<PAGE>13

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE COMPANY

      Set forth below are selected consolidated  financial and other data of the
Company.  This  financial  data is derived  in part from,  and should be read in
conjunction with, the Company's  Consolidated  Financial  Statements and Related
Notes.

<TABLE>
<CAPTION>
                                                                         At June 30,
                                                   ----------------------------------------------------------
                                                   ----------------------------------------------------------
                                                      2000        1999        1998        1997        1996
                                                   ----------  ----------  ----------  ----------  ----------
                                                            (In thousands, except per share amounts)
<S>                                                <C>         <C>         <C>         <C>         <C>
Selected Consolidated Financial Condition Data:

Total assets...................................    $2,881,221  $2,760,095  $1,595,844  $  993,370  $  914,483
Federal funds sold.............................            --      17,775      26,000       6,000      20,000
Debt and equity securities,net(1):
   Available for sale..........................       257,485     297,611     238,890      19,706      21,659
   Held to maturity............................            --          --          --     205,201     307,700
Mortgage-backed and mortgage-related
   securities, net(1):
   Available for sale..........................       707,446     866,844     604,304      27,398       1,394
   Held to maturity............................        57,161          --          --     185,122      80,284
Loans receivable, net(2).......................     1,573,808   1,313,527     644,469     496,258     419,270
Goodwill.......................................        43,324      43,382          --          --          --
Deposits.......................................     1,789,876   1,619,470     950,808     885,818     819,216
Borrowings.....................................       773,690     757,832     306,000          --          --
Stockholders' equity...........................       306,410     370,211     328,595     100,865      89,901

Selected Operating Data:

Interest income................................    $  194,537  $  132,574  $   86,754  $   65,781  $   59,063
Interest expense...............................        98,269      62,231      37,512      27,707      26,254
                                                   ----------------------------------------------------------
   Net interest income  before provision
     for possible loan losses..................        96,268      70,343      49,242      38,074      32,809
Provision for possible loan losses.............         1,200       2,550       2,200       1,080       1,600
                                                   ----------------------------------------------------------
   Net interest income after provision
     for possible loan losses..................        95,068      67,793      47,042      36,994      31,209
Non-interest income............................         7,176      11,389       3,601       2,861       2,827
Non-interest expense(3)........................        52,303      36,360      44,046      19,667      18,503
                                                   ----------------------------------------------------------
Income before income taxes.....................        49,941      42,822       6,597      20,188      15,533
Provision for income taxes.....................        13,672      16,178       2,071       9,463       6,803
                                                   ----------------------------------------------------------
Net income.....................................    $   36,269  $   26,644  $    4,526  $   10,725  $    8,730
                                                   ==========================================================
Basic earnings (loss) per share (4)............    $     1.36  $     1.07  $    (0.16)        N/A        N/A
                                                   ==========================================================
Diluted earnings (loss) per share(4)...........    $     1.35  $     1.07  $    (0.16)        N/A        N/A
                                                   ==========================================================
</TABLE>

                                                      (footnotes on next page)

<PAGE>14
<TABLE>
<CAPTION>


                                                                     At or For the Year Ended
                                                   ----------------------------------------------------------
                                                                            June 30
                                                   ----------------------------------------------------------
                                                      2000        1999        1998        1997        1996
                                                   ----------  ----------  ----------  ----------  ----------
                                                            (In thousands, except per share amounts)
<S>                                                <C>         <C>         <C>         <C>         <C>
 Selected Consolidated Financial Ratios
  and Other Data(5):
 Performance Ratios(6):
    Return on average assets...................       1.27%       1.36%       1.26%       1.13%       0.99%
    Return on average stockholders' equity.....      10.94        8.30        8.36       11.25       10.25
    Average stockholders' equity to
      average assets...........................      11.64       16.35       15.05       10.07        9.70
    Stockholders' equity to total assets
      at end of period.........................      10.63       13.41       20.59       10.15        9.83
    Net interest rate spread(7)................       2.99        2.88        3.29        3.64        3.48
    Net interest margin(8).....................       3.57        3.73        4.10        4.22        3.96
    Average interest-earning assets
      to average interest-bearing liabilities..     116.00      125.73      126.04       118.94     114.99
    Total non-interest expense to
      average assets(9)........................       1.72        1.79        1.93         1.99       2.07
    Net interest income to operating
      expenses.................................     184.06      193.46      201.09       193.59     177.32
    Efficiency ratio(10)................             44.77       46.25       45.75        46.08      51.04
 Asset Quality Ratios:
    Non-performing loans as a percent
      of loans, net............................       0.30%       0.45%       0.85%        0.78%      0.91%
    Non-performing assets as a percent
      of total assets..........................       0.18        0.25        0.37         0.46       0.48
    Allowance for loan losses as a percent
      of loans receivable, net.................       0.93        1.05        1.12         1.10       1.14
    Allowance for loan losses as a percent
      of total non-performing loans............     311.46      237.07      131.50       141.09     125.55
 Regulatory Capital Ratios and Other Data:
    Leverage capital...........................       7.71%      10.96%      12.81%        9.54%      9.65%
    Total risk-based capital...................      14.77       19.84       24.81        18.91      19.20
    Tier I capital.............................      13.85       18.90       23.87        17.98      18.33
     Number of full service customer
      facilities.........................               24          24          13           13         13
</TABLE>

(1)  The Bank adopted Statement of Financial  Accounting  Standards ("SFAS") No.
     115 ("SFAS No.  115"),  "Accounting  for  Certain  Investments  in Debt and
     Equity Securities," as of July 1, 1994, and reclassified  securities having
     a market  value of $26 million  from its held to maturity  portfolio to its
     available  for sale  portfolio  in November  1995,  pursuant to a Financial
     Accounting  Standards  Board  ("FASB")  interpretation  of SFAS No. 115. In
     February  1998,  the  Company  transferred  its entire  securities  held to
     maturity  portfolio to its securities  available for sale portfolio as part
     of a balance  sheet  restructuring  initiative  implemented  at that  time,
     primarily  in  connection  with  a  reassessment  by  the  Company  of  its
     asset/liability management strategy.

(2)  Loans receivable,  net, consist of gross loans receivable, plus unamortized
     premiums,  less  unamortized  discounts,  plus  deferred  loan costs,  less
     deferred  loan fees and the  allowance  for loan losses.  The allowance for
     loan losses at June 30, 2000, 1999, 1998, 1997, and 1996 was $14.7 million,
     $13.9 million, $7.3 million, $5.5 million and $4.8 million, respectively.

(3)  Includes the one-time non-recurring charge of $19.6 million ($11.2 million,
     net of tax) for funding of the Richmond  County Savings  Foundation at time
     of Conversion.

(4)  Proforma earnings per share for fiscal 1998,  calculated as if the Bank had
     converted to stock form as of July 1, 1997, was $0.19.

(5)  Asset  Quality  Ratios  and  Regulatory  Capital  Ratios  are end of period
     ratios.  With the exception of end of period  ratios and fiscal 2000,  1999
     and 1998,  which is based on daily average  balances,  all ratios are based
     upon average balances during the indicated period. Averages for the periods
     ended fiscal 1997 and 1996 utilize average month-end balances.

(6)  All  performance  ratios  for the year  ended June 30,  1998,  exclude  the
     one-time  non-recurring  charge of $19.6 million ($11.2 million net of tax)
     for the funding of the Foundation at time of conversion.

(7)  The net interest rate spread represents the difference between the weighted
     average yield on average  interest-earning  assets and the weighted average
     cost of average interest-bearing liabilities.

(8)  The net interest  margin  represents  net  interest  income as a percent of
     average interest-earning assets.

(9)  Total non-interest expense excludes the effect of amortization of goodwill.
     The 1997 ratio  excludes the  one-time  special  assessment  of $493,000 to
     recapitalize the Savings Association Insurance Fund (the "SAIF"). Including
     the  effects  of the  amortization  of  goodwill  and  funding  of the  RCS
     Foundation, total non-interest expense to average assets for the year ended
     June 30, 1998 would be 3.52%.

(10) The  efficiency  ratio  represents  the  ratio  of  non-interest   expense,
     excluding  the effect of  amortization  of  goodwill  and the SAIF  special
     assessment,  divided by the sum of net  interest  income  and  non-interest
     income.  Including  the effects of the  amortization  of  goodwill  and the
     contribution to the RCS Foundation, the efficiency ratio for the year ended
     June 30, 1998 would be 83.35%.

<PAGE>15

Management's Discussion and Analysis of Financial Condition and Results of
Operations

General

Richmond County  Financial  Corp. (the "Company") was  incorporated in September
1997,  and is the  holding  company for  Richmond  County  Savings  Bank and its
subsidiaries  (the "Bank").  On July 31, 1997, the Board of Trustees of the Bank
unanimously adopted a Plan of Conversion,  whereby the Bank would convert from a
New York  State  chartered  mutual  bank to a New  York  State  chartered  stock
institution with the concurrent formation of the Company (the "Conversion").

The  Conversion  was  completed on February  18, 1998,  with the issuance by the
Company of 24,466,250 shares of common stock, at a price of $10.00 per share, in
an initial  public  offering.  The  Company  received  gross  proceeds  from the
Conversion of $244.7  million,  before the reduction from gross proceeds of $9.8
million for  estimated  conversion  related  expenses.  The Company  used $117.4
million, or 50% of the net proceeds, to purchase all of the outstanding stock of
the Bank.

Concurrent with the completion of the Conversion, an additional 1,957,300 shares
of  authorized  but  unissued  shares of common  stock were  contributed  by the
Company to the Richmond County Savings Foundation (the "Foundation"),  a private
foundation  dedicated to charitable  purposes  within the  communities  the Bank
serves. The Company recorded a one-time charge of $19.6 million, the full amount
of the  contribution  made to the Foundation,  and a corresponding  deferred tax
benefit  of  $8.4  million,  in the  third  quarter  ended  March  31,1998.  The
contribution to the Foundation is expected to be fully tax  deductible,  subject
to an annual limitation based upon the Company's annual taxable income.

Additionally,  in  connection  with the  Conversion,  the Bank  implemented  the
Employee Stock Ownership Plan ("ESOP"),  a tax-qualified plan designed to invest
primarily in the Company's common stock. Subsequent to the Conversion,  the ESOP
purchased,  through a $34.6  million  loan from the  Company,  8%, or  2,113,884
shares of common stock in the open market.

The Company's results of operations depend primarily on its net interest income,
which is the difference  between  interest  income on  interest-earning  assets,
which  principally  consist  of  loans,   mortgage-backed  and  mortgage-related
securities and investment  securities and interest  expense on  interest-bearing
liabilities,  which principally consist of deposits and borrowings. Net interest
income is  determined  by an  institution's  interest  rate  spread  (i.e.,  the
difference  between yields earned on its  interest-earning  assets and the rates
paid  on  its   interest-bearing   liabilities)   and  the  relative  amount  of
interest-earning assets to interest-bearing  liabilities.  Results of operations
are also affected by the Company's provision for possible loan losses, the level
of its  non-interest  income,  including  service fees and related  income.  The
Company's   non-interest   expense  principally  consists  of  compensation  and
benefits,  occupancy and equipment expense, advertising expense, federal deposit
insurance   premiums  and  other  expenses.   Results  of  operations  are  also
significantly   affected  by  general   economic  and  competitive   conditions,
particularly  changes in interest  rates,  governmental  policies and actions by
regulatory authorities.

The Company had no operations prior to February 18, 1998, and, accordingly,  the
results of operations prior to that date reflect only those of the Bank.

Acquisitions

South Jersey Financial Corporation, Inc.
On March 15, 2000,  the Company and South  Jersey  Financial  Corporation,  Inc.
("South  Jersey")  entered into a definitive  agreement  pursuant to which South
Jersey,  the holding  company of South Jersey  Savings and Loan  Association,  a
community savings association with three full-service banking offices in the New
Jersey  counties of Gloucester  and Camden,  merged with the Company.  Under the
terms of the agreement,  South Jersey shareholders will receive $20 per share in
cash for each  outstanding  share of  common  stock of South  Jersey.  The total
transaction  value is approximately  $68.0 million.  The excess of cost over the
fair value of net assets  acquired  ("goodwill") in the transaction is estimated
at $20 million,  which will be amortized on a straight line basis over 20 years.
As of June 30, 2000  (unaudited),  the total  assets of South Jersey were $322.5
million,  deposits were $238.1 million and total stockholders'  equity was $53.8
million.  The  acquisition  was  completed  at the close of business on July 31,
2000.

Bayonne Bancshares, Inc.
At the  close  of  business  on  March  22,  1999,  the  Company  completed  its
acquisition of Bayonne  Bancshares,  Inc.  ("Bayonne"),  the holding  company of
First Savings Bank of New Jersey,  SLA, a New Jersey State chartered savings and
loan association  with four full service banking offices in Bayonne,  New Jersey
in a  transaction  which  was  accounted  for as a  purchase.  The  cost  of the
acquisition was  approximately  $118.5 million for which the Company issued 1.05
shares of its common stock for each  outstanding  share of Bayonne  common stock
for a total of 8,668,615

<PAGE>16

common shares,  of which 3,938,731  shares were issued from its treasury shares.
Options to purchase  683,577  shares of Bayonne common stock were also converted
into options to purchase  717,755  shares of the  Company's  common  stock.  The
goodwill in the  transaction  was $31.4 million,  which is being  amortized on a
straight line basis over 15 years.

 Ironbound Bankcorp, NJ

At the close of business on March 5, 1999, the Company completed its acquisition
of Ironbound Bankcorp, NJ ("Ironbound"),  the holding company of Ironbound Bank,
a New  Jersey  chartered  commercial  bank with three  full  service  commercial
banking offices in the New Jersey counties of Union and Essex , in a transaction
which  was  accounted  for  as a  purchase.  The  cost  of the  acquisition  was
approximately $27.7 million. The Company issued 1.463 shares of its common stock
for each  outstanding  share of Ironbound  common stock for a total of 1,458,842
common shares.  The goodwill  attributable to the transaction was $14.9 million,
which is being amortized on a straight line basis over 15 years.

Management Strategy

The Bank's operating strategy emphasizes  customer service and convenience,  and
the Bank  attributes  the  loyalty of its  customer  base to its  commitment  to
maintaining customer  satisfaction,  as well as its proactive involvement in the
communities  that it serves.  The Bank  attempts  to set  itself  apart from its
larger  competitors by providing the type of personalized  service not generally
available from larger banks,  while  offering a greater  variety of products and
services   than  is  typically   available   from  smaller,   local   depository
institutions.

The  Bank's  historical  operating  strategy  has  concentrated  on  maintaining
profitability  and asset quality by primarily  investing in one- to  four-family
mortgage  loans and in U.S.  Government and agency debt  securities,  as well as
debt and equity securities of corporate issuers. In the past few years, the Bank
has pursued a strategy,  in conjunction with its traditional  thrift lending and
securities  investment  strategy,  of focusing on small and medium-sized  retail
businesses as both lending and deposit  customers by emphasizing the origination
of  commercial  real  estate,  construction  and  commercial  loans,  as well as
increasing   the  marketing  of  its  business   checking   accounts  and  other
business-related  services.  In this regard,  the Bank hired additional  lending
personnel who have commercial real estate and commercial  lending  experience in
the Bank's primary market area.  The Bank has placed  increased  emphasis on the
origination  of  multifamily  loans and in April 1998,  the Bank  established  a
multifamily  lending  department,   staffed  by  personnel  experienced  in  the
multifamily lending business.  In addition,  the Bank is increasing the merchant
services it  provides,  such as  merchant  credit  card  processing,  letters of
credit, sweep accounts and increased night depository services. The Bank intends
to continue this strategy,  maintaining  its  traditional  focus of investing in
residential  mortgage  loans and  soliciting  deposits from  individuals  in its
primary market area,  while  strengthening  the Bank's position as a provider of
loans and financial services to the local business community.

The Bank's  current  operating  strategy  consists  primarily  of: (1) investing
primarily in one- to four-family, multifamily and to a lesser extent, commercial
real estate,  construction  and  development,  commercial and other loans and in
investment-grade securities; (2) attempting to increase its position as a lender
to  businesses  operating  in its primary  market  area,  as well as other areas
within the New York  metropolitan  area,  by offering  its  commercial  loan and
deposit products to small and medium-sized businesses;  (3) increasing the yield
and estimated  average life of its securities  investments  by  emphasizing  the
purchase  of  government  agency  and  privately  issued   mortgage-backed   and
mortgage-related securities with estimated average lives of three to seven years
and de-emphasizing its investment in U.S. Treasury obligations and corporate and
other debt  securities;  (4)  maintaining a low cost of funds by attracting  and
retaining core deposits by providing  enhanced customer service;  (5) attempting
to attract new deposit customers by competitively pricing certificate of deposit
products and offering a greater variety of durations of such  certificates;  (6)
developing  wholesale  borrowing  sources,  such  as FHLB  advances,  repurchase
agreements and brokered  certificates of deposit, as additional means of funding
asset  growth;  and (7)  managing  its  interest  rate  risk by  originating  or
purchasing adjustable-rate loans and from time to time, selling fixed-rate loans
with  maturities of more than 15 years.  The Bank has recently  begun to place a
greater  level of emphasis on the  utilization  of borrowed  funds to fund asset
growth.  In this regard,  at June 30,  2000,  the Bank had total  borrowings  of
$773.7  million,  of which $758.7  million were in the form of FHLB advances and
$15.0 million were in the form of repurchase agreements. The Bank had borrowings
of $757.8  million at June 30,  1999.  The Bank may  continue to  increase  such
emphasis, which may result in an increase in the Bank's average cost of funds.

