003
  Other equity securities .................      708     5.63        706
                                             -------     ----    -------
    Sub-total .............................   45,149     6.18     45,168
  FHLB stock ..............................    3,552     7.45      3,552
                                             -------     ----    -------
    Total securities available for sale ...  $48,701     6.27    $48,720
                                             =======     ====    =======
Investment securities:                                                  
  US Government and Agency obligations ....  $22,025     6.08    $21,999
  Other obligations .......................      388     6.66        389
  Mortgage-backed securities ..............   23,011     6.47     23,159
                                             -------     ----    -------
    Total investment securities ...........  $45,424     6.28%   $45,547
                                             =======     ====    =======

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Sources of Funds                                                                

     General. The Bank's primary sources of funds are deposits, amortization and
prepayment of loan principal, maturities of securities,  short-term investments,
funds provided from operations and borrowings.                                  

     Deposits.  The Bank offers a variety of deposit  accounts having a range of
interest  rates and terms.  The  Bank's  deposits  consist of savings  accounts,
school savings  accounts (the largest "Save For America"  school savings program
in the U.S., a volunteer  program in which students are given the opportunity to
open and maintain a savings account while at school in order to teach wise money
management),  money market  accounts,  demand deposit accounts and time deposits
currently  ranging  in terms  from  three  months to five  years.  The Bank only
solicits  deposits from its primary  market area and does not currently  solicit
brokered  deposits.  The Bank relies primarily on competitive  pricing policies,
advertising and customer  service to attract and retain these deposits.  At June
30, 1998, the Bank's deposits  totaled $450.0  million,  of which $413.4 million
were interest-bearing deposits.                                                 

     The flow of  deposits  is  influenced  significantly  by  general  economic
conditions,   changes  in  money  market  and  prevailing  interest  rates,  and
competition.  The variety of deposit accounts offered by the Bank has allowed it
to be competitive in obtaining funds and to respond with  flexibility to changes
in  consumer  demand.  The  Bank  has  become  more  susceptible  to  short-term
fluctuations  in deposit  flows,  as customers  have become more  interest  rate
conscious.  The Bank  manages  the pricing of its  deposits in keeping  with its
asset/liability management, liquidity and profitability objectives. Based on its
experience, the Bank believes that its savings, school savings, money market and
demand deposit accounts are relatively stable sources of deposits.  However, the
ability of the Bank to attract and maintain  time deposits and the rates paid on
these deposits has been and will continue to be significantly affected by market
conditions.                                                                     

     The following table sets forth the distribution and deposit activity of the
Bank's deposit accounts for the periods indicated.                              

                                                        [Enlarge/Download Table]

                                            School    Money    Demand     Time                Total Number
                                 Savings   Savings   Market   Deposits  Deposits     Total     of Accounts
                                ---------  -------  --------  --------  --------   --------   ------------
                                                  (Dollars in Thousands)                                  
                                                                                                          
Balance as of June 30, 1995 ... $127,333   $ 6,813  $18,966    $33,432  $212,419   $398,963      74,668   
Net deposits (withdrawals) ....   (2,094)    3,499   (2,886)     5,001   (15,575)   (12,055)              
Interest credited .............    3,722       310      487        250    12,862     17,631               
                                --------   -------  -------    -------  --------   --------               
Balance as of June 30, 1996 ...  128,961    10,622   16,567     38,683   209,706    404,539      79,283   
Net deposits (withdrawals) ....   (8,780)    2,698   (1,565)     6,887     7,990      7,230               
Interest credited .............    3,700       589      448        274    12,610     17,621               
                                --------   -------  -------    -------  --------   --------               
Balance as of June 30, 1997 ...  123,881    13,909   15,450     45,844   230,306    429,390      86,741   
Net deposits (withdrawals) ....   (1,898)    2,558    5,653      7,806   (12,778)     1,341               
Interest credited .............    3,629       788      569        303    13,521     18,810               
                                --------   -------  -------    -------  --------   --------               
Balance as of June 30, 1998 ... $125,612   $17,255  $21,672    $53,953  $231,049   $449,541      89,370   
                                ========   =======  =======    =======  ========   ========               

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     The following table sets forth the dollar amount of deposits in the various
types of deposit programs offered by the Bank as of the dates indicated.        

                                                        [Enlarge/Download Table]

                                                              Balance as of June 30,                     
                                          ---------------------------------------------------------------
                                                  1998                  1997                  1996       
                                          -------------------  --------------------   -------------------
                                                      Percent               Percent               Percent
                                           Amount    of Total    Amount    of Total    Amount    of Total
                                          --------   --------   --------   --------   --------   --------
                                                              (Dollars in Thousands)                     
                                                                                                         
Savings accounts (3.0%) ................. $125,612     27.94%   $123,881     28.85%   $126,951     31.38%
School savings accounts (5.5%) ..........   17,255      3.84      13,909      3.24      10,622      2.63 
Money market accounts (2.75% to 3.93%) ..   21,672      4.82      15,450      3.60      16,567      4.10 
Demand deposits (0% to 1.75%) ...........   53,953     12.00      45,844     10.68      40,693     10.06 

Time deposits:                                                                                           
  2.00-2.99% ............................       --        --          --        --           5      0.00 
  3.00-3.99% ............................        2      0.00          14      0.00       3,470      0.86 
  4.00-4.99% ............................    4,105      0.91      10,325      2.40      47,062     11.63 
  5.00-5.99% ............................  190,539     42.39     166,966     38.88      81,589     20.17 
  6.00-6.99% ............................   17,664      3.93      25,244      5.88      47,513     11.74 
  7.00-7.99% ............................   18,709      4.16      27,727      6.46      30,067      7.43 
  8.00-8.99% ............................       30      0.01          30      0.01          --        -- 
                                          --------    ------    --------    ------    --------    ------ 
    Total time deposits .................  231,049     51.40     230,306     53.63     209,706     51.83 
                                          --------    ------    --------    ------    --------    ------ 
Total deposits .......................... $449,541    100.00%   $429,390    100.00%   $404,539    100.00%
                                          ========    ======    ========    ======    ========    ====== 

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     The following table shows rate and maturity information for the Bank's time
deposits as of June 30, 1998.                                                   

                                                        [Enlarge/Download Table]

                                                            Amount Due                                           
                  -----------------------------------------------------------------------------------------------
                    12 months      12 months      12 months      12 months      12 months                        
                      ended          ended          ended          ended          ended                          
                  June 30, 1999  June 30, 2000  June 30, 2001  June 30, 2002  June 30, 2003  Thereafter    Total 
                  -------------  -------------  -------------  -------------  -------------  ----------  --------
                                                          (In Thousands)                                         
                                                                                                                 
Interest Rate                                                                                                    
  3.00-3.99% ....    $     --       $    --         $   --         $   --         $    2        $ --     $      2
  4.00-4.99% ....       4,080            --             --             --             --          25        4,105
  5.00-5.99% ....     140,476        32,594          6,540          3,073          7,856          --      190,539
  6.00-6.99% ....       8,284         5,681          1,308          1,865            526          --       17,664
  7.00-7.99% ....       6,680        11,768            135            126             --          --       18,709
  8.00-8.99% ....          30            --             --             --             --          --           30
                     --------       -------         ------         ------         ------        ----     --------
    Total .......    $159,550       $50,043         $7,983         $5,064         $8,384        $ 25     $231,049
                     ========       =======         ======         ======         ======        ====     ========

     The following table indicates the amount of the Bank's time deposits by the
time remaining until maturity as of June 30, 1998.                              

                                                        [Enlarge/Download Table]

                                                            Maturity                         
                                       ---------------------------------------------------   
                                                    Over      Over                           
                                       3 Months    3 to 6   6 to 12      Over                
                                        or Less    Months    Months   12 Months     Total    
                                       --------   -------   -------   ---------   --------   
                                                         (In Thousands)                      
                                                                                             
Time deposits less than $100,000 .....  $38,586   $45,097   $54,798    $61,440    $199,921   
Time deposits $100,000 or more .......    5,204     7,791     8,074     10,059      31,128(1)
                                        -------   -------   -------    -------    --------   
    Total time deposits ..............  $43,790   $52,888   $62,872    $71,499    $231,049   
                                        =======   =======   =======    =======    ========   

----------                                                                      
(1)  Substantially  all time  deposits  of $100,000  or more are  maintained  at
negotiated rates.                                                     

     Borrowings.  Although  deposits are the Bank's primary source of funds, the
Bank's  practice  has been to  utilize  borrowings  when they are a less  costly
source of funds, can be invested at a positive  interest rate spread or when the
Bank needs additional funds to satisfy loan demand.                             

     Cohoes' borrowings  historically have consisted  primarily of advances from
the FHLB of New York and securities  sold under  agreements to repurchase.  FHLB
advances can be made  pursuant to several  different  credit  programs,  each of
which has its own  interest  rate and range of  maturities.  The Bank  currently
maintains available lines of credit and is currently  authorized to borrow up to
$49.2  million on lines of credit with the FHLB of New York.  At June 30,  1998,
the Bank had outstanding  $19.9 million in other borrowings from the FHLB of New
York. See Note 12 of the Notes to Consolidated Financial Statements.            

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     The following  table sets forth the maximum  month-end  balance and average
balance of FHLB advances and other borrowings for the periods indicated.        

                                                       Year Ended June 30,
                                                      ------------------------
                                                       1998     1997    1996
                                                      -------  -------  ------
                                                      (In Thousands)
Maximum Balance:                                                                
 FHLB advances .....................................  $19,983  $16,145  $7,100
 Securities sold under agreements to repurchase ....       --       --   6,054
 Other borrowings ..................................       --       12      59

Average Balance:                                                                
 FHLB advances .....................................  $ 5,467  $ 2,390  $1,955
 Securities sold under agreements to repurchase ....       --       --   2,700
 Other borrowings ..................................       --        2      39

     The following table sets forth the amount and rate of the Bank's borrowings
at the dates indicated.                                                         

                                                      June 30,
                                                      ------------------------
                                                       1998     1997    1996
                                                      -------  -------  ------
                                                      (Dollars in Thousands)
FHLB advances .......................................  $19,897  $    --  $2,100 
Other borrowings ....................................       --       --      16 
                                                      -------  -------  ------
   Total borrowings ................................  $19,897  $    --  $2,116
                                                      =======  =======  ======

Weighted average interest rate of FHLB advances .....     6.07%    5.56%   5.78%
                                                         ====     ====    ====
Weighted average interest rate of securities sold                               
  under agreements to repurchase ....................       --       --    6.67%
                                                         ====     ====    ====
Weighted average interest rate of other borrowings ..       --     9.50%   9.50%
                                                         ====     ====    ====

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Subsidiary and Other Activities                                                 

     The Bank maintains three wholly-owned subsidiaries: CSB Financial Services,
Inc., CSB Funding,  Inc. and CSB Services Agency,  Inc. CSB Financial  Services,
Inc.  earns  commission  income  through the sale of  securities,  mutual funds,
annuities and other  insurance  products.  During the fiscal year ended June 30,
1998, CSB Financial Services had revenues of $348,000 and net income of $16,000.
As of June 30, 1998, CSB Funding, Inc. was inactive.                            

     CSB Services  Agency,  Inc.  owns a 50 percent  interest in Community  Bank
Insurance  Brokers of New York,  which is a joint venture formed for the purpose
of selling  property and casualty  insurance to the Bank's  customers and to the
general public. The joint venture was formed in July 1998. The joint venture has
entered into a service  agreement with the insurance agency which owns the other
50% joint venture interest in Community Bank Insurance Brokers of New York. Such
agency will provide  administrative  services and support  directly to the joint
venture.                                                                        

Competition                                                                     

     Cohoes faces strong competition,  both in originating real estate and other
loans and in attracting  deposits.  Competition in originating real estate loans
comes primarily from other savings institutions, commercial banks, credit unions
and mortgage  bankers  making loans secured by real estate located in the Bank's
primary market area. Other savings institutions, commercial banks, credit unions
and finance companies provide vigorous competition in consumer lending.         

     The Bank attracts all of its deposits through its branch offices, primarily
from the  communities  in which those  branch  offices are  located;  therefore,
competition  for those  deposits  is  principally  from  mutual  funds and other
savings  institutions,  commercial  banks and credit unions  located in the same
communities.  The Bank  competes  for these  deposits  by  offering a variety of
deposit accounts at competitive rates, convenient business hours, and convenient
branch locations with interbranch deposit and withdrawal  privileges.  Automated
teller machine facilities are also available.                                   

Employees                                                                       

     At June 30, 1998,  the Bank had 169  full-time  employees  and 53 part-time
employees. The Bank's employees are not represented by any collective bargaining
group. Management considers its employee relations to be good.                  

Properties                                                                      

     The Bank  conducts  its  business at its main  office and 16 other  banking
offices.  The  following  table sets forth  information  relating to each of the
Bank's  offices as of June 30, 1998.  The net book value of the Bank's  premises
and  equipment   (including  land,  building  and  leasehold   improvements  and
furniture, fixtures and equipment) at June 30, 1998 was $7.3 million. See Note 9
of the Notes to Consolidated Financial Statements.                              

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                                                        [Enlarge/Download Table]

                                                                               Net Book Value
                                          Original                 Total       of Property or
                                 Leased     Year      Date of   Approximate      Leasehold   
                                   or    Leased or    Leased       Square     Improvements at
Locations                         Owned  Acquired   Expiration    Footage      June 30, 1998 
-------------------------------  ------  ---------  ----------  -----------   ---------------
                                                                               (In thousands)
                                                                                             
Cohoes Loan Center                Owned     1992        N/A        10,500          $  683    
50 Mohawk Street                                                                             
Cohoes, NY   12047                                                                           

Annex                             Owned     1981        N/A         3,723             174    
60 Remsen Street                                                                             
Cohoes, NY 12047                                                                             

Operation Center                  Owned     1987        N/A        11,190             332    
244 North Mohawk Street                                                                      
Cohoes, NY   12047                                                                           

Community Outreach Center        Leased     1995     01/16/99         200              --    
Urban League Headquarters                                                                    
95 Livingston Avenue                                                                         
Albany, NY                                                                                   

Building Adjacent Latham Office   Owned     1986        N/A         3,024              80    
Storage Facility                                                                             
771 New Loudon Road                                                                          
Latham, NY   12110                                                                           

Branch Offices:                                                                              

Main Office                       Owned     1924        N/A        15,223             332    
75 Remsen Street                                                                             
Cohoes, NY   12047                                                                           

Cohoes/I-787 Office (2)           Owned     1976        N/A           988             141    
New Courtland Street                                                                         
Cohoes, NY   12047                                                                           

Latham Office                     Owned     1967        N/A         9,041             533    
Corner of Pine & Route 9                                                                     
Latham, NY   12110                                                                           

Clifton Park Office               Owned     1972        N/A         5,297             334    
525 Visher Ferry Road                                                                        
Clifton Park, NY   12065                                                                     

Delmar Office                     Owned     1994        N/A         4,768           1,476    
197 Delaware Avenue                                                                          
Delmar, NY   12182                                                                           

Lansingburgh Office               Owned     1976        N/A         3,216             270    
820 Second Avenue                                                                            
Troy, NY   12182                                                                             

Loudonville Office               Leased     1996     07/31/01       4,000               2    
475 Albany-Shaker Road                                                                       
Loudonville, NY   12211                                                                      

Guilderland Office               Leased     1995     10/31/05       3,500(1)            1    
1973 Western Avenue                                                                          
Albany, NY   12203                                                                           

----------                                                                      
(1)  3,500  square feet of which 1,265  square feet is subleased by Noreast Real
Estate.                                                               

(2)  The public  accommodation  office is expected to become a branch  office in
October, 1998.                                                        

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PROPERTIES (Continued)                                                          

                                                        [Enlarge/Download Table]

                                                                              Net Book Value
                                          Original                 Total      of Property or
                                 Leased     Year      Date of   Approximate     Leasehold   
                                   or    Leased or    Leased       Square    Improvements at
Locations                         Owned  Acquired   Expiration    Footage     June 30, 1998 
-------------------------------  ------  ---------  ----------  -----------  ---------------
                                                                              (In thousands)
                                                                                            
Supermarket Branches:                                                                       

Glenville                        Leased     1993     10/31/03         323         $   72    
290 Saratoga Road                                                                           
Scotia, NY   12302                                                                          

Rotterdam                        Leased     1993     03/31/03         350             82    
1879 Altamont Avenue                                                                        
Schenectady, NY   12303                                                                     

Colonie                          Leased     1993     09/30/03         336             77    
1892 central Avenue                                                                         
Colonie, NY   12205                                                                         

Westgate                         Leased     1995     04/30/00         565             80    
911 Central Avenue                                                                          
Albany, NY   12206                                                                          

Brunswick                        Leased     1996     10/31/01         304             83    
716 Hoosick Road                                                                            
Brunswick, NY   12180                                                                       

Bethlehem                        Leased     1997     05/31/02         312             76    
1395 New Scotland Road                                                                      
Slingerlands, NY   12159                                                                    

Malta                            Leased     1996     05/31/01         524            123    
1 Kendall Way                                                                               
Malta, NY   12020                                                                           

Niskyuna                         Leased     1996     06/30/01         544            123    
2333 Nott Street East                                                                       
Niskayuna, NY   12309                                                                       

Queensbury (1)                   Leased     1998     05/31/03         360              1    
677 Upper Glen Street                                                                       
Queensbury, NY   12804                                                                      

----------                                                                      
(1)  Opened in July, 1998.                                                      

Legal Proceedings                                                               

     The Bank is involved as plaintiff or  defendant  in various  legal  actions
arising in the normal  course of its  business.  While the  ultimate  outcome of
these  proceedings  cannot be  predicted  with  certainty,  it is the opinion of
management,  after  consultation  with  counsel  representing  the  Bank  in the
proceedings, that the resolution of these proceedings should not have a material
effect on the Bank's results of operations.                                     

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 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SFS BANCORP, INC.

General                                                                         

     SFS is the holding company for Schenectady  Federal and its subsidiary.  On
June 29, 1995,  Schenectady  Federal  completed  its  Conversion  from a federal
mutual  savings and loan  association  to a federal  stock savings bank. On that
date,  SFS issued and sold  1,495,000  shares of its common  stock at $10.00 per
share in connection with the Conversion.  Net proceeds to SFS were $14.2 million
after reflecting  Conversion expenses of $750,000.  SFS used $7.1 million of the
net proceeds to acquire all of the issued and  outstanding  stock of Schenectady
Federal.                                                                        

     Schenectady  Federal  operates as a thrift  institution  with the principal
business  being the  solicitation  of deposits  from the general  public;  these
deposits,  together with funds generated from operations, are invested primarily
in single-family,  owner occupied  adjustable-rate  mortgage loans.  Schenectady
Federal  is a  member  of  the  FHLB  of New  York  and is  subject  to  certain
regulations of the Board of Governors of the Federal Reserve System with respect
to reserves  required  to be  maintained  against  deposits  and  certain  other
matters.  Schenectady  Federal's  deposit  accounts are insured by the SAIF,  as
administered by the FDIC, up to the maximum amount permitted by law. Schenectady
Federal is subject to  regulation by the OTS and the FDIC.  Schenectady  Federal
conducts  its  business  through a four branch  network  located in  Schenectady
County situated in eastern upstate New York.  Schenectady  Federal's  results of
operations  are  dependent  primarily  on  net  interest  income,  which  is the
difference  between the interest  income earned on its loan and  mortgage-backed
securities  portfolios,  investment securities and securities available for sale
portfolios and other earning  assets,  and its cost of funds,  consisting of the
interest paid on its deposits.  Schenectady Federal's operating results are also
impacted by the provision for loan losses and, to a lesser extent,  by gains and
losses on the sale of its  securities  available  for sale  portfolio  and other
noninterest income. Schenectady Federal's operating expenses principally consist
of employee  compensation and benefits,  occupancy expense and other general and
administrative  expenses.  Schenectady  Federal'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 the regulatory authorities.                                                  

Asset/Liability Management                                                      

     The principal  financial objective of SFS' interest rate risk management is
to achieve  long-term  profitability  while limiting its exposure to fluctuating
interest rates.  SFS has sought to reduce exposure of its earnings to changes in
market  interest  rates by managing the mismatch  between  assets and  liability
maturities and interest rates. The principal element in achieving this objective
is to increase the interest-rate sensitivity of SFS assets by holding loans with
interest rates subject to periodic adjustment to market conditions. In addition,
SFS maintains an investment  portfolio  which  primarily  consists of securities
that  mature  within five  years.  SFS relies on retail  deposits as its primary
source of funds.  Management  believes  retail  deposits,  compared  to brokered
deposits,  limit the effects of interest rate fluctuation because they generally
represent  a more  stable  source of funds.  As part of its  interest  rate risk
strategy,  SFS promotes  transaction  accounts and  certificates of deposit with
terms up to five years.                                                         

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     The  following  table is  provided by the OTS and sets forth as of December
31, 1997 SFS  interest  rate risk as  measured  by changes in its NPV (i.e.  the
present value of the expected cash flow from assets, liabilities and off-balance
sheet contracts) for  instantaneous  and sustained  parallel shifts in the yield
curve, in 100 basis point increments, up and down 400 basis points.             

Change in                                                         
Interest Rate           $ Amount           $ Change           % Change
-------------           --------           --------           --------
(Basis Points)              (Dollars in Thousands)                      
   +400                 $15,434           $(7,588)             (33)%
  +300                  17,932            (5,090)             (22)
  +200                  20,166            (2,856)             (12)
  +100                  21,956            (1,067)              (5)
    0                  23,022                --               --
 -100                  23,620               598                3
 -200                  24,227             1,024                5
 -300                  24,854             1,832                8
 -400                  26,008             2,986               13

     As with any method of measuring  interest rate risk,  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  reprice,  they may react in  different  degrees to changes in market
interest  rates.  Also,  the  interest  rates on  certain  types  of  asset  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 ARM loans,  have features which restrict
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,  expected  rates  of
prepayment on loans and early withdrawals from certificates could likely deviate
significantly  from those assumed in calculating  the table. It is also possible
as a result of an  interest  rate  increase,  the  increased  mortgage  payments
required of ARM  borrowers  could  result in an increase  in  delinquencies  and
defaults.  Accordingly,  the data  presented  in the table  above  should not be
relied upon as indicative of actual  results in the event of changes in interest
rates. Furthermore,  the NPV presented in the table is not intended to represent
the fair market value of SFS.                                                   

Liquidity and Capital Resources                                                 

     SFS most liquid assets are cash and cash equivalents and available for sale
securities.  The level of these assets is dependent on SFS operating,  financing
and investing  activities during any given period.  Cash and cash equivalents of
$2.2  million at December 31,  1997,  increased  $4.4 million to $6.6 million at
June 30, 1998,  primarily as a result of  increases in federal  funds sold.  SFS
primary sources of funds are deposits and principal and interest payments on its
loan and securities  portfolios.  While maturities and scheduled amortization of
loans and securities  are, in general,  a predictable  source of funds,  deposit
flows and loan  prepayments  are greatly  influenced by general  interest rates,
economic conditions and competition.                                            

     Schenectady Federal is required to maintain minimum levels of liquid assets
as defined by OTS regulations. This requirement, which may vary at the direction
of the OTS depending on economic  conditions and deposit flows,  is based upon a
percentage of deposits and short-term  borrowings.  The required ratio of liquid
assets to deposits  and  short-term  borrowings  is  currently  4%.  Schenectady
Federal's  liquidity  ratio was 21.54% and 19.72% at June 30, 1998 and  December
31, 1997, respectively.                                                         

     SFS cash  flows are  comprised  of three  classifications:  cash flows from
operating activities;  cash flows from investing activities; and cash flows from
financing   activities.   Net  cash  flows  provided  by  operating  activities,
consisting  primarily of interest and dividends  received on earning assets less
interest paid on deposits,  was $1.0 million and $1.1 million for the six months
ended  June  30,  1998  and  1997,  respectively.  Net  cash  used by  investing
activities, consisting                                                          

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primarily of  disbursements  for the  origination  and purchase of loans and the
acquisition  of  securities  available  for sale  partially  offset by principal
collections  on loans and  mortgage-backed  securities  and by proceeds from the
maturity of  investment  securities,  was $6.7  million for the six months ended
June 30, 1997. Net cash of $578,000 was provided by investing activities for the
six months  ended June 30, 1998 and  consisted  primarily  of proceeds  from the
maturity,   call  and  paydown  of  investment  securities  and  mortgage-backed
securities  offset by the  purchase  of  securities  available  for sale and the
increase in loans receivable.  Net cash provided by financing activities for the
six months  ended  June 30,  1998 of $2.8  million  consisted  primarily  of net
increases  in  deposit  accounts  during  the  period  offset by the  payment of
dividends.  Net cash provided by financing  activities,  consisting primarily of
net  increases in deposit  accounts  during the period offset by the purchase of
treasury  stock and payment of  dividends,  was $7.0  million for the six months
ended June 30, 1997.                                                            

     During the six month period ended June 30, 1998, SFS did not repurchase any
of its shares.  During the six month period ended June 30, 1997 SFS  repurchased
42,475  shares.  The  average  price of  treasury  shares  purchased  was $16.58
totaling $704,000.  The average price paid of $16.58 was approximately  95.1% of
SFS book  value  per share of $17.44 at June 30,  1997.  The OTS  restricts  the
number of shares which may be repurchased during the three year period following
Conversion. Generally, only 5% of shares outstanding may be repurchased annually
during the first three years following Conversion.  However, the OTS has allowed
additional  share  repurchases  of 5% annually  based on  extenuating  facts and
circumstances.  No shares  have  been  purchased  since  October,  1997,  and no
additional  shares will be purchased prior to consummation or termination of the
Merger.                                                                         

     At June  30,  1998,  Schenectady  Federal's  capital  exceeded  each of the
capital  requirements  of the  OTS.  At June  30,  1998,  Schenectady  Federal's
tangible  and core  capital  levels  were  both  $19.6  million  (11.0% of total
adjusted  assets) and its  risk-based  capital level was $20.5 million (20.3% of
total  risk-weighted  assets).  The current  minimum  regulatory  capital  ratio
requirements are 1.5% for tangible  capital,  3.0% for core capital and 8.0% for
risk-weighted capital.                                                          

Financial Condition                                                             

June 30, 1998 compared to December 31, 1997                                     

     Total assets  increased  $3.7 million  (2.1%) to $178.1 million at June 30,
1998 from $174.4 million at December 31, 1997.  This increase  occurred as loans
receivable,  net, grew $7.4 million  (5.6%) to $141.2  million at June 30, 1998.
The growth in the loan portfolio  consisted  primarily of  residential  mortgage
loans.  Securities  available for sale  increased  $4.0 million  (98.2%) to $8.1
million at June 30, 1998.  Federal funds sold increased $5.3 million at June 30,
1998 from $300,000 at December 31, 1997 due in part to securities called late in
the second  quarter  of 1998.  Offsetting  these  increases  was a  decrease  in
investment securities of $12.1 million (41.6%) to $16.9 million.                

     At June 30, 1998,  total  liabilities  were $156.2 million  representing an
increase of $3.2  million  (2.1%) from  December  31,  1997.  The  increase  was
primarily  attributable to an increase in retail deposits.  Stockholders' equity
increased  $484,000  to $21.9  million  at June 30,  1998 as  compared  to $21.4
million at December  31,  1997.  Retained  earnings  increased  by $373,000 as a
result  of net  income  of SFS for the six  month  period  ended  June 30,  1998
partially offset by cash dividends declared.                                    

     Nonperforming assets increased $45,000 (3.1%) totaling $1.5 million at June
30, 1998.  Management  of  Schenectady  Federal does not view this increase as a
significant  adverse  trend.  The ratio of  nonperforming  loans to total  loans
receivable was .95% at June 30, 1998,  compared with 1.00% at December 31, 1997.
The ratio of nonperforming  assets to total assets was .84% at June 30, 1998 and
December 31, 1997.                                                              

December 31, 1997 compared to December 31, 1996                                 

     Total assets  increased  $9.5 million  (5.8%) to $174.4 million at December
31, 1997 from $164.9  million at December  31,  1996.  This  increase  consisted
primarily of an increase in loans  receivable,  net of $15.3 million  (12.9%) to
$133.8  million at December 31, 1997 and increases in  securities  available for
sale,  at fair value,  of $2.1 million  (104.4%) to $4.1 million at December 31,
1997. These increases were offset by decreases in investment  securities of $7.2
million  (19.9%) to $29.0 million and federal funds sold of $1.3 million (81.3%)
to $300,000 at December 31, 1997.                                               

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     At December 31, 1997, total liabilities were $153.0 million representing an
increase of $9.8  million  (6.8%) from  December  31,  1996.  The  increase  was
entirely  attributable  to increases in total  deposits to $150.5  million as of
December 31, 1997 from $140.6 million a year earlier.                           

     Stockholders'  equity  decreased  $240,000 to $21.4 million at December 31,
1997 as compared  to $21.7  million at December  31, 1996  primarily  due to SFS
stock repurchase program.  As a result of the repurchase program,  SFS purchased
$1.5  million of treasury  stock  during 1997.  Retained  earnings  increased by
$735,000 as a result of net income of SFS for the year ended  December  31, 1997
offset by the declaration and payment of dividends of $333,000.                 

     Nonperforming  assets totaled $1.5 million and $1.0 million at December 31,
1997 and 1996, respectively.  The increase in nonperforming assets resulted from
an  increase in the number of loans  comprising  the  balance  combined  with an
increase  in  the  average  balance  of  each  loan.  All  loans  classified  as
nonperforming  are  secured by real  estate  with 45.0%  secured by  one-to-four
family residential property.  Management of the Bank does not view this increase
as a significant  adverse trend since  subsequent to December 31, 1997, three of
the loans  comprising the balance as of that date totaling  $389,000 have either
paid off the entire outstanding balance or paid all past due amounts.  The ratio
of nonperforming loans to loans receivable,  net was 1.01% at December 31, 1997,
compared with .70% at December 31, 1996.  The ratio of  nonperforming  assets to
total  assets was .84% at December 31, 1997  compared  with .61% at December 31,
1996.                                                                           

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Loans Receivable, Net                                                           

     A summary of loans  receivable,  net at June 30, 1998 and December 31, 1997
is as follows:                                                                  

                                                June 30, 1998  December 31, 1997
                                                -------------  -----------------
                                                (In Thousands)
Loans secured by real estate:                                                   
Residential:                                                                    
Conventional .................................   $109,961         $100,277  
Home Equity ..................................     21,024           22,658  
FHA Insured ..................................      2,470            2,772  
VA Guaranteed ................................      1,662            2,028  
Commercial and multi-family ....................      6,070            6,130    
                                               --------         --------
                                                141,187          133,865
Other loans ....................................        918              721    
                                               --------         --------
                                                142,105          134,586
                                               --------         --------
Less:                                                                           
Unearned discount and net deferred loan fees .         28               22  
Allowance for loan losses ....................        855              778  
                                               --------         --------
                                                    883              800
                                               --------         --------
Loans receivable, net ..........................   $141,222         $133,786    
                                               ========         ========

     The following table sets forth the information with regard to nonperforming
assets.                                                                         

                                                June 30, 1998  December 31, 1997
                                                -------------  -----------------
                                                (In Thousands)
Loans on a non-accrual status ..................    $1,161           $1,328     
Loans contractually past due 90 days or more                                    
and still accruing interest ..................       191               19   
Total nonperforming loans ...................     1,352            1,347  
Other real estate owned ........................       151              111     
                                               ------           ------
Total nonperforming assets ..................    $1,503           $1,458  
                                               ======           ======

     The following  table sets forth the  information  with regard to changes in
the allowance for loan losses.                                                  

                                                              For the six months
                                                              ended June 30,
                                                              ------------------
                                                              1998      1997
                                                              ----      ----
                                                              (In Thousands)
Balance, beginning of period ..............................     $778      $642  
Provision charged to operations ...........................       60        60  
Loans charged off .........................................      (21)       (2) 
Recoveries on loans previously charged off ................       38        18  
                                                              ----      ----
Balance, end of period ....................................     $855      $718  
                                                              ====      ====

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Average Balance Data, Interest Rates and Interest Differential and              
Rate/Volume Analysis                                                            

     The following  information regarding average balances and rates earned/paid
and the  rate/volume  analysis is an integral  component  of the  discussion  of
operating  results for the six months  ended June 30,  1998,  compared  with the
corresponding period of the prior year.                                         

     The average balance data that follows  reflects the average yield on assets
and average cost of liabilities for the periods indicated.  All average balances
are daily average balances. Such yields and costs are derived by dividing income
or expenses by the average balance of assets or liabilities,  respectively,  for
the  periods  shown.  The yields  and costs  include  fees which are  considered
adjustments to yields.                                                          

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     The  rate/volume  analysis  table  presents the extent to which  changes in
interest  rates  and  changes  in the  volume  of  interest-earning  assets  and
interest-bearing liabilities have affected Schenectady Federal's interest income
and interest  expense during the periods  indicated.  Information is provided in
each  category  with  respect to (i) changes  attributable  to changes in volume
(changes in volume  multiplied  by prior  rate),  (ii) changes  attributable  to
changes in rate (changes in rate multiplied by prior volume),  and (iii) the net
change. The changes  attributable to the combined impact of volume and rate have
been allocated  proportionately to the changes due to volume and the changes due
to rate.                                                                        

                                                        [Enlarge/Download Table]

                                                            Six Months Ended June 30,                    
                                        -----------------------------------------------------------------
                                                      1998                              1997             
                                        -------------------------------   -------------------------------
                                          Average     Interest              Average     Interest         
                                        Outstanding    Earned/   Yield/   Outstanding    Earned/   Yield/
                                          Balance       Paid      Rate      Balance       Paid      Rate 
                                        -----------   --------   ------   -----------   --------   ------
                                                                                                         
Interest-earning assets:                                                                                 
  Loans receivable, net (1) ............  $137,639     $5,325     7.80%     $120,551     $4,695     7.85%
  Mortgage-backed securities ...........    15,682        486     6.25        19,665        622     6.38 
  Securities available for sale ........     6,116        198     6.53         3,869        125     6.52 
  Debt securities ......................     8,033        277     6.95        14,446        461     6.44 
  Other interest-earning assets                                                                          
    including cash equivalents .........     2,102         56     5.37         3,901        103     5.32 
  FHLB stock ...........................     1,338         49     7.39         1,305         41     6.34 
                                          --------     ------               --------     ------          
Total interest-earning assets ..........   170,910      6,391     7.54       163,737      6,047     7.45 

Interest-bearing liabilities:                                                                            
  Savings accounts .....................    36,443        544     3.01        37,160        555     3.01 
  Money market accounts ................     7,492        122     3.28         6,581        111     3.40 
  Demand and NOW accounts (2) ..........    11,035         78     1.43        10,364         78     1.52 
  Certificate accounts .................    95,793      2,703     5.69        89,910      2,433     5.46 
  Escrow ...............................     1,209         13     2.17         1,011         11     2.19 
                                          --------     ------               --------     ------          
Total interest-bearing liabilities .....   151,972      3,460     4.59%      145,026      3,188     4.43%
                                          --------     ------     ----      --------     ------     ---- 
Net interest income ....................               $2,931                            $2,859          
                                                       ======                            ======          
Net interest rate spread ...............                          2.95%                             3.02%
                                                                  ====                              ==== 
Net earning assets .....................  $ 18,938                          $ 18,711                     
                                          ========                          ========                     
Net yield on average                                                                                     
  interest-earning assets ..............                          3.46%                             3.52%
                                                                  ====                              ==== 
Average interest-earning assets to                                                                       
  average interest-bearing liabilities .      1.12%                             1.13%                    
                                              ====                              ====                     

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                                                                          Year Ended December 31,                                  
                                        -------------------------------------------------------------------------------------------
                                                     1997                           1996                           1995            
                                        -----------------------------  -----------------------------  -----------------------------
                                          Average    Interest            Average    Interest            Average    Interest        
                                        Outstanding   Earned/  Yield/  Outstanding   Earned/  Yield/  Outstanding   Earned/  Yield/
                                          Balance      Paid     Rate     Balance      Paid     Rate     Balance      Paid     Rate 
                                        -----------  --------  ------  -----------  --------  ------  -----------  --------  ------
                                                                                                                                   
Interest-earning assets:                                                                                                           
  Loans receivable, net (1) ............  $124,994    $ 9,757   7.81%    $111,524    $ 8,758   7.85%    $ 97,120    $ 7,800   8.03%
  Mortgage-backed securities ...........    18,807      1,189   6.32       22,403      1,418   6.33       23,199      1,464   6.31 
  Securities available for sale ........     4,368        286   6.55        5,169        307   5.94        7,911        492   6.22 
  Debt securities ......................    13,779        896   6.50       16,698      1,059   6.34       17,227      1,041   6.04 
  Other interest-earning assets                                                                                                    
    including cash equivalents .........     2,845        153   5.38        4,698        247   5.26       10,948        640   5.85 
  FHLB stock ...........................     1,322         87   6.58        1,204         78   6.48        1,118         86   7.69 
                                          --------    -------            --------    -------            --------    -------        
Total interest-earning assets ..........   166,115     12,368   7.45      161,696     11,867   7.34      157,523     11,523   7.32 

Interest-bearing liabilities:                                                                                                      
  Savings accounts .....................    36,982      1,113   3.01       38,857      1,173   3.02       44,054      1,325   3.01 
  Money market accounts ................     7,197        251   3.49        5,195        161   3.10        4,809        129   2.68 
  Demand and NOW accounts (2) ..........    10,660        159   1.49       10,102        148   1.47        9,090        133   1.46 
  Certificate accounts .................    91,420      5,075   5.55       85,624      4,680   5.46       82,893      4,620   5.57 
  Escrow ...............................     1,162         25   2.15        1,155         25   2.16        1,266         29   2.29 
                                          --------    -------            --------    -------            --------    -------        
Total interest-bearing liabilities .....   147,421      6,623   4.49      140,951      6,187   4.39      142,112      6,236   4.39 
                                          --------    -------   ----     --------    -------   ----     --------    -------   ---- 
Net interest income ....................              $ 5,745                        $ 5,680                        $ 5,287        
                                                      =======                        =======                        =======        
Net interest rate spread ...............                        2.96%                          2.95%                          2.93%
                                                                ====                           ====                           ==== 
Net earning assets .....................  $ 18,694                       $ 20,745                       $ 15,411                   
                                          ========                       ========                       ========                   
Net yield on average                                                                                                               
  interest-earning assets ..............                        3.46%                          3.51%                          3.36%
                                                                ====                           ====                           ==== 
Average interest-earning assets to                                                                                                 
  average interest-bearing liabilities .      1.13%                          1.15%                          1.11%                  
                                              ====                           ====                           ====                   

----------                                                                      
(1)  Calculated net of deferred loan fees.                                      
(2)  Includes noninterest-bearing demand accounts.                              

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                                      Six Months Ended June 30, 1998  Year Ended December 31, 1997  Year Ended December 31, 1996
                                               Compared with            Compared with Years Ended     Compared With Years Ended 
                                      Six Months Ended June 30, 1997       December 31, 1996             December 31, 1995      
                                      ------------------------------  ----------------------------   ---------------------------
                                            Increase (Decrease)           Increase (Decrease)           Increase (Decrease)     
                                                  Due to                         Due to                        Due to           
                                      ------------------------------  ----------------------------  ----------------------------
                                      Volume       Rate        Net    Volume      Rate       Net    Volume      Rate       Net  
                                      ------       ----       -----   ------      ----      -----   ------      ----      ----- 
                                                                                                                                
Interest-earning assets:                                                                                                        
  Loans receivable, net ............. $ 661        $(31)      $ 630   $1,051      $(52)     $ 999   $1,127     $(169)     $ 958 
  Mortgage-backed securities ........  (124)        (12)       (136)    (227)       (2)      (229)     (50)        4        (46)
  Securities-available for sale .....    73           0          73      (51)       30        (21)    (165)      (20)      (185)
  Debt securities ...................  (225)         41        (184)    (190)       27       (163)     (29)       47         18 
  Other interest-earning assets .....   (48)          1         (47)    (100)        6        (94)    (334)      (59)      (393)
  FHLB stock ........................     1           7           8        8         1          9        8       (16)        (8)
                                      -----        ----       -----   ------      ----      -----   ------     -----      ----- 
Total interest-earning assets ....... $ 338        $  6       $ 344   $  491      $ 10      $ 501   $  557     $(213)     $ 344 
                                      =====        ====       =====   ======      ====      =====   ======     =====      ===== 
Interest-bearing liabilities:                                                                                                   
  Savings deposits .................. $ (11)       $  0       $ (11)  $  (56)     $ (4)     $ (60)  $ (157)    $   5      $(152)
  Money market accounts .............    15          (4)         11       74        16         90        9        23         32 
  Demand and NOW deposits ...........     5          (5)          0        8         3         11       15        --         15 
  Certificate accounts ..............   163         107         270      320        75        395      146       (86)        60 
  Escrow ............................     2           0           2        0         0          0       (2)       (2)        (4)
                                      -----        ----       -----   ------      ----      -----   ------     -----      ----- 
Total interest-bearing liabilities .. $ 174        $ 98       $ 272   $  346      $ 90      $ 436   $   11     $ (60)     $ (49)
                                      =====        ====       =====   ======      ====      =====   ======     =====      ===== 
Change in net interest income .......                         $  72                         $  65                         $ 393 

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Comparison of Operating Results For The Six Months Ended June 30, 1998          
Compared to the Six Months Ended June 30, 1997                                  

     Net Income.  Net income for the six months ended June 30, 1998 was $567,000
or $.52 basic  earnings  per share and $.49  diluted  earnings  per share.  This
represents  an increase of $74,000  (15.0%)  from the  comparable  period of the
prior year.  The  increase in net income was  primarily a result of increases in
net  interest  income  and  noninterest  income  combined  with  a  decrease  in
noninterest  expense  and  offset by an  increase  in income  tax  expense.  The
provision  for loan losses was  consistent  with the same period a year ago. The
annualized  ROA for the first half of 1998  amounted to .65%  compared with .59%
for the  comparable  period a year ago. The annualized ROE was 5.34% (on average
equity  of $21.4  million)  compared  with  4.62%  (on  average  equity of $21.3
million) a year earlier.                                                        

     Net Interest Income. Interest income for the six months ended June 30, 1998
totaled $6.4 million, an increase of $344,000 (5.7%) from 1997's first half. The
primary reason for the increase was the fact that average  loans,  which are SFS
highest  yielding  assets,  increased as a percentage of total  interest-earning
assets from 73.6%  during the first half of 1997 to 80.5% for the same period in
1998.  Other factors  affecting  interest income were an increase in earnings on
loans which  increased  $630,000  (13.4%) as a result of a $17.1 million (14.2%)
increase in the average  balance  invested offset by a 5 basis point decrease in
average rates earned.  Interest earned on mortgage-backed  securities  decreased
$136,000  (21.9%) as a result of the combined  effect of a $4.0 million  (20.3%)
decrease  in the  average  balance  invested  and a 13 basis  point  decrease in
average rates earned. Interest income on securities available for sale increased
$73,000  (58.4%)  as a result of an  increase  of $2.2  million  (58.1%)  in the
average invested balance combined with an increase of one basis point in average
rates earned. Interest income on debt securities decreased $184,000 (39.9%) as a
result of a decrease in average invested balances of $6.4 million (44.4%) offset
by  an  increase  in  rates  earned  of  51  basis  points.  Earnings  on  other
interest-earning assets, primarily federal funds sold, decreased $47,000 (45.6%)
as a result of a $1.8 million (46.1%)  decrease in the average  invested balance
offset by a five basis point increase in the average rate earned.               

     Interest  expense for the six months  ended June 30, 1998  amounted to $3.5
million,  $272,000  (8.5%)  greater than the  corresponding  period of the prior
year.  The increase  occurred as a result of a $6.9 million  (4.8%)  increase in
average interest-bearing liabilities to $152.0 million combined with an 16 basis
point  increase  in  average  rates paid to 4.59%.  The mix  within the  deposit
structure  changed as the average balances grew in certificate  accounts by $5.9
million (6.5%) and in money market  accounts and demand and NOW accounts by $1.6
million (9.3%).  Average savings account balance declined  $717,000 (1.9%).  The
increase in average  rates paid on  certificate  accounts of 23 basis  points to
5.69% was a reflection of general  interest rates and a competitive  environment
that prevailed during the first six months of 1998 compared with 1997.          

     Net  interest  income for the six months  ended June 30, 1998  totaled $2.9
million,  $72,000  (2.5%)  greater  than the  comparable  period a year ago. The
interest rate spread  decreased 7 basis points to 2.95% for the six months ended
June 30, 1998.  The net  interest  margin for the six months ended June 30, 1998
was 3.46%,  which was six basis  points less than the  comparable  period a year
ago.                                                                            

     Provision for Loan Losses. For the six months ended June 30, 1998 and 1997,
the provision for loan losses totaled $60,000.  Schenectady Federal utilizes the
provision for loan losses to maintain an allowance for loan losses that it deems
appropriate  to provide for known and inherent risks in its loan  portfolio.  In
determining the adequacy of its allowance for loan losses, management takes into
account the current status of  Schenectady  Federal's loan portfolio and changes
in appraised  values of collateral as well as general  economic  conditions.  At
June 30, 1998,  the allowance  for loan losses  amounted to $855,000 or 63.2% of
total nonperforming loans.                                                      

     Noninterest  Income.  Noninterest  income  amounted to $226,000 for the six
months  ended June 30, 1998  compared to $168,000  for the six months ended June
30, 1997. The increase was primarily  attributable to increased sales production
in non-deposit  insurance  products by Schenectady  Federal's  subsidiary  which
resulted in an increase  of $25,000  (212.3%) in revenue  over the same period a
year ago and an increase in other loan charges of $30,000 (55.6%) to $84,000.   

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     Noninterest  Expense.  Noninterest expense decreased $19,000 (0.9%) to $2.1
million for the six months ended June 30, 1998, as compared with the same period
in 1997. Advertising and business promotion decreased $42,000 (68.9%) to $19,000
resulting  primarily  from  decreased  advertising in relation to the new branch
opening in the latter part of the first quarter in 1997. FDIC premiums increased
$19,000 (67.9%) to $47,000 as a result of the SAIF insurance premium refunded to
Schenectady  Federal  in the first  quarter  of 1997  which had been paid in the
fourth quarter of 1996 subsequent to the capitalization of SAIF. Other insurance
premiums  decreased $8,000 (18.2%) to $36,000 as a result of reduced premiums on
certain  policies  put out to  competitive  bid prior to  renewal.  Professional
service fees increased  $17,000  (14.0%) due in part to the amendment of certain
incentive  benefit plans which were presented to stockholders in SFS 1998 annual
meeting held in the second quarter.  Compensation and employee benefits,  office
occupancy and equipment  expense,  mortgage servicing fees, data processing fees
and other  noninterest  expense remained  relatively the same for the six months
ended June 30, 1998 and June 30, 1997.                                          

     Income Tax Expense.  Income tax expense  totaled  $399,000 and $324,000 for
the six months  ended June 30,  1998 and 1997,  respectively.  The  increase  in
income tax expense was primarily  attributable to the $149,000  (18.2%) increase
in income  before taxes to $966,000 for the six months ended June 30, 1998.  The
effective tax rate for the six months ended June 30, 1998 was 41.3%  compared to
39.7% for the same period a year ago. The increase was primarily attributable to
an  increase in the  nondeductible  portion of the  compensation  expense of SFS
Employee Stock Ownership Plan.                                                  

Comparison of Operating Results for Years Ended December 31, 1997 and 1996      

     Net  Income.  SFS  reported  net  income of  $1,068,000  for the year ended
December 31, 1997, as compared to $830,000 for the year ended December 31, 1996.
As discussed  below, the increase in net income of $238,000 or 28.7%, was due to
a decrease in noninterest expense of $870,000, an increase in noninterest income
of $101,000 and an increase in net interest  income of $65,000.  These increases
were partially offset by an increase in income tax expense of $798,000.         

     Interest Income.  Interest income increased by $501,000, or 4.2% from $11.9
million in 1996 to $12.4  million in 1997.  This increase was due to an increase
in both the  balance of average  interest-earning  assets and the yield  earned.
Average  interest-earning assets increased from $161.7 million in 1996 to $166.1
million in 1997. The yield on SFS  interest-earning  assets increased from 7.34%
for the year ended  December  31, 1996 to 7.45% for the year ended  December 31,
1997 as a result of SFS ability to originate  and purchase  loans and  therefore
affect the overall  composition of interest  earning assets.  The yield was also
affected by the general increase in the market rates of interest.               

     Interest Expense.  Interest expense increased by $436,000,  or 7.0% to $6.6
million for the year ended  December 31,  1997.  The increase was a result of an
increase in the balance of average interest-bearing liabilities of $6.5 million,
or 4.6% to $147.4 million. The average rate paid for the year ended December 31,
1997  was  4.49% as  compared  to 4.39% in  1996.  The mix  within  the  deposit
structure changed as the average balance of certificate and money market account
balances grew a combined $7.8 million  (8.6%) while  savings  accounts  declined
$1.9  million  (4.8%).  The  change  in the  deposit  mix was due in part to the
opening of the new branch which had higher promotional  certificate rates and to
a lesser  extent the flow from  savings  accounts to higher  paying  certificate
accounts.  The average rate paid was a reflection  of the general  interest rate
and competitive environment that prevailed during 1997 and 1996.                

     Net Interest Income. Net interest income increased $65,000, or 1.1% to $5.7
million  in  1997  due  principally  to  the  relative  increase  of  the  loans
receivable, net portfolio in relation to total interest earning assets from 1996
to 1997.  The  percentage  of average  loans  receivable,  net to total  average
interest earning assets increased from 69.0% in 1996 to 75.2% in 1997.          

     Provision  For Loan  Losses.  The  provision  for loan  losses  amounted to
$120,000  for  1997  and  1996,  respectively.  When  determining  the  level of
provision for loan losses,  management considers historical charge off ratios as
well as the then current  regulatory and the general economic  environment.  Net
charge-offs decreased from $50,000 in 1996 to a $16,000 net recovery in 1997 due
to SFS ability to collect on numerous loans previously charged off combined with
a decrease in charge offs in 1997.  SFS will  continue to monitor and modify its
allowance  for loan losses as  conditions  dictate.  Although SFS  maintains its
allowance for loan losses at a level it considers adequate to provide           

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for potential  losses in the present  portfolio,  there can be no assurance that
such losses will not exceed the estimated amounts or that additional  provisions
for loan losses will not be required in future periods.                         

     Noninterest  Income.  Total  noninterest  income increased by $101,000,  or
25.1% from  $403,000 in 1996 to $504,000 in 1997.  The increase was  principally
attributable  to an  increase  of $48,000 in net gain on  security  transactions
combined with increases in other loan charges and Bank fees and service charges.

     Noninterest  Expense.  Noninterest expense decreased by $870,000,  or 16.6%
from $5.2  million in 1996 to $4.4  million in 1997.  The  decrease is primarily
attributable  to the special  one-time  SAIF  assessment  in 1996 which  totaled
$930,000 and an ongoing reduction in the FDIC insurance  premiums  subsequent to
the special assessment. Compensation and benefits increased $198,000 (7.9%) from
1996 to 1997.  The increase  was a result of  increased  retail staff due to the
opening of a new branch in March 1997,  annual merit  increases,  and  increased
employee benefits partially due to the increases in the employee stock ownership
plan expense. Office occupancy and equipment expense increased $98,000, or 18.8%
as  a  result  of  increases  in  depreciation,  property  taxes  and  utilities
associated  with  the  opening  of the  new  branch.  Advertising  and  business
promotion,  professional  service fees, data processing  fees, and other expense
remained  relatively  stable  during  1997 as compared  with 1996.  The ratio of
noninterest expense to average assets decreased from 3.17% for 1996 to 2.56% for
1997.                                                                           

     Income Tax Expense. Income tax expense increased from a benefit of $106,000
in 1996 to an expense of $692,000 in 1997.  The  effective tax rate for 1997 was
39.3%. The income tax benefit  recognized in 1996 primarily reflects a reduction
of the  deferred tax asset  valuation  reserve  which  reduced the tax effect on
pre-tax income.  The reduction in the deferred  valuation  allowance during 1996
was primarily the result of the expected  realization of certain  deferred items
which were previously considered uncertain.  There were no comparable reductions
in the deferred tax asset valuation reserve during 1997.                        

Comparison of Operating Results for the Years Ended December 31, 1996 and 1995  

     Net Income.  SFS had net income of $830,000 for the year ended December 31,
1996, as compared to $855,000 for the year ended December 31, 1995. As discussed
below,  the decrease in net income of $25,000 or 2.9%, was due to an increase in
noninterest expense of $1.2 million offset by an increase in net interest income
of  $393,000,  an  increase  in  noninterest  income of  $82,000,  a decrease in
provision  for loan losses of  $250,000  and a decrease in income tax expense of
$462,000.                                                                       

     Interest Income.  Interest income increased by $344,000, or 3.0% from $11.5
million in 1995 to $11.9 million in 1996.  This increase was due to the increase
in the amount of average  interest-earning  assets and the yield earned. Average
interest-earning  assets increased from $157.5 million in 1995 to $161.7 million
in 1996  resulting  from SFS  ability  to utilize  for a full year the  proceeds
received from the initial  public  offering.  The yield on SFS  interest-earning
assets  increased  from 7.32% for the year ended  December 31, 1995 to 7.34% for
the year ended  December  31,  1996 as a result of the  general  increase in the
market rates of interest.                                                       

     Interest Expense.  Interest expense  decreased by $49,000,  or 0.8% to $6.2
million for the year ended  December  31,  1996.  The decrease was a result of a
$1.2 million (0.8%) decrease in average  interest-bearing  liabilities to $141.0
million.  The average  rate paid for the years ended  December 31, 1996 and 1995
was 4.39%. The mix within the deposit  structure  changed as the average balance
of certificate and demand and NOW account  balances grew $2.8 million (3.3%) and
$1.0 million (11.1%),  respectively while savings accounts declined $5.2 million
(11.8%). The average rate paid was a reflection of the general interest rate and
competitive environment that prevailed during 1996 and 1995.                    

     Net Interest Income. Net interest income increased  $393,000,  or 7.4% from
$5.3 million in 1995 to $5.7  million in 1996 due to a $5.3 million  increase in
average net  interest-earning  assets in 1996 as compared to 1995 and a 15 basis
point  increase  in margin.  The  increase  in net  interest-earning  assets was
primarily a result of the proceeds  received in the initial  public  offering of
SFS during 1995.                                                                

     Provision  For  Loan  Losses.  The  decrease  of  $250,000  or 67.6% in the
provision  for loan losses  from 1995 to 1996  reflects  primarily  management's
evaluation of the loan portfolio. When determining the level of provision for   

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loan losses,  management  considers  historical charge off ratios as well as the
then current  regulatory and the general economic  environment.  Net charge-offs
decreased  from  $659,000  in 1995 to $50,000 in 1996 due to SFS  resolution  of
certain  non-performing  loans in 1995.  SFS will continue to monitor and modify
its allowance for loan losses as conditions dictate.  Although SFS maintains its
allowance  for loan  losses at a level it  considers  adequate  to  provide  for
potential losses, there can be no assurance that such losses will not exceed the
estimated  amounts or that  additional  provisions  for loan  losses will not be
required in future periods.                                                     

     Noninterest Income. Total noninterest income increased by $82,000, or 25.5%
from $321,000 in 1995 to $403,000 in 1996. Other loan charges  increased $35,000
or 31.8% as a result of  increased  originations  and other  noninterest  income
increased  $46,000 or 97.9% as a result of increased  other real estate  income,
income  from the  Bank's  service  corporation  and  gains  taken on the sale of
certain fixed assets.                                                           

     Noninterest  Expense.  Noninterest  expense  increased by $1.2 million,  or
30.1%  from $4.0  million  in 1995 to $5.2  million  in 1996.  The  increase  is
primarily  attributable to the special  one-time SAIF  assessment  which totaled
$930,000.  Compensation and benefits  increased  $262,000 (11.6%) as a result of
annual merit  increases and the  establishment  of the RRP  partially  offset by
reduced  pension  and  retirement  benefits  expense.  Mortgage  servicing  fees
decreased  $22,000  (35.5%)  between  1995 and 1996 as  serviced  loan  balances
continued to decline. Professional service fees increased $53,000 (28.0%) during
1996 as compared to 1995 as a result of increased cost  associated  with being a
public  company.  Advertising  and  business  promotion,  office  occupancy  and
equipment  expenses,  other insurance  premiums,  data processing fees, and real
estate owned writedowns  remained relatively stable during 1996 as compared with
1995.  The ratio of noninterest  expense to average assets  increased from 2.51%
for 1995 to 3.17% for 1996.                                                     

     Income Tax Expense. Income tax expense decreased from $356,000 in 1995 to a
benefit of $106,000 in 1996.  The  decrease  is the result of  decreased  income
before  taxes  during 1996 and the  reduction  of the  valuation  allowance  for
deferred tax assets during 1996.  This reduction was primarily the result of the
expected realization of certain deferred items which were previously  considered
to be uncertain.                                                                

Impact of New Accounting Standards                                              

     In  February  1998,  the FASB  issued  Statement  of  Financial  Accounting
Standards   No.  132,   "Employers'   Disclosure   about   Pensions   and  Other
Postretirement   Benefits"   (Statement   132),   which  amends  the  disclosure
requirements for Statement of Financial  Account  Standards No. 87,  "Employers'
Accounting  for  Pensions"  (Statement  87),  Statement of Financial  Accounting
Standards No. 88,  "Employers'  Accounting for Settlement  and  Curtailments  of
Defined Benefit  Pension Plans and for Termination of Benefits"  (Statement 88),
and Statement of Financial Accounting Standards No. 106, "Employers'  Accounting
for Postretirement  Benefits Other Than Pensions" (Statement 106). Statement 132
standardizes  the disclosure  requirements  of Statement 87 and Statement 106 to
the  extent   practicable  and  recommends  a  parallel  format  for  presenting
information about pensions and other postretirement  benefits. This Statement is
applicable to all entities and addresses disclosure only. The Statement does not
change  any  of  the  measurement  or  recognition  provisions  provided  for in
Statements 87, 88, or 106. The Statement is effective for fiscal years beginning
after  December  15,  1997.   Management   anticipates  providing  the  required
disclosures in the December 31, 1998 consolidated financial statements.         

     In June 1998, the FASB issued Statement of Financial  Accounting  Standards
No. 133,  "Accounting for Derivative  Instruments and Hedging Activities," which
establishes  accounting  and  reporting  standards for  derivative  instruments,
including certain derivative  instruments  embedded in other contracts,  and for
hedging  activities.  This  Statement  is effective  for all fiscal  quarters of
fiscal years beginning after June 15, 1999.  Management is currently  evaluating
the impact of this Statement on SFS consolidated financial statements.          

Impact of the Year 2000                                                         

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

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     SFS is utilizing both internal and external resources to identify,  correct
or reprogram,  and test its systems for Year 2000 compliance.  It is anticipated
that all reprogramming  efforts will be completed by December 31, 1998, allowing
adequate time for testing.  To date,  confirmations  have been received from SFS
primary  processing vendors that plans are being developed to address processing
of transactions in the year 2000. Incremental expenses related to this issue are
not, at this time, expected to be material to the performance of SFS.           

     The risks of this  issue go beyond  SFS own  ability to solve the Year 2000
issues.  Should  suppliers of critical  services fail in their efforts to become
Year  2000  compliant,  or if  significant  third  party  interfaces  fail to be
compatible with SFS or fail to be Year 2000 compliant, it could have significant
adverse affects on the operations and financial results of SFS. Accordingly, SFS
has begun a process of assessing and  monitoring  the progress of all vendors of
services and third party interfaces for  compatibility and Year 2000 compliance.
Management  intends  to  develop   contingency  plans  for  all  vendors  and/or
interfaces deemed to inadequately address the problems of the Year 2000.        

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 BUSINESS OF SFS BANCORP, INC.

General                                                                         

         SFS,  a  Delaware  corporation,  was  organized  to act as the  holding
company  for  Schenectady  Federal  upon  completion  of  Schenectady  Federal's
conversion  from the  mutual to the stock  form of  organization.  SFS  received
approval from the OTS to acquire all of the common stock of Schenectady  Federal
to be  outstanding  upon  completion  of  the  Conversion.  The  Conversion  was
completed  on June 29, 1995.  SFS Common Stock is quoted on the NASDAQ  National
Market System under the symbol "SFED".                                          

         At June 30, 1998, SFS had total assets of $178.1  million,  deposits of
$152.9 million, and stockholders' equity of $21.9 million.                      

         The  executive  offices of SFS are  located at  251-263  State  Street,
Schenectady,  New York 12305,  and its telephone number at that address is (518)
395-2300.                                                                       

         SFS and Schenectady  Federal are subject to  comprehensive  regulation,
examination and supervision by the OTS and by the FDIC. Schenectady Federal is a
member of the FHLB  System  and its  deposits  are  backed by the full faith and
credit  of the  United  States  Government  and are  insured  by the SAIF to the
maximum extent permitted by the FDIC. See "Regulation."                         

         Schenectady  Federal,  SFS only  operating  subsidiary,  was originally
chartered  in  1889  as  a  state-chartered  financial  institution.   In  1981,
Schenectady  Federal converted to a federally  chartered mutual savings and loan
association.  Schenectady  Federal's business involves  attracting deposits from
the  general  public  and  using  such  deposits  to fund  one-  to  four-family
residential  mortgage,  home equity and, to a much lesser  extent,  consumer and
other loans in its market area. At June 30, 1998,  $135.1  million,  or 95.1% of
Schenectady  Federal's  total loan portfolio  consisted of residential  mortgage
loans,  including  home  equity  loans.  Schenectady  Federal  also  invests  in
mortgage-backed securities,  investment securities (consisting primarily of U.S.
government and agency  obligations) and other permissible  investments.  At June
30, 1998,  Schenectady Federal had $13.7 million of mortgage-backed  securities,
representing  7.7% of total assets,  and $11.3 million of investment  securities
(including  $8.1  million  of  securities  available-for-sale,  at fair  value),
representing 6.3% of total assets.                                              

         Schenectady  Federal has sought to enhance  its net income  through the
adoption  of a strategy  designed to  maintain  capital in excess of  regulatory
requirements,   limit  loan  delinquencies  and  manage  Schenectady   Federal's
vulnerability  to  changes  in  interest  rates.   This  strategy  involves  (i)
emphasizing,  subject to market  conditions,  the acquisition of adjustable rate
one- to four-family  mortgage loans and fixed rate one- to four-family  mortgage
loans,  (ii)  emphasizing  the  origination  of home equity loans (most of which
carry   floating   rates  of  interest),   (iii)   maintaining  a  portfolio  of
mortgage-backed  and  investment  securities  and other  short- and  medium-term
investments,  and (iv) using customer service and marketing efforts to build and
maintain a substantial level of core deposits.                                  

         Schenectady  Federal  is  a  community-oriented  financial  institution
offering a variety of financial services to meet the needs of the communities it
serves. Schenectady Federal attracts retail deposits from the general public and
invests those funds primarily in first mortgages on owner-occupied,  one-to-four
family  residences,  as well as in home equity loans generally secured by junior
liens on the  borrower's  home.  To a lesser  extent,  Schenectady  Federal also
originates  consumer  and  other  loans  in its  market  area.  See  "-  Lending
Activities."  Schenectady  Federal also invests in  mortgage-backed  securities,
investment   securities  and  other  permissible   assets.   See  "-  Investment
Activities."                                                                    

Market Area                                                                     

         Schenectady Federal conducts business in Schenectady County through its
main office located at 251-263 State Street in  Schenectady,  New York and three
branch  offices  located in Hannaford  Plaza in  Glenville,  New York and in the
Bellevue  and Upper Union  Street areas of  Schenectady,  New York.  Schenectady
County is part of the  four-county  Capital  District Region which also includes
the counties of Saratoga,  Albany and Rensselaer.  Schenectady Federal's primary
market area for deposits  consists of  communities  within  Schenectady  County,
while Schenectady Federal's                                                     

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primary  market  area for lending  extends to Albany,  Rensselaer  and  Saratoga
Counties and, to a lesser extent, Warren County.                                

         In  1997,  the  population  of  Schenectady  County  was  approximately
150,000,  essentially unchanged from population levels in 1985. The unemployment
rate  for  Schenectady  County  was 4.2% and  4.5% in  December  1997 and  1996,
respectively.                                                                   

         Primary   industries   in   Schenectady   Federal's   market  area  are
manufacturing and service  industries.  State and local government and wholesale
and retail  trade  account for a  noteworthy  percentage  of  employment.  Major
employers  include General  Electric,  KAPL,  Inc., a research  laboratory,  the
County  of  Schenectady,   Ellis  and  St.  Clare's  Hospitals,  Union  College,
Schenectady International, Inc. and Golub Corporation.                          

Lending Activities                                                              

         General.   Historically,   Schenectady   Federal  originated   30-year,
fixed-rate mortgage loans secured by one- to four-family residences.  During the
1990s,  in order to reduce  its  vulnerability  to changes  in  interest  rates,
Schenectady Federal has emphasized the acquisition, origination and retention of
mortgage  loans having  shorter terms to maturity or repricing  such as ARMs and
home equity  loans.  Schenectady  Federal  also offers  consumer  loans and to a
lesser extent commercial real estate mortgage loans.                            

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         Loan  Portfolio  Composition.  The  following  table sets forth certain
information  concerning the composition of Schenectady  Federal's loan portfolio
in dollar  amounts and in percentages  (before  deductions for loans in process,
deferred  fees  and  discounts  and  allowances  for  losses)  as of  the  dates
indicated.                                                                      

                                                        [Enlarge/Download Table]

                                                                                      December 31,                           
                                                        ---------------------------------------------------------------------
                                     June 30,                                                                                
                                       1998                    1997                     1996                      1995       
                                ------------------      --------------------     -------------------     --------------------
                                Amount     Percent      Amount       Percent     Amount      Percent     Amount       Percent
                                ------     -------      ------       -------     ------      -------     ------       -------
                                                                 (Dollars in Thousands)                                      
Real Estate Loans:                                                                                                           
                                                                                                                             
     One- to four-family..     $114,093       80.29%   $105,077        78.07%    $91,161       76.53%    $72,219       71.14%
     Multi-family.........        2,224        1.56       1,981         1.47       1,568        1.32       2,382        2.35 
     Commercial...........        3,846        2.71       4,149         3.08       2,964        2.49       3,762        3.70 
     Home equity..........       21,024       14.79      22,658        16.84      22,904       19.23      22,723       22.38 
                               --------    --------    --------       ------    --------      ------    --------    -------- 
       Total real estate..     l141,187       99.35     133,865        99.46     118,597       99.57     101,086       99.57 
                               --------    --------    --------       ------   ---------      ------    --------    -------- 

Other Loans:                                                                                                                 
   Consumer:                                                                                                                 
       Deposit account....          511         .36         573          .43         478         .40         361         .35 
       Education..........            2          --           3           --           4          --          22         .02 
       Personal...........           35         .03          33          .03          34         .03          41         .04 
       Automobile.........          199         .14         110          .08          --          --          --          -- 
       Home improvement...            1          --           2           --           3          --           5         .01 
                               --------    --------    --------       ------    --------      ------    --------    -------- 
       Total consumer loans         748         .53         721          .54         519         .43         429         .42 
   Commercial business loans        170         .12          --           --           4          --           5         .01 
                               --------    --------    --------       ------    --------      ------    -------     -------- 
       Total other loans..          918         .65         721          .54         523         .43         434         .43 
                              ---------    --------    ---------      ------    --------      ------    --------    -------- 

          Total loans.....      142,105     100.00%     134,586       100.00%    119,120      100.00%    101,520      100.00%
                                            ======                    ======                  ======                  ====== 

Less:                                                                                                                        
     Deferred fees and                                                                                                       
      discounts...........           28                      22                       23                      27             
     Allowance for losses.          855                     778                      642                     572             
                              ---------               ---------                 --------                --------             

      Total loans receivable                                                                                                 
        net..............      $141,222                $133,786                 $118,455                $100,921             
                               ========                ========                 ========                ========             

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         The following table shows the composition of Schenectady Federal's loan
portfolio by fixed and adjustable or floating rate at the dates indicated.      

                                                        [Enlarge/Download Table]

                                                                                      December 31,                           
                                        June 30,           ------------------------------------------------------------------
                                           1998                  1997                    1996                    1995        
                                   ---------------------   -------------------    -------------------     -------------------
                                    Amount       Percent   Amount      Percent    Amount      Percent     Amount      Percent
                                    ------       -------   ------      -------    ------      -------     ------      -------
                                                                    (Dollars in Thousands)                                   
Fixed-Rate Loans:                                                                                                            
   Real estate:                                                                                                              
                                                                                                                             
      One- to four-family..        $ 44,007       30.97%  $ 31,454       23.37%  $ 20,615       17.31%  $ 22,797       22.45%
      Multi-family.........           1,081         .76        213         .16        242         .20      1,046        1.03 
      Commercial...........           2,812        1.98      2,335        1.73      1,533        1.29      3,133        3.09 
      Home equity..........           4,519        3.18      4,656        3.46      4,334        3.64      4,433        4.37 
                                   --------     -------   --------     -------   --------     -------   --------      ------ 
       Total fixed-rate                                                                                                      
         real estate.......          52,419       36.89     38,658       28.72     26,724       22.44     31,409       30.94 

      Consumer.............             748         .52        721         .54        515         .43        407         .40 
      Commercial business..              --          --         --          --          4          --          5         .01 
                                   --------     -------   --------     -------     ------     -------    -------      ------ 
       Total fixed-rate                                                                                                      
         loans.............          53,167       37.41     39,379       29.26     27,243       22.87     31,821       31.35 
                                   --------     -------   ---------    -------     ------     -------    -------      ------ 

Adjustable-Rate Loans:                                                                                                       
   Real estate:                                                                                                              
      One- to four-family..          70,086       49.32     73,623       54.70     70,546       59.22     49,422       48.68 
      Multi-family.........           1,143         .80      1,768        1.31      1,326        1.11      1,336        1.31 
      Commercial...........           1,034         .73      1,814        1.35      1,431        1.20        629         .62 
      Home equity..........          16,505       11.62     18,002       13.38     18,570       15.59     18,290       18.02 
                                   --------     -------   --------     -------     ------       -----     ------       ------
        Total adjustable-rate                                                                                                
          real estate loans          88,768       62.47     95,207       70.74     91,873       77.13     69,677       68.63 

      Consumer.............              --          --         --          --          4          --         22         .02 
      Commercial business..             170         .12         --          --         --          --         --          -- 
                                   --------    --------   --------     -------     ------       -----     ------      ------ 
         Total adjustable-rate                                                                                               
          loans............          88,938       62.59     95,207       70.74     91,877       77.13     69,699       68.65 
                                   --------    --------   --------     -------     ------       -----     ------      ------ 

            Total loans....         142,105      100.00%   134,586      100.00%   119,120      100.00%   101,520      100.00%
                                                 ======                 ======                 ======                 ====== 

Less:                                                                                                                        
   Deferred fees and discounts           28                     22                     23                     27             
   Allowance for loan losses            855                    778                    642                    572             
                                  ---------               --------              ---------              ---------             

         Total loans receivable,                                                                                             
           net..............       $141,222              $ 113,786              $ 118,455              $ 100,921             
                                  =========              =========              =========              =========             

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         The following  schedule  illustrates  the interest rate  sensitivity of
Schenectady  Federal's loan portfolio at the dates  indicated.  Loans which have
adjustable or  renegotiable  interest  rates are shown as maturing in the period
during which the  contract is due. The schedule  does not reflect the effects of
possible prepayments or enforcement of due-on-sale clauses.                     

                                                        [Enlarge/Download Table]

                                               Real Estate                                          
                      -----------------------------------------------------------                   
                                            Multi-family and                                        
                      One- to four-family       Commercial          Home Equity        Consumer     
                      -------------------  -------------------    ----------------  ----------------
                               Weighted              Weighted             Weighted          Weighted
                                Average               Average              Average           Average
                      Amount     Rate       Amount      Rate      Amount     Rate   Amount     Rate 
                      ------     ----       ------      ----      ------     ----   ------     ---- 
                                             (Dollars in Thousands)                                 
Due during years                                                                                    
 ending June 30,                                                                                    
                                                                                                    
               1999  $    122     7.53%     $  799      9.84%   $    280     9.88%   $497      8.68%
               2000       140     8.12%         --        --       1,747     9.56%     51      8.18%
               2001       369     7.94%         66      9.50%      2,585     9.32%    111      7.44%
       2002 to 2003     1,762     7.56%      1,945      9.67%      3,593     9.30%     89      7.73%
       2003 to 2024    41,865     7.82%      3,260      9.30%     12,819     9.88%     --        -- 
 2024 and following    69,835     7.26%         --       --           --       --      --        -- 
                     --------               ------               -------             ----           
                     $114,093               $6,070               $21,024             $748           
                     ========               ======               =======             ====           

Commercial                
  Business             Total
  -----------------    -----------------
           Weighted             Weighted
            Average              Average
 Amount     Rate     Amount     Rate
 ------     ----     ------     ----
    (Dollars in Thousands)
Due during years                                                                
ending June 30,                                                               
1999    $150     10.00%  $  1,848      9.38%      
2000      20      9.50%     1,958      9.42%      
2001      --        --      3,131      9.09%      
2002 to 2003      --        --      7,389      8.97%              
2003 to 2024      --        --     57,944      8.11%              
2024 and following      --        --     69,835      7.26%                    
----             --------         
$170             $142,105         
====             ========         

         The  total  amount  of  loans  due  after  June  30,  1998  which  have
predetermined  interest rates is $53.2 million,  while the total amount of loans
due after such date which have  floating or adjustable  interest  rates is $88.9
million.                                                                        

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         Pursuant to Federal law, the aggregate amount of loans that Schenectady
Federal is permitted to make to any one borrower is generally  limited to 15% of
unimpaired capital and surplus (25% if the security for such loan has a "readily
ascertainable" value or 30% for certain residential  development loans). At June
30, 1998, based on the above,  Schenectady Federal's loans-to-one borrower limit
was approximately  $2.9 million.  On the same date,  Schenectady  Federal had no
borrowers  with  outstanding  balances  in  excess of this  amount.  Schenectady
Federal's  largest  lending  relationship  at June 30, 1998 was two loans to one
borrower  totaling  $774,000.  One loan in the amount of $540,000  was on a five
building 20 unit apartment  complex located in Saratoga  Springs,  New York. The
second loan in the amount of $234,000 was on a commercial  property  used in the
borrower's  business in  Schenectady,  New York.  Both loans were  performing in
accordance with their terms at June 30, 1998.                                   

         Schenectady  Federal's  lending is subject to its written  underwriting
standards and to loan origination procedures. Decisions on loan applications are
made on the basis of detailed  applications and property valuations  (consistent
with  Schenectady   Federal's   appraisal   policy)  by  Schenectady   Federal's
independent  appraisers.   The  loan  applications  are  designed  primarily  to
determine the borrower's  ability to repay and the more significant items on the
application are verified  through use of credit reports,  financial  statements,
tax returns and/or confirmations.                                               

         Under Schenectady  Federal's loan policy, the individual  processing an
application is responsible for ensuring that all documentation is obtained prior
to the  submission  of  the  application  to a loan  officer  for  approval.  In
addition,  the loan officer  verifies  that the  application  meets  Schenectady
Federal's underwriting guidelines described below.                              

         All secured loans over $500,000, or unsecured loans over $100,000, must
be approved by Schenectady  Federal's Board of Directors.  Schenectady Federal's
Loan  Committee,  consisting  of officers  Giaquinto,  Schlansker,  Ammian,  and
Krywinski,  has authority to approve  secured loans up to $500,000 and unsecured
loans up to  $100,000.  Any  three of these  individuals  acting  as a group can
approve a loan within the authority of the Loan Committee.  Various  officers of
Schenectady Federal have individual secured loan approval authority ranging from
$10,000 to  $300,000.  Authorization  for  unsecured  loans  ranges from $500 to
$5,000.                                                                         

         Generally,  Schenectady  Federal  requires  title  insurance or updated
abstracts on its mortgage loans as well as fire and extended  coverage  casualty
insurance in amounts at least equal to the  principal  amount of the loan or the
value  of  improvements  on  the  property,  depending  on  the  type  of  loan.
Schenectady  Federal  also  requires  flood  insurance  to protect the  property
securing its interest when the property is located in a flood plain.            

         One- to Four-Family Residential Real Estate Lending. The cornerstone of
Schenectady  Federal's  lending  program is the  origination of loans secured by
mortgages on owner-occupied  one- to four-family  residences.  At June 30, 1998,
$135.1 million,  or 95.1% of Schenectady  Federal's loan portfolio  consisted of
mortgage loans (including home equity loans) on one- to four-family  residences.
Substantially all of the residential loans originated by Schenectady Federal are
secured by properties  located in Schenectady  Federal's  primary  lending area.
Included in the mortgage loan  portfolio at June 30, 1998,  Schenectady  Federal
also had $4.9 million of purchased one- to four-family loans serviced by others,
which were primarily  secured by properties  located  outside its market area. A
majority of the mortgage loans  originated by  Schenectady  Federal are retained
and  serviced by it. No loans have been  purchased  by  Schenectady  Federal and
serviced by others since 1990.                                                  

         Schenectady  Federal offers  conventional  fixed-rate  loans with terms
ranging  between 10 and 30 years.  The interest  rate on such loans is generally
based on the FHLMC delivery rates as well as competitive factors.               

         In addition to fixed rate loans,  Schenectady  Federal offers  one-year
ARMs at a margin  (generally  300 basis  points)  over the yield on the  Average
Weekly  One Year U.S.  Treasury  Constant  Maturity  Index for terms of up to 30
years. The ARM loans currently offered by Schenectady  Federal generally provide
for a 200 basis point annual  interest rate change cap and a lifetime cap of 600
basis points over the initial rate. Schenectady Federal's loans typically do not
contain floors. Initial interest rates offered on Schenectady Federal's ARMs may
be 100 to 350 basis points  below the fully  indexed  rate,  and  borrowers  are
qualified at that initial rate plus 200 basis points.  As a result,  the risk of
default on these loans may  increase as interest  rates  increase.  See "- Asset
Quality-Non-Performing  Assets."  Schenectady  Federal also offers five year/one
year and three  year/one year ARM products where the rate is fixed for the first
five or three  years.  After the initial  fixed term,  the mortgage has the same
characteristics as a one-year ARM. Schenectady                                  

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Federal's ARMs do not permit negative amortization of principal,  do not contain
prepayment penalties and are not convertible into fixed-rate loans. In the past,
Schenectady  Federal  offered  one-year  ARMs  with a margin of 200 to 300 basis
points over a specified index and an average annual cap of 600 basis points.  At
June 30, 1998,  one- to  four-family  ARMs totaled  $70.1  million,  or 49.3% of
Schenectady Federal's total loan portfolio.                                     

         In  underwriting  one- to  four-family  residential  real estate loans,
Schenectady  Federal  evaluates both the borrower's  ability to make  principal,
interest and escrow  payments,  the value of the  property  that will secure the
loan and debt to  income  ratios.  Schenectady  Federal  originates  residential
mortgage loans with loan-to-value ratios of up to 95% for owner-occupied  homes.
However,  private  mortgage  insurance  is required on loans with  loan-to-value
ratios greater than 80% to reduce Schenectady  Federal's  exposure.  Schenectady
Federal  generally  seeks to underwrite  its loans in accordance  with secondary
market standards.                                                               

         Schenectady  Federal's  residential  mortgage loans customarily include
due-on-sale  clauses  giving  Schenectady  Federal the right to declare the loan
immediately due and payable in the event that, among other things,  the borrower
sells or otherwise disposes of the property subject to the mortgage and the loan
is not repaid.                                                                  

         Schenectady  Federal  also  originates  home equity  loans and lines of
credit secured by a lien on the borrower's residence. Schenectady Federal's home
equity loans are  generally  limited to $100,000.  Schenectady  Federal uses the
same  underwriting  standards  for  home  equity  loans  as it uses  for one- to
four-family residential mortgage loans.  Schenectady Federal's home equity loans
are originated in amounts which, together with the amount of the first mortgage,
do not exceed 80% of the appraised value of the property  securing the loan. The
interest  rates for home equity  loans and lines of credit  float with the prime
rate or, in the case of loans (but not lines of credit), are fixed.  Schenectady
Federal writes home equity loans for terms of up to 25 years.  At June 30, 1998,
Schenectady  Federal had $21.0  million of home equity  loans and an  additional
$10.4  million of additional  funds  committed,  but undrawn,  under home equity
lines of credit.                                                                

         Commercial Real Estate and Multi-Family  Lending.  Schenectady  Federal
actively  originates  and  purchases   permanent   commercial  real  estate  and
multi-family  loans. At June 30, 1998,  Schenectady  Federal had $3.8 million in
commercial real estate loans,  representing 2.7% of Schenectady  Federal's total
loan portfolio,  and $2.2 million in multi-family  loans, or 1.6% of Schenectady
Federal's total loan portfolio.                                                 

         Schenectady  Federal's  commercial  real estate and  multi-family  loan
portfolio includes loans secured by motels,  apartment  buildings,  small office
buildings,   and  other   non-residential   building  properties,   as  well  as
participation interests therein.                                                

         Schenectady Federal's permanent commercial real estate and multi-family
loans generally  carried a maximum term of 25 years.  These loans were generally
written  in amounts  of up to 75% of the  lesser of the  appraised  value of the
property or the purchase price and had a projected  debt service  coverage ratio
of at least 1.2%.  Multi-family  real  estate  loans  originated  during the six
months ended June 30, 1998 and 1997  generally  possess  maturity  dates of five
years.                                                                          

         Multi-family  and  commercial  real estate  loans  generally  present a
higher level of risk than loans secured by one- to four-family residences.  This
greater risk is due to several factors, including the concentration of principal
in a limited  number of loans and  borrowers,  the  effects of general  economic
conditions  on income  producing  properties  and the  increased  difficulty  of
evaluating and monitoring  these types of loans.  Furthermore,  the repayment of
loans secured by multi-family and commercial real estate is typically  dependent
upon the successful  operation of the related real estate  project.  If the cash
flow from the project is reduced  (for  example,  if leases are not  obtained or
renewed),  the borrower's ability to repay the loan may be impaired. At June 30,
1998,  Schenectady  Federal had one  commercial  real estate loan  totaling over
$500,000 that was non-performing.  See "- Asset Quality-Non-Performing  Assets."
Since 1991,  Schenectady  Federal has focused its primary efforts on residential
lending.                                                                        

         Consumer Lending.  Schenectady Federal originates a variety of consumer
loans, including automobile,  home improvement,  deposit account and other loans
for household and personal  purposes.  At June 30, 1998,  consumer loans totaled
$748,000 or .5% of total loans outstanding.                                     

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         Consumer  loan  terms vary  according  to the type of loan and value of
collateral, length of contract and creditworthiness of the borrower. Schenectady
Federal's  consumer loans are made at fixed interest rates,  with terms of up to
20 years for secured loans and on a demand basis for unsecured loans.           

         The underwriting standards employed by Schenectady Federal for consumer
loans include a determination of the applicant's  payment history on other debts
and the ability to meet existing  obligations and payments on the proposed loan.
Although  creditworthiness  of the  applicant is of primary  consideration,  the
underwriting process also includes a comparison of the value of the security, if
any, in relation to the proposed loan amount.  Consumer loans may entail greater
credit risk than do  residential  mortgage  loans,  particularly  in the case of
consumer loans which are unsecured or are secured by rapidly depreciable assets,
such as automobiles.  In such cases, any repossessed  collateral for a defaulted
consumer loan may not provide an adequate source of repayment of the outstanding
loan  balance  as a  result  of  the  greater  likelihood  of  damage,  loss  or
depreciation.  In  addition,  consumer  loan  collections  are  dependent on the
borrower's  continuing  financial  stability,  and thus are  more  likely  to be
affected by adverse  personal  circumstances.  Furthermore,  the  application of
various federal and state laws,  including  bankruptcy and insolvency  laws, may
limit the amount  which can be  recovered  on such loans.  Although  Schenectady
Federal has, in the past, experienced losses in the consumer loan portfolio,  at
June 30, 1998,  there were no loans in the consumer  loan  portfolio  which were
non-performing.  During the six months ended June 30, 1998 and 1997, Schenectady
Federal  recovered  $11,000  and  $18,000,   respectively,   on  consumer  loans
previously  charged off. There can be no assurance that  delinquencies  will not
develop in the future.                                                          

Originations, Purchases and Sales of Loans and Mortgage-Backed Securities       

         Loan  applications  are taken in all branch offices and approved in the
main office of Schenectady Federal. Prior to 1994, most of Schenectady Federal's
originated loans were generated by Schenectady  Federal's staff of salaried loan
officers.   Beginning  in  1994,   Schenectady  Federal  began  to  originate  a
significant  amount of loans through  local  mortgage  brokers  which  generally
retained a 100 basis point  origination fee as their  compensation.  Also during
1994,  Schenectady  Federal purchased loans on a servicing  released basis which
were  originated by a mortgage banker for  Schenectady  Federal.  All such loans
were originated in accordance with  Schenectady  Federal's  normal  underwriting
standards. Schenectady Federal believes that its utilization of mortgage brokers
has  had a  favorable  impact  on  loan  originations.  However,  in  the  event
Schenectady Federal's  relationships with these mortgage brokers were terminated
in the future,  loan  originations  and results of operations could be adversely
affected.  In an effort to  mitigate  this  risk,  Schenectady  Federal  hired a
representative  in  1997  to  originate  residential  mortgage  loans  on a full
commission basis.                                                               

         While  Schenectady  Federal  originates both fixed and  adjustable-rate
loans,  its ability to originate  loans is dependent upon the relative  customer
demand  for  loans in its  market.  Demand  is  affected  by the  interest  rate
environment.  During 1995, 1996 and 1997,  Schenectady  Federal's volume of ARMs
exceeded  its volume of fixed rate loans.  During the six months  ended June 30,
1998,  Schenectady  Federal's  volume of fixed rate loans exceeded its volume of
ARMs.                                                                           

         Historically,  Schenectady Federal retained most of the fixed rate one-
to  four-family  residential  loans in its  portfolio.  In order to  reduce  its
vulnerability  to changes in interest  rates,  commencing  in 1992 through 1994,
Schenectady  Federal sold most of the fixed rate residential loans it originated
or otherwise  acquired with  maturities in excess of 15 years,  except where the
interest rate equaled or exceeded a specified rate (as  designated  from time to
time by management) based on its portfolio objectives and alternative investment
opportunities.  When loans are sold,  Schenectady  Federal typically retains the
responsibility  for collecting and remitting loan payments,  making certain that
real  estate  tax  payments  are made on  behalf  of  borrowers,  and  otherwise
servicing the loans.  The servicing fee is recognized as income over the life of
the loans.  At June 30,  1998,  Schenectady  Federal  serviced  $3.0  million of
mortgage loans for others.  Schenectady Federal did not sell loans during fiscal
years 1995, 1996, 1997 and the six months ended June 30, 1998.                  

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         The  following  table  shows  the loan and  mortgage-backed  securities
origination,  purchase, sale and repayment activities of Schenectady Federal for
the periods indicated.                                                          

                                                        [Enlarge/Download Table]

                                                 Six Months    Six Months              Year Ended December 31,        
                                                    Ended        Ended         ------------------------------------   
                                               June 30, 1998  June 30, 1997    1997            1996            1995   
                                               -------------  -------------    ----            ----            ----   
                                                                    (In Thousands)                                    
LOANS:                                                                                                                
                                                                                                                      
   Originations by type:                                                                                              
      Adjustable rate:                                                                                                
         Real estate                                                                                                  
            One- to four-family ..............  $   4,841(1)   $  7,209(1)  $  13,186(1)    $ 20,894(1)     $ 8,219(1)
            Home equity ......................      2,799         2,170         5,705          5,174          5,474   
            Commercial .......................         --            --           927             --             --   
         Non-real estate                                                                                              
            Consumer .........................         --            --            --             --             --   
                                                 --------      --------      --------       --------       --------   
               Total adjustable rate .........      7,640         9,379        19,818         26,068         13,693   
                                                 --------      --------      --------       --------       --------   

      Fixed rate:                                                                                                     
         Real estate                                                                                                  
            One- to four-family ..............      3,791(2)      9,326(2)      9,930(2)       1,606(2)       2,966(2)
            Home equity ......................        187           507           515            737          1,713   
            Commercial .......................        750           427         1,318            198             --   
         Non-real estate                                                                                              
            Consumer .........................         75           140           293             16             --   
                                                 --------      --------      --------       --------       --------   

               Total fixed rate ..............      4,803        10,400        12,056          2,557          4,679   
                                                 --------      --------      --------       --------       --------   

                  Total loans originated .....     12,443        19,779        31,874         28,625         18,372   
                                                 --------      --------      --------       --------       --------   

   Purchases:                                                                                                         
      Real estate                                                                                                     
         One- to four-family .................      1,852         1,504         3,550          6,973          5,245   
                                                 --------      --------      --------       --------       --------   

   Sales and Repayments:                                                                                              
      Real estate                                                                                                     
         One- to four-family .................         --            --            --             --             --   
      Non-real estate consumer ...............         --            --            --             --             --   
                                                 --------      --------      --------       --------        -------   
            Total sales ......................         --            --            --             --             --   

      Principal repayments ...................      8,508        13,764        19,958         17,998         16,701   
                                                 --------      --------      --------       --------       --------   
            Total reductions .................      8,508        13,764        19,958         17,998         16,701   
                                                 --------      --------      --------       --------       --------   
            Net increase(3)                                                                                           
                                                 $  5,787      $  7,519      $ 15,466       $ 17,600       $  6,916   
                                                 ========      ========      ========       ========       ========   

MORTGAGE-BACKED SECURITIES:                                                                                           
   Purchases:                                                                                                         
      Mortgage-backed securities .............   $     --      $     --      $     --       $     --       $  5,381   
      Principal repayments ...................      1,628         3,258         3,486          3,984          2,954   
                                                 --------      --------      --------       --------       --------   
            Net increase (decrease)  .........   $  1,628      $  3,258      $ (3,468)      $ (3,984)      $  2,427   
                                                 ========      ========      ========       ========       ========   

-------------                                                                   
(1) Includes  $6,754,  $4,603,  $12,672,  $19,573 and $8,138 of loans originated
    through  brokers in the first half of 1998 and 1997,  and in 1997,  1996 and
1995, respectively.                                                     
(2) Includes $7,017, $3,482, $8,511, $162 and $1,930 of loans originated through
    brokers  in the  first  half of 1998 and 1997,  and in 1997,  1996 and 1995,
respectively.                                                           
(3) Gross of deferred fees and discounts and the allowance for loan losses.     

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Asset Quality                                                                   

         Delinquency  Procedures.  When a  borrower  fails  to  make a  required
payment on a loan,  Schenectady  Federal  attempts  to cure the  delinquency  by
contacting  the  borrower.  A late  notice  is  sent on all  loans  over 16 days
delinquent. Additional written and verbal contacts may be made with the borrower
between  30 and 60  days  after  the due  date.  If the  loan  is  contractually
delinquent 90 days,  Schenectady Federal usually sends a 30-day demand letter to
the  borrower  and,  after  the  loan  is  contractually  delinquent  120  days,
institutes  appropriate action to foreclose on the property. If foreclosed,  the
property  is sold  at  auction  and may be  purchased  by  Schenectady  Federal.
Delinquent consumer loans are generally handled in a similar manner. Schenectady
Federal's  procedures  for  repossession  and sale of  consumer  collateral  are
subject to various requirements under New York consumer protection laws.        

         Real estate acquired by Schenectady  Federal as a result of foreclosure
or by deed in lieu of foreclosure is classified as real estate owned until it is
sold.  When  property is acquired or expected to be acquired by  foreclosure  or
deed in lieu of  foreclosure,  it is recorded at the lower of cost or  estimated
fair value, less the estimated cost of disposition. After acquisition, all costs
incurred  in  maintaining  the  property  are  expensed.  Costs  relating to the
development  and  improvement of the property,  however,  are capitalized to the
extent of fair value less disposition cost.                                     

         The following table sets forth Schenectady Federal's loan delinquencies
by type, by amount and by percentage of type at June 30, 1998.                  

                                                        [Enlarge/Download Table]

                                                           Loans Delinquent For:                                                  
                                ----------------------------------------------------------------                                  
                                        60-89 Days                       90 Days and Over               Total Delinquent Loans    
                                ---------------------------     --------------------------------    ------------------------------
                                                   Percent                               Percent                          Percent 
                                                   Of Loan                               Of Loan                          Of Loan 
                                 Number    Amount  Category     Number      Amount      Category    Number    Amount      Category
                                 ------    ------  --------     ------      ------      --------    ------    ------      --------
                                                                   (Dollars in Thousands)                                         
Real Estate:                                                                                                                      
                                                                                                                                  
   One- to four-family .........     4     $  366     .32%         10     $  552         .48%         14     $  918         .80%  
   Multi-family ................    --         --      --           1        146        6.56           1        146        6.56   
   Commercial ..................    --         --      --          --         --          --          --         --          --   
   Home equity .................    --         --      --           3        140         .67           3        140         .67   
   Consumer ....................    --         --      --          --         --          --          --         --          --   
   Commercial business .........    --         --      --          --         --          --          --         --          --   
                                ------     ------     ---      ------     ------        ----      ------     ------        ----   
            Total ..............     4     $  366     .26%         14     $  838         .59%         18     $1,204         .85%  
                                ======     ======     ===      ======     ======        ====      ======     ======        ====   

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         Classification of Assets. Federal regulations require that each savings
institution  classify its assets on a regular basis. In addition,  in connection
with examinations of savings institutions, OTS and FDIC examiners have authority
to identify  problem assets and, if appropriate,  require them to be classified.
There are three  classifications for problem assets:  substandard,  doubtful and
loss.   Substandard   assets  have  one  or  more  defined  weaknesses  and  are
characterized by the distinct  possibility that Schenectady Federal will sustain
some  loss if the  deficiencies  are not  corrected.  Doubtful  assets  have the
weaknesses of substandard assets, with the additional  characteristics  that the
weaknesses  make  collection  or  liquidation  in full on the basis of currently
existing  facts,  conditions  and  values  questionable,  and  there  is a  high
possibility of loss. An asset classified loss is considered uncollectible and of
such  little  value that  continuance  as an asset on the  balance  sheet of the
institution  is not  warranted.  Assets  classified as  substandard  or doubtful
require the institution to establish prudent general allowances for loan losses.
If an asset or portion  thereof is  classified  as loss,  the  institution  must
either  establish  specific  allowances for loan losses in the amount of 100% of
the  portion of the asset  classified  loss,  or charge off such  amount.  If an
institution does not agree with an examiner's classification of an asset, it may
appeal this  determination to the District  Director of the OTS. On the basis of
management's  review of its assets,  at June 30, 1998,  Schenectady  Federal had
classified a total of $1.5 million of its loans and other assets as follows:    

            Commercial
           One- to Four-  Real Estate and   Consumer
                         Family       Multi-Family     and Other     Total
                         ------       ------------     ---------     -----
                        (In Thousands)
Substandard ...........     $  759         $  744         $  --         $1,503  
Doubtful ..............         --             --            --             --  
Loss ..................         --             --            --             --  
                          ------         ------         -----         ------
         Total ......     $  759         $  744         $  --         $1,503
                          ======         ======         =====         ======

         Schenectady  Federal's  classified assets consist of the non-performing
loans and the loans and other assets of concern discussed herein. As of the date
hereof,  these asset  classifications are generally consistent with those of the
OTS and FDIC.                                                                   

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         Non-Performing  Assets.  The table  below  sets forth the  amounts  and
categories of  non-performing  assets in Schenectady  Federal's loan  portfolio.
Loans are placed on non-accrual  status when the collection of principal  and/or
interest  become   doubtful.   Restructured   loans  consist  of  troubled  debt
restructurings  (which  involve  forgiving a portion of interest or principal on
any loans or making loans at a rate  materially less than that of market rates).
Foreclosed assets include assets acquired in settlement of loans.               

                                                        [Enlarge/Download Table]

                                                                                            December 31,          
                                                             June 30,  -------------------------------------------
                                                               1998      1997              1996               1995
                                                               ----      ----              ----               ----
                                                                             (Dollars in Thousands)               
Non-accruing loans:                                                                                               
                                                                                                                  
   One- to four-family ..................................... $  361    $  472            $   25            $   54 
   Home equity .............................................    140       165                18                -- 
   Multi-family ............................................    146        --                --                -- 
   Commercial real estate ..................................    514       691               756               744 
   Consumer ................................................     --        --                 2                -- 
   Commercial business .....................................     --        --                --                -- 
                                                             ------    ------            ------            ------ 
         Total .............................................  1,161     1,328               801               798 
                                                             ------    ------            ------            ------ 

Accruing loans delinquent 90 days or more:                                                                        
   One- to four-family .....................................    191        19                32                41 
   Home equity .............................................     --        --                --                -- 
   Multi-family ............................................     --        --                --                -- 
   Commercial real estate ..................................     --        --                --                -- 
   Consumer ................................................     --        --                --                -- 
   Commercial business .....................................     --        --                --                -- 
                                                             ------    ------            ------            ------ 
         Total .............................................    191        19                32                41 
                                                             ------    ------            ------            ------ 

Restructured loans:                                                                                               
   One- to four-family .....................................     --        --                --                -- 
   Home equity .............................................     --        --                --                -- 
   Multi-family ............................................     --        --                --                -- 
   Commercial real estate ..................................     --        --                --                -- 
   Consumer ................................................     --        --                --                -- 
   Commercial business .....................................     --        --                --                -- 
                                                             ------    ------            ------            ------ 
         Total .............................................     --        --                --                -- 
                                                             ------    ------            ------            ------ 

Foreclosed assets:                                                                                                
   One- to four-family .....................................     33        --                94                -- 
   Home equity .............................................     34        27                --                -- 
   Multi-family ............................................     --        --                --               200 
   Commercial real estate ..................................     84        84                84                -- 
   Consumer ................................................     --        --                --                -- 
   Commercial business .....................................     --        --                --                -- 
                                                             ------    ------            ------            ------ 
         Total .............................................    151       111               178               200 
                                                             ------    ------            ------            ------ 

Total non-performing assets ................................ $1,503    $1,458            $1,011            $1,039 
                                                             ======    ======            ======            ====== 

Total as a percentage of total assets ......................    .84%      .84%              .61%              .62%

Total non-performing loans ................................. $1,352    $1,347            $  833            $  839 
                                                             ======    ======            ======            ====== 

Total as a percentage of total                                                                                    
          loans receivable, net ............................    .96%     1.01%              .70%              .83%

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         For the six months ended June 30,  1998,  gross  interest  income which
would have been recorded had the  non-accruing  loans been current in accordance
with their original  terms amounted to $55,000.  The amount that was included in
interest income on such loans was $25,000.                                      

         As of June 30, 1998, Schenectady Federal's non-performing assets having
a book value of $500,000 or more included the following:                        

         Motel loans.  In 1988,  Schenectady  Federal  purchased a participation
interest in two loans secured by three  Travelers Motor Inns having an aggregate
of 315 units and located in Albany,  Plattsburg  and  Syracuse,  New York.  As a
result of cash flow and other  problems,  the loans have been  delinquent  since
1992.  Beginning in February 1996,  Schenectady Federal began receiving adequate
protection  payments  in an  amount  established  by the  Bankruptcy  Court.  In
January,  1998, the loan secured by the Plattsburg facility was paid in full and
Schenectady  Federal  recovered  approximately  $21,000 of the amount previously
charged  off.  In  accordance  with the  ruling  of the  Bankruptcy  Court,  the
remaining  loan began  paying at a rate of 10.5% with a term of five years.  The
book value of the remaining loan balance was $514,000 as of June 30, 1998.      

         Other Loans of Concern.  Other than the non-performing assets set forth
in the table  above,  as of June 30,  1998 there  were no loans with  respect to
which known  information  about the possible credit problems of the borrowers or
the  cash  flows of the  security  properties  have  caused  management  to have
concerns  as to the  ability  of the  borrowers  to  comply  with  present  loan
repayment  terms and which may result in the future  inclusion  of such items in
the non-performing asset categories.                                            

         Management has considered Schenectady Federal's  non-performing and "of
concern" assets in establishing its allowance for loan losses.                  

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         Allowance for Loan Losses.  The following  table sets forth an analysis
of Schenectady Federal's allowance for loan losses.                             

                                                                [Download Table]

                                       Six Months Ended     Year Ended December 31, 
                                       -----------------    ----------------------- 
                                       June 30, June 30,                            
                                        1998      1997      1997      1996     1995 
                                        ----      ----      ----      ----     ---- 
                                                  (Dollars in Thousands)            
                                                                                    
Balance at beginning of period ......  $ 778     $ 642     $ 642     $ 572    $ 861 
                                       -----     -----     -----     -----    ----- 
Charge-offs:                                                                        
   One- to four-family ..............     15        --        16        44       88 
   Home equity ......................      6        --         7        41       -- 
   Multi-family .....................     --        --        --        --      419 
   Commercial real estate ...........     --        --        --        --      202 
   Consumer .........................     --         2         3         2        9 
   Commercial business ..............     --        --        --        --       -- 
                                       -----     -----     -----     -----    ----- 
         Total ......................     21         2        26        87      718 
                                       -----     -----     -----     -----    ----- 

Recoveries:                                                                         
   One- to four-family ..............     --        --        --        --        7 
   Home equity ......................     --        --        --        --       -- 
   Multi-family .....................     --        --        --        --       -- 
   Commercial real estate ...........     27        --        --        --       -- 
   Consumer .........................     11        18        42        37       52 
   Commercial business ..............     --        --        --        --       -- 
                                       -----     -----     -----     -----    ----- 
         Total ......................     38        18        42        37       59 
                                       -----     -----     -----     -----    ----- 

Net charge-offs (recoveries) ........    (17)      (16)      (16)       50      659 
Additions charged to operations .....     60        60       120       120      370 
                                       -----     -----     -----     -----    ----- 

Balance at end of period ............  $ 855     $ 718     $ 778     $ 642    $ 572 
                                       =====     =====     =====     =====    ===== 

Ratio of net charge-offs (recoveries)                                               
      to average loans outstanding ..   (.01)%    (.01)%    (.01)%     .04%     .68%
Ratio of net charge-offs (recoveries)                                               
      to non-performing loans .......  (1.26)%   (1.47)%   (1.19)%    6.00%   78.55%

Allowance for loan losses to                                                        
      non-performing loans ..........  63.24 %   66.05 %   57.76 %   77.07%   68.18%
Allowance for loan losses to                                                        
      total loans at end of period ..    .60 %     .60 %     .58 %     .54%     .56%

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         The distribution of Schenectady  Federal's allowance for loan losses at
the dates indicated is summarized as follows:                                   

                                                        [Enlarge/Download Table]

                                                                                       December 31                                  
                                                    --------------------------------------------------------------------------------
                                June 30, 1998                  1997                         1996                        1995        
                           ----------------------   --------------------------     -----------------------      --------------------
                                         Percent                      Percent                     Percent                   Percent 
                                         of Loans                     of Loans                    of Loans                  of Loans
                                         in Each                      in Each                     in Each                   in Each 
                                         Category                     Category                    Category                  Category
                                         of Total                     of Total                    of Total                  of Total
                           Amount         Loans        Amount          Loans        Amount         Loans        Amount       Loans  
                           ------         -----        ------          -----        ------         -----        ------       -----  
                                                                  (Dollars in Thousands)                                            
                                                                                                                                    
One- to four-family...... $    253        80.29%     $     239        78.03%     $     141        76.53%     $     117       71.14% 
Multi-family.............       43          1.56            20          1.47            16          1.32            24         2.35 
Commercial real estate...      118          2.71           143          3.12           143          2.49           104         3.70 
Home equity..............       73         14.79            68         16.84            60         19.23            34        22.38 
Consumer.................        7           .53             7           .54             5           .43             4          .42 
Commercial business......        2           .12           ---            --            --            --           ---          .01 
Unallocated..............      359            --           301            --           277            --           289           -- 
                         ---------       -------   -----------      --------     ---------     ---------     ---------    --------- 

           Total......... $    855       100.00%    $      778       100.00%     $     642       100.00%      $    572      100.00% 
                          ========       ======     ==========       ======      =========       ======       ========      ======  

         The  allowance for loan losses is  established  through a provision for
loan losses  charged to earnings  based on  management's  evaluation of the risk
inherent in the loan  portfolio.  The allowance is established as an amount that
management believes will be adequate to absorb losses on existing loans that may
become  uncollectible,  based on evaluations of the  collectibility of loans and
prior loan loss  experience.  Management's  evaluation  of the  adequacy  of the
allowance  takes into  consideration  such factors as the  historical  loan loss
experience,  changes in the nature  and  volume of the loan  portfolio,  overall
portfolio  quality,  review  of  specific  problem  loans and  current  economic
conditions that may affect borrowers' ability to pay.                           

         While management  believes that it uses the best information  available
to determine the allowance for loan losses,  unforeseen  market conditions could
result in adjustments  to the allowance for loan losses,  and net earnings could
be  significantly  affected,  if  circumstances  differ  substantially  from the
assumptions used in making the final determination. No portion of the reserve is
available to absorb  realized  losses.  The amount and timing of realized losses
and future reserve allocations may vary from current estimates.                 

Investment Activities                                                           

         Schenectady Federal utilizes investment and mortgage-backed  securities
in virtually all aspects of its asset/liability  management strategy.  In making
investment  decisions,  the Investment Committee considers,  among other things,
Schenectady Federal's yield and interest rate objectives,  its interest rate and
credit risk position and its liquidity and cash flow.                           

         Schenectady  Federal must maintain  minimum levels of investments  that
qualify as liquid  assets  under OTS  regulations.  Liquidity  may  increase  or
decrease  depending upon the  availability  of funds and  comparative  yields on
investments  in  relation  to the  return on loans.  Cash flow  projections  are
regularly  reviewed and updated to assure that adequate liquidity is maintained.
Schenectady   Federal's   level  of  liquidity  is  a  result  of   management's
asset/liability strategy.                                                       

         Investment  Securities.  Federally chartered savings  institutions have
the  authority to invest in various types of  investment  securities,  including
United States  Treasury  obligations,  securities of various  federal  agencies,
certain  certificates  of  deposit of insured  banks and  savings  institutions,
certain bankers'  acceptances,  repurchase agreements and federal funds. Subject
to various  restrictions,  federally  chartered  savings  institutions  may also
invest  their  assets in  commercial  paper,  investment  grade  corporate  debt
securities  and mutual  funds whose  assets  conform to the  investments  that a
federally  chartered  savings  institution  is  otherwise   authorized  to  make
directly.                                                                       

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         To date,  Schenectady  Federal's  investment strategy has been directed
toward  high-quality  assets (primarily  government and agency obligations) with
varying terms to maturity. At June 30, 1998, Schenectady Federal did not own any
investment  securities  of a single  issuer which  exceeded  10% of  Schenectady
Federal's equity, other than U.S.                                               
government or federal agency obligations.                                       

         Schenectady   Federal   invests   its  liquid   assets   primarily   in
interest-earning  overnight  deposits.  Other investments include primarily high
grade medium-term (up to five years) U.S. Treasury and agency  obligations.  For
the  six  months  ended  June  30,  1998,  Schenectady  Federal  had an  average
outstanding  balance of $14.1 million in investment  securities  (including $6.1
million of securities available for sale) with an average yield of 6.77%.       

         The following table sets forth the composition of Schenectady Federal's
securities portfolio at the dates indicated.                                    

                                                        [Enlarge/Download Table]

                                                                                           December 31, 1998                       
                                                               ------------------------------------------------------------------  
                                         June 30, 1998                1997                    1996                    1995         
                                      -------------------      ------------------      -------------------     ------------------  
                                      Book          % of        Book        % of        Book        % of        Book        % of   
                                      Value         Total       Value       Total       Value       Total       Value       Total  
                                      -----         -----       -----       -----       -----       -----       -----       -----  
                                                                       (Dollars in Thousands)                                      
Securities available for sale                                                                                                      
 (at fair value):                                                                                                                  
                                                                                                                                   
    Federal agency obligations...... $   8,062       44.29%   $  4,067       22.96%     $   --          --%   $     --          --%
     Mutual funds...................        --          --          --          --       1,990        9.68       7,976       21.65 

Investment securities                                                                                                              
 (at amortized cost):                                                                                                              
     U.S. government obligations....        --          --       1,992       11.24       3,980       19.37       5,968       16.20 
    Federal agency obligations......     3,130       17.20       9,945       56.13       9,481       46.13       9,692       26.30 
     Municipal bonds................        72         .39          76         .43          84         .41          93         .25 
     Corporate bonds................        --          --          --          --       2,201       10.71       2,905        7.88 
     Mutual funds...................        --          --          --          --          --          --         ---          -- 
                                     ---------     -------    --------       -----     -------      ------    --------      ------ 
          Subtotal..................    11,264       61.88      16,080       90.76      17,736       86.30      26,634       72.28 
     FHLB stock.....................     1,338        7.35       1,338        7.55       1,215        5.91       1,117        3.03 
                                    ----------      ------   ---------      ------    --------     -------    --------    -------- 
          Total investment                                                                                                         
           securities and FHLB                                                                                                     
           stock....................   $12,602       69.23%    $17,418       98.31%    $18,951       92.21%    $27,751       75.31%
                                       =======       =====     =======       =====     =======       =====     =======       ===== 

Average remaining life of                                                                                                          
 securities excluding                                                                                                              
 FHLB stock and mutual funds....             4.5 years               5.1 years               3.6 years               3.2 years     

Other interest-earning assets:                                                                                                     
     Federal funds sold.............     5,600       30.77         300        1.69       1,600        7.79       9,100       24.69 
                                     ---------     -------  ----------     -------   ---------      ------   ---------     ------- 

           Total....................   $18,202     100.00%     $17,718     100.00%     $20,551     100.00%     $36,851     100.00% 
                                       =======     ======      =======     ======      =======     ======      =======     ======  

Average remaining life or term                                                                                                     
 to repricing of securities and                                                                                                    
 other interest-earning assets,                                                                                                    
 Excluding FHLB stock and                                                                                                          
 mutual funds.......................          3.0 years              5.0 years               3.3 years               2.2 years     

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         The composition and maturities of the securities  portfolio,  excluding
FHLB stock and federal funds sold, are indicated in the following table.        

                                                        [Enlarge/Download Table]

                                                                           June 30, 1998                 
                                      -------------------------------------------------------------------
                                      Less Than      1 to 5     5 to 10       Over                       
                                       1 Year         Years      Years      10 Years    Total Securities 
                                       ------         -----      -----      --------    ---------------- 
                                        Book          Book       Book          Book     Book       Market
                                        Value         Value      Value         Value    Value       Value
                                        -----         -----      -----         -----    -----       -----
                                                             (Dollars in Thousands)                      
Securities available for sale:                                                                           
                                                                                                         
   Federal agency obligations .......   $ --        $ 8,062      $    --    $    --    $ 8,062    $ 8,062
                                        ----        -------      -------    -------    -------    -------
Investment securities:                                                                                   
   U.S. government securities .......     --             --           --         --         --         --
   Federal agency obligations .......     --          1,047        1,087        996      3,130      3,127
   Municipal bonds ..................     --             --           72         --         72         72
   Corporate bonds ..................     --             --           --         --         --         --
   Collateralized mortgage obligation     --             --           --         --         --         --
                                        ----        -------      -------    -------    -------    -------
         Total investment securities      --          1,047        1,159        996      3,202      3,199
                                        ----        -------      -------    -------    -------    -------
          Total securities ..........   $ --        $ 9,109      $ 1,159    $   996    $11,264    $11,261
                                        ====        =======      =======    =======    =======    =======

Weighted average yield ..............     --%          6.46%        8.30%      8.00%      6.78%          
                                        ====        =======      =======    =======    =======           

         Mortgage-Backed  Securities. In order to supplement loan production and
achieve its  asset/liability  management goals,  Schenectady  Federal invests in
mortgage-backed  securities.  All of the  mortgage-backed  securities  owned  by
Schenectady  Federal  are  issued,  insured or  guaranteed  either  directly  or
indirectly  by a federal  agency or are rated "AA" or higher.  At June 30, 1998,
Schenectady  Federal had $13.7  million of  mortgage-backed  securities,  all of
which are held for investment purposes.                                         

         Consistent with its  asset/liability  management strategy over the last
several  years,  a  majority  of  the  mortgage-backed  securities  acquired  by
Schenectady  Federal have had short or intermediate  effective terms to maturity
or, to a lesser extent, adjustable interest rates. In particular,  virtually all
of the  mortgage-backed  securities  purchased by Schenectady Federal since 1992
have carried five and seven year balloon terms.                                 

         The  following   table  sets  forth  the   contractual   maturities  of
Schenectady Federal's mortgage-backed securities at June 30, 1998.              

                                                        [Enlarge/Download Table]

                                 June 30, 1998                                                             
                                 Less Than   1 to 5    5 to 10   10 to 20     Over    Total Mortgage-Backed
                                  1 Year      Years     Years      Years    20 Years       Securities      
                                 ---------   -------   -------   --------   --------  ---------------------
                                  Book        Book      Book       Book       Book     Book      Market    
                                  Value       Value     Value      Value      Value    Value      Value    
                                  -----       -----     -----      -----      -----    -----      -----    
                                                          (Dollars in Thousands)                           
                                                                                                           
Mortgage-Backed Securities                                                                                 
 Held for Investment:                                                                                      
   Government National Mortgage                                                                            
     Association ..............  $    --    $    --   $   713    $ 1,083    $    --   $ 1,796    $ 1,909   
   Federal National Mortgage                                                                               
     Association ..............       --      2,148        --         96      1,010     3,254      3,249   
   Federal Home Loan Mortgage                                                                              
     Corporation ..............    3,135      4,057       117        204      1,145     8,658      8,635   
                                 -------    -------   -------    -------    -------   -------    -------   
Total mortgage-backed                                                                                      
  securities ..................  $ 3,135    $ 6,205   $   830    $ 1,383    $ 2,155   $13,708    $13,793   
                                 =======    =======   =======    =======    =======   =======    =======   

Weighted average yield ........     5.82%      5.91%     8.14%      9.08%      6.90%     6.50%             
                                 =======    =======   =======    =======    =======   =======              

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Sources of Funds                                                                

         General.  Schenectady  Federal's primary sources of funds are deposits,
payments (including prepayments) of loan principal, interest earned on loans and
securities,  repayments  of  securities,  borrowings  and  funds  provided  from
operations.                                                                     

         Deposits.  Schenectady  Federal  offers a variety of deposits  accounts
having a wide range of interest rates and terms.  Schenectady Federal's deposits
consist  of  passbook,  NOW,  money  market,  noninterest-bearing  checking  and
certificate  accounts.  Schenectady  Federal  relies  primarily  on  competitive
pricing policies and customer service to attract and retain these deposits.     

         The  variety of deposit  accounts  offered by  Schenectady  Federal has
allowed it to be competitive in obtaining funds and to respond with  flexibility
to changes in consumer  demand.  As  customers  have become more  interest  rate
conscious,  Schenectady  Federal  has  become  more  susceptible  to  short-term
fluctuations  in deposit flows.  Schenectady  Federal manages the pricing of its
deposits  in keeping  with its  asset/liability  management,  profitability  and
growth objectives.                                                              

         Based  on  its  experience,   Schenectady   Federal   believes  that  a
substantial  portion of its  passbook and NOW  accounts  are  relatively  stable
sources of deposits and has used customer  service and marketing  initiatives in
an effort to  increase  the volume of such  deposits.  However,  the  ability of
Schenectady  Federal  to  attract  and  maintain  these  accounts  (as  well  as
certificate  accounts)  has been  and will be  affected  by  market  conditions.
Subsequent to the 1994 fiscal year, Schenectady Federal experienced a decline in
the  balance of  non-certificate  accounts  (much of which is  believed  to have
transferred  into certificate  accounts) as a result of continued  interest rate
decreases and the rates paid on these deposits. Schenectady Federal has been and
will continue to be significantly affected by market conditions.                

         The following table sets forth the savings flows at Schenectady Federal
during the periods indicated.                                                   

                                                        [Enlarge/Download Table]

                     Six Months    Six Months               Year Ended December 31,    
                       Ended         Ended       --------------------------------------
                   June 30, 1998  June 30, 1997     1997          1996          1995   
                   -------------  -------------     ----          ----          ----   
                                         (Dollars in Thousands)                        
                                                                                       
Opening balance ..  $ 150,469     $ 140,616      $ 140,616     $ 139,671     $ 138,299 
Deposits .........    115,835       113,334        249,343       237,180       231,591 
Withdrawals ......    116,885       109,137       (246,113)     (242,412)     (236,426)
Interest credited       3,460         3,188          6,623         6,177         6,207 
                    ---------     ---------      ---------     ---------     --------- 
Ending balance ...  $ 152,879     $ 148,001      $ 150,469     $ 140,616     $ 139,671 
                    =========     =========      =========     =========     ========= 

Net increase .....  $   2,410     $   7,385      $   9,853     $     945     $   1,372 
                    =========     =========      =========     =========     ========= 

Percent increase .       1.60%         5.25%          7.01%          .68%          .99%

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         The  following  table sets forth the dollar  amount of  deposits in the
various types of deposit  programs  offered by Schenectady  Federal at the dates
indicated.                                                                      

                                                        [Enlarge/Download Table]

                                                                                               December 31,                      
                                                                   --------------------------------------------------------------
                                               June 30, 1998               1997                1996                  1995        
                                            -------------------    ------------------    -------------------    ---------------  
                                                       Percent               Percent                Percent              Percent 
                                            Amount     of Total    Amount    of Total    Amount     of Total    Amount   of Total
                                            ------     --------    ------    --------    ------     --------    ------   --------
                                                                            (Dollars in Thousands)                               
                                                                                                                                 
Transaction and Savings Deposits:(1)                                                                                             
 Noninterest-bearing                                                                                                             
   checking accounts ....................   $1,407        .92%    $ 2,265      1.51%     $1,392        .99%    $2,077      1.49% 
 Savings accounts 3.00% .................   37,044      24.23      36,681     24.38      37,152      26.42     40,745     29.17  
 NOW accounts 1.65% .....................   10,304       6.74       9,163      6.09       9,104       6.47      7,913      5.67  
 Money market accounts                                                                                                           
  2.32%-4.07% ...........................    7,199       4.71       7,619      5.06       6,074       4.32      4,237      3.03  
                                            ------      -----      ------     -----      ------      -----     ------     -----  
    Total non-certificate                                                                                                        
      accounts ..........................   55,954      36.60      55,728     37.04      53,722      38.20     54,972     39.36  
                                            ------      -----      ------     -----      ------      -----     ------     -----  
Certificates of Deposit:                                                                                                         
A3.00-3.99% .............................       --         --          --        --          --         --      1,124       .80  
B4.00-4.99% .............................      833        .54         801       .53      23,244      16.53      2,691      1.93  
C5.00-5.99% .............................   90,665      59.31      84,451     56.12      50,815      36.14     51,996     37.23  
D6.00-6.99% .............................    5,427       3.55       9,489      6.31      12,835       9.13     28,119     20.13  
E7.00-7.99% .............................       --         --          --        --          --         --        618       .44  
F8.00-8.99% .............................       --         --          --        --          --         --        151       .11  
                                            ------      -----      ------     -----      ------      -----     ------     -----  
  Total certificates of deposit .........   96,925      63.40      94,741     62.96      86,894      61.80     84,699     60.64  
                                            ------      -----      ------     -----      ------      -----     ------     -----  
        Total deposits................... $152,879     100.00%   $150,469    100.00%   $140,616     100.00%  $139,671    100.00% 
                                          ========     ======    ========    ======    ========     ======   ========    ======  

-------------------                                                             
(1) Reflects rates paid on transaction and savings deposits at June 30, 1998.   

         The following table shows rate and maturity information for Schenectady
Federal's certificates of deposit as of June 30, 1998.                          

  Certificates of deposit                                             Percent of
maturing in quarter ending:   4.00-5.99%     6.00-6.99%     Total       Total 
---------------------------   ----------     ----------     -----       ----- 
September 30, 1998 .......      $20,920       $   592       $21,512      22.19% 
December 31, 1998 ........       22,980            38        23,018      23.75  
March 31, 1999 ...........       13,068           413        13,481      13.91  
June 30, 1999 ............       13,900         1,530        15,430      15.92  
September 30, 1999 .......        6,559           274         6,833       7.05  
December 31, 1999 ........        4,081           495         4,576       4.72  
March 31, 2000 ...........          955           513         1,468       1.51  
June 30, 2000 ............        1,102           556         1,658       1.71  
September 30, 2000 .......          623           167           790       0.82  
December 31, 2000 ........        1,307           120         1,427       1.47  
March 31, 2001 ...........          693            --           693       0.71  
June 30, 2001 ............          645            --           645       0.67  
Thereafter ...............        4,665           729         5,394       5.57  
                              -------       -------       -------     ------

Total ....................      $91,498       $ 5,427       $96,925     100.00% 
                               =======       =======       =======      ======

Percent of Total .........        94.40%         5.60%                          
    =======       ======

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         The  following  table  indicates  the amount of  Schenectady  Federal's
"jumbo" and other certificates of deposit as of June 30, 1998.                  

                       Over     Over
                     3 Months   3 to 6   6 to 12    Over
                                or Less    Months    Months   12 Months  Total
                                -------    ------    ------   ---------  -----
                                  (In Thousands)
Certificates of deposit                                                         
 less than $100,000 ..........   $18,747   $20,930   $26,575   $21,805   $88,057

Certificates of deposit                                                         
 of $100,000 or more .........     2,765     2,088     2,336     1,679     8,868
                                 -------   -------   -------   -------   -------

Total certificates of                                                           
 deposit .....................   $21,512   $23,018   $28,911   $23,484   $96,925
                                 =======   =======   =======   =======   =======

         Borrowings.  Schenectady  Federal's  other  available  sources of funds
include advances from the FHLB of New York and other borrowings.  As a member of
the FHLB of New York,  Schenectady  Federal is required to own capital  stock in
the FHLB of New York and is  authorized  to apply for advances  from the FHLB of
New York. Each FHLB credit program has its own interest rate, which may be fixed
or variable,  and range of  maturities.  The FHLB of New York may  prescribe the
acceptable  uses for these  advances,  as well as limitations on the size of the
advances and repayment provisions.  At June 30, 1998, Schenectady Federal had no
FHLB advances  outstanding.  On such date,  Schenectady Federal had a collateral
pledge  arrangement  with  the FHLB of New York  pursuant  to which  Schenectady
Federal may borrow up to $53.4 million for liquidity purposes.                  

         During the six months  ended June 30,  1998,  Schenectady  Federal  had
average FHLB advances and other borrowings outstanding totaling $38,000.  During
the fiscal  years  ended  December  31, 1997 and 1996,  Schenectady  Federal had
average FHLB advances or other  borrowings  outstanding  totaling  approximately
$16,000 and $1,000,  respectively.  During the fiscal  year ended  December  31,
1995, Schenectady Federal had no FHLB advances or other borrowings.             

Competition                                                                     

         Schenectady  Federal faces strong  competition both in originating real
estate loans and in attracting deposits.  Competition in originating loans comes
primarily  from  mortgage  bankers,  commercial  banks,  credit unions and other
savings  institutions,  which also make loans secured by real estate  located in
Schenectady  Federal's  market  area.  Schenectady  Federal  competes  for loans
principally  on the basis of the  interest  rates and loan fees it charges,  the
types of loans  it  originates  and the  quality  of  services  it  provides  to
borrowers.                                                                      

         Competition  for deposits is  principally  from money market and mutual
funds,  securities  firms,  commercial  banks,  credit  unions and other savings
institutions located in the same communities. The ability of Schenectady Federal
to attract and retain  deposits  depends on its ability to provide an investment
opportunity  that satisfies the  requirements of investors as to rate of return,
liquidity,  risk,  convenient  locations and other factors.  Schenectady Federal
competes  for these  deposits  by  offering  a variety of  deposit  accounts  at
competitive rates, convenient business hours and a customer oriented staff.     

Employees                                                                       

         At June 30, 1998, Schenectady Federal had a total of 53 full-time and 8
part-time employees.  None of Schenectady Federal's employees are represented by
any collective  bargaining.  Management  considers its employee  relations to be
good.                                                                           

Subsidiary Activities                                                           

         As a  federally  chartered  savings and loan  association,  Schenectady
Federal is permitted by OTS  regulations to invest up to 2% of its assets in the
stock of, or loans  to,  service  corporation  subsidiaries,  and may  invest an
additional 1% of its assets in service  corporations where such additional funds
are used for inner-city or community development                                

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purposes.  At June 30, 1998,  Schenectady  Federal's  investment  in its service
corporation totaled $14,000. In addition to investments in service corporations,
federal  institutions  are permitted to invest an unlimited  amount in operating
subsidiaries  engaged solely in activities  which a federal savings  association
may engage in directly.                                                         

         At June 30,  1998,  Schenectady  Federal had one wholly  owned  service
corporation,  SSLA.  The  corporation  was  formed  in 1983  to  sell  insurance
products.  In 1994, SSLA was authorized to sell mutual funds. For the six months
ended June 30, 1998,  SSLA sold mutual  funds  totaling  $580,000 and  annuities
totaling  $577,000.  No assurance  can be made that a material  amount of mutual
fund and/or  annuity  sales will occur in the future.  For the six months  ended
June 30,  1998,  SSLA had net  income of  $7,000.  For the  fiscal  year  ending
December  31,  1997,  SSLA had a net loss of $9,000.  For the fiscal year ending
December  31,  1996,  SSLA had net income of $8,000.  For the fiscal  year ended
December 31, 1995, SSLA had a net loss of $10,000.                              

Properties                                                                      

         The following table sets forth  information  concerning the main office
and each  branch  office of the Bank at June 30,  1998.  At June 30,  1998,  the
Bank's premises had an aggregate net book value of approximately $1.62 million. 

                               Year          Owned or       Net Book Value
  Location                   Acquired         Leased         June 30, 1998
  --------                   --------         ------         -------------
                      (In Thousands)
Main Office:                                                                    
251-263 State Street              1959            Owned             $ 695       
Schenectady, New York                                                           

Full Service Branches:                                                          
262 Saratoga Road                 1981           Leased             $ 15        
Scotia, New York                             (expires 2006)                     

2526-2528 Broadway                1977            Owned             $ 359       
Schenectady, New York                                                           

1624 Union Street                 1997            Owned             $ 551       
Schenectady, New York                                                           

Legal Proceedings                                                               

         SFS and  Schenectady  Federal are involved as plaintiff or defendant in
various  legal actions  arising in the normal course of its business.  While the
ultimate outcome of these proceedings cannot be predicted with certainty,  it is
the opinion of management,  after consultation with counsel representing SFS and
Schenectady Federal in the proceedings, that the resolution of these proceedings
should  not have a  material  effect  on SFS  consolidated  financial  position,
results of operations, or liability.                                            

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REGULATION

         Set forth below is a brief  description of certain laws and regulations
which are applicable to the Holding Company and the Bank. The description of the
laws and regulations hereunder,  as well as descriptions of laws and regulations
contained  elsewhere herein, does not purport to be complete and is qualified in
its entirety by reference to applicable laws and regulations.                   

The Holding Company                                                             

         General. Upon consummation of the Conversion,  the Holding Company will
become  subject to  regulation  as a savings and loan holding  company under the
HOLA, instead of being subject to regulation as a bank holding company under the
Bank  Holding  Company Act of 1956  because the Bank has made an election  under
Section 10(1) of HOLA to be treated as a "savings  association"  for purposes of
Section  10(e) of HOLA.  As a result,  the Holding  Company  will be required to
register  with the OTS and will be  subject  to OTS  regulations,  examinations,
supervision  and  reporting  requirements  relating to savings and loan  holding
companies.  The Holding  Company will also be required to file  certain  reports
with, and otherwise  comply with the rules and  regulations of, the NYBB and the
SEC. As a  subsidiary  of a savings and loan holding  company,  the Bank will be
subject to certain  restrictions  in its dealings  with the Holding  Company and
affiliates thereof.                                                             

         Activities Restrictions.  Upon consummation of the Conversion, the Bank
will be the sole savings  association  subsidiary of the Holding Company.  There
are generally no  restrictions  on the  activities of a savings and loan holding
company which holds only one subsidiary  savings  institution.  However,  if the
Director of the OTS  determines  that there is reasonable  cause to believe that
the  continuation  by  a  savings  and  loan  holding  company  of  an  activity
constitutes  a serious risk to the financial  safety,  soundness or stability of
its  subsidiary  savings  institution,  he may impose such  restrictions  as are
deemed  necessary  to  address  such risk,  including  limiting  (i)  payment of
dividends  by the savings  institution;  (ii)  transactions  between the savings
institution  and  its  affiliates;  and  (iii)  any  activities  of the  savings
institution that might create a serious risk that the liabilities of the holding
company  and  its  affiliates  may  be  imposed  on  the  savings   institution.
Notwithstanding the above rules as to permissible business activities of unitary
savings and loan holding  companies,  if the savings  institution  subsidiary of
such a  holding  company  fails  to  meet  the  QTL  test,  as  discussed  under
"--Qualified  Thrift Lender Test," then such unitary  holding company also shall
become subject to the activities restrictions applicable to multiple savings and
loan holding companies and, unless the savings institution  requalifies as a QTL
within  one year  thereafter,  shall  register  as,  and  become  subject to the
restrictions  applicable to, a bank holding  company.  See  "--Qualified  Thrift
Lender Test."                                                                   

         If the  Holding  Company  were to acquire  control  of another  savings
institution,  other than through Merger or other business  combination  with the
Bank, the Holding  Company would  thereupon  become a multiple  savings and loan
holding  company.  Except where such acquisition is pursuant to the authority to
approve  emergency  thrift   acquisitions  and  where  each  subsidiary  savings
institution  meets  the QTL test,  as set forth  below,  the  activities  of the
Holding  Company  and any of its  subsidiaries  (other  than  the  Bank or other
subsidiary  savings   institutions)  would  thereafter  be  subject  to  further
restrictions.  Among other things,  no multiple savings and loan holding company
or  subsidiary  thereof  which is not a savings  institution  shall  commence or
continue for a limited period of time after becoming a multiple savings and loan
holding  company or subsidiary  thereof any business  activity  other than:  (i)
furnishing  or  performing   management   services  for  a  subsidiary   savings
institution;  (ii)  conducting  an insurance  agency or escrow  business;  (iii)
holding,  managing, or liquidating assets owned by or acquired from a subsidiary
savings  institution;  (iv) holding or managing properties used or occupied by a
subsidiary savings institution; (v) acting as trustee under deeds of trust; (vi)
those  activities  authorized by regulation as of March 5, 1987 to be engaged in
by multiple savings and loan holding companies;  or (vii) unless the Director of
the OTS by regulation  prohibits or limits such  activities for savings and loan
holding  companies,  those  activities  authorized by the FRB as permissible for
bank holding  companies.  Those activities  described in clause (vii) above also
must be  approved  by the  Director  of the OTS prior to being  engaged  in by a
multiple savings and loan holding company.                                      

         Qualified Thrift Lender Test. Under Section 2303 of the Economic Growth
and Regulatory Paperwork Reduction Act of 1996, a savings association can comply
with  the QTL test by  either  meeting  the QTL  test set  forth in the HOLA and
implementing   regulations  or  qualifying  as  a  domestic  building  and  loan
association as defined in Section                                               

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7701(a)(19)  of the Internal  Revenue Code of 1986,  as amended.  A savings bank
subsidiary  of a savings and loan holding  company that does not comply with the
QTL test must comply with the following restrictions on its operations:  (i) the
institution  may not  engage  in any new  activity  or make any new  investment,
directly or indirectly,  unless such activity or investment is permissible for a
national bank; (ii) the branching powers of the institution  shall be restricted
to those of a national  bank,  (iii) the  institution  shall not be  eligible to
obtain  any  advances  from its  FHLB;  and (iv)  payment  of  dividends  by the
institution  shall be subject to the rules  regarding  payment of dividends by a
national  bank.  Upon the  expiration  of three  years from the date the savings
institution  ceases to meet the QTL test,  it must cease any activity and divest
any investment not  permissible  for a national bank and  immediately  repay any
outstanding FHLB advances (subject to safety and soundness considerations).     

         The QTL test  set  forth in the HOLA  requires  that  qualified  thrift
investments   ("QTLs")   represent  65%  of  portfolio  assets  of  the  savings
institution and its consolidated  subsidiaries.  Portfolio assets are defined as
total assets less  intangibles,  property used by a savings  association  in its
business and  liquidity  investments  in an amount not  exceeding 20% of assets.
Generally,  QTLs are residential  housing related assets. The 1996 amendments to
allow small  business  loans,  credit card  loans,  student  loans and loans for
personal,  family and household  purposes to be included  without  limitation as
qualified  investments.  At June 30,  1998,  approximately  82.5% of the  Bank's
assets were invested in QTLs, which was in excess of the percentage  required to
qualify the Bank under the QTL test in effect at that time.                     

         Limitations  on  Transactions  with  Affiliates.  Transactions  between
savings  institutions  and any affiliate are governed by Sections 23A and 23B of
the Federal Reserve Act. An affiliate of a savings institution is any company or
entity which  controls,  is  controlled  by or is under common  control with the
savings institution. In a holding company context, the parent holding company of
a savings  institution (such as the Holding Company) and any companies which are
controlled  by  such  parent  holding  company  are  affiliates  of the  savings
institution.  Generally,  Sections 23A and 23B (i) limit the extent to which the
savings  institution or its  subsidiaries  may engage in "covered  transactions"
with any one affiliate to an amount equal to 10% of such  institution's  capital
stock and surplus,  and contain an aggregate limit on all such transactions with
all  affiliates  to an amount equal to 20% of such capital stock and surplus and
(ii) require that all such transactions be on terms  substantially the same, or,
at least as favorable,  to the  institution or subsidiary as those provided to a
non-affiliate.  The term  "covered  transaction"  includes  the making of loans,
purchase of assets, issuance of a guarantee and other similar transactions.     