<PAGE>17

Analysis of Net Interest Income

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

      Average Balance Sheet. The following table sets forth certain  information
relating to the Company for the years ended June 30,  2000,  1999 and 1998.  The
average  yields  and costs are  derived  by  dividing  income or  expense by the
average  balance of  interest-earning  assets or  interest-bearing  liabilities,
respectively,  for the periods  shown and reflect  annualized  yields and costs.
Average balances are derived from daily average  balances.  The yields and costs
include fees, which are considered adjustments to yields.
<TABLE>
<CAPTION>

                                                            For the Year Ended June 30,
                                      -------------------------------------------------------------------------------------------
                                                  2000                            1999                            1998
                                      -------------------------------------------------------------------------------------------
                                                           Average                         Average                        Average
                                        Average             Yield/    Average              Yield/     Average             Yield/
                                        Balance   Interest   Cost     Balance   Interest    Cost      Balance   Interest   Cost
                                      -------------------------------------------------------------------------------------------
                                                                         (Dollars in thousands)
<S>                                   <C>         <C>      <C>       <C>        <C>        <C>       <C>        <C>       <C>
Assets:
  Interest-earning assets(1):
   Debt and equity securities........ $  336,243  $ 24,999    7.43% $  276,097  $ 24,999    7.43%   $  230,067  $ 14,645    6.37%
   Mortgage-backed and mortgage-
     related securities, net.........    849,343    55,572    6.54     629,703    55,572    6.54       350,398    23,622    6.74
   Real estate loans, net(2)(3)......  1,479,996   111,641    7.54     923,750   111,641    7.54       522,996    41,562    7.96
   Commercial loans, net(2)..........     13,971     1,366    9.78      16,919     1,366    9.78         7,030       717   10.20
   Consumer and student loans........      4,354       447   10.27       9,152       447   10.27        22,770     2,096    9.21
   Other interest-earning assets.....     10,486       512    4.88      29,000       512    4.88        69,577     4,112    5.91
                                      --------------------          --------------------            --------------------
       Total interest-earning
          assets.....................  2,694,393   194,537    7.22   1,884,621   194,537    7.22     1,201,978    86,754    7.22
                                                  ----------------              ----------------                ----------------
Non-interest-earning assets..........    152,726                        78,088                          48,284
                                      -----------                   -----------                     -----------
       Total assets.................. $2,847,119                    $1,962,709                      $1,250,262
                                      ===========                   ===========                     ===========

Liabilities and Stockholders' Equity:
  Interest-bearing liabilities:
   Money market savings accounts..... $   48,766  $  1,587    3.25% $   42,973  $  1,384    3.22%   $   39,075  $  1,353    3.46%
   Savings accounts..................    747,253    19,614    2.62     510,476    12,636    2.48       445,057    12,146    2.73
   N.O.W. accounts...................     73,671     1,091    1.48      35,004       596    1.70        19,089       446    2.34
   Certificates of deposit...........    632,258    32,418    5.13     412,166    21,315    5.17       314,106    32,418    5.38
                                      --------------------          --------------------            --------------------
       Total deposits................  1,501,948    54,710    3.64   1,000,619    35,931    3.59       817,327    30,839    3.77
                                                  --------                      --------                        --------
   Borrowed funds....................    819,198    43,559    5.32     498,311    26,300    5.59       103,424     5,778    5.59
   Non-depository stock
     subscriptions...................         --        --      --          --        --      --        32,914       895    2.72
                                      --------------------          --------------------            --------------------
       Total interest-bearing
          liabilities................  2,321,146    98,269    4.23   1,498,930    62,231    4.15       953,665    37,512    3.93
                                                  ----------------              ----------------                -----------------
   Non-interest-bearing liabilities..    194,542                       142,801                         108,412
                                      -----------                   -----------                     -----------
       Total liabilities.............  2,515,688                     1,641,731                       1,062,077
    Stockholders'equity..............    331,431                       320,978                         188,185
                                      -----------                   -----------                     -----------
       Total liabilities and
          stockholders' equity....... $2,847,119                    $1,962,709                      $1,250,262
                                      ===========                   ===========                     ===========
    Net interest income/interest
      rate spread(4).................             $ 96,268    2.99%             $ 70,343    2.88%               $ 49,242    3.29%
                                                  ================              ================                ================
    Net interest margin(5)...........                         3.57%                         3.73%                           4.10%
                                                           =======                       =======                         =======
    Ratio of interest-earning
      assets to interest-
      bearing liabilities............                       116.08%                       125.73%                         126.04%
                                                           =======                       =======                         =======
</TABLE>

(1)Includes  related assets  available for sale and  unamortized  discounts
   and premiums.
(2)Amount is net of deferred loan costs and fees, deferred mortgage interest,
   unamortized   discounts   net  and  includes   loans  held  for  sale  and
   non-performing loans.
(3)Real estate loans, net includes one- to four-family,  multifamily, commercial
   real estate, construction and development and home equity loans.
(4)Net  interest  rate spread  represents  the  difference  between the yield on
   interest-earning assets and the cost of interest-bearing liabilities.
(5)Net  interest  margin  represents  net  interest  income  divided  by average
   interest-earning assets.

<PAGE>18

      Rate/Volume  Analysis.  The following  table  presents the extent to which
 changes in interest rates and changes in the volume of interest-earning  assets
 and  interest-bearing  liabilities have affected the Company's  interest income
 and interest expense during the periods  indicated.  Information is provided in
 each  category with respect to: (1) changes  attributable  to changes in volume
 (changes in volume  multiplied  by prior  rate);  (2) changes  attributable  to
 changes in rate (changes in rate  multiplied by prior volume);  and (3) 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.
<TABLE>
<CAPTION>

                                                 Year Ended                    Year Ended
                                                June 30, 2000                 June 30, 1999
                                                 Compared to                   Compared to
                                                 Year Ended                    Year Ended
                                                June 30, 1999                 June 30, 1998
                                      ----------------------------  ------------------------------
                                      ----------------------------  ------------------------------
                                             Increase (Decrease)           Increase (Decrease)
                                                   Due to                        Due to
                                        Volume      Rate     Net      Volume      Rate      Net
                                      ----------------------------  ------------------------------
                                                            (In thousands)
<S>                                   <C>         <C>      <C>      <C>        <C>        <C>
Interest-earning assets:
  Debt and equity securities.........   $ 4,148   $ 1,811  $ 5,959    $ 2,930   $ 1,465  $ 4,395
  Mortgage-backed securities and
   mortgage-related securities, net..    13,922     1,736   15,658     18,829    (2,537)  16,292
  Real estate loans, net.............    41,751       554   42,305     31,968    (4,194)  27,774
  Commercial loans, net..............      (343)     (259)    (602)     1,009       242    1,251
  Consumer and student loans.........      (486)        6     (480)    (1,254)       85   (1,169)
  Other interest-earning assets......      (887)       10     (877)    (2,398)     (325)  (2,723)
                                      ------------------------------------------------------------
    Total interest-earning assets....    58,105     3,858   61,963     51,084    (5,264)  45,820
                                      ------------------------------------------------------------
Interest-bearing liabilities:
  Money market savings accounts......       187        16      203       135       (104)      31
  Savings accounts...................     5,861     1,117    6,978     1,785     (1,295)     490
  N.O.W. accounts....................       658      (163)     495       372       (222)     150
  Certificates of deposit............    11,382      (279)  11,103     5,274       (853)   4,421
  Borrowings.........................    16,936       323   17,259    27,839     (7,317)  20,522
  Non-depository stock
   subscriptions.....................        --        --       --      (895)        --     (895)
                                      ------------------------------------------------------------
    Total interest-bearing
     liabilities.....................    35,024     1,014   36,038    34,510     (9,791)  24,719
                                      -----------------------------------------------------------
Net change in net interest income....   $23,081   $ 2,844  $25,925   $16,574    $ 4,527  $21,101
                                      ============================================================
</TABLE>

Changes in Financial Condition

Total assets  increased by $121.1 million,  or 4.4%, to $2.9 billion at June 30,
2000 from June 30, 1999.  The increase in overall assets was primarily due to an
increase in net loans of $260.3 million,  or 19.8%, offset in part by a decrease
in mortgage-backed and  mortgage-related  securities and investment  securities.
Mortgage-backed and mortgage-related  securities decreased by $102.2 million, or
11.8%,  from $866.8 million at June 30, 1999 to $764.6 million at June 30, 2000.
Investment  securities at June 30, 2000 totaled  $257.5  million,  a decrease of
$40.1  million,  or 13.5%,  compared  to $297.6  million at June 30,  1999.  The
overall  increase in the level of assets was primarily the result of significant
deposit inflows, as well as an increase in borrowed funds.

The Bank continues to experience  increased loan growth.  For fiscal 2000, gross
loans  receivable  increased  by  $259.2  million,  or 19.5%,  to $1.6  billion,
compared to $1.3 billion at June 30, 1999. The substantial increase in net loans
was due primarily to originations of $589.6 million generated during fiscal year
ended June 30, 2000,  offset by the sale of $87.7 million of one- to four-family
mortgage  loans,  $1.6  million in student loan sales,  securitization  of $93.6
million of  originated  one-to  four-family  fixed rate  mortgage  loans and net
amortization  and  prepayments of $147.0  million.  During the fourth quarter of
fiscal 2000, the Bank securitized $93.6 million of originated fixed rate one- to
four-family  mortgage  loans in exchange for a like amount of FNMA  pass-through
securities,  recorded these  securities in the Bank's  securities  portfolio and
retained the related  servicing  rights.  Loan originations for fiscal 2000 were
primarily  comprised of  multifamily  and one- to  four-family  mortgage  loans.
Multifamily  mortgage loan  originations for fiscal 2000 totaled $277.4 million,
bringing the total multifamily loan portfolio to $549.2 million, or 34.9% of net
loans at June 30, 2000.  Total one- to  four-family  loan  production for fiscal
2000 was $243.0 million.

<PAGE>19

Total  liabilities  at June 30,  2000 were $2.6  billion,  an increase of $184.9
million,  or 7.7%, from $2.4 billion at June 30, 1999. Total deposits  increased
by $170.4  million,  or 10.5%, to $1.8 billion at June 30, 2000. The Bank's core
deposits increased by $75.6 million,  or 7.4%, at June 30, 2000 to $1.1 billion,
resulting in a core deposit to total deposit ratio of  approximately  61.3%. The
increase  in the Bank's  core  deposits  were  attributable  to a $38.9  million
increase in total demand  deposits,  or 23.0%,  and a $36.7 million  increase in
savings, N.O.W. and money market accounts. The Bank also experienced an increase
of $94.8 million,  or 15.8%,  in  certificates of deposit from $598.5 million at
June 30, 1999 to $693.3 million at June 30, 2000.

Additionally, the Bank continues to place a level of emphasis on the utilization
of borrowed  funds to fund asset  growth.  In this regard,  at June 30, 2000 and
June 30,  1999,  the Bank had total  borrowings  of $773.7  million  and  $757.8
million,  respectively.  The Bank may continue to increase such emphasis,  which
may  result in an  increase  in the  Bank's  overall  cost of funds.  The Bank's
current  strategy is to invest such borrowed  funds  primarily in mortgage loans
and  mortgage-backed  and  mortgage-related  securities  with similar  estimated
maturities.  This  strategy is intended to  incrementally  increase net interest
income, although it may have the effect of incrementally decreasing net interest
rate spread.

Total stockholders'  equity decreased by $63.8 million to $306.4 million at June
30,  2000 from  $370.2  million  at June 30,  1999.  The  overall  decrease  was
primarily due to the  repurchase of 3.6 million  shares of the Company's  common
stock,  year to date cash  dividends  paid of $13.8  million and a $26.7 million
decrease in the fair value on securities  available-for-sale,  net of tax. These
decreases were offset by the earnings  reported for fiscal 2000 of $36.3 million
and the  amortization of $5.5 million for the unallocated and unearned shares of
common stock held by the Company's stock-related benefit plans.

Non-Performing Assets

Non-performing  loans totaled $4.7 million,  or 0.30% of total loans at June 30,
2000, as compared to $5.9 million, or 0.45% of total loans, at June 30, 1999. At
June 30, 2000,  the Bank's real estate  owned  consisted  of  foreclosed  assets
totaling $509,000, which at such date was comprised of three one- to four-family
properties and one commercial property.

At  June  30,  2000,  the  Bank  had  $2.6  million  of  assets   designated  as
"Substandard,"  consisting of 22 loans, no assets  classified as "Doubtful," and
$13,000 of assets  classified as "Loss"  consisting of seven consumer  loans. At
June 30, 2000 the Bank had $2.1 million of assets designated  "Special Mention,"
consisting of 27 loans, which were designated "Special Mention" due to past loan
delinquencies.

Non-accrual  loans totaled $4.7 million as of June 30, 2000,  which  included 45
one- to four-family loans, with an aggregate balance of $3.9 million,  and three
non-residential  loans  totaling  $0.7  million and eight  other loans  totaling
$60,000.

For the  twelve-month  period  ended  June 30,  2000,  the  Company's  loan loss
provision  was $1.2  million as  compared to $2.6  million for the prior  year's
period.  The Company's  allowance for loan losses  totaled $14.7 million at June
30,  2000 and  $13.9  million  at June 30,  1999,  which  represents  a ratio of
allowance  for loan  losses  to  non-performing  loans  of  311.5%  and  237.1%,
respectively.  The Company  continues to increase its overall loan loss reserves
due to the  increase in lending of all loan  products.  Management  believes the
allowance for loan losses at June 30, 2000 is adequate and  sufficient  reserves
are presently  maintained to cover potential  losses.  For the fiscal year ended
June 30, 2000, the Company experienced net charge-offs of $386,200.

Comparison  of  Operating  Results  For the Years Ended June 30, 2000 and June
30, 1999

General. The Company reported net income for the fiscal year ended June 30, 2000
of $36.3 million,  or diluted  earnings per share of $1.35,  an increase of $9.6
million as compared to the $26.6 million reported for the same period last year.
Core  earnings  for the fiscal  year ended June 30,  2000  increased  41.5% to a
record  $35.7  million,  or core diluted  earnings  per share of $1.33,  also an
increase of 41.5%,  as compared with $0.94 core diluted  earnings per share,  or
$23.2 million  reported for the same period last year.  Core earnings for fiscal
2000,  excludes net losses of $6.7 million on sales of securities  ($4.4 million
net of income-tax benefits) and a $4.4 million income tax benefit related to the
Foundation.  The income-tax benefit is due to a valuation adjustment  reflecting
the fair market value of stock  contributed  to the Foundation at its inception.
Core  earnings for fiscal 1999,  excludes net gains on sales of  securities  and
loans of $3.6 million and a $2.0 million curtailment gain on the freezing of the
Bank's defined benefit pension plan.

<PAGE>20

Interest  Income.  The Company  reported total interest income of $194.5 million
for the  twelve-month  period ended June 30, 2000,  representing  an increase of
$62.0 million, or 46.7%, as compared to the same period in 1999. The increase in
interest   income  was   attributable   primarily   to  the  growth  in  average
interest-earning  assets of $810.0  million and a 19 basis point increase in the
average yield on  interest-earning  assets. The overall increase in the level of
interest-earning  assets was  primarily  the result of an  increase  in borrowed
funds to fund growth in the  mortgage  loan and  securities  portfolios,  assets
acquired from Bayonne and Ironbound, as well as deposit inflows.

Interest income on loans  increased  $41.2 million,  or 57.1%, to $113.5 million
for the  twelve-month  period  ended June 30,  2000,  as  compared  to the $72.2
million reported for the comparable period in 1999. This increase was the result
of growth in the average  balance of loans  outstanding of $548.5  million,  due
primarily to increased  originations of multifamily and one- to four-family real
estate loans and loans acquired through the recently completed acquisitions. The
average yield on the overall loan  portfolio  remained  relatively  unchanged at
7.57%  and 7.60%  for the  twelve-month  period  ended  June 30,  2000 and 1999,
respectively.

Interest income on debt and equity securities  increased $6.0 million, or 31.3%,
from $19.0  million for the  twelve-month  period ended June 30, 1999,  to $25.0
million for the same period in 2000. This increase is mainly attributable to the
growth  in  the  average  balance  of  debt  and  equity  securities,  primarily
investments  in  financial  bonds and FHLB  stock,  as well as a 53 basis  point
increase in the average yield on the debt and equity portfolio.

Interest income on mortgage-backed  and  mortgage-related  securities  increased
$15.7 million, or 39.2%, from $39.9 million reported for the twelve-month period
ended June 30, 1999, to $55.6 million for the same period in 2000. This increase
was due primarily to an increase in the average balance of  mortgage-backed  and
mortgage-related  securities of $219.6  million as a result of the investment of
borrowed funds and  mortgage-backed  and  mortgage-related  securities  acquired
through the recently completed acquisitions and a 20 basis point increase in the
average yield on the mortgage-backed and mortgage-related securities portfolio.