         In addition,  Sections  22(g) and (h) of the Federal  Reserve Act place
restrictions   on  loans  to  executive   officers,   directors   and  principal
stockholders.  Under Section 22 (h), loans to a director,  an executive  officer
and to a greater  than 10%  stockholder  of a savings  institution,  and certain
affiliated  interests  of  either,  may not  exceed,  together  with  all  other
outstanding  loans  to  such  person  and  affiliated  interests,   the  savings
institution's  loans  to  one  borrower  limit  (generally  equal  to 15% of the
institution's unimpaired capital and surplus).  Section 22(h) also requires that
loans to directors,  executive  officers and principal  stockholders  be made on
terms  substantially  the same as offered in  comparable  transactions  to other
persons unless the loans are made pursuant to a benefit or compensation  program
that (i) is widely  available to employees of the  institution and (ii) does not
give preference to any director,  executive officer or principal stockholder, or
certain  affiliated  interests  of either,  over other  employees of the savings
institution. Section 22(h) also requires prior board approval for certain loans.
In  addition,  the  aggregate  amount  of  extensions  of  credit  by a  savings
institution to all insiders cannot exceed the institution's  unimpaired  capital
and surplus. Furthermore,  Section 22(g) places additional restrictions on loans
to executive  officers.  At June 30, 1998,  the Bank was in compliance  with the
above restrictions.                                                             

         Restrictions  on  Acquisitions.  Except  under  limited  circumstances,
savings and loan holding companies are prohibited from acquiring,  without prior
approval  of the  Director,  (i)  control of any other  savings  institution  or
savings and loan holding company or substantially all the assets thereof or (ii)
more than 5% of the voting shares of a savings  institution  or holding  company
thereof  which is not a  subsidiary.  Except  with  the  prior  approval  of the
Director, no director or officer of a savings and loan holding company or person
owning or  controlling  by proxy or  otherwise  more than 25% of such  company's
stock, may acquire control of any savings  institution,  other than a subsidiary
savings institution, or of any other savings and loan holding company.          

         The Director may only approve  acquisitions  resulting in the formation
of  a  multiple   savings  and  loan  holding  company  which  controls  savings
institutions in more than one state if (i) the multiple savings and loan holding
company                                                                         

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involved  controls a savings  institution which operated a home or branch office
located in the state of the institution to be acquired as of March 5, 1987; (ii)
the  acquiror  is  authorized  to  acquire  control of the  savings  institution
pursuant,,to  the  emergency  acquisition  provisions  of the FDIA; or (iii) the
statutes  of the  state in which  the  institution  to be  acquired  is  located
specifically   permit   institutions  to  be  acquired  by  the  state-chartered
institutions  or savings and loan holding  companies  located in the state where
the  acquiring  entity is located (or by a holding  company that  controls  such
state chartered savings institutions).                                          

         Federal  Securities  Laws. The Holding Company has filed with the SEC a
registration  statement  under the Securities  Act, for the  registration of the
Holding  Company  Common Stock to be issued  pursuant to the  Conversion and the
Merger. Upon completion of the Conversion, the Holding Company Common Stock will
be registered with the SEC under Section 12(g) of the Securities Exchange Act of
1934,  as  amended.  The Holding  Company  will then be subject to the proxy and
tender offer rules, insider trading reporting requirements and restrictions, and
certain other requirements under the Exchange Act.                              

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

The Bank                                                                        

         General. The Bank is subject to extensive regulation and examination by
the Department,  as its chartering authority, and by the FDIC, as the insurer of
its deposits,  and,  upon  Conversion,  will be subject to certain  requirements
established  by the OTS as a result of the  Holding  Company's  savings and loan
holding  company status.  The federal and state laws and  regulations  which are
applicable to banks regulate,  among other things,  the scope of their business,
their  investments,   their  reserves  against  deposits,   the  timing  of  the
availability  of deposited funds and the nature and amount of and collateral for
certain loans.  The Bank must file reports with the NYBB and the FDIC concerning
its  activities  and financial  condition,  in addition to obtaining  regulatory
approvals  prior to entering  into  certain  transactions  such as  establishing
branches and Mergers with, or acquisitions  of, other  depository  institutions.
There  are  periodic  examinations  by the NYBB and the FDIC to test the  Bank's
compliance with various regulatory requirements. This regulation and supervision
establishes a comprehensive  framework of activities in which an institution can
engage and is intended  primarily for the  protection of the insurance  fund and
depositors.  The  regulatory  structure  also gives the  regulatory  authorities
extensive  discretion  in  connection  with their  supervisory  and  enforcement
activities  and  examination  policies,  including  policies with respect to the
classification  of assets and the  establishment  of adequate loan loss reserves
for regulatory purposes. Any change in such regulation, whether by the NYBB, the
FDIC or as a result of the  enactment  of  legislation,  could  have a  material
adverse impact on the Holding Company, the Bank and their operations.           

         Capital Requirements.  The FDIC has promulgated regulations and adopted
a statement of policy  regarding the capital adequacy of  state-chartered  banks
which, like the Bank, will not be members of the Federal Reserve System.        

         The FDIC's capital regulations establish a minimum 3.0% Tier I leverage
capital requirement for the most highly-rated state-chartered, non-member banks,
with an  additional  cushion  of at least 100 to 200 basis  points for all other
state-chartered,  non-member banks,  which effectively will increase the minimum
Tier I leverage  ratio for such other  banks to 4.0% to 5.0% or more.  Under the
FDIC's  regulation,  the highest-rated  banks are those that the FDIC determines
are  not  anticipating  or  experiencing   significant   growth  and  have  well
diversified  risk,  including no undue  interest rate risk  exposure,  excellent
asset  quality,  high  liquidity,  good  earnings  and,  in  general,  which are
considered a strong  banking  organization  and are rated  composite I under the
Uniform Financial Institutions Rating System.                                   

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Leverage or core  capital is defined as the sum of common  stockholders'  equity
(including  retained  earnings),  noncumulative  perpetual  preferred  stock and
related surplus, and minority interests in consolidated subsidiaries,  minus all
intangible assets other than certain qualifying supervisory goodwill and certain
mortgage servicing rights.                                                      

         The FDIC also  requires  that savings  banks meet a risk-based  capital
standard.  The  risk-based  capital  standard  for savings  banks  requires  the
maintenance   of  total  capital  (which  is  defined  as  Tier  1  capital  and
supplementary  (Tier 2) capital) to  risk-weighted  assets of 8%. In determining
the amount of risk-weighted  assets, all assets, plus certain off- balance sheet
assets,  are multiplied by a risk-weight  of 0% to 100%,  based on the risks the
FDIC believes are inherent in the type of asset or item.  The components of Tier
I capital are equivalent to those discussed above under the 3% leverage  capital
standard.  The components of  supplementary  capital include  certain  perpetual
preferred stock, certain mandatory convertible securities,  certain subordinated
debt and intermediate  preferred stock and general allowances for loan and lease
losses.  Allowance for loan and lease losses includable in supplementary capital
is limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of
capital counted toward supplementary capital cannot exceed 100% of core capital.
At June 30, 1998 the Bank met each of its capital requirements.                 

         In  August  1995,  the  FDIC,  along  with the  other  federal  banking
agencies,  adopted a regulation providing that the agencies will take account of
the exposure of a bank's  capital and economic value to changes in interest rate
risk  in  assessing  a  bank's  capital  adequacy.  According  to the  agencies,
applicable  considerations  include the quality of the bank's interest rate risk
management process, the overall financial condition of the bank and the level of
other  risks  at the  bank  for  which  capital  is  needed.  Institutions  with
significant  interest rate risk may be required to hold additional capital.  The
agencies recently issued a joint policy statement providing guidance on interest
rate risk management,  including a discussion of the critical factors  affecting
the  agencies'  evaluation  of interest  rate risk in  connection  with  capital
adequacy.  The agencies have determined not to proceed with a previously  issued
proposal to develop a supervisory framework for measuring interest rate risk and
an explicit capital component for interest rate risk.                           

         See "Regulatory  Capital  Requirements" for information with respect to
the Bank's historical  leverage and risk- based capital at June 30, 1998 and pro
forma after giving effect to the issuance of shares in the Offerings.           

         Activities and  Investments of New  York-Chartered  Savings Banks.  The
Bank derives its lending,  investment  and other  authority  primarily  from the
applicable  provisions of New York State Banking Law and the  regulations of the
Department,   as  limited  by  FDIC  regulations  and  other  federal  laws  and
regulations.  See  "--Activities  and  Investments  of Insured  State--Chartered
Banks." These New York laws and regulations  authorize savings banks,  including
the Bank, to invest in real estate  mortgages,  consumer and  commercial  loans,
certain types of debt securities,  including  certain  corporate debt securities
and obligations of federal,  State and local  governments and agencies,  certain
types of  corporate  equity  securities  and  certain  other  assets.  Under the
statutory  authority  for  investing  in equity  securities,  a savings bank may
directly invest up to 7.5% of its assets in certain corporate stock and may also
invest up to 7.5% of its assets in certain mutual fund securities. Investment in
stock of a single  corporation is limited to the lesser of 2% of the outstanding
stock of such  corporation  or 1% of the savings  bank's  assets,  except as set
forth  below.  Such  equity  securities  must meet  certain  tests of  financial
performance.  A savings  bank's  lending powers are not subject to percentage of
asset limitations,  although there are limits applicable to single borrowers.  A
savings bank may also, pursuant to the "leeway" authority,  make investments not
otherwise permitted under the New York State Banking Law. This authority permits
investments  in otherwise  impermissible  investments of up to 1% of the savings
bank's assets in any single investment,  subject to certain  restrictions and to
an aggregate limit for all such investments of up to 5% of assets. Additionally,
in lieu of investing in such securities in accordance with the reliance upon the
specific  investment  authority  set forth in the New York  State  Banking  Law,
savings  banks  are  authorized  to elect to  invest  under a  "prudent  person"
standard in a wider range of debt and equity securities as compared to the types
of investments permissible under such specific investment authority. However, in
the event a savings bank elects to utilize the  "prudent  person"  standard,  it
will be unable to avail  itself of the other  provisions  of the New York  State
Banking Law and regulations which set forth specific investment authority. A New
York  chartered  stock savings bank may also exercise trust powers upon approval
of the Department.                                                              

         Under recently enacted legislation, the Department has been granted the
authority to maintain the power of  state-chartered  banks reciprocal with those
of a  national  bank.  Under the terms of the  legislation,  the  Department  is
granted such  authority for only one year unless  legislation  is adopted within
such period which extends the effective                                         

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period  of such  power.  However,  any  regulations  adopted  by the  Department
pursuant  to the  authority  granted  by such  legislation  would  be  effective
regardless of whether legislation is enacted extending the effective period.    

         New York-chartered  savings banks may also invest in subsidiaries under
their service corporation investment power. A savings bank may use this power to
invest in corporations that engage in various activities  authorized for savings
banks, plus any additional activities which may be authorized by the Department.
Investment by a savings bank in the stock,  capital notes and  debentures of its
service   corporations  is  limited  to  3%  of  the  bank's  assets,  and  such
investments, together with the bank's loans to its service corporations, may not
exceed 10% of the savings bank's assets.                                        

         With certain limited exceptions,  a New York-chartered savings bank may
not make loans or extend credit for commercial,  corporate or business  purposes
(including lease financing) to a single borrower,  the aggregate amount of which
would be in excess of 15% of the bank's net worth.  The Bank currently  complies
with all applicable loans-to-one- borrower limitations.                         

         Activities and Investments of FDIC-Insured  State-Chartered  Banks. The
activities and equity  investments of  FDIC-insured,  state-chartered  banks are
generally  limited to those  that are  permissible  for  national  banks.  Under
regulations dealing with equity investments, an insured state bank generally may
not directly or indirectly acquire or retain any equity investment of a type, or
in an amount, that is not permissible for a national bank. An insured state bank
is not  prohibited  from,  among other  things,  (i)  acquiring  or  retaining a
majority  interest in a  subsidiary,  (ii)  investing as a limited  partner in a
partnership  the sole purpose of which is direct or indirect  investment  in the
acquisition,  rehabilitation or new construction of a qualified housing project,
provided  that such  limited  partnership  investments  may not exceed 2% of the
bank's total assets,  (iii) acquiring up to 10% of the voting stock of a company
that solely provides or reinsures directors',  trustees' and officers' liability
insurance coverage or bankers' blanket bond group insurance coverage for insured
depository institutions,  and (iv) acquiring or retaining the voting shares of a
depository  institution  if  certain  requirements  are  met.  In  addition,  an
FDIC-insured  state-chartered  bank may not directly,  or  indirectly  through a
subsidiary,  engage as "principal" in any activity that is not permissible for a
national bank unless the FDIC has determined that such activities  would pose no
risk to the insurance fund of which it is a member and the bank is in compliance
with applicable regulatory capital requirements.                                

         Regulatory  Enforcement  Authority.  Applicable  banking  laws  include
substantial  enforcement  powers available to federal banking  regulators.  This
enforcement authority includes,  among other things, the ability to assess civil
money  penalties,  to issue  cease-and-desist  or removal orders and to initiate
injunctive  actions against  banking  organizations  and  institution-affiliated
parties, as defined. In general,  these enforcement actions may be initiated for
violations  of laws and  regulations  and  unsafe or  unsound  practices.  Other
actions or inactions  may provide the basis for  enforcement  action,  including
misleading or untimely reports filed with regulatory authorities.               

         Under the New York State Banking Law, the  Superintendent  may issue an
order to a New  York-chartered  banking  institution  to appear  and  explain an
apparent  violation of law, to discontinue  unauthorized or unsafe practices and
to keep prescribed books and accounts. Upon a finding by the Superintendent that
any director,  trustee or officer of any banking  organization  has violated any
law,  or has  continued  unauthorized  or unsafe  practices  in  conducting  the
business  of  the  banking  organization  after  having  been  notified  by  the
Superintendent to discontinue such practices, such director,  trustee or officer
may be removed from office by the Superintendent after notice and an opportunity
to be heard. The Bank does not know of any past or current  practice,  condition
or violation  that might lead to any  proceeding by the  Department  against the
Bank or any of its  directors  or  officers.  The  Superintendent  also may take
possession of a banking organization under specified statutory criteria.        

         Prompt Corrective  Action.  Section 38 of the FDIA provides the federal
banking  regulators  with  broad  power to take  "prompt  corrective  action" to
resolve  the  problems  of  undercapitalized  institutions.  The  extent  of the
regulators'  powers  depends on whether  the  institution  in  question is "well
capitalized,"  "adequately  capitalized,"   "undercapitalized,"   "significantly
undercapitalized" or "critically undercapitalized." Under regulations adopted by
the federal banking  regulators,  an institution shall be deemed to be (i) "well
capitalized" if it has a total risk-based  capital ratio of 10.0% or more, has a
Tier I risk-based  capital ratio of 6.0% or more, has a Tier I leverage  capital
ratio of 5.0% or more and is not subject to specified  requirements  to meet and
maintain a specific  capital  level for any capital  measure,  (ii)  "adequately
capitalized" if it has a total risk-based  capital ratio of 8.0% or more, a Tier
I risk-based capital ratio of 4.0%                                              

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or more and a Tier I leverage  capital ratio of 4.0% or more (3.0% under certain
circumstances)  and does not meet the  definition of "well  capitalized,"  (iii)
"undercapitalized"  if it has a total risk-based capital ratio that is less than
8.0%,  a Tier I  risk-based  capital  ratio  that is less  than 4.0% or a Tier I
leverage   capital   ratio   that  is  less  than  4.0%  (3.0%   under   certain
circumstances),   (iv)  "significantly  undercapitalized"  if  it  has  a  total
risk-based  capital  ratio that is less than 6.0%, a Tier I  risk-based  capital
ratio  that is less than 3.0% or a Tier I  leverage  capital  ratio that is less
than 3.0%, and (v) "critically  undercapitalized"  if it has a ratio of tangible
equity to total assets that is equal to or less than 2.0%. The regulations  also
provide that a federal  banking  regulator  may, after notice and an opportunity
for a  hearing,  reclassify  a "well  capitalized"  institution  as  "adequately
capitalized"  and may  require an  "adequately  capitalized"  institution  or an
"undercapitalized"  institution to comply with supervisory actions as if it were
in the next  lower  category  if the  institution  is in an  unsafe  or  unsound
condition  or engaging  in an unsafe or unsound  practice.  The federal  banking
regulator  may  not,  however,  reclassify  a  "significantly  undercapitalized"
institution as "critically undercapitalized."                                   

         An institution  generally must file a written capital  restoration plan
which meets specified  requirements,  as well as a performance  guaranty by each
company that  controls the  institution,  with an  appropriate  federal  banking
regulator within 45 days of the date that the institution  receives notice or is
deemed   to  have   notice   that  it  is   "undercapitalized,"   "significantly
undercapitalized"  or "critically  undercapitalized."  Immediately upon becoming
undercapitalized,  an institution becomes subject to statutory provisions which,
among other things,  set forth various mandatory and discretionary  restrictions
on the operations of such an institution.                                       

         At June 30, 1998, the Bank had capital  levels which  qualified it as a
"well capitalized" institution.                                                 

         FDIC Insurance  Premiums.  The Bank is a member of the BIF administered
by the FDIC. As insurer,  the FDIC is authorized to conduct examinations of, and
to require  reporting by,  FDIC-insured  institutions.  It also may prohibit any
FDIC-insured  institution  from engaging in any activity the FDIC  determines by
regulation or order to pose a serious threat to the FDIC.                       

         The FDIC may terminate the deposit insurance of any insured  depository
institution,  including  the Bank,  if it  determines  after a hearing  that the
institution has engaged or is engaging in unsafe or unsound practices,  is in an
unsafe  or  unsound  condition  to  continue  operations,  or has  violated  any
applicable law, regulation,  order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance  temporarily  during the hearing
process for the permanent  termination of insurance,  if the  institution has no
tangible  capital.  If insurance of accounts is terminated,  the accounts at the
institution at the time of the termination,  less subsequent withdrawals,  shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. Management is aware of no existing circumstances which would result in
termination of the Bank's deposit insurance.                                    

         Brokered  Deposits.  The FDIA restricts the use of brokered deposits by
certain depository institutions.  Under the FDIA and applicable regulations, (i)
a "well  capitalized  insured  depository  institution"  may solicit and accept,
renew or roll over any brokered deposit without restriction, (ii) an "adequately
capitalized insured depository  institution" may not accept,  renew or roll over
any brokered deposit unless it has applied for and been granted a waiver of this
prohibition  by the  FDIC  and  (iii) an  "undercapitalized  insured  depository
institution" may not (x) accept,  renew or roll over any brokered deposit or (y)
solicit  deposits by offering an  effective  yield that  exceeds by more than 75
basis points the prevailing  effective  yields on insured deposits of comparable
maturity in such institution's normal market area or in the market area in which
such deposits are being  solicited.  The Bank had $992,000 in brokered  deposits
outstanding at June 30, 1998. However,  it is not currently  soliciting brokered
deposits.                                                                       

         Community  Investment and Consumer  Protection Laws. In connection with
its  lending  activities,  the Bank is  subject  to a variety  of  federal  laws
designed  to protect  borrowers  and promote  lending to various  sectors of the
economy and  population.  Included  among these are the  federal  Home  Mortgage
Disclosure Act, Real Estate  Settlement  Procedures Act,  Truth-in-Lending  Act,
Equal Credit Opportunity Act, Fair Credit Reporting Act and CRA.                

         The CRA requires  insured  institutions to define the communities  that
they  serve,  identify  the  credit  needs of those  communities  and  adopt and
implement a "Community  Reinvestment Act Statement" pursuant to which they offer
credit  products and take other  actions that respond to the credit needs of the
community.  The responsible  federal banking regulator (in the case of the Bank,
the FDIC) must conduct regular CRA examinations of insured financial            

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institutions and assign to them a CRA rating of  "outstanding,"  "satisfactory,"
"needs improvement" or  "unsatisfactory."  The Bank's current federal CRA rating
is "outstanding."                                                               

         The Bank is also subject to  provisions  of the New York State  Banking
Law  which  impose   continuing  and   affirmative   obligations   upon  banking
institutions  organized in New York State to serve the credit needs of its local
community ("NYCRA"),  which are similar to those imposed by the CRA. Pursuant to
the NYCRA, a bank must file an annual NYCRA report and copies of all federal CRA
reports with the Department. The NYCRA requires the Department to make an annual
written  assessment  of  a  bank's  compliance  with  the  NYCRA,   utilizing  a
four-tiered rating system, and make such assessment available to the public. The
NYCRA also  requires  the  Department  to  consider a bank's  NYCRA  rating when
reviewing  a bank's  application  to engage in certain  transactions,  including
Mergers,  asset purchases and the  establishment  of branch offices or automated
teller machines,  and provides that such assessment may serve as a basis for the
denial of any such  application.  The Bank's latest NYCRA rating,  received from
the Department was "satisfactory."                                              

         Limitations  on  Dividends.  The  Holding  Company  is a  legal  entity
separate and distinct from the Bank. The Holding  Company's  principal source of
revenue  consists of  dividends  from the Bank.  The payment of dividends by the
Bank is subject to various regulatory requirements including a requirement, as a
result of the Holding  Company's  savings and loan holding company status,  that
the Bank notify the  Director  not less than 30 days in advance of any  proposed
declaration by its directors of a dividend.                                     

         Under New York State  Banking Law, a New  York-chartered  stock savings
bank may declare and pay  dividends  out of its net profits,  unless there is an
impairment of capital,  but approval of the  Department is required if the total
of all  dividends  declared in a calendar year would exceed the total of its net
profits for that year  combined  with its retained net profits of the  preceding
two years, subject to certain adjustments.                                      

         Miscellaneous.  The Bank is subject to certain restrictions on loans to
the Holding Company or its non-bank subsidiaries, on investments in the stock or
securities  thereof, on the taking of such stock or securities as collateral for
loans to any borrower, and on the issuance of a guarantee or letter of credit on
behalf of the Holding  Company or its  non-bank  subsidiaries.  The Bank also is
subject to certain  restrictions on most types of transactions  with the Holding
Company  or  its  non-bank  subsidiaries,  requiring  that  the  terms  of  such
transactions be substantially  equivalent to terms of similar  transactions with
non-affiliated firms.                                                           

         FHLB System. The Bank is a member of the FHLB of New York, which is one
of 12 regional  FHLBs that  administers  the home financing  credit  function of
savings  institutions.  Each FHLB  serves as a reserve or  central  bank for its
members within its assigned region. It is funded primarily from proceeds derived
from the sale of consolidated  obligations of the FHLB System. It makes loans to
members (i.e.,  advances) in accordance with policies and procedures established
by the Board of  Directors  of the  FHLB.  The Bank had  $19.9  million  of FHLB
advances at June 30, 1998.                                                      

         As a FHLB member,  the Bank is required to purchase and maintain  stock
in the FHLB of New  York in an  amount  equal  to at  least 1% of its  aggregate
unpaid   residential   mortgage  loans,  home  purchase   contracts  or  similar
obligations at the beginning of each year or 5% of its advances from the FHLB of
New York,  whichever is greater.  At June 30, 1998,  the Bank had  approximately
$3.6  million  in  FHLB  stock,  which  resulted  in its  compliance  with  this
requirement.                                                                    

         The FHLBs are required to provide funds for the  resolution of troubled
savings  institutions  and to contribute to affordable  housing programs through
direct loans or interest subsidies on advances targeted for community investment
and  low-  and  moderate-income  housing  projects.   These  contributions  have
adversely  affected  the  level of FHLB  dividends  paid in the  past and  could
continue to do so in the future.  These contributions also could have an adverse
effect on the value of FHLB stock in the future.                                

         Federal Reserve System. The FRB requires all depository institutions to
maintain  reserves  against  their  transaction   accounts  (primarily  checking
accounts,  including NOW and Super NOW accounts) and non-personal time deposits.
As of June 30, 1998, the Bank was in compliance  with  applicable  requirements.
However, because required                                                       

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reserves must be maintained in the form of vault cash or a  non-interest-bearing
account at a Federal Reserve Bank, the effect of this reserve  requirement is to
reduce an institution's earning assets.                                         

TAXATION

Federal Taxation                                                                

         General.  The  Holding  Company and the Bank will be subject to federal
income  taxation  in the same  general  manner as other  corporations  with some
exceptions  discussed  below.  The following  discussion of federal  taxation is
intended only to summarize  certain  pertinent federal income tax matters and is
not a  comprehensive  description  of the tax rules  applicable to the Bank. The
Bank's  federal  income tax returns have been audited or closed without audit by
the Internal Revenue Service through December 31, 1994.                         

         Method  of  Accounting.  For  federal  income  tax  purposes,  the Bank
currently  reports its income and expenses on the accrual  method of  accounting
and uses a tax year ending June 30 for filing its  consolidated  federal  income
tax returns. The 1996 Act eliminated the use of the reserve method of accounting
for bad debt  reserves by savings  institutions,  effective  for  taxable  years
beginning after 1995.                                                           

         Bad Debt  Reserves.  Prior to the 1996 Act,  the Bank was  permitted to
establish a reserve for bad debts and to make annual  additions  to the reserve.
These additions could,  within specified formula limits, be deducted in arriving
at the Bank's taxable income. As a result of the 1996 Act, the Bank must use the
specific  charge off method in computing its bad debt  deduction  beginning with
its 1996 Federal tax return. In addition,  the federal legislation  requires the
recapture  (over a six year  period) of the excess of tax bad debt  reserves  at
December 31, 1995 over those  established as of December 31, 1987. The amount of
such  reserve  subject to recapture  as of June 30, 1998 is  approximately  $1.5
million.                                                                        

         As discussed more fully below, the Bank and subsidiaries  file combined
New York State Franchise tax returns.  The basis of the determination of the tax
is the  greater  of a tax on entire net  income  (or on  alternative  entire net
income) or a tax computed on taxable assets.  However,  for state purposes,  New
York State enacted legislation in 1996, which among other things,  decoupled the
Federal and New York State tax laws  regarding  thrift bad debt  deductions  and
permits the  continued  use of the bad debt reserve  method under section 593 of
the Code.  Thus,  provided the Bank  continues to satisfy  certain  definitional
tests and other conditions,  for New York State income tax purposes, the Bank is
permitted to continue to use the special reserve method for bad debt deductions.
The  deductible  annual  addition to the state  reserve may be computed  using a
specific  formula  based on the Bank's loss history  ("Experience  Method") or a
statutory  percentage  equal to 32% of the Bank's New York State taxable  income
("Percentage Method").                                                          

         Taxable  Distributions  and Recapture.  Prior to the 1996 Act, bad debt
reserves created prior to January 1, 1988 were subject to recapture into taxable
income should the Bank fail to meet certain thrift asset and definitional tests.
New  federal  legislation  eliminated  these  thrift  related  recapture  rules.
However, under current law, pre-1988 reserves remain subject to recapture should
the Bank make certain  non-dividend  distributions,  dividend  distributions  in
excess of historical earnings and profits or cease to maintain a bank charter.  

         At June  30,  1998 the  Bank's  total  federal  base-year  reserve  was
approximately  $3.7 million.  These reserves  reflect the cumulative  effects of
federal tax deductions by the Bank for which no Federal income tax provision has
been made.                                                                      

         Minimum  Tax.  The  Code  imposes  an AMT at a rate of 20% on a base of
regular  taxable  income plus  certain  tax  preferences  ("alternative  minimum
taxable  income" or  "AMTI").  The AMT is payable to the extent  such AMTI is in
excess of an exemption  amount and regular income tax. Net operating  losses can
offset no more than 90% of AMTI. Certain payments of alternative minimum tax may
be used as credits against regular tax liabilities in future years. The Bank has
not  been  subject  to the  alternative  minimum  tax and  has no  such  amounts
available as credits for carryover.                                             

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         Net Operating Loss Carryovers.  For the years beginning after August 5,
1997,  a  financial  institution  may  carry  back net  operating  losses to the
preceding two taxable years and forward to the succeeding 20 taxable  years.  At
June 30, 1998,  the Bank had no net  operating  loss  carryforwards  for federal
income tax purposes.                                                            

         Corporate Dividends-Received Deduction. The Holding Company may exclude
from its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations.  The corporate dividends-received deduction is
80% in the case of dividends  received from  corporations with which a corporate
recipient does not file a consolidated tax return,  and  corporations  which own
less than 20% of the stock of a corporation  distributing  a dividend may deduct
only 70% of dividends received or accrued on their behalf.                      

State and Local Taxation                                                        

         New York State  Taxation.  The Holding Company and the Bank will report
income on a combined basis utilizing a fiscal year. New York State Franchise Tax
on  corporations  is  imposed  in an amount  equal to the  greater  of (a) 9% of
"entire net income"  allocable to New York State (b) 3% of  "alternative  entire
net income" allocable to New York State (c) 0.01% of the average value of assets
allocable  to New York State or (d) nominal  minimum  tax.  Entire net income is
based on federal taxable income, subject to certain modifications.              

         Delaware  State  Taxation.  As a Delaware  holding  company not earning
income in Delaware, the Holding Company is exempt from Delaware corporate income
tax but is  required to file an annual  report with and pay an annual  franchise
tax to the State of Delaware.  The tax is imposed as a percentage of the capital
base of the Holding Company with an annual maximum of $150,000.                 

 MANAGEMENT OF THE HOLDING COMPANY

Directors and Executive Officers                                                

         The Board of Directors  of the Holding  Company  currently  consists of
eleven members,  each of whom is also a trustee of the Bank. As discussed below,
upon  consummation  of the  Conversion,  the  current  trustees of the Bank will
continue to be directors of the  stock-chartered  Bank.  See  "Management of the
Bank -- Trustees." Each director of the Holding Company has served as such since
the Holding Company's  incorporation in September 1998. Directors of the Holding
Company will serve three-year staggered terms so that one-third of the directors
will be elected at each annual meeting of stockholders.  One class of directors,
consisting of Duncan S. Mac Affer, Arthur E. Bowen, Walter H. Speidel, and Harry
L. Robinson has a term of office expiring at the Holding  Company's first Annual
Meeting of  Stockholders,  a second class,  consisting of R. Douglas  Paton,  J.
Timothy  O'Hearn,  Chester C.  DeLaMater,  and Peter G.  Casabonne has a term of
office expiring at the Holding  Company's second Annual Meeting of Stockholders,
and a third  class,  consisting  of Michael L.  Crotty,  Donald A.  Wilson,  and
Frederick G. Field,  Jr.,  has a term  expiring at the Holding  Company's  third
Annual Meeting of  Stockholders.  For  biographical  information  regarding each
director of the Holding Company, see "Management of the Bank -- Trustees."      

         The executive  officers of the Holding 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.  The executive
officers  of the  Holding  Company are Harry L.  Robinson,  President  and Chief
Executive Officer and Richard A. Ahl, Executive Vice President,  Chief Financial
Officer and Secretary.  It is not anticipated that the executive officers of the
Holding  Company  will  receive any  remuneration  in their  capacity as Holding
Company executive officers.  For information regarding  compensation of trustees
and executive  officers of the Bank, see  "Management of the Bank-- Meetings and
Committees of the Board of Trustees of the Bank" and "--Executive Compensation."

Indemnification                                                                 

         The certificate of incorporation of the Holding Company provides that a
director or officer of the Holding  Company shall be  indemnified by the Holding
Company to the fullest extent  authorized by the General  Corporation Law of the
State of Delaware against all expenses,  liability and loss reasonably  incurred
or suffered by such person in  connection  with his  activities as a director or
officer or as a director or officer of another company, if the director or      

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officer held such position at the request of the Holding  Company.  Delaware law
requires  that  such  director,  officer,  employee  or  agent,  in  order to be
indemnified,  must have acted in good faith and in a manner reasonably  believed
to be not opposed to the best interests of the Holding Company and, with respect
to any criminal action or proceeding,  did not have reasonable  cause to believe
his conduct was unlawful.                                                       

         The  certificate of  incorporation  of the Holding Company and Delaware
law also provide that the indemnification provisions of such certificate and the
statute  are  not   exclusive  of  any  other  right  which  a  person   seeking
indemnification may have or later acquire under any statute, or provision of the
certificate of incorporation,  bylaws of the Holding Company, agreement, vote of
stockholders or disinterested directors or otherwise.                           

         These   provisions  may  have  the  effect  of  deterring   stockholder
derivative actions,  since the Holding Company may ultimately be responsible for
expenses for both parties to the action.                                        

         In addition,  the certificate of  incorporation  of the Holding Company
and Delaware law also provide that the Holding  Company may maintain  insurance,
at its expense, to protect itself and any director,  officer,  employee or agent
of the Holding Company or another corporation, partnership, joint venture, trust
or other enterprise  against any expense,  liability or loss, whether or not the
Holding  Company has the power to indemnify  such person  against such  expense,
liability  or loss under the  Delaware  General  Corporation  Law.  The  Holding
Company intends to obtain such insurance.                                       

MANAGEMENT OF THE BANK

Trustees                                                                        

         Board of Trustees of the Bank.  Prior to the Conversion,  the direction
and control of the Bank, as a mutual  savings  bank,  was vested in its Board of
Trustees. Upon Conversion of the Bank to stock form, each of the trustees of the
Bank will  continue to serve as directors of the  converted  Bank.  The Board of
Trustees of the Bank currently  consists of eleven members.  Each Trustee of the
Bank has served as such at least since  January,  1992,  except for Frederick G.
Field, Jr., who was appointed in September, 1995. The trustees serve until their
72nd  birthday.  Because  the  Holding  Company  will own all of the  issued and
outstanding  shares  of  capital  stock of the Bank  after the  Conversion,  the
directors of the Holding Company will elect the directors of the Bank.          

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

                                                        [Enlarge/Download Table]

                                                                                Director
        Name                   Position(s) Held With the Bank           Age(1)    Since 
        ----                   ------------------------------           ------    ----- 
                                                                                        
Duncan S. Mac Affer     Trustee                                           63      1964  
Arthur E. Bowen         Trustee                                           59      1966  
Walter H. Speidel       Trustee                                           70      1970  
Harry L. Robinson       President, Chief Executive Officer and Trustee    58      1973  
R. Douglas Paton        Trustee                                           62      1980  
J. Timothy O'Hearn      Trustee                                           57      1983  
Chester C. DeLaMater    Trustee                                           58      1983  
Peter G. Casabonne      Trustee                                           66      1985  
Michael L. Crotty       Trustee                                           52      1986  
Donald A. Wilson        Trustee                                           54      1991  
Frederick G. Field, Jr. Trustee                                           66      1995  

----------                                                                      
(1)  At June 30, 1998.                                                          

         The  business  experience  of each trustee of the Bank for at least the
past five years is set forth below.                                             

         Duncan S. Mac Affer. Mr. Mac Affer is a licensed attorney practicing in
the State of New York.  He is  currently  a Village  Justice  in the  Village of
Menands,  New York and recently retired after serving as counsel to the New York
Senate Finance Committee.                                                       

         Arthur E. Bowen.  Mr. Bowen is the President and Funeral  Director with
Bowen Funeral Home, Inc.                                                        

         Walter H. Speidel.  Mr.  Speidel is a retired past  President of Cohoes
Savings Bank Bank.                                                              

         Harry L. Robinson.  Mr. Robinson is a licensed  attorney.  He is, also,
President and Chief Executive Officer of Cohoes Savings Bank Bank.              

R. Douglas Paton.  Mr. Paton is a retired Stockbroker.        

         J. Timothy  O'Hearn.  Mr.  O'Hearn is  President of the Century  House,
Inc., a restaurant, food catering and lodging company.                          

         Chester  C.  DeLaMater.  Mr.  DeLaMater  is a  retired  Executive  Vice
President and Secretary of Cohoes Savings Bank Bank.                            

         Peter G.  Casabonne.  Mr.  Casabonne  is a  Managing  Partner of Fuller
Realty, Inc., a company which leases manufacturing and office space.            

         Michael L. Crotty. Mr. Crotty is President of Capitol Equipment,  Inc.,
which is a seller of heavy construction and recycling equipment.                

         Donald A.  Wilson.  Mr.  Wilson,  a  Certified  Public  Accountant,  is
President of Wilson & Stark CPA, PC.                                            

         Frederick G. Field,  Jr. Mr. Field is a retired  Supervisor of the Town
of Colonie.  He is  currently  President  of Capitol  Hill  Management,  Inc., a
company providing lobbying and management services to associations.             

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         Executive  Officers  Who  Are  Not  Directors.  Each  of the  executive
officers  of the Bank  will  retain  his or her  office in the  converted  Bank.
Officers are elected annually by the Board of Trustees of the Bank. The business
experience  of the  executive  officers  who are not also  trustees is set forth
below.                                                                          

         Richard A. Ahl, age 50. Mr. Ahl is currently  serving as Executive Vice
President and Chief Financial Officer.  Mr. Ahl joined the Bank in 1996. Mr. Ahl
is a CPA with 20 years of financial and banking experience.                     

         Albert J.  Picchi,  age 36.  Mr.  Picchi is  currently  serving as Vice
President  and Senior Loan  Officer.  Mr.  Picchi  joined the Bank in January of
1994. Mr. Picchi has 14 years of experience in the financial services industry. 

Meetings and Committees of the Board of Trustees of the Bank                    

         The Bank's  Board of Trustees  meets on a monthly  basis.  The Board of
Trustees met 13 times during fiscal 1998.  During fiscal 1998, no trustee of the
Bank  attended  fewer  than 75% of the  aggregate  of the total  number of Board
meetings and the total number of meetings held by the committees of the Board of
Trustee on which he or she served.                                              

         The Bank has  standing  Executive,  Loan  Review,  Nominating,  Salary,
Trustee Qualification and Examining Committees.                                 

         The Executive  Committee  provides  oversight of Board-related  matters
in-between  regularly scheduled Board Meetings.  In addition,  the Committee has
the authority to make  investments,  acquire or sell real estate and to take any
other action not  otherwise  reserved for the Board of Trustees.  The  Executive
Committee is comprised of five Trustees,  which  membership  rotates each month.
This committee did not meet during fiscal 1998.                                 

         The Loan Review  Committee is comprised of two trustees  which  rotates
each month and Harry L.  Robinson.  This  Committee  oversees  and reviews  real
estate loans  between  $500,001 and  $749,000,  and  commercial  business  loans
between $200,001 and $300,000.                                                  

         The Nominating  Committee  proposes  nominations  for Chairman and Vice
Chairman of the Board,  Officers,  Trustee  Emeriti and the  appointment  of the
Bank's legal counsel.  This committee is comprised of three trustees serving for
a three year term,  meeting once each year. The current members of the committee
are Donald A. Wilson  (Chairman),  Frederick  G. Field,  Jr.,  and Duncan S. Mac
Affer.                                                                          

         The Salary Committee is comprised of three trustees serving for a three
year term meeting once a quarter to review compensation and benefit practices of
the Bank to ensure  internal and external  market  competitiveness.  The current
members  of  the  committee  are  J.  Timothy  O'Hearn  (Chairman),  Chester  C.
DeLaMater, and Peter G. Casabonne.                                              

         The Trustee  Qualification  Committee  is comprised of the three senior
Trustees  meeting as necessary  to review  candidates  for the  vacancies on the
Board. The current members of the committee are Duncan S. Mac Affer  (Chairman),
Arthur E. Bowen, and Walter H. Speidel.                                         

         The Examining  Committee is comprised of three  trustees  serving for a
three year term,  meeting  once a quarter  to  provide  oversight  to the Bank's
Internal  Audit  Department and for the review of the Bank's annual audit report
prepared  by  the  Bank's  independent  auditors.  The  current  members  of the
committee are Peter G. Casabonne  (Chairman),  Michael L. Crotty,  and Donald A.
Wilson.                                                                         

Trustee Compensation                                                            

         Trustees  of the Bank are paid a  monthly  fee for each  board  meeting
attended of $2,625. Trustees receive $500 for each committee meeting attended.  

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Trustees Emeritus                                                               

         Under the Bank's Bylaws,  a retiring  Trustee may, with the approval of
the Board of  Trustees,  serve as a  Trustee  Emeritus  of the  Bank.  A Trustee
Emeritus  is  entitled  to  attend  all  meetings  of  the  Board  of  Trustees,
participate in all discussions and receive the same fees as a Trustee.  Trustees
Emeriti are not, however, entitled to vote or meet as a separate body. Robert L.
Knoop and Charles R. Crotty currently serve as Trustees Emeritus of the Bank.   

Executive Compensation                                                          

         The following table sets forth information  concerning the compensation
paid to the Bank's Chief  Executive  Officer and the Bank's only other executive
officer whose salary and bonus for fiscal 1998 exceeded $100,000.               

                                                        [Enlarge/Download Table]

                                                   Summary Compensation Table                                                  
------------------------------------------------------------------------------------------------------------------------------ 
                                                                                     Long Term Compensation                    
                                                    Annual Compensation                      Awards                            
                                          --------------------------------------   --------------------------                  
                                                                   Other Annual    Restricted Stock   Options      All Other   
 Name and Principal Position      Year    Salary($)   Bonus($)    Compensation($)    Award ($)(1)      (#)(1)   Compensation($)
--------------------------------  ----   ----------  ---------    --------------   ----------------   -------   -------------- 
                                                                                                                               
Harry L. Robinson, President and  1998   $295,072(2) $59,063(2)        $---              N/A            N/A        $17,243(3)  
Chief Executive Officer                                                                                                        

Richard A. Ahl, Executive Vice    1998    146,224(2)  31,250(2)         ---              N/A            N/A          4,212(3)  
President, Chief Financial                                                                                                     
Officer and Secretary                                                                                                          

----------                                                                      

(1)      As a mutual  institution,  the Bank does not have any stock  options or
restricted stock plans.                                       

(2)      $27,323 and  $21,220  was  deferred  under the Bank's  deferred  salary
         arrangement  for Mr.  Robinson  and Mr.  Ahl,  respectively.  Both  Mr.
     Robinson and Mr. Ahl elected to have their entire bonuses deferred.

(3)      Includes 401(k) and profit-sharing contributions of $6,043 and $11,200,
         respectively,  for Mr. Robinson and $2,849 and $1,363 respectively, for
Mr. Ahl.                                                      

Employment Agreements                                                           

     Upon the Conversion,  the Bank intends to enter into employment  agreements
with  Harry  L.  Robinson,  Richard  A. Ahl and  Albert  J.  Picchi  of the Bank
(individually,  the  "Executive")  and the Holding Company intends to enter into
employment  agreements with Harry L. Robinson and Richard A. Ahl. The employment
agreements are intended to ensure that the Bank and the Holding  Company will be
able to maintain a stable and competent  management  base after the  Conversion.
The  continued  success  of the  Bank  and  the  Holding  Company  depends  to a
significant  degree  on  the  skills  and  competence  of the  above  referenced
officers.                                                                       

     The employment  agreements  provide for either three-year or two-year terms
for each Executive.  The terms of the employment agreements shall be extended on
a daily basis  unless  written  notice of  non-renewal  is given by the Board of
Directors.  The employment  agreements  provide that the executive's base salary
will be reviewed  annually.  The base salary  which will be  effective  for such
Employment  Agreement  for Harry L. Robinson and Richard A. Ahl will be $400,000
and  $200,000,  respectively.  In addition to the base  salary,  the  employment
agreements  provide for,  among other things,  participation  in stock  benefits
plans  and  other  fringe  benefits  applicable  to  executive  personnel.   The
agreements provide for termination by the Bank or the Holding Company for cause,
as defined in the employment  agreements,  at any time. In the event the Bank or
the Holding Company chooses to terminate the executive's  employment for reasons
other than for cause,  or in the event of the executive's  resignation  from the
Bank and the Holding  Company upon; (i) failure to re-elect the executive to his
current offices; (ii) a material change in the executive's functions,  duties or
responsibilities;  (iii) a  reduction  in the  benefits  and  perquisites  being
provided to the executive under the Employment  Agreement;  (iv)  liquidation or
dissolution of the Bank or the Holding Company; or (v) a breach of the agreement
by the Bank or the Holding Company, the executive or, in the event of death, his
beneficiary  would be entitled to receive an amount equal to the remaining  base
salary  payments due to the executive for the remaining  term of the  Employment
Agreement  and the  contributions  that would have been made on the  executive's
behalf to any employee  benefit plans of the Bank and the Holding Company during
the remaining term of                                                           

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the agreement.  The Bank and the Holding Company would also continue and pay for
the executive's life, health,  dental and disability  coverage for the remaining
term of the  Agreement.  Upon  any  termination  of the  executive,  other  than
following  a  change  in  control,  the  executive  is  subject  to a  one  year
non-competition agreement.                                                      

     Under the employment  agreements,  if voluntary or involuntary  termination
follows a change in control of the Bank or the Holding  Company,  the  executive
or, in the event of the executive's death, his beneficiary, would be entitled to
a  severance  payment  equal to the  greater  of: (i) the  payments  due for the
remaining  terms of the  agreement;  or (ii) three times the average of the five
preceding taxable years' annual  compensation.  The Bank and the Holding Company
would also continue the executive's life,  health,  and disability  coverage for
thirty-six months in the case of Messrs. Robinson and Ahl and twenty-four months
in the  case  of Mr.  Picchi.  Under  the  employment  agreements,  a  voluntary
termination  following  a change  in  control  means the  executive's  voluntary
resignation  following  any  demotion,   loss  of  title,  office  authority  or
responsibility,   a  reduction  in   compensation  or  benefits  or  relocation.
Notwithstanding  that both the Bank and Holding  Company  employment  agreements
provide  for a  severance  payment  in the  event of a change  in  control,  the
executive  would only be  entitled  to  receive a  severance  payment  under one
agreement.                                                                      

     Payments to the executive  under the Bank's  Employment  Agreement  will be
guaranteed by the Holding Company in the event that payments or benefits are not
paid by the Bank. Payment under the Holding Company's Employment Agreement would
be made by the Holding Company.  The Holding Company's Employment Agreement also
provides that the Holding Company will compensate the executive for excise taxes
imposed on any "excess parachute payments," as defined under section 280G of the
Code, made thereunder,  and any additional  income and excise taxes imposed as a
result  of such  compensation.  All  reasonable  costs  and  legal  fees paid or
incurred by the executive  pursuant to any dispute or question of interpretation
relating  to the  employment  agreements  shall be paid by the  Bank or  Holding
Company,  respectively, if the executive is successful on the merits pursuant to
a legal  judgment,  arbitration or settlement.  The employment  agreements  also
provide that the Bank and the Holding  Company shall  indemnify the executive to
the fullest extent allowable under New York and Delaware law,  respectively.  In
the event of a change in control of the Bank or the Holding  Company,  the total
amount of payments due under the Agreements,  based solely on cash  compensation
paid to the officers who will receive  employment  agreements over the past five
fiscal years and  excluding any benefits  under any employee  benefit plan which
may be payable, would be approximately $3.0 million.                            

Change in Control Agreements                                                    

     Upon Conversion,  the Bank intends to enter into one-year Change in Control
agreements  with four  officers  of the bank,  none of whom will be  covered  by
employment contracts. Commencing on the first anniversary date and continuing on
each  anniversary  thereafter,  the Bank  Change in  Control  agreements  may be
renewed by the Board of Directors of the Bank for an additional year. The Bank's
Change  in  Control  agreements  will  provide  that in the event  voluntary  or
involuntary  termination  follows a change in control of the Holding  Company or
the Bank, the officer would be entitled to receive a severance  payment equal to
the officer's current annual compensation.  The Bank would also continue and pay
for the  officer's  life,  health and  disability  coverage  for  twelve  months
following  termination.  Under the Change in  Control  agreements,  a  voluntary
termination  following  a change  in  control  means the  executive's  voluntary
resignation  following  any  demotion,   loss  of  title,  office  authority  or
responsibility,  a reduction in compensation  or benefits or relocation.  In the
event of a change in  control  of the  Holding  Company  or the Bank,  the total
payments that would be due under the Change in Control agreements,  based solely
on the current annual compensation paid to the officers covered by the Change in
Control  agreements and excluding any benefits  under any employee  benefit plan
which may be payable, would be approximately $250,000.                          

Employee Severance Compensation Plan                                            

     The Bank's Board of Directors  intends to, upon  Conversion,  establish the
Severance Plan which will provide  eligible  employees  selected by the Board of
Directors with severance pay benefits in the event of a change in control of the
Bank or the Holding  Company  following  Conversion.  Management  personnel with
employment  agreements  or Change in  Control  agreements  are not  eligible  to
participate  in  the  severance  plan.  Generally,  employees  are  eligible  to
participate  in the severance  plan if they have  completed at least one year of
service  with  the  Bank.  The  Severance  Plan  vests  in  each  participant  a
contractual  right to the benefits such  participant  is entitled to thereunder.
Under the                                                                       

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severance  plan,  in the event of a change in control of the Bank or the Holding
Company,   eligible  employees  who  are  terminated  from  or  terminate  their
employment  within one year (for reasons  specified  under the severance  plan),
will be entitled  to receive a  severance  payment.  If the  participant,  whose
employment  has  terminated,  has  completed  at least one year of service,  the
participant  will be entitled to a cash severance  payment equal to two weeks of
annual  compensation  for each year of  service up to a maximum of six months of
annual  compensation.  Such payments may tend to discourage takeover attempts by
increasing  costs to be incurred by the Bank in the event of a takeover.  In the
event the provisions of the severance  plan are  triggered,  the total amount of
payments that would be due thereunder,  based solely upon current salary levels,
would  be  approximately  $202,000.  However,  it is  management's  belief  that
substantially  all of the Bank's  employees  would be retained in their  current
positions in the event of a change in control, and that any amount payable under
the severance plan would be  considerably  less than the total amount that could
possibly be paid under the severance plan.                                      

Independent Compensation Expert                                                 

     Pursuant  to NYBB  regulations,  an  independent  compensation  expert must
review the total  compensation  for the  executive  officers and trustees of the
Bank  as a  whole  and  on  an  individual  basis  and  determine  whether  such
compensation is reasonable and proper in comparison to the compensation provided
to  executive  officers,   directors  or  trustees  of  similar  publicly-traded
financial  institutions.  William M. Mercer,  Incorporated  has  conducted  such
review  on  behalf  of the  Bank  and  determined  that,  based  upon  published
professional  survey  data  of  similarly  situated  publicly-traded   financial
institutions  operating in the relevant markets,  with respect to the total cash
compensation for executive  officers and total  remuneration for trustees of the
Bank,  such  compensation,  viewed as a whole  and on an  individual  basis,  is
reasonable  and proper in comparison to the  compensation  provided to similarly
situated publicly-traded  financial institutions,  and that, with respect to the
amount of shares of Holding  Company Common Stock to be reserved under the ESOP,
and  expected to be reserved  under the RRP and the Stock  Option and  Incentive
Plan,  as a  whole,  such  amounts  reserved  for  granting  are  reasonable  in
comparison to similar publicly-traded financial institutions.                   

Benefit Plans                                                                   

     General. The Bank currently provides health care benefits to its employees,
including medical, dental and life insurance, subject to certain deductibles and
copayments by employees.                                                        

     401(k)  Savings  and  Profit-Sharing   Plan.  The  Bank  has  a  qualified,
tax-exempt  savings  and  profit-sharing  plan with a cash or  deferred  feature
qualifying  under Section 401(k) of the Code (the "401(k)  Plan").  All salaried
employees who have attained age 21 and completed one year of employment,  during
which they worked at least 1,000 hours, are eligible to participate.            

     Participants  are permitted to make salary  reduction  contributions to the
401(k)  Plan of  between  2% to 15% of the  participant's  annual  salary.  Each
participant's salary reduction  contribution is matched by the Bank in an amount
equal  to 50% of  the  participant's  before-tax  contribution  up to a  maximum
contribution by the Bank of 3% of such participant's  annual salary for the Plan
Year.  All  participant  contributions  and earnings  are fully and  immediately
vested.  All matching  contributions are vested at a rate of 20% per year over a
five year period commencing after one year of employment with the Bank. However,
in the event of retirement,  permanent  disability or death, a participant  will
automatically become 100% vested in the value of all matching  contributions and
earnings thereon, regardless of the number of years of employment with the Bank.

     Participants  may invest amounts  contributed to their 401(k) Plan accounts
in one or more investment  options  available under the 401(k) Plan in multiples
of 10%.  Changes in  investment  directions  among the funds are  permitted on a
continuous basis pursuant to procedures  established by the Plan  Administrator.
Each  participant  receives a quarterly  statement  which  provides  information
regarding,  among  other  things,  the  market  value  of  his  investments  and
contributions made to the 401(k) Plan on his behalf.  Participants are permitted
to borrow  against their account  balance in the 401(k) Plan. For the year ended
June 30, 1998, the Bank's contributions to the 401(k) Plan on behalf of Messrs. 
Robinson and Ahl were $17,243 and $4,212, respectively.                         

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     Employee  Stock  Ownership  Plan. The Board of Trustees of the Bank and the
Board of Directors of the Holding  Company have approved the adoption of an ESOP
for the benefit of eligible  employees of the Bank. The ESOP is designed to meet
the  requirements  of an employee  stock  ownership plan as described at Section
4975(e)(7) of the Code and Section 407(d)(6) of ERISA, and, as such, the ESOP is
empowered to borrow in order to finance  purchases of the Holding Company Common
Stock.                                                                          

     It is anticipated  that the ESOP will be initially  funded with a loan from
the Holding Company.  The proceeds from this loan are expected to be used by the
ESOP  to  purchase  8% of  the  Holding  Company  Common  Stock  issued  in  the
Conversion,  including shares issued to the Foundation. After the Conversion, as
a qualified  employee  pension plan under Section  401(a) of the Code,  the ESOP
will be in the form of a stock bonus plan and will  provide  for  contributions,
predominantly  in the form of either Holding Company Common Stock or cash, which
will  be used  within  a  reasonable  period  after  the  date of  contributions
primarily  to  purchase  the  Holding   Company   Common   Stock.   The  maximum
tax-deductible  contribution  by the Bank in any year is an amount  equal to the
maximum  amount that may be deducted by the Bank under  Section 404 of the Code,
subject to reduction  based on  contributions  to other  tax-qualified  employee
plans. Additionally,  the Bank will not make contributions if such contributions
would cause the Bank to violate its regulatory capital requirements.  The assets
of the ESOP will be invested primarily in Holding Company Common Stock. The Bank
will receive a tax deduction equal to the amount it contributes to the ESOP.    

     From  time to time the ESOP  may  purchase  additional  shares  of  Holding
Company Common Stock for the benefit of plan  participants  through purchases of
outstanding  shares in the market,  upon the  original  issuance  of  additional
shares by the Holding Company or upon the sale of shares held in treasury by the
Holding Company. Such purchases, which are not currently contemplated,  would be
subject to then-applicable laws, regulations and market conditions.             

     All  employees  of the Bank are eligible to  participate  in the ESOP after
they attain age 21 and complete on year of service with the Bank. Employees will
be credited  for years of service to the Bank prior to the  adoption of the ESOP
for participation and vesting purposes.  The Bank's  contribution to the ESOP is
allocated among  participants on the basis of compensation.  Each  participant's
account will be credited  with cash and shares of Holding  Company  Common Stock
based  upon  compensation  earned  during  the year  with  respect  to which the
contribution  is made.  A  participant  will  become  vested  in his or her ESOP
account at a rate of 20% per year and after  completing  five years of service a
participant  will be 100% vested in his or her ESOP account.  ESOP  participants
are  entitled  to  receive  distributions  from their  ESOP  accounts  only upon
termination of service. Distribution will be made in cash and in whole shares of
Holding  Company  Common  Stock.   Fractional  shares  will  be  paid  in  cash.
Participants will not incur a tax liability until a distribution is made.       

     Participating employees are entitled to instruct the trustee of the ESOP as
to how to  vote  the  shares  held  in  their  account.  The  trustee,  who  has
dispositive  power over the shares in the Plan,  will not be affiliated with the
Holding  Company or the Bank.  The ESOP may be amended by the Board of Directors
of the Holding Company,  except that no amendment may be made which would reduce
the  interest  of any  participant  in the ESOP  trust fund or divert any of the
assets of the ESOP trust fund to purposes other than the benefit of participants
or their beneficiaries.                                                         

     Stock  Option and  Incentive  Plan.  Among the benefits to the Bank and the
Holding  Company  anticipated  from the Conversion is the ability to attract and
retain directors and key personnel through stock option and other  stock-related
incentive programs.  A Stock Option and Incentive Plan is intended to be adopted
by the Board of  Directors  of the  Holding  Company and then  submitted  to the
Holding  Company's  stockholders  for their approval (at a meeting to be held no
earlier than six months following the Conversion).                              

     The Holding  Company  anticipates  reserving  an amount equal to 10% of the
shares of Holding  Company  Common  Stock  issued in the  Conversion,  including
shares issued to the  Foundation  (or 829,150  shares based upon the issuance of
8,291,500  shares),  for issuance under the Stock Option and Incentive  Plan. If
the  Holding  Company  implements  an  option  plan  within  one year  following
completion  of the  Conversion,  NYBB  regulations  provide  that no  individual
officer or employee of the Bank may receive more than 25% of the options granted
under  the  plan  and  non-employee  directors  may  not  receive  more  than 5%
individually,  or 30% in the aggregate,  of the options  granted under the plan.
NYBB and FDIC  regulations  also provide that the exercise  price of any options
granted under any such                                                          

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plan  implemented  within one year after the Conversion must equal or exceed the
market  price of the  Holding  Company  Common  Stock  as of the date of  grant.
Additionally, OTS regulations, as applied by the FDIC, provide that with respect
to any stock option plan adopted within one year after  Conversion,  the vesting
or the  exercisability  of any  options  granted  under  such a plan  may not be
accelerated except upon death or disability.                                    

     It is  anticipated  that the Stock Option and Incentive Plan will allow for
the  granting  of:  (i) stock  options  for  employees  intended  to  qualify as
incentive  stock  options  under  Section  422 of  the  Code  ("Incentive  Stock
Options"),  (ii)  options  for all  plan  participants  that do not  qualify  as
incentive  stock  options  ("Non-Statutory  Stock  Options");  and  (iii)  Stock
Appreciation  Rights.  Unless sooner terminated,  the Stock Option and Incentive
Plan will  remain in effect  for a period  of  fifteen  years  from the later of
adoption  by the  Board  of  Directors  or  approval  by the  Holding  Company's
stockholders.  Subject to applicable  regulations,  upon exercise of a Right the
grantee  will be  entitled  to  receive  a lump  sum cash  payment  equal to the
difference  between the fair market value of shares of common  stock  underlying
the Right on the date of exercise  and fair market value of the shares of common
stock subject to the Right on the date of grant.                                

     The Stock Option and  Incentive  Plan will be  administered  by a committee
(the  "Compensation  Committee")  the  members  of which are each  "non-employee
directors,"  as defined in the SEC's  regulations,  and "outside  directors," as
defined under Section  162(m) of the Code and the  regulations  thereunder.  The
Compensation  Committee will determine which  directors,  officers and employees
may receive  options and Rights,  whether such options will qualify as Incentive
Stock  Options,  the  number  of shares  subject  to each  option or Right,  the
exercise  price of each  option,  the manner of  exercise of the options and the
time when such options or Rights will become exercisable.                       

     The Holding Company  anticipates that options granted pursuant to the Stock
Option and  Incentive  Plan will remain  exercisable  for at least three  months
following  the date on which a  participant  ceases to perform  services for the
Bank or the  Holding  Company,  except in the event of death or  disability,  in
which  case  options  would  accelerate  and  become  fully  vested  and  remain
exercisable for up to one year  thereafter,  or such longer period as determined
by the  Compensation  Committee.  However,  any Incentive Stock Option exercised
more than three months following the date on which an employee ceased to perform
services as an  employee,  other than  termination  due to death or  disability,
would not be treated  for tax  purposes  as an  Incentive  Stock  Option.  It is
intended  that the  Stock  Option  Plan  would  provide  that  the  Compensation
Committee,  if requested by the  optionee,  could 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 Holding  Company  Common Stock exceeds the
exercise  price of the  options  on the date of the  employee's  termination  of
employment.                                                                     

     Recognition and Retention Plan.  Following  consummation of the Conversion,
the  Board  of  Directors  of the  Holding  Company  intends  to adopt a RRP for
directors,  officers and  employees.  The objective of the RRP will be to enable
the  Holding  Company  to  provide  directors,  officers  and  employees  with a
proprietary interest in the Holding Company as an incentive to contribute to its
success.  The Holding  Company  intends to present the RRP to  stockholders  for
their approval at a meeting of stockholders  which,  pursuant to applicable NYBB
and FDIC  regulations,  may be held no  earlier  than six months  subsequent  to
completion of the Conversion.                                                   

     The RRP will be administered by the Compensation  Committee of the Board of
Directors.  The Holding Company will contribute funds to the RRP to enable it to
acquire in the open market or from  authorized  but unissued  shares,  following
stockholder  ratification  of such plan,  an amount of stock  equal to 4% of the
shares of Holding  Company  Common  Stock  issued in the  Conversion,  including
shares issued to the Foundation  (representing  331,660 shares in the aggregate,
having a value of $3,316,600  based on the Offering  Price per share of $10.00).
Although no specific award  determinations  have been made, the Holding  Company
anticipates  that it will  provide  stock  awards  to the  directors,  executive
officers and employees of the Holding Company or the Bank or their affiliates to
the extent permitted by applicable  regulations.  NYBB regulations provide that,
to the  extent  the  Holding  Company  implements  the RRP within one year after
Conversion,  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.  Additionally,  OTS
regulations,  as applied by the FDIC,  provide that Awards granted under the RRP
may not be accelerated  except upon death or disability for plans adopted within
one year after Conversion.                                                      

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     Under the terms of the proposed RRP,  awards  ("Awards")  can be granted to
key employees in the form of shares of Holding  Company Common Stock held by the
RRP. Awards are non-transferable and non-assignable. Recipients will earn (i.e.,
become vested in), over a period of time,  the shares of Holding  Company Common
Stock covered by the Award.                                                     

     Benefit   Restoration   Plan.   The  Holding   Company  also   maintains  a
non-qualified deferred compensation plan, known as the Benefit Restoration Plan.
The Benefit  Restoration Plan provides  certain officers and highly  compensated
executives  of the  Holding  Company and the Bank with  supplemental  retirement
income when such amounts  cannot be paid from the  tax-qualified  401(k) Plan or
ESOP.  Participants in the Benefit  Restoration  Plan receive a benefit equal to
the amount they would have received  under the 401(k) Plan and the ESOP, but for
reductions in such benefits imposed by operation of Sections 401(a)(17), 401(m),
401(k)(3), 402(g) and 415 of the Code. In addition, the Benefit Restoration Plan
is intended to make up benefits  lost under the ESOP  allocation  procedures  to
certain Participants named by the Compensation Committee who retire prior to the
complete  repayment of the ESOP loan. At the  retirement of a  Participant,  the
restored  ESOP benefits  under the Benefit  Restoration  Plan are  determined by
first: (i) projecting the number of shares that would have been allocated to the
Participant  under the ESOP if they had been employed  throughout  the period of
the  ESOP  loan   (measured   from  the   Participant's   first   date  of  ESOP
participation);  and (ii) first  reducing the number  determined by (i) above by
the number of shares actually  allocated to the Participant's  account under the
ESOP;  and  second,  by  multiplying  the number of shares  that  represent  the
difference  between  such figures by the average fair market value of the Common
Stock over the preceding  five years.  Benefit  Restoration  Plan  Participant's
benefits are payable upon the retirement or other  termination of service of the
Participant  in the form of a lump  sum.  Payment  of a  deceased  Participant's
benefits will be made to his or her designated beneficiary.                     

Certain Transactions                                                            

     The Bank  follows a policy of granting  loans to the Bank's  employees  and
residential loans and mortgages to officers. The loans to executive officers and
trustees are made in the  ordinary  course of business and on the same terms and
conditions  as those of  comparable  transactions  prevailing  at the  time,  in
accordance with the Bank's underwriting  guidelines and do not involve more than
the normal risk of  collectibility or present other  unfavorable  features.  All
loans to executive  officers  cannot exceed  $25,000 or 5% of the Bank's capital
and unimpaired surplus,  whichever is greater, unless a majority of the Board of
Trustees approves the credit in advance and the individual requesting the credit
abstains from voting.  Under the Bank's policy the Bank will not make  preferred
rate loans to executive officers, directors, or employees. All loans by the Bank
to its directors and executive  officers are subject to regulations  restricting
loans and other  transactions with affiliated  persons of the Bank.  Federal law
currently requires that all loans to directors and executive officers be made on
terms  and  conditions   comparable  to  those  for  similar  transactions  with
non-affiliates.  At June 30, 1998 there were no loans outstanding to any trustee
or executive officer of the Bank.                                               

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Proposed Purchases by Executive Officers and Trustees                           

     The  following  table sets forth the number of shares of Common  Stock that
the executive officers and trustees,  and their associates,  propose to purchase
in the Offerings, assuming shares of Common Stock are issued at $10.00 per share
at  the  minimum  ($59,500,000)  and  maximum  ($80,500,000)  of  the  Estimated
Valuation  Range and that  sufficient  shares will be available to satisfy their
orders.  The table also sets forth the total  expected  beneficial  ownership of
Common Stock as to all trustees and executive officers as a group.              

                                                        [Enlarge/Download Table]

                                                 At the Minimum of the         At the Maximum of the     
                                              Estimated Valuation Range(1)  Estimated Valuation Range(1) 
                                              ----------------------------  ---------------------------- 
                                              Number of    As a Percent of  Number of     As a Percent of
                Name                 Amount     Shares      Shares Offered    Shares      Shares Offered 
-------------------------------   ----------  ---------    ---------------  ---------     -------------- 
                                                                                                         
Duncan S. Mac Affer............   $  350,000   35,000           0.6%         35,000              0.4%    
Arthur E. Bowen................      180,000   18,000           0.3          18,000              0.2     
Walter H. Speidel..............      350,000   35,000           0.6          35,000              0.4     
Harry L. Robinson..............      500,000   50,000           0.8          50,000              0.6     
Donald A. Wilson...............      215,000   21,500           0.3          21,500              0.3     
Frederick G. Field, Jr.........       80,000    8,000           0.1           8,000              0.1     
R. Douglas Paton...............      300,000   30,000           0.5          30,000              0.4     
J. Timothy O'Hearn.............      250,000   25,000           0.5          25,000              0.3     
Chester C. DeLaMater...........      300,000   30,000           0.5          30,000              0.4     
Peter G. Casabonne.............          ---      ---          ---              ---              ---     
Michael L. Crotty..............      125,000   12,500           0.2          12,500              0.2     
Richard A. Ahl.................      300,000   30,000           0.5          30,000              0.4     
Albert J. Picchi...............      150,000   15,000           0.3          15,000              0.2     
                                  ----------  -------                       -------                      
All directors and executive                                                                              
officers as a group (13 persons)  $3,100,000  310,000           5.2%        310,000              3.8%    
                                  ==========  =======        ======         =======            =====     

---------                                                                       
(1)      Includes  proposed  subscriptions,  if any,  by  associates.  Does  not
         include subscription orders by the ESOP. Intended purchases by the ESOP
         are expected to be 8% of the shares issued in the Conversion, including
         shares  issued to the  Foundation.  Also does not include  shares to be
         contributed to the Foundation equal to 3% of the Holding Company Common
         Stock  sold or  178,500  and  241,500  shares  at the  minimum  and the
         maximum, respectively of the Estimated Valuation Range, Holding Company
         Common Stock which may be awarded  under the RRP to be adopted equal to
         4% of the  Holding  Company  Common  Stock  issued  in the  Conversion,
         including  shares  issued to the  Foundation  (or  245,140  shares  and
         331,660  shares at the minimum and the  maximum,  respectively,  of the
         Estimated  Valuation Range), and Holding Company Common Stock which may
         be purchased  pursuant to options  which may be granted under the Stock
         Option  and  Incentive  Plan  equal to 10% of the  number  of shares of
         Common stock issued in the Conversion,  including  shares issued to the
         Foundation  (or 612,850 shares or 829,150 shares at the minimum and the
maximum, respectively, of the Estimated Valuation Range.)     

(2)      Less than .01%.                                                        

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 THE CONVERSION AND THE MERGER

         THE BOARD OF  TRUSTEES OF THE BANK AND THE  SUPERINTENDENT  OF BANKS OF
THE STATE OF NEW YORK HAVE APPROVED THE PLAN OF CONVERSION,  SUBJECT TO APPROVAL
BY THE BANK'S  DEPOSITORS  ENTITLED TO VOTE ON THE PLAN AND THE  SATISFACTION OF
CERTAIN  OTHER  CONDITIONS.  SUCH  APPROVAL,  HOWEVER,  DOES  NOT  CONSTITUTE  A
RECOMMENDATION OR ENDORSEMENT OF THE PLAN BY THE SUPERINTENDENT.                

General                                                                         

         On May 21, 1998, the Bank's Board of Trustees  unanimously  adopted the
Plan of Conversion  pursuant to which the Bank will be converted from a New York
mutual  savings bank to a New York stock savings bank. It is currently  intended
that all of the  outstanding  capital  stock issued by the Bank  pursuant to the
Plan will be held by the Holding Company,  which is incorporated  under Delaware
law.  The Plan was approved by the  Superintendent,  and the Bank has received a
notice of intent  not to object  to the Plan from the FDIC,  subject  to,  among
other things,  approval of the Plan by the Bank's voting  depositors.  A special
meeting  of  depositors  has  been  called  for  this  purpose  to  be  held  on
_________________________, 1998.                                                

         On July 31,  1998 the Bank and SFS  entered  into the merger  agreement
pursuant to which SFS will merge into the Holding Company.  Simultaneously  with
or immediately  after the  Conversion,  SFS will merge with and into the Holding
Company  with the  Holding  Company  being  the  survivor  thereof.  Immediately
thereafter,  Schenectady Federal will merge with and into the Bank with the Bank
being the  survivor  thereof.  The Merger is governed  by the merger  agreement,
which was unanimously adopted by the Board of Trustees of the Bank, the Board of
Directors of SFS and upon its  formation,  the Board of Directors of the Holding
Company.                                                                        

         The Holding  Company  has  received  approval  from the OTS to become a
savings and loan holding  company and to acquire all of the capital stock of the
Bank to be issued in the Conversion as well as all of the SFS Common Stock.  The
Holding  Company  plans to retain 50% of the net  proceeds  from the sale of the
Conversion  Shares and to use the  remaining net proceeds to purchase all of the
then 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  Holding
Company Common Stock to be issued pursuant to the Plan.                         

         The Plan  provides  that the Board of  Trustees of the Bank may, at any
time prior to the  issuance  of the  Holding  Company  Common  Stock and for any
reason, decide not to use the holding company form of organization. Such reasons
may include possible delays resulting from overlapping  regulatory processing or
policies  which  could  adversely  affect  the Bank's or the  Holding  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 Holding  Company's  registration
statement  from the SEC and take steps  necessary  to  complete  the  Conversion
without the Holding Company,  including filing any necessary  documents with the
Department  and the FDIC.  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  Department,  the Bank will
issue and sell the common stock of the Bank and subscribers  will be notified of
the elimination of a holding  company and will be solicited  (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 such subscriber's intention to affirm, modify or rescind such
subscriber's 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 Holding Company
will offer shares of Holding  Company Common Stock for sale in the  Subscription
Offering to the Bank's Eligible Account Holders,  Employee Plans,  including the
ESOP and Supplemental Eligible                                                  

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Account  Holders.  The Plan also provides that shares not  subscribed for in the
Subscription  Offering may be offered in a Community Offering to certain members
of the general public.  It is anticipated  that all shares not subscribed for in
the Subscription and Community Offerings will be offered for sale by the Holding
Company to the general public in a Syndicated  Community  Offering.  The Holding
Company and the Bank have reserved the right to accept or reject, in whole or in
part, any orders to purchase shares of the Holding Company 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 Holding Company Common Stock to be
issued  in the  Conversion  within  the  Estimated  Valuation  Range,  currently
estimated to be between $59,500,000 and $80,500,000 is based upon an independent
appraisal of the estimated pro forma market value of the Holding  Company Common
Stock prepared by RP Financial,  a consulting firm  experienced in the valuation
and  appraisal of savings  institutions.  All shares of Holding  Company  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 Offerings. See "- Stock Pricing" for additional information as
to the  determination  of the  estimated  pro forma  market value of the Holding
Company Common Stock.                                                           

         The  following is a brief  summary of  pertinent  aspects of the merger
agreement and the Plan. The summary is qualified in its entirety by reference to
the  provisions  of the Plan  and the  merger  agreement.  A copy of the Plan is
available from the Bank upon written  request and is available for inspection at
the  offices of the Bank and at the office of the  Superintendent.  The Plan and
the merger agreement are 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.                                                                            

Purposes of Conversion and the Merger                                           

         The Bank, as a New York mutual savings bank, does not have stockholders
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 be important to the future growth and performance of the Bank by
providing a larger capital base on which the Bank may operate,  enhanced  future
access to capital  markets,  enhanced  ability to diversify into other financial
services  related  activities  and  enhanced  ability to render  services to the
public.                                                                         

         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  except the  Merger,  the Holding  Company  will be in a
position after the Conversion, subject to regulatory limitations and the Holding
Company's financial  position,  to take advantage of any such opportunities that
may arise. While there are benefits  associated with the holding company form of
organization,  such form of organization may involve additional costs associated
with its maintenance and regulation as a savings and loan holding company,  such
as  additional   administrative   expenses,  taxes  and  regulatory  filings  or
examination fees.                                                               

         The potential  impact of the Conversion upon the Bank's capital base is
significant. The Bank had Tier I Leverage Capital of $53.3 million, or 10.13% of
assets, at June 30, 1998.  Assuming that $78,572,400 million of net proceeds are
realized from the sale of Holding Company Common Stock (being the maximum of the
Estimated  Valuation  Range  established by the Board of Directors  based on the
Valuation Range which has been estimated by RP Financial to be from a minimum of
$59,500,000 to a maximum of  $80,500,000  (see "Pro Forma Data" for the basis of
this assumption)) and assuming that $39,286,200  million of the net proceeds are
used by the Holding  Company to  purchase  the  capital  stock of the Bank,  the
Bank's Tier I Leverage  capital  ratio,  on a pro forma basis,  will increase to
15.35% after the Conversion. The investment of the net proceeds from the sale of
the Holding Company Common Stock will provide the Bank with additional income to
further enhance 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 Holding  Company's  Certificate of  Incorporation  will
permit  the  Holding  Company,  subject  to  market  conditions  and  regulatory
approval, to raise additional equity capital through further sales of securities
and to issue securities in connection with possible  acquisitions other than the
Merger.  At the present time,  the Holding  Company has no plans with respect to
additional offerings of securities, other than the issuance of additional shares
to the  Foundation  or upon exercise of stock  options  granted  pursuant to the
Stock Option and  Incentive  Plan or the  possible  issuance of  authorized  but
unissued  shares  pursuant to the RRP.  Following  the  Conversion,  the Holding
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."                              

         The Board of  Trustees of the Bank and the Boards of  Directors  of the
Holding Company and SFS believe that the combination of the Parties will enhance
the competitive  position of the combined entities and will enable the resulting
institution  to compete  more  effectively  than either the Bank or  Schenectady
Federal  could on its own.  The  combined  entity  will have  greater  financial
resources  and, as a result of the  Offerings,  increased  capital  levels.  The
Holding  Company's pro forma  stockholders'  equity will amount to 14.45% of pro
forma total assets at June 30, 1998,  assuming the Conversion Shares are sold at
the maximum of the Estimated  Valuation  Range.  The combination  will result in
increased  funds being  available for lending  purposes,  greater  resources for
expansion of services and better  opportunities  for  attracting  and  retaining
qualified personnel.                                                            

         The terms of the  merger  agreement  were the  result  of arm's  length
negotiations  between the representatives of the Bank and SFS. Among the factors
considered  by the Board of  Trustees of the Bank were (i) the ability to expand
the Bank's  presence in the Capital  District  Region (upon  consummation of the
Merger,  the Bank will have 21 branches in the Capital  District  Region);  (ii)
information concerning the financial condition,  results of operations,  capital
levels,  asset quality and prospects of the Bank and SFS;  (iii) the  short-term
and  long-term  impact the  Conversion  and the Merger  will have on the Holding
Company's  consolidated results of operations,  including expanded  residential,
multi-family  and  commercial  real estate  lending as well as  expanded  retail
banking products and services; (iv) the general structure of the transaction and
the compatibility of the respective managements and business  philosophies;  (v)
the enhancement of the franchise value of the Holding Company and the Bank; (vi)
the  ability of the  combined  enterprise  to compete in  relevant  banking  and
non-banking  markets;  (vii)  industry and economic  conditions;  and (viii) the
impact of the Conversion and the Merger on the depositors,  employees, customers
and communities served by the Bank and SFS through the contemplated expansion of
residential,  multi-family  and  commercial  real estate  lending as well as the
expansion of retail banking products and services.                              

         The Bank and  Schenectady  Federal  currently serve  contiguous  market
areas.  The Bank operates in Albany,  Schenectady,  Saratoga,  Rensselaer  and a
portion  of Warren  County in New York while  Schenectady  Federal  operates  in
Schenectady county in New York. As a result of the Merger, the Bank will operate
21 full-service banking center offices.                                         

         In light of the  foregoing,  the Board of  Trustees of the Bank and the
Boards of Directors of the Holding  Company and SFS believe that the  Conversion
and the Merger are in the best  interest  of the  Parties  and their  respective
depositors and stockholders.                                                    

Effects of Conversion and the Merger                                            

         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 such  depositor's  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 such an account  receives  the balance in the
account but  receives  nothing for such  depositor's  ownership  interest in the
equity of the  institution,  which is lost to the extent that the balance in the
account is reduced.                                                             

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         Consequently,  depositors  of a  mutual  savings  bank  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  and the  former  pro rata  ownership  of,  depositors  is
thereafter  represented   exclusively  by  their  liquidation  rights.  See  "--
Liquidation  Rights."  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,  and after the
consummation  of the  Conversion,  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  Superintendent  and the FDIC. After
Conversion,  the Bank will  continue  to provide  services  for  depositors  and
borrowers under current policies by its present management and staff.           

         The trustees  serving the Bank  immediately  before the Conversion will
serve as  directors  of the Bank  after the  Conversion.  The  directors  of the
Holding Company will consist of all of the individuals  currently serving on the
Board of Trustees of the Bank. It is  anticipated  that all officers of the Bank
serving  immediately before the Conversion will retain their positions after the
Conversion.  See  "Management  of the Holding  Company" and  "Management  of the
Bank."                                                                          

         In addition,  upon  consummation  of the Merger,  Joseph H.  Giaquinto,
President of SFS and Schenectady Federal,  will become a director of the Holding
Company and the Bank.                                                           

         Deposit  Accounts and Loans.  Under the Plan and the merger  agreement,
each depositor in the Bank and Schenectady Federal at the time of Conversion and
the Merger will  automatically  continue as a depositor after the Conversion and
the Merger,  and each such deposit  account will remain the same with respect to
deposit balance, interest rate and other terms, except to the extent affected by
withdrawals made to purchase Holding Company Common Stock in the Conversion. See
"-- Procedure for Purchasing  Shares in Subscription  and Community  Offerings."
Each such  account  will be insured by the FDIC to the same extent as before the
Conversion and the Merger (i.e., up to $100,000 per depositor).  Depositors will
continue to hold their  existing  certificates  of deposit,  passbooks and other
evidences of their accounts.                                                    

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

         Voting Rights. In its current mutual form, voting rights and control of
the Bank are vested exclusively in the Board of Trustees.  After the Conversion,
direction of the Bank will be under the control of the Board of Directors of the
Bank. The Holding Company, as the holder of all of the outstanding capital stock
of the Bank,  will have  exclusive  voting  rights  with  respect to any matters
concerning the Bank requiring  stockholder  approval,  including the election of
directors of the Bank.                                                          

         After the Conversion, subject to the rights of the holders of preferred
stock  that may be issued in the  future,  the  holders of the  Holding  Company
Common  Stock will have  exclusive  voting  rights  with  respect to any matters
concerning  the Holding  Company.  Each holder of Holding  Company  Common Stock
will,  subject to the  restrictions  and  limitations  set forth in the  Holding
Company's  Certificate of Incorporation  discussed below, be entitled to vote on
any matters to be considered by the Holding  Company's  stockholders,  including
the election of directors of the Holding Company.                               

         Liquidation Rights. In the unlikely event of a complete  liquidation of
the  Bank  in its  present  mutual  form,  each  depositor  would  receive  such
depositor's  pro rata share of any assets of the Bank remaining after payment of
claims of                                                                       

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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 such  depositor's  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,  such  depositor's  claim would be solely in the amount of the
balance  in  such  depositor's  deposit  account  plus  accrued  interest.  Such
depositor  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" (which is a memorandum account
only) 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 such account  holder were to continue to maintain
such account  holder's  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  stockholders  of the  Bank,
whether or not such Eligible  Account Holder or  Supplemental  Eligible  Account
Holder purchased  Holding Company Common Stock in the Conversion.  Each Eligible
Account Holder and  Supplemental  Eligible  Account Holder would have an initial
interest  in such  liquidation  account  for  each  deposit  account,  including
passbook  accounts,  demand  accounts,  money market  deposit  accounts and time
deposits,  with an  aggregate  balance of $100 or more held in the Bank on March
31, 1997 (with  respect to an Eligible  Account  Holder) and  September 30, 1998
(with respect to a  Supplemental  Eligible  Account  Holder) (each a "Qualifying
Deposit"). Each Eligible Account Holder and Supplemental Eligible Account Holder
will have a pro rata interest in the total liquidation  account for such account
holder's deposit accounts based on the proportion that the aggregate  balance of
such person's Qualifying Deposits on the Eligibility Record Date or Supplemental
Eligibility  Record  Date,  as  applicable,  bore  to the  total  amount  of all
Qualifying  Deposits of all Eligible Account Holders and  Supplemental  Eligible
Account Holders.                                                                

         If, however,  on any annual closing date (i.e.,  the anniversary of the
Eligibility  Record  Date  or  the  Supplemental  Eligibility  Record  Date,  as
applicable)  of the  Bank,  commencing  on or after  the  effective  date of the
Conversion,  the amount in any  deposit  account is less than the amount in such
deposit account on March 31, 1997 (with respect to an Eligible  Account Holder),
or September 30, 1998 (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. For purposes of the liquidation account, time deposit
accounts  shall be deemed to be closed upon maturity  regardless of renewal.  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 Holding
Company as the sole stockholder 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 taxing  authorities  or opinions of counsel with respect to federal and New
York income  taxation,  to the effect that the Conversion  will not be a taxable
transaction  to the  Holding  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,
Silver,  Freedman & Taff, L.L.P., based on customary  certificates  delivered by
management  of the  Holding  Company and the Bank,  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)(I)(F) of
the Code,  (ii) neither the Bank nor the Holding Company will recognize any gain
or loss as a result of the Conversion;  (iii) no gain or loss will be recognized
by the Bank or the Holding Company upon the purchase of the Bank's capital stock
by the  Holding  Company or by the  Holding  Company  upon the  purchase  of its
Holding  Company  Common Stock in the  Conversion;  (iv) no gain or loss will be
recognized by Eligible Account Holders or Supplemental Eligible Accounts 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; (v) 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                                                                

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immediately prior to the Conversion; (vi) the tax basis of each Eligible Account
Holder's  and  each  Supplemental  Eligible  Account  Holders  interest  in  the
liquidation  account will be zero;  (vii) no gain or loss will be  recognized by
Eligible  Account  Holders or  Supplemental  Eligible  Account  Holders upon the
distribution to them of non-transferable  subscription rights to purchase shares
of the Holding  Company Common Stock,  provided,  that the amount to be paid for
the  Holding  Company  Common  Stock is equal to the fair  market  value of such
stock;  and  (viii) the tax basis to the  stockholders  of the  Holding  Company
Common Stock  purchased in the Conversion  pursuant to the  subscription  rights
will be the  amount  paid  therefor  and the  holding  period  for the shares of
Holding Company Common Stock purchased by such persons will begin on the date on
which their subscription rights are exercised.                                  

         Arthur  Andersen  has  also  opined,  subject  to the  limitations  and
qualifications  in its  opinion,  that  the  Conversion  will  not be a  taxable
transaction  to the  Holding  Company  or to the Bank for New  York  income  and
franchise  tax  purposes  or to  Eligible  Account  Holders  or to  Supplemental
Eligible  Account  Holders for New York  income tax  purposes.  The  opinions of
Silver,  Freedman & Taff, L.L.P. and Arthur Andersen have been filed as exhibits
to the Registration Statement of which this Prospectus is a part.               

         Unlike private rulings,  opinions of counsel or other professionals are
not binding on the IRS or the New York taxing authorities and the IRS or the New
York taxing authorities could disagree with conclusions  reached therein. In the
event of such  disagreement,  there can be no assurance  that the IRS or the New
York  taxing  authorities  would not  prevail  in a judicial  or  administrative
proceeding.                                                                     

         Certain  portions of both the federal  and the state tax  opinions  are
based  upon the  letter  of RP  Financial  that  subscription  rights  issued in
connection  with  the  Conversion  will  have  no  value.  In the  letter  of RP
Financial,  which  opinion  is not  binding  on the IRS or the New  York  taxing
authorities,  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 Holding  Company  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 Holding Company Common Stock. If the subscription rights
granted to Eligible Account Holders,  Supplemental  Eligible Account Holders and
Other  Depositors  are  deemed to have an  ascertainable  value,  such  Eligible
Account  Holders,  Supplemental  Eligible  Account Holders and Other  Depositors
could be taxed upon the  receipt or exercise  of the  subscription  rights in an
amount  equal  to  such  value,  and  the  Bank  could  recognize  gain  on such
distribution.  Eligible Account Holders,  Supplemental  Eligible Account Holders
and Other Depositors are encouraged to consult with their own tax advisors as to
the tax  consequences in the event that such  subscription  rights are deemed to
have an ascertainable value.                                                    

         In  addition,  it is a  condition  of the Merger  that the Bank and SFS
shall  receive  the  written  opinion  of Arthur  Andersen,  independent  public
accountants  to the Bank, to the effect that (i) for federal income tax purposes
the Merger will constitute a reorganization within the meaning of Section 368(a)
of the Code; (ii) no gain or loss will be recognized by the  stockholders of SFS
who receive  Holding Company Common Stock in exchange for their SFS Common Stock
in the  Merger;  (iii) the tax basis of a  stockholder  in the  Holding  Company
Common Stock  received in the Merger in exchange for his or her SFS Common Stock
will be the same as the tax basis of SFS Common  Stock  surrendered  in exchange
therefor;  and (iv) the holding  period of the shares of Holding  Company Common
Stock  received in the Merger will  include the holding  period of the shares of
SFS Common Stock surrendered  therefor,  provided that such SFS Common Stock was
held as a capital  asset by such  stockholder.  The opinions of Arthur  Andersen
will be based on such  written  representations  as to factual  matters from the
Bank, SFS and others.                                                           

Establishment of Cohoes Savings Bank                                            

         General.   In  furtherance  of  the  Bank's  commitment  to  its  local
community, the Plan of Conversion provides for the establishment of a charitable
foundation in connection  with the  Conversion.  The Plan provides that the Bank
and the Holding Company will  incorporate the Foundation under Delaware law as a
non-stock  corporation  and will fund the Foundation with Holding Company Common
Stock, as further described below. The Holding Company and the Bank believe that
the funding of the  Foundation  with Holding  Company Common Stock is a means to
establish a common bond between the Bank and its community,  enabling the Bank's
community to share in the  potential  growth and success of the Holding  Company
over the long term. By further enhancing the Bank's visibility and reputation in
its local  community,  the Bank  believes that the  Foundation  will enhance the
long-term value of the Bank's community                                         

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banking  franchise.  The  Foundation  will be dedicated to  charitable  purposes
within the Bank's local community, including community development activities.  

         Purpose of the Foundation.  The purpose of the Foundation is to provide
funding to support charitable causes and community  development  activities.  In
recent  years,  the  Bank  has  emphasized   community   lending  and  community
development  activities  within the Bank's local community.  The Bank received a
"satisfactory"  CRA  rating in its last CRA  examination.  The Bank  intends  to
continue to emphasize  community  lending and community  development  activities
following  the  Conversion.  However,  such  activities  are not the Bank's sole
corporate  purpose.  The  Foundation  will be completely  dedicated to community
activities  and the promotion of charitable  causes,  and may be able to support
such  activities in ways that are not  presently  available to the Bank. In this
regard,  the  Board of  Trustees  believes  the  establishment  of a  charitable
foundation is consistent with the Bank's  commitment to community  service.  The
Board further  believes that the funding of the Foundation  with Holding Company
Common  Stock  is a means  of  enabling  the  Bank's  community  to share in the
potential growth and success of the Holding Company long after completion of the
Conversion.  The Foundation will accomplish that goal by providing for continued
ties between the Foundation and the Bank, thereby forming a partnership with the
Bank's  community.  The  establishment  of the  Foundation  will also enable the
Holding Company and the Bank to develop a unified  charitable  donation strategy
and will  centralize the  responsibility  for  administration  and allocation of
corporate  charitable  funds.  Charitable  foundations have been formed by other
financial institutions for this purpose, among others.                          

         Although  the Board of Trustees of the Bank and the Board of  Directors
of the Holding Company have carefully  considered each of the above factors, the
establishment  of a charitable  foundation in connection  with a mutual to stock
Conversion is a relatively  new concept that has been  implemented by only a few
other converting institutions. Accordingly, certain persons may raise challenges
as to the validity of the  establishment of the Foundation that, if not resolved
promptly,  could  delay  the  consummation  of the  Conversion  or result in the
elimination of the Foundation.                                                  

         Structure of the  Foundation.  The  Foundation was  incorporated  under
Delaware  law  as a  non-stock  corporation.  The  Foundation's  Certificate  of
Incorporation provides that it is organized exclusively for charitable purposes,
including community development,  as set forth in Section 501(c)(3) of the Code.
The Foundation's  Certificate of Incorporation  further provides that no part of
the  net  earnings  of the  Foundation  will  inure  to the  benefit  of,  or be
distributable to its directors,  officers or members.  The Board of Directors of
the Foundation will consist of four  individuals who are officers or trustees of
the Bank,  and two  individuals  who are civic and community  leaders within the
Bank's local  community.  A Nominating  Committee of such Board,  which is to be
comprised of a minimum of three members of the Board, will nominate  individuals
eligible for election to the Board of Directors.  The members of the Foundation,
who are comprised of its Board  members,  will elect the directors at the annual
meeting of the Foundation from those nominated by the Nominating Committee. Only
persons  serving  as  directors  of the  Foundation  qualify  as  members of the
Foundation, with voting authority.  Directors will be divided into three classes
with each class appointed for three-year terms.                                 

         The authority for the affairs of the  Foundation  will be vested in the
Board of Directors of the  Foundation.  The directors of the Foundation  will be
responsible  for  establishing  the policies of the  Foundation  with respect to
grants or donations by the  Foundation,  consistent  with the purposes for which
the Foundation was established.  Although no formal policy governing  Foundation
grants exists at this time, the Foundation's  Board of Directors will adopt such
a policy upon  establishment  of the  Foundation.  As  directors of a non-profit
corporation,  directors  of the  Foundation  will at all times be bound by their
fiduciary  duty to advance the  Foundation's  charitable  goals,  to protect the
assets of the Foundation and to act in a manner  consistent  with the charitable
purpose for which the Foundation is established. The directors of the Foundation
will  also be  responsible  for  directing  the  activities  of the  Foundation,
including  the  management  of the  Holding  Company  Common  Stock  held by the
Foundation.  However,  as a condition to receiving the non-objection of the FDIC
to  the  Bank's   Conversion   and  the  approval  of  the   Conversion  by  the
Superintendent,  the  Foundation  will  commit  in  writing  to the FDIC and the
Superintendent  that all  shares of  Holding  Company  Common  Stock held by the
Foundation  will be voted in the same ratio as all other  shares of the  Holding
Company Common Stock on all proposals  considered by stockholders of the Holding
Company;  provided,  however, that, consistent with the condition,  the FDIC and
the   Superintendent   shall  waive  this  voting   restriction   under  certain
circumstances  if  compliance  with the voting  restriction  would:  (i) cause a
violation of the law of the State of Delaware; (ii) cause the Foundation to lose
its tax-exempt  status, or cause the IRS to deny the Foundation's  request for a
determination that it is an exempt                                              

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organization  or otherwise  have a material and adverse tax  consequence  on the
Foundation;  or (iii) cause the  Foundation to be subject to an excise tax under
Section 4941 of the Code. In order for the FDIC and the  Superintendent to waive
such voting restriction, the Holding Company's or the Foundation's legal counsel
must  render an opinion  satisfactory  to the FDIC and the  Superintendent  that
compliance with the voting restriction would have an effect described in clauses
(i),  (ii)  or  (iii)  above.  Under  those  circumstances,  the  FDIC  and  the
Superintendent shall grant a waiver of the voting requirement upon submission of
such  legal  opinion(s)  by the  Holding  Company  or the  Foundation  that  are
satisfactory to the FDIC and the Superintendent.  In the event that the FDIC and
the Superintendent  were to waive such voting  requirement,  the directors would
direct the voting of the Holding  Company  Common Stock held by the  Foundation.
However,  the  Superintendent  may, in the case of a waiver,  impose  additional
conditions  regarding the composition of the Board of Directors.  As of the date
hereof,  no event has occurred which would require the Holding Company to seek a
waiver of the voting restriction.                                               

         The  Foundation's  place of  business  will be  located  at the  Bank's
administrative  offices  and  initially  the  Foundation  is expected to have no
employees  but will utilize the staff of the Holding  Company and the Bank.  The
Board of  Directors  of the  Foundation  will  appoint  such  officers as may be
necessary to manage the operations of the Foundation.  In this regard,  the Bank
has provided the FDIC with a commitment that, to the extent applicable, the Bank
will comply with the affiliate restrictions set forth in Sections 23A and 23B of
the Federal  Reserve Act with respect to any  transactions  between the Bank and
the Foundation.                                                                 

         The Holding  Company  intends to capitalize the Foundation with Holding
Company  Common  Stock in an amount  equal to 3% of the total  amount of Holding
Company  Common  Stock  to be sold in  connection  with the  Conversion.  At the
minimum, midpoint and maximum of the Estimated Valuation Range, the contribution
to the Foundation would equal 178,500,  210,000 and 241,500 shares,  which would
have  a  market  value  of  $1.8   million,   $2.1  million  and  $2.4  million,
respectively,  assuming  the  Purchase  Price of $10.00 per share.  The  Holding
Company and the Bank  determined  to fund the  Foundation  with Holding  Company
Common  Stock  rather  than  cash  because  it  desired  to form a bond with its
community in a manner that would allow the  community to share in the  potential
growth and success of the Holding  Company and the Bank over the long term.  The
funding of the  Foundation  with  stock  also  provides  the  Foundation  with a
potentially larger endowment than if the Holding Company contributed cash to the
Foundation  since, as a stockholder,  the Foundation will share in the potential
growth and success of the Holding Company. As such, the contribution of stock to
the Foundation has the potential to provide a self-sustaining  funding mechanism
which reduces the amount of cash that the Holding Company, if it were not making
the stock  donation,  would have to contribute to the Foundation in future years
in order to maintain a level amount of charitable grants and donations.         

         The Foundation will receive working capital from any dividends that may
be paid on the  Holding  Company  Common  Stock in the  future,  and  subject to
applicable  federal and state laws, loans  collateralized by the Holding Company
Common  Stock or from the  proceeds  of the sale of any of the  Holding  Company
Common Stock in the open market from time to time as may be permitted to provide
the Foundation with additional liquidity.  As a private foundation under Section
501(c)(3) of the Code, the Foundation will be required to distribute annually in
grants or donations, a minimum of 5% of the average fair market value of its net
investment  assets. One of the conditions imposed on the gift of Holding Company
Common Stock by the Holding Company is that the amount of Holding Company Common
Stock that may be sold by the  Foundation in any one year shall not exceed 5% of
the average market value of the assets held by the Foundation,  except where the
Board of  Directors  of the  Foundation  determines  that the failure to sell an
amount of common  stock  greater  than such amount  would  result in a long-term
reduction of the value of the  Foundation's  assets and as such would jeopardize
the Foundation's capacity to carry out its charitable purposes.  Upon completion
of the Conversion and the  contribution of shares to the Foundation  immediately
following the Conversion, the Holding Company would have 6,128,500, 7,210,000and
8,291,500 shares issued and outstanding at the minimum,  midpoint and maximum of
the  Estimated  Valuation  Range.  Because  the  Holding  Company  will  have an
increased number of shares  outstanding,  the voting and ownership  interests of
stockholders in the Holding  Company's common stock would be diluted by 2.9%, as
compared to their  interests in the Holding  Company if the Foundation  were not
established.   For  additional   discussion  of  the  dilutive   effect  of  the
contribution of Holding  Company Common Stock to the Foundation,  see "Pro Forma
Data."                                                                          

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         Tax  Considerations.  The Holding Company and the Bank have received an
opinion of Silver,  Freedman & Taff, L.L.P. that an organization created for the
above  purposes  would qualify as an  organization  exempt from  taxation  under
Section  501(c)(3)  of the Code,  and would  likely be  classified  as a private
foundation.  The  Foundation  will  submit  an  application  to  the  IRS  to be
recognized  as  an  exempt  organization.   If  the  Foundation  files  such  an
application  within 15 months from the date of its organization,  and if the IRS
approves the  application,  the effective date of the  Foundation's  status as a
Section  501(c)(3)   organization  will  be  retroactive  to  the  date  of  its
organization.  Silver,  Freedman & Taff, L.L.P.,  however,  has not rendered any
advice on the condition to the  contribution  to be agreed to by the  Foundation
which  requires  that all shares of  Holding  Company  Common  Stock held by the
Foundation  must be voted in the same ratio as all other  outstanding  shares of
Holding Company Common Stock on all proposals  considered by stockholders of the
Holding Company.  Consistent with this condition,  in the event that the Holding
Company  or the  Foundation  receives  an  opinion  of its  legal  counsel  that
compliance  with this  voting  restriction  would have the effect of causing the
Foundation  to lose its  tax-exempt  status or  otherwise  have a  material  and
adverse tax  consequence  on the  Foundation,  or subject the  Foundation  to an
excise  tax for  "self-dealing"  under  Section  4941 of the Code,  the  Holding
Company  would  request a waiver  from the FDIC and the  Superintendent  of such
voting restriction upon submission by the Holding Company or the Foundation of a
legal opinion(s) to that effect satisfactory to the FDIC and the Superintendent.
However,  no assurance  can be given that such waiver  would be granted.  See "-
Regulatory Conditions Imposed on the Foundation."                               

         Under the Code,  the Holding  Company is  entitled  to a deduction  for
charitable  contributions  in an amount not exceeding 10% of its taxable  income
(computed without regard to the contributions) for the year of the contribution,
and any  contributions in excess of the deductible amount may be carried forward
and deducted in the Holding Company's five succeeding taxable years, subject, in
each such year, to the 10% of taxable income limitation. The Holding Company and
the Bank believe that the Conversion  presents a unique opportunity to establish
and fund a charitable  foundation  given the  substantial  amount of  additional
capital  being raised in the  Conversion.  In making such a  determination,  the
Holding Company and the Bank considered the dilutive impact of the  contribution
of  Holding  Company  Common  Stock to the  Foundation  on the amount of Holding
Company Common Stock available to be offered for sale in the  Conversion.  Based
on  such   consideration,   the  Holding  Company  and  Bank  believe  that  the
contribution  to the  Foundation  in  excess  of the 10%  annual  limitation  is
justified  given the Bank's capital  position and its earnings,  the substantial
additional  capital being raised in the Conversion and the potential benefits of
the Foundation to the Bank's community.  In this regard assuming the sale of the
Holding  Company Common Stock at the maximum of the Estimated  Valuation  Range,
the Holding Company would have pro forma  consolidated  capital of $87.1 million
or 15.1% of pro forma consolidated  assets and the Bank's pro forma leverage and
risk-based  capital  ratios  would  be  11.01%  and  21.20%,  respectively.  See
"Regulation  -  The  Bank  -  Capital   Requirements,"   "Capitalization,"   and
"Comparison of Valuation and Pro Forma Information with No Stock  Contribution."
Thus,  the amount of the  contribution  will not adversely  impact the financial
condition of the Holding  Company and the Bank, and the Holding  Company and the
Bank  therefore  believe  that the  amount  of the  charitable  contribution  is
reasonable and will not raise safety and soundness concerns.                    

         The Holding  Company and the Bank have  received the opinion of Silver,
Freedman & Taff, L.L.P. that the Holding Company's contribution of its own stock
to the  Foundation  would not  constitute an act of  self-dealing,  and that the
Holding Company will be entitled to a deduction in the amount of the fair market
value  of the  stock  at the  time of the  contribution,  subject  to the 10% of
taxable income limitation.  As discussed above, the Holding Company will be able
to carry  forward and deduct any portion of the  contribution  in excess of such
10% limitation  for five years  following the year of the  contribution.  If the
Holding Company and the Foundation had been established in the fiscal year ended
June 30,  1998,  the Holding  Company  would have been  entitled to a charitable
contribution   deduction  in  its  taxable  year  ended  December  31,  1998  of
approximately  $674,000  and would  have been able to carry  forward  and deduct
approximately $1.7 million over its next succeeding five taxable years (based on
the  Bank's  estimated  pre-tax  income for 1998 and a  contribution  in 1998 of
Holding  Company Common Stock equal to $2.4 million).  Assuming the close of the
Offering at the maximum of the Estimated  Valuation  Range,  the Holding Company
estimates that the entire amount of the contribution should be deductible over a
six-year  period.  Neither the  Holding  Company nor the Bank expect to make any
further  contributions  to the Foundation  within the first five years following
the initial contribution.  After that time, the Holding Company and the Bank may
consider future  contributions  to the  Foundation.  Any such decisions would be
based on an assessment of, among other factors,  the financial  condition of the
Holding  Company and the Bank at that time,  the interests of  stockholders  and
depositors of the Holding Company and the Bank, and the financial  condition and
operations of the Foundation.                                                   

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         Although the Holding  Company and the Bank have received the opinion of
Silver,  Freedman & Taff,  L.L.P.  that the  Holding  Company is  entitled  to a
deduction for the charitable  contribution,  there can be no assurances that the
IRS will recognize the Foundation as an organization  exempt from taxation under
section  501(c)(3) of the Code or that the deduction  will be permitted.  If the
IRS  successfully  maintains  that the  Foundation  is not so exempt or that the
deduction is not  permitted,  the Holding  Company's tax benefit  related to the
contribution to the Foundation would be expensed without tax benefit,  resulting
in a  reduction  in  earnings  in  the  year  in  which  the  IRS  makes  such a
determination. See "Risk Factors - Establishment of the Charitable Foundation." 

         In general,  the income of a private  foundation is exempt from federal
and state taxation. However, investment income, such as interest,  dividends and
capital  gains,  will be subject to a federal excise tax of 2.0%. The Foundation
will be required to make an annual  filing with the IRS within four and one-half
months  after  the  close  of the  Foundation's  taxable  year to  maintain  its
tax-exempt status. The Foundation will also be required to publish a notice that
the annual  information  return will be available  for public  inspection  for a
period of 180 days after the date of such public notice.  The information return
for a private  foundation must include,  among other things, an itemized list of
all grants made or approved,  showing the amount of each grant,  the  recipient,
any relationship between a grant recipient and the Foundation's  managers, and a
concise  statement  of the purpose of each grant.  The  Foundation  will also be
required to file an annual report with the Charities Bureau of the Office of the
Attorney General of the State of New York.                                      

         Regulatory  Conditions Imposed on the Foundation.  Establishment of the
Foundation  is  subject  to the  following  conditions  to be  agreed  to by the
Foundation in writing as a condition to receiving the FDIC's nonobjection of the
Bank's Conversion and the approval of the Conversion by the Superintendent:  (i)
the   Foundation   will  be  subject  to   examination   by  the  FDIC  and  the
Superintendent;  (ii) the  Foundation  must comply with  supervisory  directives
imposed by the FDIC and the Superintendent; (iii) the Foundation will operate in
accordance with written policies adopted by its Board of Directors,  including a
conflict of interest policy; and (iv) any shares of Holding Company Common Stock
held by the Foundation must be voted in the same ratio as all other  outstanding
shares  of  Holding  Company  Common  Stock  on  all  proposals   considered  by
stockholders of the Holding  Company;  provided,  however that,  consistent with
this  condition,  the  FDIC  and the  Superintendent  shall  waive  this  voting
restriction   under  certain   circumstances   if  compliance  with  the  voting
restriction  would:  (a) cause a violation  of the law of the State of Delaware;
(b) would cause the Foundation to lose its tax-exempt status or otherwise have a
material and adverse tax consequence on the  Foundation;  or (c) would cause the
Foundation  to be subject to an excise tax under  Section  4941 of the Code.  In
order for the FDIC and the Superintendent to waive such voting restriction,  the
Holding  Company's  or the  Foundation's  legal  counsel  must render an opinion
satisfactory  to FDIC and the  Superintendent  that  compliance  with the voting
restriction  would have the effect  described  in clauses (a), (b) or (c) above.
Under those circumstances,  the FDIC and the Superintendent shall grant a waiver
of the voting  restriction  upon  submission  of such  opinion(s) by the Holding
Company  or  the  Foundation   which  are  satisfactory  to  the  FDIC  and  the
Superintendent. There can be no assurances that a legal opinion addressing these
issues will be rendered,  or if rendered,  that the FDIC and the  Superintendent
will  grant  an  unconditional   waiver  of  the  voting  restriction.   If  the
Superintendent  waives the voting  restriction,  the Department may (1) impose a
condition  that a certain  portion of the members of the  Foundation's  Board of
Directors  shall be persons who are not directors,  officers or employees of the
Bank or the Holding  Company or any  affiliate  thereof or (2) impose such other
condition  relating to control of the Holding  Company  Common Stock held by the
Foundation as determined by the Department to be  appropriate.  In no event will
the voting restriction  survive the sale of shares of the Holding Company Common
Stock held by the Foundation.                                                   

Conditions to the Merger                                                        

         The merger  agreement  provides that the  consummation  of the proposed
transaction is subject to the satisfaction of certain conditions,  or the waiver
of such  conditions  by the Party  entitled to do so, at or prior to the Closing
Date, as defined in the merger agreement. Each of the Parties' obligations under
the merger agreement are subject to the following conditions,  among others: (a)
valid  corporate  authorization  by  the  parties,   including  SFS  stockholder
approval, of the transactions  contemplated by the merger agreement; (b) receipt
of all necessary  governmental approvals required to consummate the transactions
contemplated by the merger agreement,  and the expiration of all waiting periods
with  respect  thereto,  and receipt of consents  from each other  person  whose
consent is necessary to the consummation of the Merger;  (c) absence of any law,
regulation  or  decree  which   prohibits  or  restricts   consummation  of  the
transactions                                                                    

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contemplated  by the merger  agreement;  (d)  effectiveness  of the Form S-1 and
receipt of or exemption from all state securities  authorizations;  (e) approval
for  listing  on The  Nasdaq  National  Market of the shares to be issued in the
Merger;  (f) receipt by the Bank and SFS of a written opinion of Arthur Andersen
that  the  Merger  will  constitute  a   reorganization   under  the  Code;  (g)
consummation  of the Conversion in accordance  with the Plan of Conversion;  and
(h) amendment of the federal stock charter of Schenectady Federal.              

         In addition to the foregoing  conditions,  the obligations of SFS under
the merger agreement are further subject to the satisfaction, at or prior to the
Closing  Date,  of the  following  conditions,  any one or more of which  can be
waived by SFS: (a) truth and correctness of the  representations  and warranties
of the  Bank;  (b)  the  Bank's  performance  in all  material  respects  of all
obligations  and covenants  under the merger  agreement;  (c) delivery of a Bank
officers'  certificate  attesting to the satisfaction of conditions (a) and (b);
(d) absence of any  proceeding  initiated by a  governmental  entity  seeking to
restrain the Merger;  (e) delivery of such other Bank certificates and documents
as SFS may reasonably request;  and (f) receipt of a letter from its accountants
that the Merger shall be accounted for as a pooling of interests.               

         In  addition  to the  conditions  set  forth  in the  second  preceding
paragraph,  the  obligations of the Bank under the merger  agreement are further
subject to the  satisfaction,  at or prior to the Closing Date, of the following
conditions,  any one or more of which can be  waived by the Bank:  (a) truth and
correctness of the representations and warranties of SFS; (b) SFS performance in
all  material  respects  of all  obligations  and  covenants  under  the  merger
agreement;  (c)  delivery  of an  SFS  officers'  certificate  attesting  to the
satisfaction of conditions (a) and (b); (d) absence of any proceeding  initiated
by a governmental  entity  seeking to restrain the Merger;  (e) delivery of such
other SFS  certificates  and documents as the Bank may reasonably  request;  (f)
receipt of a letter from its accountants  that the Merger shall be accounted for
as a pooling of interests;  and (g) delivery by Elias,  Matz, Tiernan & Herrick,
L.L.P.  of an opinion  with  respect to such  matters as KBW, in its capacity as
underwriter, shall reasonably require.                                          

Conduct of Business Prior to the Merger Closing Date                            

         Under the terms of the merger  agreement,  the Bank and SFS shall,  and
shall cause each of their respective subsidiaries to, conduct its businesses and
engage in  transactions  only in the ordinary  course and  consistent  with past
practice or to the extent  otherwise  contemplated  under the merger  agreement,
except  with the prior  written  consent of the Bank or SFS, as the case may be.
SFS  also  shall  use  its  reasonable  efforts  to (1)  preserve  its  business
organization  and that of it subsidiaries  intact,  (2) keep available to itself
and  the  Bank  the  present   services  of  its  employees  and  those  of  its
subsidiaries,  and (3)  preserve  for  itself and the Bank the  goodwill  of its
customers  and  those  of  its   subsidiaries  and  others  with  whom  business
relationships exist.                                                            

         In addition,  under the terms of the merger  agreement,  SFS has agreed
that,  except as  otherwise  approved  by the Bank in writing  or as  permitted,
contemplated  or  required  by the merger  agreement,  it will not,  nor will it
permit any of its subsidiaries to:                                              

         (i)      declare,  set  aside,  make  or  pay  any  dividend  or  other
                  distribution  (whether  in  cash,  stock  or  property  or any
                  combination  thereof)  in  respect  of the SFS  Common  Stock,
                  except for regular  quarterly  cash dividends at a rate not in
                  excess  of  $.08  per  share  and  except,  in the  event  the
                  Effective Time occurs more than 45 days after the commencement
                  of any  calendar  quarter  but  prior to the  normal  dividend
                  payment  date  for such  calendar  quarter,  a pro  rata  cash
              dividend based on SFS normal quarterly cash dividend rate;

         (ii)     issue  any  shares  of its  capital  stock,  other  than  upon
                  exercise of the SFS Options or upon the  reissuance  of shares
                  pursuant to the merger agreement,  or issue,  grant, modify or
                  authorize any rights; purchase any shares of SFS Common Stock;
                  or  effect  any  recapitalization,   reclassification,   stock
           dividend, stock split or like change in capitalization;

         (iii)    amend its  Certificate  of  Incorporation,  Bylaws or  similar
                  organizational documents; impose, or suffer the imposition, on
  any share of stock or other ownership interest

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                  held by SFS in a subsidiary  thereof,  of any lien,  charge or
                  encumbrance or permit any such lien,  charge or encumbrance to
                  exist;  or waive or release  any  material  right or cancel or
compromise any material debt or claim;      

         (iv)     increase  the rate of  compensation  of any of its  directors,
                  officers  or  employees,  or pay or agree to pay any  bonus or
                  severance  to, or provide  any other new  employee  benefit or
                  incentive  to, any of its  directors,  officers or  employees,
                  except (A) as may be required pursuant to previously disclosed
                  commitments  existing on July 31, 1998; (B) as may be required
                  by law; (C) merit increases in accordance with past practices,
                  normal  cost-of-living  increases and normal increases related
                  to  promotions  or  increased  job  responsibilities;  and (D)
                  immediately  prior to the Effective  Time, SFS may pay bonuses
                  under the SFS Incentive  Plan in amounts  provided  under such
                  plan, provided that if the Effective Time is prior to December
                  31,  1998,  then the amount for 1998 shall be prorated for the
      period from January 1, 1998 to the Effective Time;

         (v)      enter  into  or,  except  as may be  required  by law  and for
                  amendments  contemplated by the merger  agreement,  modify any
                  pension,  retirement,  stock  option,  stock  purchase,  stock
                  appreciation   right,   savings,   profit  sharing,   deferred
                  compensation,   supplemental  retirement,  consulting,  bonus,
                  group  insurance  or  other  employee  benefit,  incentive  or
                  welfare contract, plan or arrangement,  or any trust agreement
                  related  thereto in respect of any of its directors,  officers
                  or employees; or make any contributions to SFS defined benefit
                  plan  or the  SFS  ESOP  (other  than  as  required  by law or
                  regulation  or in a manner  and  amount  consistent  with past
practices);                                 

         (vi)     enter  into (A) any  transaction,  agreement,  arrangement  or
                  commitment  not made in the ordinary  course of business,  (B)
                  any agreement,  indenture or other instrument  relating to the
                  borrowing of money by SFS or a subsidiary thereof or guarantee
                  by SFS or  any  subsidiary  thereof  of any  such  obligation,
                  except in the case of Schenectady  Federal for deposits,  FHLB
                  advances,  federal funds  purchased and securities  sold under
                  agreements to  repurchase  in the ordinary  course of business
                  consistent with past practice, (C) any agreement,  arrangement
                  or  commitment  relating to the  employment  of an employee or
                  consultant, or amend any such existing agreement,  arrangement
                  or commitment,  provided that SFS and Schenectady  Federal may
                  employ an employee or  consultant  in the  ordinary  course of
                  business if the  employment  of such employee or consultant is
                  terminable by SFS or  Schenectady  Federal at will and without
                  liability,  other than as required by law; and  provided  that
                  the term of the  employment  agreements  and change in control
                  severance  agreements existing as of July 31, 1998 (other than
                  the  employment   agreement  with  Joseph  Giaquinto)  may  be
                  extended for an additional one year as of the anniversary date
                  of such agreements in accordance with the provisions  thereof;
                  or (D) any contract,  agreement or understanding  with a labor
union;                                      

         (vii)    change its method of  accounting  in effect for the year ended
                  December  31,  1997,  except as required by changes in laws or
                  regulation or generally  accepted  accounting  principles,  or
                  change any of its methods of reporting  income and  deductions
                  for federal  income tax  purposes  from those  employed in the
                  preparation  of its  federal  income tax return for such year,
         except as required by changes in laws or regulations;

         (viii)   make  any   capital   expenditures   in  excess   of   $25,000
                  individually or $50,000 in the aggregate,  other than pursuant
                  to binding  commitments  existing  on July 31,  1998 and other
                  than  expenditures  necessary to maintain  existing  assets in
good repair;                                

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                  or enter into any new lease of real  property or any new lease
                  of personal property providing  for  annual payments exceeding
$10,000;                                    

         (ix)     file any  applications  or make any  contract  with respect to
branching or site location or relocation;   

         (x)      acquire in any manner  whatsoever  (other than to realize upon
                  collateral  for a defaulted  loan)  control over or any equity
                  interest in any business or entity,  except for investments in
                  marketable   equity  securities  in  the  ordinary  course  of
                  business and not exceeding 5% of the outstanding shares of any
class;                                      

         (xi)     enter  or agree to enter  into any  agreement  or  arrangement
                  granting any preferential  right to purchase any of its assets
                  or  rights  or  requiring  the  consent  of any  party  to the
        transfer and assignment of any such assets or right;

         (xii)    except as necessitated in the reasonable opinion of SFS due to
                  changes in interest  rates,  and in  accordance  with safe and
                  sound  banking  practices,  change or  modify in any  material
                  respect any of its lending or investment  policies,  except to
                  the  extent  required  by  law  or  an  applicable  regulatory
authority;                                  

         (xiii)   take any action that would prevent or impede the Merger or the
                  Conversion  from  qualifying  as a  reorganization  within the
                  meaning of Section 368 of the Code or from being accounted for
as a pooling-of-interests under GAAP;       

         (xiv)    except as necessitated in the reasonable opinion of SFS due to
                  changes in interest  rates,  and in  accordance  with safe and
                  sound  banking  practices,  enter into any  futures  contract,
                  option  contract,  interest  rate caps,  interest rate floors,
                  interest  rate  exchange  agreement  or  other  agreement  for
                  purposes  of  hedging  the  exposure  of its  interest-earning
                  assets and  interest-bearing  liabilities to changes in market
rates of interest; or                       

         (xv)     take   any   action   that   would   result   in  any  of  the
                  representations   and   warranties  of  the  Holding   Company
                  contained in the merger  agreement  not to be true and correct
                  in any material  respect at the  Effective  Time or that would
                  cause any of the conditions to consummation of the Merger from
being satisfied.                            

         Pursuant  to the merger  agreement,  during the period from the date of
the merger  agreement and continuing  until the Effective Time,  except with the
prior  written  consent  of  SFS or as  expressly  contemplated  in  the  merger
agreement,  the Bank shall not, and shall cause each  subsidiary  thereof not to
(i) take any action  that would  prevent or impede the Merger or the  Conversion
from  qualifying  as a  reorganization  within the meaning of Section 368 of the
Code or from being accounted for as a  pooling-of-interests  under GAAP; or (ii)
take any action that would result in any of the  representations  and warranties
of the  Bank  contained  in the  Agreement  not to be true  and  correct  in any
material respect at the Effective Time or that would cause any of the conditions
to consummation of the Merger from being satisfied.                             

Required Approvals for the Conversion and the Merger                            

         Various  approvals of the Department and the FDIC are required in order
to consummate the  Conversion  and the Merger.  The Department and the FDIC have
approved  the Plan of  Conversion,  subject to  approval  by the  Bank's  voting
depositors.  In  addition,  consummation  of the  Conversion  and the  Merger is
subject to OTS approval of the Holding Company's holding company  application to
acquire  all the SFS  Common  Stock  and all of the Bank  common  stock  and the
applications  under the Home  Owners'  Loan Act, the Bank Merger Act and the New
York State Banking laws, with respect to the Merger of Schenectady  Federal with
and into the Bank with the Bank being the  surviving  entity.  Applications  for
these approvals have been filed and are currently pending.                      

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         Pursuant to Department and FDIC regulation, the Plan of Conversion must
be approved by at least a majority of the total  number of votes  eligible to be
cast by the Bank's voting depositors and by at least seventy-five  percent (75%)
in amount of deposit  liabilities of Voting Depositors  represented in person or
by proxy at the  Special  Meeting.  The merger  agreement  must be approved by a
majority  of the Voting  Depositors  present in person or by proxy and voting at
the Special Meeting. In addition,  under Delaware law, the merger agreement must
be approved by a majority of the  outstanding  SFS Common Stock entitled to vote
thereon at the SFS Special Meeting.                                             

         The  Holding  Company is required to make  certain  filings  with state
securities  regulatory  authorities  in connection  with the issuance of Holding
Company Common Stock in the Conversion and the Merger.                          

Acquisition Proposals                                                           

         Until  the  Closing  Date  or the  earlier  termination  of the  merger
agreement,  SFS shall not,  and shall  cause  each  subsidiary  thereof  not to,
solicit or  encourage  inquiries  or  proposals  with  respect  to,  furnish any
information  relating to, or  participate  in any  negotiations  or  discussions
concerning,  any  acquisition,  purchase of all or a substantial  portion of the
assets of, or any equity interest in, SFS or any of its subsidiaries (other than
with the Bank or an affiliate  thereof),  provided,  however,  that the Board of
Directors  of  SFS  may  furnish  such   information   or  participate  in  such
negotiations  or discussions if the Board of Directors,  after having  consulted
with and  considered  the advice of outside  counsel,  has  determined  that the
failure  to do the same may cause the  members  of such  Board of  Directors  to
breach their fiduciary  duties under applicable law. SFS is required to promptly
inform the Bank orally and in writing of any such request for  information or of
any such negotiations or discussions.                                           

Representations and Warranties                                                  

         The merger agreement contains representations and warranties of SFS and
the Bank which are customary in Merger transactions,  including, but not limited
to,  representations  and  warranties  concerning:   (a)  the  organization  and
capitalization  of SFS and the Bank and their respective  subsidiaries;  (b) the
due  authorization,   execution,  delivery  and  enforceability  of  the  merger
agreement;  (c) the consents or approvals required, and the lack of conflicts or
violations  under applicable  certificates of  incorporation,  charter,  bylaws,
instruments  and laws,  with  respect to the  transactions  contemplated  by the
merger agreement; (d) the absence of material adverse changes, (e) the documents
to be filed by the Parties with the SEC and other regulatory  agencies;  (f) the
conduct of business in the ordinary course and absence of certain  changes;  (g)
the financial  statements;  (h) the compliance  with laws; and (i) the allowance
for loan losses and real estate owned. The representations and warranties of the
Bank and SFS  will not  survive  beyond  the  Effective  Time if the  Merger  is
consummated,  and, if the merger agreement is terminated without consummation of
the Merger,  there will be no  liability  on the part of any Party to the merger
agreement except that no Party shall be relieved from any liability  arising out
of a willful breach of any covenant, undertaking,  misrepresentation or warranty
in the  merger  agreement  and except as  described  under " -  Termination  and
Amendment" and " - Expenses of the Merger."                                     

Closing Date of the Merger                                                      

         The  Effective  Time of the Merger  shall be the date  specified in the
Certificate  of Merger to be filed  with the  Delaware  Secretary  of State with
respect to the Merger of SFS with and into the  Holding  Company  unless a later
date and time is specified as the effective time in such  Certificate of Merger.
Such  filing  will  occur only after the  receipt  of all  requisite  regulatory
approvals, approval of the transaction by the requisite vote of the stockholders
of SFS and of the Voting  Depositors of the Bank, and the satisfaction or waiver
of all other conditions to the Merger.                                          

         A closing (the "Closing")  shall take place on the Closing Date,  which
shall be at such time as the Bank and SFS may mutually  agree to  following  the
receipt of all necessary  regulatory or governmental  approvals and consents and
the  expiration  of all  statutory  waiting  periods in respect  thereof and the
satisfaction  or waiver  (to the  extent  permitted)  of all the  conditions  to
consummation of the Merger.                                                     

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Termination and Amendment                                                       

         The merger  agreement may be terminated prior to the Effective Time by:
(a) the mutual written consent of the parties; (b) by the Bank or SFS if (i) the
other party has in any material respect breached the merger agreement,  and such
breach has not been timely cured after notice;  (ii) any necessary  governmental
approval is denied,  unless such denial is due to a breach of the party  seeking
to terminate;  (iii) if a final,  nonappealable  order prohibits any transaction
contemplated  by the  merger  agreement;  (iv)  the  stockholders  of SFS do not
approve the merger  agreement or the  depositors  of the Bank do not approve the
Plan of  Conversion,  unless the failure of such  approval is due to a breach of
the party seeking to terminate; (v) the Effective Time has not occurred by March
31, 1999 (or in certain  circumstances,  April 15, 1999 for the Bank) unless the
failure of such occurrence is due to a breach of the party seeking to terminate;
or (c) by the Bank if a Purchase Event has occurred.  The term "Purchase  Event"
means any of the following  events or  transactions  occurring after the date of
the merger agreement:                                                           

         (i)      SFS or Schenectady Federal, without having received the Bank's
                  prior written consent, enter into an agreement to engage in an
                  Acquisition  Transaction  (as  defined)  with any person other
                  than the Holding Company or the Bank or the Board of Directors
                  of SFS shall have  recommended  that the  stockholders  of SFS
                  approve or accept any Acquisition  Transaction with any person
other than the Holding Company or the Bank; 

         (ii)     After a bona fide  proposal  is made by any person  other than
                  the Holding Company or the Bank to SFS or its  stockholders to
                  engage in an Acquisition  Transaction,  (A) SFS or Schenectady
                  Federal   shall  have  breached  any  covenant  or  obligation
                  contained  in the  merger  agreement  and  such  breach  would
                  entitle the Bank to terminate the merger  agreement or (B) the
                  holders of the SFS Common  Stock shall not have  approved  the
                  merger  agreement  at the SFS  Special  Meeting or (C) the SFS
                  Special Meeting to approve the merger agreement shall not have
                  been held or shall have been canceled  prior to termination of
                  the  merger  agreement  or (D) the Board of  Directors  of SFS
                  shall have  withdrawn  or modified in a manner  adverse to the
                  Bank the  recommendation of the Board of Directors of SFS with
respect to the merger agreement.            

         For purposes of the merger agreement,  "Acquisition  Transaction" means
(x) a Merger or  consolidation,  or any similar  transaction,  involving  SFS or
Schenectady  Federal,  (y) a  purchase,  lease  or other  acquisition  of all or
substantially all of the assets of SFS or Schenectady Federal, or (z) a purchase
or other acquisition (including by way of Merger, consolidation,  share exchange
or otherwise) of securities  representing 25% or more of the voting power of SFS
or Schenectady Federal.                                                         

         In the event of 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 party of any Party to the merger agreement or their
respective officers and directors,  except that (i) certain provisions regarding
confidential information and expenses shall survive and remain in full force and
effect;  (ii) a  breaching  party shall not be  relieved  of  liability  for any
willful  breach giving rise to such  termination;  and (iii) certain  provisions
relating to expenses and termination fees shall survive and remain in full force
and effect.  The Bank shall pay to SFS a termination  fee of $2.0 million unless
(i) the Bank  terminates in response to a breach or Purchase  Event by SFS; (ii)
the termination is due to failure to receive any required governmental approval,
failure to receive  the  approval  of the Bank's  depositors,  or failure of the
Effective Time to occur by March 31, 1999; (iii) SFS stockholders do not approve
the merger  agreement;  (iv) the merger agreement is terminated  because certain
closing  conditions  cannot  be  satisfied;  or (v) SFS  exercises  a  right  of
termination  before March 31, 1999. If  termination is due to failure to receive
the approval of the Bank's depositors, or failure of the Effective Time to occur
by March 31,  1999,  the Bank  shall pay to SFS the  reasonable  and  verifiable
expenses incurred by SFS in connection with the merger agreement. If termination
is due to (i) failure to receive any required  governmental approval or (ii) all
other  conditions are satisfied,  but the required  pooling of interest  letters
cannot be obtained due to an act or omission of the Bank, the Holding Company or
a Bank affiliate,  the Bank will pay to SFS a break up fee of $1.0 million.  SFS
shall pay to the Bank a fee of $2.0  million upon the  occurrence  of a purchase
event prior to a fee termination event.                                         

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         A Fee  Termination  Event shall be the first to occur of the following:
(i) the Effective Date, (ii)  termination of the merger  agreement in accordance
with the terms thereof prior to the occurrence of a Purchase Event (other than a
termination of the merger  agreement by the Bank as a result of a willful breach
of any  representation,  warranty,  covenant or agreement of SFS or  Schenectady
Federal) or (iii) 12 months following termination of the merger agreement by the
Bank unless a Purchase Event shall have occurred prior thereto.                 

         The merger  agreement  may be amended  or  supplemented  at any time by
mutual agreement of the Bank and SFS, subject to certain  limitations.  Any such
amendment  or  supplement  must be in  writing  and  authorized  by or under the
direction of their respective Boards of Directors.                              

Interests of Certain Persons in the Merger                                      

         Boards  of  Directors.  Upon  consummation  of the  Conversion  and the
Merger,  the Holding Company and the Bank will also take all necessary action to
appoint Mr. Giaquinto,  currently the Chairman of SFS and Schenectady  Federal's
Boards,  to their  respective  Boards of Directors ,and the Holding Company will
nominate Mr.  Giaquinto  to be elected to a  three-year  term at the next annual
meeting of the Holding  Company's  stockholders.  The  remaining  directors  and
certain  officers  of  Schenectady  Federal  as of the  Effective  Time  will be
appointed  to an advisory  board to the Holding  Company for a  three-year  term
(four years, with respect to the appointment of David J. Jurczynski).           

         Existing Benefit Plans and employment agreements.  As of July 31, 1998,
there were an  aggregate of 125,579  stock  options to purchase SFS Common Stock
outstanding  under SFS Stock Option and Incentive  Plan (the "SFS Option Plan").
Of these  stock  options  46,496 are  currently  exercisable.  If any of the SFS
Options remain outstanding immediately prior to consummation of the Merger, they
will be converted into options to purchase  Holding  Company Common Stock,  with
the number of shares  subject to the option and the exercise  price per share to
be adjusted based upon the Exchange  Ratio so that the aggregate  exercise price
remains unchanged,  and with the duration of the option remaining unchanged. SFS
Options which have not vested as of the Effective  Time will continue to vest in
accordance with their terms for as long as the holders of the options are either
a director,  advisory  director or  employee of the Holding  Company  and/or the
Bank.                                                                           

         As of July 31, 1998,  an aggregate of 32,530 shares of SFS Common Stock
have been awarded to the  directors  and officers of SFS pursuant to the RRP and
have not yet vested.  Upon consummation of the Merger,  all unvested awards will
be converted into Holding Company Common Stock based upon the Exchange Ratio and
will continue to vest in accordance  with their terms for as long as the holders
of the  awards are either a  director,  advisory  director  or  employee  of the
Holding Company and/or the Bank.                                                

         As of July 31,  1998,  the SFS ESOP held  83,720  shares of SFS  Common
Stock which had not yet been allocated to participants and which were pledged as
collateral for the remaining $837,200 loan to the SFS ESOP. The ESOP is expected
to be terminated six months following  consummation of the Merger, at which time
the loan will be repaid and the remaining  unallocated  shares will be allocated
to the participants.                                                            

         Pursuant  to the  merger  agreement,  the Bank  has  agreed  to  retain
employees of SFS and Schenectady Federal after the Effective Time, provided that
the Holding  Company and the Bank shall not have any  obligation to continue the
employment  of such  persons.  The merger  agreement  provides that officers and
employees of SFS and the Bank who become  employees of the Bank after the Merger
will be entitled to participate in the Bank's employee  benefit plans maintained
generally for the benefit of its  employees.  The Bank shall treat SFS 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
participate  for service with SFS to the extent that such service was recognized
for similar  purposes  under SFS plans.  In addition,  the provisions of certain
employment  agreements and  Supplemental  Executive  Retirement  Agreements with
officers of SFS will result in cash  payments  aggregating  approximately  $____
million to certain of SFS officers, including $______ million to Mr. Giaquinto. 

         In the merger  agreement,  the Holding  Company has agreed to indemnify
the directors,  officers and employees of SFS and each of its subsidiaries for a
period of six years after the Effective  Time to the fullest extent which SFS or
any SFS  subsidiary  would  have been  permitted  to do so under its  respective
Certificate of Incorporation, Charter or                                        

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Bylaws.  In addition,  all  limitations  of liability  existing in favor of such
individuals in the Certificate of Incorporation, Charter or Bylaws of SFS or any
SFS subsidiary,  arising out of matters existing or occurring at or prior to the
Effective  Time,  shall survive the Merger and shall  continue in full force and
effect. The Holding Company has also agreed to maintain SFS existing  directors'
and officers'  liability  insurance policy (or purchase another policy providing
substantially  the  same  coverage)  for a period  of six  years  following  the
Effective Time, subject to certain limits on the cost to the Holding Company.   

Delivery of Certificates                                                        

         Conversion Shares.  Certificates  representing Conversion Shares issued
in the Conversion will be mailed by the Holding Company's  transfer agent to the
persons entitled thereto at the addresses of such persons appearing on the stock
order form as soon as  practicable  following  consummation  of the Merger.  Any
certificates returned as undeliverable will be held by the Holding Company until
claimed  by  persons  legally  entitled  thereto  or  otherwise  disposed  of in
accordance  with applicable law. Until  certificates  for Conversion  Shares are
available and delivered to subscribers, such subscribers may not be able to sell
the Conversion Shares for which they have subscribed, even though trading of the
Holding Company Common Stock may have commenced.                                

         Exchange  Shares.  After  consummation of the Merger,  each holder of a
certificate or certificates  previously evidencing issued and outstanding shares
of SFS Common Stock,  upon surrender of the same to an agent,  duly appointed by
the  Holding  Company  (the  "Exchange  Agent")  shall be entitled to receive in
exchange therefore a certificate or certificates representing the number of full
shares of Holding  Company Common Stock for which the shares of SFS Common Stock
surrendered  shall have been converted based on the Exchange Ratio. The Exchange
Agent  shall,  after  expiration  of the ten  trading  day  period  required  to
determine the Exchange Ratio,  promptly mail to each such holder of record of an
outstanding  certificate  which  immediately  prior to the  consummation  of the
Merger  evidenced  shares of SFS Common Stock,  and which is to be exchanged for
Holding  Company  Common  Stock based on the  Exchange  Ratio as provided in the
merger  agreement,  a form of letter of  transmittal  (which shall  specify that
delivery shall be effected, any risk of loss and title to such certificate shall
pass,  only upon delivery of such  certificate to the Exchange  Agent)  advising
such  Holder of the terms of the  exchange  effected  by the  Merger  and of the
procedure for  surrendering  to the Exchange Agent such  certificate in exchange
for a certificate or certificates  evidencing  Holding Company Common Stock. The
stockholders  of SFS should not forward  SFS Common  Stock  certificates  to the
Holding  Company or the Exchange Agent until they have received the  transmittal
letter.                                                                         

         No holder of a  certificate  representing  shares of SFS  Common  Stock
shall be  entitled to receive any  dividends  in respect of the Holding  Company
Common Stock into which such shares  shall have been  converted by virtue of the
Merger  until the  certificate  representing  such shares of SFS Common Stock is
surrendered in exchange for certificates  representing shares of Holding Company
Common Stock.  In the event that  dividends are declared and paid by the Holding
Company in respect of Holding Company Common Stock after the consummation of the
Merger but prior to surrender of certificates  representing shares of SFS Common
Stock,  dividends  payable in respect of shares of Holding  Company Common Stock
not then issued shall accrue  (without  interest).  Any such dividends  shall be
paid (without  interest) upon surrender of the  certificates  representing  such
shares of SFS Common Stock.  The Holding  Company  shall be entitled,  after the
consummation of the Merger,  to treat  certificates  representing  shares of SFS
Common  Stock as  evidencing  ownership  of the number of full shares of Holding
Company  Common Stock into which the shares of SFS Common Stock  represented  by
such certificates shall have been converted,  notwithstanding the failure on the
part of the holder thereof to surrender such certificates.                      

         The Holding  Company shall not be obligated to deliver a certificate or
certificates  representing Holding Company Common Stock to which a holder of SFS
Common  Stock would  otherwise  be entitled as a result of the Merger until such
holder surrenders the certificate or certificates representing the shares of SFS
Common  Stock for  exchange  as  provided  above,  or, in  default  thereof,  an
appropriate  affidavit of loss and indemnity  agreement  and/or a bond as may be
required  in each case by the Holding  Company.  If any  certificate  evidencing
shares of Holding Company Common Stock is to be issued in a name other than that
in which the  certificate  evidencing  SFS Common Stock  surrendered in exchange
therefore is  registered,  it shall be a condition of the issuance  thereof that
the  certificate  so  surrendered  shall be properly  endorsed and  otherwise in
proper form for  transfer tax or other tax required by reason of the issuance of
a certificate  for share of Holding  Company Common Stock in any name other than
that of the registered holder of the                                            

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certificate  surrendered  or  otherwise  establish  to the  satisfaction  of the
Exchange Agent that such tax has been paid or is not payable.                   

Resale Considerations With Respect to the Holding Company Common Stock Issued in
the Merger                                                                  

         The shares of Holding  Company  Common Stock that will be issued if the
Merger is consummated  have been registered  under the Exchange Act and approved
for  listing on The  Nasdaq  National  Market  and will be freely  transferable,
except for shares of Holding  Company  Common  Stock  received  in the Merger by
persons,  including directors and executive officers of any of the Parties,  who
may  be  deemed  to be  "affiliates"  of  any  of the  Parties  under  Rule  145
promulgated  under the Securities  Act.  Affiliates may not sell their shares of
Holding Company Common Stock acquired pursuant to the Merger, except pursuant to
an effective  registration  statement  under the  Securities  Act covering  such
shares of Holding Company Common Stock or in compliance with Rule 145 or another
applicable  exemption from the registration  requirements of the Securities Act.
Persons  who may be  deemed to be  affiliates  of any of the  Parties  generally
include  individuals  or entities that control,  are controlled by, or are under
common  control with,  any of the Parties and may include  certain  officers and
directors  of any of the Parties as well as any  stockholders  who own more than
10% of the common stock of any of the Parties.                                  