Interest Expense. Interest expense increased $36.0 million, or 57.9%, from $62.2
million for the  twelve-month  period ended June 30, 1999,  to $98.3 million for
the  twelve-month  period  ended June 30,  2000.  The average cost of the Bank's
interest-bearing  liabilities  increased  by 8 basis  points  to  4.23%  for the
twelve-month  period ended June 30, 2000. Interest expense on deposits increased
$18.8 million,  or 52.3%,  from $35.9 million for the twelve-month  period ended
June 30, 1999, to $54.7 million for the twelve-month period ended June 30, 2000.
The  increase  reflects a $501.3  million  increase  in the  average  balance of
interest-bearing  deposits,  primarily attributable to a $220.1 million increase
in the average balance of certificates of deposit and a $236.8 million  increase
in the  average  balance of  savings  deposit  accounts.  This  increase  can be
primarily attributable to the opening of two full-service banking facilities and
one public  accommodation  office on Staten Island,  the opening of an Ironbound
Bank divisional  full-service banking facility in Union, New Jersey and deposits
acquired through the recently completed  acquisitions.  In addition,  the Bank's
strategy  over the past several years has been to attract more  certificates  of
deposit through the offering of additional  certificate of deposit  products and
related marketing of commercial deposit accounts.

Interest  expense on borrowed funds for the  twelve-month  period ended June 30,
2000 was $43.6  million,  an increase of $17.3  million as compared to the $26.3
million reported in the same period in 1999. The increase in interest expense on
borrowed funds was attributable to the growth in the average balance of borrowed
funds of $320.9  million,  offset in part by a 27 basis  point  decrease  in the
average cost on borrowed  funds.  The Bank continues to place a greater level of
emphasis  on the  utilization  of  borrowed  funds to fund  asset  growth and to
leverage the Bank's capital  position to improve  returns on equity.  As of June
30, 2000, the Bank had $773.7 million of borrowings outstanding,  an increase of
$15.9  million,  or 2.1%,  as  compared  to the  $757.8  million  of  borrowings
outstanding as of June 30, 1999. The Bank may continue to increase such emphasis
on borrowed funds, which may result in an increase in the Bank's overall cost of
funds. The Bank's current strategy is to invest such borrowed funds primarily in
mortgage loans and mortgage-backed and mortgage-related  securities with similar
estimated  maturities.  This strategy is intended to incrementally  increase net
interest income, although it may have the effect of incrementally decreasing net
interest rate spread.

Provision  for  Loan  Losses.  The  Bank's  provision  for loan  losses  for the
twelve-month  periods  ended June 30,  2000 and 1999 was $1.2  million  and $2.6
million,  respectively. The provision for the twelve-month period ended June 30,
2000 was based on management's  evaluation of its loan portfolio and real estate
market conditions. In particular,  management considered the continued growth in
the  portfolio,  the  introduction  of new lending  products by the Bank and the
seasoning  of such new  products,  as well as the  level  of its  non-performing
loans. Management believes, based upon information currently available, that its
allowance for loan losses is adequate to cover future loan losses. To the extent
the Bank increases its investment in multifamily loans,  commercial real estate,
commercial  and other loans,  which entail higher risk than one- to  four-family
loans,  the Bank may decide to increase its  allowance  for loan losses  through
additional  loan loss  provisions,  which may  adversely  affect net income.  In
addition,  if general  economic  conditions  and real estate  values  within the
Bank's primary  lending areas  decline,  the level of  non-performing  loans may
increase,  resulting in larger  provisions for loan losses which, in turn, would
also adversely affect net income.

<PAGE>21

Non-Interest  Income.  Exclusive  of net  gains  and  losses  from the  sales of
securities and loans, and a non-recurring  $2.0 million  curtailment gain on the
freezing of the Bank's pension plan in fiscal 1999,  total  non-interest  income
for the twelve-month  period ended June 30, 2000 was $13.1 million,  as compared
to the $5.8 million reported for the same period in 1999. The increased level of
non-interest  income is  primarily  due to an overall  increase  in deposit  fee
income,  fee income generated from the Bayonne and Ironbound  acquisitions,  ATM
fee income and advisory  fee income from the  Company's  investment  in Peter B.
Cannell & Co. Inc. Additionally,  the Bank purchased a Bank Owned Life Insurance
Policy ("BOLI"), which accounted for approximately $3.0 million of other income.

Non-Interest  Expense.  Non-interest  expense  totaled  $52.3  million  for  the
twelve-month period ended June 30, 2000, an increase of $15.9 million, or 43.8%,
as compared to the $36.4 million reported for the same period of the prior year.
The increased level of non-interest expense was mainly attributable to increased
compensation  and employee  benefit  expenses,  goodwill  amortization and other
expenses associated with the Bayonne and Ironbound  acquisitions.  Additionally,
the Bank recognized increases in non-interest expenses as a result of the Bank's
opening of a public accommodation office and the opening of two new full-service
branches in Staten Island and a full service branch in Union, New Jersey.

Income Taxes. The Company's effective  consolidated tax rate for the fiscal year
period  ended June 30,  2000,  was 27.4% as compared to 37.8%  reported  for the
comparable  period in 1999.  The fiscal year ended June 30, 2000  effective  tax
rate includes the effect of a $4.4 million income tax benefit due to a valuation
adjustment  reflecting  the  fair  market  value  of  stock  contributed  to the
Foundation at its inception.  Excluding the effect of the aforementioned  income
tax benefit,  the Company's  effective tax rate was 36.2%.  The reduction of the
Company's  effective  tax rate is  primarily  due to the Bank's  utilization  of
various tax-planning strategies.

Comparison  of  Operating  Results  For the Years Ended June 30, 1999 and June
30, 1998

General. The Company reported net income for the fiscal year ended June 30, 1999
of $26.6 million,  or diluted  earnings per share of $1.07, an increase of $22.1
million as compared to the $4.5 million  reported in fiscal 1998.  Core earnings
for the fiscal  year  ended  June 30,  1999  increased  58.7% to a record  $23.3
million,  or core  diluted  earnings  per share of $0.94,  as  compared to $14.7
million reported for the comparable prior fiscal year period.  Core earnings for
fiscal 1999 excludes net gains on sales of securities  and loans of $3.6 million
and a $2.0  million  curtailment  gain on the  freezing  of the  Bank's  defined
benefit  pension  plan.  Core  earnings for fiscal 1998 excludes the impact of a
non-recurring  contribution  relating to the funding of the  Foundation of $19.6
million ($11.2 million after tax) and net gains on sales of securities and loans
of $163,000  for the fiscal year ended June 30,  1998.  Net loss per share since
the  conversion  to a public  company on February  18, 1998 to June 30, 1998 was
$0.16.

The  Foundation  was  established  and funded as part of the Conversion to a New
York State  chartered  stock savings bank. At the close of the  Conversion,  the
Company funded the Foundation with a contribution of 1,957,300  shares of common
stock  resulting in a one-time,  non-recurring  charge of $19.6  million  ($11.2
million after tax).  The  Foundation is dedicated to charitable  purposes in the
communities served by Richmond County Savings Bank.

Interest  Income.  The Company  reported total interest income of $132.6 million
for the fiscal  year ended June 30,  1999,  representing  an  increase  of $45.8
million,  or 52.8%,  as  compared to the same  period in 1998.  The  increase in
interest   income  was   attributable   primarily   to  the  growth  in  average
interest-earning  assets of $682.6  million,  offset in part by a 19 basis point
decrease in the average yield on  interest-earning  assets. The overall increase
in the level of interest-earning  assets was primarily the result of an increase
in borrowed funds to fund growth in the mortgage loan and securities portfolios,
utilizing the net conversion  proceeds,  assets acquired from Bayonne Bancshares
and Ironbound Bank and significant deposit inflows experienced throughout fiscal
1999.

Interest income on loans increased $27.9 million, or 62.8%, to $72.2 million for
the fiscal year ended June 30, 1999, as compared to the $44.4  million  reported
for the comparable period in 1998. This increase was the result of growth in the
average  balance of real estate loans  outstanding,  due  primarily to increased
originations of multifamily and one- to four-family  real estate loans and loans
acquired  through  the  recently  completed  acquisitions,  offset  in part by a
decrease in the average  yield on the overall  loan  portfolio  to 7.60% for the
fiscal  year ended June 30,  1999,  as  compared to 8.04% for the same period in
fiscal 1998.

Interest income on debt and equity securities  increased $4.4 million, or 30.0%,
from $14.6 million for the fiscal year ended June 30, 1998, to $19.0 million for
the same period in fiscal  1999.  This  increase is mainly  attributable  to the
growth  in  the  average  balance  of  debt  and  equity  securities,  primarily
investments  in  financial  bonds and FHLB  Stock,  as well as a 53 basis  point
increase in the average yield on the debt and equity portfolio.

<PAGE>22

Interest income on mortgage-backed  and  mortgage-related  securities  increased
$16.3 million,  or 69.0%,  from $23.6 million for the fiscal year ended June 30,
1998,  to $39.9  million for the fiscal year ended June 30, 1999.  This increase
was due primarily to an increase in the average balance of  mortgage-backed  and
mortgage-related  securities of $279.3 million, resulting from the investment of
net conversion  proceeds,  the investment of borrowed funds and  mortgage-backed
and  mortgage  related  securities   acquired  through  the  recently  completed
acquisitions. The increase was offset in part by a decrease in the average yield
on the mortgage-backed and  mortgage-related  securities  portfolio to 6.34% for
the fiscal year ended June 30, 1999, as compared to 6.74% for the same period in
fiscal 1998.

Interest Expense. Interest expense increased $24.7 million, or 65.9%, from $37.5
million for the fiscal year ended June 30, 1998, to $62.2 million for the fiscal
year ended June 30, 1999.  Interest expense on deposits  increased $4.2 million,
or 13.2%,  from $31.7  million for the fiscal year ended June 30, 1998, to $35.9
million for the fiscal year ended June 30, 1999. The increase  reflects a $150.4
million increase in the average balance of interest-bearing deposits,  primarily
attributable to a $98.1 million  increase in the average balance of certificates
of  deposit  and a $32.5  million  increase  in the  average  balance of savings
deposit accounts. This increase can mainly be attributable to the opening of two
full-service  banking facilities and one public  accommodation  office on Staten
Island and deposits  acquired through the recently  completed  acquisitions.  In
addition,  the Bank's  strategy  over the past several years has been to attract
more certificates of deposit through additional  certificate of deposit products
and related  marketing of commercial  deposit accounts.  Furthermore,  in fiscal
1998, the Bank realized a one time $895,000 expense relating to interest paid on
non-depository   stock  subscription  funds  received  in  connection  with  the
Conversion.

Interest  expense on borrowed  funds for the fiscal year ended June 30, 1999 was
$26.3  million,  an  increase of $20.5  million as compared to the $5.8  million
reported in fiscal 1998. The Bank continues to place a greater level of emphasis
on the  utilization  of borrowed  funds to fund asset growth and to leverage the
Bank's capital position to improve returns on equity.  For the fiscal year ended
June 30,  1999,  the Bank had  $757.8  million  of  borrowings  outstanding,  an
increase of $451.8  million,  or 147.7%,  as  compared to the $306.0  million of
borrowings  outstanding  as of June 30, 1998.  The Bank may continue to increase
such emphasis on borrowed  funds,  which may result in an increase in the Bank's
overall cost of funds.  The Bank's  current  strategy is to invest such borrowed
funds  primarily  in  mortgage-backed  and  mortgage-related   securities.  This
strategy is intended to incrementally increase net interest income,  although it
may have the  effect of  incrementally  decreasing  net  interest  rate  spread.
Consequently,  the  average  cost  of the  Bank's  interest-bearing  liabilities
increased  from 3.93% for the fiscal year ended June 30, 1998,  to 4.15% for the
fiscal year ended June 30, 1999.

Provision for Loan Losses. The Bank's provision for loan losses was $2.6 million
for the fiscal year ended June 30, 1999, as compared to $2.2 million reported in
fiscal 1998. The provision for fiscal 1999 was based on management's  evaluation
of its  loan  portfolio  and  real  estate  market  conditions.  In  particular,
management considered the continued growth in the portfolio, the introduction of
new lending products by the Bank and the seasoning of such new products, as well
as the  level of its  non-performing  loans.  Management  believes,  based  upon
information currently available,  that its allowance for loan losses is adequate
to cover future loan losses.  To the extent the Bank increases its investment in
multifamily  loans,  commercial real estate,  commercial and other loans,  which
entail  higher  risk  than one- to  four-family  loans,  the Bank may  decide to
increase its allowance for loan losses through  additional loan loss provisions,
which may  adversely  affect  net  income.  In  addition,  if  general  economic
conditions  and real  estate  values  within the  Bank's  primary  lending  area
decline,  the level of  non-performing  loans may increase,  resulting in larger
provisions  for loan losses  which,  in turn,  would also  adversely  affect net
income.

Non-Interest  Income.  Exclusive  of net  gains  and  losses  from the  sales of
securities and loans and a $2.0 million  curtailment gain on the freezing of the
Bank's pension plan,  total  non-interest  income for the fiscal year ended June
30, 1999 was $5.8 million, as compared to the $3.4 million reported for the same
period in fiscal 1998. The increased level of  non-interest  income is primarily
due to fee income  generated  from the Bayonne  Bancshares  and  Ironbound  Bank
acquisitions and an overall  increase in deposit fee income,  ATM fee income and
fee income generated from the sale of annuities and mutual funds.  Additionally,
in the  fourth  quarter  of fiscal  1999 the Bank  purchased  a Bank  Owned Life
Insurance Policy ("BOLI"),  which accounted for approximately  $253,000 of other
income.  Net gains on the sale of securities  and loans for fiscal 1999 was $3.6
million,  which were primarily due to net gains of $3.1 million from the sale of
equity and  investment  securities,  and $444,000 of net gains realized from the
sale of the Bank's student loan portfolio.

Non-Interest Expense.  Non-interest expense totaled $36.4 million for the fiscal
year ended June 30, 1999, an increase of $11.9 million, as compared to the $24.5
million,  excluding the  charitable  contribution,  reported for the fiscal year
ended June 30, 1998.  The  increased  level of  non-interest  expense was mainly
attributable to increased compensation

<PAGE>23

expense,  goodwill  amortization and other expenses  associated with the Bayonne
Bancshares and Ironbound Bank acquisitions, as well as increases in compensation
and employee benefits, including senior management additions, compensation costs
associated  with  the  establishment  of  the  Bank's  new  Multifamily  Lending
Department,  the addition of the ESOP and the MRP. In addition, the Bank expects
non-interest  expense to  increase  in future  periods as a result of the Bank's
opening of a public accommodation office and the opening of two new full-service
branches in Staten Island and the expected  opening of a full-service  branch in
Union, New Jersey in fiscal 2000.

Income Taxes. The Company's effective  consolidated tax rate for the fiscal year
ended June 30, 1999,  was 37.8% as compared to 31.4% reported for the comparable
period in 1998.  The fiscal year ended June 30, 1998 rate includes the effect of
funding the Foundation.  Excluding the effect of the  Foundation,  the Company's
effective tax rate was 40.5%. The reduction of the Company's  effective tax rate
is primarily due to the Bank's utilization of various tax-planning strategies.

Liquidity and Capital Resources

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

The primary  investing  activities of the Bank are the  origination of primarily
residential one- to four-family, multifamily and, to a lesser extent, commercial
real estate,  construction  and  development and other loans and the purchase of
mortgage-backed and mortgage-related and investment  securities.  For the fiscal
year periods ended June 30, 2000 and 1999, the Bank's loan originations  totaled
$589.6 million and $550.4 million,  respectively.  Purchases of mortgage-backed,
mortgage-related  and  investment  securities  totaled  $88.4 million and $480.7
million for the fiscal year periods ended June 30, 2000 and 1999,  respectively.
These   activities  were  funded  primarily  by  deposit  growth  and  principal
repayments  and  prepayments  on  loans,  mortgage-backed  and  mortgage-related
securities  and  investment  securities,   borrowed  funds  from  the  FHLB  and
repurchase agreements,  and the net proceeds received from the Conversion. As of
June 30, 2000,  the Bank  experienced a net increase in total deposits of $170.4
million,  or 10.5%,  from  $1.6  billion  at June 30,  1999.  Deposit  flows are
affected by the level of interest rates, the interest rates and products offered
by local competitors and the Bank and other factors.

The Bank  closely  monitors  its  liquidity  position on a daily  basis.  Excess
short-term  liquidity is invested in overnight  federal funds sold. In the event
the Bank should  require funds beyond its ability to generate  them  internally,
additional  sources of funds are available  through  repurchase  agreements  and
advances from the FHLB.  The Bank has recently begun to place a greater level of
emphasis on the  utilization  of borrowed  funds to fund asset  growth.  In this
regard,  at June 30, 2000, the Bank had total  borrowings of $773.7 million,  of
which  $758.7   million  were  in  the  form  of  advances  from  the  FHLB  and
approximately $15.0 million were in the form of repurchase agreements.  The Bank
may continue to increase such  emphasis,  which may result in an increase in the
Bank's average cost of funds.

Loan  commitments  totaled  $164.5  million at June 30, 2000,  were comprised of
$41.3  million  in  one- to  four-family  loan  commitments,  $15.7  million  in
multifamily  loan  commitments,  $1.2  million in  commercial  real  estate loan
commitments,  $68.1million in construction  loan  commitments,  $14.6 million in
commercial loan  commitments,  $19.4 million in home equity loan commitments and
$4.2 million in other loan commitments.  Management of the Bank anticipates that
it will have sufficient  funds  available to meet its current loan  commitments.
Certificates of deposit which are scheduled to mature in less than one year from
June 30, 2000, totaled $547.6 million. Based upon past experience and the Bank's
current pricing strategy, management believes that a significant portion of such
deposits will remain with the Bank.