Certain Restrictions on Purchase or Transfer of Shares After the Conversion     

         All Conversion Shares owned by any director or executive officer of the
Holding Company and/or 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 or pursuant to a Merger
or similar transaction approved by the Department and the FDIC. 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 Holding
Company  Common  Stock  issued at a later date  within this one year period as a
stock dividend,  stock split or otherwise with respect to such restricted  stock
will be subject to the same restrictions.                                       

         Purchases  of Holding  Company  Common  Stock by  directors,  executive
officers and their associates during the three-year period following  completion
of the  Conversion  and the Merger  may be made only  through a broker or dealer
registered  with  the  SEC,  except  with  the  prior  written  approval  of the
Department and the FDIC. This restriction does not apply, however, to negotiated
transactions  involving more than 1% of the  outstanding  Holding Company Common
Stock or to certain  purchases of stock  pursuant to an employee  stock  benefit
plan.                                                                           

         Pursuant to FDIC  regulations,  the Holding  Company will  generally be
prohibited  from  repurchasing  any shares of the Holding  Company  Common Stock
within one year following the consummation of the Conversion,  although the FDIC
under its current policies may approve a request to repurchase shares of Holding
Company  Common Stock  following the six-month  anniversary  of the  Conversion.
During the second and third years following consummation of the Conversion,  the
Holding  Company may not  repurchase  any shares of its Holding  Company  Common
Stock  other than  pursuant  to (i) an offer to all  stockholders  on a pro rata
basis which is approved by the FDIC; (ii) the repurchase of qualifying shares of
a director,  if any; (iii)  purchases in the open market by a  tax-qualified  or
non-tax-qualified  employee  stock  benefit  plan in an  amount  reasonable  and
appropriate  to fund the plan; or (iv) purchases that are part of an open-market
stock repurchase  program not involving more than 5% of its outstanding  capital
stock during a 12- month  period,  if the  repurchases  do not cause the Bank to
become  undercapitalized  and the  Bank  provides  to the  FDIC  written  notice
containing a full  description  of the program to be undertaken and such program
is not disapproved by the FDIC. The FDIC may permit stock  repurchases in excess
of such amounts prior to the third  anniversary of the Conversion if exceptional
circumstances   are   shown  to   exist.   However,   in   order   to   preserve
pooling-of-interests  accounting  treatment for the Merger and GAAP, the Holding
Company's  ability to repurchase shares of its Holding Company Common Stock will
be limited during the two-year period following consummation of the Merger.     

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Liquidation Rights                                                              

         In the  unlikely  event of a  complete  liquidation  of the Bank in its
present mutual form, each depositor of the Bank 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 or her 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 of the Bank,
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
or her claim would be solely in the amount of the balance in his deposit account
plus  accrued  interest.  He or she 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  Bank's  net  worth  as of the date of its  latest  statement  of  financial
condition  contained in the final prospectus  utilized in the Conversion.  As of
June  30,  1998,  the  initial  balance  of the  liquidation  account  would  be
approximately  $53.3  million.  Each Eligible  Account  Holder and  Supplemental
Eligible  Account  Holder,  if he or she were to continue to maintain his or her
deposit account at the Bank, would be entitled,  upon a complete  liquidation of
the Bank after the Conversion,  to an interest in the liquidation  account prior
to any payment to the Holding Company as the sole  stockholder 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
passbook accounts, NOW accounts, money market deposit accounts, and certificates
of  deposit,  held in the Bank at the close of  business  on March  31,  1997 or
September  30,  1998,  as the case may be.  Each  Eligible  Account  Holder  and
Supplemental  Eligible Account Holder will have a pro rata interest in the total
liquidation  account  for  each  of his or her  deposit  accounts  based  on the
proportion  that the balance of each such deposit  account on the March 31, 1997
Eligibility  Record Date (or the  September  30, 1998  Supplemental  Eligibility
Record Date, as the case may be) bore to the balance of all deposit  accounts in
the Bank on such dates.                                                         

         If, however, on any June 30 annual closing date of the Bank, commencing
June 30, 1999, the amount in any deposit account is less than the amount in such
deposit  account on March 31, 1997 or September 30, 1998, as the case may be, or
any other annual  closing  date,  then the interest in the  liquidation  account
relating to such deposit  account would be reduced 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 claims of general creditors  (including the claims of
all  depositors  to the  withdrawal  value  of  their  accounts)  and the  above
liquidation  rights of the Eligible  Account Holders and  Supplemental  Eligible
Account Holders are satisfied would be distributed to the Holding Company as the
sole stockholder of the Bank.                                                   

         Schenectady  Federal currently  maintains a liquidation account for the
benefit of savings account  holders of Schenectady  Federal on December 31, 1993
and March 31, 1995. Upon consummation of the Conversion and the Merger, the Bank
will assume Schenectady Federal's current liquidation account in addition to the
establishment  of the  liquidation  account for the benefit of Eligible  Account
Holders and Supplemental Eligible Account Holders of the Bank described above.  

Accounting Treatment                                                            

         Consummation   of  the  Merger   will  be   accounted   for  under  the
pooling-of-interests  method of accounting. As a result, the historical basis of
the assets and  liabilities  of SFS and the Holding  Company will be combined at
the Closing Date and carried forward at their previously  recorded amounts,  and
the  stockholders'  equity  accounts of SFS and the Holding Company will also be
combined.  The consolidated income and other financial statements of the Holding
Company issued after  consummation of the Merger will be restated  retroactively
to reflect the consolidated  operations of the Holding Company and SFS as if the
Merger  had  taken  place  prior  to  the  periods  covered  by  such  financial
statements. See "Pro Forma Unaudited Financial Information."                    

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         In the past,  SFS had made certain  repurchases of shares of SFS Common
Stock.  In order to qualify for the  pooling-of-interests  method of accounting,
SFS will issue approximately  ________________  shares of SFS Common Stock prior
to the Effective Time to cure tainted shares.  SFS has made no repurchases since
October 22, 1997 and,  pursuant to the terms of the merger  agreement,  will not
make  any  repurchases  prior  to  consummation  of  the  Merger.  In  addition,
regulations of the FDIC restrict the Holding  Company's ability to implement any
repurchases  of  stock  subsequent  to  the  Merger.   Any  repurchase   program
implemented by the Holding Company subsequent to the Merger also will be limited
as  necessary  to  preserve  pooling-of-interests  accounting  treatment  of the
Merger.                                                                         

Expenses of the Merger                                                          

         The merger agreement provides,  in general, that the Bank and SFS shall
each bear and pay all their  respective  costs and  expenses  incurred  by it in
connection with the transactions contemplated by the merger agreement, including
fees and expenses of their respective financial consultants, investment bankers,
accountants  and counsel.  If the merger  agreement is terminated  under certain
specified  circumstances,  the Bank is obligated to pay SFS a break-up fee of up
to $2 million,  and if a Purchase Event (as defined)  occurs,  then SFS must pay
the Bank a fee of $2 million. See " Termination."                               

THE OFFERING

Stock Pricing                                                                   

         The Plan of Conversion  requires that the purchase price of the Holding
Company  Common Stock must be based on the  appraised  pro forma market value of
the Holding  Company Common Stock,  as determined on the basis of an independent
valuation.  The Bank and the Holding  Company have retained RP Financial to make
such  valuation.  For its services in making such  appraisal,  RP Financial will
receive a fee of $47,500, plus out-of-pocket  expenses. The Bank and the Holding
Company have agreed to indemnify RP Financial and its  employees and  affiliates
against certain losses (including any losses in connection with claims under the
federal securities laws) arising out of its services as appraiser,  except where
RP Financial's liability results from its negligence or bad faith.              

         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 and
projected  operating results and financial  condition of the Holding Company and
the Bank,  and the economic and  demographic  conditions in the Bank's  existing
market area; certain historical, financial and other information relating to the
Bank; a comparative  evaluation of the operating and financial statistics of the
Bank with those of other similarly situated publicly-traded savings associations
and savings  institutions located in the Bank's market area and the State of New
York;  the aggregate  size of the offering of the Holding  Company Common Stock;
the impact of the  Conversion on the Bank's equity and earnings  potential;  the
proposed  dividend  policy of the Holding  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 Holding
Company and the Bank that,  in its opinion,  dated as of September 4, 1998,  the
estimated pro forma market value of the Holding Company Common Stock ranged from
a minimum  of  $59,500,000  to a  maximum  of  $80,500,000  with a  midpoint  of
$70,000,000.  The Board of  Trustees  of the Bank held a meeting  to review  and
discuss the appraisal report prepared by RP Financial.  A  representative  of RP
Financial  participated  in the meeting to explain the contents of the appraisal
report. In connection with its review of the reasonableness and adequacy of such
appraisal  consistent with NYBB and FDIC regulations and policies,  the Board of
Trustees  reviewed the methodology  that RP Financial  employed to determine the
pro  forma   market  value  of  the  Holding   Company   Common  Stock  and  the
appropriateness  of the assumptions  that RP Financial used in determining  this
value.                                                                          

         Based upon the  Valuation  Range and the  Purchase  Price of $10.00 per
share for the Holding Company Common Stock established by the Board of Trustees,
the  Board  of  Trustees  has  established  the  Estimated  Valuation  Range  of
$59,500,000  to  $80,500,000,  with a midpoint of  $70,000,000,  and the Holding
Company  expects to issue  between  5,950,000  and  8,050,000  shares of Holding
Company Common Stock. The Estimated Valuation Range may                         

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be amended with the approval of the  Superintendent  and FDIC (if required),  if
necessitated  by  subsequent  developments  in the  financial  condition  of the
Holding 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  Offering  or  Community
Offering,  if any, the maximum of the Estimated Valuation Range may be increased
up to 15% and the number of shares of Holding  Company Common Stock to be issued
in the  Conversion  may be  increased  to  9,257,500  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  Valuation  Range to fill  unfilled  orders  in the  Subscription  and
Community Offerings.                                                            

         No sale of shares of Holding  Company  Common Stock may be  consummated
unless,  prior to such consummation,  RP Financial confirms to the Bank, Holding
Company,  Superintendent and FDIC 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  Holding  Company
Common Stock at the price so determined is incompatible with its estimate of the
pro forma market value of the Holding  Company Common Stock at the conclusion of
the Subscription Offering and Community Offering, if any.                       

         If, based on RP Financial's estimate, the pro forma market value of the
Holding Company Common Stock,  as of the date that RP Financial so confirms,  is
not more  than 15%  above  the  maximum  and not less  than the  minimum  of the
Estimated Valuation Range then, (1) with the approval of the Superintendent,  if
required,  and the FDIC, the number of shares of Holding Company 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 9,257,500 shares or no less than 5,950,000 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
Valuation  Range to reflect 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 up
to their 10% subscription. See "- Limitations on Common Stock Purchases."       

         If the pro forma  market value of the Holding  Company  Common Stock is
either more than 15% above the maximum of the Estimated  Valuation Range or less
than the  minimum of the  Estimated  Valuation  Range,  the Bank and the Holding
Company,  after consulting with the  Superintendent  and the FDIC, may terminate
the Plan and return all funds promptly with interest at the Bank's passbook rate
of interest on payments made by check, draft or money order,  extend or hold new
Subscription and Community Offerings, establish a new Estimated Valuation Range,
commence a resolicitation of subscribers or take such other actions as permitted
by the Superintendent  and the FDIC 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 such  resolicitation  is further extended by the  Superintendent  and the
FDIC   for    periods    of   up   to   60   days   not   to    extend    beyond
_________________________, 2000.                                                

         If all shares of Holding  Company Common Stock are not sold through the
Subscription  and  Community  Offerings,  then the Bank and the Holding  Company
expect to offer the remaining shares in a Syndicated Community                  

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Offering,  which would occur as soon as  practicable  following the close of the
Subscription Offering or Community Offering, if any, but may commence during the
Subscription  Offering  and  Community  Offering,  if any,  subject to the prior
rights of  subscribers.  All shares of Holding Company 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 Holding  Company  Common Stock may be  consummated
unless,  prior to such  consummation,  RP  Financial  confirms to the Bank,  the
Holding Company, Superintendent and the FDIC 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 Holding  Company  Common Stock at the Purchase  Price is
incompatible  with its  estimate  of the pro forma  market  value of the Holding
Company  Common  Stock of the  Holding  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  Valuation Range would be
subject  to  Superintendent  and  FDIC  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  Valuation Range and commence a resolicitation  of all
subscribers with the approval of the  Superintendent and FDIC or take such other
actions as  permitted  by the  Superintendent  and FDIC 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 Valuation Range or more than 15%
above the maximum of such range,  and the Holding 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  Valuation  Range  must be
approved by the Superintendent and FDIC. A resolicitation, if any, following the
conclusion  of the  Subscription  Offering or the Community  Offering  would not
exceed 45 days,  or if following the  Syndicated  Community  Offering,  60 days,
unless further extended by the  Superintendent  for periods up to 60 days not to
extend  beyond  ______________________  , 2000.  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, savings bank draft or money
order.                                                                          

         Copies  of  the  appraisal  report  of  RP  Financial,   including  any
amendments thereto,  and the detailed memoran dum 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  Offering and Community  Offering,  if any, the
total  number  of shares to be issued  in the  Conversion  may be  increased  or
decreased without a resolicitation of subscribers; provided, that the product of
the total number of shares times the price per share is not below the minimum or
more than 15% above the maximum of the Estimated  Valuation Range, and the total
number of shares to be issued in the  Conversion  is not less than  5,950,000 or
greater  than  8,050,000  (or  9,257,500  if the  Estimated  Valuation  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
Valuation Range or more than 15% above the maximum of such range, if the Plan is
not terminated by the Holding Company and the Bank after  consultation  with the
Superintendent  and FDIC,  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 Valuation Range must
be approved by the  Superintendent  and FDIC.  If the number of shares issued in
the  Conversion  is increased  due to an increase of up to 15% in the  Estimated
Valuation  Range to reflect 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                                                 

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adjusted maximum number of shares,  except for the Employee Plans, which will be
able to subscribe for such adjusted amount up to their 10% subscription. 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 Holding 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 Holding Company's pro forma net earnings
and  stockholders'  equity on a per share basis while  decreasing  pro forma net
earnings and  stockholders'  equity on an aggregate basis. For a presentation of
the effects of such changes see "Pro Forma Data."                               

         To  fund  the  Foundation,  the  number  of  shares  to be  issued  and
outstanding  as a result  of the sale of  Holding  Company  Common  Stock in the
Conversion  will be  increased  by a number of shares equal to 3% of the Holding
Company Common Stock sold in the Conversion.  Assuming the sale of shares in the
Offerings at the maximum of the Estimated  Valuation  Range, the Holding Company
will  contribute  241,500  shares  of its  Holding  Company  Common  Stock  from
authorized  but unissued  shares to the  Foundation  immediately  following  the
completion of the Conversion. In that event, the Holding Company will have total
shares of Holding Company Common Stock outstanding of 8,291,500 shares.  Funding
the  Foundation  with  authorized  but  unissued  shares will have the effect of
diluting the ownership and voting interests of persons  purchasing shares in the
Conversion  by 2.9% since a greater  number of shares will be  outstanding  upon
completion  of  the  Conversion  than  would  be  if  the  Foundation  were  not
established. See "Pro Forma Data."                                              

Subscription Offering and Subscription Rights                                   

         In accordance with the Plan of Conversion,  rights to subscribe for the
purchase of Holding  Company  Common Stock have been  granted  under the Plan of
Conversion  to the  following  persons  in the  following  order  of  descending
priority:  (1)  depositors  whose  deposits in  qualifying  accounts in the Bank
totaled $100 or more on March 31, 1997  ("Eligible  Account  Holders");  (2) the
Employee  Plans,  including  the ESOP;  and (3)  depositors  whose  deposits  in
qualifying  accounts in the Bank  totaled  $100 or more on  September  30, 1998,
other than (i) those depositors who would otherwise  qualify as Eligible Account
Holders or (ii) trustees or executive  officers of the Bank or their Associates,
(as defined herein) ("Supplemental Eligible Account Holders"). All subscriptions
received will be subject to the  availability  of Holding  Company  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, non-transferable subscription
rights  to  subscribe  for  Holding  Company  Common  Stock in the  Subscription
Offering up to the  greatest of (i) the amount  permitted to be purchased in the
Community  Offering,  which amount is currently  $250,000 of the Holding Company
Common  Stock  offered,  (ii)  one-tenth  of one  percent  (0.10%)  of the total
offering of shares of Holding  Company  Common Stock or (iii)  fifteen times the
product  (rounded down to the next whole  number)  obtained by  multiplying  the
total  number  of  shares  of  Holding  Company  Common  Stock to be issued by a
fraction the numerator of which is the amount of the Eligible  Account  Holder's
qualifying  deposit  and  the  denominator  of  which  is the  total  amount  of
qualifying deposits of all Eligible Account Holders  ($______________________ ),
in each case on the Eligibility  Record Date, subject to the overall maximum and
minimum  purchase  limitations and exclusive of an increase in the shares issued
pursuant to an increase in the  Estimated  Valuation  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 such
Eligible  Account Holder's total allocation equal to the lesser of 100 shares or
the number of shares  subscribed  for.  Thereafter,  unallocated  shares will be
allocated  among  the  remaining  subscribing  Eligible  Account  Holders  whose
subscriptions  remain  unfilled  in the  proportion  that the  amounts  of their
respective  qualifying  deposits bear to the total amount of qualifying deposits
of all remaining Eligible Account Holders whose subscriptions remain unfilled.  

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         To ensure a 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 fewer shares being  allocated than if all accounts had been disclosed.
The  subscription  rights of Eligible  Account  Holders who are also trustees or
executive  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 the Eligibility  Record
Date.                                                                           

         Priority 2: The Employee Plans. To the extent that there are sufficient
shares  remaining after  satisfaction of the  subscriptions  by Eligible Account
Holders, the Employee Plans,  including the ESOP, will receive,  without payment
therefor, second priority,  non-transferable  subscription rights to purchase up
to 10% of the  Holding  Company  Common  Stock to be issued  in the  Conversion,
including  shares  to be  issued  to the  Foundation,  subject  to the  purchase
limitations  set forth in the Plan of Conversion and as described below under "-
Limitations on Common Stock Purchases." As an Employee Plan, the ESOP intends to
purchase 8% of the shares to be issued in the Conversion,  or 490,280 shares and
663,320 shares,  based on the issuance of 6,128,500 shares and 8,291,500 shares,
respectively,  at the minimum and the maximum of the Estimated  Valuation Range,
including  the  shares  of  Holding  Company  Common  Stock to be  issued to the
Foundation.  Subscriptions  by the ESOP will not be  aggregated  with  shares of
Holding  Company  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  trustees,  officers,
employees  or  associates   thereof.   See  "Management  of  the   Bank--Benefit
Plans--Employee Stock Ownership Plan."                                          

         Priority 3.- Supplemental  Eligible Account Holders. To the extent that
there are sufficient shares remaining after satisfaction of the subscriptions by
the Eligible Account Holders and Employee Plans,  Supplemental  Eligible Account
Holders will receive, without payment therefor, third priority, non-transferable
subscription  rights  to  subscribe  for  Holding  Company  Common  Stock in the
Subscription  Offering  up to the  greatest  of (i) the amount  permitted  to be
subscribed for in the Community Offering,  which amount is currently $250,000 of
the Holding Company Common Stock offered, (ii) one-tenth of one, percent (0.10%)
of the total offering of shares of Holding Company Common Stock or (iii) fifteen
times  the  product  (rounded  down  to  the  next  whole  number)  obtained  by
multiplying  the total  number of shares of Holding  Company  Common Stock to be
issued by a fraction of which the  numerator  is the amount of the  Supplemental
Eligible  Account Holder's  qualifying  deposit and the denominator is the total
amount of  qualifying  deposits of all  Supplemental  Eligible  Account  Holders
($______________________),  in each case on the Supplemental  Eligibility Record
Date,  subject to the  overall  maximum  and minimum  purchase  limitations  and
exclusive  of an  increase in the shares  issued  pursuant to an increase in the
Estimated  Valuation  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 such  Supplemental  Eligible
Account  Holder's  total  allocation  equal to the  lesser of 100  shares or the
number  of  shares  subscribed  for.  Thereafter,  unallocated  shares  will  be
allocated among the remaining subscribing  Supplemental Eligible Account Holders
whose subscriptions  remain unfilled in the proportion that the amounts of their
respective  qualifying  deposits bear to the total amount of qualifying deposits
of all remaining  Supplemental  Eligible  Account  Holders  whose  subscriptions
remain unfilled.                                                                

         To ensure a 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.  Failure to
list an  account  could  result  in fewer  shares  being  allocated  than if all
accounts had been disclosed.                                                    

         Expiration  Date  for  the  Subscription   Offering.  The  Subscription
Offering will expire at 12:00 noon,  Eastern  time,  on  ______________________,
1998,  unless  extended for an initial period of up to 45 days by the Bank or an
additional  60 day  periods  with  the  approval  of the  Superintendent  and if
necessary,  the FDIC. 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 Holding  Company
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    

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Date, unless such period is extended with the consent of the Superintendent, all
funds  delivered  to the Bank  pursuant  to the  Subscription  Offering  will be
returned  with  interest   promptly  to  the   subscribers  and  all  withdrawal
authorizations  will be  canceled.  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.  Each such extension may not exceed 60 days, and
such extensions,  in the aggregate, may not last beyond  ______________________,
2000.                                                                           

         Persons in  Non-qualified  States or  Foreign  Countries.  The  Holding
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 Holding Company
are not required to offer stock in the  Subscription  Offering to any person who
resides in a foreign country.                                                   

Community Offering                                                              

         Upon completion of the Subscription Offering, to the extent that shares
remain  available for purchase after  satisfaction of all  subscriptions  of the
Eligible  Account  Holders,  the Employee  Plans and the  Supplemental  Eligible
Account  Holders,  the  Bank  will  offer  shares  pursuant  to the  Plan in the
Community  Offering to certain  members of the general  public to whom a copy of
this prospectus has been delivered,  subject to the right of the Holding Company
and the Bank to accept or reject any such  orders,  in whole or in part,  in its
sole  discretion.  The  Community  Offering,  if any,  shall  commence  upon the
completion of the Subscription Offering and shall terminate seven days after the
close of the  Subscription  Offering unless extended by the Bank and the Holding
Company,  with the approval of the  Superintendent  and the FDIC,  if necessary.
Such  persons,  together with  associates of and persons  acting in concert with
such  persons,  may  purchase  up to $250,000 of Holding  Company  Common  Stock
subject to the maximum purchase  limitation.  See "- Limitations on Common Stock
Purchases."  This amount may be  increased to up to a maximum of 5% or decreased
to less than $250,000 of Holding  Company  Common Stock at the discretion of the
Holding Company and the Bank. The opportunity to subscribe for shares of Holding
Company Common Stock in the Community  Offering category is subject to the right
of the Bank and the  Holding  Company,  in their sole  discretion,  to accept or
reject any such  orders in whole or in part  either at the time of receipt of an
order or as soon as practicable  following the Expiration Date. However, no such
rejection will be in contravention  of any applicable law or regulation.  If the
Holding  Company or the Bank 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 subscribers in the Community  Offering after
completion  of the  Subscription  and  Community  Offerings,  such stock will be
allocated  first to each  subscriber  whose order is accepted by the Bank, in an
amount equal to 2% of the shares offered in the Conversion.                     

Syndicated Community Offering                                                   

         As a final step in the Conversion, the Plan provides that, if feasible,
all shares of Holding  Company  Common Stock not  purchased in the  Subscription
Offering  or the  Community  Offering,  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 KBW acting as agent of the
Holding Company. There are no known agreements between KBW and any broker-dealer
in connection with a possible Syndicated Community Offering. The Holding Company
and the Bank have  reserved  the  right to reject  orders in whole or in part in
their sole discretion in the Syndicated  Community  Offering.  However,  no such
rejection will be in contravention  of any applicable law or regulation.  If the
Holding  Company or the Bank rejects an order in part, the  subscriber  will not
have the right to cancel the remainder of his or her  subscription.  Neither KBW
nor any registered  broker-dealer  shall have any obligation to take or purchase
any shares of the  Holding  Company  Common  Stock in the  Syndicated  Community
Offering;  however, KBW has agreed to use its best efforts in the sale of shares
in the Syndicated Community Offering.                                           

         The  price  at  which  Holding  Company  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                                           

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Offering for more than 1% of the Holding  Company  Common  Stock  offered in the
Conversion;  provided,  however,  that shares of Holding  Company  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 1% of the Holding Company Common Stock offered.          

         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 or her 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 or her intent to
purchase ("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 or her order.                                                               

         Certificates  representing  shares  of  Holding  Company  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 Holding Company 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 Holding
Company with the approval of the  Superintendent  and FDIC.  Such extensions may
not be beyond  ____________,  2000. See "- Stock Pricing" above for a discussion
of rights of subscribers, if any, in the event an extension is granted.         

Marketing and Underwriting Arrangements                                         

         The Bank and the Holding  Company have  engaged KBW as a financial  and
marketing  advisor in connection with the offering of the Holding Company Common
Stock and KBW has agreed to use its best  efforts to assist the Holding  Company
with the solicitation of subscriptions and purchase orders for shares of Holding
Company Common Stock in the Offerings.  Based upon negotiations between the Bank
and the  Holding  Company,  KBW will  receive  a fee for  services  provided  in
connection with the Offerings equal to 1.20% of the aggregate  Purchase Price of
Holding Company Common Stock sold in the Offerings.  No fees will be paid to KBW
with  respect to any shares of Holding  Company  Common  Stock  purchased by any
trustee,  director,  executive  officer or  employee  of the Bank or the Holding
Company or members of their immediate  families or any employee  benefit plan of
the  Holding  Company  or the  Bank.  In the  event  of a  Syndicated  Community
Offering,  KBW will  negotiate  with the  Holding  Company for the receipt of an
additional  fee to be remitted to selected  dealers  under one or more  selected
dealer  agreements  to be entered  into by KBW with certain  dealers;  provided,
however,  that the  aggregate  fees payable to KBW and any  selected  dealers in
connection  with any Syndicated  Community  Offering will not exceed 5.5% of the
aggregate  Purchase  Price  of the  Holding  Company  Common  Stock  sold in the
Syndicated Community Offering. Fees to KBW and to any other broker-dealer may be
deemed to be underwriting  fees and KBW and such  broker-dealer may be deemed to
be  underwriters.  KBW will also be reimbursed for its reasonable  out-of pocket
expenses, including legal fees and expenses, up to a                            

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maximum of $75,000.  Notwithstanding  the foregoing,  in the event the Offerings
are not  consummated  or KBW  ceases,  under  certain  circumstances  after  the
subscription solicitation activities are commenced, to provide assistance to the
Holding  Company,  KBW will be  entitled  to  reimbursement  for its  reasonable
out-of-pocket expenses as described above. The Holding Company and the Bank have
agreed to indemnify KBW for costs and expenses in connection with certain claims
or  liabilities  related to or arising out of the services to be provided by KBW
pursuant  to its  engagement  by the Bank and the Holding  Company as  financial
advisor in connection with the Conversion,  including certain  liabilities under
the Securities  Act. Total marketing fees to KBW are estimated to be $__________
million and $__________  million at the minimum and the maximum of the Estimated
Valuation Range, respectively.  See "Pro Forma Data" for the assumptions used to
arrive at these estimates.                                                      

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

Procedure for Purchasing Shares in Subscription and Community Offerings         

         To ensure that each  purchaser  receives a Prospectus at least 48 hours
prior to the respective  expiration dates for the Offerings,  in accordance with
Rule 15c2-8 of the Exchange  Act, no  Prospectus  will be mailed 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  and a  certification  form requiring  each  prospective  investor to
acknowledge, among other things, that the shares of Holding Company Common Stock
are not insured by the Bank, the FDIC or any other governmental  agency and that
such prospective  investor has received a copy of this Prospectus,  which, among
other  things,  describes  the risks  involved in the  investment in the Holding
Company Common Stock.                                                           

         To purchase  shares in the  Subscription  Offering  and, if a Community
Offering  is held,  the  Community  Offering,  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 its office by 12:00 noon,  Eastern time, on the Expiration  Date,
in the case of the  Subscription  Offering,  or 7 days  after  the  close of the
Subscription Offering, in the case of the Community Offering.  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 Holding Company and Bank are not obligated to
accept orders  submitted on  photocopied  or facsimile  order forms and will not
accept order forms unaccompanied by an executed  certification form. The Holding
Company  and the Bank  have the  power 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.                                

         In order to ensure  that  Eligible  Account  Holders  and  Supplemental
Eligible  Account  Holders are properly  identified  as to their stock  purchase
priorities, depositors must list all accounts on the stock order form giving all
names in each account and the account numbers.                                  

         Payment  for  subscriptions  may be made  (i) in cash if  delivered  in
person to the 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, cashier's check or money order                                  

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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 Holding 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
Holding Company 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 such subscriber's 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 canceled at the time of the withdrawal,
without  penalty,  and the remaining  balance will be converted  into a passbook
account and will earn  interest at the passbook  rate.  Upon  completion  of the
Conversion,  funds withdrawn from depositors'  accounts for stock purchases will
no longer be insured by the FDIC.                                               

         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 Holding Company
Common Stock  subscribed  for at the  Purchase  Price upon  consummation  of the
Offerings;  provided,  that there is in force from the time of its  subscription
until such time, a loan  commitment  acceptable  to the Holding  Company from an
unrelated  financial  institution or the Holding Company to lend to the ESOP, at
such time,  the aggregate  Purchase Price of the shares for which it subscribed.
The Holding Company intends to provide such a loan to the ESOP.                 

         Owners  of  self-directed  IRAs  may use  the  assets  of such  IRAs to
purchase  shares  of  Holding  Company  Common  Stock  in the  Subscription  and
Community  Offerings.  Persons with IRAs  maintained at the Bank must have their
accounts transferred to an unaffiliated institution or broker to purchase shares
of Holding Company Common Stock in the Subscription and Community Offerings.  In
addition,  the  provisions of ERISA and IRS  regulations  require that officers,
trustees  and ten  percent  stockholders  who use  self-directed  IRA  funds  to
purchase  shares  of  Holding  Company  Common  Stock  in the  Subscription  and
Community Offerings make such purchases for the exclusive benefit of the IRAs.  

         Certificates  representing  shares  of  Holding  Company  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  specified  in
properly completed order forms, as soon as practicable following consummation of
the sale of all  shares  of  Holding  Company  Common  Stock.  Any  certificates
returned as undeliverable will be disposed of in accordance with applicable law.

Restrictions on Transfer of Subscription Rights                                 

         Prior  to  the  completion  of  the  Conversion,  the  NYBB  Conversion
regulations  prohibit any person with  subscription  rights (i.e.,  the Eligible
Account Holders,  the Employee Plans, the Supplemental  Eligible Account Holders
and the Other  Depositors)  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 Holding Company Common Stock to be
issued upon their exercise.  Certificates representing shares of Holding Company
Common Stock  purchased in the  Subscription  Offering must be registered in the
name of the Eligible  Account Holder,  Supplemental  Eligible  Account Holder or
Other Depositor, as the case may be. Joint registrations will be allowed only if
the qualifying  deposit  account is so registered.  Such rights may be exercised
only by the person to whom they are granted and only for such person's  account.
Each person exercising such subscription rights will be required to certify that
such person is  purchasing  shares solely for such person's own account and that
such person has no agreement or understanding  regarding the sale or transfer of
such shares. The regulations also prohibit any person from offering or making an
announcement  of an  offer  or an  intent  to make an  offer  to  purchase  such
subscription  rights or shares of  Holding  Company  Common  Stock  prior to the
completion of the Conversion.                                                   

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         The Bank and the  Holding  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.                                            

Limitations on Holding Company Common Stock Purchases                           

         The Plan includes the following  limitations on the number of shares of
Holding Company Common Stock which may be purchased in the Conversion:          

(1) No subscription for fewer than 25 shares will be accepted;

         (2) Each Eligible Account Holder may subscribe for and purchase Holding
Company  Common  Stock  in the  Subscription  Offering  in an  amount  up to the
greatest of (a) the amount permitted to be purchased in the Community  Offering,
currently $250,000 of the Holding Company Common Stock offered, (b) one-tenth of
one percent  (0.10%) of the total  offering of shares of Holding  Company Common
Stock or (c) fifteen  times the product  (rounded down to the next whole number)
obtained by  multiplying  the total number of shares of Holding  Company  Common
Stock to be issued in the Conversion by a fraction the numerator of which is the
amount  of the  qualifying  deposit  of the  Eligible  Account  Holder  and  the
denominator of which 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  Valuation  Range of up to
15%;                                                                            

         (3) The  Employee  Plans are  permitted  to  purchase  up to 10% of the
shares of  Holding  Company  Common  Stock  issued in the  Conversion  and as an
Employee Plan, the ESOP intends to purchase 8% of the shares of Holding  Company
Common  Stock issued in the  Conversion,  in each case,  including  shares to be
issued to the Foundation;                                                       

         (4) Each  Supplemental  Eligible  Account  Holder may subscribe for and
purchase Holding Company Common Stock in the Subscription  Offering in an amount
up to the greatest of (a) the amount  permitted to be purchased in the Community
Offering,  currently  $250,000 of the Holding Company Common Stock offered,  (b)
one-tenth  of one  percent  (0.10%) of the total  offering  of shares of Holding
Company Common Stock or (c) fifteen times the product  (rounded down to the next
whole  number)  obtained by  multiplying  the total  number of shares of Holding
Company  Common Stock to be issued in the Conversion by a fraction the numerator
of which is the amount of the qualifying  deposit of the  Supplemental  Eligible
Account  Holder and the  denominator  of which 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 limitation in (8)
below and  exclusive of an increase in the total number of shares  issued due to
an increase in the Estimated Valuation Range of up to 15%;                      

         (5) Persons  purchasing  shares of Holding  Company Common Stock in the
Community Offering,  together with associates of and groups of persons acting in
concert with such  persons,  may purchase  Holding  Company  Common Stock in the
Community  Offering in an amount up to $250,000  of the Holding  Company  Common
Stock offered in the Conversion subject to the overall limitation in (8) below; 

         (6) Persons  purchasing  shares of Holding  Company Common Stock in the
Syndicated Community Offering, together with associates of and persons acting in
concert with such  persons,  may purchase  Holding  Company  Common Stock in the
Syndicated Offering in an amount up to $250,000 of the shares of Holding Company
Common Stock offered in the Conversion  subject to the overall limitation in (8)
below;  provided,  that shares of Holding  Company 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 by such
persons in the Syndicated  Community  Offering in applying the $250,000 purchase
limitation;                                                                     

         (7) Eligible  Account Holders,  Supplemental  Eligible Account Holders,
Other Depositors and certain members of the general public may purchase stock in
the Community Offering and Syndicated Community Offering subject to the purchase
limitations  described  in (6) and (7)  above;  provided,  that,  except for the
Employee  Plans,  the maximum  number of shares of Holding  Company Common Stock
subscribed for or purchased in all categories of the                            

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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
Holding Company Common Stock offered for sale in the Conversion; and            

         (8) The directors and officers of the Bank and their  associates in the
aggregate,  excluding purchases by the Employee Plans, may purchase up to 25% of
shares offered for sale in the Conversion.                                      

         Subject to any required  regulatory  approval and the  requirements  of
applicable laws and regulations,  but without further approval of the depositors
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% of
the  shares  offered  for sale in the  Offering  at the sole  discretion  of the
Holding  Company  and the Bank.  It is  currently  anticipated  that the overall
maximum purchase limitation may be increased if, after a Community Offering, the
Holding Company has not received  subscriptions for an aggregate amount equal to
at least  the  minimum  of the  Estimated  Valuation  Range.  If such  amount is
increased,  subscribers  for the maximum amount will be, and certain other large
subscribers in the sole  discretion of the Holding  Company and the Bank may be,
given the opportunity to increase their  subscriptions up to the then applicable
limit.  Requests to purchase  additional  shares of Holding Company Common Stock
under this provision will be determined by the Board of Directors of the Holding
Company and the Board of Trustees of the Bank 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%;  the  individual  amount  permitted to be subscribed for in the Offerings,
however, may be reduced by the Bank to less than $250,000 of the Holding Company
Common Stock  offered.  An  individual  Eligible  Account  Holder,  Supplemental
Eligible Account Holder or Other Depositor may not purchase  individually in the
Subscription  Offering the overall  maximum  purchase  limitation of 1.0% of the
shares offered for sale, but may make such purchase, together with associates of
and persons  acting in concert with such  person,  by also  purchasing  in other
available  categories of the  Conversion,  subject to availability of shares and
the maximum overall purchase limitation for purchases in the Conversion.        

         In the event of an  increase in the total  number of shares  offered in
the Conversion due to an increase in the Estimated  Valuation Range of up to 15%
("Adjusted  Maximum"),  the additional shares will be allocated in the following
order of priority in accordance with the Plan: (i) in the event that there is an
oversubscription by Eligible Account Holders, to fill unfilled  subscriptions of
Eligible Account Holders,  exclusive of the Adjusted  Maximum;  (ii) to fill the
Employee  Plans'  subscription  of up to 10% of the Adjusted  Maximum  number of
shares;  (iii) in the event that there is an  oversubscription  by  Supplemental
Eligible  Account  Holders,  to  fill  unfilled  subscriptions  of  Supplemental
Eligible Account Holders.  exclusive of the Adjusted Maximum;  (iv) in the event
that  there is an  oversubscription  by Other  Depositors,  to fill  unfulfilled
subscriptions of Other Depositors, exclusive of the Adjusted Maximum; and (v) to
fill unfilled subscriptions in the Community Offering, exclusive of the Adjusted
Maximum, each to the extent possible.                                           

         The  term  "Associate"  of  a  person  is  defined  to  mean:  (i)  any
corporation  or  organization  (other  than the Holding  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 Holding 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 Holding Company or the Bank. Trustees,  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 Holding  Company and the
Bank."                                                                          

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Interpretation, Amendment and Termination                                       

         All interpretations of the Plan by the Board of the Bank will be final,
subject to the authority of the Superintendent and FDIC. The Plan provides that,
if deemed  necessary or desirable by the Board of Trustees of the Bank, the Plan
may  be  substantively  amended  prior  to  the  solicitation  of  proxies  from
depositors by a vote of the Board of Trustees;  amendment of the Plan thereafter
requires the approval of the Superintendent and FDIC. The Plan will terminate if
the  sale of all  shares  of stock  being  offered  pursuant  to the Plan is not
completed  prior to 24 months  after the date of the approval of the Plan by the
Superintendent  unless a longer time period is permitted  by governing  laws and
regulations.  The Plan may be  terminated  by a vote of the Board of Trustees of
the Bank at any time prior to the Special Meeting, and thereafter by such a vote
with the approval of the Superintendent and FDIC.                               

 RESTRICTIONS ON ACQUISITION OF THE HOLDING 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 Restated  Organization  Certificate  and Bylaws to be adopted by depositors 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 Trustees of the Bank. See "The Conversion and the Merger  General."
In the event that the holding  company  form of  organization  is  utilized,  as
described  below,  certain  provisions in the Holding  Company's  Certificate of
Incorporation and Bylaws and in its management remuneration plans and agreements
entered into in connection with the Conversion,  together with provisions of the
DGCL, may have anti-takeover effects. In the event that the holding company form
of organization is not utilized,  the Bank's Restated  Organization  Certificate
and Bylaws and  management  remuneration  plans and  agreements  entered into in
connection  with the  Conversion  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 Holding Company or the Bank.         

Restrictions in the Holding Company's Certificate of Incorporation and Bylaws   

         The following  discussion is a general summary of certain provisions of
the Holding 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.  The  Certificate  of  Incorporation  and Bylaws of the
Holding Company are filed as exhibits to the  Registration  Statement,  of which
this  Prospectus is a part,  and the  descriptions  herein of such documents are
qualified  in their  entirety  by  reference  to such  documents.  A  number  of
provisions of the Holding Company's Certificate of Incorporation and Bylaws deal
with matters of corporate  governance and certain rights of stockholders.  These
provisions might have the effect of discouraging  future takeover attempts which
are not approved by the Board of Directors but which individual  Holding Company
stockholders may deem to be in their best interests or in which stockholders may
receive  substantial  premiums for their shares over then current market prices.
As a result,  stockholders who might desire to participate in such  transactions
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 Holding  Company
more  difficult.  The following  description of certain of the provisions of the
Certificate of  Incorporation  and Bylaws of the Holding  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
Holding  Company  provides  that any  record  owner of any  outstanding  Holding
Company 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
Holding  Company Common Stock  ("Limit")  shall be entitled or permitted to only
one  one-hundredth  (1 /100) of a vote with respect of each share held in excess
of the Limit.  Beneficial ownership of shares 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                                                                       

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beneficially  owned or deemed by the Holding Company to be beneficially owned by
such  person  and his  affiliates.  The  Certificate  of  Incorporation  further
provides that this provision limiting voting rights may only be amended upon (i)
the approval of the Board of  Directors,  and (ii) the  affirmative  vote of the
holders of a majority of the total  votes  eligible to be cast by the holders of
all  outstanding  shares of capital stock  entitled to vote thereon and (iii) by
the  affirmative  vote of either (1) not less than a majority of the  authorized
number of directors and, if one or more  Interested  Stockholders  exist, by not
less  than  a  majority  of  the  Disinterested  Directors  (as  defined  in the
Certificate of  Incorporation) 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 Holding  Company  entitled to vote thereon and, if the
amendment is proposed by or on behalf of an Interested Stockholder or a director
who  is  an  Affiliate  or  Associate  of  an  Interested  Stockholder,  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  Stockholder or an Affiliate or
Associate thereof.                                                              

         Board of  Directors.  The Board of Directors of the Holding  Company is
divided into three classes, each of which shall contain approximately  one-third
of the total 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 Holding Company's Certificate of Incorporation and Bylaws
provide  that the size of the Board  shall be  determined  by a majority  of the
directors but shall not be less than seven nor more than 20. The  Certificate of
Incorporation  and the Bylaws  provide that any vacancy  occurring in the Board,
including  a vacancy  created  by an  increase  in the  number of  directors  or
resulting from death, resignation,  retirement,  disqualification,  removal from
office or other cause,  shall be filled for the remainder of the unexpired  term
exclusively by a majority vote of the directors  then in office.  The classified
Board is intended to provide for  continuity  of the Board of  Directors  and to
make it more difficult and time  consuming for a stockholder  group to fully use
its voting power to gain  control of the Board of Directors  without the consent
of the incumbent Board of Directors of the Holding  Company.  The Certificate of
Incorporation  of the Holding  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 affirmative  vote of at least 80% of the  outstanding  shares of voting
stock. In the absence of these provisions, the vote of the holders of a majority
of the shares could remove the entire Board,  with or without cause, and replace
it with persons of such holders' choice.                                        

         Cumulative Voting,  Special Meetings and Action by Written Consent. The
Certificate  of  Incorporation  does not provide for  cumulative  voting for any
purpose.  Moreover,  special meetings of stockholders of the Holding Company may
be called only by resolution of at least three-fourths of the Board of Directors
then in office or by the Chairman,  if one has been elected by the Board, or the
Chief Executive Officer of the Holding Company. The Certificate of Incorporation
also  provides  that  any  action  required  or  permitted  to be  taken  by the
stockholders  of the  Holding  Company may be taken only at an annual or special
meeting  and  prohibits  stockholder  action  by  written  consent  in lieu of a
meeting.                                                                        

         Authorized  Shares.  The  Certificate of  Incorporation  authorizes the
issuance of thirty million  (30,000,000) shares of capital stock,  consisting of
twenty-five million (25,000,000) shares of Holding Company Common Stock and five
million (5,000,000) shares of preferred stock ("Preferred Stock"). The shares of
Holding  Company Common Stock and Preferred  Stock were  authorized in an amount
greater  than  that to be  issued  in the  Conversion  to  provide  the  Holding
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 Holding  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 Holding  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 RRP and upon exercise
of stock  options to be issued  pursuant to the terms of the Stock  Option Plan,
all of which, if implemented  prior to the first  anniversary of the Conversion,
will be presented to  stockholders  for approval at a meeting of stockholders to
be held no earlier than six months after completion of the Conversion.          

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         Stockholder  Vote  Required  to  Approve  Business   Combinations  with
Principal  Stockholders.  The Certificate of Incorporation requires the approval
of the holders of at least 80% of the Holding  Company's  outstanding  shares of
voting stock,  together with the affirmative vote of at least 50% of the Holding
Company's  outstanding  shares of  voting  stock  not  beneficially  owned by an
Interested   Stockholder  (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 Holding Company Common Stock and any other
affected class of stock.  Under the Certificate of  Incorporation,  at least 80%
approval  of  stockholders  is  required  in  connection  with  any  transaction
involving  an  Interested  Stockholder  except (i) in cases  where the  proposed
transaction  has been  approved in advance by a majority of those members of the
Holding  Company's Board of Directors who are  unaffiliated  with the Interested
Stockholder and were directors prior to the time when the Interested Stockholder
became an  Interested  Stockholder  or (ii) if the  proposed  transaction  meets
certain   conditions  set  forth  therein  which  are  designed  to  afford  the
stockholders a fair price in consideration  for their shares in which case, if a
stockholder  vote is  required,  approval of only a majority of the  outstanding
shares of voting stock would be sufficient. The term "Interested Stockholder" is
defined to include any  individual,  corporation,  partnership  or other  entity
(other than the Holding  Company or its subsidiary or any employee  benefit plan
maintained by the Holding Company or its subsidiary)  which owns beneficially or
controls,  directly  or  indirectly,  10% or more of the  outstanding  shares of
voting  stock of the Holding  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  Holding  Company  or  any  of  its
subsidiaries with or into any Interested Stockholder or Affiliate (as defined in
the Certificate of Incorporation) of an Interested Stockholder-,  (ii) any sale,
lease, exchange, mortgage, pledge, transfer, or other disposition to or with any
Interested  Stockholder  or Affiliate of 5% or more of the assets of the Holding
Company or combined assets of the Holding Company and its subsidiary;  (iii) the
issuance or transfer  to any  Interested  Stockholder  or its  Affiliate  by the
Holding  Company (or any  subsidiary) of any  securities of the Holding  Company
other than on a pro rata basis to all  stockholders;  (iv) the  adoption  of any
plan for the liquidation or dissolution of the Holding Company proposed by or on
behalf  of  any   Interested   Stockholder   or  Affiliate   thereof,   (v)  any
reclassification of securities, recapitalization, Merger or consolidation of the
Holding  Company which has the effect of increasing the  proportionate  share of
Holding Company Common Stock or any class of equity or convertible securities of
the Holding Company owned directly or indirectly by an Interested Stockholder or
Affiliate  thereof-,  and (vi) the  acquisition  by the  Holding  Company or its
subsidiary of any  securities of an Interested  Stockholder or its Affiliates or
Associates.                                                                     

         The trustees and executive  officers of the Bank are  purchasing in the
aggregate  approximately  4.0% of the shares of the Holding Company Common Stock
at the maximum of the Estimated  Valuation Range. In addition,  the ESOP intends
to  purchase  8% of  the  Holding  Company  Common  Stock  to be  issued  in the
Conversion,  including shares to be issued to the Foundation.  Additionally, if,
the proposed RRP and Stock  Options Plan are  implemented,  the Holding  Company
expects  to  acquire  4% of the  Holding  Company  Common  Stock  issued  in the
Conversion,  including  shares to be issued to the Foundation,  on behalf of the
RRP and expects to issue an amount  equal to 10% of the Holding  Company  Common
Stock issued in the Conversion, including shares to be issued to the Foundation,
under the Stock Option Plan to directors, executive officers and employees. As a
result,  assuming the RRP and Stock Option Plan are implemented,  the directors,
executive  officers and  employees  have the  potential to control the voting of
approximately  25% of the Holding Company Common Stock, on a fully diluted basis
at the  maximum of the  Estimated  Valuation  Range,  thereby  enabling  them to
prevent the approval of the transactions  requiring the approval of at least 80%
of the Holding  Company's  outstanding  shares of voting stock described  herein
above,                                                                          

         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 Stockholders exist, by not less than
a majority of the  Disinterested  Directors  (as defined in the  Certificate  of
Incorporation) 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 Holding  Company  entitled to vote thereon and, if the  alteration,
amendment,  repeal,  or  rescission is proposed by or on behalf of an Interested
Stockholder  or a director who is an  Affiliate  or  Associate of an  Interested
Stockholder,  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  Stockholder or
an Affiliate  or  Associate  thereof.  Amendment  of the  provision  relating to
business                                                                        

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combinations must also be approved by either (i) a 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  Stockholder  or  Affiliate or
Associate thereof, voting together as a single class.  Furthermore,  the Holding
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 DGCL provides that a corporation's
certificate  of  incorporation  and bylaws  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  Holding  Company's  bylaws  in
accordance with the terms thereof, regardless of whether the Bylaw was initially
adopted by the stockholders.  However,  this  authorization  neither divests the
stockholders of their right, nor limits their power to adopt, amend,  rescind or
repeal  any Bylaw  under the DGCL.  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  By-Law  Provisions.  The Bylaws of the  Holding  Company  also
require a  stockholder  who intends to nominate a candidate  for election to the
Board of Directors, or to raise new business at an annual stockholder meeting to
give  approximately  90 days notice in advance of the  anniversary  of the prior
year's annual stockholders' meeting to the Secretary of the Holding Company. The
notice  provision  requires a  stockholder  who desires to raise new business to
provide certain  information to the Holding Company concerning the nature of the
new business,  the  stockholder and the  stockholder's  interest in the business
matter.  Similarly, a stockholder wishing to nominate any person for election as
a director must provide the Holding Company with certain information  concerning
the nominee and the proposing stockholder.                                      

Anti-Takeover Effects of the Holding Company's  Certificate of Incorporation and
Bylaws and Certain Benefit Plans Adopted in the Conversion                  

         The  provisions  described  above are  intended  to reduce the  Holding
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,  the ESOP, the RRP and
the Stock  Option  and  Incentive  Plan to be  established  may also  discourage
takeover  attempts  by  increasing  the costs to be incurred by the Bank and the
Holding   Company  in  the  event  of  a  takeover.   See   "Management  of  the
Bank--employment  agreements,"  and "-  Benefits  - Employee  Stock  Ownership,"
"Benefits - Stock Option Plan" and "- Benefits - RRP."                          

         The 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  Holding  Company  and  its  stockholders.  An
unsolicited  non-negotiated  proposal  can  seriously  disrupt the  business and
management of a corporation and cause it great expense.  Accordingly,  the Board
of Directors believes it is in the best interests of the Holding Company and its
stockholders  to  encourage  potential  acquirers  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  Holding
Company and that otherwise is in the best interests of all stockholders.        

Delaware Corporate Law                                                          

         The  State of  Delaware  has a statute  designed  to  provide  Delaware
corporations with additional protection against hostile takeovers.  The takeover
statute,  which is  codified  in Section  203 of the DGCL  ("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
(a "DGCL Interested Stockholder") may not consummate a Merger or other          

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business  combination  transaction  with such corporation at any time during the
three-year  period  following  the date such "Person"  became a DGCL  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
a DGCL  Interested  Stockholder,  the Board of  Directors  approved  either  the
business  combination  or the  transaction  which  resulted  in the  stockholder
becoming a DGCL 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 a DGCL 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 DGCL  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 of the DGCL. At the present time,  the Board of Directors does not intend to
propose any such amendment.                                                     

Restrictions in the Bank's Restated Organization Certificate and Bylaws         

         Although  the Board of  Trustees 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 the  Banking  Law and the  Conversion  regulations  of the NYBB to
protect  the  interests  of the  converted  Bank and its  stockholders  from any
hostile takeover.  Such provisions may, indirectly,  inhibit a change in control
of the Holding  Company,  as the Bank's sole  stockholder.  See "Risk  Factors -
Certain Anti-Takeover Provisions."                                              

         In  the  event  that  the  Holding   Company  is  not  formed  and  the
subscription  rights are deemed to be subscriptions to purchase the common stock
of the Bank, the provisions contained in the Restated  Organization  Certificate
and Bylaws of the Bank, to be effective on the effective date of the Conversion,
will  govern  corporate  procedure  and  certain  rights  of  stockholders.  The
anti-takeover  effects  of  such  provisions  are  generally  similar  to  those
described  above  for the  Holding  Company,  except  that the  issuance  of any
additional  capital  stock of the Bank would  require the prior  approval of the
NYBB, and the consent of the holders of two-thirds of the outstanding  shares of
capital  stock of the Bank would be required  prior to effecting a Merger of, or
certain acquisitions of assets by, the Bank.                                    

         Limitation  on  Voting  Rights.   The  Bank's   Restated   Organization
Certificate  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 indirectly,  will be
prohibited  for a period of three years  following the date of completion of the
Conversion.  Any stock in excess of 10% acquired in violation of this  provision
will not be counted as outstanding for voting  purposes.  This limitation  shall
not  apply to (a) any  offer or sale  with a view  towards  public  resale  made
exclusively  by the Bank to any  underwriter  acting  on  behalf  of the Bank in
connection  with a public  offering  of the  common  stock of the Bank;  (b) any
corporation  formed by the Bank in connection with its Conversion from mutual to
stock  form to  acquire  all of the  shares of stock of the Bank to be issued in
connection  with such  Conversion;  or (c) any  reclassification  of  securities
(including  any reverse stock split),  or  recapitalization  of the Bank, or any
Merger or  consolidation  of the Bank with any of its  subsidiaries or any other
transaction or  reorganization  (including a transaction in which the Bank shall
form a holding  company) that does not have the effect,  directly or indirectly,
of changing the beneficial ownership interests of the Bank's stockholders, other
than pursuant to the exercise of any appraisal rights.                          

         In the event that holders of revocable proxies for more than 10% of the
shares of the Holding  Company Common Stock seek,  among other things,  to elect
one-third  or more of the Holding  Company's  Board of  Directors,  to cause the
Holding   Company's   stockholders  to  approve  the  acquisition  or  corporate
reorganization  of the Holding  Company or to exert a continuing  influence on a
material aspect of the business operations of the Holding Company,              

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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  Restated  Organization  Certificate  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 Restated Organization Certificate, the
Bank's 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 Holding
Company and its stockholders. It is unclear, however, whether this provision, if
asserted,  would be  successful  against such persons in a proxy  contest  which
could result in a change in control of the Bank  indirectly  through a change in
control of the Holding Company.                                                 

         Board of Directors.  The Board of Directors of the Bank is divided into
three classes, each of which shall contain approximately  one-third of the total
number of members of the Board of Directors.  Each class shall serve a staggered
term,  with  approximately  one-third  of the total  number of  directors  being
elected each year.  The staggered  terms of the Bank's 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 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.  In addition,  stockholders  will not be permitted to
cumulate  their votes in the election of  directors.  The Restated  Organization
Certificate  and Bylaws of the Bank  provide  that any  director,  or the entire
Board of Directors,  may be removed at any time,  but only for cause and only by
the affirmative vote of at least 80% of the outstanding  shares of voting stock.
The Restated  Organization  Certificate and Bylaws of the Bank also provide that
any vacancy  occurring in the Board of Directors,  including any vacancy created
by an increase in the number of directors,  shall be filled by the  stockholders
of the Bank,  except that vacancies not exceeding  one-third of the entire Board
of  Directors  may be  filled  by the  affirmative  vote  of a  majority  of the
directors then holding office.                                                  

         Preferred Stock. Although the Bank has no arrangements,  understandings
or  plans  at the  present  time,  the  Board  of  Directors  believes  that the
availability  of unissued  shares of Preferred  Stock 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  Bank's  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  Bank's  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
stockholders.                                                                   

         Stockholder Vote Required for Certain Business Combinations. The Bank's
Restated  Organization   Certificate  contains  provisions  requiring  a  higher
stockholder  vote  for  certain  business  combinations,  which  provisions  are
substantially  identical to those contained in the Holding Company's Certificate
of Incorporation.  See "- Restrictions in the Holding  Company's  Certificate of
Incorporation  and  Bylaws -  Stockholder  Vote  Required  to  Approve  Business
Combinations with Principal Stockholders."                                      

         Evaluation of Offers. The Restated Organization Certificate of the Bank
also provides that the Board of Directors of the Bank, when evaluating any offer
to the Bank or to the  stockholders of the Bank from another party relating to a
change  or  potential  change  in  control  of  the  Bank,  including,   without
limitation,  any offer to (a) purchase for cash or exchange  any  securities  or
property  for any  outstanding  equity  securities  of the  Bank,  (b)  merge or
consolidate  the Bank with  another  corporation  or (c)  purchase or  otherwise
acquire  all or  substantially  all of the  properties  and  assets of the Bank,
shall, in connection with the exercise of its judgment in determining what is in
the best interest of the Bank and its  stockholders,  give due consideration not
only to the price or other  consideration  being offered,  but also to all other
relevant factors including,  without limitation,  (1) both the long-term and the
short-term  interests of the Bank and its  stockholders and (2) the effects that
the Bank's  actions may have in the  short-term or in the long-term  upon any of
the following: (i) the prospects for potential growth, development, productivity
and  profitability  of the Bank;  (ii) the Bank's current  employees;  (iii) the
Bank's  retired  employees  and other  beneficiaries  receiving  or  entitled to
receive  retirement,  welfare or similar  benefits  from or pursuant to any plan
sponsored, or agreement entered into, by the Bank; (iv) the Bank's customers and
creditors;  and (v) the  ability  of the Bank to  provide,  as a going  concern,
goods, services,  employment opportunities and employment benefits and otherwise
to  contribute to the  communities  in which is does  business.  By having these
standards in the Restated  Organization  Certificate,  the Board of Directors of
the Bank may be in a stronger position to oppose such a transaction if the Board
concludes that the transaction would                                            

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not be in the  best  interests  of the  Bank,  even  if  the  price  offered  is
significantly  greater than the then market price of any equity  security of the
Bank.                                                                           

         Amendment of Restated  Organization  Certificate and Bylaws. The Bank's
Restated  Organization  Certificate  provides  that  certain  provisions  of the
Restated  Organization  Certificate  may not be  altered,  amended,  repealed or
rescinded without the affirmative vote of either (i) not less than a majority of
the authorized  number of directors and, if one or more Interested  Stockholders
exist, by not less than a majority of the Disinterested  Directors,  or (ii) the
holders of not less than  two-thirds  of the total votes  eligible to be cast by
the holders of all outstanding  shares of capital stock entitled to vote thereon
and, if the  alteration,  amendment,  repeal or  rescission is proposed by or on
behalf  of an  Interested  Stockholder  or a  director  who is an  Affiliate  or
Associate of an Interested Stockholder,  the holders of not less than a majority
of the total votes eligible to be cast by holders of all  outstanding  shares of
capital stock entitled to vote thereon not  beneficially  owned by an Interested
Stockholder or an Affiliate or Associate thereof.                               

         In  addition,  provisions  of the  Bylaws  of  the  Bank  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.                                                                      

Regulatory Restrictions                                                         

         New York State Banking Board Conversion  Regulations.  NYBB regulations
prohibit  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 of Conversion or the Holding  Company  Common Stock
to be issued upon their exercise. The NYBB regulations also prohibit 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 Holding Company Common Stock. See "The Conversion and the
Merger Restrictions on Transfer of Subscription Rights and Shares." For one year
following the Conversion, NYBB regulations prohibit any person from acquiring or
making an offer to acquire more than 10% of the stock of any  converted  savings
institution, except with the prior approval of the Superintendent.              

         OTS Regulations.  In addition, any proposal to acquire 10% of any class
of equity security of the Holding Company generally would be subject to approval
by the OTS under the Change in Bank Control Act (the  "CBCA") and the HOLA.  The
OTS  requires  all  persons  seeking  control of a savings  institution,  either
directly  or  indirectly  through  its  holding  company,  to obtain  regulatory
approval  prior to offering to obtain  control.  Federal law generally  provides
that no "person,"  acting  directly or  indirectly or through or in concert with
one or more other persons, may acquire directly or indirectly "control," as that
term is defined in OTS regulations, of an OTS-regulated savings and loan holding
company without giving at least 60 days' written notice to the OTS and providing
the OTS an opportunity to disapprove the proposed acquisition. Such acquisitions
of control may be disapproved if it is determined,  among other things, that (i)
the  acquisition  would  substantially  lessen  competition;  (ii) the financial
condition of the acquiring  person might  jeopardize the financial  stability of
the savings  institution or prejudice the interests of its depositors;  or (iii)
the competency,  experience or integrity of the acquiring person or the proposed
management  personnel  indicates  that it  wold  not be in the  interest  of the
depositors  or the public to permit the  acquisition  of control by such person.
Such change in control  restrictions  on the  acquisition of the holding company
stock are not  limited  to a set time  period  but will apply for as long as the
CBCA is 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
10% aggregate  beneficial  ownership  limit.  Such regulatory  restrictions  may
prevent or inhibit proxy contests for control of the Holding Company or the Bank
which have not received prior regulatory approval.  Acquisitions of control of a
savings  bank are subject to the  approval of the FDIC under the CBCA.  However,
transactions involving the Holding Company for which OTS approval must be sought
under HOLA are exempted from this requirement.                                  

         New York State Bank Holding Company Regulation.  Under New York Banking
Law, the prior approval of the NYBB is required before:  (1) any action is taken
that  causes any  company to become a bank  holding  company;  (2) any action is
taken that causes any banking institution to become or be merged or consolidated
with a  subsidiary  of a bank  holding  company;  (3) any bank  holding  company
acquires direct or indirect ownership or control of more than 5% of             

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the  voting  stock of a banking  institution;  (4) any bank  holding  company or
subsidiary  thereof acquires all or substantially all of the assets of a banking
institution;  or (5) any action is taken that causes any bank holding company to
merge or  consolidate  with another bank holding  company.  See  "Regulation  --
Holding  Company  Regulation  -- New York  State  Holding  Company  Regulation."
Accordingly,  the prior  approval of the NYBB would be required  before any bank
holding company,  as defined in the banking law, could acquire 5% of more of the
common stock of the Holding Company                                             

         New York State Change in Control Regulation. Prior approval of the NYBB
is also  required  before any action is taken that causes any company to acquire
direct or  indirect  control of a banking  institution.  Control is  presumed to
exist if any company directly or indirectly  owns,  controls or holds with power
to vote 10% or more of the  voting  stock  of a  banking  institution  or of any
company  that  owns,  controls  or holds  with  power to vote 10% or more of the
voting stock of a banking institution.  Accordingly,  prior approval of the NYBB
would be required  before any company  could  acquire 10% or more of the Holding
Company Common Stock.                                                           

         Federal  Reserve  Board  Regulations.  In the  event  the Bank does not
qualify to be QTL and does not elect to be  treated  as a "savings  association"
under Section 10 of HOLA, attempts to acquire control of the Bank become subject
to regulations of the Federal Reserve Board under the CBCA.                     

 DESCRIPTION OF CAPITAL STOCK OF THE HOLDING COMPANY

General                                                                         

         The Holding Company is authorized to issue thirty million  (30,000,000)
shares of Holding  Company Common Stock having a par value of $.0l per share and
twenty-five million (25,000,000) shares of Preferred Stock having a par value of
$.0l per share. In connection with the Conversion, the Holding Company currently
expects to issue 8,050,000  shares of Holding Company Common Stock (or 9,257,500
in the event of an increase of 15% in the  Estimated  Valuation  Range) and does
not expect to issue any shares of Preferred Stock.  Except as discussed above in
"Restrictions on Acquisition of the Holding Company and the Bank," each share of
the Holding Company Common Stock will have the same relative rights as, and will
be identical in all respects  with,  each other share of Holding  Company Common
Stock.  Upon payment of the Purchase Price for the Holding Company Common Stock,
in accordance with the Plan, all such stock will be duly authorized,  fully paid
and   non-assessable.   The  Holding   Company   Common  Stock  will   represent
non-withdrawable  capital, will not be an account of an insurable type, and will
not be insured by the FDIC.                                                     

Holding Company Common Stock                                                    

         Dividends.  The Holding  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  Holding  Company  is subject to
limitations  which are imposed by law and applicable  regulation.  See "Dividend
Policy" and "Regulation and Supervi sion." The holders of Holding Company Common
Stock will be entitled to receive and share equally in such  dividends as may be
declared by the Board of Directors of the Holding  Company out of funds  legally
available  therefor.  If the Holding Company issues Preferred Stock, the holders
thereof may have a priority over the holders of the Holding Company Common Stock
with respect to dividends.                                                      

         Voting Rights.  Upon Conversion,  the holders of Holding Company Common
Stock will possess  exclusive  voting rights in the Holding  Company.  They will
elect the Holding  Company's Board of Directors and act on such other matters as
are required to be presented to them under Delaware law or the Holding 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 Holding
Company  and the Bank,"  each  holder of Holding  Company  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 Holding  Company  issues  Preferred  Stock,
holders of the Preferred  Stock may also possess voting rights.  Certain matters
require an 80% or two-thirds  stockholder vote. See "Restrictions on Acquisition
of the Holding Company and the Bank."                                           

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         As a New York mutual savings bank,  corporate powers and control of the
Bank are vested in its Board of Trustees, who elect the officers of the Bank and
who fill any  vacancies  on the Board of Trustees 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  Holding
Company, and voted at the direction of the Holding Company's Board of Directors.
Consequently,  the holders of the  Holding  Company  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 Holding 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,  which is a memorandum  account only, to Eligible  Account  Holders and
Supplemental  Eligible  Account  Holders (see "The  Conversion  and the Merger -
Effects of Conversion - Liquidation  Rights"),  all assets of the Bank available
for distribution in cash or in kind. In the event of liquidation, dissolution or
winding up of the Holding  Company,  the holders of its Holding  Company  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  Holding  Company
available for  distribution.  If Preferred Stock is issued,  the holders thereof
may have a priority over the holders of the Holding  Company Common Stock in the
event of the liquidation or dissolution of the Holding Company.                 

         Preemptive Rights. Holders of the Holding Company Common Stock will not
be entitled to preemptive rights with respect to any shares which may be issued.
The Holding Company Common Stock is not subject to redemption.                  

Preferred Stock                                                                 

         None of the shares of the Holding 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 stockholder approval, issue preferred stock with
voting,  dividend,  liquidation  and  Conversion  rights  which could dilute the
voting  strength  of the  holders of the Holding  Company  Common  Stock and may
assist  management in impeding an  unsolicited  takeover or attempted  change in
control.                                                                        

DESCRIPTION OF CAPITAL STOCK OF THE BANK

General                                                                         

         The Restated Organization Certificate of the Bank, to be effective upon
the  Conversion,   authorizes  the  issuance  of  capital  stock  consisting  of
twenty-five  million  (25,000,000)  shares of common  stock,  par value $.0l per
share,  and five million  (5,000,000)  shares of preferred stock, par value $.01
per share, which preferred stock may be issued in series and classes having such
rights,  preferences,  privileges and restrictions as the Board of Directors may
determine.  Except as discussed  above in  "Restrictions  on  Acquisition of the
Holding  Company and the Bank," 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 Holding  Company Common Stock up to the
amount authorized by the Restated Organization  Certificate without the approval
of the Bank's stockholders,  except to the extent that such approval is required
by  governing  law. All of the issued and  outstanding  common stock of the Bank
will be held by the Holding Company as the Bank's sole stockholder.  The capital
stock  of the  Bank  will  represent  non-withdrawable  capital,  will not be an
account of an insurable type, and will not be insured by the FDIC.              

Holding Company Common Stock                                                    

         Dividends.  The holders of the Bank's common stock (the Holding Company
upon  consummation of the  Conversion)  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.                        

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         Voting Rights.  Immediately  after the  Conversion,  the holders of the
Bank's common stock (the Holding  Company upon  consummation  of the Conversion)
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.  Cumulation  of
votes will not be permitted.  See  "Restrictions  on  Acquisition of the Holding
Company and the Bank - Anti-Takeover  Effects of the Holding Company's  Articles
of  Incorporation  and  Bylaws  and  Management  Remuneration  Plans  Adopted in
Conversion."                                                                    

         Liquidation.  In the event of any liquidation,  dissolution, or winding
up of the Bank,  the  holders of its  common  stock (the  Holding  Company  upon
consummation  of the Conversion)  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,  which is a memorandum  account only, to Eligible  Account
Holders and  Supplemental  Eligible Account Holders (see "The Conversion and the
Merger - Effects of  Conversion - Liquidation  Rights"),  all assets of the Bank
available  for  distribution  in cash or in kind.  If 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.         

         Preemptive  Rights and  Redemption.  Holders of the common stock of the
Bank (the  Holding  Company upon  consummation  of the  Conversion)  will not be
entitled to  preemptive  rights with respect to any shares of the Bank which may
be issued.  The common stock will not be subject to redemption.  Upon receipt by
the Bank of the full specified purchase price therefor, the common stock will be
fully paid and non-assessable.                                                  

Preferred Stock                                                                 

         None of the shares of the  Bank'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 stockholder approval, issue preferred stock with
voting, dividend, liquidation and Conversion rights.                            

 EXPERTS

         The consolidated  financial  statements of the Bank as of June 30, 1998
and 1997 and for each of the years in the three-year period ended June 30, 1998,
included in this Prospectus have been audited by Arthur Andersen LLP independent
public accountants,  as indicated in their report with respect thereto,  and are
included  herein in  reliance  upon the  authority  of said firm as  experts  in
accounting and auditing in giving said report.                                  

         The  financial  statements  of SFS as of December 31, 1997 and 1996 and
for each of the years in the three-year  period ended December 31, 1997 included
in this  Prospectus  have been  audited by KPMG Peat  Marwick  LLP,  independent
public accountants,  as indicated in their report with respect thereto,  and are
included  herein in  reliance  upon the  authority  of said firm as  experts  in
accounting and auditing in giving such report.                                  

         RP Financial has consented to the publication  herein of the summary of
its report to the Bank and Holding  Company  setting forth its opinion as to the
estimated  pro forma  market  value of the  Holding  Company  Common  Stock upon
Conversion and its opinion with respect to subscription rights.                 

LEGAL AND TAX OPINIONS

         The legality of the Holding Company Common Stock and the federal income
tax  consequences  of the  Conversion and the Merger will be passed upon for the
Bank and the Holding  Company by Silver,  Freedman & Taff,  L.L.P.,  Washington,
D.C.,  special counsel to the Bank and the Holding  Company.  The New York State
income tax  consequences  of the Conversion will be passed upon for the Bank and
the Holding  Company by Arthur  Andersen LLP New York,  New York.  Certain legal
matters will be passed upon for SFS by Elias, Matz,  Tiernan & Herrick,  L.L.P.,
Washington,  D.C.  and  certain  legal  matters  will be passed  upon for KBW by
Serchuk & Zelermyer, White Plains, New York.                                    

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ADDITIONAL INFORMATION

         The  Holding  Company has filed with the SEC a  registration  statement
under the  Securities  Act with  respect to the  Holding  Company  Common  Stock
offered  hereby.  As permitted  by the rules and  regulations  of the SEC,  this
Prospectus does not contain all the  information  set forth in the  registration
statement.  Such  information,  including  the  Conversion  Valuation  Appraisal
Report,  which is an  exhibit to the  Registration  Statement,  can be  examined
without  charge at the public  reference  facilities  of the SEC  located at 450
Fifth Street, N.W.,  Washington,  D.C. 20549, and copies of such material can be
obtained from the SEC at prescribed rates. In addition,  the SEC maintains a web
site   (http://www.sec.gov)   that  contains  reports,   proxy  and  information
statements and other information  regarding registrants that file electronically
with the SEC, including the Holding Company.  The Conversion Valuation Appraisal
Report may also be inspected by Eligible  Account  Holders at the offices of the
Bank during normal business hours. Copies of the appraisal may also be requested
by Eligible Account Holders or Supplemental Eligible Account Holders;  provided,
however,  that such Eligible  Account Holders or Supplemental  Eligible  Account
Holders  shall be  responsible  for all costs  associated  with the  copying and
transmittal of such  appraisal.  This  Prospectus  contains a description of the
material  terms and features of all material  contracts,  reports or exhibits to
the registration  statement  required to be described;  however,  the statements
contained  in this  Prospectus  as to the  contents  of any  contract  or  other
document  filed as an exhibit to the  registration  statement are, of necessity,
brief descriptions thereof and are not necessarily complete; each such statement
is qualified by reference to such contract or document.                         

         The Bank has filed an application  for approval of conversion  with the
Superintendent  and the  FDIC.  Pursuant  to the rules  and  regulations  of the
Superintendent,  this  Prospectus  omits certain  information  contained in that
application.  The  application  may be examined at the  principal  office of the
Superintendent, Two Rector Street, New York, New York, 10006.                   

         The  Holding  Company has filed with the OTS an  Application  to Form a
Holding  Company.  This prospectus omits certain  information  contained in such
Application. Such Application may be inspected at the offices of the OTS, 1700 G
Street, N.W., Washington, D.C. 20552.                                           

         In connection  with the  Conversion,  the Holding Company will register
its  Holding  Company  Common  Stock  with the SEC  under  Section  12(g) of the
Exchange Act, and, upon such  registration,  the Holding Company and the holders
of its stock will  become  subject to the proxy  solicitation  rules,  reporting
requirements  and  restrictions  on stock  purchases  and  sales  by  directors,
officers and greater than 10%  stockholders,  the annual and periodic  reporting
and certain other  requirements of the Exchange Act. Under the Plan, the Holding
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 Holding Company as
part of the  Conversion,  the Bank will  register  its stock with the FDIC 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.                                                                   

         A copy  of the  Certificate  of  Incorporation  and the  Bylaws  of the
Holding Company and the Restated Organization Certificate and Bylaws of the Bank
are available  without charge from the Bank. See "Restrictions on Acquisition of
the Holding Company and the Bank,"  "Description of Capital Stock of the Holding
Company" and  "Description  of Capital Stock of the Bank." The Bank's  principal
office is located at 75 Remsen  Street,  Cohoes,  New York  12047-2892,  and its
telephone number is (518) 233-6500.                                             

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GLOSSARY

AICPA       American Institute of Certified Public Accountants.                 

AMTI        Alternative Minimum Taxable Income.                                 

APB         Accounting Practice Bulletin.                                       

ARM         Adjustable Rate Mortgage.                                           

Associate   The  term  "Associate"  of a  person  is  defined  to  mean  (i) any
            corporation or organization (other than the Bank or its subsidiaries
            or the Holding Company) of which such person is a director, officer,
            partner or 10% shareholder;  (ii) any trust or other estate in which
            such  person  has a  substantial  beneficial  interest  or serves as
            trustee or in a similar fiduciary capacity;  provided,  however that
            such term shall not include any employee  stock  benefit plan of the
            Holding Company or the Bank in which such a person has a substantial
            beneficial interest or serves as a trustee or in a similar fiduciary
            capacity,  and (iii) any  relative  or  spouse  of such  person,  or
            relative of such spouse, who either has the same home as such person
            or  who  is  a  director  or  officer  of  Lincoln  Federal  or  its
            subsidiaries or the Holding  Company.  ATM Automated Teller Machine.
            Average  Closing  Price The average of the daily last sales price of
            the Holding  Company  Common  Stock as reported on the NASDAQ  Stock
            Market for the first ten trading  days on which the Holding  Company
Common Stock is traded.                                 

Bank        Cohoes Savings Bank.                                                

Board of                                                                        
Directors   Board of Directors of Cohoes Bancorp, Inc.                          

Board       of Trustees Board of Trustees of Cohoes Savings Bank.               

Bylaws      Bylaws of Cohoes Bancorp, Inc.                                      

Code        The Internal Revenue Code of 1986, as amended.                      

Conversion  Simultaneous  conversion of Cohoes  Savings Bank to stock form,  the
            issuance  of Cohoes  Savings  Bank's  outstanding  capital  stock to
            Cohoes  Bancorp  and  Cohoes  Bancorp's  offer  and sale of  Holding
Company Common Stock.                                   

Conversion                                                                      
Shares      Shares of Cohoes Bancorp,  Inc. offered  to complete  conversion  of
Cohoes Savings Bank to stock form.                      

CRA         Community Reinvestment Act.                                         

Department  The New York State Banking Department.                              

DCGL        Delaware General Corporations Law.                                  

Eligible                                                                        
Account                                                                         
Holders     Savings account holders of Cohoes Savings Bank with account balances
       of at least $100 as of the close of business on March 31, 1998.

ERISA       Employee Retirement Income Security Act of 1974, as amended.        

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Estimated                                                                       
Valuation                                                                       
Range       Estimated  pro forma market  value of the Common Stock  ranging from
$59,500,000 to $80,500,000.                             

ESOP        Cohoes Bancorp, Inc. Employee Stock Ownership Plan.                 

Exchange                                                                        
Act         Securities Exchange Act of 1934, as amended.                        

Exchange                                                                        
Ratio       The lesser of: (i) 2.65; or (ii) the quotient determined by dividing
            $35.00 by the  Average  Closing  Price,  which is the average of the
            daily last sales price of Holding  Company  Common Stock as reported
            on The Nasdaq  Stock  Market for the first ten trading days on which
            Holding Company Common Stock is traded,  for each SFS share they own
just before the Merger.                                 

Exchange                                                                        
Shares      Shares of Cohoes Bancorp, Inc. exchanged for shares of SFS Bancorp. 

FASB        Financial Accounting Standards Board.                               

FDIA        Federal Deposit Insurance Act.                                      

FDIC        Federal Deposit Insurance Corporation.                              

FHLB        Federal Home Loan Bank.                                             

FHLMC       Federal Home Loan Mortgage Corporation.                             

FNMA        Federal National Mortgage Association.                              

Foundation  The Cohoes Savings Bank Charitable Foundation, Inc.                 

FRB         Federal Reserve Board.                                              

Freddie                                                                         
Mac         Federal Home Loan Mortgage Corporation.                             

GAAP        Generally Accepted Accounting Practices.                            

HOLA        Home Owners' Loan Act.                                              

Holding                                                                         
Company     Cohoes Bancorp, Inc.                                                

Holding                                                                         
Company                                                                         
Common                                                                          
Stock       Shares of Cohoes Bancorp, Inc.                                      

IRS         Internal Revenue Services.                                          

KBW         Keefe, Bruyette & Woods, Inc.                                       

Merger      Merger of SFS Bancorp with and into Cohoes Bancorp, Inc.            

Merger                                                                          
Agreement   Agreement of Merger  between Cohoes  Bancorp,  Inc. and SFS Bancorp,
Inc.                                                    

NASD        National Association of Securities Dealers, Inc.                    

Nasdaq      National  Association  of  Securities  Dealers  Automated  Quotation
System--National Market.                                

NPV         Net portfolio value.                                                

NYBB        New York Banking Board.                                             

OCC         Office of the Comptroller of the Currency.                          

Offering    The offering of between  5,950,000  and  8,050,000  shares of Cohoes
         Bancorp, Inc. common stock at $10.00 per share in the Conversion.

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ORE         Other Real Estate Owned.                                            

OTS         Office of Thrift Supervision.                                       

Plan or                                                                         
Plan of                                                                         
Conversion  Plan of Cohoes  Savings  Bank to convert  from a New York  chartered
            mutual savings bank to a New York  chartered  stock savings bank and
            the issuance of all of Cohoes  Savings Bank 's  outstanding  capital
            stock to Cohoes  Bancorp,  Inc. and the issuance of Cohoes  Bancorp,
Inc.'s Common Stock to the public.                      

QTL         Qualified thrift lender.                                            

ROA         Return On Average Assets.                                           

ROE         Return On Average Equity.                                           

RP                                                                              
Financial   RP Financial, LC., independent appraiser.                           

RRP         Recognition  and  Retention  Plan to be submitted  for approval at a
            meeting of the Holding  Company's  shareholders  to be held at least
six months after the completion of the Conversion.      

SAIF        Savings Association Insurance Fund of the FDIC.                     

Schenectady                                                                     
Federal     Schenectady Federal Savings Bank.                                   

SEC         Securities and Exchange Commission.                                 

Securities                                                                      
Act         Securities Act of 1933, as amended.                                 

SFAS        Statement of Financial Accounting Standard.                         

SFS         SFS Bancorp, Inc.                                                   

SFS Common                                                                      
Stock       Common Stock of SFS Bancorp, Inc.                                   

SFS Special                                                                     
Meeting     Special Meeting of members of SFS Bancorp,  Inc. called for December
____, 1998 for the purpose of approving the Merger.     

Stock                                                                           
Contribution Shares contributed to Cohoes Savings Foundation.                   

Stock Option                                                                    
and Incentive                                                                   
Plan        The  Cohoes  Bancorp,  Inc.  Stock  Option  and  Incentive  Plan for
            directors  and officers to be submitted for approval at a meeting of
            the Holding  Company's  shareholders  to be held at least six months
after the completion of the Conversion.                 

Subscription                                                                    
Offering    Offering  of  non-transferable  rights to  subscribe  for the Common
            Stock, in order of priority,  to Eligible Account Holders, the ESOP,
and Supplemental Eligible Account Holders.              

Superintendent Superintendent of Banks of the New York State Banking Department.

Voting                                                                          
Record                                                                          
Date        The close of business on March 31,  1998,  the date for  determining
  voting depositors entitled to vote at the Special Meeting.

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COHOES SAVINGS BANK AND SUBSIDIARIES

 CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND 1997
TOGETHER WITH AUDITORS' REPORT

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COHOES SAVINGS BANK AND SUBSIDIARIES

 INDEX TO FINANCIAL STATEMENTS

JUNE 30, 1998 AND 1997

                                                                          Page
                                                                          ----
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ................................   F-1 

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION                                  
 AS OF JUNE 30, 1998 AND 1997 ..........................................   F-2

CONSOLIDATED STATEMENTS OF OPERATIONS FOR EACH OF THE YEARS                     
IN THE THREE-YEAR PERIOD ENDED JUNE 30, 1998 ..........................     

CONSOLIDATED STATEMENTS OF CHANGES IN SURPLUS AND UNDIVIDED PROFITS             
 FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED JUNE 30, 1998 ....   F-3

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR EACH OF THE YEARS                     
 IN THE THREE-YEAR PERIOD ENDED JUNE 30, 1998 ..........................   F-4

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ..............................   F-6 

         NOTE:  All  schedules  are  omitted  because the  required  information
         applicable  is included in the  consolidated  financial  statements  or
related notes.                                                

         The  financial  statements  of Cohoes  Bancorp,  Inc. have been omitted
         because  the Company  has not yet issued any stock,  has no assets,  no
         liabilities  and  has  not  conducted  any  business  other  than of an
organizational nature.                                        

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Examining Committee of                                                   
the Board of Trustees of                                                        
Cohoes Savings Bank:                                                            

We have audited the accompanying  consolidated statements of financial condition
of Cohoes  Savings Bank and  subsidiaries  as of June 30, 1998 and 1997, and the
related consolidated statements of operations,  changes in surplus and undivided
profits and cash flows for each of the years in the three-year period ended June
30, 1998. These consolidated  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 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 Cohoes  Savings  Bank and
subsidiaries  as of June 30, 1998 and 1997, and the results of their  operations
and their cash flows for each of the years in the  three-year  period ended June
30, 1998, in conformity with generally accepted accounting principles.          

New York, New York                                                              
August 12, 1998                                                                 

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COHOES SAVINGS BANK AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1998 AND 1997
 (000's omitted)

ASSETS                                                         1998       1997  
------                                                         ----       ----  
CASH AND CASH EQUIVALENTS:                                                      
  Cash and due from banks ................................   $  8,653   $ 10,795
  Federal funds sold .....................................      5,000      5,770
  Interest-bearing deposits with banks ...................        576         99
                                                             --------   --------
       Total cash and cash equivalents ...................     14,229     16,664

MORTGAGE LOANS HELD FOR SALE .............................         38        175

SECURITIES AVAILABLE FOR SALE, amortized cost of $48,701                        
and $35,621 at June 30, 1998 and 1997,                                      
  respectively (Note 5) ..................................     48,720     35,475

INVESTMENT SECURITIES, approximate fair value of $45,547                        
and $25,186 at June 30, 1998 and 1997,                                      
  respectively (Note 6) ..................................     45,424     25,273

NET LOANS RECEIVABLE (Note 7) ............................    412,759    398,530

ACCRUED INTEREST RECEIVABLE (Note 8) .....................      3,482      3,210

BANK PREMISES AND EQUIPMENT (Note 9) .....................      7,303      7,657

OTHER REAL ESTATE OWNED ..................................        509      1,874

MORTGAGE SERVICING RIGHTS (Note 10) ......................      1,042      1,146

OTHER ASSETS .............................................      2,210      1,696
                                                             --------   --------
       Total assets ......................................   $535,716   $491,700
                                                             ========   ========

LIABILITIES, SURPLUS AND UNDIVIDED PROFITS                                      

LIABILITIES:                                                                    
  Due to depositors (Note 11) ............................   $449,541   $429,390
  Mortgagors' escrow deposits ............................      8,994      9,062
  Borrowings (Note 12) ...................................     19,897         --
  Other liabilities ......................................      4,002      4,156
                                                             --------   --------
       Total liabilities .................................    482,434    442,608
                                                             --------   --------

COMMITMENTS AND CONTINGENT LIABILITIES (Note 16) .........                      

SURPLUS AND UNDIVIDED PROFITS (Note 14):                                        
  Surplus ................................................     10,378     10,378
  Undivided profits ......................................     42,892     38,805
Net unrealized gain (loss) on securities available                          
    for sale, net of income taxes ........................         12       (91)
                                                             --------   --------
        Total surplus and undivided profits ..............     53,282     49,092
                                                             --------   --------
        Total liabilities, surplus and undivided profits .   $535,716   $491,700
                                                             ========   ========

The accompanying notes are an integral part of these statements.

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COHOES SAVINGS BANK AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF CHANGES IN SURPLUS AND UNDIVIDED PROFITS

FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996

 (000's omitted)

                                                        [Enlarge/Download Table]


                                                                      Net Unrealized       
                                                                      Gain (Loss) on       
                                                                        Securities         
                                                                      Available for        
                                                           Undivided   Sale, Net of        
                                                 Surplus    Profits    Income Taxes  Total 
                                                 -------    -------    ------------  ----- 
                                                                                           
BALANCE, June 30, 1995 ........................  $ 10,378  $ 29,767   $    (15)   $ 40,130 

    Change in unrealized gain (loss) on                                                    
       securities available for sale, net                                                  
       of income taxes ........................      --        --         (234)       (234)
    Net income for the year ended June 30, 1996      --       4,395       --         4,395 
                                                 --------  --------   --------    -------- 

BALANCE, June 30, 1996 ........................    10,378    34,162       (249)     44,291 

    Change in unrealized gain (loss) on                                                    
       securities available for sale, net                                                  
       of income taxes ........................      --        --          158         158 
    Net income for the year ended June 30, 1997      --       4,643       --         4,643 
                                                 --------  --------   --------    -------- 

BALANCE, June 30, 1997 ........................    10,378    38,805        (91)     49,092 

    Change in unrealized gain (loss) on                                                    
       securities available for sale, net                                                  
       of income taxes ........................      --        --          103         103 
    Net income for the year ended June 30, 1998      --       4,087       --         4,087 
                                                 --------  --------   --------    -------- 

BALANCE, June 30, 1998 ........................  $ 10,378  $ 42,892   $     12    $ 53,282 
                                                 ========  ========   ========    ======== 

The accompanying notes are an integral part of these statements.

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COHOES SAVINGS BANK AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996

 (000's omitted)

                                                        [Enlarge/Download Table]


                                                                                1998            1997            1996    
                                                                                ----            ----            ----    

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:                                                                       

CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                   
                                                                                                                        
    Net income                                                            $       4,087   $       4,643   $       4,395 
                                                                          -------------   -------------   ------------- 
    Adjustments to reconcile net income to net cash provided by                                                         
       operating activities-                                                                                            
          Depreciation ..................................................         1,117           1,101           1,015 
          Amortization of purchased and originated mortgage servicing                                                   
              rights ....................................................           185             169             165 
          Provision for loan losses .....................................         1,400           1,325             490 
          Provision for real estate owned losses ........................            -               -              153 
          Provision for deferred tax (benefit) expense ..................          (317)              1            (252)
          Net gain on investment securities redeemed ....................            -               (3)             -  
          Net (gain) loss on securities available for sale redeemed .....             1             (37)            (10)
          Net premium amortization of investment securities .............            33              49              69 
          Net premium (discount) amortization of securities available                                                   
              for sale ..................................................             4             (16)            (14)
          Net gain on sale of mortgage loans ............................           (81)           (106)             20 
          Proceeds from sale of loans held for sale .....................         8,304           7,265          24,379 
          Loans originated for sale .....................................        (8,087)         (6,745)        (24,719)
          Increase in interest receivable ...............................          (272)            (87)           (311)
          (Increase) decrease in other assets, net of deferred tax                                                      
              (benefit) expense .........................................          (197)           (547)          1,310 
          Increase (decrease) in other liabilities ......................          (154)            856          (1,479)
          Net loss on sale/writedowns of other real estate owned ........           644              55              31 
                                                                          -------------   -------------   ------------- 
                    Total adjustments ...................................         2,580           3,280             847 
                                                                          -------------   -------------   ------------- 
                    Net cash provided by operating activities ...........         6,667           7,923           5,242 
                                                                          -------------   -------------   ------------- 

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                                                                                 1998            1997            1996   
                                                                                 ----            ----            ----   
                                                                                                                        
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                   
    Proceeds from maturity of investment securities ..................... $       1,000   $       3,559   $         113 
    Proceeds from investment securities called ..........................        12,000           3,065           3,669 
    Purchase of investment securities ...................................       (40,591)        (10,194)        (14,774)
    Proceeds from the maturity of securities available for sale .........           550              -            2,000 
    Proceeds from securities available for sale called ..................        23,100              -            1,000 
    Proceeds from the sale of securities available for sale .............            60             287          10,024 
    Purchase of securities available for sale ...........................       (42,305)        (18,552)         (8,512)
    Proceeds from principal reduction in investment securities ..........         7,408           4,219           6,242 
    Proceeds from principal reduction in securities available for sale ..         5,448           3,887           3,588 
    Net loans made to customers .........................................       (16,723)         (8,418)        (15,893)
    Originated mortgage servicing rights ................................           (81)           (104)             -  
    Proceeds from sale of other real estate owned .......................         1,815           1,239             380 
    Capital expenditures ................................................          (763)         (1,827)           (704)
                                                                          -------------   -------------   ------------- 
                    Net cash used in investing activities ...............       (49,082)        (22,839)        (12,867)
                                                                          -------------   -------------   ------------- 
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                   
    Net decrease in mortgagors' escrow deposits .........................           (68)            (71)           (276)
    Net increase (decrease) in borrowings ...............................        19,897          (2,100)         (3,954)
    Net increase in deposits ............................................        20,151          24,851           5,576 
                                                                          -------------   -------------   ------------- 
                    Net cash provided by financing activities ...........        39,980          22,680           1,346 
                                                                          -------------   -------------   ------------- 
                    Net increase (decrease) in cash and cash                                                            
                        equivalents .....................................        (2,435)          7,764          (6,279)

CASH AND CASH EQUIVALENTS, beginning of year ............................        16,664           8,900          15,179 
                                                                          -------------   -------------   ------------- 

CASH AND CASH EQUIVALENTS, end of year .................................. $      14,229   $      16,664   $       8,900 
                                                                          =============   =============   ============= 
ADDITIONAL DISCLOSURE RELATIVE TO CASH FLOWS:                                                                           
       Interest paid .................................................... $      19,235   $      17,664   $      17,819 
       Taxes paid .......................................................         2,780           3,113           2,457 
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:                                                                  
       Transfer of loans to other real estate owned ..................... $       1,094   $       2,677   $         635 

The accompanying notes are an integral part of these statements.

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COHOES SAVINGS BANK AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 1998, 1997 AND 1996

 (000's omitted)

1.  SUMMARY OF SIGNIFICANT                                                      
ACCOUNTING POLICIES                                                     

Basis of Presentation                                                           

The accompanying  consolidated  financial  statements of Cohoes Savings Bank and
subsidiaries  (the  "Bank")  conform,  in all  material  respects,  to generally
accepted  accounting  principles and to general practice within the savings bank
industry.  The Bank  utilizes the accrual  method of  accounting  for  financial
reporting purposes.                                                             

Principles of Consolidation                                                     

The  consolidated  financial  statements  include the accounts of the Bank,  its
wholly  owned  financial  services  subsidiary  and its wholly  owned  insurance
subsidiary. Intercompany accounts and transactions have been eliminated.        

Use of Estimates                                                                

In preparing the consolidated  financial  statements,  management is required to
make estimates and  assumptions  that affect the reported assets and liabilities
as of the date of the consolidated  statements of financial condition.  The same
is true of revenues and expenses  reported for the period.  Actual results could
differ from those estimates.                                                    

Material  estimates that are particularly  susceptible to significant  change in
the near term relate to the  determination  of the allowance for loan losses and
the valuation of other real estate acquired in connection with foreclosures.  In
connection  with the  determination  of the  allowance  for loan  losses and the
valuation  of  other  real  estate  owned,  management  obtains  appraisals  for
significant properties.                                                         

Investment Securities and Securities                                            
Available for Sale                                                              

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity  Securities,"  management
determines   the   appropriate    classification   of   securities,    including
mortgage-backed  securities,  at the time of  purchase.  If  management  has the
positive  intent  and  ability to hold debt  securities  to  maturity,  they are
classified as investment securities held to maturity and are stated at amortized
cost.  If  securities  are purchased for the purpose of selling them in the near
term,  they are classified as trading  securities and are reported at fair value
with  unrealized  holding gains and losses  reflected in current  earnings.  All
other debt and equity securities are classified as securities available for sale
and are reported at fair value,  with net unrealized  gains or losses  reported,
net of income taxes, as a separate  component of surplus and undivided  profits.
Gains and losses on disposition  of all  investment  securities are based on the
adjusted cost of the specific security sold. At June 30, 1998 and 1997, the Bank
did not hold any securities considered to be trading securities.                

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Unrealized  losses on securities which reflect a decline in value which is other
than  temporary,  if any,  are charged to income and  reported as a component of
"net (loss) gain on securities  transactions" in the consolidated  statements of
operations.                                                                     

The cost of securities is adjusted for  amortization of premium and accretion of
discount, which is calculated on an effective interest method.                  

Loans Receivable and Loan Fees                                                  

Loans  receivable  are  reported at the  principal  amount  outstanding,  net of
unearned  discount,  net deferred  loan fees and an allowance  for possible loan
losses.  Discounts  on  loans  are  accreted  to  income  using a  method  which
approximates  the level yield interest  method.  Interest income on loans is not
recognized when considered doubtful of collection by management.                

The Bank  accounts  for fees and  costs  associated  with loan  originations  in
accordance  with  SFAS No.  91,  "Accounting  for  Nonrefundable  Fees and Costs
Associated  with  Originating  and Acquiring  Loans and Initial  Direct Costs of
Leases."  Fees  received from loan  originations  and certain  related costs are
deferred and are  amortized  into income so as to provide for a  level-yield  of
interest on the underlying loans.                                               

Allowance for Loan Losses                                                       

A substantial  portion of the Bank's loans are secured by real estate located in
the Albany,  New York area and the Metropolitan New York City area. In addition,
a  substantial  portion of the other real estate  owned is located in those same
markets.  Accordingly,  the ultimate  collectibility of a substantial portion of
the Bank's  loan  portfolio  and the  recovery of a  substantial  portion of the
carrying amount of other real estate owned are dependent upon market  conditions
in these market areas.                                                          

Management  believes  that the  allowance  for loan losses is adequate  and that
other real estate owned is recorded at its fair value less an estimated  cost to
sell these properties.  While management uses available information to recognize
losses on loans and other real estate owned,  future  additions to the allowance
or write-downs  of other real estate owned may be necessary  based on changes in
economic conditions.  In addition,  various regulatory agencies,  as an integral
part of their examination process,  periodically review the Bank's allowance for
loan losses and other real estate  owned.  Such agencies may require the Bank to
recognize additions to the allowance or write down other real estate owned based
on their  judgments  about  information  available  to them at the time of their
examination, which may not be currently available to management.                

The allowance for loan losses is established through a provision for loan losses
charged to operations.  Loans are charged  against the allowance for loan losses
when management  believes that the  collectibility of the principal is unlikely.
The allowance is an amount that  management  believes will be adequate to absorb
losses on existing loans that may become uncollectible,  based on evaluations of
the  collectibility  of loans  and  prior  loan  loss  experience.  Management's
evaluation  of the adequacy of the  allowance  for loan losses is performed on a
periodic basis and takes into  consideration such factors as the historical loan
loss experience, changes in the nature and volume of the loan portfolio, overall
portfolio  quality,  review  of  specific  problem  loans and  current  economic
conditions that may affect borrowers' ability to pay.                           

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SFAS No. 114 defines an impaired loan as a loan for which it is probable,  based
on current  information,  that the lender will not collect all amounts due under
the  contractual  terms of the loan  agreement.  The Bank applies the impairment
criteria to all loans,  except for large  groups of smaller  balance  homogenous
loans  that are  collectively  evaluated  for  impairment,  such as  residential
mortgages and consumer  installment  loans.  Income  recognition  and charge-off
policies were not changed as a result of this statement.                        

Mortgage Loans Held for Sale                                                    

Management  determines the appropriate  classification  of mortgage loans at the
time that rate lock agreements are entered into with the customer. If management
has the intent and the Bank has the ability at the time of rate lock to hold the
loans to  maturity,  they are  classified  as mortgage  loans and carried at the
amount of unpaid principal,  net of deferred fees,  reduced by the allowance for
loan losses.  Mortgage  loans not intended to be held to maturity are classified
as "held for sale" and carried at the lower of  aggregate  cost or fair value as
determined by  outstanding  commitments  from investors or current market prices
for loans with no commitments.                                                  

Loan servicing revenues and expenses are recognized when service fees are earned
and expenses are incurred. The mortgage loans being serviced are not included in
these  consolidated  financial  statements  as they are not  assets of the Bank.
Purchased  mortgage servicing rights represent the costs of acquiring the rights
to service  mortgage  loans  originated  by other  institutions;  such costs are
capitalized and amortized into servicing fee income over the estimated period of
net servicing  income,  adjusted for significant  prepayments and payoffs of the
underlying serviced loans.                                                      

Gains or losses on sales of mortgage  loans held for sale are  recognized  based
upon the  difference  between the selling  price and the  carrying  value of the
related mortgage loans sold. Such gains and losses are increased or decreased by
the amount of excess servicing fees recorded,  if any. Net deferred  origination
fees are recognized at the time of sale in the gain or loss determination. Gains
and losses are  decreased or increased  for  commissions  and legal fees on loan
closings,  and direct employee costs related to loan  originations.  These costs
amounted to $36, $34 and $104, for the years ended June 30, 1998, 1997 and 1996,
respectively.                                                                   

Bank Premises and Equipment                                                     

Bank premises and equipment are carried at cost, less accumulated  depreciation.
Depreciation  is computed on a  straight-line  basis over the  estimated  useful
lives of the assets.                                                            

Other Real Estate Owned                                                         

Other real estate owned includes  foreclosed real estate properties.  Other real
estate  owned is  recorded  at the lower of cost or the fair  value of the asset
acquired  less an estimate  of the costs to sell the asset.  Fair value of other
real estate owned is generally determined through independent appraisals. At the
time of  foreclosure,  the excess,  if any, of the loan value over the estimated
fair value of the asset received less costs to sell, is charged to the allowance
for loan  losses.  Subsequent  declines  in the fair  value of such  assets,  or
increases  in the  estimated  costs to sell  the  properties  and net  operating
expenses of such assets, are charged directly to other noninterest  expense.  At
June 30, 1998 and 1997, these properties consisted of residential and commercial
mortgage properties located in the Albany, New York area.                       

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Income Taxes                                                                    

For federal income and New York State franchise tax purposes,  the Bank utilizes
the accrual basis method of accounting.                                         

The Bank utilizes the asset and liability  method of accounting for income taxes
required under SFAS No. 109,  "Accounting for Income Taxes." Under the asset and
liability  method of SFAS No. 109,  deferred tax assets are  recognized  for the
future tax  consequences  attributable  to  differences  between  the  financial
statement  carrying  amounts  of  existing  assets  and  liabilities  and  their
respective tax basis.  To the extent that current  available  evidence about the
future raises doubt about the  realization  of a deferred tax asset, a valuation
allowance must be established.  Deferred tax assets and liabilities are measured
using  enacted  tax rates  expected  to apply to taxable  income in the years in
which those temporary  differences are expected to be recovered or settled.  The
effect  on  deferred  tax  assets  and  liabilities  of a change in tax rates is
recognized in income in the period that includes the enactment date.            

Statutory Transfer of Surplus                                                   

A required  quarterly transfer of 10% of net income is to be made to the surplus
fund in  accordance  with New York State  Banking  Regulations.  No  transfer is
required  if net worth as a percent of  deposits  exceeds 10% at the end of each
quarter.                                                                        

Financial Instruments                                                           

In the  normal  course of  business,  the Bank is a party to  certain  financial
instruments  with  off-balance  sheet risk such as commitments to extend credit,
unused  lines of credit and  letters of credit.  The Bank's  policy is to record
such instruments when funded.                                                   

Cash and Cash Equivalents                                                       

For  purposes  of the  consolidated  statement  of cash  flows,  cash  and  cash
equivalents   consist  of  cash,   due  from  banks,   federal  funds  sold  and
interest-bearing deposits with banks.                                           

New Accounting Pronouncements                                                   

In June 1997, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
130  "Reporting  Comprehensive  Income." This  statement is effective for fiscal
years beginning after December 31, 1997 and restatement of financial  statements
or  information  for  earlier  periods  provided  for  comparative  purposes  is
required. The provisions of this statement will not affect the Bank's results of
operations or financial condition.                                              

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In February 1998,  the FASB issued SFAS No. 132  "Employers'  Disclosures  About
Pensions  and  Other  Postretirement  Benefits."  SFAS No.  132  supersedes  the
disclosure  requirements for pension and other postretirement plans as set forth
in SFAS No. 87  "Employers'  Accounting  for Pension,"  SFAS No. 88  "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for  Termination   Benefits,"  and  SFAS  No.  106  "Employers'  Accounting  for
Postretirement  Benefits  Other Than  Pensions."  SFAS No. 132 does not  address
measurement or recognition for pension and other postretirement benefit plans.  

SFAS No. 132 is effective for fiscal years  beginning  after  December 15, 1997.
Restatement of disclosures for earlier periods provided for comparative purposes
is required unless the information is not readily  available,  in which case the
notes to the financial statements shall include all available  information and a
description of the information not available.                                   

In  June  1998,  the  FASB  issued  SFAS  No.  133  "Accounting  for  Derivative
Instruments and Hedging Activities." This Statement  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity  recognize all derivatives as either assets or liabilities in the
statement of financial  condition and measure those  instruments  at fair value.
The  accounting  for  changes in the fair value of a  derivative  depends on the
intended use of the derivative and the resulting designation.  SFAS No. 133 will
not impact the Bank's accounting or disclosures.                                

Reclassifications                                                               

Amounts in the prior year's consolidated  financial  statements are reclassified
whenever necessary to conform with the current year's presentation.             

2.  CONVERSION TO STOCK FORM OF OWNERSHIP                                       

On May 21,1998,  the Board of Trustees adopted a Plan of Conversion  ("Plan") to
convert the Bank from a New York mutual savings bank to a New York stock savings
bank and to  become a wholly  owned  subsidiary  of a new  Delaware  corporation
("Company") to be organized at the direction of the Bank.  Pursuant to the Plan,
the Company  will issue and offer for sale shares of its common stock and use up
to 50% of the net  proceeds of such sale to acquire all of the capital  stock of
the  Bank.  The  proposed   transaction  is  subject  to  the  approval  of  the
Superintendent  of Banks of New York State and of the Federal Deposit  Insurance
Corporation,  as well as to a vote of the Bank's voting depositors. In addition,
the Company will file a registration  statement with the Securities and Exchange
Commission  ("SEC")  with  respect to the  offering of its common stock and will
seek the permission of the Office of Thrift  Supervision  ("OTS") to acquire the
stock of the Bank to be issued upon the Bank's conversion.                      

At the time of conversion,  the Bank will establish a liquidation  account in an
amount  equal  to the  retained  income  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.                                

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Pursuant to the Plan, the Company intends to establish a Charitable  Foundation,
Employee  Stock  Ownership  Plan  (ESOP),  Stock Option  Plan,  Recognition  and
Retention Plan and Employment and Retention Agreements as discussed below.      

The Company  proposes to fund the Charitable  Foundation by  contributing to the
Charitable Foundation,  immediately following the conversion, a number of shares
of authorized but unissued shares of the Common Stock equal to  approximately 3%
of Common Stock sold in the Offering. Such contribution,  once made, will not be
recoverable  by the Company or the Bank.  The Company  will  recognize  the full
expense equal to the fair value of the stock, in the amount of the  contribution
in the quarter in which it occurs.  Such expense will reduce earnings and have a
material  impact on the Company's  and the Bank's  earnings for such quarter and
for the year.                                                                   

The Company plans to set up an ESOP, a  tax-qualified  benefit plan for officers
and  employees  of the Company and the Bank.  It is  anticipated  that an amount
equal to 8% of the shares of Common Stock sold in the Offering (including shares
issued to the Foundation) will be purchased by the ESOP with funds loaned by the
Company.  The Company and the Bank  intend to make annual  contributions  to the
ESOP in an amount equal to the principal and interest requirement of the debt.  

Following  consummation of the conversion,  the Company intends to adopt a Stock
Option Plan and a Recognition and Retention Plan,  pursuant to which the Company
intends to reserve a number of shares of Common  Stock equal to an  aggregate of
10% and 4%,  respectively,  of the Common  Stock  issued in the  conversion  for
issuance pursuant to stock options and stock appreciation  rights and stock. The
Stock Option Plan and  Recognition  and Retention  Plan will not be  implemented
prior to receipt of stockholder approval of the Plan.                           

Upon  consummation of the  conversion,  the Company and the Bank intend to enter
into employment  agreements with certain senior management  personnel and change
in control agreements with other key employees.                                 

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 June 30, 1998,  approximately $59 conversion costs had been
incurred.                                                                       

The  conversion  will not affect the terms of any loans held by borrowers of the
Bank or the balances, interest rates, federal deposit insurance or maturities of
deposit accounts at the Bank.                                                   

3.  SUBSEQUENT EVENT - MERGER                                                   

On July 31, 1998, Cohoes Savings Bank and SFS Bancorp,  Inc. ("SFS"),  parent of
Schenectady  Federal  Savings  Bank,  executed an  Agreement  and Plan of Merger
pursuant to which SFS will merge into a newly formed holding company of the Bank
to be  organized in  connection  with the Bank's  conversion  from a mutual to a
stock institution.  Under the terms of the agreement,  each share of SFS will be
exchanged for a number of shares of common stock of the holding company equal to
the lesser of $26.50 divided by the initial public offering price of the holding
company  common  stock or $35.00  divided by the average  closing  price of that
stock for the first ten trading days. The  transaction is expected to constitute
a tax-free  reorganization under the Internal Revenue Code, so that shareholders
of SFS who receive  holding company common stock will not recognize gain or loss
in  connection  with  the  exchange.  This  merger  will be  accounted  for as a
pooling-of-interest transaction.                                                

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Consummation  of the merger is subject to the  approval of the  shareholders  of
SFS,  the  conversion  of the Bank and the  receipt of all  required  regulatory
approvals.  The  transaction  is  anticipated  to close in the fourth quarter of
1998.                                                                           

4.  REGULATORY MATTERS                                                          

The Bank is subject to various regulatory capital  requirements  administered by
the federal banking agencies.  Failure to meet minimum capital  requirements can
initiate  certain  mandatory and possibly  additional  discretionary  actions by
regulators  that,  if  undertaken,  could have a direct  material  effect on the
Bank's  financial   statements.   Under  capital  adequacy  guidelines  and  the
regulatory  framework for prompt corrective  action, the Bank must meet specific
capital  guidelines  that involve  quantitative  measures of the Bank's  assets,
liabilities and certain  off-balance  sheet items  calculated  under  regulatory
accounting  practices.  The Bank's capital amounts and  classification  are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weightings and other factors.                                                   

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain  minimum amounts and ratios (set forth in the table
below) of total and Tier 1  capital  (as  defined  in the  regulations)  to risk
weighted  assets (as  defined),  and of Tier 1 capital  (as  defined) to average
assets (as defined).  Management  believes,  as of June 30, 1998,  that the Bank
meets all capital adequacy requirements to which it is subject.                 

As of June 30,  1998,  the most recent  notification  from the  Federal  Deposit
Insurance  Corporation  categorized  the  Bank as  well  capitalized  under  the
regulatory  framework for prompt  corrective  action.  To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based,
Tier 1 leverage  ratios as set forth in the table.  There are no  conditions  or
events  since that  notification  that  management  believes  have  changed  the
institution's category.                                                         

The Bank's actual capital amounts and ratios are also presented in the following
table:                                                                          

                                                        [Enlarge/Download Table]

                                                                                                  To Be Well Capitalized        
                                                                  For Capital Adequacy            Under Prompt Corrective       
                                                Actual                  Purposes                     Action Provisions          
                                                ------                  --------                     -----------------          
                                         Amount       Ratio      Amount          Ratio            Amount           Ratio        
                                         ------       -----      ------          -----            ------           -----        
                                                                                                                                
As of June 30, 1998:                                                                                                            
    Total capital (to risk weighted                                                                                             
       assets)                        $   56,803       17.1%  $   26,601    greater than 8.0%  $  33,251      greater than 10.0%
    Tier 1 Capital (to risk weighted                                                                                            
       assets)                            53,270       16.0       13,300    greater than 4.0      19,951      greater than  6.0 
    Tier 1 Capital (to average assets)    53,270       10.6       20,063    greater than 4.0      25,079      greater than  5.0 


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                                                        [Enlarge/Download Table]

                                                                                                  To Be Well Capitalized       
                                                                   For Capital Adequacy           Under Prompt Corrective      
                                                Actual                   Purposes                    Action Provisions         
                                                ------                   --------                    -----------------         
                                          Amount      Ratio      Amount           Ratio            Amount          Ratio       
                                          ------      -----      ------           -----            ------          -----       
                                                                                                                               
As of June 30, 1997:                                                                                                           
    Total capital (to risk weighted                                                                                            
       assets)                         $  52,288       16.4%  $  25,519     greater than 8.0%  $   31,898    greater than 10.0%
    Tier 1 Capital (to risk weighted                                                                                           
       assets)                            49,183       15.4      12,759     greater than 4.0       19,139    greater than  6.0 
    Tier 1 Capital (to average assets)    49,183       10.1      19,455     greater than 4.0       24,319    greater than  5.0 
                                                        [Enlarge/Download Table]


                                                                                                  To Be Well Capitalized       
                                                                  For Capital Adequacy            Under Prompt Corrective      
                                                 Actual                 Purposes                     Action Provisions         
                                                 ------                 --------                     -----------------         
                                          Amount      Ratio     Amount            Ratio            Amount         Ratio        
                                          ------      -----     ------            -----            ------         -----        
                                                                                                                               
As of June 30, 1996:                                                                                                           
    Total capital (to risk weighted                                                                                            
       assets)                         $  47,789      15.1%  $  25,310      greater than 8.0%  $   31,637    greater than 10.0%
    Tier 1 Capital (to risk weighted                                                                                           
       assets)                            44,540      14.1      12,655      greater than 4.0       18,982    greater than  6.0 
    Tier 1 Capital (to average assets)    44,540       9.7      13,842      greater than 3.0       23,070    greater than  5.0 

5.  SECURITIES AVAILABLE FOR SALE                                               

The amortized cost of securities  available for sale and their related estimated
fair values at June 30, 1998 and 1997, are as follows:                          

                                                        [Enlarge/Download Table]


                                                                    June 30, 1998                            
                                           ------------------------------------------------------------------
                                                                  Gross            Gross                     
                                                                Unrealized       Unrealized    Estimated Fair
                                           Amortized Cost         Gains            Losses           Value    
                                           --------------         -----            ------           -----    
                                                                                                             
Debt securities:                                                                                             
    U.S. Government and agencies ......... $      23,296      $          -     $         (59)   $      23,237
    Other obligations ....................           271                  5               -               276
    Mortgage-backed securities ...........        16,855                 91               -            16,946
    Collateralized mortgage obligations ..         4,019                  8              (24)           4,003
                                           -------------      -------------    -------------    -------------
              Total debt securities ......        44,441                104              (83)          44,462
    Equity securities ....................         4,260                 -                (2)           4,258
                                           -------------      -------------    -------------    -------------
              Total securities available                                                                     
                 for sale ................ $      48,701      $         104    $         (85)   $      48,720
                                           =============      =============    =============    =============

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                                                                       June 30, 1997                          
                                           -------------------------------------------------------------------
                                                                  Gross            Gross                      
                                                                Unrealized       Unrealized     Estimated Fair
                                           Amortized Cost         Gains           Losses             Value    
                                           --------------         -----           ------             -----    
                                                                                                              
Debt securities:                                                                                              
    U.S. Government and agencies ......... $      18,551      $           9    $        (123)   $      18,437 
    Other obligations ....................           488                  7               (2)             493 
    Mortgage-backed securities ...........         6,724                 38               -             6,762 
    Collateralized mortgage obligations ..         6,377                 14              (89)           6,302 
                                           -------------      -------------    -------------    ------------- 
              Total debt securities ......        32,140                 68             (214)          31,994 
    Equity securities ....................         3,481                 -                -             3,481 
                                           -------------      -------------    -------------    ------------- 
              Total securities available                                                                      
                for sale ................. $      35,621      $          68    $        (214)   $      35,475 
                                           =============      =============    =============    ============= 

The equity investment  securities at June 30, 1998 and 1997 consist primarily of
common stock of the Federal  Home Loan Bank of New York.  These  securities  are
nonmarketable and are, therefore, stated at cost.                               

A summary of maturities of debt  securities  available for sale at June 30, 1998
is as follows:                                                                  

                                                    Estimated Fair
                              Amortized Cost         Value
                              --------------         -----
Within one year ......................  $         179     $         178       
From one to five years ...............         42,654            42,669       
After five years to ten years ........          1,608             1,615       
After ten years ......................             -                 -        
                                 -------------     -------------
                                 $      44,441     $      44,462
                                 =============     =============

During  the years  ended  June 30,  1998 and 1997,  there  were no sales of debt
securities  available for sale. During the year ended June 30, 1996, proceeds of
sales of debt securities available for sale totaled $10,024.  Gross gains of $34
and gross losses of $24 were realized on those sales.                           

6.  INVESTMENT SECURITIES                                                       

The  carrying  values  of  securities  held for  investment  and  their  related
estimated fair values at June 30, 1998 and 1997 are as follows:                 

                                                        [Enlarge/Download Table]


                                                                        June 30, 1998                         
                                           -------------------------------------------------------------------
                                                                   Gross            Gross                     
                                                                 Unrealized       Unrealized    Estimated Fair
                                            Amortized Cost         Gains           Losses            Value    
                                            --------------         -----           ------            -----    
                                                                                                              
Investment securities:                                                                                        
    U.S. Government and agencies ......     $      22,025      $           6    $         (32)   $      21,999
    Other obligations .................               388                  1               -               389
    Mortgage-backed securities ........            23,011                153               (5)          23,159
                                            -------------      -------------    -------------    -------------
              Total investment securities   $      45,424      $         160    $         (37)   $      45,547
                                            =============      =============    =============    =============

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                                                        [Enlarge/Download Table]

                                                                       June 30, 1997                         
                                           ------------------------------------------------------------------
                                                                  Gross           Gross                      
                                                                Unrealized      Unrealized     Estimated Fair
                                           Amortized Cost         Gains           Losses            Value    
                                           --------------         -----           ------            -----    
                                                                                                             
Investment securities:                                                                                       
    U.S. Government and agencies ......    $        6,049     $            3   $       (52)    $        6,000
    Other obligations .................               848                 -             (2)               846
    Mortgage-backed securities ........            18,376                 53           (89)            18,340
                                           --------------     --------------   -----------     --------------
              Total investment securities  $       25,273     $           56   $      (143)    $       25,186
                                           ===============    ==============   ===========     ==============

A summary of maturities of debt  securities held for investment at June 30, 1998
is as follows:                                                                  
                                                            Estimated Fair
                                      Amortized Cost         Value
                                          --------------    --------------
 Within one year ...................      $          682    $          687
 From one to five years ............              32,723            32,801
 After five years to ten years .....              11,636            11,672
 After ten years ...................                 383               387
                                          --------------    --------------
                                          $       45,424    $       45,547
                                          ==============    ==============

There were no sales of  securities  held for  investment  during the three years
ended June 30, 1998.                                                            

7.  NET LOANS RECEIVABLE                                                        

A summary of loans at June 30, 1998 and 1997 is as follows:                     

                                           1998             1997
                                           ----             ----
Mortgage loans on real estate:                                                  
Residential adjustable rate loans .       $   170,010      $   222,255  
Commercial real estate ............            93,229           93,979  
Residential fixed rate loans ......            87,715           20,470  
FHA and VA insured loans ..........               674              895  
                                        -----------      -----------
                                            351,628          337,599
                                        -----------      -----------
Other loans:                                                                  
Conventional second mortgages ...            15,093           14,069
Home equity lines of credit ......            21,976           25,205 
Commercial business loans ........            14,991           12,096 
Home improvement loans ...........               547              662 
Auto loans .......................             9,783            9,290 
Credit card loans ................             1,655            2,152 
Personal loans, secured and unsecured             409              576  
Other loans ......................               228              200 
                                       ------------     ------------
                                             64,682           64,250
                                       ------------     ------------
Less:                                                                           
Deferred loan origination fees and costs          (18)            (214) 
Allowance for loan losses .........            (3,533)          (3,105) 
                                       ------------     ------------
        Net loans ...............      $    412,759     $    398,530
                                       ============     ============

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Changes in the  allowance  for loan losses for the years ended June 30, 1998 and
1997 were as follows:                                                           

                                1998        1997        1996
                                ----        ----        ----
Allowance for loan losses at                                                    
beginning of year ................ $  3,105    $  3,249    $  3,133     
Provision charged to operations ..    1,400       1,325         490     
Loans charged-off, net ...........     (972)     (1,469)       (374)    
                              --------    --------    --------
Allowance for loan losses at year-end  $  3,533    $  3,105    $  3,249         
                              ========    ========    ========

The  following  table sets forth the  information  with regard to  nonperforming
mortgage loans at June 30, 1998 and 1997:                                       

                                                     1998           1997
                                                     ----           ----
Loans on nonaccrual status and in the process                                   
   of foreclosure ...............................  $    2,545     $    3,382
Loans on nonaccrual status but not in the process                               
   of foreclosure ...............................         997          1,063
Loans past due 90 days or more and still                                        
  accruing interest ............................          -              -
Loans restructured as to payment terms and/or                                   
   interest rates ...............................       1,929          1,906
                                                   ----------     ----------
            Total nonperforming mortgage loans ..  $    5,471     $    6,351
                                                   ==========     ==========

The  following  table sets forth the  information  with regard to  nonperforming
other loans at June 30, 1998 and 1997:                                          

                                                 1998           1997
                                                 ----           ----
Nonaccrual loans .................................. $    121       $    295     
Loans past due 90 days or more and still                                        
 accruing interest ...........................       57             42
Loans restructured as to payment terms and/or                                   
interest rates ..............................       -              -
                                              ---------       --------
         Total nonperforming other loans ..... $    178       $    337
                                               ========       ========

Accumulated  interest income on nonaccrual loans of approximately $214, $262 and
$441 was not  recognized  as income in the years ended June 30,  1998,  1997 and
1996,  respectively.  There  are no  commitments  to  extend  further  credit on
nonperforming loans.                                                            

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As of June 30, 1998 and 1997, the Bank's  recorded  investment in impaired loans
and the  related  valuation  allowance  calculated  under  SFAS  No.  114 are as
follows:                                                                        

                                                        [Enlarge/Download Table]

                                                1998                             1997              
                                  -------------------------------  --------------------------------
                                     Recorded         Valuation        Recorded         Valuation  
                                    Investment        Allowance       Investment        Allowance  
                                    ----------        ---------       ----------        ---------  
                                                                                                   
Valuation allowance required      $        1,638   $          344  $        1,261    $          198
Valuation allowance not required             630               -              645                - 
                                  --------------   --------------  --------------    ------------- 
                                  $        2,268   $          344  $        1,906    $          198
                                  ==============   ==============  ==============    ==============

This allowance is included in the allowance for loan losses on the  consolidated
statements of financial condition.                                              

The average  recorded  investment in impaired loans for the years ended June 30,
1998 and 1997 was approximately $2,087 and $1,979, respectively.                

Interest  payments  received on impaired  loans are recorded as interest  income
unless collection of the remaining investment is doubtful in which case payments
received are recorded as reductions of principal.  The Bank recognized  interest
of $215, $185 and $189 on impaired loans for the years ended June 30, 1998, 1997
and  1996,  respectively.  Accumulated  interest  income  on  impaired  loans of
approximately  $15, $18 and $19 was not  recognized as income in the years ended
June 30, 1998, 1997 and 1996, respectively.                                     

8.  ACCRUED INTEREST RECEIVABLE                                                 

Accrued interest receivable consists of the following at June 30, 1998 and 1997:

                                    1998              1997
                                    ----              ----
Loans ................................   $      2,531      $      2,558     
Investment securities and securities                                        
  available for sale ............            951               652
                                    ------------      ------------
                                    $      3,482      $      3,210
                                    ============      ============

9.  BANK PREMISES AND EQUIPMENT                                                 

Bank premises and equipment consist of the following at June 30, 1998 and 1997: 

                                    1998              1997
                                    ----              ----
Land ................................... $        1,529    $        1,529       
Building and leasehold improvements ....          6,553             6,335       
Furniture, fixtures and equipment ......          6,284             5,736       
                                  --------------    --------------
                                          14,366            13,600
Less- Accumulated depreciation .........         (7,063)           (5,943)      
                                  --------------    --------------
                                  $        7,303    $        7,657
                                  ==============    ==============

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Amount  charged to  depreciation  expense was $1,117,  $1,101 and $1,015 for the
years ended June 30, 1998, 1997 and 1996, respectively.                         

10.  MORTGAGE SERVICING RIGHTS                                                  

The following is a summary of the mortgage  servicing rights activity during the
years ended June 30, 1998 and 1997: 1998 1997 1996                              

Balance, beginning of year ....................  $  1,146   $  1,211   $  1,376 

Mortgage servicing rights originated from                               
     unrelated third parties ................        81        104         -
Amortization of mortgage servicing rights                               
included as a reduction of servicing fee                          
income in the consolidated statements of                          
       operations .............................      (185)      (169)      (165)
                                                --------   --------   --------
Balance, end of year ..........................  $  1,042   $  1,146   $  1,211 
                                                ========   ========   ========

Serviced Loans                                                                  

The  total  loans  serviced  by  the  Bank  for  unrelated  third  parties  were
approximately  $233.1  million,  $256.9  million and $288.2  million at June 30,
1998, 1997 and 1996, respectively.                                              

11.  DUE TO DEPOSITORS                                                          

Due to depositors  account  balances as of June 30, 1998 and 1997 are summarized
as follows:                                                                     

Range of                    
                Interest Rate            1998                 1997
                -------------            ----                 ----
Savings accounts          3.0%-5.5%      $         142,867    $         137,790 
Money market accounts      2.8-3.9                  21,672               15,450 
                                        -----------------    -----------------
                                                  164,539              153,240
Time deposits              3.8-8.5                 231,049              230,306 
Commercial deposits        0.0-1.8                  15,957               11,250 
Demand accounts            0.0-1.8                  37,996               34,594 
                                        -----------------    -----------------
                                        $         449,541    $         429,390
                                        =================    =================

Time deposits over $100,000  amounted to  approximately  $31.1 million and $35.2
million at June 30, 1998 and 1997, respectively.                                

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The approximate amount of contractual  maturities of time deposits for the years
subsequent to June 30, 1998 is as follows:                                      

Years ending June 30:                                       
1999 ........................  $   159,550          
2000 ........................       50,043          
2001 ........................        7,983          
2002 ........................        5,064          
2003 and thereafter .........        8,409          
                     -----------
                     $   231,049

Interest  expense on deposits for the years ended June 30, 1998,  1997 and 1996,
is summarized as follows:                                                       

                      1998               1997               1996
                      ----               ----               ----
Savings accounts ...... $         4,459    $         4,359    $         4,177   
Money market accounts .             569                447                488   
Time deposits .........          13,484             12,487             12,830   
Demand accounts .......             304                275                246   
                     ---------------    ---------------    ---------------
                     $        18,816    $        17,568    $        17,741
                     ===============    ===============    ===============

12.  BORROWINGS                                                                 

Information concerning borrowings,  which primarily consist of Federal Home Loan
Bank  ("FHLB")  advances,  for the years ended June 30,  1998,  1997 and 1996 is
summarized as follows:                                                          

                                           1998          1997         1996
                                           ----          ----         ----
Average balance during the year           $    5,467    $    2,392   $    4,682 
Average interest rate during the year           6.07%         5.56%        6.34%
Maximum month-end balance during the year $   19,983    $   16,157   $   13,213 
Interest expense on borrowings            $      332    $      133   $      297 

FHLB advances are made at fixed rates with remaining maturities of approximately
ten years as of June 30, 1998.                                                  

FHLB advances are collateralized by all FHLB stock owned by the Bank in addition
to a blanket pledge of eligible assets in an amount required to be maintained so
that the estimated  fair value of such eligible  assets  exceeds,  at all times,
110% of the outstanding advances.                                               

13.  EMPLOYEE BENEFITS                                                          

401(k) Retirement Savings Plan                                                  

The Bank  sponsors a 401(k)  Retirement  Savings  Plan which is available to all
full-time employees who have been employed by the Bank for a minimum of one year
and are at least 21 years of age.  The Plan allows  employees to defer up to 15%
of their  salary  on a pretax  basis  through  contributions  to the  Retirement
Savings Plan. The Bank matches 50% of employee  contributions up to a maximum of
6% of the amount deferred by the employee.  The maximum contribution an employee
may make which is subject to matching  by the Bank is set  annually by the Board
of Trustees.                                                                    

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Employees may also make  additional  voluntary  after-tax  contributions  to the
Plan,  which  are  not  matched  by the  Bank,  up to an  additional  10% of the
employee's salary. Total 401(k) Plan expenses for the years ended June 30, 1998,
1997 and 1996 were approximately $378, $319 and $285, respectively.             

Postretirement Medical and Life                                                 
Insurance Benefits                                                              

The Bank  provides  postretirement  medical  and  life  insurance  benefits  for
full-time  employees.  All  employees who meet the criteria for either normal or
early  retirement  and have at least 10 years of service are  eligible.  Retired
employees are required to contribute  toward the cost of coverage as established
by the Bank, based on medical and life insurance costs.                         

Benefit  and premium  payments  are made when they are due and are not funded in
advance.                                                                        

The Bank's estimated accrued postretirement obligation at June 30, 1998 and 1997
is as follows:                                                                  

                                                             1998       1997
                                                             ----       ----
Accrued postretirement obligation:                                              
   Retired employees ..................................    $    530   $    532
   Fully eligible active employees ....................          72         67
   Other active employees .............................         114         96
                                                           --------   --------
                                                                716        695
Unrecognized net gain from actual experience different from                     
   assumed, amortized over 12.3 years .................         281        327

                                                           --------   --------
             Total accrued postretirement obligation ..    $    997   $  1,022
                                                           ========   ========

Net periodic postretirement benefit cost included the following components:     

                                          1998        1997        1996
                                          ----        ----        ----
Service cost ............................  $      12   $      10   $      19    
Interest cost ...........................         49          48          64    
Amortization of net gain from actual                                            
 experience different from assumed ...        (61)        (58)        (17)
                                       ---------   ---------   ---------
                                       $      -    $      -    $      66
                                        ========   =========   =========

The  weighted   average  discount  rate  used  in  determining  the  accumulated
postretirement  benefit  obligation  was 7.25% as of June 30,  1998 and 1997 and
7.75% as of June 30, 1996.  For  measurement  purposes,  the assumed health care
cost trend rate of 10% decreases  gradually until an ultimate trend rate of 5.5%
is reached over 10 years.  In  accordance  with the terms of the  Postretirement
Medical  Benefit  Plan,  once  costs  are  150% of the  1993  level,  additional
increases become the responsibility of the retiree.                             

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The health  care cost  trend rate  assumption  has a  significant  effect on the
amount of obligation and expense reported. To illustrate,  increasing the health
care  trend  rate by one  percent  each  year  would  increase  the  accumulated
postretirement  benefit obligation as of June 30, 1998 and 1997 by approximately
$2 and $2,  respectively,  and would have no material effect on the net periodic
postretirement benefit cost for the three years ended June 30, 1998.            

14.  SURPLUS AND UNDIVIDED PROFITS                                              

In accordance with State of New York Banking Law,  surplus is subject to certain
restrictions,  including  a  prohibition  of its use for  payment of  dividends,
except with the approval of the Superintendent of Banks.                        

The balance in surplus includes approximately $5.2 million at December 31, 1997,
the  latest  date from  which  this  calculation  is  available,  which has been
designated as a reserve for bad debts under federal income tax  regulations  and
has resulted in income tax  deductions  in prior  years.  Any use of this amount
other than as provided for in those  regulations  would result in taxable income
at the then current rate.                                                       

15.  INCOME TAX EXPENSE                                                         

The components of the income tax expense (benefit) are as follows:              

                                1998            1997            1996

Current tax expense:                                                            
 Federal .................... $      2,450    $      2,440    $      2,601
 State ......................          517             531             533
Deferred tax expense (benefit) .         (317)              1            (252)  
                              ------------    ------------    ------------
                              $      2,650    $      2,972    $      2,882
                              ============    ============    ============

The  provision  for income  taxes  differs  from that  computed  at the  federal
statutory rate as follows:                                                      

                                      1998           1997           1996
                                      ----           ----           ----
Tax at federal statutory rate ...... $     2,291    $     2,589    $     2,474  
State taxes, net of federal benefit.         341            350            352  
Other, net .........................          18             33             56  
                                   -----------    -----------    -----------
      Total income tax expense ... $     2,650    $     2,972    $     2,882
                                   ===========    ===========    ===========
Effective rate .....................     39.34%         39.03%         39.60%   
                                     =====          =====          =====

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The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and  deferred  tax  liabilities  at June 30, 1998 and
1997 are presented below:                                                       

                                                              1998        1997
                                                              ----        ----
Deferred tax assets:                                                            
    Differences in reporting the provision for loan losses $   1,519   $   1,335
    Differences in reporting certain accrued expenses ....       789         771
    Other ................................................       297         167
                                                           ---------   ---------
              Total gross deferred tax assets ............     2,605       2,273
                                                           ---------   ---------
Deferred tax liabilities:                                                     
    Differences in reporting the provision for loan losses       385         513
    Deferred net loan origination fees ...................       218          92
    Differences in reporting depreciation ................       107         117
    Differences in reporting certain accrued expenses ....       296         269
    Other ................................................         4           4
                                                           ---------   ---------
              Total gross deferred tax liabilities .......     1,010         995
                                                           ---------   ---------
              Net deferred tax asset at end of year ......     1,595       1,278
Net deferred tax asset at beginning of year ..............     1,278       1,279
                                                           ---------   ---------
              Deferred tax expense (benefit) for the year  $    (317)  $       1
                                                           =========   =========

The total  deferred tax asset as of June 30, 1998 and 1997 is  considered by the
Bank to be more likely than not realizable  based upon the  historical  level of
taxable  income in the prior years as well as the time period  during  which the
items giving rise to the deferred tax assets are expected to turn around.       

In addition to the deferred tax assets and liabilities described above, the Bank
also has a deferred tax liability of approximately  $19 and a deferred tax asset
of approximately  $146 at June 30, 1998 and 1997,  respectively,  related to the
net unrealized gain (loss) on securities available for sale.                    

Under Section 593 of the Internal Revenue Code, thrift  institutions such as the
Bank which met certain  definitional  tests,  primarily relating to their assets
and the nature of their business,  were 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, could have been 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  nonqualifying  reserve.
Similar  deductions  or additions  to the Bank's bad debt reserve are  permitted
under the New York State Bank  Franchise  Tax;  however,  for  purposes of these
taxes, the effective allowable  percentage under the PTI Method is approximately
32% rather than 8%.                                                             

Effective  January 1, 1997,  Section 593 was amended,  and the Bank is unable to
make  additions  to its tax bad debt  reserve,  is permitted to deduct bad debts
only as they occur and is additionally required to recapture (that is, take into
taxable income) over a multiyear period,  beginning with the Bank's taxable year
beginning on January 1, 1997, the excess of the balance of its bad debt reserves
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. Such recapture requirements would be deferred for each of the
two  successive  taxable  years  beginning  January 1,  1997,  in which the Bank
originates a minimum amount of certain  residential loans based upon the average
of the  principal  amounts of such loans  originated  by the Bank during its six
taxable years  preceding  January 1, 1997.  This  amendment has no impact on the
Bank's results of operations for federal income tax purposes. The New York State
tax law has been  amended to prevent a similar  recapture of the Bank's bad debt
reserve,  and to permit  continued future use of the bad debt reserve method for
purposes of determining the Bank's New York State tax liability.                

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In addition, the Bank has accumulated bad debt reserves for tax purposes of $3.7
million under Section 593 through  December 31, 1987 for which no deferred taxes
have been provided.  Under the tax laws as amended,  the event that would result
in taxation of these reserves is the failure of the Bank to maintain a specified
qualifying-assets ratio or meet other thrift definition tests for New York State
tax purposes.                                                                   

16.  COMMITMENTS AND CONTINGENT LIABILITIES                                     

Off-Balance Sheet Financing and                                                 
Concentrations of Credit                                                        

The Bank is a party to certain financial instruments with off-balance sheet risk
in the normal course of business to meet the financing  needs of its  customers.
These  financial  instruments  include the Bank's  commitments to extend credit.
Those instruments involve, to varying degrees, elements of credit risk in excess
of the amount recognized on the consolidated  statements of financial condition.
The contract amounts of those instruments  reflect the extent of involvement the
Bank has in particular classes of financial instruments.                        

The Bank's exposure to credit loss in the event of  nonperformance  by the other
party to the  commitments  to extend credit is  represented  by the  contractual
notional amount of those instruments.  The Bank uses the same credit policies in
making commitments as it does for on-balance sheet instruments.                 

Unless otherwise  noted, the Bank does not require  collateral or other security
to support financial instruments with credit risk.                              