At June 30, 2000, the Bank exceeded all of its regulatory  capital  requirements
with a leverage  capital level of $221.5  million,  or 7.7% of adjusted  assets,
which is above the required level of $114.2 million,  or 4.0% of adjusted assets
and risk-based capital of $236.2 million, or 14.8% of adjusted assets,  which is
above the required level of $127.9 million, or 8.0%.

The  Company's  most liquid  assets are cash,  due from banks and federal  funds
sold.  The  levels  of these  assets  are  dependent  on the  Bank's  operating,
financing, lending and investing activities during any given period. At June 30,
2000,  cash and due from banks and federal funds sold totaled $47.7 million,  or
1.7% of total assets.

<PAGE>24

Asset and Liability Management and the Management of Interest Rate Risk

General

The  principal  objective of the Company's  interest rate risk  management is to
evaluate the interest  rate risk  inherent in certain  balance  sheet  accounts,
determine the level of risk appropriate given the Company's  business  strategy,
operating  environment,  capital  and  liquidity  requirements  and  performance
objectives, and manage the risk consistent with the Board of Directors' approved
guidelines.   Through  such   management,   the  Company  seeks  to  reduce  the
vulnerability  of its  operations  to changes in interest  rates.  The Company's
Board of Directors  reviews the  Company's  interest rate risk position at least
quarterly. The Company's Asset/Liability Committee is comprised of the Company's
senior  management,  under the direction of the Board of Directors,  with senior
management  responsible  for  reviewing,   with  the  Board  of  Directors,  its
activities and strategies,  the effect of those  strategies on the Company's net
interest  margin,  the market value of the portfolio and the effect that changes
in the interest  rates will have on the  Company's  portfolio  and the Company's
exposure limits.

Discussion of Market Risk

As a financial  institution,  the Company's  primary component of market risk is
interest rate volatility.  Fluctuations in interest rates will ultimately impact
both the  level  of  income  and  expense  recorded  on a large  portion  of the
Company's assets and liabilities,  and the market value of all  interest-earning
assets, other than those which possess a short term to maturity. All significant
interest rate risk  management  procedures  are performed at the Company  level.
Based upon the  Company's  nature of  operations,  the Company is not subject to
foreign  currency  exchange or commodity  price risk.  The Company's real estate
loan portfolio, concentrated primarily within the New York metropolitan area and
increasingly in New Jersey and the Philadelphia  metropolitan area is subject to
risks  associated  with these  local  economies.  The  Company  does not own any
trading assets.

In recent  years,  the Company has utilized the  following  strategies to manage
interest rate risk: (1)  emphasizing the origination and retention of fixed-rate
mortgage  loans  having  terms to  maturity  of not  more  than  fifteen  years,
adjustable-rate  loans and consumer  loans  consisting  primarily of home equity
loans and lines of credit;  (2) selling from time to time,  fixed-rate  mortgage
loans with terms of more than fifteen years without  recourse and on a servicing
retained   basis;   and  (3)  investing  in  fixed  rate   mortgage-backed   and
mortgage-related  securities  with  estimated  average  lives  of three to seven
years. In pursuing the above, the Company  considered the relative  stability of
its core deposits.  The actual  duration of mortgage  loans and  mortgage-backed
securities can be significantly  impacted by changes in mortgage  prepayment and
market interest rates.  Mortgage  prepayment  rates will vary due to a number of
factors,  including  the  regional  economy  in the area  where  the  underlying
mortgages  were  originated,  seasonal  factors,  demographic  variables and the
assumability of the underlying  mortgages.  However, the largest determinants of
prepayment rates are prevailing interest rates and related mortgage  refinancing
opportunities,  as was the case over the last fiscal year.  Management  monitors
interest rate  sensitivity  so that  adjustments in the asset and liability mix,
when deemed  appropriate,  can be made on a timely basis. The Company  currently
does  not  participate  in  hedging  programs,  interest  rate  swaps  or  other
activities   involving  the  use  of  off-balance  sheet  derivative   financial
instruments.

      Gap Analysis.  The matching of assets and  liabilities  may be analyzed by
examining the extent to which such assets and  liabilities  are  "interest  rate
sensitive" and by monitoring a bank's interest rate sensitivity  "gap." An asset
or liability is said to be interest rate sensitive within a specific time period
if it will  mature  or  reprice  within  that time  period.  The  interest  rate
sensitivity   gap  is  defined  as  the   difference   between   the  amount  of
interest-earning  assets maturing or repricing within a specific time period and
the amount of  interest-bearing  liabilities  maturing or repricing  within that
same time period.  At June 30,  2000,  the  Company's  one-year gap position was
negative  17.1%.  A gap is considered  negative when the amount of interest rate
sensitive  liabilities  exceeds the amount of interest rate sensitive  assets. A
gap is considered  positive when the amount of interest  rate  sensitive  assets
exceeds the amount of interest rate sensitive liabilities. Accordingly, during a
period of rising  interest rates,  the Company,  having a positive gap position,
would be in a better  position  to  invest  in  higher  yielding  assets  which,
consequently,  may result in the yield on its assets  increasing  at a pace more
closely  matching the increase in the cost of its  interest-bearing  liabilities
than if it had a negative gap.  During a period of falling  interest  rates,  an
institution  with a positive  gap would tend to have its assets  repricing  at a
faster  rate  than one with a  negative  gap  which,  consequently,  may tend to
restrain  the  growth of its net  interest  income or  result in a  decrease  in
interest income.

<PAGE>25

The  following  table sets  forth the  amounts  of  interest-earning  assets and
interest-bearing liabilities outstanding at June 30, 2000, which are anticipated
by the Company, based upon certain assumptions,  to reprice or mature in each of
the future time periods  shown (the "GAP Table").  Except as stated  below,  the
amount of  assets  and  liabilities  shown  which  reprice  or  mature  during a
particular  period were  determined  in  accordance  with the earlier of term to
repricing or the contractual maturity of the asset or liability.  The table sets
forth an approximation  of the projected  repricing of assets and liabilities at
June 30, 2000, on the basis of contractual maturities,  anticipated prepayments,
and  scheduled  rate  adjustments  within a three  month  period and  subsequent
selected time intervals.  For loans on residential  properties,  adjustable-rate
loans, and fixed-rate  loans,  prepayment rates were assumed to range from 5% to
24% annually.  Mortgage-backed and  mortgage-related  securities were assumed to
prepay  at rates  based on their  respective  previous  three  month  prepayment
experience.  Savings and N.O.W.  accounts  were assumed to decay at 10%, 5%, 5%,
40%,  20%, and 20%, and money market  savings  accounts were assumed to decay at
25%, 15%, 10%, 50%, 0% and 0%, for the periods of three months or less, three to
six months,  six to twelve months,  one to three years,  three to five years and
more than five years, respectively. These assumptions are generally based on the
FDIC's deposit decay guidelines and the Bank's historical experience. Prepayment
and deposit decay rates can have a significant impact on the Company's estimated
gap. While the Company believes such assumptions to be reasonable,  there can be
no assurance  that  assumed  prepayment  rates and decay rates will  approximate
actual future loan prepayment and deposit withdrawal activity.
<TABLE>
<CAPTION>

                                                                             At June 30, 2000
                                             ----------------------------------------------------------------------------------
                                                 3       More than   More than   More than   More than
                                              Months    3 Months to 6 Months to  1 Year to   3 Years to  More than
                                              or Less   6 Months      1 Year      3 Years     5 Years     5 Years      Total
                                             ----------------------------------------------------------------------------------
                                                                          (Dollars in thousands)
<S>     <C>    <C>    <C>    <C>    <C>    <C> <C>
Interest-earning  assets(1):
   Debt and equity securities(2)............ $  85,419   $     473   $  11,647   $  25,442   $   4,418  $  130,086  $  257,485
   Mortgage-backed and
    mortgage-related securities(2)..........    22,976      23,082      61,744     148,343     122,312     386,150     764,607
   Real estate loans,net(3)(4)..............    68,532      63,118     122,629     411,179     348,611     546,910   1,560,979
   Other loans(4)...........................     1,574       1,406       2,396       6,125       3,616       6,300      21,417
   Other interest-earning assets............    46,711          --          --          --          --          --      46,711
   FHLB stock...............................        --          --          --          --          --      38,873      38,873
                                             ----------------------------------------------------------------------------------
    Total interest-earning assets........... $ 225,212   $  88,079   $ 198,416   $ 591,089   $ 478,957  $1,108,319  $2,690,072
                                             ==================================================================================
Interest-bearing liabilities:
   Money market savings accounts............ $  10,382   $   6,229   $   4,153   $  20,764   $      --  $       --  $   41,528
   N.O.W. accounts..........................     7,336       3,668       3,668      29,342      14,671      14,671      73,356
   Savings accounts.........................    75,902      37,951      37,951     303,609     151,805     151,805     759,023
   Certificates of deposit..................   134,347     139,440     276,682     122,892      14,457       5,458     693,276
   Borrowings...............................   103,500      15,000     147,000     383,190     125,000          --     773,690
                                             ----------------------------------------------------------------------------------
    Total interest-bearing liabilities...... $ 331,467   $ 202,288   $ 469,454   $ 859,797   $ 305,933  $  171,934  $2,340,873
                                             ----------------------------------------------------------------------------------
Interest sensitivity gap(5)................. $(106,225)  $(114,209)  $(271,038)  $(268,708)  $ 173,024  $  936,385
                                             =======================================================================
Cumulative interest sensitivity gap......... $(106,255)  $(202,464)  $(491,502)  $(760,210)  $(587,186) $  349,199
                                             =======================================================================
Cumulative interest sensitivity gap
  as a percentage of total assets...........     (3.69)%     (7.65)%    (17.06)%    (26.39)%    (20.38)%      12.12%
Cumulative interest sensitivity gap
  as a percentage of total interest-
   earning assets...........................     (3.97)%     (8.24)%    (18.36)%    (28.26)%    (21.83)%      12.98%
Cumulative net interest-earning
  assets as a percentage of cumulative
   interest-bearing liabilities.............    (32.06)%   (108.99)%   (104.70)%    (88.42)%   (191.93)%     203.10%

</TABLE>

(1)Interest-earning  assets are included in the period in which the balances are
   expected  to  be  redeployed  and/or  repriced  as a  result  of  anticipated
   prepayments, scheduled rate adjustments, and contractual maturities.

(2)Debt and equity and mortgage-backed and mortgage-related securities are shown
   at carrying value.  Equity securities  include callable  preferred stock, the
   maturities  of which  have  been  assumed  to be the  date on which  they are
   initially callable.

(3)For purposes of the gap analysis,  real estate loans,  commercial  loans, and
   consumer/installment  loans are shown excluding adjustments for allowance for
   loan  losses  and  unearned   fees  of  $14.7   million  and  $1.4   million,
   respectively.

(4)For purposes of the gap analysis, non-performing loans are not included.

(5)Interest   sensitivity   gap  represents  the  difference   between  net
   interest-earning assets and interest-bearing liabilities.

<PAGE>26

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

      Net Portfolio  Value.  The Company's  interest  rate  sensitivity  is also
monitored by management through the use of a model, which generates estimates of
the change in the Company's net portfolio value ("NPV") over a range of interest
rate  scenarios.  NPV is the present  value of expected  cash flows from assets,
liabilities,  and off-balance sheet contracts. The NPV ratio, under any interest
rate  scenario,  is  defined as the NPV in that  scenario  divided by the market
value  of  assets  in the  same  scenario.  The  model  assumes  estimated  loan
prepayment  rates,  reinvestment  rates and deposit  decay rates  similar to the
assumptions  utilized for the GAP Table.  The following NPV Table sets forth the
Company's NPV as of June 30, 2000.
<TABLE>
<CAPTION>

     Change in
  Interest Rates
  In Basis Points                                                       NPV as % of Portfolio
   (Rate Shock)                              Net Portfolio Value            Value of Assets
-------------------------------------------------------------------------------------------------------
                                                                        %                        %
                                              Amount     $ Change     Change     NPV Ratio   Change(1)
                                             ----------------------------------------------------------
                                                                        (Dollars in thousands)
     <S>                                     <C>        <C>         <C>         <C>         <C>         <C>

      200...................................  $317,334   $(95,571)    (23.1)%      11.76%     (17.88)%
      100...................................   368,354    (44,551)    (10.8)       13.19       (7.89)
      Static................................   412,905         --        --        14.32          --
     (100)..................................   475,936     63,031      15.3        15.97       11.52
     (200)..................................   459,574     46,669      11.3        15.09        5.38

</TABLE>

      (1) Based on the  portfolio  value of the  Company's  assets  assuming  no
change in interest rates.

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

Impact of Inflation and Changing Prices

The  consolidated  financial  statements and notes presented  herein,  have been
prepared in accordance with Generally Accepted Accounting  Principles  ("GAAP"),
which require the  measurement  of financial  position and operating  results in
terms of  historical  dollar  amounts  without  considering  the  changes in the
relative  purchasing  power of money over time due to  inflation.  The impact of
inflation is reflected in the increased  cost of the Bank's  operations.  Unlike
industrial  companies,  nearly all of the assets and liabilities of the Bank are
monetary in nature.  As a result,  interest  rates have a greater  impact on the
Bank's performance than do the effects of general levels of inflation.  Interest
rates do not necessarily move in the same direction or to the same extent as the
price of goods and services.

<PAGE>27

The Year 2000 Project

Over the past  several  quarters,  the  Company  reported,  on a regular  basis,
potential  concerns relating to the "Year 2000 Problem," which centered upon the
possible  inability of computer  systems to  recognize  the change into the year
2000.  The Company  did not  experience  any  significant  interruptions  in any
computer  operations  related to the Year 2000 Problem.  The Company's  loan and
deposit data processing  functions were not affected by the change into the year
2000. Additionally, the Company did not encounter any significant delays in loan
payments from our borrowers due to difficulties  they may have  encountered as a
result of the Year 2000  Problem.  The  Company  estimates  that the total costs
incurred  related to the Year 2000  Problem,  from  inception  to date,  did not
exceed $300,000,  and the Company does not anticipate any additional costs to be
incurred related to this matter.

Recent Legislation

Recent  legislation  designed  to  modernize  the  regulation  of the  financial
services  industry  expands the ability of bank  holding  companies to affiliate
with other types of financial services companies such as insurance companies and
investment banking companies.  However,  the legislation provides that companies
that acquire control of a single savings  association after May 4, 1999 (or that
filed an  application  for that purpose after that date) are not entitled to the
unrestricted  activities formerly allowed formerly allowed for a unitary savings
and loan holding company.  Rather, these companies will have authority to engage
in the  activities  permitted  "a  financial  holding  company"  under  the  new
legislation,  including  insurance and  securities-related  activities,  and the
activities  currently permitted for multiple savings and loan holding companies,
but  generally  not in commercial  activities.  The  authority for  unrestricted
activities is grandfathered for unitary savings and loan holding companies, such
as the Company,  that existed prior to May 4, 1999.  However,  the authority for
unrestricted  activities  would  not  apply to any  company  that  acquired  the
Company.

Private Securities Litigation Reform Act Safe Harbor Statement

In addition to  historical  information,  this Annual  Report  includes  certain
forward-looking  statements  based  on  current  management  expectations.   The
Company's   actual  results  could  differ   materially  from  those  management
expectations.  Factors  that could  cause  future  results to vary from  current
management  expectations  include,  but are not  limited  to,  general  economic
conditions,  legislative and regulatory changes, monetary and fiscal policies of
the  federal  government,  changes in tax  policies,  rates and  regulations  of
federal,  state and local tax  authorities,  changes in interest rates,  deposit
flows,  the cost of  funds,  demand  for loan  products,  demand  for  financial
services,  competition,  changes in the quality or  composition of the Company's
loan and investment portfolios,  changes in accounting  principles,  policies or
guidelines,  and other economic,  competitive,  governmental  and  technological
factors  affecting the Company's  operations,  markets,  products,  services and
prices.

Impact of New Accounting Standards

For discussion regarding the impact of new accounting standards, refer to Note 1
of Notes to Consolidated Financial Statements.