Contract amounts of financial  instruments that represent credit risk as of June
30, 1998 and 1997 at fixed and variable interest rates are as follows:          

                                                        [Enlarge/Download Table]


                                                                                     1998                   
                                                                --------------------------------------------
                                                                Fixed           Variable            Total   
                                                                -----           --------            -----   
                                                                                                            
Financial instruments whose contract amounts represent                                                      
    credit risk (including unused lines of credit and                                                       
    unadvanced funds):                                                                                      
       Commercial business loans ......................... $          -     $      14,897      $      14,897
       Conventional mortgages ............................        11,971            1,338             13,309
       Commercial mortgage loans .........................            -            11,991             11,991
       Construction loans ................................            -               890                890
       Credit card loans .................................            -             2,996              2,996
       Consumer loans ....................................           203           12,886             13,089
                                                           -------------    -------------      -------------
                                                           $      12,174    $      44,998      $      57,172
                                                           =============    =============      =============

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                                                                                   1997                      
                                                           --------------------------------------------------
                                                                Fixed           Variable            Total    
                                                                -----           --------            -----    
                                                                                                             
Financial instruments whose contract amounts represent                                                       
    credit risk (including unused lines of credit and                                                        
    unadvanced funds):                                                                                       
       Commercial business loans ......................... $          -     $      10,172      $      10,172 
       Conventional mortgages ............................         1,531            4,315              5,846 
       Commercial mortgage loans .........................            -             4,622              4,622 
       Construction loans ................................            -               830                830 
       Credit card loans .................................            -             3,300              3,300 
       Consumer loans ....................................           393           12,438             12,831 
                                                           ---------------- -------------      ------------- 
                                                           $       1,924    $      35,677      $      37,601 
                                                           =============    =============      ============= 

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee.  Since  certain  commitments  are  expected to expire
without being fully drawn upon, the total commitment  amounts do not necessarily
represent  future  cash   requirements.   The  Bank  evaluates  each  customer's
credit-worthiness  on a case-by-case  basis.  The amount of collateral,  if any,
required  by the Bank upon the  extension  of  credit  is based on  management's
credit  evaluation of the customer.  Mortgage and construction  loan commitments
are secured by a first lien on real estate.                                     

Commitments to extend credit may be written on a fixed rate basis, thus exposing
the Bank to interest  rate risk,  given the  possibility  that market  rates may
change between commitment and actual extension of credit.                       

Certain  mortgage loans are written on an adjustable  basis and include interest
rate caps which limit  annual and lifetime  increases  in the interest  rates on
such loans.  Generally,  adjustable  rate mortgages have an annual rate increase
cap of 2% and lifetime rate increase cap of 4.5% to 6.75%. These caps expose the
Bank to interest rate risk should market rates increase  above these limits.  As
of June 30, 1998 and 1997, $221.0 million and $262.4 million,  respectively,  of
mortgage loans had interest rate caps.                                          

The Bank  generally  enters  into  rate  lock  agreements  at the time that loan
applications are made. These rate lock agreements fix the interest rate at which
the loan, if ultimately made, will be originated. Such agreements may exist with
borrowers with whom commitments to extend credit have been made, as well as with
individuals  who have not yet received a commitment.  At June 30, 1998 and 1997,
the Bank had rate lock  agreements  related to  commitments  to extend credit as
well as uncommitted loan applications  amounting to approximately $841 and $900,
respectively.                                                                   

In order to reduce the interest rate risk associated with these items as well as
its  portfolio of loans held for sale,  the Bank enters into  agreements to sell
loans in the secondary market to unrelated investors. At June 30, 1998 and 1997,
the  Bank  has $0 and  $175,  respectively,  of  commitments  to sell  loans  to
unrelated investors.                                                            

Concentrations of Credit                                                        

The Bank primarily grants consumer and residential loans to customers located in
the New York State  counties of Albany,  Rensselaer,  Schenectady  and Saratoga.
Although the Bank has a diversified loan portfolio, a substantial portion of its
debtors' ability to honor their contracts are dependent upon the real estate and
construction-related sectors of the economy.                                    

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Borrowing Arrangements                                                          

The Bank has  lines of  credit  available  with a  correspondent  bank  totaling
approximately  $49.2 million.  These lines of credit expire on October 28, 1998.
As of June 30, 1998, there was no outstanding balances on these lines.          

Leases                                                                          

The Bank leases  certain  branches,  equipment  and  automobiles  under  various
noncancelable  operating  leases.  The future  minimum  payments by year and the
aggregate,  under all significant noncancelable operating leases with initial or
remaining terms of one year or more, are as follows:                            

           Operating
          Leases
          ------
Year ending June 30:                                                          
1999 ...........................    $    395                          
2000 ...........................         413                          
2001 ...........................         341                          
2002 ...........................         248                          
2003 and thereafter ............         127                          
       -----------
          $  1,524
       ===========

Total lease expense was  approximately  $383,  $298 and $176 for the years ended
June 30, 1998, 1997 and 1996, respectively.                                     

Contingent Liabilities                                                          

In the ordinary course of business,  there are various legal proceedings pending
against  the  Bank.  Based on  consultation  with  outside  counsel,  management
considers  that the aggregate  exposure,  if any,  arising from such  litigation
would not have a material  adverse  effect on the Bank's  statement of financial
condition.                                                                      

17.  DISCLOSURES ABOUT THE FAIR                                                 
VALUE OF FINANCIAL INSTRUMENTS                                        

SFAS No.  107,  "Disclosures  About the Fair  Value of  Financial  Instruments,"
requires that the Bank disclose estimated fair values for financial instruments.
Fair value estimates, methods and assumptions are set forth below.              

Fair value  estimates  are made at a specific  point in time,  based on relevant
market  information  and  information  about  the  financial  instrument.  These
estimates do not reflect any premium or discount that could result from offering
for  sale at one time the  Bank's  entire  holdings  of a  particular  financial
instrument.  The fair value  estimates  of a  significant  portion of the Bank's
financial instruments were based on judgments regarding future expected net cash
flow,  current economic  conditions,  risk  characteristics of various financial
instruments and other factors. These                                            

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estimates  are  subjective  in nature and involve  uncertainties  and matters of
significant  judgment  and,  therefore,  cannot be  determined  with  precision.
Changes in assumptions could significantly affect the estimates.                

Fair value  estimates are based on existing on and  off-balance  sheet financial
instruments  without  attempting  to estimate  the value of  anticipated  future
business  and the  value of  assets  and  liabilities  that  are not  considered
financial  instruments.  In  addition,  the  tax  ramifications  related  to the
realization of the unrealized gains and losses can have a significant  effect on
fair value  estimates and have not been considered in the estimate of fair value
under SFAS No. 107.                                                             

Short-Term Financial Instruments                                                

The fair value of certain  financial  instruments  is estimated  to  approximate
their  carrying  values  because the remaining term to maturity of the financial
instruments is less than 90 days or the financial instrument reprices in 90 days
or less.  Such financial  instruments  include cash and due from banks,  federal
funds  sold,   interest-bearing   deposits  with  banks  and  accrued   interest
receivable.                                                                     

Securities Available for Sale                                                   
and Investment Securities                                                       

Fair  values are based  upon  market  prices.  If a quoted  market  price is not
available for a particular  security,  the fair value is determined by reference
to quoted market prices for securities with similar characteristics.            

Loans                                                                           

Fair  values  are  estimated  for  portfolios  of loans with  similar  financial
characteristics.  Loans  are  segregated  by type,  including  residential  real
estate, commercial real estate and other consumer loans.                        

The  estimated  fair value of  performing  loans is  calculated  by  discounting
scheduled  cash flows  through the estimated  maturity  using  estimated  market
discount  rates that reflect the credit and interest  rate risk  inherent in the
respective loan portfolio.                                                      

Estimated  fair value for  nonperforming  loans is based on estimated cash flows
discounted using a rate commensurate with the risk associated with the estimated
cash flows. Assumptions regarding credit risk, cash flows and discount rates are
judgmentally determined using available market information and specific borrower
information.                                                                    

Management  has made  estimates of fair value discount rates that it believes to
be reasonable.  However,  because there is no market for many of these financial
instruments,  management  has no basis to determine  whether the estimated  fair
value would be indicative of the value negotiated in an actual sale.            

Loans Held for Sale                                                             

The  estimated  fair value of loans held for sale is  calculated by either using
quoted  market  rates or, in the case where a firm  commitment  has been made to
sell the loan, the firm committed price was used. At June 30, 1998 and 1997, the
estimated fair value of loans held for sale approximated their book value.      

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Deposit Liabilities                                                             

The  estimated  fair  value  of  deposits  with  no  stated  maturity,  such  as
noninterest-bearing  demand  deposits,  savings and money  market  accounts,  is
regarded to be the amount  payable on demand as of June 30,  1998 and 1997.  The
estimated  fair  value of time  deposits  is based  on the  discounted  value of
contractual cash flows. The discount rate is estimated using the rates currently
offered for deposits of similar remaining  maturities.  The fair value estimates
for deposits do not include the benefit  that results from the low-cost  funding
provided by the deposit  liabilities as compared to the cost of borrowing  funds
in the market.                                                                  

Borrowings                                                                      

The estimated fair value of FHLB borrowings is based on the discounted  value of
their  contractual  cash flows.  The  discount  rate used in the  present  value
computation is estimated by comparison to the current  interest rates charged by
the FHLB for advances of similar remaining maturities.                          

Table of Financial Instruments                                                  

The carrying  values and estimated  fair values of financial  instruments  as of
June 30, 1998 and 1997 are as follows:                                          

                                                        [Enlarge/Download Table]

                                                           1998                               1997                
                                           ----------------------------------  -----------------------------------
                                                               Estimated Fair                       Estimated Fair
                                            Carrying Value          Value       Carrying Value           Value    
                                            --------------          -----       --------------           -----    
                                                                                                                  
Financial assets:                                                                                                 
    Cash and cash equivalents ............ $        14,229    $        14,229  $        16,664    $        16,664 
    Mortgage loans held for sale .........              38                 38              175                175 
    Securities available for sale ........          48,720             48,720           35,475             35,475 
    Investment securities ................          45,424             45,547           25,273             25,186 
    Loans ................................         416,292            425,774          401,635            401,855 
       Less- Allowance for loan losses ...          (3,533)                -            (3,105)                -  
                                           ---------------    ---------------  ---------------    --------------  
              Net loans receivable .......         412,759            425,774          398,530            401,855 
                                           ---------------    ---------------  ---------------    --------------- 
Accrued interest receivable ..............           3,482              3,482            3,210              3,210 

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                                                            1998                                1997               
                                            ----------------------------------  -----------------------------------
                                                                Estimated Fair                       Estimated Fair
                                             Carrying Value          Value       Carrying Value           Value    
                                             --------------          -----       --------------           -----    
                                                                                                                   
Financial liabilities:                                                                                             
    Due to depositors-                                                                                             
       Demand, savings and money market                                                                            
          accounts ........................ $       218,492    $       218,492  $       199,084    $       199,084 
       Time deposits ......................         231,049            246,220          230,306            231,081 
       Mortgagors' escrow deposits ........           8,994              8,994            9,062              9,062 
       Borrowings .........................          19,897             18,858               -                  -  

Commitments to Extend Credit,                                                   
Unused Lines of Credit                                                          
and Standby Letters of Credit                                                   

The fair  value of  commitments  to extend  credit,  unused  lines of credit and
standby letters of credit 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  commitments  to extend credit and unused lines of credit,  fair value also
considers  the  difference  between  current  levels of  interest  rates and the
committed  rates.  Based upon the estimated  fair value of commitments to extend
credit and unused lines of credit, there are no significant  unrealized gains or
losses associated with these financial instruments.                             

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SFS BANCORP, INC. AND SUBSIDIARY

 INDEX TO FINANCIAL STATEMENTS

December 31, 1997 and 1996
 Six Months ended June 30, 1998 and 1997 (unaudited)

                                                                            Page
                                                                            ----

Report of Independent Public Accountants..................................      

Consolidated Balance Sheets as of December 31, 1997 and 1996..............      

Consolidated Statements of Income for each of the years in the                  
three-year period ended December 31, 1997...............................    

Consolidated Statements of Changes in Stockholders' Equity                      
for each of the years in the three-year period ended                        
December 31, 1997.......................................................    

Consolidated Statements of Cash Flows for each of the years                     
in the three-year period ended December 31, 1998........................    

Notes to Consolidated Financial Statements................................      

Consolidated Statements of Income for each of the periods in the                
six-month period ended June 30, 1998 and 1997 (unaudited)...............    

Consolidated Statements of Financial Condition as of                            
June 30, 1998 (unaudited) and December 31, 1997.........................    

Consolidated Statements of Changes in Stockholders' Equity                      
for each of the periods in the six-month period ended                       
June 30, 1998 and 1997 (unaudited)......................................    

Consolidated Statements of Cash Flows as of June 30, 1998 (unaudited).....      

Notes to Unaudited Consolidated Interim Financial Statements                    
for the six months ended June 30, 1998 and 1997.........................    

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Independent Auditors' Report

The Board of Directors and Stockholders                                         
SFS Bancorp, Inc.:                                                              

We have audited the  accompanying  consolidated  balance  sheets of SFS Bancorp,
Inc. and  subsidiary  (the  Company) as of December  31, 1997 and 1996,  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  December 31,
1997. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.                          

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial  position of SFS Bancorp,  Inc.
and  subsidiary  as of  December  31,  1997 and 1996,  and the  results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 1997,  in  conformity  with  generally  accepted  accounting
principles.                                                                     

Albany, New York                                  /s/ KPMG Peat Marwick LLP     
January 23, 1998                                  -------------------------     
                                                 KPMG Peat Marwick LLP

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                                    Consolidated Balance Sheets                                       

                                     December 31, 1997 and 1996                                       

               Assets                                                         1997            1996    
               ------                                                         ----            ----    
                                                                     (in thousands, except share data)
                                                                                                      
Cash and due from banks .............................................     $   1,876          1,296    
Federal funds sold ..................................................           300          1,600    
                                                                          ---------      ---------    
              Total cash and cash equivalents .......................         2,176          2,896    

Securities available for sale, at fair value (note 5) ...............         4,067          1,990    
Investment securities (estimated fair value of $29,095                                                
  and $35,964 at December 31, 1997 and 1996, respectively)(note 6) ..        28,979         36,180    
Stock in Federal Home Loan Bank of New York, at cost ................         1,338          1,215    
Loans receivable, net (note 7) ......................................       133,786        118,455    
Accrued interest receivable (note 8) ................................         1,130          1,137    
Premises and equipment, net (note 9) ................................         2,242          1,921    
Real estate owned (note 10) .........................................           111            178    
Prepaid expenses and other assets ...................................           599            916    
                                                                          ---------      ---------    
              Total assets ..........................................     $ 174,428        164,888    
                                                                          =========      =========    

         Liabilities and Stockholders' Equity                                                         

Liabilities:                                                                                          
     Due to depositors (note 11):                                                                     
         Non-interest bearing .......................................         2,265          1,392    
         Interest bearing ...........................................       148,204        139,224    
                                                                          ---------      ---------    
              Total deposits ........................................       150,469        140,616    
                                                                          ---------      ---------    

     Advance payments by borrowers for taxes and insurance ..........         1,281          1,160    
     Accrued expenses and other liabilities .........................         1,247          1,441    
                                                                          ---------      ---------    
              Total liabilities .....................................       152,997        143,217    
                                                                          ---------      ---------    

Commitments and contingent liabilities (notes 12 and 16)                                              

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                                    Consolidated Balance Sheets                                       

                                     December 31, 1997 and 1996                                       
                                            (continued)                                               

                                                                             1997            1996     
                                                                             ----            ----     
                                                                     (in thousands, except share data)
                                                                                                      
Stockholders' Equity:                                                                                 
     Preferred stock, $.01 par value, authorized 500,000 shares .....          --             --      
     Common stock, $.01 par value, authorized 2,500,000 shares;                                       
       1,495,000 shares issued at December 31, 1997 and 1996 ........            15             15    
     Additional paid-in capital .....................................        14,365         14,260    
     Retained earnings, substantially restricted ....................        12,422         11,687    
     Treasury stock, at cost (286,528 shares at December 31, 1997,                                    
       224,003 at December 31, 1996) ................................        (4,089)        (2,840)   
     Common stock acquired by employee stock ownership plan (ESOP) ..          (837)          (957)   
     Unearned recognition and retention plan (RRP) ..................          (455)          (540)   
     Net unrealized gain on securities available for sale, net of tax            10             46    
                                                                          ---------      ---------    

              Total stockholdersi equity ............................        21,431         21,671    
                                                                          ---------      ---------    

              Total liabilities and stockholders' equity ............     $ 174,428        164,888    
                                                                          =========      =========    

See accompanying notes to consolidated financial statements.                    

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                                   Consolidated Statements of Income                                      

                         For the years ended December 31, 1997, 1996 and 1995                             

                                                                        1997        1996         1995     
                                                                        ----        ----         ----     
                                                              (in thousands, except for per share amounts)
                                                                                                          
Interest income:                                                                                          
     Loans ......................................................     $ 9,757       8,758        7,800    
     Investment securities ......................................       2,085       2,477        2,505    
     Securities available for sale ..............................         286         307          492    
     Federal funds sold and cash deposits .......................         153         247          640    
     Stock in Federal Home Loan Bank of New York ................          87          78           86    
                                                                      -------     -------      -------    
              Total interest income .............................      12,368      11,867       11,523    

Interest expense:                                                                                         
     Deposits (note 11) .........................................       6,623       6,187        6,236    
                                                                      -------     -------      -------    
              Net interest income ...............................       5,745       5,680        5,287    

Provision for loan losses (note 7) ..............................         120         120          370    
                                                                      -------     -------      -------    
              Net interest income after provision for loan losses       5,625       5,560        4,917    
                                                                      -------     -------      -------    
Noninterest income:                                                                                       
     Other loan charges .........................................         207         145          110    
     Bank fees and service charges ..............................         160         138          143    
     Net gain on security transactions ..........................          56           8         --      
     Other income ...............................................          81         112           68    
                                                                      -------     -------      -------    
              Total noninterest income ..........................         504         403          321    
                                                                      -------     -------      -------    


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                                   Consolidated Statements of Income                                      

                         For the years ended December 31, 1997, 1996 and 1995                             
                                             (continued)                                                  

                                                                        1997        1996         1995     
                                                                        ----        ----         ----     
                                                              (in thousands, except for per share amounts)
                                                                                                          
Noninterest expense:                                                                                      
     Compensation and benefits ..................................       2,710       2,512        2,250    
     Office occupancy and equipment expenses ....................         620         522          523    
     Professional service fees ..................................         270         242          189    
     Data processing fees .......................................         175         166          157    
     Advertising and business promotion .........................          86         108          106    
     Federal deposit insurance premiums .........................          74         322          323    
     Federal deposit insurance special SAIF assessment ..........        --           930         --      
     Other expense ..............................................         434         437          479    
                                                                      -------     -------      -------    
              Total noninterest expense .........................       4,369       5,239        4,027    
                                                                      -------     -------      -------    

              Income before taxes ...............................       1,760         724        1,211    

Income tax expense (benefit) (note 12) ..........................         692        (106)         356    
                                                                      -------     -------      -------    
Net income ......................................................     $ 1,068         830          855    
                                                                      =======     =======      =======    

Basic earnings per share ........................................     $   .96         .68          .41    
                                                                      =======     =======      =======    

Diluted earnings per share ......................................     $   .93         .67          .41    
                                                                      =======     =======      =======    

See accompanying notes to consolidated financial statements.                    

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                                     Consolidated Statements of Changes in Stockholdersi Equity                                  

                                            Years ended December 31, 1997, 1996 and 1995                                         

                                                                                                          Retained               
                                                                                          Additional      earnings,     Treasury 
                                                               Shares         Common        paid-in     substantially     stock, 
                                                               Issued          stock        capital      restricted      at cost 
                                                               ------          -----        -------      ----------      ------- 
                                                                                     (dollars in thousands)                      
                                                                                                                                 
Balance at December 31, 1994 ............................          --       $    --            --          10,158           --   
Net income ..............................................          --            --            --             855           --   
Adjustment of securities available for sale to fair value          --            --            --            --             --   
Common stock issued .....................................     1,495,000            15        14,185          --             --   
Acquisition of common stock by ESOP (119,600 shares) ....          --            --            --            --             --   
Allocation of ESOP stock (11,960 shares) ................          --            --              36          --             --   
                                                              ---------     ---------     ---------     ---------      --------- 

Balance at December 31, 1995 ............................     1,495,000            15        14,221        11,013           --   
Net income ..............................................          --            --            --             830           --   
Adjustment of securities available for sale to fair value          --            --            --            --             --   
Purchases of common stock (269,750 shares) ..............          --            --            --            --           (3,418)
Grant of restricted stock under RRP (45,747 shares) .....          --            --            --            --              578 
Amortization of unearned RRP compensation ...............          --            --            --            --             --   
Cash dividends declared on common stock .................          --            --            --            (156)          --   
Allocation of ESOP stock (11,960 shares) ................          --            --              39          --             --   
                                                              ---------     ---------     ---------     ---------      --------- 

Balance at December 31, 1996 ............................     1,495,000            15        14,260        11,687         (2,840)
Net income ..............................................          --            --            --           1,068           --   
Adjustment of securities available for sale to fair value          --            --            --            --             --   
Purchases of common stock (77,475 shares) ...............          --            --            --            --           (1,486)
Grants of restricted stock under RRP (7,475 shares) .....          --            --            --            --              143 
Amortization of unearned RRP compensation ...............          --            --            --            --             --   
Cash dividends declared on common stock .................          --            --            --            (333)          --   
Exercise of stock options (7,475 shares) ................          --            --            --            --               94 
Allocation of ESOP stock (11,960 shares) ................          --            --             105          --             --   
                                                              ---------     ---------     ---------     ---------      --------- 

Balance at December 31, 1997 ............................     1,495,000     $      15        14,365        12,422         (4,089)
                                                              =========     =========     =========     =========      ========= 


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                                     Consolidated Statements of Changes in Stockholdersi Equity                      

                                            Years ended December 31, 1997, 1996 and 1995                             

                                                                                              Net unrealized         
                                                                                              gain (loss) on         
                                                                   Common        Unearned      securities            
                                                                    stock       recognition     available            
                                                                   acquired   and retention     for sale,            
                                                                   by ESOP        plan         net of tax     Total  
                                                                   -------        ----         ----------     -----  

                                                                                                                     
Balance at December 31, 1994 ............................          --             --             (112)        10,046 
Net income ..............................................          --             --             --              855 
Adjustment of securities available for sale to fair value          --             --              200            200 
Common stock issued .....................................          --             --             --           14,200 
Acquisition of common stock by ESOP (119,600 shares) ....        (1,196)          --             --           (1,196)
Allocation of ESOP stock (11,960 shares) ................           120           --             --              156 
                                                              ---------      ---------      ---------      --------- 

Balance at December 31, 1995 ............................        (1,076)          --               88         24,261 
Net income ..............................................          --             --             --              830 
Adjustment of securities available for sale to fair value          --             --              (42)           (42)
Purchases of common stock (269,750 shares) ..............          --             --             --           (3,418)
Grant of restricted stock under RRP (45,747 shares) .....          --             (578)          --             --   
Amortization of unearned RRP compensation ...............          --               38           --               38 
Cash dividends declared on common stock .................          --             --             --             (156)
Allocation of ESOP stock (11,960 shares) ................           119           --             --              158 
                                                              ---------      ---------      ---------      --------- 

Balance at December 31, 1996 ............................          (957)          (540)            46         21,671 
Net income ..............................................          --             --             --            1,068 
Adjustment of securities available for sale to fair value          --             --              (36)           (36)
Purchases of common stock (77,475 shares) ...............          --             --             --           (1,486)
Grants of restricted stock under RRP (7,475 shares) .....          --             (143)          --             --   
Amortization of unearned RRP compensation ...............          --              228           --              228 
Cash dividends declared on common stock .................          --             --             --             (333)
Exercise of stock options (7,475 shares) ................          --             --             --               94 
Allocation of ESOP stock (11,960 shares) ................           120           --             --              225 
                                                              ---------      ---------      ---------      --------- 

Balance at December 31, 1997 ............................          (837)          (455)            10         21,431 
                                                              =========      =========      =========      ========= 


See accompanying notes to consolidated financial statements.                    

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                                        Consolidated Statements of Cash Flows                                      

                                For the years ended December 31, 1997, 1996 and 1995                               

                                                                                  1997          1996         1995  
                                                                                  ----          ----         ----  
                                                                                          (in thousands)           
                                                                                                                   
Increase (decrease) in cash and cash equivalents:                                                                  
    Reconciliation of net income to net cash provided                                                              
       by operating activities:                                                                                    
         Net income .......................................................     $  1,068           830         855 
         Adjustments to reconcile net income to net                                                                
       cash provided by operating activities:                                                                      
              Depreciation ................................................          190           140         143 
              Net accretion on securities .................................          (75)          (12)        (30)
              ESOP compensation expense ...................................          225           158         156 
              Amortization of RRP .........................................          228            38        --   
              Provision for loan losses ...................................          120           120         370 
              Real estate owned writedown .................................         --               7        --   
              Loss on sale of real estate owned ...........................            3            --        --   
              Gain on sales of securities available for sale ..............          (56)           (8)       --   
              (Increase) decrease in accrued interest receivable ..........            7            24        (109)
              (Increase) decrease in prepaid expenses and other assets ....          317          (705)        (60)
              (Decrease) increase in accrued expenses and other liabilities         (200)          246         (27)
                                                                                --------      --------    -------- 
                  Net cash provided by operating activities ...............        1,827           838       1,298 
                                                                                --------      --------    -------- 

Cash flows from investing activities:                                                                              
     Proceeds from maturities and paydowns of                                                                      
       investment securities ..............................................        8,976        12,908      11,223 
     Proceeds from the sales and calls of securities                                                               
       available for sale .................................................        4,000         5,952          -- 
     Purchases of investment securities ...................................       (1,700)       (6,000)    (15,376)
     Purchases of securities available for sale ...........................       (6,051)           --          -- 
     Redemptions (purchases) of FHLB Stock ................................         (123)          (98)          6 
     Net increase in loans made to customers ..............................      (11,923)      (10,859)     (2,717)
     Capital expenditures, net of disposals ...............................         (511)         (647)        (90)
     Purchases of loans receivable ........................................       (3,550)       (6,973)     (5,245)
     Proceeds from the sales of real estate owned .........................           86           193         378 
                                                                                --------      --------    -------- 
                  Net cash used by investing activities ...................      (10,796)       (5,524)    (11,821)
                                                                                --------      --------    -------- 

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                                  Consolidated Statements of Cash Flows, Continued                                

                                For the years ended December 31, 1997, 1996 and 1995                              

                                                                                   1997         1996        1995  
                                                                                   ----         ----        ----  
                                                                                          (in thousands)          
                                                                                                                  
Cash flows from financing activities:                                                                             
     Net increase in deposits ............................................      $ 9,853          945        1,372 
     Net increase (decrease) in advance payments by                                                               
       borrowers for property taxes and insurance ........................          121         (242)         132 
     Purchases of common stock for treasury ..............................       (1,486)      (3,418)        --   
     Cash dividends paid .................................................         (333)        (156)        --   
     Proceeds from exercise of stock options .............................           94         --           --   
     Net proceeds from common stock issued in stock conversion ...........         --           --         14,200 
     Acquisition of common stock by ESOP .................................         --           --         (1,196)
                                                                                -------      -------      ------- 
                  Net cash provided (used) in financing activities .......        8,249       (2,871)      14,508 
                                                                                -------      -------      ------- 

Net increase (decrease) in cash and cash equivalents .....................         (720)      (7,557)       3,985 
Cash and cash equivalents at beginning of year ...........................        2,896       10,453        6,468 
                                                                                -------      -------      ------- 
Cash and cash equivalents at end of year .................................      $ 2,176        2,896       10,453 
                                                                                =======      =======      ======= 

Supplemental disclosures of cash flow information:                                                                
Cash paid during the year for:                                                                                    
         Interest paid ...................................................      $ 6,623        6,187        6,264 
                                                                                =======      =======      ======= 

         Taxes paid ......................................................      $   538          509          520 
                                                                                =======      =======      ======= 

Supplemental schedule of noncash investing activities:                                                            
     Transfer of loans to other real estate owned ........................      $    22          178          367 
                                                                                =======      =======      ======= 

Adjustment of securities available for sale to fair value,                                                        
 net of increase in deferred tax liability of $6 in 1997 .................      $   (36)         (42)         200 
                                                                                =======      =======      ======= 


See accompanying notes to consolidated financial statements.                    

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   Notes to Consolidated Financial Statements, Continued

(1)    Summary of Significant Accounting Policies                               

       SFS Bancorp,  Inc. (the Holding Company) was incorporated  under Delaware
       law in March,  1995 as a holding  company to purchase  100% of the common
       stock of Schenectady  Federal Savings Bank and subsidiary (the Bank). The
       Bank  converted from a mutual form to a stock form  institution,  and the
       Holding  Company  completed its initial public offering on June 29, 1995,
       at which time the Holding Company  purchased all of the outstanding stock
       of the Bank. To date, the principal  operations of SFS Bancorp,  Inc. and
subsidiary (the Company) have been those of the Bank.             

       The following is a description of the more significant policies which the
       Company  follows in preparing and presenting its  consolidated  financial
statements:                                                       

(a)    Basis of Presentation                                      

              The accompanying  consolidated  financial  statements  include the
              accounts of the Holding  Company,  its wholly owned subsidiary the
              Bank,  and the Bankis  wholly owned  subsidiary.  All  significant
              intercompany   transactions   and  balances  are   eliminated   in
              consolidation.  The  accounting  and  reporting  policies  of  the
              Company  conform in all material  respects to  generally  accepted
              accounting  principles and to general  practice  within the thrift
              industry. In the "Parent Company Only" financial  statements,  the
              investment  in the wholly owned  subsidiary  is carried  under the
equity method of accounting.                        

              The  preparation  of  the  consolidated  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 consolidated
              financial  statements  and the  reported  amounts of revenues  and
              expenses during the reporting period.  Actual results could differ
from those estimates.                               

              Material   estimates   that  are   particularly   susceptible   to
              significant change in the near-term relate to the determination of
              the  allowance  for loan losses and the  valuation  of real estate
              acquired in connection  with  foreclosures  or in  satisfaction of
              loans. In connection with the  determination  of the allowance for
              loan losses and the  valuation  of real estate  owned,  management
obtained appraisals for significant properties.     

(b)    Business                                                   

              A substantial portion of the Companyis assets are loans secured by
              real  estate  in  the  upstate  New  York  area.  In  addition,  a
              substantial  portion of the real estate  owned is located in those
              same  markets.  Accordingly,  the  ultimate  collectibility  of  a

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 Notes to Consolidated Financial Statements, Continued

(1)    Summary of Significant Accounting Policies (continued)                   

              substantial  portion of the Bankis loan portfolio and the recovery
              of a  substantial  portion of the  carrying  amount of real estate
              owned are dependent upon market conditions in the upstate New York
region.                                             

              Management believes that the allowance for loan losses is adequate
              and that real estate owned is properly  valued.  While  management
              uses available  information to recognize  losses on loans and real
              estate owned,  future  additions to the allowance or writedowns on
              real estate  owned may be  necessary  based on changes in economic
              conditions.  In  addition,  various  regulatory  agencies,  as  an
              integral part of their examination  process,  periodically  review
              the Bankis  allowance  for loan losses.  Such agencies may require
              the Bank to recognize  additions to the allowance or writedowns on
              real  estate  owned  based on their  judgments  about  information
              available to them at the time of their  examination  which may not
be currently available to management.               

(c)    Cash Equivalents                                           

              For purposes of the  consolidated  statements  of cash flows,  the
              Company  considers  all cash and due from banks and federal  funds
sold to be cash equivalents.                        

       (d)    Securities  Available for Sale, Investment Securities  and Federal
Home Loan Bank of New York Stock                    

              Management determines the appropriate classification of securities
              at the time of purchase. If management has the positive intent and
              ability to hold debt  securities to maturity,  they are classified
              as investment  securities  and are stated at amortized  cost.  All
              other debt and  marketable  equity  securities  are  classified as
              securities available for sale and are reported at fair value, with
              net unrealized gains or losses reported as a separate component of
              stockholders'  equity,  net of estimated income taxes. The Company
does not maintain a trading portfolio.              

              Realized  gains and losses on the sale of securities  are based on
              the net proceeds and the amortized  cost of the  securities  sold,
              using the specific  identification  method. The cost of securities
              is adjusted for amortization of premium and accretion of discount,
which is calculated on an effective interest method.

              Mortgage backed securities, which are guaranteed by the Government
              National  Mortgage  Association  ("GNMA"),  the Federal  Home Loan
              Mortgage Corporation  ("FHLMC"),  or the Federal National Mortgage
              Association ("FNMA"),  represent participating interests in direct
              pass-through  pools of long-term  first mortgage loans  originated
and serviced by the issuers of the securities.      

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 Notes to Consolidated Financial Statements, Continued

(1)    Summary of Significant Accounting Policies                               

              Unrealized  losses on securities  are charged to earnings when the
              decline  in fair  value of a  security  is judged to be other than
temporary.                                          

              Non-marketable  equity securities,  such as Federal Home Loan Bank
              of New York stock,  are stated at cost.  The investment in Federal
   Home Bank of New York stock is required for membership.

(e)    Loans Receivable                                           

              Loans  receivable are stated at unpaid  principal  amount,  net of
              unearned discount,  unamortized  premiums,  deferred loan fees and
              the allowance  for loan losses.  Premiums and discounts on related
              loans are amortized  into income using a method that  approximates
              the  level-yield  method.  Loan  origination  fees net of  certain
              related  costs  are  generally  amortized  into  income  over  the
              estimated   term  of  the  loan  using  the  interest   method  of
              amortization.  Interest  income  on loans is not  recognized  when
considered doubtful of collection by management.    

              Loans  considered  doubtful of collection by management are placed
              on a nonaccrual  status for the  recording of interest.  Generally
              loans past due 90 days or more as to  principal  or  interest  are
              placed on nonaccrual  status  except for certain  loans which,  in
              management's  judgment,  are  adequately  secured  and  for  which
              collection  is probable.  Previously  accrued  income that has not
              been collected is reversed from current  income.  Thereafter,  the
              application  of  payments  received  (principal  or  interest)  is
              dependent on the expectation of ultimate repayment of the loan. If
              ultimate repayment of the loan is expected,  any payments received
              are applied in  accordance  with  contractual  terms.  If ultimate
              repayment of principal is not expected or management  judges it to
              be prudent,  any payment  received on a nonaccrual loan is applied
              to principal until ultimate repayment becomes expected.  Loans are
              removed  from  nonaccrual  status when they  become  current as to
              principal and interest and when, in the opinion of management, the
              loans are  estimated to be fully  collectible  as to principal and
              interest.  Amortization of related deferred fees is suspended when
a loan is placed on nonaccrual status.              

              The  allowance  for loan losses is  maintained  at a level  deemed
              appropriate by management  based on an evaluation of the known and
              inherent   risks  in  the   present   portfolio,   the   level  of
              non-performing  loans, past loan loss experience,  estimated value
              of underlying  collateral,  and current and  prospective  economic
              conditions.  The  allowance is increased  by  provisions  for loan
losses charged to operations.                       

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 Notes to Consolidated Financial Statements, Continued

(1)    Summary of Significant Accounting Policies                               

              Impaired  loans are  identified  and measured in  accordance  with
              Statement  of  Financial  Accounting  Standards  (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." A loan is considered  impaired when
              it is probable  that the borrower will be unable to repay the loan
              according to the original contractual terms of the loan agreement,
              or the  loan is  restructured  in a  troubled  debt  restructuring
              subsequent  to January 1, 1995.  These  standards  are  applicable
              principally  to  commercial  and  commercial  real  estate  loans,
              however,  certain  provisions  related to  restructured  loans are
              applicable to all loan types. The adoption of these Statements did
              not have a material effect on the Company's consolidated financial
statements.                                         

              Under these  Statements  the allowance for loan losses  related to
              impaired loans is based on discounted  cash flows using the loan's
              initial  effective   interest  rate  or  the  fair  value  of  the
              collateral  for  certain  loans  where  repayment  of the  loan is
              expected  to be  provided  solely  by  the  underlying  collateral
              (collateral  dependent  loans).  The Company's  impaired loans are
              generally  collateral  dependent.  The Company considers estimated
              costs to sell on a  discounted  basis  when  determining  the fair
              value of  collateral  in the  measurement  of  impairment if these
              costs are expected to reduce the cash flows  available to repay or
otherwise satisfy the loans.                        

              As a matter of policy, the Company generally places impaired loans
              on nonaccrual status and recognizes  interest income on such loans
              only on a cash basis. In some instances,  all monies received from
              the  borrower,  or from the  proceeds of  collateral,  are applied
              directly  to reduce  the  principal  balance  of the loan,  and no
              interest income is recognized  until the principal  balance of the
              impaired loan is paid in full or is no longer considered impaired.

(f)    Real Estate Owned                                          

              Included in real estate owned are assets received from foreclosure
              and in-substance foreclosures.  In accordance with SFAS No. 114, a
              loan is classified as an in-substance foreclosure when the Company
              has taken  possession  of the  collateral  regardless  of  whether
formal foreclosure proceedings have taken place.    

              Foreclosed  assets,  including  in-substance   foreclosures,   are
              recorded  on an  individual  asset basis at net  realizable  value
              which is the lower of fair value minus  estimated costs to sell or
              "cost" (defined as the fair value at initial foreclosure).  When a
              property is acquired or  identified as  in-substance  foreclosure,

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 Notes to Consolidated Financial Statements, Continued

(1)    Summary of Significant Accounting Policies                               

              the excess of the loan  balance  over fair value is charged to the
              allowance  for loan  losses.  Subsequent  writedowns  to carry the
              property at fair value are included in noninterest expense.  Costs
              incurred to develop or improve  properties are capitalized,  while
holding costs are charged to expense.               

(g)    Premises and Equipment, Net                                

              Premises  and  equipment  are  stated  at  cost  less  accumulated
              depreciation  and  amortization.  Depreciation  is computed on the
              straight-line  or  accelerated  method over the  estimated  useful
              lives of the related  assets.  Useful lives are 20 to 50 years for
              banking  house  and 3 to 15 years  for  furniture,  fixtures,  and
office equipment.                                   

(h)    Pension Plan                                               

              The Company has a defined  benefit  pension plan covering all full
              time employees meeting age and service requirements.  This plan is
              accounted  for  in  accordance  with  SFAS  No.  87,   "Employers'
Accounting for Pensions."                           

(i)    Income Taxes                                               

              Income taxes are provided on income  reported in the  consolidated
              statements  of income  regardless  of when such taxes are payable.
              The Company  accounts for income taxes in accordance with SFAS No.
              109,  "Accounting  for Income  Taxes."  SFAS No. 109  requires the
              asset and liability  method of accounting for income taxes.  Under
              the  asset and  liability  method of SFAS No.  109,  deferred  tax
              assets  and   liabilities   are  recognized  for  the  future  tax
              consequences   attributable  to  differences   between   financial
              statement  carrying amounts of existing assets and liabilities and
              their  respective tax basis.  Deferred tax assets and  liabilities
              are measured  using enacted tax rates expected to apply to taxable
              income  in the  years in which  those  temporary  differences  are
              expected  to be  recovered  or settled.  Under SFAS No.  109,  the
              effect on deferred tax assets and  liabilities  of a change in tax
              rates is  recognized  in income in the period  that  includes  the
              enactment  date. The Company's  policy is that deferred tax assets
              are  reduced by a  valuation  reserve  if,  based on the weight of
              available evidence, it is more likely than not that some or all of
the deferred tax assets will not be realized.       

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 Notes to Consolidated Financial Statements, Continued

(1)    Summary of Significant Accounting Policies                               

       (j)    Accounting  for Transfers and Servicing  of Financial  Assets  and
Extinguishment of Liabilities                       

              In June,  1996, the Financial  Accounting  Standards  Board (FASB)
              issued SFAS No. 125,  "Accounting  for  Transfers and Servicing of
              Financial  Assets  and   Extinguishments  of  Liabilities,"  which
              provides  accounting  and  reporting  standards  for transfers and
              servicing of financial  assets and  extinguishment  of liabilities
              based on consistent application of a financial-components approach
              that  focuses on control.  The Company  adopted SFAS No. 125 as of
              January 1, 1997.  Certain  aspects of SFAS No. 125 were amended by
              SFAS  No.  127,   "Deferral  of  the  Effective  Date  of  Certain
              Provisions  of FASB  Statement  No. 125." The adoption of SFAS No.
              125 did not have a material  impact on the Company's  consolidated
financial statements.                               

(k)    Borrowings                                                 

              The  Company  has an  overnight  line of  credit  and a  one-month
              overnight repricing line of credit with the Federal Home Loan Bank
              of New York as of December 31, 1997 totaling  approximately  $16.6
              million.  The interest rate may fluctuate based on existing market
              conditions  and  customers'  demands  for  credit.  There  were no
              amounts  outstanding  under  this line of credit at  December  31,
1997.                                               

(l)    Stock Based Compensation Plans                             

              Compensation  expense in connection  with the  Company's  Employee
              Stock  Ownership  Plan (ESOP) is recorded in  accordance  with the
              American Institute of Certified Public  Accountants'  Statement of
              Position  No. 93-6,  "Employers'  Accounting  for  Employee  Stock
Ownership Plans."                                   

              The Company accounts for its stock option plans in accordance with
              the  provisions of Accounting  Principles  Board (APB) Opinion No.
              25,  "Accounting  for  Stock  Issued to  Employees."  Accordingly,
              compensation  expense is recognized  only if the exercise price of
              the option is less than the fair value of the underlying  stock at
              the  grant  date.  SFAS  No.  123,   "Accounting  for  Stock-Based
              Compensation,"  encourages entities to recognize the fair value of
              all  stock-based  awards  on the  date of  grant  as  compensation
              expense  over the  vesting  period.  Alternatively,  SFAS No.  123
              allows entities to continue to apply the provisions of APB Opinion
              No.  25 and  provide  pro  forma  disclosures  of net  income  and
              earnings per share as if the  fair-value-based  method  defined in
              SFAS No. 123 had been applied. The Company has elected to continue
              to apply the  provisions of APB Opinion No. 25 and provide the pro
forma disclosures required by SFAS No. 123.         

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 Notes to Consolidated Financial Statements, Continued

(1)    Summary of Significant Accounting Policies                               

              The  Company's  Recognition  and  Retention  Plan  ("RRP") is also
              accounted  for in  accordance  with APB  Opinion  No. 25. The fair
              value of the shares  awarded,  measured as of the grant  date,  is
              recognized   as   unearned    compensation   (a   deduction   from
              stockholders' equity) and amortized to compensation expense as the
              shares become vested.  Any excess of the cost to fund purchases of
              RRP  shares  over  the   grant-date   fair  value  is  charged  to
stockholders' equity.                               

(m)    Earnings per Share                                         

              In February,  1997,  the FASB issued SFAS No. 128,  "Earnings  per
              Share," which  establishes  standards for computing and presenting
              earnings per share.  SFAS No. 128 requires  dual  presentation  of
              basic and  diluted  earnings  per share on the face of the  income
              statement for all entities with a complex capital structure. Basic
              earnings per share  excludes  dilution and is computed by dividing
              income  available to common  stockholders by the weighted  average
              number  of  common  shares  outstanding  for the  period.  Diluted
              earnings per share  reflects  the  potential  dilution  that could
              occur if securities or other  contracts to issue common stock were
              exercised  or  converted  into  common  stock or  resulted  in the
              issuance of common  stock that then shared in the  earnings of the
              entity.  The Company adopted SFAS No. 128 as of December 31, 1997.
              All  earnings per share data reflect the adoption of SFAS No. 128.
              Unallocated  ESOP shares are not included in the weighted  average
              number  of  common  shares  outstanding  for  either  the basic or
diluted earnings per share calculations.            

(n)    Reclassifications                                          

              Amounts in the prior years' financial  statements are reclassified
              whenever necessary, in order to conform to the presentation in the
current year's financial statements.                

(2)    Conversion to Stock Ownership                                            

              On June 29, 1995,  the Holding  Company sold  1,495,000  shares of
              common stock at $10.00 per share to  depositors,  employees of the
              Bank,  and  outsiders.  Net proceeds from the sale of stock of the
              Holding   Company,   after   deducting   conversion   expenses  of
              approximately  $750,000,  were $14.2  million and are reflected as
              common stock and additional  paid-in  capital in the  accompanying
              consolidated  balance sheets. The Company utilized $7.1 million of
             the net proceeds to acquire all of the capital stock of the Bank.

              As part of the  conversion,  the Bank  established  a  liquidation
              account  for the benefit of eligible  depositors  who  continue to
              maintain their deposit accounts in the Bank after  conversion.  In

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 Notes to Consolidated Financial Statements, Continued

(1)    Summary of Significant Accounting Policies                               

              the unlikely  event of a complete  liquidation  of the Bank,  each
              eligible  depositor  will be  entitled  to  receive a  liquidation
              distribution  from the liquidation  account,  in the proportionate
              amount of the then current  adjusted  balance for deposit accounts
              held,  before  distribution may be made with respect to the Bankis
              capital stock.  The Bank may not declare or pay a cash dividend to
              the Holding Company on, or repurchase any of, its capital stock if
              the effect  thereof would cause the retained  earnings of the Bank
              to be  reduced  below  the  amount  required  for the  liquidation
              account.  Except  for  such  restrictions,  the  existence  of the
              liquidation  account does not restrict the use or  application  of
retained earnings.                                  

              The Bank is capital  exceeds  all of the fully  phased-in  capital
              regulatory  requirements.  The Office of Thrift  Supervision (OTS)
              regulations  provide  that an  institution  that exceeds all fully
              phased-in capital requirements before and after a proposed capital
              distribution could, after prior notice but without the approval by
              the OTS, make capital distributions during the calendar year of up
              to 100% of its net income to date  during the  calendar  year plus
              the amount that would  reduce by  one-half  its  isurplus  capital
              ratioi  (the  excess  capital  over its  fully  phased-in  capital
              requirements)   at  the  beginning  of  the  calendar   year.  Any
              additional  capital  distributions  would require prior regulatory
              approval. At December 31, 1997, the maximum amount that could have
              been paid by the Bank to the  Holding  Company  was  approximately
$7.3 million.                                       

              The Holding Company's ability to pay dividends to its stockholders
              is  dependent  on the ability of the Bank to pay  dividends to the
Holding Company.                                    

(3)    Earnings Per Share                                                       

              The  following  is  a   reconciliation   of  the   numerators  and
              denominators  for the basic and diluted  earnings  per share (EPS)
calculations for the years ended December 31:       

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Notes to Consolidated Financial Statements (continued)

                                                        [Enlarge/Download Table]

                                      (in thousands except share and per share information)
                                                               1997                        
                                                              Weighted                     
                                                               Average                     
                                              Net Income       Shares        Per-Share     
                                             (Numerator)    (Denominator)       Amount     
                                             -----------    -------------       ------     
                                                                                           
Basic EPS .................................     $1,068         1,108,094     $      .96    
                                                                             ==========    

Dilutive effect of potential common shares                                                 
  related to stock based compensation plans       --              46,231                   
                                                ------       -----------                   
Diluted EPS ...............................     $1,068         1,154,325     $      .93    
                                                ======       ===========     ==========    


                                                                 1996                      
                                                               Weighted                    
                                                                Average                    
                                              Net Income        Shares        Per-Share    
                                             (Numerator)    (Denominator)      Amount      
                                              -----------    -------------    ------       
                                                                                           
Basic EPS .................................     $830          1,224,703       $  .68       
                                                                              ======       

Dilutive effect of potential common shares                                                 
  related to stock based compensation plans      --              10,128                    
                                                ----          ---------                    
Diluted EPS ...............................     $830          1,234,831       $  .67       
                                                ====          =========       ======       

              There were no potential  common  shares  outstanding  during 1995.
              Earnings per share in 1995 were  compiled on earnings and weighted
              average  shares  from  the  date of the  initial  public  offering
              through December 31, 1995. Weighted average shares outstanding and
              net  income  for  this  period  were   1,495,000   and   $613,000,
respectively.                                       

(4)    Reserve Requirements                                                     

              The  Company is  required  to  maintain  certain  reserves of cash
              and/or  deposits with the Federal Reserve Bank. The amount of this
              reserve  requirement,  included  in cash and due from  banks,  was
              approximately $164,000 and $171,000 at December 31, 1997 and 1996,
respectively.                                       

              The Company is also required to maintain  certain  levels of stock
in the Federal Home Loan Bank of New York.          

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Notes to Consolidated Financial Statements (continued)

(5)    Securities Available for Sale                                            

              The  amortized  cost and  estimated  fair  value are as follows at
December 31:                                        

                                                        [Enlarge/Download Table]


                                                                 1997                          
                                          -----------------------------------------------------
                                                           Gross          Gross       Estimated
                                          Amortized     Unrealized     Unrealized       Fair   
                                            Cost           Gains         Losses         Value  
                                            ----           -----         ------         -----  
                                                              (in thousands)                   
                                                                                               

U.S. Government securities and agencies  $   4,051           16              -           4,067 
                                           -------        -----          ------       -------- 
    Total securities available for sale  $   4,051           16              -           4,067 
                                           =======        =====          ======       ======== 



                                                                 1996                          
                                          -----------------------------------------------------
                                                           Gross          Gross       Estimated
                                          Amortized     Unrealized     Unrealized       Fair   
                                            Cost           Gains         Losses         Value  
                                                              (in thousands)                   
                                                                                               
Mutual funds                             $   1,944           46            -             1,990 
                                           -------        -----          ------       -------- 
    Total securities available for sale  $   1,944           46            -             1,990 
                                           =======        =====          ======       ======== 

              The  securities  available for sale portfolio at December 31, 1996
              consists  of  mutual  funds   representing   investments  in  both
              adjustable  and fixed rate  mortgage-related  securities  and U.S.
Government obligations.                             

              Proceeds  from  the sale of  securities  available  for sale  were
              approximately  $2.0 million and $6.0 million during 1997 and 1996,
              respectively.  During 1997, sales of securities available for sale
              resulted in gross realized gains of $56,000. During 1996, sales of
              securities  available for sale resulted in gross realized gains of
              $44,000 and gross realized losses of $36,000.  There were no sales
of securities available for sale during 1995.       

              All securities  available for sale at December 31, 1997 are due to
              contractually   mature  in  approximately  five  years.   Expected
              maturities will differ from contractual maturities because certain
              issuers may have the right to call or prepay  obligations  with or
without call or prepayment penalties.               

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Notes to Consolidated Financial Statements (continued)

(6)    Investment Securities                                                    

              The  amortized  cost  and  estimated  fair  values  of  investment
securities are as follows at December 31:           

                                                                [Download Table]

                                                          1997                      
                                     -----------------------------------------------
                                                    Gross        Gross     Estimated
                                     Amortized   Unrealized    Unrealized      Fair 
                                       Cost         Gains        Losses       Value 
                                       ----         -----        ------       ----- 
                                                      (in thousands)                
                                                                                    
Mortgage backed                                                                     
    securities ..................     $16,966         194         (84)      17,076  
U.S. Government                                                                     
    securities and agencies .....      11,937          24         (18)      11,943  
States and political                                                                
    subdivisions ................          76        --          --             76  
                                      -------     -------     -------      -------  
      Total investment securities     $28,979         218        (102)      29,095  
                                      =======     =======     =======      =======  


                                                          1996                      
                                     -----------------------------------------------
                                                    Gross        Gross     Estimated
                                     Amortized   Unrealized    Unrealized      Fair 
                                       Cost         Gains        Losses       Value 
                                       ----         -----        ------       ----- 
                                                      (in thousands)                
                                                                                    
Mortgage backed                                                                     
    securities ......................  $20,434         232        (344)      20,322 
U.S. Government                                                                     
    securities and agencies .........   13,461           1         (98)      13,364 
States and political subdivisions ...       84        --          --             84 
Public utilities ....................    2,201        --            (7)       2,194 
                                       -------     -------     -------      ------- 
      Total investment securities$ ..   36,180         233        (449)      35,964 
                                       =======     =======     =======      ======= 

              There were no sales of investment  securities during 1997, 1996 or
1995.                                               

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Notes to Consolidated Financial Statements (continued)

              The  amortized   cost  and  estimated  fair  value  of  investment
              securities  at December 31, 1997,  by  contractual  maturity,  are
              shown below  (mortgage  backed  securities  are  included by final
              contractual  maturity).   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.                                          

                                                                [Download Table]

                                               Amortized        Estimated 
                                                 Cost           Fair Value
                                                 ----           ----------
                                                     (in thousands)       
                                                                          
Due within one year .......................... $ 4,118            4,114   
Due one year to five years ...................  16,625           16,544   
Due five years to ten years ..................   1,381            1,384   
Due after ten years ..........................   6,855            7,053   
                                               -------          -------   
     Total investment securities ............. $28,979           29,095   
                                               =======          =======   

(7)    Loans Receivable, Net                                                    

A summary of loans receivable is as follows at December 31:       

                                                                [Download Table]

                                                              1997        1996  
                                                              ----        ----  
                                                              (in thousands)    
                                                                                
Loans secured by real estate:                                                   
     Residential:                                                               
         Conventional ................................     $100,277       84,840
         Home equity .................................       22,658       22,904
         FHA insured .................................        2,772        3,511
         VA guaranteed ...............................        2,028        2,810
     Commercial and multi family .....................        6,130        4,532
                                                           --------     --------
                                                            133,865      118,597
                                                            -------     --------
Other loans:                                                                    
     Loans on savings accounts .......................          573          478
     Personal ........................................          143           34
     Other ...........................................            5           11
                                                           --------     --------
                                                                721          523
                                                           --------     --------
Less:                                                                           
     Unearned discount and net deferred loan fees ....           22           23
     Allowance for loan losses .......................          778          642
                                                           --------     --------
                                                                800          665
                                                           --------     --------
         Loans receivable, net .......................     $133,786      118,455
                                                           ========     ========

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Notes to Consolidated Financial Statements (continued)

              Not included in the  Company's  loans  receivable  are real estate
              mortgages   serviced  by  the  Bank  for  other   institutions  of
              approximately $3.5 and $4.2 million at December 31, 1997 and 1996,
respectively.                                       

              At December 31, 1997 and 1996,  the recorded  investment  in loans
              that were  considered  to be  impaired  under SFAS No. 114 totaled
              approximately $691,000 and $744,000,  respectively.  The amount in
              both years  represents  one  impaired  loan  that,  as a result of
              charge-offs  of  approximately   $202,000,   did  not  require  an
              allowance for credit losses determined in accordance with SFAS No.
              114. The average recorded  investment in impaired loans during the
              years ended  December  31, 1997,  1996 and 1995 was  approximately
$718,000, $744,000 and $1,091,000, respectively.    

              For the years ended December 31, 1997,  1996 and 1995, the Company
              recognized  approximately  $0,  $74,000  and  $50,000 of  interest
income on impaired loans, respectively.             

              The  following  table sets forth the  information  with  regard to
non-performing loans at December 31:                

                                                                [Download Table]

                                                            1997           1996 
                                                            ----           ---- 
                                                               (in thousands)   
                                                                                
Loans on a nonaccrual status .....................         $1,328            801
Loans contractually past due 90 days                                            
    or more and still accruing interest ..........             19             32
Restructured loans ...............................           --             --  
                                                           ------         ------
         Total non-performing loans ..............         $1,347            833
                                                           ======         ======

              Interest on nonaccrual  loans of approximately  $89,000,  $81,000,
              and $99,000 would have been earned in accordance with the original
              contractual   terms  of  the   loans  in  1997,   1996  and  1995,
              respectively.  Approximately $0, $74,000,  and $38,000 of interest
              was  collected and  recognized  as income in 1997,  1996 and 1995,
              respectively. There are no commitments to extend further credit on
the restructured loans.                             

              Certain  directors  and  executive  officers of the  Company  were
              customers  of and had other  transactions  with the Company in the
              ordinary  course of business.  Loans to these parties were made in
              the ordinary  course of business at the  Companyis  normal  credit
              terms,   including  interest  rate  and   collateralization.   The
              aggregate  of  such  loans  totaled  approximately   $127,000  and
              $145,000 at December 31, 1997 and 1996,  respectively.  There were
              no advances to the  directors and  executive  officers  during the
              year ended  December 31, 1997.  Total payments made on these loans
were approximately $18,000 during 1997.             

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Notes to Consolidated Financial Statements (continued)

              Changes in the  allowance  for loan losses were as follows for the
years ended December 31:                            

                                                                [Download Table]

                                                     1997       1996       1995 
                                                     ----       ----       ---- 
                                                            (in thousands)      
                                                                                
Balance, beginning of year ....................     $ 642        572        861 
Provision charged to operations ...............       120        120        370 
Loans charged off .............................       (26)       (87)      (718)
Recoveries on loans previously charged off ....        42         37         59 
                                                    -----      -----      ----- 
Balance, end of year ..........................     $ 778        642        572 
                                                    =====      =====      ===== 

(8)    Accrued Interest Receivable                                              

              A summary of accrued interest receivable by type was as follows at
December 31:                                        

                                                                [Download Table]

                                                            1997           1996 
                                                               (in thousands)   
                                                                                
Loans ............................................         $  766            693
Securities available for sale ....................             68           --  
Investment securities ............................            296            444
                                                           ------         ------
    Total accrued interest receivable ............         $1,130          1,137
                                                           ======         ======

(9)    Premises and Equipment, Net                                              

              Premises and equipment are summarized by major  classification  as
follows at December 31:                             

                                                                [Download Table]

                                                              1997         1996 
                                                              ----         ---- 
                                                                (in thousands)  
                                                                                

Land .................................................       $  338          305
Leasehold improvements ...............................          241          240
Office buildings .....................................        2,550        2,338
Furniture, fixtures and equipment ....................        1,135          889
                                                             ------       ------
        Total ........................................        4,264        3,772

Less accumulated depreciation and amortization .......        2,022        1,851
                                                             ------       ------
        Premises and equipment, net ..................       $2,242        1,921
                                                             ======       ======

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Notes to Consolidated Financial Statements (continued)

              Depreciation  expense  included in office  occupancy and equipment
              expense amounted to approximately $190,000, $140,000, and $143,000
              for  the  years  ended   December   31,   1997,   1996  and  1995,
respectively.                                       

(10)   Real Estate Owned                                                        

              A summary  of real  estate  acquired  through  foreclosure  by the
              Company or classified as in-substance foreclosure is as follows at
December 31:                                        

                                                                [Download Table]

                                                             1997          1996 
                                                             ----          ---- 
                                                               (in thousands)   
                                                                                
Residential (1 - 4 family) .....................            $ 26              93
Commercial property ............................              85              85
                                                            ----            ----
    Total real estate owned ....................            $111             178
                                                            ====            ====

(11)   Due to Depositors                                                        

              Due to depositors  account  balances are  summarized as follows at
December 31:                                        

                                                        [Enlarge/Download Table]

                                                           Stated                              
                                                            rate            1997          1996 
                                                         -----------      --------    ---------
                                                                      (in thousands)           
                                                                                               
Savings deposit accounts:                                                                      
     Passbook and statement deposit accounts ...........        3.00%     $ 36,681       37,152
     Money market deposit accounts ..................... 2.60 - 4.30         7,619        6,074
                                                                          --------     --------
                                                                            44,300       43,226
Time deposit accounts:                                                                         
                                                         4.00 - 4.99           801       23,244
                                                         5.00 - 5.99        84,451       50,815
                                                         6.00 - 6.99         9,489       12,835
                                                                          --------     --------
                                                                            94,741       86,894
NOW deposit accounts ...................................        1.75         9,163        9,104
Demand deposit accounts ................................           0         2,265        1,392
                                                                          --------     --------
         Total deposits ................................                  $150,469      140,616
                                                                          ========     ========

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Notes to Consolidated Financial Statements (continued)

              The approximate  amount of contractual  maturities of time deposit
accounts at December 31, 1997 are as follows:       

           Year ended December 31,                      (in thousands)
           -----------------------                      --------------

                   1998                                  $    65,273
                   1999                                       22,314
                   2000                                        3,247
                   2001                                        1,508
                   2002                                        2,399
                                                         -----------
                                                         $    94,741

              At  December  31,  1997 and  1996,  the  aggregate  amount of time
              deposit  accounts with balances  equal to or in excess of $100,000
          was approximately $8.4 million and $6.2 million, respectively.

              Interest expense on deposits and advance payments by borrowers for
              property  taxes and  insurance  is  summarized  as follows for the
years ended December 31:                            

                                                                [Download Table]

                                                  1997        1996         1995 
                                                  ----        ----         ---- 
                                                      (in thousands)            
                                                                                
Escrow balances ............................     $   25          25          29 
Passbook and statement savings .............      1,113       1,173       1,325 
Money market accounts ......................        251         161         129 
Time deposits ..............................      5,075       4,680       4,620 
NOW accounts ...............................        159         148         133 
                                                 ------      ------      ------ 

     Total interest on deposits and advance                                     
       payments by borrowers for property                                       
        taxes and insurance ................     $6,623       6,187       6,236 
                                                 ======      ======      ====== 

         Weighted average interest rates ...       4.59%       4.37%       4.56%
                                                 ======      ======      ====== 

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Notes to Consolidated Financial Statements (continued)

(12)  Income Taxes                                                            

              The following is a summary of the components of income tax expense
for the years ended December 31:                    

                                                                [Download Table]

                                         1997         1996        1995
                                         ----         ----        ----
                                                (in thousands)        
                                                                      
Current tax expense:                                                  
    Federal ........................... $ 583          372        306 
    State .............................   121           76         50 
    Deferred benefit ..................   (12)        (554)      --   
                                        -----        -----      ----- 
Income tax expense (benefit) .......... $ 692         (106)       356 
                                        =====        =====      ===== 

              The provision for income taxes is less than the amount computed by
              applying the U.S.  Federal income tax rate of 34% to income before
taxes as follows:                                   

                                                        [Enlarge/Download Table]

                                              1997                    1996                 1995          
                                       -------------------    -------------------    --------------------
                                                      % of                  % of                   % of  
                                                     Pretax                 Pretax                 Pretax
                                       Amount       Income    Amount        Income   Amount       Income 
                                       ------       ------    ------        ------   ------       ------ 
                                                             (dollars in thousands)                      
                                                                                                         

Tax expense at statutory rate .......   $ 598         34.0%   $ 246         34.0%    $ 412         34.0% 
State income tax, net of                                                                                 
    federal tax benefit .............     105          5.9       45          6.2        33          2.7  
Change in beginning of year                                                                              
    balance of the valuation                                                                             
    allowance for deferred tax assets      --           --     (396)       (54.7)      (78)        (6.4) 
Other, net ..........................     (11)         (.6)      (1)         (.1)      (11)         (.9) 
                                        -----         ----    -----         ----     -----         ----  
                                        $ 692         39.3%   $(106)       (14.6)%   $ 356         29.4% 
                                        =====         ====    =====         ====     =====         ====  

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Notes to Consolidated Financial Statements (continued)

              The tax effects of  significant  temporary  differences  that give
              rise to the deferred tax assets and liabilities were as follows at
December 31:                                        

                                                                [Download Table]


                                                               1997        1996 
                                                               ----        ---- 
                                                                (in thousands)  
                                                                                
Deferred tax assets:                                                            
    Allowance for loan losses ..........................      $ 334         276 
    Deferred compensation and pension costs ............        430         406 
    Recognition and retention plan expense .............         52          62 
    Securities basis adjustment ........................         22          46 
                                                              -----       ----- 
         Total gross deferred tax assets ...............        838         790 
         Less valuation allowance ......................        (96)        (96)
                                                              -----       ----- 
         Net deferred tax assets .......................        742         694 
                                                              -----       ----- 

Deferred tax liabilities:                                                       
    Depreciation differences ...........................         72          74 
    Accretion of discount on securities ................         53          19 
    Other items ........................................         51          47 
                                                              -----       ----- 
         Total gross deferred tax liabilities ..........        176         140 
                                                              -----       ----- 

         Net deferred tax asset at year-end ............        566         554 

         Net deferred tax asset at beginning of year ...        554        --   
                                                              -----       ----- 

         Deferred tax benefit for the years ended ......      $  12         554 
                                                              =====       ===== 

              In  addition to the  deferred  tax amounts  described  above,  the
              Company also had a deferred tax liability of approximately  $6,000
              at  December  31,  1997,  related to the net  unrealized  gains on
securities available for sale.                      

              The valuation allowance for deferred tax assets as of December 31,
              1997 and 1996 was  $96,000.  During  the year ended  December  31,
              1996,  the  valuation  allowance  was  reduced by  $396,000.  This
              reduction was primarily the result of the expected  realization of

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  Notes to Consolidated Financial Statements (continued)

              certain  deferred  items which were  previously  considered  to be
              uncertain. In evaluating the valuation allowance the Company takes
              into consideration the nature and timing of the deferred tax asset
              items as well as the amount of available open tax carrybacks.  The
              Company has fully  reserved its New York State deferred tax asset,
              which is a  significant  component of deferred tax assets,  due to
              the lack of carryback and carryforward provisions available in New
              York  State.  Any  changes  in the  deferred  tax asset  valuation
              allowance is based upon the Company's continuing evaluation of the
              level of such  allowance  and the  realizability  of the temporary
              differences  creating  the  deferred  tax  asset.  Based on recent
              historical and  anticipated  future pre-tax  earnings,  management
              believes it is more likely than not that the Company  will realize
its net deferred tax assets.                        

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

              Certain  amendments  to the  Federal  and New York  State tax laws
              regarding  bad debt  deductions  were  enacted  in July and August
              1996. The Federal amendments include elimination of the percentage
              of taxable  income method for tax years  beginning  after December
              31, 1995,  and  imposition  of a  requirement  to  recapture  into
              taxable income (over a period of approximately  six years) the bad
              debt  reserves  in  excess  of the  base-year  amounts.  The  Bank
              previously established,  and will continue to maintain, a deferred
              tax liability  with respect to such excess Federal  reserves.  The
              New York State  amendments  redesignate  the Bank's state bad debt
              reserves at December  31,  1995 as the  base-year  amount and also
              provide for future  additions to the  base-year  reserve using the
percentage of taxable income method.                

              In accordance  with SFAS No. 109, a deferred tax liability has not
              been recognized at December 31, 1997 with respect to the base-year
              reserve of $4.6 million,  since the Bank does not expect that this
              amount will become taxable in the  foreseeable  future.  Under New
              York  State tax law,  as  amended,  events  that  would  result in
              taxation  of this  reserve  include  the  failure  of the  Bank to
              maintain a specified  qualifying assets ratio or meet other thrift
              definition tests for tax purposes.  The unrecognized  deferred tax
              liability  at  December  31,  1997 with  respect to the  base-year
reserve was approximately $1.6 million.             

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Notes to Consolidated Financial Statements (continued)

(13)   Employee Benefit Plans                                                   

(a)    Pension Plan                                               

              The Company's defined benefit, non-contributory, pension plan (the
              "Plan")  covers all full time  employees  meeting  age and service
              requirements.  The  benefit  formula  is equal to 2% of three year
              average  base  earnings  multiplied  by the  number  of  years  of
              credited service up to 30 years. Benefits contemplated by the Plan
              are being funded under a group annuity  contract with an insurance
company.                                            

              The  following  table  sets  forth the  Plan's  funded  status and
              amounts  recognized  in  the  Company is  consolidated   financial
statements at December 31:                          

                                                                [Download Table]

                                                                1997         1996   
                                                                ----         ----   
                                                                 (in thousands)     
                                                                                    
Actuarial present value of benefit obligations:                                     
   Accumulated benefit obligation, including                                        
      vested benefits of approximately $3,357,000                                   
      in 1997 and $2,828,000 in 1996 ........................  $(3,436)      (2,927)
                                                               =======      ======= 

   Projected benefit obligation for service rendered to date    (4,662)      (3,936)
   Plan assets at fair value ................................    3,636        3,190 
                                                               -------      ------- 
   Projected benefit obligations in excess of plan assets ...   (1,026)        (746)
   Unrecognized net loss from past experience different                             
      from that assumed of effects and changes in assumptions      704          359 
   Unrecognized prior service costs .........................        2            2 
   Unrecognized net obligation at January 1, 1989 being                             
      recognized over 19.66 years ...........................      246          269 
                                                               -------      ------- 
   Accrued pension liability ................................  $   (74)        (116)
                                                               =======      ======= 

                  Net  pension  cost  for  1997,  1996  and  1995  included  the
following components:                                                           

                                                                [Download Table]

                                                  1997     1996    1995 
                                                  ----     ----    ---- 
                                                                        
Service cost - benefits earned during the period  $ 171     171     139 
Interest cost on projected benefit obligations .    288     265     237 
Actual return on plan assets ...................   (295)   (171)   (352)
Net amortization and deferral ..................     26     (67)    151 
                                                  -----   -----   ----- 
Net periodic pension cost ......................  $ 190     198     175 
                                                  =====   =====   ===== 

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Notes to Consolidated Financial Statements (continued)

              Significant assumptions used in determining pension expense of the
Plan are as follows for the years ended December 31:

                                                                [Download Table]


                                             1997  1996  1995
                                             ----  ----  ----
                                                             
Discount rate .............................. 7.0%  7.5%  7.5%
Expected long-term rate of return .......... 9.0%  9.0%  9.0%
Compensation increase rate ................. 6.0%  6.0%  6.0%

(b)    Executive Supplemental Retirement Plan                     

              The Company  maintains an Executive  Supplemental  Retirement Plan
              for key management personnel. An expense of approximately $72,000,
              $72,000,  and  $107,000  was  recorded  in 1997,  1996  and  1995,
respectively.                                       

(c)    401(k) Savings Plan                                        

              The Company maintains a defined  contribution 401(k) savings plan,
              covering all full time employees who have attained age 21 and have
              completed  one year of  employment.  The  Company  matches  50% of
              employee  contributions  that are less  than or equal to 6% of the
              employeeis  salary.  Total expense  recorded during 1997, 1996 and
              1995   was   approximately   $27,000,    $23,000,   and   $24,000,
respectively.                                       

(14)   Stock-Based Compensation Plans                                           

(a)    Employee Stock Ownership Plan                              

              As part of the  conversion  discussed in note 2, an employee stock
              ownership plan (ESOP) was established to provide substantially all
              employees   of  the  Company  the   opportunity   to  also  become
              stockholders.  The  ESOP  borrowed  $1,196,000  from  the  Holding
              Company  and used the  funds to  purchase  119,600  shares  of the
              common  stock of the Company  issued in the  conversion.  The loan
              will  be  repaid   principally   from  the  Bankis   discretionary
              contributions  to the ESOP over a period of ten years. At December
              31, 1997 and 1996, the loan had an outstanding balance of $837,200
              and $956,800,  respectively,  and an interest rate of 7.31%.  Both
              the loan obligation and the unearned  compensation  are reduced by
              the amount of loan repayments made by the ESOP.  Shares  purchased
              with  the  loan  proceeds  are  held  in a  suspense  account  for
              allocation among participants as the loan is repaid. Contributions
              to the ESOP and shares  released  from the  suspense  account  are
              allocated  among  participants on the basis of compensation in the
year of allocation.                                 

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Notes to Consolidated Financial Statements (continued)

              Unallocated  ESOP shares are pledged as collateral on the loan and
              are reported in stockholders'  equity. As shares are released from
              collateral,  the Company reports compensation expense equal to the
              current  market  price  of  the  shares,  and  the  shares  become
              outstanding for earnings per share computations.  Unallocated ESOP
              shares are not included in the  earnings  per share  computations.
              The  Company  recorded  approximately  $225,000  and  $158,000  of
              compensation   expense   under   the  ESOP  in  1997   and   1996,
respectively.                                       

    The ESOP shares as of December 31, 1997 were as follows:

                  Allocated shares                                        23,920
                  Shares released for allocation                          11,960
                  Unallocated shares                                      83,720
                                                                    ------------
                                                                         119,600
                                                                    ============
Market value of unallocated shares at       
                     December 31, 1997                              $  2,250,000
                                                                    ============
(b)    Stock Option Plan                                          

              On January 16, 1996, the Company's  stockholders  approved the SFS
              Bancorp,  Inc. 1996 Stock Option and Incentive  Plan (Stock Option
              Plan).  The  primary  objective  of the  Stock  Option  Plan is to
              provide officers and directors with a proprietary  interest in the
              Company and as an incentive  to  encourage  such persons to remain
with the Company.                                   

              Under the Stock  Option Plan,  149,500  shares of  authorized  but
              unissued  stock are reserved for issuance  upon option  exercises.
              The Company also has the alternative to fund the Stock Option Plan
              with  treasury  stock.  Options  under  the  plan  may  be  either
              non-qualified  stock  options or  incentive  stock  options.  Each
              option  entitles  the holder to purchase one share of common stock
              at an exercise price equal to the fair market value on the date of
              grant.  Options expire no later than ten years  following the date
of grant.                                           

              The Company applies APB Opinion No. 25 and related Interpretations
              in accounting for its plans. Accordingly, no compensation cost has
              been  recognized for its stock option plans.  In October 1995, the
              FASB   issued   SFAS  No.   123,   "Accounting   for   Stock-Based
              Compensation."  SFAS No. 123 requires  Companies  not using a fair
              value based method of  accounting  for employee  stock  options or
              similar plans,  to provide pro forma  disclosure of net income and
              earnings  per  share  as if that  method  of  accounting  had been
applied.                                            

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Notes to Consolidated Financial Statements (continued)

              The fair value of each option  grant is  estimated  on the date of
              grant  using  the  Black-Scholes  option-pricing  model  with  the
              following weighted-average assumptions used for grants in 1997 and
1996:                                               

                                                                [Download Table]

                                 October   January    January 
                                  1997       1997      1996   
                                  ----       ----      ----   
                                                              
Dividend yield .................     1.3%       1.9%      1.7%
Expected volatility ............    22.0%      22.0%     25.0%
Risk-free interest rate ........     6.0%       6.5%      5.6%
Expected life .................. 7 years    7 years   7 years 

              Had the Company recorded compensation cost based on the fair value
              at grant  date for its  stock  options  under  SFAS No.  123,  the
              company's  consolidated  net income and basic and diluted earnings
              per  share  would  have  been  reduced  to the pro  forma  amounts
indicated below:                                    

                                                                [Download Table]


                                            (in thousands except per share data)
                                                   1997             1996        
                                                   ----             ----        
                                                                                
Net income:                                                                     
     As reported ..........................      $1,068              830        
     Pro forma ............................         976              744        
Basic earnings per share:                                                       
     As reported ..........................         .96              .68        
     Pro forma ............................         .88              .61        
Diluted earnings per share:                                                     
     As reported ..........................         .93              .67        
     Pro forma ............................         .86              .62        


              Because the Company's employee stock options have  characteristics
              significantly different from those of traded options for which the
              Black-Scholes  model was  developed,  and  because  changes in the
              subjective input  assumptions can materially affect the fair value
              estimate,  the existing models,  in management's  opinion,  do not
              necessarily provide a reliable single measure of the fair value of
its employee stock options.                         

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  Notes to Consolidated Financial Statements (continued)

              A summary of the status of the Company's  stock option plans as of
              December  31, 1997 and 1996 and changes  during the years ended on
those dates is presented below:                     

                                                                [Download Table]

                                            1997                  1996          
                                    ---------------------  ---------------------
                                                Weighted-              Weighted-
                                                 Average                Average 
                                                Exercise               Exercise 
                                    Shares        Price    Shares        Price  
                                    ------        -----    ------        -----  
                                                                                
Options:                                                                        
    Outstanding at January 1        114,367     $  12.63         -           -  
    Granted                          18,687        19.12    133,054       12.63 
    Exercised                        (7,475)       12.63         -           -  
    Cancelled                            -             -    (18,687)      12.63 
    Outstanding at year-end         125,579        13.59    114,367       12.63 
    Exercisable at year-end          21,379        12.63         -           -  

Estimated weighted-average                                                      
    fair value of options granted                                               
    during the year                $   6.29                $   4.08             
                                    =======                ========             

              The following  table  summarizes  information  about the Company's
stock options at December 31, 1997:                 

                                                                [Download Table]

                        Options Outstanding               Options Exercisable    
             -----------------------------------------  -------------------------
                             Weighted                                            
                              Average        Weighted-                  Weighted-
               Number        Remaining        Average     Number         Average 
   Exercise  Outstanding    Contractual      Exercise   Exercisable     Exercise 
     Price   at 12/31/97       Life            Price    at 12/31/97       Price  
     -----   -----------       ----            -----    -----------       -----  
                                                                                 
$  12.625      106,892          8 years     $  12.63        21,379       $  12.63
   14.75         7,475          9 years        14.75            -             -  
   22.03        11,212        9.8 years        22.03            -             -  

(c)    Recognition and Retention Plan                             

              On January 16, 1996, the Company's  stockholders  approved the SFS
              Bancorp, Inc. Recognition and Retention Plan (RRP). The purpose of
              the plan is to promote the long-term  interests of the Company and
              its shareholders by providing a stock based  compensation  program
              to  attract  and retain  officers  and  directors.  Under the RRP,
              59,800 shares of authorized  but unissued  shares are reserved for
              issuance under the plan.  The Company also has the  alternative to
fund the RRP with treasury stock.                   

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Notes to Consolidated Financial Statements (continued)

              During   1997  and  1996,   7,475   shares  and   53,222   shares,
              respectively,  were  awarded  under the RRP.  During  1996,  7,475
              shares were forfeited under the RRP. 2,990 shares and 8,691 shares
    vested under the RRP during 1997 and 1996, respectively.

(15)   Fair Value of Financial Instruments                                      

              SFAS  No.  107,   iDisclosures   about  Fair  Value  of  Financial
              Instrumentsi  requires  the  Company to  disclose  estimated  fair
              values for its  financial  instruments.  SFAS No. 107 defined fair
              value  of  financial  instruments  as  the  amount  at  which  the
              instrument  could be  exchanged in a current  transaction  between
              willing  parties other than in a forced or liquidation  sale. SFAS
              No.  107  defines a  financial  instrument  as cash,  evidence  of
              ownership interest in an entity, or a contract that imposes on one
              entity  a  contractual  obligation  to  deliver  cash  or  another
              financial  instrument  to a second  entity  or to  exchange  other
              financial  instruments  on  potentially  unfavorable  terms with a
              second  entity and  conveys to that  second  entity a  contractual
              right to receive  cash or another  financial  instrument  from the
              first  entity  or  to  exchange  other  financial  instruments  on
potentially favorable terms with the first entity.  

              Fair value  estimates are made at a specific point in time,  based
              on relevant market information and information about the financial
              instrument. These estimates do not reflect any premium or discount
              that could result from offering for sale at one time the Companyis
              entire holdings of a particular financial  instrument.  Because no
              ready market  exists for a  significant  portion of the  Companyis
              financial instruments, fair value estimates are based on judgments
              regarding  future  expected  net  cash  flows,   current  economic
              conditions, risk characteristics of various financial instruments,
              and other  factors.  These  estimates are subjective in nature and
              involve  uncertainties  and matters of  significant  judgment and,
              therefore,  cannot  be  determined  with  precision.   Changes  in
 assumptions could significantly affect the estimates.

              Fair value  estimates  are based on existing  on- and  off-balance
              sheet  financial  instruments  without  attempting to estimate the
              value of anticipated  future  business and the value of assets and
              liabilities  that  are  not  considered   financial   instruments.
              Significant   assets  and  liabilities  that  are  not  considered
              financial assets or liabilities include the deferred tax asset and
              office  premises and  equipment.  In addition,  tax  ramifications
              related to the  realization  of the  unrealized  gains and losses,
              which can have a significant effect on fair value estimates,  have
              not have been considered in the estimates of fair value under SFAS
No. 107.                                            

              In addition there are significant  intangible assets that SFAS No.
              107 does not recognize,  such as the value of "core deposits", the
              Company's  branch network and other items generally referred to as
goodwill.                                           

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Notes to Consolidated Financial Statements (continued)

              The following  tables  present the carrying  amounts and estimated
              fair values of the Company is  financial  instruments  at December
31, 1997 and 1996:                                  

                                                        [Enlarge/Download Table]

                                                                          1997            
                                                                 -----------------------  
                                                                      (in thousands)      
                                                                  Carrying     Estimated  
                                                                  Amount      Fair Value  
                                                                  ------      ----------  
                                                                                          
Financial assets:                                                                         
  Cash and cash equivalents ................................     $  2,176        2,176    
  Securities available for sale ............................        4,067        4,067    
  Investment securities ....................................       28,979       29,095    

  Loans ....................................................      134,586      135,886    
       Less:  allowance for loan losses ....................          778         --      
              unearned discount, and deferred loan fees, net           22         --      
                                                                 --------     --------    
           Net loans .......................................      133,786      135,886    

  Accrued interest receivable ..............................        1,130        1,130    

Financial liabilities:                                                                    
  Savings, now, and demand deposit accounts ................       55,728       55,728    
  Time deposit accounts ....................................       94,741       94,880    
  Advance payments by borrowers for property taxes                                        
       and insurance .......................................        1,281        1,281    
  Accrued interest on depositors accounts ..................            7            7    


                                                                             1996         
                                                                    ----------------------
                                                                         (in thousands)   
                                                                    Carrying    Estimated 
                                                                     Amount     Fair Value
                                                                     ------     ----------
                                                                                          
Financial assets:                                                                         
  Cash and cash equivalents ...................................     $  2,896        2,896 
  Securities available for sale ...............................        1,990        1,990 
  Investment securities .......................................       36,180       35,964 

  Loans .......................................................      119,120      118,903 
       Less:  allowance for loan losses .......................          642         --   
                 unearned discount, and deferred loan fees, net           23         --   
                                                                    --------     -------- 
           Net loans ..........................................      118,455      118,903 

  Accrued interest receivable .................................        1,137        1,137 

Financial liabilities:                                                                    
  Savings, now, and demand deposit accounts ...................       53,722       53,722 
  Time deposit accounts .......................................       86,894       86,968 
  Advance payments by borrowers for property taxes                                        
       and insurance ..........................................        1,160        1,160 
  Accrued interest on depositors accounts .....................            7            7 


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Notes to Consolidated Financial Statements (continued)

          Financial Instruments with Carrying Amount Equal to Fair Value

              The carrying  amount of cash and due from banks and fed eral funds
              sold  (collectively  defined  as  icash  and  cash  equivalentsi),
              accrued interest receivable, accrued interest payable, and advance
              payments  by  borrowers  for  property   taxes  and  insurance  is
              considered  to be  equal  to  fair  value  as a  result  of  their
short-term nature.                                  

              Securities Available for Sale, Debt Securities and Mortgage-Backed
Securities                                          

              The fair value of  securities  available  for sale and  investment
              securities is estimated based on bid prices published in financial
              newspapers  and bid  quotations  received  from  either  quotation
services or securities dealers.                     

Loans                                               

              Fair values are  estimated  for  portfolios  of loans with similar
              financial  characteristics.  Loans are  segregated by type such as
              one-  to  four-family,   commercial  real  estate,   consumer  and
              commercial  loans.  Each loan category is further  segmented  into
              fixed and  adjustable  rate interest  terms and by performing  and
nonperforming categories.                           

              The fair value of performing  loans is  calculated by  discounting
              scheduled   cash  flows  through  the  estimated   maturity  using
              estimated  market  discount  rates  that  reflect  the  credit and
              interest rate risk inherent in the loan.  The estimate of maturity
              is  based  on the  contractual  term  of the  loans  to  maturity,
adjusted for estimated prepayments.                 

              Fair  value for  nonperforming  loans is based on recent  external
              appraisals and discounting of cash flows. Estimated cash flows are
              discounted using a rate commensurate with the risk associated with
              the estimated cash flows.  Assumptions regarding credit risk, cash
              flows,  and  discount  rates  are  judgmentally  determined  using
           available market information and specific borrower information.

Deposit Liabilities                                 

              Under  SFAS No.  107,  the fair value of  deposits  with no stated
              maturity,  such as  noninterest-bearing  demand deposits,  savings
              deposits,  NOW deposits and money market deposits,  must be stated
              at the amount  payable on demand as of December 31, 1997 and 1996.
              The  fair  value  of  certificates  of  deposit  is  based  on the
              discounted  value of contractual  cash flows. The discount rate is
              estimated  using the  rates  currently  offered  for  deposits  of
              similar remaining maturities.  The fair value estimates of deposit
              liabilities in the foregoing table do not include the benefit that
              results  from  the  low  cost  funding  provided  by  the  deposit
              liabilities compared to the cost of borrowing funds in the market.

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Notes to Consolidated Financial Statements (continued)

          Commitments  to Extend  Credit and  Standby  Letters of Credit

              The fair value of commitments to extend credit 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 level of interest rates and the committed rates.  Based on
              an  analysis  of the  foregoing  factors,  the fair value of these
              items  approximates  their carrying value at December 31, 1997 and
1996.                                               

(16)   Commitments and Contingent Liabilities                                   

(a)    Off-Balance Sheet Financing and Concentrations of Credit   

              The  Company  is a party to  certain  financial  instruments  with
              off-balance  sheet risk in the normal  course of  business to meet
              the financing needs of its customers.  These financial instruments
              are limited to  commitments to extend  credit.  These  instruments
              involve, to varying degrees,  elements of credit risk in excess of
              the amount recognized on the statement of financial condition. The
              contract  amounts  of these  instruments  reflect  the  extent  of
involvement by the Company.                         

              The   Company's   exposure   to  credit   loss  in  the  event  of
              nonperformance  by the  other  party to the  commitment  to extend
              credit is represented by the contractual  notional amount of those
              instruments.  The Company uses the same credit  policies in making
    commitments as it does for on-balance sheet instruments.

              Contract  amounts of financial  instruments  that represent credit
              risk as of  December  31,  1997  and 1996 at  fixed  and  variable
interest rates are as follows:                      

                                                                [Download Table]

                                                            1997                
                                             ---------------------------------- 
                                              Fixed        Variable       Total 
                                              -----        --------       ----- 
                                                        (in thousands)          
                                                                                
Financial instruments                                                           
  whose contract amounts                                                        
  represent credit risk:                                                        
    Conventional mortgage loans ......       $   921         2,296         3,217
    Home equity ......................          --          10,279        10,279
    Commercial loans .................           257          --             257
    Overdraft loans ..................           135          --             135
                                             -------       -------       -------
                                             $ 1,313        12,575        13,888
                                             =======       =======       =======

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Notes to Consolidated Financial Statements (continued)

                                                                [Download Table]

                                                            1996                
                                             ---------------------------------- 
                                              Fixed        Variable       Total 
                                              -----        --------       ----- 
                                                         (in thousands)         
                                                                                
Financial instruments                                                           
  whose contract amounts                                                        
  represent credit risk:                                                        
    Conventional mortgage loans ......       $   316         1,572         1,888
    Home equity ......................          --          10,278        10,278
    Commercial loans .................           306          --             306
    Overdraft loans ..................           114          --             114
                                             -------       -------       -------
                                             $   736        11,850        12,586
                                             =======       =======       =======

              The range of interest rates on fixed rate commitments was 7.13% to
              18.00% at December  31,  1997 and 5.0% to 18.00% at  December  31,
              1996. The Company offers  various  adjustable  rate mortgage (ARM)
              products  on  1-4  family  residential  dwellings.  The  principal
              one-year  ARM offered as of December 31, 1997 and 1996 has a 2.00%
              annual  interest rate  adjustment cap, and uses the weekly average
              from the one-year Treasury Constant Maturity Series, plus a margin
              of 3.00%,  as an index for rate  adjustments.  The  lifetime  rate
              ceiling for the one-year ARM product at December 31, 1997 and 1996
              was 6.00% above the initial rate.  The Company also offers 3/1 and
              5/1 ARM  products  where  the rate is fixed  for the first 3 and 5
              years,  respectively.  After the initial fixed term,  the mortgage
              has the same  characteristics  as a  one-year  ARM.  The other ARM
              product  offered at December  31,  1997 and 1996,  was a jumbo ARM
              with a  lifetime  ceiling of 6.00%  above the  initial  rate.  The
              Company  does not  originate  loans  which  provide  for  negative
       amortization. Mortgage loan terms vary from 10 to 30 years.

              Commitments  to extend credit are agreements to lend to a customer
              as long as there is no violation of any condition  established  in
              the contract. Commitments generally have fixed expiration dates or
              other termination  clauses and may require payment of a fee. Since
              many of the commitments are expected to expire without being fully
              drawn  upon,  the  total  commitment  amounts  do not  necessarily
              represent  future cash  requirements.  The Company  evaluates each
              customer's creditworthiness on a case-by-case basis. The amount of
              collateral,  if any, required by the Company upon the extension of
              credit is based on management's credit evaluation of the customer.
              Mortgage and construction  loan commitments are secured by a first
              or second  lien on real  estate.  Typically,  consumer  credit and
overdraft loans do not require collateral.          

              The Company does not engage in investments  in futures  contracts,
              forwards,  swaps, option contracts or other derivative investments
with similar characteristics.                       

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Notes to Consolidated Financial Statements (continued)

(b)    Lease Commitments                                          

              The  Company  leases  a  branch  facility  under  a  noncancelable
              operating lease expiring in 2006.  Total expenses under this lease
              for the  years  ended  December  31,  1997,  1996  and  1995  were
              approximately  $53,000,  $45,000,  and  $42,000,  respectively.  A
              summary  of the  future  minimum  commitments  required  under the
noncancelable facility lease are as follows:        

                  Years ending December 31:                 (in thousands)

                            1998                                $   52,000
                            1999                                    52,000
                            2000                                    52,000
                            2001                                    52,000
                            2002                                    52,000
                            Thereafter                             203,000
                                                                ----------
                                                                $  463,000
                                                                ==========

(17)   Regulatory Capital Requirements                                          

              OTS regulations  require savings  institutions to maintain minimum
              levels of regulatory  capital.  Under the regulations in effect at
              December  31,  1997,  the Bank was  required to maintain a minimum
              ratio of  tangible  capital to total  adjusted  assets of 1.5%;  a
              minimum ratio of Tier 1 (core) capital to total adjusted assets of
              3.0%;  and a  minimum  ratio of  total  (core  and  supplementary)
capital to risk-weighted assets of 8.0%.            

              Under  its  prompt  corrective  action  regulations,  the  OTS  is
              required  to  take  certain  supervisory  actions  (and  may  take
              additional    discretionary    actions)   with   respect   to   an
              undercapitalized  institution.  Such  actions  could have a direct
              material  effect on an  institution's  financial  statements.  The
              regulations  establish  a  framework  for  the  classification  of
              savings  institutions  into  five  categories:  well  capitalized,
              adequately    capitalized,     undercapitalized,     significantly
              undercapitalized,  and critically undercapitalized.  Generally, an
              institution  considered well capitalized if it has a Tier 1 (core)
              capital ratio of at least 5.0%; a Tier 1 risk-based  capital ratio
              of at least 6.0%; and a total risk-based capital ratio of at least
10.0%.                                              

              The  foregoing  capital  ratios  are  based  in part  on  specific
              quantitative   measures   of  assets,   liabilities   and  certain
              off-balance sheet items as calculated under regulatory  accounting
              practices. Capital amounts and classifications are also subject to
              qualitative  judgments by the OTS about capital  components,  risk
weightings and other factors.                       

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  SFS Bancorp, Inc. and Subsidiary

 Notes to Consolidated Financial Statements, Continued

              Management  believes that, as of December 31, 1997, the Bank meets
              all capital adequacy requirements to which it is subject. Further,
              the most recent OTS  notification  categorized  the Bank as a well
              capitalized   institution   under  the  prompt  corrective  action
              regulations.  There have been no  conditions  or events since that
              notification  that  management  believes  have  changed the Bank's
capital classification.                             

              The  following  is a summary of the Bank's  and  Company's  actual
              capital  amounts and ratios,  compared to the OTS minimum  capital
              adequacy  requirements and the OTS requirements for classification
as a well capitalized institution, at December 31:  

                                                        [Enlarge/Download Table]


                                                          1997                                  
                       -------------------------------------------------------------------------
                                                      Minimum Capital            Classification 
                                 Actual                  Adequacy            as Well Capitalized
                           Amount       Ratio             Ratio                        Ratio    
                          ------       -----             -----                        -----     
                                                                                                
Bank                                                                                            
Tangible capital       $    18,977     10.88%             1.50%                         -       
Tier 1 (core) capital       18,977     10.88              3.00                          5.00    
Risk-based capital:                                                                             
    Tier 1                  18,977     20.33                -                           6.00    
    Total                   19,755     21.16              8.00                         10.00    

                                 Actual                                                         
                           Amount       Ratio                                                   
                           ------       -----                                                   
                                                                                                
Consolidated                                                                                    
Tangible capital       $    21,421     12.28%                                                   
Tier 1 (core) capital       21,421     12.28                                                    
Risk-based capital:                                                                             
    Tier 1                  21,421     22.95                                                    
    Total                   22,199     23.78                                                    

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 Notes to Consolidated Financial Statements, Continued

                                                        [Enlarge/Download Table]

                                                          1996                                  
                       -------------------------------------------------------------------------
                                                      Minimum Capital            Classification 
                                 Actual                  Adequacy            as Well Capitalized
                           Amount       Ratio             Ratio                        Ratio    
                           ------       -----             -----                        -----    
                                                                                                
Bank                                                                                            
Tangible capital       $    17,762     10.77%             1.50%                         -       
Tier 1 (core) capital       17,762     10.77              3.00                          5.00    
Risk-based capital:                                                                             
    Tier 1                  17,762     20.19                -                           6.00    
    Total                   18,405     20.92              8.00                         10.00    


                                 Actual                                                         
                           Amount       Ratio                                                   
                           ------       -----                                                   
                                                                                                
Consolidated                                                                                    
Tangible capital       $    21,625     13.12%                                                   
Tier 1 (core) capital       21,625     13.12                                                    
Risk-based capital:                                                                             
    Tier 1                  21,625     24.59                                                    
    Total                   22,267     25.32                                                    


(18)   Parent Company Financial Information                                     

              SFS Bancorp,  Inc. was  organized to serve as the holding  company
              for the Bank and began  operations on June 29, 1995 in conjunction
              with  the  Bankis  mutual-to-stock   conversion  and  the  Holding
  Company's initial public offering of its common stock.

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 Notes to Consolidated Financial Statements, Continued

                                                        [Enlarge/Download Table]

                                             Balance Sheets                                          
                                     as of December 31, 1997 and 1996                                

                                  Assets                                     1997          1996      
                                                                    (in thousands, except share data)
                                                                                                     
Cash and cash equivalents ...........................................     $     76            96     
Loan receivable from subsidiary .....................................        2,337         3,757     
Equity in net assets of subsidiary ..................................       18,987        17,808     
Other assets ........................................................           60            58     
                                                                          --------      --------     

                  Total assets ......................................     $ 21,460        21,719     
                                                                          ========      ========     

     Liabilities and Stockholders' Equity                                                            

Liabilities:                                                                                         
     Other liabilities ..............................................     $     29            48     
                                                                          --------      --------     

Stockholders' Equity:                                                                                
     Preferred stock, $.01 par value, authorized 500,000 shares .....         --            --       
     Common stock, $.01 par value, authorized 2,500,000 shares;                                      
         1,495,000 shares issued at December 31, 1997 and 1996 ......           15            15     
     Additional paid-in capital .....................................       14,365        14,260     
     Retained earnings, substantially restricted ....................       12,422        11,687     
     Treasury stock, at cost (286,528 shares at                                                      
          December 31, 1997, 224,003 at December 31, 1996) ..........       (4,089)       (2,840)    
     Common stock acquired by employee stock ownership plan (ESOP) ..         (837)         (957)    
     Unearned recognition and retention plan (RRP) ..................         (455)         (540)    
     Net unrealized gain on securities available for sale, net of tax           10            46     
                                                                          --------      --------     

                  Total stockholders' equity ........................       21,431        21,671     
                                                                          --------      --------     

                  Total liabilities and stockholders' equity ........     $ 21,460        21,719     
                                                                          ========      ========     

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                              Statements of Income                                
                 For the years ended December 31, 1997 and 1996                   

                                                                  1997        1996
                                                                  ----        ----
                                                                  (in thousands)  
                                                                                  

Interest income ............................................     $  245        384
Interest expense ...........................................        --         -- 
                                                                 ------     ------
     Net interest income ...................................        245        384

Noninterest expense ........................................        115        104
                                                                 ------     ------

Income before income taxes and equity in undistributed                            
     earnings of subsidiary ................................        130        280
                                                                 ------     ------

Income tax expense .........................................         52        112
                                                                 ------     ------

Income before equity in undistributed earnings of subsidiary         78        168
Equity in undistributed earnings of subsidiary                                    
     (for the years ended December 31, 1997 and 1996) ......        990        662
                                                                 ------     ------

Net income .................................................     $1,068        830
                                                                 ======     ======


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                            Statements of Cash Flows                               
                 For the years ended December 31, 1997 and 1996                    

                                                               1997          1996  
                                                                ----          ---- 
                                                                  (in thousands)   
                                                                                   
Cash flows from operating activities:                                              
     Net income .........................................     $ 1,068          830 
     Adjustment to reconcile net income to net cash                                
         provided by operating activities:                                         
           Equity in undistributed earnings of subsidiary        (990)        (662)
           Increase in other assets .....................          (2)         (17)
           Increase (decrease) in liabilities ...........         (19)          27 
           Amortization of RRP ..........................         228           38 
                                                              -------      ------- 
              Net cash provided by operating activities .         285          216 
                                                              -------      ------- 

Cash flows from investing activities:                                              
     Net (increase) decrease in loans ...................       1,420        3,319 
                                                              -------      ------- 
              Net cash provided in investing activities .       1,420        3,319 
                                                              -------      ------- 

Cash flows from financing activities:                                              
     Purchase of treasury stock .........................      (1,486)      (3,418)
     Cash dividends paid ................................        (333)        (156)
     Proceeds from exercise of stock option .............          94         --   
                                                              -------      ------- 
              Net cash used from financing activities ...      (1,725)      (3,574)
                                                              -------      ------- 

Net decrease in cash and cash equivalents ...............         (20)         (39)

Cash and cash equivalents:                                                         
     Beginning of period ................................          96          135 
                                                              -------      ------- 

     End of period ......................................     $    76           96 
                                                              =======      ======= 

              These financial  statements should be read in conjunction with the
           Company is consolidated financial statements and notes thereto.

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                            SFS BANCORP, INC. AND SUBSIDIARY                        
                            Consolidated Statements of Income                       
                          (In Thousands, Except Per Share Data)                     

                                                                  THREE MONTHS ENDED
                                                                      JUNE  30,     
                                                                   1998        1997 
                                                                  ------     ------ 
                                                                     (Unaudited)    
                                                                                    
Interest income:                                                                    
      Loans ....................................................  $2,687      2,386 
      Investment securities ....................................     329        529 
      Securities available for sale ............................     127         88 
      Federal funds sold and cash deposits .....................      37         56 
      Stock in Federal Home Loan Bank ..........................      25         21 
                                                                  ------     ------ 
             Total interest income .............................   3,205      3,080 

Interest expense:                                                                   
      Deposits .................................................   1,746      1,640 
                                                                  ------     ------ 

             Net interest income ...............................   1,459      1,440 

Provision for loan losses ......................................      30         30 
                                                                  ------     ------ 

             Net interest income after provision for loan losses   1,429      1,410 
                                                                  ------     ------ 
Noninterest income:                                                                 
      Other loan charges .......................................      43         23 
      Bank fees and service charges ............................      44         45 
      Other ....................................................      34         16 
                                                                  ------     ------ 
             Total noninterest income ..........................     121         84 
                                                                  ------     ------ 

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                            SFS BANCORP, INC. AND SUBSIDIARY                       
                            Consolidated Statements of Income                      
                          (In Thousands, Except Per Share Data)                    
                                      (continued)                                  

                                                                 THREE MONTHS ENDED
                                                                     JUNE  30,     
                                                                  1998        1997 
                                                                 ------     ------ 
                                                                    (Unaudited)    
                                                                                   
Noninterest expense:                                                               
      Compensation and employee benefits .......................    629        643 
      Advertising and business promotion .......................      9         20 
      Office occupancy and equipment expense ...................    150        151 
      Federal deposit insurance premiums .......................     23         23 
      Other insurance premiums .................................     19         22 
      Mortgage servicing fees ..................................      5          8 
      Data processing fees .....................................     47         43 
      Professional service fees ................................     79         56 
      Other ....................................................     83         69 
                                                                 ------     ------ 
             Total noninterest expense .........................  1,044      1,035 
                                                                 ------     ------ 

             Income before taxes ...............................    506        459 

Income tax expense .............................................    208        191 
                                                                 ------     ------ 

             Net income ........................................ $  298        268 
                                                                 ======        === 

Earnings per share:                                                                
     Basic ..................................................... $  .27        .24 
                                                                 ======     ====== 

     Diluted ................................................... $  .26        .23 
                                                                 ======     ====== 


See accompanying notes to unaudited  consolidated interim financial statements. 

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                            SFS BANCORP, INC. AND SUBSIDIARY                        
                           Consolidated Statements of Income                        
                         (In Thousands, Except Per Share Data)                      

                                                                  SIX MONTHS ENDED  
                                                                       JUNE  30,    
                                                                  ----------------- 
                                                                   1998       1997  
                                                                  ------     ------ 
                                                                     (Unaudited)    
                                                                                    
Interest income:                                                                    
      Loans ..................................................... $5,325      4,695 
      Investment securities .....................................    763      1,083 
      Securities available for sale .............................    198        125 
      Federal funds sold and cash deposits ......................     56        103 
      Stock in Federal Home Loan Bank ...........................     49         41 
                                                                  ------     ------ 
              Total interest income .............................  6,391      6,047 

Interest expense:                                                                   
      Deposits ..................................................  3,460      3,188 
                                                                   ------     ------
             Net interest income ................................  2,931      2,859 

Provision for loan losses .......................................     60         60 
                                                                  ------     ------ 

             Net interest income after provision for loan losses   2,871      2,799 
                                                                  ------     ------ 

Noninterest income:                                                                 
      Other loan charges ........................................     84         54 
      Bank fees and service charges .............................     83         82 
      Other .....................................................     59         32 
                                                                  ------     ------ 
             Total noninterest income ...........................    226        168 
                                                                  ------     ------ 

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                            SFS BANCORP, INC. AND SUBSIDIARY                       
                           Consolidated Statements of Income                       
                         (In Thousands, Except Per Share Data)                     
                                      (continued)                                  

                                                                  SIX MONTHS ENDED 
                                                                       JUNE  30,   
                                                                  -----------------
                                                                   1998       1997 
                                                                  ------     ------
                                                                     (Unaudited)   
                                                                                   
Noninterest expense:                                                               
      Compensation and employee benefits ........................  1,328      1,330
      Advertising and business promotion ........................     19         61
      Office occupancy and equipment expense ....................    307        309
      Federal deposit insurance premiums ........................     47         28
      Other insurance premiums ..................................     36         44
      Mortgage servicing fees ...................................     11         17
      Data processing fees ......................................     94         88
      Professional service fees .................................    138        121
      Other .....................................................    151        152
                                                                  ------     ------
             Total noninterest expense ..........................  2,131      2,150
                                                                  ------     ------

             Income before taxes ................................    966        817

Income tax expense ..............................................    399        324
                                                                  ------     ------
             Net income ......................................... $  567        493
                                                                  ======     ======

Earnings per share:                                                                
     Basic ...................................................... $  .52        .44
                                                                  ======     ======

     Diluted .................................................... $  .49        .43
                                                                  ======     ======

See accompanying notes to unaudited consolidated interim financial statements.

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                                   SFS BANCORP, INC. AND SUBSIDIARY                                    
                            Consolidated Statements of Financial Condition                             
                                        (Dollars in Thousands)                                         

                                                                              June 30,     December 31,
                                                                                1998           1997    
                                                                             ---------      ---------  
Assets                                                                               (Unaudited)       
------                                                                                                 
                                                                                                       
Cash and due from banks ...................................................  $     980          1,876  
Federal funds sold ........................................................      5,600            300  
                                                                             ---------      ---------  
            Total cash and cash equivalents ...............................      6,580          2,176  

Securities available for sale, at fair value ..............................      8,062          4,067  
Investment securities (estimated fair value of $16,992                                                 
             at June 30, 1998 and $29,095 at December 31, 1997) ...........     16,910         28,979  
Stock in Federal Home Loan Bank of NY, at cost ............................      1,338          1,338  
Loans receivable, net .....................................................    141,222        133,786  
Accrued interest receivable ...............................................      1,061          1,130  
Premises and equipment, net ...............................................      2,171          2,242  
Real estate owned .........................................................        151            111  
Prepaid expenses and other asset ..........................................        598            599  
                                                                             ---------      ---------  
            Total Assets ..................................................  $ 178,093        174,428  
                                                                             =========        =======  

Liabilities and Stockholders' Equity                                                                   
Liabilities:                                                                                           
    Due to depositors:                                                                                 
          Non-interest bearing deposits ...................................  $   1,407          2,265  
          Savings and interest bearing demand deposits ....................     54,547         53,463  
          Time deposit accounts ...........................................     96,925         94,741  
                                                                             ---------      ---------  
            Total Deposits ................................................    152,879        150,469  

     Advance payments by borrowers for property taxes and insurance .......      1,861          1,281  
     Accrued expenses and other liabilities ...............................      1,438          1,247  
                                                                             ---------      ---------  
            Total Liabilities .............................................    156,178        152,997  
                                                                            ---------      ---------   

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                                   SFS BANCORP, INC. AND SUBSIDIARY                                    
                            Consolidated Statements of Financial Condition                             
                                        (Dollars in Thousands)                                         

                                                                              June 30,     December 31,
                                                                                1998           1997    
                                                                             ---------      ---------  
                                                                                    (Unaudited)        
                                                                                                       
Stockholders' Equity:                                                                                  
   Preferred stock, $.01 par value.  Authorized 500,000 shares; none issued       --             --    
   Common stock, $.01 par value. Authorized 2,500,000 shares; 1,495,000                                
   shares issued at June 30, 1998 and December 31, 1997 ...................         15             15  
   Additional paid-in capital .............................................     14,411         14,365  
   Retained earnings, substantially restricted ............................     12,795         12,422  
   Common stock acquired by :                                                                          
   Employee stock ownership plan ("ESOP") (83,720 shares) .................       (837)          (837) 
   Recognition and retention plan ("RRP") (32,530 shares) .................       (386)          (455) 
   Treasury stock, at cost (286,528 shares at June 30, 1998 and                                        
              December 31, 1997) ..........................................     (4,089)        (4,089) 
   Accumulated other comprehensive income .................................          6             10  
                                                                             ---------      ---------  
                  Total Stockholders' Equity ..............................     21,915         21,431  
                                                                             ---------      ---------  
                    Total Liabilities and Stockholders' Equity ............  $ 178,093        174,428  
                                                                             =========      =========  

See accompanying notes to unaudited consolidated interim financial statements.

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                                                SFS BANCORP, INC. AND SUBSIDIARY                                            
                                   CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY                               
                                                   (In Thousands) (Unaudited)                                               

                                                                                            Common   Common     Accumulated 
                                                 Additional                                 Stock     Stock        Other    
                                    Common       Paid-in       Retained      Treasury      Acquired  Acquired  Comprehensive
                                     Stock        Capital      Earnings       Stock         By ESOP   By RRP      Income    
                                     -----        -------      --------       -----         -------   ------      ------    
Six Months Ended                                                                                                            
June 30, 1998                                                                                                               
                                                                                                                            
Balance at December 31, 1997 ....   $     15       14,365       12,422        (4,089)         (837)    (455)          10    

Comprehensive income:                                                                                                       
  Net income ....................       --           --            567          --            --       --           --      
  Other comprehensive income,                                                                                               
  net of tax:                                                                                                               
    Unrealized net holding losses                                                                                           
        arising during the year                                                                                             
        (pre-tax $6) ............       --           --           --            --            --       --             (4)   

Comprehensive income ............                                                                                           

Amortization of unearned RRP                                                                                                
   compensation .................       --           --           --            --            --         69         --      

Cash dividends  declared ........       --           --           (194)         --            --       --           --      

Tax benefit related to vested                                                                                               
      RRP shares ................       --             46         --            --            --       --           --      
                                    --------       ------       ------        ------          ----     ----         ----    

Balance at June 30, 1998 ........   $     15       14,411       12,795        (4,089)         (837)    (386)           6    
                                    ========       ======       ======        ======          ====     ====         ====    

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                                                SFS BANCORP, INC. AND SUBSIDIARY                                 
                                   CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY                    
                                                   (In Thousands) (Unaudited)                                    
                                                          (continued)                                            

Six Months Ended                                                                                                 
June 30, 1997                                                                                                    
                                                                                                                 
Balance at December 31, 1996.....   $     15       14,260       11,687        (2,840)         (957)  (540)    46 

Comprehensive income:                                                                                            
  Net income ....................       --           --            493          --            --     --     --   
  Other comprehensive income,                                                                                    
  net of tax:                                                                                                    
    Unrealized net holding losses                                                                                
      arising during the period                                                                                  
      (pre-tax $5) ..............       --           --           --            --            --     --       (3)

Comprehensive income ............                                                                                

Amortization of unearned RRP                                                                                     
   compensation .................       --           --           --            --            --      166   --   

Cash dividends  declared ........       --           --           (163)         --            --     --     --   

Exercise of stock options .......       --           --           --              94          --     --     --   
                                    --------       ------       ------        ------          ----   ----   ---- 

Balance at June 30, 1997 ........   $     15       14,260       12,017        (3,450)         (957)  (374)    43 
                                    ========       ======       ======        ======          ====   ====   ==== 


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                        SFS BANCORP, INC. AND SUBSIDIARY             
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                           (In Thousands) (Unaudited)                

                                     Comprehensive                   
                                        Income          Total        
                                        ------          -----        

                                                                     
Balance at December 31, 1997 ....                      21,431        

Comprehensive income:                                                
  Net income ....................     $    567           567         
  Other comprehensive income,                                        
  net of tax:                                                        
    Unrealized net holding losses                                    
        arising during the year                                      
        (pre-tax $6) ............           (4)           (4)        
                                      --------                       
Comprehensive income ............     $    563                       
                                      ========                       

Amortization of unearned RRP                                         
   compensation .................                         69         

Cash dividends  declared ........                       (194)        

Tax benefit related to vested                                        
      RRP shares ................                         46         
                                                      ------         

Balance at June 30, 1998 ........                     21,915         
                                                      ======         

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                        SFS BANCORP, INC. AND SUBSIDIARY             
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                           (In Thousands) (Unaudited)                
                                  (continued)                        

Six Months Ended                                                     
June 30, 1997                                                        
                                                                     
Balance at December 31, 1996 ....                   $ 21,671         

Comprehensive income:                                                
  Net income ....................     $    493           493         
  Other comprehensive income,                                        
  net of tax:                                                        
    Unrealized net holding losses                                    
      arising during the period                                      
      (pre-tax $5) ..............           (3)           (3)        
                                      --------                       
Comprehensive income ............     $    490                       
                                      ========                       

Amortization of unearned RRP                                         
   compensation .................                        166         

Cash dividends  declared ........                       (163)        

Exercise of stock options .......                         94         

Purchase of  Treasury shares ....                       (704)        
                                                    --------         

Balance at June 30, 1997 ........                     21,554         
                                                    ========         


See accompanying notes to unaudited consolidated interim financial statements.  

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                                SFS BANCORP, INC. AND SUBSIDIARY                                      
                              CONSOLIDATED STATEMENTS OF CASH FLOWS                                   
                                         (In Thousands)                                               

                                                                          Six Months Ended            
                                                                               June 30,               
                                                                        --------------------          
                                                                         1998           1997          
                                                                        -------        -----          

Increase (decrease) in cash and cash equivalents: ....................        (Unaudited)             
                                                                                                      
    Reconciliation of net income to net cash provided                                                 
         by operating activities:                                                                     
         Net income ..................................................  $   567          493          
         Adjustments to reconcile net income to                                                       
            net cash provided by operating activities:                                                
              Depreciation and amortization ..........................      100           91          
          Net accretion on investment securities .....................      (74)          (5)         
          Net accretion on securities available for sale .............       (1)        --            
          Amortization of unearned RRP compensation ..................       69          166          
          Provision for loan losses ..................................       60           60          
          Decrease (increase) in accrued interest receivable .........       69          (60)         
          Decrease (increase) in prepaid expense and other assets ....        1          (20)         
          Increase in accrued expense and other liabilities ..........      239          332          
                                                                        -------        -----          
                   Total adjustments .................................      463          564          
                                                                        -------        -----          
                 Net cash provided by operating activities ...........    1,030        1,057          
                                                                        -------        -----          
Cash flows from investing activities:                                                                 
    Proceeds from maturity/paydown of investment securities ..........    8,885        2,009          
    Purchase of securities available for sale ........................   (4,000)      (4,050)         
    Purchase of Federal Home Loan Bank Stock .........................     --           (123)         
    Principal repayments on mortgage-backed securities ...............    3,258        1,629          
    Net increase in loans receivable .................................   (6,059)      (3,932)         
    Purchase of loans receivable .....................................   (1,504)      (1,852)         
    Capital expenditures, net of disposals ...........................      (29)        (440)         
    Proceeds from the sale of real estate owned ......................       27          100          
                                                                        -------        -----          
         Net cash provided (used) by investing activities ............      578       (6,659)         
                                                                       -------        -----           
Cash flows from financing activities:                                                                 
    Net increase in deposits .........................................    2,410        7,385          
    Net increase in advance payments by borrowers for                                                 
         property taxes and insurance ................................      580          367          
    Proceeds upon exercise of common stock options .............          94                          
    Dividends paid ...................................................     (194)        (163)         
    Purchase of Treasury stock .......................................     --           (704)         
                                                                        -------        -----          
    Net cash provided by financing activities ........................    2,796        6,979          
                                                                                        -------  -----
         Net increase in cash and cash equivalents ...................    4,404        1,377          
    Cash and cash equivalents at beginning of period .................    2,176        2,896          
                                                                        -------        -----          
    Cash and cash equivalents at end of period .......................  $ 6,580        4,273          
                                                                        =======        =====          

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                                                        [Enlarge/Download Table]

                                SFS BANCORP, INC. AND SUBSIDIARY                             
                              CONSOLIDATED STATEMENTS OF CASH FLOWS                          
                                         (In Thousands)                                      
                                           (continued)                                       

                                                                          Six Months Ended   
                                                                               June 30,      
                                                                        -------------------- 
                                                                         1998           1997 
                                                                        -------        ----- 
                                                                                             
Supplemental  disclosures of cash flow information:                                          
    Cash paid during the period for:                                                         
         Interest paid ...............................................  $ 3,475        3,188 
                                                                        =======        ===== 
         Taxes paid ..................................................  $   405          211 
                                                                        =======        ===== 
    Transfer of loans to other real estate owned .....................  $    67           11 
                                                                        =======        ===== 
    Net unrealized loss on securities available for sale, net of taxes  $    (4)          (3)
                                                                        =======        ===== 
    Deferred tax  benefit  on unrealized gain/loss                                           
         on securities available for sale ............................  $     2            2 
                                                                        =======        ===== 
    Deferred tax benefit related to vested RRP shares ................  $    46         --   
                                                                        =======        ===== 


  See accompanying notes to unaudited consolidated interim financial statements.

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SFS BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

NOTE 1.  Presentation of Financial Information                                  

The accompanying  unaudited  consolidated interim financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements.  The accompanying unaudited consolidated interim financial
statements  should  be read  in  conjunction  with  the  consolidated  financial
statements  and the related  management's  discussion  and analysis of financial
condition  and  results of  operations  filed  with the 1997 Form  10-KSB of SFS
Bancorp,  Inc.  and  Subsidiary  (the  "Company").  Amounts  in  prior  periods'
unaudited  consolidated interim financial  statements are reclassified  whenever
necessary  to conform  to the  current  periods'  presentation.  The  results of
operations for the three and six months ended June 30, 1998, are not necessarily
indicative  of results that may be expected for the entire year ending  December
31, 1998.                                                                       

The unaudited  consolidated interim financial statements include the accounts of
SFS Bancorp,  Inc.  (the  "Holding  Company")  and its wholly owned  subsidiary,
Schenectady Federal Savings Bank and subsidiary (the "Bank").                   

NOTE 2.  Earnings Per Share                                                     

The following is a  reconciliation  of the numerators and  denominators  for the
basic and diluted  earnings per share (EPS)  calculations  for the three and six
month periods ended June 30, 1998 and 1997.                                     

                                                        [Enlarge/Download Table]

Three Months Ended June 30:                                                                  
                                        (in thousands except share and per share information)

                                                               1998                          
                                              --------------------------------------         
                                                             Weighted      Per Share         
                                              Net Income   Average Shares    Amount          
                                              ----------   --------------    ------          
                                                                                             
Basic EPS ................................     $     298     1,092,222     $   0.27          
                                                                           ========          
Dilutive effect of potential common shares                                                   
   related to stock based compensation ...            --        55,590                       
                                               ---------                                     
Diluted EPS ..............................     $     298     1,147,812     $   0.26          
                                               =========     =========     ========          

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                                                               1997                          
                                              --------------------------------------         
                                                             Weighted      Per Share         
                                              Net Income   Average Shares    Amount          
                                              ----------   --------------    ------          
                                                                                             
Basic EPS .................................     $     268     1,112,210    $   0.24          
                                                                           ========          
Dilutive effect of potential common shares                                                   
   related to stock based compensation ....            --        29,616                      
                                                ---------     ---------                      
Diluted EPS ................................    $     268     1,141,826     $   0.23         
                                                =========     =========     ========         


Six Months Ended June 30:                                                                    
                                        (in thousands except share and per share information)

                                                               1998                          
                                              --------------------------------------         
                                                             Weighted      Per Share         
                                              Net Income   Average Shares    Amount          
                                              ----------   --------------    ------          
                                                                                             
Basic EPS ................................     $     567     1,091,464     $   0.52          
                                                                           ========          
Dilutive effect of potential common shares                                                   
   related to stock based compensation ...          --          56,563                       
                                               ---------     ---------                       
Diluted EPS ..............................     $     567     1,148,027     $   0.49          
                                               =========     =========     ========          

                                                               1997                          
                                              --------------------------------------         
                                                             Weighted      Per Share         
                                              Net Income   Average Shares    Amount          
                                              ----------   --------------    ------          
                                                                                             
Basic EPS                                       $    493     1,125,872      $   0.44         
                                                                            ========         
Dilutive effect of potential common shares                                                   
   related to stock based compensation               --         27,887                       
                                                ---------    ---------                       
Diluted EPS                                     $    493     1,153,759      $   0.43         
                                                ========    ==========      ========         

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NOTE 3.  Comprehensive Income                                                   

On January 1, 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting  Comprehensive  Income." This Statement
establishes  standards for reporting and display of comprehensive income and its
components.  Comprehensive  income includes the reported net income of a company
adjusted for items that are currently accounted for as direct entries to equity,
such as the mark to market adjustment on securities  available for sale, foreign
currency  items and  minimum  pension  liability  adjustments.  At the  Company,
comprehensive  income  represents  net income plus other  comprehensive  income,
which  consists of the net change in  unrealized  gains or losses on  securities
available  for sale  for the  period.  Accumulated  other  comprehensive  income
represents the net unrealized  gains or losses on securities  available for sale
as of the balance sheet dates.                                                  

NOTE 4.  Proposed Merger                                                        

On July 31, 1998, SFS Bancorp,  Inc. and Cohoes  Savings Bank (Cohoes),  Cohoes,
New York announced the execution of a definitive agreement pursuant to which the
Company will merge into a newly-formed holding company of Cohoes to be organized
in  connection  with  Cohoes'  conversion  from a mutual  to stock  institution.
Consummation of the merger is subject to the approval of the shareholders of the
Company,  the depositors of Cohoes, the conversion of Cohoes, and the receipt of
all required  regulatory  approvals.  The transaction is anticipated to close in
the fourth quarter of 1998.                                                     

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

         No person has been  authorized to give any  information  or to make any
representation other than as contained in this Prospectus in connection with the
offering  made  hereby,  and,  if given  or  made,  such  other  information  or
representation  must not be relied upon as having been authorized by the Holding
Company or the Bank.  This  Prospectus does not constitute an offer to sell or a
solicitation  of an offer to buy any of the  securities  offered  hereby  to any
person in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such offer or  solicitation is not qualified to do
so, or to any person to whom it is unlawful  to make such offer or  solicitation
in such  jurisdiction.  Neither  the  delivery of this  Prospectus  nor any sale
hereunder shall under any  circumstances  create any implication  that there has
been no change in the  affairs of the  Holding  Company or the Bank since any of
the dates as of which information is furnished herein or since the date hereof. 

 TABLE OF CONTENTS
                                                                      Page
                                                                      ----
Summary...................................................                      
Selected Consolidated Financial and                                             
Other Data of Cohoes Savings Bank......................                   
Selected Consolidated Financial and                                             
Other Data of SFS Bancorp, Inc.........................                   
Selected Pro Forma Unaudited Consolidated                                       
Financial Data of the Holding Company..................                   
Risk Factors..............................................                      
Cohoes Bancorp, Inc.......................................                      
Cohoes Savings Bank.......................................                      
Use of Proceeds...........................................                      
Dividends.................................................                      
Market for Common Stock...................................                      
Regulatory Capital........................................                      
Capitalization............................................                      
Pro Forma Unaudited Financial Information.................                      
Pro Forma Data With Merger................................                      
Pro Forma Data Without Merger.............................                      
Comparison of Valuation and Pro Forma Information                               
With No Foundation But With Merger.....................                   
Comparison of Valuation and Pro Forma Information                               
With No Foundation and Without Merger..................                   
Management's Discussion and Analysis of Financial                               
Condition and Results of Operations                                       
of Cohoes Savings Bank.................................                   
Business of the Holding Company...........................                      
Business of the Bank......................................                      
Management's Discussion and Analysis of Financial                               
Condition and Results of Operations                                       
of SFS Bancorp, Inc....................................                   
Business of SFS Bancorp, Inc..............................                      
Regulation................................................                      
Taxation..................................................                      
Management of the Holding Company.........................                      
Management of the Bank....................................                      
The Conversion and the Merger.............................                      
The Offering..............................................                      
Restrictions on Acquisitions of the Holding Company                             
and the Bank...........................................                   
Description of Capital Stock of the Holding Company.......                      
Description of Capital Stock of the Bank..................                      
Experts...................................................                      
Legal and Tax Opinions....................................                      
Additional Information....................................                      
Glossary..................................................                      
Index to Consolidated Financial Statements................                      

Until the later of __________________, 1998 or 25 days after commencement of the
offering of Holding Company Common Stock, all dealers effecting  transactions in
the registered  securities,  whether or not participating in this  distribution,
may be required to deliver a prospectus.  This is in addition to the  obligation
of dealers to deliver a prospectus when acting as underwriters  and with respect
to their unsold allotments or subscriptions.                                    

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

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

___________________ Shares

COHOES BANCORP, INC.
(Proposed Holding Company for Cohoes Savings Bank)

COMMON STOCK

----------
PROSPECTUS
----------

Keefe, Bruyette & Woods 

 _________________, 1998

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

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 PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.  Other Expenses of Issuance and Distribution                           

     Set forth below is an estimate  of the amount of fees and  expenses  (other
than  underwriting  discounts and commissions) to be incurred in connection with
the issuance of the shares.                                                     

SEC registration fees.................................................    37,698
NASD fee..............................................................    18,841
Nasdaq registration fee...............................................    84,875
New York State Banking Department filing fee..........................     5,000
Counsel fees and expenses.............................................   200,000
Accounting fees and expenses..........................................   100,000
Appraisal and business plan fees and expenses.........................    70,000
Conversion agent fees and expenses....................................    30,000
Marketing agent's expenses............................................    50,000
Marketing agent's fees (1)............................................   826,000
Printing, postage and mailing.........................................   360,000
Blue sky fees and expenses............................................    10,000
Other expenses........................................................    33,586
                                                                       ---------
     TOTAL............................................................ 1,826,000
----------                                                                      
(1)  Based on maximum of Estimated  Valuation  Range and  assumptions  set forth
under "Pro Forma Data" in the Prospectus.                             

Item 14.  Indemnification of Directors and Officers                             

     Article  ELEVENTH of the Holding  Company's  Certificate  of  Incorporation
provides for  indemnification  of directors and officers of the Holding  Company
against any and all liabilities,  judgments,  fines and reasonable  settlements,
costs,  expenses  and  attorneys'  fees  incurred in any actual,  threatened  or
potential proceeding,  except to the extent that such indemnification is limited
by  Delaware  law and such law cannot be varied by  contract  or bylaw.  Article
ELEVENTH  also  provides for the  authority to purchase  insurance  with respect
thereto.                                                                        

     Section  145 of the  General  Corporation  Law of  the  State  of  Delaware
authorizes a  corporation's  Board of Directors to grant indemnity under certain
circumstances  to directors and  officers,  when made, or threatened to be made,
parties to certain  proceedings  by reason of such status with the  corporation,
against judgments,  fines, settlements and expenses,  including attorneys' fees.
In addition, under certain circumstances such persons may be indemnified against

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expenses  actually and  reasonably  incurred in defense of a proceeding by or on
behalf  of  the  corporation.   Similarly,   the   corporation,   under  certain
circumstances,  is  authorized  to  indemnify  directors  and  officers of other
corporations  or  enterprises  who are  serving  as such at the  request  of the
corporation,  when such persons are made, or  threatened to be made,  parties to
certain  proceedings  by  reason  of  such  status,  against  judgments,  fines,
settlements  and  expenses,   including   attorneys'  fees;  and  under  certain
circumstances,  such persons may be indemnified  against  expenses  actually and
reasonably incurred in connection with the defense or settlement of a proceeding
by or in the right of such other corporation or enterprise.  Indemnification  is
permitted  where such person (i) was acting in good faith;  (ii) was acting in a
manner he reasonably  believed to be in or not opposed to the best  interests of
the corporation or other corporation or enterprise,  as appropriate;  (iii) with
respect to a criminal proceeding, has no reasonable cause to believe his conduct
was unlawful; and (iv) was not adjudged to be liable to the corporation or other
corporation  or enterprise  (unless the court where the  proceeding  was brought
determines that such person is fairly and reasonably entitled to indemnity).    

     Unless  ordered by a court,  indemnification  may be made only  following a
determination that such  indemnification is permissible because the person being
indemnified has met the requisite standard of conduct. Such determination may be
made (i) by the Board of Directors of the Holding  Company by a majority vote of
a quorum consisting of directors not at the time parties to such proceeding;  or
(ii) if such a quorum  cannot be  obtained  or the  quorum so  directs,  then by
independent legal counsel in a written opinion; or (iii) by the stockholders.   

     Section 145 also permits  expenses  incurred by  directors  and officers in
defending a  proceeding  to be paid by the  corporation  in advance of the final
disposition  of such  proceedings  upon the  receipt  of an  undertaking  by the
director or officer to repay such amount if it is ultimately  determined that he
is not entitled to be indemnified by the corporation against such expenses.     

Item 15.  Recent Sales of Unregistered Securities                               

     The Registrant is newly  incorporated,  solely for the purpose of acting as
the holding  company of Cohoes  Savings Bank  pursuant to the Plan of Conversion
(filed as Exhibit 2 herein),  and no sales of its  securities  have  occurred to
date.                                                                           

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Item 16.  Exhibits and Financial Statement Schedules                            

(a)  Exhibits:                                                                  

1.1   Letter Agreement regarding marketing and consulting services  
1.2   Form of Agency Agreement*                                     
2.1   Plan of Conversion                                            
2.2   Agreement and Plan of Merger                                  
3.1   Certificate of Incorporation of the Holding Company           
3.2   Bylaws of the Holding Company                                 
3.3   Restated Organization Certificate of Cohoes Savings Bank      
in stock form                                           
3.4   Bylaws of Cohoes Savings Bank in stock form                   
4     Form of Stock Certificate of the Holding Company              
5     Opinion of Silver, Freedman & Taff, L.L.P. with respect to    
legality of stock                                       
8.1   Opinion of Silver, Freedman & Taff, L.L.P. with respect to    
Federal income tax consequences of the Conversion*      
8.2   Opinion of Arthur Andersen with respect to New York income    
tax consequences of the Conversion*                     
8.3   Letter of RP Financial LC. with respect to Subscription Rights
10.1   Form of proposed Employment Agreement between Cohoes Savings   
Bank and certain executive officers                     
   10.2   Form of proposed Employment Agreement between Cohoes Bancorp, Inc.
and certain executive officers                          
    10.3   Form of Change-In-Control Severance Agreement with certain officers
of Cohoes Savings Bank                                  
10.4   Cohoes Savings Bank Employee Severance Compensation Plan       
10.5   Employee Stock Ownership Plan                                  
10.6   Form of Cohoes Savings Bank 401(k) Savings Plan*               
10.7   Benefit Restoration Plan                                       
10.8   Stock Option and Incentive Plan                                
10.9   Recognition and Retention Plan                                 
21     Subsidiaries of Cohoes Bancorp, Inc.                           
23.1   Consent of Silver, Freedman & Taff, L.L.P.                     
23.2   Consent of Arthur Andersen                                     
23.3   Consent of RP Financial                                        
24     Power of Attorney (set forth on signature page)                
27     Financial Data Schedule                                        
99.1   Appraisal*                                                     
99.2   Draft of Cohoes Savings Bank Foundation Gift Instrument        
99.3   Marketing Materials                                            
99.4   Stock Order Form                                               
    99.5   Consent of Joseph Giaquinto to be identified as a proposed director
99.6   Form of SFS Bancorp, Inc. Proxy Card                           

* To be filed supplementally by amendment.                                      

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Item 17.  Undertakings                                                          

The undersigned Registrant hereby undertakes:                         

          (1) To file,  during  any  period  in which  offers or sales are being
made, a post-effective amendment to this Registration Statement:      

          (i)   To include any Prospectus  required  by Section  10(a)(3) of the
Securities Act of 1933;                         

          (ii)  To reflect in the Prospectus  any facts or events  arising after
                the  effective date of the  Registration  Statement (or the most
                recent post-effective amendment thereof) which,  individually or
                in  the  aggregate,  represent  a  fundamental   change  in  the
        information set forth in the Registration Statement; and

          (iii) To include any material information  with respect to the plan of
                distribution  not  previously   disclosed  in  the  Registration
                Statement or any  material  change  to such  information  in the
Registration Statement.                         

          (2) That,  for the  purpose of  determining  any  liability  under the
     Securities Act of 1933, each such post-effective  amendment shall be deemed
     to be a new  Registration  Statement  relating  to the  securities  offered
     therein,  and the offering of such  securities at that time shall be deemed
to be the initial bona fide offering thereof.                         

          (3) To remove from registration by means of a post-effective amendment
     any  of  the  securities  being  registered  which  remain  unsold  at  the
termination of the offering.                                          

     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors,  officers and controlling  persons of the
Registrant pursuant to the foregoing  provisions,  or otherwise,  the Registrant
has been advised that in the opinion of the Securities  and Exchange  Commission
such  indemnification  is against  public policy as expressed in the Act and is,
therefore,  unenforceable. In the event that a claim for indemnification against
such liabilities  (other than the payment by the Registrant of expenses incurred
or paid by a director,  officer or  controlling  person of the Registrant in the
successful  defense of any  action,  suit or  proceeding)  is  asserted  by such
director,  officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been  settled by  controlling  precedent,  submit to a court of  appropriate
jurisdiction the question whether such  indemnification  by it is against public
policy as expressed in the Act and it will be governed by the final adjudication
of such issue.                                                                  

The undersigned Registrant hereby undertakes that:                    

          (1) For purposes of determining any liability under the Securities Act
     of 1933, the information  omitted from the form of prospectus filed as part
     of this Registration  Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant                 

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     to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
     to be part of this  Registration  Statement  as of the time it was declared
effective.                                                            

          (2) For the purpose of determining  any liability under the Securities
     Act of  1933,  each  post-effective  amendment  that  contains  a  form  of
     prospectus shall be deemed to be a new Registration  Statement  relating to
     the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.    

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SIGNATURES

     Pursuant to the  requirements of the Securities Act of 1933, the Registrant
has duly caused this  Registration  Statement  to be signed on its behalf by the
undersigned,  thereunto  duly  authorized  in the  City of  Cohoes,  New York on
September 14, 1998.                                                             

                    COHOES BANCORP, INC.

                          By:  /s/ Harry L. Robinson
                                          --------------------------------
                                      Harry L. Robinson, President
                                     and Chief Executive Officer
                                          (Duly Authorized Representative)

     KNOW ALL MEN BY THESE PRESENTS,  that each person whose  signature  appears
below   constitutes   and  appoints  Harry  L.  Robinson  his  true  and  lawful
attorney-in-fact and agent, with full power of substitution and re-substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments  (including  post-effective  amendments) to this Registration
Statement,  and to file the  same,  with all  exhibits  thereto,  and all  other
documents in connection therewith,  with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing  requisite  and  necessary  to be done,  as
fully to all  intents  and  purposes  as he might or could do in person,  hereby
ratifying and confirming  said  attorney-in-fact  and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.               

     Pursuant  to  the   requirements  of  the  Securities  Act  of  1933,  this
Registration  Statement  has been signed below by the  following  persons in the
capacities and on the dates indicated.                                          

/s/ Harry L. Robinson                              /s/ Duncan S. Mac Affer      
--------------------------------------             -----------------------------
Harry L. Robinson, Director, President             Duncan S. Mac Affer, Director
and Chief Executive Officer                                                     
(Principal Executive and Operating Officer)                                     

Date: September 14, 1998                           Date: September 14, 1998     
      -------------------------------------              -----------------------

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/s/ Arthur E. Bowen                 /s/ Walter H. Speidel                       
-----------------------------       -----------------------------               
Arthur E. Bowen, Director           Walter H. Speidel, Director                 

Date: September 14, 1998            Date: September 14, 1998                    
-----------------------             -----------------------         

/s/ Donald A. Wilson                /s/ Frederick G. Field, Jr.                 
-----------------------------       -----------------------------               
Donald A. Wilson, Director          Frederick G. Field, Jr., Director           

Date: September 14, 1998            Date: September 14, 1998                    
-----------------------             -----------------------         

/s/ R. Douglas Paton                /s/ J. Timothy O'Hearn                      
-----------------------------       -----------------------------               
R. Douglas Paton, Director          J. Timothy O'Hearn, Director                

Date: September 14, 1998            Date: September 14, 1998                    
-----------------------             -----------------------         

/s/ Chester C. DeLaMater            /s/ Peter G. Casabonne                      
-----------------------------       -----------------------------               
Chester C. DeLaMater, Director      Peter G. Casabonne, Director                

Date: September 14, 1998            Date: September 14, 1998                    
-----------------------             -----------------------         

/s/ Michael L. Crotty               /s/ Richard A. Ahl                          
-----------------------------       -----------------------------               
Michael L. Crotty, Director         Richard Ahl, Chief Financial Officer        
                                    (Principal Financial and Accounting Officer)

Date: September 14, 1998            Date: September 14, 1998                    
-----------------------             -----------------------         

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