<PAGE>28



                  RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
                  Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>

                                                                   June 30,
                                                               2000         1999
                                                           ------------------------
                                                            (In thousands, except
                                                              per share amounts)
<S>                                                        <C>          <C>
ASSETS
Cash and due from banks.................................   $   47,684   $   55,773
Federal funds sold......................................           --       17,775
Securities held to maturity:
  Mortgage-backed and mortgage-related securities
   (estimated market value of $54,068)..................       57,161            -
Securities available for sale:
     Investment securities..............................      257,485      297,611
     Mortgage-backed and mortgage-related securities....      707,446      866,844
Loans receivable:
     Real estate loans..................................    1,567,080    1,301,118
     Other loans........................................       21,426       26,294
     Less allowance for loan losses.....................      (14,698)     (13,885)
                                                           ------------------------
Total loans receivable, net.............................    1,573,808    1,313,527
Federal Home Loan Bank stock............................       38,873       38,388
Banking premises and equipment, net.....................       26,115       27,353
Accrued interest receivable.............................       18,170       15,568
Other real estate owned.................................          509          997
Goodwill................................................       43,324       43,382
Other assets............................................      110,646       82,877
                                                           ------------------------
      Total assets......................................   $2,881,221   $2,760,095
                                                           ========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits.........................................   $  207,894   $  169,007
Savings, N.O.W. & Money market accounts.................      873,907      842,465
Certificates of deposit.................................      693,276      598,470
Escrow accounts.........................................       14,799        9,528
                                                           ------------------------
      Total deposits....................................    1,789,876    1,619,470
Securities sold under agreements to repurchase..........       15,000       94,000
Borrowings..............................................      758,690      663,832
Accrued expenses & other liabilities....................       11,245       12,582
                                                           ------------------------
      Total liabilities.................................    2,574,811    2,389,884
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized; none issued.................................           --           --
Common stock, $.01 par value, 75,000,000 shares
authorized; 32,737,134 shares issued;
  28,065,972 and 31,662,839 shares outstanding,
  at of June 30, 2000 and June 30, 1999, respectively...          327          327
Additional paid-in-capital..............................      329,718      330,122
Retained earnings-substantially restricted..............      145,231      122,784
Unallocated common stock held by  ESOP..................      (30,249)    (31,978)
Unearned compensation MRP stock                               (13,147)    (16,885)
Treasury stock, at cost, 4,671,162 and 1,074,295
  shares at June 30, 2000 and
  June 30, 1999, respectively...........................      (82,541)    (17,967)
Accumulated other comprehensive income:
  Net unrealized loss on securities, net of tax.........      (42,929)    (16,192)
                                                           ------------------------
          Total stockholders' equity....................      306,410      370,211
                                                           ------------------------
Total liabilities and stockholders' equity..............   $2,881,221   $2,760,095
                                                           ========================
</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>29



                RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
                      Consolidated Statements of Operations
<TABLE>
<CAPTION>

                                                                 Years ended June 30,
                                                        --------------------------------------
                                                              2000        1999       1998
                                                        --------------------------------------
                                                       (In thousands, except per share amounts)
<S>                                                         <C>         <C>        <C>
Interest income
  Loans..............................................       $113,454     $ 72,231  $ 44,375
  Debt and equity securities.........................         24,999       19,040    14,645
  Mortgage-backed and mortgage-related securities....         55,572       39,914    23,622
  Federal funds sold.................................            369        1,277     3,822
  Other..............................................            143          112       290
                                                        --------------------------------------
     Total interest income...........................        194,537      132,574    86,754
                                                        --------------------------------------
Interest expense
  Deposits...........................................         54,710       35,931    31,734
  Securities sold under repurchase agreements........          1,692          686     1,059
  Borrowed funds.....................................         41,867       25,614     4,719
                                                        --------------------------------------
     Total interest expense..........................         98,269       62,231    37,512
                                                        --------------------------------------
     Net interest income.............................         96,268       70,343    49,242
Provision for loan losses............................          1,200        2,550     2,200
                                                        --------------------------------------
     Net interest income after
       provision for loan losses.....................         95,068       67,793    47,042
                                                        --------------------------------------
Non-interest income
  Fee income.........................................         10,007        5,511     3,397
  Net (losses)gains on sales of securities and loans.         (5,973)       3,576       163
  Curtailment gain on pension plan...................             --        2,021        --
  Other..............................................          3,142          281        41
                                                        --------------------------------------
     Total non-interest income.......................          7,176       11,389     3,601
                                                        --------------------------------------
Non-interest expenses
  Salaries and employee benefits.....................         27,891       20,988    12,929
  Occupancy costs....................................          6,110        3,867     3,181
  Computer service fees..............................          5,550        3,598     2,743
  Advertising........................................          1,893        1,803     1,135
  FDIC insurance premiums............................            439          175       154
  Contribution to RCS Foundation.....................             --           --    19,558
  Other..............................................          7,099        4,785     4,033
                                                        --------------------------------------
     Total general and administrative................         48,982       35,216    43,733
  Amortization of goodwill and other intangibles.....          3,321        1,144       313
                                                        --------------------------------------
     Total non-interest expense......................         52,303       36,360    44,046
                                                        --------------------------------------
Income before income taxes...........................         49,941       42,822     6,597
Provision for income taxes...........................         13,672       16,178     2,071
                                                        --------------------------------------
     Net income......................................       $ 36,269     $ 26,644   $ 4,526
                                                        ======================================
 Earnings (loss) per share:
  (since Conversion for fiscal 1998)
       Basic.........................................       $   1.36     $  1.07    $ (0.16)
       Diluted.......................................       $   1.35     $  1.07    $ (0.16)

</TABLE>

         See accompanying notes to consolidated financial statements.

<PAGE>30

                RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              (In thousands, except share and per share amounts)

<TABLE>
<CAPTION>

                                                                                      Retained     Accumulated
                                                                        Additional    Earnings        Other
                                                             Common      Paid-in    Substantially Comprehensive
                                                             Stock       Capital     Restricted       Income
----------------------------------------------------------------------------------------------------------------
<S>                                                        <C>          <C>          <C>          <C>
Balance at June 30, 1997                                    $     --     $     --     $100,555     $    310
Comprehensive income:
  Net income............................................          --           --        4,526           --
  Other comprehensive income, net of tax:
   Net unrealized gain on certain securities,
    net of tax..........................................          --           --           --        3,660
  Comprehensive income..................................
  Cash dividends paid on common stock...................          --           --       (1,321)          --
  Issuance of 24,466,250 shares of common
    stock in the initial  public offering...............         245      234,644           --           --
  Issuance of 1,957,300 shares of common
    stock to the Foundation.............................          19       19,553           --           --
  Open market purchase of common stock by the ESOP......          --           --           --           --
  Allocation of ESOP stock..............................          --          110           --           --
                                                           --------------------------------------------------
Balance at June 30, 1998................................    $    264     $254,307     $103,760     $  3,970
                                                           --------------------------------------------------
Comprehensive income:
  Net income............................................          --           --       26,644           --
  Other comprehensive income, net of tax:
   Net unrealized loss on certain securities,
    net of tax..........................................          --           --           --      (20,162)
  Comprehensive income..................................
  Cash dividends paid on common stock...................          --           --       (7,620)          --
  Issuance of stock for Ironbound Bankcorp, NJ
    acquisition (1,458,842 shares)......................          14       25,851           --           --
  Issuance of stock for Bayonne Bancshares, Inc.
    acquisition (8,668,615 shares)......................          49       62,059           --           --
  Common stock repurchased (4,604,213 shares)...........          --           --
  Treasury stock issued for options exercised
    (55,817 shares).....................................          --           --           --           --
  Open market purchases of Bayonne Bancshares,Inc.
    common stock (464,625 shares).......................          --           --           --           --
  Open market purchases of unearned MRP stock...........          --           --           --           --
  Reissuance   of   treasury stock......................          --      (12,045)          --           --
  Allocation of ESOP and MRP stock......................          --          (50)          --           --
                                                           --------------------------------------------------
Balance at June 30, 1999................................    $    327     $330,122     $122,784     $(16,192)
                                                           --------------------------------------------------
Comprehensive income:
  Net income............................................          --           --       36,269           --
  Other comprehensive income, net of tax:
   Net unrealized loss on certain securities,
    net of tax..........................................          --           --           --      (26,737)
Comprehensive income....................................
Adjustments.............................................          --          255           --           --
Cash dividends paid on common stock.....................          --           --      (13,822)          --
Common stock repurchased (3,646,484 shares).............          --           --           --           --
Treasury stock issued for options exercised
  (49,617 shares).......................................          --         (366)          --           --
Allocation of ESOP and MRP stock........................          --         (293)          --           --
                                                           --------------------------------------------------
Balance at June 30, 2000................................    $    327     $329,718     $145,231     $(42,929)
                                                           ==================================================

</TABLE>

         See accompanying notes to consolidated financial statements.

<PAGE>30 continued

                RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              (In thousands, except share and per share amounts)

<TABLE>
<CAPTION>

                                                           Unallocated   Unearned
                                                             Common       Common
                                                           Stock Held   Stock Held    Treasury
                                                             by ESOP      by MRP       Stock       Total
----------------------------------------------------------------------------------------------------------------
<S>                                                        <C>          <C>          <C>          <C>
Balance at June 30, 1997                                    $     --     $     --     $     --     $100,865
Comprehensive income:
  Net income............................................          --           --           --        4,526
  Other comprehensive income, net of tax:
   Net unrealized gain on certain securities,
    net of tax..........................................          --           --           --        3,660
                                                                                                  ----------
  Comprehensive income..................................                                              8,186
                                                                                                  ----------
  Cash dividends paid on common stock...................          --           --           --       (1,321)
  Issuance of 24,466,250 shares of common
    stock in the initial  public offering...............          --           --           --      234,889
  Issuance of 1,957,300 shares of common
    stock to the Foundation.............................          --           --           --       19,572
  Open market purchase of common stock by the ESOP......     (34,571)          --           --      (34,571)
  Allocation of ESOP stock..............................         865           --           --          975
                                                           -----------------------------------------------------
Balance at June 30, 1998................................    $(33,706)    $     --     $     --     $328,595
                                                           -----------------------------------------------------
Comprehensive income:
  Net income............................................          --           --           --       26,644
  Other comprehensive income, net of tax:
   Net unrealized loss on certain securities,
    net of tax..........................................          --           --           --      (20,162)
                                                                                                  ----------
  Comprehensive income..................................                                              6,482
                                                                                                  ----------
  Cash dividends paid on common stock...................          --           --           --       (7,620)
  Issuance of stock for Ironbound Bankcorp, NJ
    acquisition (1,458,842 shares)......................          --           --           --       25,865
  Issuance of stock for Bayonne Bancshares, Inc.
    acquisition (8,668,615 shares)......................          --       (2,820)      63,103      122,391
  Common stock repurchased (4,604,213 shares)...........          --           --      (75,529)     (75,529)
  Treasury stock issued for options exercised
    (55,817 shares).....................................          --           --          915          915
  Open market purchases of Bayonne Bancshares,Inc.
    common stock (464,625 shares).......................          --           --       (6,456)      (6,456)
  Open market purchases of unearned MRP stock...........          --      (16,118)          --      (16,118)
  Reissuance   of   treasury stock......................          --           --           --      (12,045)
  Allocation of ESOP and MRP stock......................       1,728        2,053           --        3,731
                                                           ------------------------------------------------
Balance at June 30, 1999................................    $(31,978)    $(16,885)    $(17,967)    $370,211
                                                           -------------------------------------------------
Comprehensive income:
  Net income............................................          --           --           --       36,269
  Other comprehensive income, net of tax:
   Net unrealized loss on certain securities,
    net of tax..........................................          --           --           --      (26,737)
                                                                                                  ----------
Comprehensive income....................................                                           $  9,532
                                                                                                  ----------
Adjustments.............................................          --           --           --          255
Cash dividends paid on common stock.....................          --           --           --      (13,822)
Common stock repurchased (3,646,484 shares).............          --           --      (65,431)     (65,431)
Treasury stock issued for options exercised
  (49,617 shares).......................................          --           --          857          491
Allocation of ESOP and MRP stock........................       1,729        3,738           --        5,174
                                                           -----------------------------------------------------
Balance at June 30, 2000................................    $(30,249)    $(13,147)    $(82,541)    $306,410
                                                           =====================================================
</TABLE>

<TABLE>
<CAPTION>

(1) Disclosure of reclassification amount,
    net of tax for the fiscal years ended June 30,:                        2000         1999         1998
                                                                        ----------------------------------------
       <S>                                                              <C>          <C>          <C>
       Net unrealized (depreciation) appreciation
         arising during the year.....................................   $(32,752)    $(16,331)     $ 6,179
       Less:  Reclassification adjustment for net
        (losses) gains included in net income........................     (6,015)       3,831        2,519
                                                                        ----------------------------------------
       Net unrealized (loss) gain
        on certain securities........................................   $(26,737)    $(20,162)     $ 3,660
                                                                        ========================================
</TABLE>

         See accompanying notes to consolidated financial statements.


<PAGE>31

                RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
                      Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                 Years ended June 30,
                                                           -------------------------------------
                                                              2000         1999        1998
                                                           -------------------------------------
                                                                      (In thousands)
<S>                                                        <C>          <C>          <C>
Cash Flows from Operating Activities:
Net income..............................................    $  36,269    $  26,644    $   4,526
Adjustments to reconcile net income to net
  cash provided by operating activities:
   Contribution of the Company's common stock
      to the RCS Foundation.............................           --           --       19,553
   ESOP and MRP expense.................................        5,174        3,731          975
   Depreciation.........................................        2,236        1,314          848
   Amortization of goodwill.............................        3,008          831           --
   Amortization of deposit premium......................          313          313          313
   Amortization of deferred fees, net ..................         (790)        (311)        (446)
   Amortization of investment premiums,
      net accretion of discount.........................         (473)       2,576          482
   Provision for loan losses............................        1,200        2,550        2,200
   Amortization of loan premiums, net
     accretion of discount..............................          (57)        (344)        (158)
   Net realized losses (gains) on sales of
     securities and loans...............................        5,991       (3,514)         (30)
   Net realized (gains) on sales of other
     real estate owned..................................          (25)         (55)        (133)
   Increase in accrued interest receivable..............       (2,602)      (1,182)      (1,559)
   (Decrease) increase in accrued expenses
     and other liabilities..............................       (1,082)     (12,150)       3,754
   Increase in other assets.............................      (19,051)     (48,532)      (5,350)
                                                           -------------------------------------
       Net cash provided by/(used in)
       operating activities.............................       30,111      (28,129)      24,975
Cash Flows from Investing Activities:
    Increase in loans receivable, net...................     (443,758)    (435,520)    (114,373)
    Loan purchases......................................           --       (1,500)     (38,616)
    Proceeds from sales of loans........................       89,360       16,705           --
Investment securities held to maturity:
    Maturities and redemptions..........................           --           --       55,972
Investment securities available for sale:
    Sales and redemption................................       67,787      107,141      108,936
    Purchases...........................................      (49,156)     (96,028)    (173,260)
Mortgage-backed and mortgage-related securities
 held to maturity:
    Maturities and redemptions..........................           --           --       29,237
    Principal collected.................................          402           --       31,987
Mortgage-backed and mortgage-related securities
 available for sale:
    Sales and redemptions...............................       94,521       63,931       69,074
    Principal collected.................................      117,255      264,460       86,073
    Purchases...........................................      (39,273)    (384,631)    (608,059)
Purchases of Federal Home Loan Bank of
  New York stock........................................         (485)     (11,990)     (15,550)
Net additions to banking premises and
  equipment.............................................         (998)      (5,088)      (1,884)
Proceeds from sales of other real estate owned..........          868          350          823
Cash and cash equivalents acquired from
  Ironbound Bankcorp, NJ acquisition....................           --       40,226           --
Cash and cash equivalents acquired from
  Bayonne  Bancshares, Inc. acquisition.................           --      124,055           --
                                                           -------------------------------------
    Net cash used in investing activities...............     (163,477)    (317,889)    (569,640)
</TABLE>
     (continued on next page)

<PAGE>32
<TABLE>
<CAPTION>

                RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
              Consolidated Statements of Cash Flows - Continued

                                                                    Years ended June 30,
                                                           -------------------------------------
                                                              2000         1999         1998
                                                           -------------------------------------
                                                                      (In thousands)
<S>                                                          <C>          <C>          <C>
Cash Flows from Financing Activities:
  Net increase in deposits..............................    $ 165,135    $ 133,076    $  64,369
  Increase in escrow accounts...........................        5,271        7,620          621
  Increase in borrowed funds............................       15,858      320,000      306,000
  Net proceeds of common stock issuance.................           --           --      234,908
  Loan to ESOP for open market purchase
    of common stock.....................................           --           --      (34,571)
  Purchase of MRP stock.................................           --      (16,118)          --
  Purchase of treasury shares...........................      (65,431)     (75,529)          --
  Net proceeds from issuance of common
    stock upon exercise of stock options................          491          253           --
  Cash dividends paid on common stock...................      (13,822)      (7,620)      (1,321)
                                                           -------------------------------------
        Net cash provided by financing activities.......      107,502      361,682      570,006
  Net(decrease)increase in cash and
    cash equivalents....................................      (25,864)      15,664       25,341
  Cash and cash equivalents at beginning
    of the year.........................................       73,548       57,884       32,543
                                                           -------------------------------------
  Cash and cash equivalents at end of the year..........    $  47,684    $  73,548    $  57,884
                                                           =====================================
Supplemental Disclosure of Cash Flow Information:
  Cash paid during the year for:
     Interest on deposits and borrowed funds............    $  98,269    $  59,914    $  35,609
     Income taxes.......................................       22,776       16,254        6,949

Non-cash investing activities:
  Transfer of loans to other real estate owned, net.....    $     355    $     482    $     350
  Securitization of mortgage loans to mortgage-
     backed securities held to maturity.................       57,563           --           --
  Securitization of mortgage loans to mortgage-
     backed securities available for sale...............       35,864       77,159           --
  Transfer of securities from held to maturity
     to available for sale..............................           --           --      273,127
  Net unrealized (losses) gains on
     available for sale investments.....................      (32,752)     (16,331)       6,179
</TABLE>


Supplemental   Information  to  the  Consolidated  Statements  of  Cash  Flows
Relating to Acquisitions:

Non-cash  investing  and  financing   transactions  relating  to  the  Ironbound
Bankcorp,  NJ and Bayonne Bancshares,  Inc. for the year ended June 30, 1999 not
reflected in the Consolidated Statements of Cash Flows are listed below:
<TABLE>
<CAPTION>

                                                                         Ironbound     Bayonne
                                                                        Bankcorp,NJ   Bancshares,Inc
                                                                       --------------------------
                                                                            (In thousands)
<S>                                                                     <C>            <C>

 Fair value of assets acquired, excluding cash and
 cash equivalents acquired...........................................    $  74,096    $ 528,372
 Liabilities assumed.................................................     (103,745)    (570,344)
 Excess of cost over fair value of net assets acquired...............       15,288       28,925
 Stock consideration.................................................      (25,865)    (111,008)
                                                                       --------------------------
 Cash and cash equivalents acquired                                      $ (40,226)   $(124,055)
                                                                       ==========================
</TABLE>

         See accompanying notes to consolidated financial statements.

<PAGE>33

                RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
                  Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies and Related Matters

Richmond County Financial Corp. (the "Company") was organized under Delaware law
as the savings and loan holding company for Richmond County Savings Bank and its
subsidiaries  (the "Bank") in connection  with the Bank's  conversion from a New
York State  chartered  mutual savings bank to a New York State  chartered  stock
savings bank on February 18, 1998 (the  "Conversion").  See note 2 for a further
discussion of the Conversion.

The  Company's  business  consists  primarily of the business  activities of the
Bank. The Bank,  together with its two divisional  banks,  First Savings Bank of
New Jersey and Ironbound Bank, operates 15 banking offices on Staten Island, one
banking  office in  Brooklyn,  eight  banking  offices in the counties of Essex,
Hudson,  and Union,  New Jersey,  and a multifamily  loan  processing  center in
Jericho, Long Island. The Bank's activities include attracting deposits from the
general public and originating secured  residential,  multifamily and commercial
real estate loans. The Bank also provides other financial  services to customers
primarily within this region. The Bank's primary revenues are derived from these
banking  activities  and its portfolios of investment  and  mortgage-backed  and
mortgage-related  securities.  The Bank is  subject  to  competition  from other
financial institutions. Deposits at the Bank are insured up to applicable limits
by the Bank Insurance Fund (BIF) of the Federal  Deposit  Insurance  Corporation
(the  "FDIC").  The Bank is subject to  regulation  by the FDIC and the New York
State Banking Department.

The following is a description of the significant  accounting  policies followed
by the  Company  and  its  wholly-owned  subsidiary.  The  policies  conform  to
generally  accepted  accounting  principles and to general  practice  within the
banking industry:

(a) Principles of Consolidation  and Basis of Financial  Statement  Presentation
The  consolidated  financial  statements  have been prepared in conformity  with
generally accepted accounting  principles (GAAP) and include the accounts of the
Company and its wholly-owned subsidiary.  All significant inter-company balances
and transactions have been eliminated in consolidation.

(b) Use of Estimates

The preparation of financial  statements,  in conformity with generally accepted
accounting  principles,  requires  management to make estimates and  assumptions
that affect the reported  amounts of assets and  liabilities  and  disclosure of
contingent  assets and  liabilities at the date of the financial  statements and
revenues and expenses during the reporting  period.  Actual results could differ
from the estimates.

(c) Cash and Cash Equivalents

For  purposes  of  reporting  cash  flows,  the  Company  defines  cash and cash
equivalents  as cash and due from banks  (including  restricted  cash),  federal
funds sold and time deposits with original maturities of three months or less.

(d) Securities Held to Maturity

Investment securities and mortgage-backed and mortgage-related  securities,  for
which the Company has the positive  intent and ability to hold to maturity,  are
stated at cost,  adjusted for amortization of premiums and discounts,  which are
recognized as adjustments to interest  income over the life of the security,  so
as to provide a level yield.

(e) Securities Available for Sale

Investment securities and mortgage-backed and mortgage-related  securities,  not
classified as trading nor as held to maturity,  are  classified as available for
sale and are carried at fair  value.  Unrealized  gains or losses on  securities
available for sale are included in accumulated other comprehensive  income, as a
separate  component of  stockholders'  equity,  net of applicable  income taxes.
Gains  and  losses  on the  disposition  of  securities  available  for sale are
recognized using the specific identification method.

(f) Loans Receivable

Loans  receivable  are  stated  at  unpaid  principal  balances,  less  unearned
discounts and net deferred origination and commitment fees. Loan origination and
commitment  fees and  certain  direct  costs  incurred in  connection  with loan
originations  are deferred and  amortized to income over the life of the related
loans as an adjustment to yield.  Loans held for sale are stated at the lower of
cost or market value.

The  Company  does not accrue  interest  on loans that are more than ninety days
delinquent  as to principal or interest  unless,  in the opinion of  management,
collection is probable.  Any accrued but unpaid interest  previously recorded on
these loans is reversed against current period interest income.

<PAGE>34

(g) Allowance for Loan Losses

The  allowance  for loan  losses is based on  management's  periodic  review and
evaluation  of the loan  portfolio  and the  potential  for loss in light of the
current  composition of the loan portfolio,  current  economic  conditions,  and
other relevant factors.

Assessing the adequacy of the allowance for loan losses is inherently subjective
as it requires  making  material  estimates,  including the amount and timing of
future  cash flows  expected to be  received  on  impaired  loans,  which may be
susceptible to significant change. In the opinion of management,  the allowance,
when taken as a whole,  is adequate to absorb  estimated loan losses inherent in
the Company's entire portfolio.

(h) Banking Premises and Equipment

Banking   premises  and  equipment  are  recorded  at  cost.   Depreciation  and
amortization  are  provided  for in  amounts  sufficient  to relate  the cost of
depreciable  assets to operations  over their  estimated  service lives (3 to 20
years) on a straight-line basis.  Leasehold  improvements are amortized over the
lives  of the  respective  leases  or the  service  lives  of the  improvements,
whichever is shorter.

Expenditures for improvements and major renewals are capitalized, while the cost
of  ordinary   maintenance,   repairs  and  minor  improvements  is  charged  to
operations.

(i) Other Real Estate Owned

Other real estate owned,  consisting of properties acquired through foreclosure,
is carried at the lower of carrying amount or fair value less cost to sell.

(j) Excess of Cost Over Fair Value of Net Assets Acquired
The  excess  of  cost  over  the  fair  value  of  net  assets  acquired  in the
acquisitions  of  Bayonne  Bancshares,  Inc.  and  Ironbound  Bankcorp,  NJ,  is
amortized using the straight line method over fifteen years.  The excess of cost
over fair value of net assets acquired ("goodwill") is evaluated periodically by
the Company for impairment in response to changes in circumstances or events.

(k) Income Taxes

The Company uses the liability  method to account for income  taxes.  Under this
method,  deferred tax assets and liabilities are determined based on differences
between  financial  reporting  and tax bases of assets and  liabilities  and are
measured at currently enacted income tax rates applicable to the period in which
they are expected to be realized or settled. As changes in tax laws or rates are
enacted,  deferred tax assets and liabilities are adjusted through the provision
for income taxes.

(l) Treasury Stock

Repurchases of common stock are recorded as treasury stock at cost.

(m) Earnings Per Share

Basic  earnings per share  ("EPS") is  calculated  by dividing net income by the
weighted average number of common shares outstanding.  Diluted EPS is calculated
using the same method as basic EPS,  but reflects  potential  dilution of common
stock  equivalents.  Shares of common  stock held by the ESOP that have not been
allocated  to  participants'  accounts or are not  committed  to be released for
allocation and non-vested  1998 Management  Recognition  Plan (the "MRP") shares
are not considered to be outstanding for the calculation of basic EPS,  however,
a portion of such shares are  considered  in the  calculation  of diluted EPS as
common stock equivalents of basic EPS. Basic and diluted weighted-average common
shares  outstanding were 26,682,604 and 26,891,673  shares,  for the fiscal year
ended  June  30,  2000.  Basic  and  diluted   weighted-average   common  shares
outstanding were 24,807,859  shares, for the fiscal year ended June 30, 1999 For
fiscal year ended June 30, 1998,  basic EPS is  calculated  by dividing net loss
since  Conversion by the weighted  average number of common shares  outstanding.
There were no  dilutive  stock  equivalents  for the fiscal  year ended June 30,
1998.  Since the  Conversion  on February 18, 1998,  basic and diluted  weighted
average common shares  outstanding was 24,328,143  shares. For fiscal year ended
June 30, 1998, net loss since Conversion was $4.0 million.

(n) Employee Benefits

The Company follows the provisions of the American Institute of Certified Public
Accountants  ("AICPA")  Statement of Position 93-6,  "Employers'  Accounting for
Employee  Stock  Ownership  Plans" ("SOP 93-6").  In  accordance  with SOP 93-6,
compensation  expense is recorded at an amount equal to the shares  committed by
the Employee Stock Ownership Plan ("ESOP")  multiplied by the average fair value
of the  Company's  common  stock during the  reporting  period.  The  difference
between  the fair  value of shares  for the  period  and the cost of the  shares
committed  by the  ESOP is  recorded  as an  adjustment  to  additional  paid in
capital.

<PAGE>35

Statement of Financial  Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based  Compensation" established a fair value-based method of accounting
for stock-based  compensation  arrangements  with  employees,  rather than the
intrinsic  value-based method that is contained in Accounting Principles Board
Opinion No. 25,  "Accounting  for Stock Issued to  Employees"  ("APB No. 25").
SFAS No.  123 does not  require  an entity  to adopt the new fair  value-based
method for purposes of preparing its basic financial  statements.  The Company
has chosen to  continue  to use the APB No. 25 method;  however,  SFAS No. 123
requires the  presentation  of pro forma net income and EPS information in the
notes to the financial  statements as if the fair value-based  method had been
adopted.  See Note 10 for the presentation of this pro forma information.

(o) Comprehensive Income

The Company adopted SFAS No. 130, "Reporting Comprehensive Income" in the second
quarter of fiscal  1999.  All  comparative  financial  statements  provided  for
earlier  periods have been restated to reflect  application  of the  provisions.
Comprehensive  income includes net income and all other changes in equity during
a period except those resulting from  investments by owners and  distribution to
owners. Other comprehensive income includes revenues, expenses, gains and losses
that,  under  generally  accepted   accounting   principles,   are  included  in
comprehensive  income but  excluded  from net income.  Comprehensive  income and
accumulated other comprehensive income are reported net of related income taxes.
Accumulated other  comprehensive  income consists solely of unrealized gains and
losses on available for sale securities.

(p) Segment Reporting

During  fiscal  1999,  the  Company  adopted  SFAS No. 131,  "Disclosures  about
Segments of an Enterprise and Related Information." SFAS No. 131 requires public
companies   to  report   certain   financial   information   about   significant
revenue-producing  segments  of the  business  for  which  such  information  is
available  and  utilized  by  the  chief  operating  decision  maker.   Specific
information to be reported for individual  operating segments includes a measure
of profit and loss,  certain revenue and expense items,  and total assets.  As a
community-oriented  financial  institution,  substantially  all of the Company's
operations  involve  the  delivery of loan and  deposit  products to  customers.
Management  makes  operating  decisions  and  assesses  performance  based on an
ongoing  review of these  community  banking  operations,  which  constitute the
Company's only operating segment for financial reporting purposes under SFAS No.
131.

(q) Recently Issued Accounting Pronouncements

In June 1998, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
standardizes  the  accounting  for  derivative  instruments,  including  certain
derivative instruments embedded in other contracts. Under SFAS No. 133, entities
are required to carry all  derivative  instruments in the statement of financial
position at fair value. The accounting for changes in the fair value (i.e. gains
or losses) of a derivative  instrument depends on whether it has been designated
and  qualifies as part of a hedging  relationship  and, if so, on the reason for
holding it. If certain  conditions  are met,  entities  may elect to designate a
derivative  instrument  as a hedge of exposures to changes in fair values,  cash
flows or foreign currencies.

In June  1999,  the FASB  issued  SFAS No.  137,  "Accounting  for  Derivative
Investments and Hedging Activities  Deferral of the Effective Date of SFAS NO.
133," which amended the effective date of SFAS No. 133.

SFAS No. 133 is now  effective  for fiscal  quarters of fiscal  years  beginning
after June 15, 2000 and does not require restatement of prior periods. Currently
the Company does not have any derivative instruments nor has it entered into any
hedging transactions, therefore, SFAS No. 133 will not have a material impact on
the Company's consolidated financial statements.

(r) Reclassifications

Certain reclassifications have been made to prior year amounts to conform to the
current year presentation.

<PAGE>36

 2. Conversion to Stock Form of Ownership

On July 31, 1997, the Board of Trustees of the Bank  unanimously  adopted a Plan
of  Conversion  whereby the Bank would  convert from a New York State  chartered
mutual bank to a New York State chartered stock  institution with the concurrent
formation  of  a  holding   company,   Richmond  County   Financial  Corp.  (the
"Conversion").

The  Conversion  was  completed on February  18, 1998,  with the issuance by the
Company of 24,466,250 shares of common stock, at a price of $10.00 per share, in
an initial  public  offering.  The  Company  received  gross  proceeds  from the
Conversion of $244.7  million,  before the reduction from gross proceeds of $9.8
million for  estimated  conversion  related  expenses.  The Company  used $117.4
million, or 50% of the net proceeds, to purchase all of the outstanding stock of
the Bank.

Concurrent with the completion of the Conversion, an additional 1,957,300 shares
of  authorized  but  unissued  shares of common  stock were  contributed  by the
Company to the Richmond County Savings Foundation (the "Foundation"),  a private
foundation  dedicated to charitable  purposes within the Bank's communities that
it serves.  The Company  recorded a one-time  charge of $19.6 million,  the full
amount of the contribution  made to the Foundation and a corresponding  deferred
tax benefit of $8.4 million in fiscal 1998. The  contribution  to the Foundation
will be fully tax  deductible,  subject to an annual  limitation  based upon the
Company's annual taxable income.

In connection with the Conversion,  the Bank implemented the ESOP. Subsequent to
the  Conversion,  the ESOP  purchased,  through  a $34.6  million  loan from the
Company,  8%, or  2,113,884  shares of the  Company's  common  stock in the open
market.

The Bank  established,  in  accordance  with the  requirements  of the Office of
Thrift Supervision (the "OTS"), a liquidation account for $102.8 million,  equal
to its retained earnings as of the date of the latest consolidated  statement of
financial condition  appearing in the final prospectus.  The liquidation account
is maintained  for the benefit of eligible  pre-Conversion  account  holders who
continue to maintain their account at the Bank after the date of Conversion. 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,  under  New York  State  Law,  to  receive a
distribution  from the  liquidation  account in an amount equal to their current
adjusted  account  balances  for all such  depositors  then  holding  qualifying
deposits in the Bank.

In addition,  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  or if such  declaration  and payment would  otherwise
violate regulatory requirements.

3. Acquisitions

Bayonne Bancshares, Inc.
At the  close  of  business  on  March  22,  1999,  the  Company  completed  its
acquisition of Bayonne  Bancshares,  Inc.  ("Bayonne"),  the holding  company of
First Savings Bank of New Jersey,  SLA, a New Jersey State chartered savings and
loan association with four full service banking offices located in Bayonne,  New
Jersey in a transaction  which was accounted for as a purchase.  The cost of the
acquisition  was  approximately  $118.5 million of which the Company issued 1.05
shares of its common stock for each  outstanding  share of Bayonne  common stock
for a total of 8,668,615  common  shares of which  3,938,731  shares were issued
from its treasury  shares.  Options to purchase 683,577 shares of Bayonne common
stock  were also  converted  into  options  to  purchase  717,755  shares of the
Company's common stock.  The goodwill  attributable to the transaction was $31.4
million which is being amortized on a straight line basis over 15 years.

Ironbound Bankcorp, NJ

At the close of business on March 5, 1999, the Company completed its acquisition
of Ironbound Bankcorp, NJ ("Ironbound"),  the holding company of Ironbound Bank,
a New  Jersey  chartered  commercial  bank with three  full  service  commercial
banking  offices  located  in the New  Jersey  counties  of Union and Essex in a
transaction  which was accounted for as a purchase.  The cost of the acquisition
was approximately  $27.7 million.  The Company issued 1.463 shares of its common
stock  for each  outstanding  share of  Ironbound  common  stock  for a total of
1,458,842 common shares. The goodwill  attributable to the transaction was $14.9
million which is being amortized on a straight line basis over 15 years.

<PAGE>37

4. Securities Available for Sale and Securities Held to Maturity

The  amortized   cost  of  investment   securities   and   mortgage-backed   and
mortgage-related  securities and their related estimated fair values at June 30,
2000 and 1999, are summarized as follows:
<TABLE>
<CAPTION>

                                                                             June 30, 2000
                                                            -------------------------------------------------
     AVAILABLE FOR SALE                                                     Gross       Gross
                                                            Amortized    Unrealized   Unrealized   Estimated
                                                              Cost          Gains       Losses     Fair Value
                                                            -------------------------------------------------
                                                                             (In thousands)
<S>                                                         <C>          <C>          <C>          <C>
Investment securities:
  U.S. Government and agencies..........................    $  34,406    $      --    $   4,791    $  29,615
  Corporate and other debt obligations..................      211,900          138       24,351      187,687
                                                            ------------------------------------------------
                                                            $ 246,306    $     138    $  29,142    $ 217,302
                                                            ================================================
Marketable equity securities:
  Preferred.............................................    $  29,629    $      --    $   1,516    $  28,113
  Common................................................       13,908           36        1,874       12,070
                                                            ------------------------------------------------
                                                            $  43,537    $      36    $   3,390    $  40,183
                                                            ================================================
Mortgage-backed and mortgage-related securities:
  Federal Home Loan Mortgage Corporation
    Pass-Through Certificates...........................    $ 124,736    $      38    $   5,933    $ 118,841
  Government National Mortgage Association
    Pass-Through Certificates...........................      140,365           14        4,990      135,389
  Private Issuer Pass-Through Certificates..............       83,095           --        4,228       78,867
  Federal National Mortgage Association
    Pass-Through Certificates...........................       70,121           --        2,627       67,494
  Federal National Mortgage Association
    Real Estate Mortgage
     Investment Conduits................................       63,977           --        4,148       59,829
  Private Issuer Real Estate Mortgage...................
     Investment Conduits................................      260,081           --       13,055      247,026
                                                            ------------------------------------------------
                                                            $ 742,375    $      52    $  34,981    $ 707,446
                                                            ================================================

</TABLE>

<TABLE>
<CAPTION>

                                                                             June 30, 2000
                                                            -------------------------------------------------
     HELD TO MATURITY                                                      Gross        Gross
                                                            Amortized   Unrealized    Unrealized   Estimated
                                                              Cost         Gains        Losses     Fair Value
                                                            -------------------------------------------------
                                                                             (In thousands)
  <S>                                                       <C>          <C>          <C>          <C>
Mortgage-backed and mortgage-related securities:
  Federal National Mortgage Association
    Pass-Through Certificates...........................    $  57,161     $     --    $   3,093    $  54,068
                                                            ------------------------------------------------
                                                            $  57,161     $     --    $   3,093    $  54,068
                                                            ================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                             June 30, 1999
                                                            -------------------------------------------------
     AVAILABLE FOR SALE                                                    Gross       Gross
                                                            Amortized   Unrealized   Unrealized   Estimated
                                                             Cost          Gains       Losses      Fair Value
                                                            -------------------------------------------------
                                                                            (In thousands)
<S>                                                         <C>          <C>          <C>          <C>
Investment securities:
  U.S. Government and agencies..........................    $  41,864    $       2    $   2,254    $  39,612
  Corporate and other debt obligations..................      217,765          494        6,715      211,544
                                                            ------------------------------------------------
                                                            $ 259,629    $     496    $   8,969    $ 251,156
                                                            ================================================
Marketable equity securities:
  Preferred.............................................    $  29,687    $     433    $      23    $  30,097
  Common................................................       16,218        1,236        1,096       16,358
                                                            ------------------------------------------------
                                                            $  45,905    $   1,669    $   1,119    $  46,455
                                                            ================================================
Mortgage-backed and mortgage-related securities:
  Federal Home Loan Mortgage Corporation
    Pass-Through Certificates...........................    $ 166,129    $      83    $   4,740    $ 161,472
  Government National Mortgage Association
    Pass-Through Certificates...........................      162,446           80        3,279      159,247
  Private Issuer Pass-Through Certificates..............       92,664           --        2,930       89,734
  Federal National Mortgage Association
    Pass-Through Certificates...........................       98,465            5        1,415       97,055
  Federal National Mortgage Association
    Real Estate Mortgage
     Investment Conduits................................       55,849           --          927       54,922
  Private Issuer Real Estate Mortgage...................
     Investment Conduits................................      311,274            3        6,863      304,414
                                                            ------------------------------------------------
                                                            $ 886,827    $     171    $  20,154    $ 866,844
                                                            ================================================
</TABLE>

At June 30, 1999, the Company had no securities Held to Maturity

<PAGE>38

 The  amortized   cost  and  estimated  fair  values  of   mortgage-backed   and
 mortgage-related  securities  held to maturity by contractual  maturity at June
 30, 2000 are as follows:
<TABLE>
<CAPTION>

                                                                               June 30, 2000
-------------------------------------------------------------------------------------------------------------
                                                                                         Mortgage-backed
                                                                                      and mortgage-related
                                                             Investment Securities         Securities
                                                            -------------------------------------------------
                                                            Amortized    Estimated    Amortized    Estimated
                                                              Cost       Fair Value     Cost       Fair Value
                                                            -------------------------------------------------
                                                                                (In thousands)
<S>                                                         <C>          <C>          <C>          <C>
Year ended June 30:
     2001...............................................    $      --    $      --    $   3,074    $   3,031
     2002-2005..........................................       11,777       11,433       10,976       10,771
     2006-2010..........................................       13,984       13,088        1,902        1,857
     2011 and thereafter................................      220,545      192,781      726,424      691,787
                                                            ------------------------------------------------
                                                            $ 246,306    $ 217,302    $ 742,376    $ 707,446
                                                            ================================================
</TABLE>

  The amortized   cost  and  estimated   fair  values  of   mortgage-backed  and
mortgage-related securities held to maturity by contractual maturity at June 30,
2000 are as follows:
<TABLE>
<CAPTION>

                                                                                          June 30, 2000
------------------------------------------------------------------------------------------------------------
                                                                                          Mortgage-backed
                                                                                        and mortgage-related
                                                                                             Securities
                                                                                      ----------------------
                                                                                          (In thousands)
<S>                                                                                   <C>          <C>
Year ended June 30:
     2001.........................................................................    $      --    $      --
     2002-2005....................................................................           --           --
     2006-2010....................................................................           --           --
     2011 and thereafter..........................................................       57,161       54,068
                                                                                      ----------------------
                                                                                      $  57,161    $  54,068
                                                                                      ======================

</TABLE>

 Sales and redemptions of investment and  mortgage-backed  and  mortgage-related
 securities  from the available for sale  portfolio  during the years ended June
 30, are summarized as follows:
<TABLE>
<CAPTION>

                                                                    Years ended June 30,
-----------------------------------------------------------------------------------------------
                                                              2000         1999         1998
                                                            -----------------------------------
                                                                       (In thousands)
<S>                                                         <C>          <C>          <C>
Proceeds from sales and redemptions.....................    $ 162,308    $ 171,072    $ 178,010
Gross gains.............................................        1,883        3,424          317
Gross losses............................................        7,892          352          287

</TABLE>

<PAGE>39

 5. Loans Receivable

 Loans receivable consist of the following:
<TABLE>
<CAPTION>
                                                                   June 30,
------------------------------------------------------------------------------------
                                                               2000         1999
                                                            ------------------------
                                                                 (In thousands)
<S>                                                         <C>          <C>
One- to four-family mortgage loans......................    $  810,853   $  834,528
Multifamily mortgage loans..............................       549,151      290,066
Commercial real estate mortgage loans...................       108,532      107,280
Construction and development loans,
 principally residential................................        65,603       51,044
Home equity loans.......................................        31,497       18,575
                                                            ------------------------
                                                             1,565,636    1,301,493
Less unearned discounts/plus premiums, net..............         1,444         (375)
                                                            ------------------------
Total real estate mortgage loans........................     1,567,080    1,301,118
Consumer and student loans..............................         5,458       11,817
Commercial loans........................................        16,020       14,557
                                                            ------------------------
                                                                21,478       26,374
Less net deferred origination and commitment fees.......           (52)         (80)
                                                            ------------------------
Total other loans.......................................        21,426       26,294
Less allowance for loan losses..........................       (14,698)     (13,885)
                                                            ------------------------
Total loans receivable, net.............................    $1,573,808   $1,313,527
                                                            ========================
</TABLE>

Included in real estate  mortgage  loans are $69.1  million and $86.0 million of
mortgages serviced by third parties as of June 30, 2000 and 1999, respectively.

The Bank sells real  estate  mortgage  loans to the Federal  Home Loan  Mortgage
Corporation  ("FHLMC"),  the Federal National Mortgage  Association ("FNMA") and
the State of New York  Mortgage  Association  ("SONYMA").  These  loans are then
serviced by the Bank under  agreements  which specify a servicing fee based on a
percentage of the  outstanding  principal  balances.  At June 30, 2000, 1999 and
1998,  the total loans  serviced for the above totaled  $210.6  million,  $115.8
million,  and  $45.3  million,   respectively,  and  are  not  included  in  the
consolidated financial statements.

Loans on non-accrual status totaled $4.7 million,  $5.9 million and $5.5 million
at June 30, 2000, 1999, and 1998,  respectively.  If interest on the non-accrual
loans had been accrued,  such income would have been $0.4 million,  $0.5 million
and $0.5 million, respectively.

A summary of the  changes in the  allowance  for loan losses for the years ended
June 30, 2000, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
                                                                    Years ended June 30,
 ----------------------------------------------------------------------------------------------
                                                               2000        1999         1998
                                                            -----------------------------------
                                                                       (In thousands)
<S>                                                         <C>          <C>          <C>
Balance at beginning of year............................    $  13,885    $  7,276     $  5,470
  Allowance of acquired institutions....................           --       4,357           --
  Provision charged to operations.......................        1,200       2,550        2,200
  Charge offs, net of recoveries........................         (387)       (298)        (394)
                                                            -----------------------------------
Balance at end of year..................................    $  14,698    $ 13,885     $  7,276
                                                            ===================================
</TABLE>

<PAGE>40
6. Banking Premises and Equipment

Banking  premises  and  equipment  at June  30,  2000 and  1999  consist  of the
following:
<TABLE>
<CAPTION>

                                                                   June 30,
----------------------------------------------------------------------------------
                                                              2000         1999
                                                            ----------------------
                                                                (In thousands)
<S>                                                         <C>          <C>
Land....................................................    $  6,023     $  5,561
Banking houses and improvements.........................      12,246       13,199
Leasehold improvements..................................       6,994        7,139
Furniture, fixtures and equipment.......................       7,352        8,129
                                                            ----------------------
                                                              32,615       34,028
Less accumulated depreciation and amortization..........      (6,500)      (6,675)
                                                            ----------------------
                                                            $  26,115    $ 27,353
                                                            ======================

</TABLE>

7. Deposits

At June 30, 2000 and 1999, deposits consist of the following:
<TABLE>
<CAPTION>

                                                                 June 30, 2000             June 30, 1999
------------------------------------------------------------------------------------------------------------
                                                                          Average                   Average
                                                              Amount        Rate        Amount        Rate
                                                            ------------------------------------------------
                                                                         (Dollars in thousands)
<S>                                                         <C>          <C>          <C>          <C>
Certificates of deposit.................................    $  693,276      5.48%     $  598,470      5.01%
Savings.................................................       759,023      2.86         716,634      2.38
Money market demand accounts............................        41,528      3.17          49,911      3.13
Non-interest bearing demand deposits....................       207,894        --         169,007        --
N.O.W. accounts.........................................        73,356      1.47          75,920      1.48
                                                            ------------------------------------------------
                                                            $1,775,077                $1,609,942
                                                            ==========                ==========

</TABLE>

Contractual  maturities of certificates of deposit accounts at June 30, 2000 and
1999 are as follows:
<TABLE>
<CAPTION>
                                                                       June 30, 2000
-----------------------------------------------------------------------------------------------
                                                          Certificates
                                                           of $100,000   All Other      Total
                                                             or More    Certificates  Certificates
                                                            -----------------------------------
                                                                       (In thousands)
<S>                                                         <C>          <C>          <C>
Year ending June 30:
  2001..................................................    $  72,556    $ 477,913    $ 550,469
  2002..................................................       15,207       93,023      108,230
  2003..................................................        1,375       13,224       14,599
  2004..................................................        2,527        7,446        9,973
  2005 and thereafter...................................           --       10,005       10,005
                                                            -----------------------------------
                                                            $  91,665    $ 601,611    $ 693,276
                                                            ===================================
</TABLE>

<TABLE>
<CAPTION>

                                                                       June 30, 1999
-----------------------------------------------------------------------------------------------
                                                                       (In thousands)
<S>                                                         <C>          <C>          <C>
Year ending June 30:
  2000..................................................    $  60,360    $ 392,655    $ 453,015
  2001..................................................       10,173       84,236       94,409
  2002..................................................        3,362       17,640       21,002
  2003..................................................        5,502       18,497       23,999
  2004 and thereafter...................................          905        5,140        6,045
                                                            -----------------------------------
                                                            $  80,302    $ 518,168    $ 598,470
                                                            ===================================
</TABLE>

<PAGE>41

8. Borrowings

Borrowings  totaled $773.7 million and $757.8 million at June 30, 2000 and 1999,
respectively, and consist of the following:

Federal Home Loan Bank of New York Advances

<TABLE>
<CAPTION>

                                                                     2000                      1999
----------------------------------------------------------------------------------------------------------------
                                                                     Weighted Average          Weighted Average
                                                              Amount     Interest       Amount     Interest
                                                            ---------------------------------------------------
                                                                         (Dollars in thousands)
<S>                                                         <C>          <C>          <C>          <C>
Contractual Maturity

  2000*.................................................    $   8,500      7.23%      $      --        --%
  2001..................................................           --        --          25,000      5.57
  2003..................................................           --        --          35,000      5.03
  2004..................................................       22,000      5.32          22,000      5.32
  2005..................................................       20,000      5.50          30,000      5.45
  2006..................................................       65,000      4.77          65,000      4.77
  2008..................................................      455,000      5.23         475,000      5.22
  2009..................................................      126,600      5.33          11,832      4.45
  2010..................................................       61,590      5.77              --        --
                                                            ------------------------------------------------
                                                            $ 758,690      5.28%      $ 663,832      5.18%
                                                            =========                 =========
</TABLE>

* FHLBNY  overnight line of credit  advance.  Rate is based on the Federal Funds
rate at time of takedown plus 10.0 basis  points.  Principal and interest is due
on the next succeeding business day. The Company has an available overnight line
of credit with the FHLBNY for a maximum of $75.0 million at June 30, 2000.

The advances  received were all fixed rate under the FHLB of New York ("FHLBNY")
convertible  advance  program,  which  grants  the FHLBNY the option to call the
advance  after an initial  lock-out  period of 1, 2, 3 or 5 years and  quarterly
thereafter,  until maturity.  The  convertible  advances are  collateralized  by
mortgage-backed securities with a carrying value of approximately $690.7 million
and $677.5  million,  pledges of FHLBNY stock of $38.9 million and $38.4 million
at June  30,  2000 and  1999,  respectively,  and a  blanket  assignment  of the
Company's unpledged, qualifying mortgage loans.

Repurchase Agreements

The contractual  maturities of the outstanding repurchase agreements at June 30,
2000 and 1999, respectively, were as follows:
<TABLE>
<CAPTION>
                                                                     2000                      1999
--------------------------------------------------------------------------------------------------------------
                                                                    Weighted Average          Weighted Average
                                                             Amount   InterestRate      Amount  Interest Rate
                                                            --------------------------------------------------
                                                                             (Dollars in thousands)
<S>                                                         <C>          <C>          <C>          <C>
Contractual Maturity
August    1999..........................................    $     --        --%        $ 42,300       4.99%
September 1999..........................................          --        --           36,700       5.12
December  2002*.........................................      15,000      5.90           15,000       5.90
                                                            --------------------------------------------------
                                                            $ 15,000      5.90%        $ 94,000       5.19%
                                                            ==================================================

</TABLE>
* Callable commencing December 2000 and quarterly thereafter, until maturity.

The above are collateralized by mortgage-backed securities with a carrying value
of  approximately  $16.8  million  and $97.8  million at June 30, 2000 and 1999,
respectively.

<PAGE>42

9. Income Taxes

Significant  components of the Bank's  deferred tax assets and liabilities as of
June 30, 2000 and 1999, are as follows:
<TABLE>
<CAPTION>

                                                                   June 30,
----------------------------------------------------------------------------------
                                                              2000         1999
                                                            ----------------------
                                                               (In thousands)
<S>                                                         <C>          <C>
Deferred tax assets:
  Allowance for loan losses.............................    $  5,920     $  5,245
  Deferred loan fees....................................         570          339
  Book over tax amortization............................         350          289
  Non-accrual interest income...........................         332          295
  Postretirement benefits...............................       1,730        1,519
  Securities available for sale.........................      27,051       12,754
  Richmond County Savings Foundation....................       8,096        4,810
  1998 Stock Based Incentive Plans......................         751          776
                                                            ----------------------
    Gross deferred tax assets...........................      44,800       26,027

Deferred tax liabilities:
  Tax bad debt reserves.................................         502          646
  Tax over book depreciation............................         462          393
  Prepaid pension expense...............................       1,047        1,010
  Conversion and acquisition costs......................         501           --
                                                            ----------------------
    Gross deferred tax liabilities......................       2,512        2,049
                                                            ----------------------
    Net deferred tax assets.............................    $ 42,288     $ 23,978
                                                            ======================
</TABLE>

In view of the Bank's current and projected  future earnings  trend,  management
believes  that it is more  likely  than not that it will be able to utilize  the
entire net deferred tax assets. Accordingly, no valuation allowance was recorded
for the years ended June 30, 2000 and 1999.

Significant  components of the provision (benefit) for income taxes attributable
to continuing  operations for the years ended June 30, 2000,  1999 and 1998, are
as follows:
<TABLE>
<CAPTION>

                                                                      Year ended June 30,

-----------------------------------------------------------------------------------------------
                                                              2000         1999         1998
                                                            -----------------------------------
                                                                       (In thousands)
<S>                                                         <C>          <C>          <C>
Current:
  Federal...............................................    $ 14,070     $ 13,329     $  7,583
  State and local.......................................       1,686        2,570        2,773
                                                            -----------------------------------
                                                              15,756       15,899       10,356
Deferred:
  Federal...............................................      (1,761)         220       (5,997)
  State and local.......................................        (323)          59       (2,288)
                                                            -----------------------------------
                                                              (2,084)         279       (8,285)
                                                            -----------  ----------   ---------
                                                            $ 13,672     $ 16,178     $  2,071
                                                            ===================================
</TABLE>

The table below presents a reconciliation between the reported tax provision and
the tax  provision  computed by applying the statutory  federal  income tax rate
(35%  for the  years  ended  June 30,  2000,  1999 and  1998) to  income  before
provision for income taxes:
<TABLE>
<CAPTION>

                                                                      Year ended June 30,
-----------------------------------------------------------------------------------------------
                                                              2000         1999         1998
                                                            -----------------------------------
                                                                      (In thousands)
<S>                                                         <C>          <C>          <C>
Federal income tax provision at statutory rates.........    $ 17,479     $ 14,988     $  2,309
Increase in tax resulting from:
  State and local income taxes, net
    of federal income tax effect........................         886        1,709          315
  Valuation adjustment reflecting the fair value
    of stock contributed to the
      Foundation at inception...........................      (4,400)          --           --
  Other.................................................        (293)        (519)        (553)
                                                            -----------------------------------
                                                            $ 13,672     $ 16,178     $  2,071
                                                            ===================================
</TABLE>

<PAGE>43

For federal income tax purposes,  prior to 1996, if certain  definitional  tests
and other conditions were met, the Bank was allowed a special bad debt deduction
in determining its taxable income.  The deduction was based on either  specified
experience  formulas or a percentage of taxable income.  Federal tax legislation
enacted during 1996,  repealed the special bad debt deduction  provisions.  As a
result,  a large thrift  institution,  such as the Bank,  is required to use the
specific  charge-off  method in computing its federal bad debt deduction for tax
years  beginning  after  December  31,  1995.  However,  New York State  enacted
legislation which, among other things,  would permit a large thrift institution,
such as the Bank,  to continue to use the bad debt  reserve  method for both New
York State and New York City tax purposes.

The 1996 federal tax legislation also provided that a large thrift  institution,
such as the  Bank,  is  required  to  recapture  the  excess of its tax bad debt
reserves at December 31, 1995,  over the balance of such reserves as of December
31,  1987,  (the  "base  year"),  whether  the  additions  were  made  under the
percentage of the taxable  income method or the experience  method.  The Bank is
required to recapture its excess bad debt  reserves,  for which  deferred  taxes
have been recognized,  over a six-year period on a straight-line basis beginning
in calendar year 1998. The base year reserve will remain subject to recapture in
the case of certain excess  distributions  to and redemptions of shareholders or
if the Bank ceases to be a bank.  The New York State  legislation  provides that
the  recapture  of excess bad debt  reserves is not required for either New York
State or New York City tax purposes.

At June 30, 2000, the base year bad debt reserve for federal income tax purposes
was approximately $9.6 million,  for which deferred taxes are not required to be
recognized.  Bad debt reserves  maintained  for New York State and New York City
tax purposes as of June 30, 2000,  for which  deferred taxes are not required to
be recognized, amounted to approximately $54 million. Accordingly,  deferred tax
liabilities of  approximately  $10.0 million have not been recognized as of June
30, 2000.

10. Employee Benefit Plans

Defined Benefit Plan

The following table sets forth the change in benefit obligations,  the change in
plan  assets,  the funded  status of the plan,  and  amounts  recognized  in the
accompanying consolidated financial statements at June 30,
<TABLE>
<CAPTION>

                                                              2000         1999
                                                            ----------------------
                                                               (In thousands)
<S>                                                         <C>          <C>
Change in Benefit Obligation:
  Benefit Obligation at Beginning of Year...............    $  10,991    $ 10,232
  Service Cost..........................................           --         525
  Interest Cost.........................................          567         677
  Curtailment...........................................           --      (3,182)
  Benefits Paid.........................................         (529)       (417)
  Actuarial Loss........................................          479       3,156
  Acquisition...........................................          725          --
                                                            ----------------------
  Benefit Obligation at End of Year.....................    $  12,233    $  10,991
                                                            ======================
Change in Plan Assets:
  Fair Value of Plan Assets at Beginning of Year........    $  13,334    $  12,955
  Actual Return on Plan Assets..........................        2,790          796
  Benefits Paid.........................................         (529)        (417)
  Acquisition...........................................          675           --
                                                            ----------------------
  Fair Value of Plan Assets at End of Year..............    $  16,270    $  13,334
                                                            ======================
Reconciliation of Funded Status:
  Funded Status.........................................    $   4,037    $   2,342
  Unrecognized Actuarial Loss (Gain)....................       (1,256)           4
  Unrecognized Transition Asset.........................           -            (4)
                                                            ----------------------
  Prepaid Benefit Cost..................................    $   2,781    $   2,342
                                                            ======================
</TABLE>

<PAGE>44

Defined Benefit Plan
<TABLE>
<CAPTION>

                                                              2000         1999         1998
-----------------------------------------------------------------------------------------------

<S>                                                         <C>          <C>          <C>
Weighted-Average Assumptions as of June 30,
  Discount Rate.........................................       5.50%        5.25%        6.75%
  Expected Return on Plan Assets........................       8.00%        8.00%        8.00%
  Rate of Compensation Increase.........................         --         5.00%        4.50%
Components of Net Periodic Benefit Cost:
  Service Cost..........................................    $    --      $   525       $  477
  Interest Cost.........................................        567          677          671
  Expected Return on Plan Assets........................     (1,051)      (1,021)        (854)
  Amortization of Prior Service Cost....................         --           (2)          (2)
  Amortization of Transition Asset......................         (4)         (36)         (36)
  Unrecognized Actuarial (Gain).........................         --         (102)         (55)
  Additional (Gain) Recognized Due to Curtailment.......         --       (2,021)          --
  Acquisition                                                    50           --           --
                                                            -----------------------------------
  Net Periodic Benefit (Credit) Cost....................       (438)      (1,980)         201
                                                            ===================================
</TABLE>

Based on an  evaluation of the pension plan in fiscal 1999,  the Bank  concluded
that future benefit  accruals  under the plan would cease,  or "freeze" on March
31, 1999. In connection with the freezing of the plan and the plan's measurement
date of April 1, 1999, the Bank recognized a curtailment  gain of  approximately
$2.0 million as of June 30, 1999.

Defined Contribution Plan

The Bank also provides a 401(k) Savings Plan open to salaried  employees meeting
certain eligibility  requirements.  Participants  contribute 2% to 9% of pre-tax
compensation. The Bank makes matching contributions in an amount equal to 50% of
an employee's contributions,  up to 6%. Cash contributions to the 401(k) Plan by
the Bank was $300,496,  $215,996 and $157,975 for the years ended June 30, 2000,
1999 and 1998, respectively.

Employee Stock Ownership Plan

In connection with the Conversion, the Bank implemented an ESOP, a tax-qualified
plan  designed to invest  primarily  in the  Company's  common  stock.  The ESOP
provides  eligible  employees  with the  opportunity  to  receive a  Bank-funded
retirement  benefit  based  primarily  on the  value of the  common  stock.  All
eligible employees of the Bank and its affiliates,  including the Company, as of
the effective date of the Conversion, may participate in the ESOP. Subsequent to
the Conversion, all eligible employees of the Bank and its affiliates, including
the Company,  may  participate in the ESOP upon the age of 21 and the completion
of one year of  service.  Subsequent  to the  Conversion,  the  ESOP  purchased,
through a $34.6 million loan from the Company, 8%, or 2,113,884 shares of common
stock in the open  market.  The  term of the ESOP  loan is 20 years  and will be
primarily  repaid with  contributions  from the Bank to the ESOP. As of June 30,
2000, the loan from the Company had an outstanding  balance of $32.3 million and
an interest rate of 8.50%.

Under the terms of the ESOP, the Bank makes contributions to the ESOP sufficient
to cover all  payments of  principal  and  interest  as they become due.  Shares
purchased  with the loan proceeds are held in a suspense  account by the trustee
of the Plan for  future  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 as described in the
Plan. The number of shares  released to  participants  will be determined  based
upon the percentage of principal and interest  payments made during the calendar
year divided by the total remaining  principal and interest  payments  including
the current year's payment.  Participants  will vest in the shares  allocated to
their  respective  accounts over a period not to exceed six years. Any forfeited
shares are allocated to the then remaining  participants in the same proportions
as contributions. There were 105,694 shares allocated in calendar 1999 and 1998,
respectively.  For the six month period ended June 30, 2000,  52,847 shares were
committed to be released and 1,849,649  shares remain  unallocated.  The Company
recognizes  compensation  expense  attributable to its ESOP over the year, based
upon the estimated number of ESOP shares to be allocated each December 31st. The
amount of compensation expense recorded is equal to the estimate of shares to be
allocated by the ESOP  multiplied  by the average  fair value of the  underlying
shares  during the  period.  For the fiscal year ended June 30,  2000,  1999 and
1998,  compensation  expense  attributable  to the ESOP was $1.9  million,  $1.8
million and 975,000 respectively.

<PAGE>45

The trustee for the ESOP must vote all  allocated  shares held in the ESOP trust
in accordance with the instructions of the participants. Unallocated shares held
by the ESOP  trust  are  voted by the  trustee  in a manner  calculated  to most
accurately  reflect the results of the allocated  ESOP shares voted,  subject to
the  requirements  of the Employee  Retirement  Income  Security Act of 1974, as
amended (ERISA).

Stock-Based Incentive Plans

At the annual  shareholders'  meeting on  September  29,  1998 the  shareholders
approved the Richmond County Financial Corp. 1998 Stock-Based Incentive Plan and
at the special  meeting of  shareholders  on February 25, 1999 the  shareholders
approved the ratification of certain amendments to the Richmond County Financial
Corp. 1998 Stock-Based  Incentive Plan  (collectively,  "Incentive  Plan").  The
Incentive  Plan  authorizes  the granting of options to purchase  the  Company's
common stock,  option-related  awards and awards of the  Company's  common stock
(collectively,  "Awards"). Subject to certain adjustments to prevent dilution of
Awards  to  participants,  the  maximum  number of shares  reserved  for  Awards
denominated  in common stock under the Incentive Plan is 3,699,297  shares.  The
maximum  number of shares  reserved  for  purchase  pursuant to the  exercise of
options and option-related  Awards which may be granted under the Incentive Plan
is 2,642,355  shares,  and will primarily vest over a five year period and which
must be  exercised  no more than ten years from the date of grant.  The  maximum
number of the shares  reserved for the award of shares of the  Company's  common
stock is 1,056,942 shares,  and will primarily vest over a five year period. All
officers,  other  employees  and  outside  directors  of  the  Company  and  its
affiliates,  including  the Bank and its  subsidiaries,  are eligible to receive
Awards  under the  Incentive  Plan.  The  Incentive  Plan is  administered  by a
committee of non-employee directors of the Company (the "Committee"). Authorized
but unissued shares,  or shares previously issued and reacquired by the Company,
may be used to satisfy  the Awards  under the  Incentive  Plan.  Each option may
become  fully  exercisable  and each  award may  become  fully  vested  upon the
occurrence of a change in control of the Company,  or upon death,  disability or
retirement of the optionee.

The Company contributed $16.1 million, during the second quarter of fiscal 1999,
to the Incentive Plan to enable the Incentive Plan to purchase  1,056,942 shares
of the  Company's  common  stock to be  awarded.  This  contribution  represents
deferred   compensation   which  is   initially   recorded  as  a  reduction  to
stockholders'  equity and  ratably  charged  to  compensation  expense  over the
vesting period of the awards. The Committee  established October 20, 1998 as the
Incentive  Plan's  effective  grant date and 1,054,274  shares were awarded at a
price of $14.25 per share to outside  directors,  officers and  employees of the
Bank.  For the  year  ended  June  30,  2000  and  1999,  compensation  expenses
attributable  to stock awards under the Incentive  Plan was  approximately  $3.4
million and $2.0 million, respectively. The Incentive Plan was not in effect for
fiscal 1998.

Options  granted  under  this plan are  either  non-statutory  stock  options or
incentive  stock options.  Each option entitles the holder to purchase one share
of the  Company's  common  stock at an  exercise  price equal to the fair market
value on the date of grant.  There was no compensation  expense  attributable to
these options as the Company used the intrinsic value based method of accounting
as the  exercise  price  equaled the common  stock price at the grant date.  All
options expire no later that ten years following the date of grant.

Bayonne  maintained  the 1995 and 1998  Stock-Based  Compensation  Plans,  which
consisted  of options  to  purchase  Bayonne  common  stock and stock  awards of
Bayonne's common stock  ("Restricted  Stock"),  for its officers,  directors and
other key employees.  Generally, these plans granted options to individuals at a
price  equivalent  to the fair  market  value of the stock at the date of grant.
Options  awarded under the plans generally  vested over a five-year  period from
the date of grant and  expired  ten years  from the grant  date.  The  awards of
Restricted  Stock  purchased  by Bayonne  are held in trusts by the plan for the
benefit of participants pending the vesting of such shares. Awards of Restricted
Stock  granted  under the plans  generally  vest over a five-year  period.  As a
result of the merger,  participants under the 1995 Stock-Based Compensation Plan
became fully vested at the merger date. Under the 1998 Stock-based  Compensation
Plan,  participants  continue to vest in stock options and stock awards over the
vesting  periods in accordance  with the terms of the plan. As of June 30, 2000,
$2.5 million of Restricted Stock awarded under the plan is reflected as deferred
compensation in stockholders' equity.  Compensation expense recognized under the
plan was  $250,000  and  $63,000  for the years  ended  June 30,  2000 and 1999,
respectively.

Option transactions for the year ended June 30, 2000 and 1999 are shown below:
<TABLE>
<CAPTION>

                                                                     2000                      1999
------------------------------------------------------------------------------------------------------------
                                                                          Weighted                 Weighted
                                                                           Average                  Average
                                                              Number      Exercise      Number     Exercise
                                                            of Shares      Price      of Shares     Price
                                                            ------------------------------------------------
<S>                                                         <C>          <C>          <C>          <C>
Options  outstanding,  beginning of year................    2,953,488    $  14.13           --     $     --
Granted.................................................      114,936       17.34     3,016,305       13.94
Exercised...............................................      (28,400)      14.25       (55,817)       4.22
Forfeited...............................................       (3,600)      14.25        (7,000)      14.25
                                                            ---------                 ---------
Options outstanding, end of year........................    3,036,424       14.25     2,953,488       14.13
                                                            =========                 =========
Options exercisable, end of year........................      750,525                  183,563

Weighted average fair value of options granted..........                 $   2.98                      $3.51
</TABLE>

<PAGE>46

In  accordance  with SFAS No. 123,  the Company  used the  Black-Scholes  option
pricing  model with the  following  weighted  average  assumptions  to value the
options granted as of June 30, 2000 and 1999 as follows:
<TABLE>
<CAPTION>

                                                               2000        1999
----------------------------------------------------------------------------------
<S>                                                         <C>          <C>
Dividend yield..........................................      5.19%        3.09%
Expected volatility.....................................     27.80%       27.50%
Risk-free interest rate.................................      6.50%        4.75%
Expected option lives...................................     6 years      6 years
</TABLE>

On a pro forma basis,  had  compensation  expense for the Company's  stock-based
compensation  plan been determined based on the fair value at the grant date for
awards made under the plan,  consistent  with SFAS No. 123,  the  Company's  net
income and  earnings per share for the years ended June 30, 2000 and 1999 are as
follows:
<TABLE>
<CAPTION>
                                                               2000        1999
----------------------------------------------------------------------------------
                                                            (In thousands, except
                                                              per share amounts)
<S>                                                         <C>          <C>

Net income:
  As reported...........................................    $  36,269    $  26,644
  Pro forma.............................................       34,838       25,487
Basic earnings per share:
  As reported...........................................    $    1.36    $    1.07
  Pro forma.............................................         1.31         1.03
Diluted earnings per share:
  As reported...........................................    $    1.35    $    1.07
  Pro forma.............................................         1.30         1.03
</TABLE>

The  effects of applying  SFAS No. 123,  for either  recognizing  or  disclosing
compensation  cost under such  pronouncement,  may not be  representative of the
effect on reported net income for future periods.

Postretirement Benefit Plan

The Bank  provides  postretirement  medical  and  life  insurance  benefits  for
eligible retired employees. The Bank uses actuarial-basis accrual accounting for
all employer provided postretirement benefits other than pensions.

Based on an  evaluation  of the  Postretirement  Plan in fiscal  1999,  the Bank
amended the Plan to reflect the termination of  postretirement  medical and life
insurance  benefits for active employees with less than five years of service as
of April 1, 1999.

The following table sets forth the change in postretirement  benefit  obligation
and  amounts  recognized  in the Bank's  consolidated  statements  of  financial
condition at June 30, 2000 and 1999:
<TABLE>
<CAPTION>

                                                                           2000         1999
-----------------------------------------------------------------------------------------------
                                                                             (In thousands)
<S>                                                                      <C>          <C>
Change in Accumulated Postretirement Benefit Obligation ("APBO")
  Accumulated postretirement benefit obligation at beginning of year...  $  4,423     $  3,293
  Service cost.........................................................       114          194
  Interest cost........................................................       296          280
  Acquisitions.........................................................        --          213
  Premiums paid, net...................................................      (154)        (127)
  Amendments...........................................................        --         (188)
  Curtailment gain.....................................................        --          (86)
  Actuarial (gain)/loss................................................      (441)         844
                                                                         ----------------------
  Accumulated postretirement benefit obligation at end of year.........  $  4,238     $  4,423
                                                                         ======================
Reconciliation of Funded Status:
  Accumulated postretirement benefit obligation
  Funded status........................................................  $ (4,238)    $ (4,423)
  Unrecognized prior service cost......................................      (186)        (217)
  Unrecognized net loss................................................       113          555
                                                                         ----------------------
  (Accrued) postretirement benefit cost...............................   $ (4,311)    $ (4,085)
                                                                         ======================
</TABLE>

<PAGE>47

The Bank's  postretirement  benefits  expense for the years ended June 30, 2000,
1999 and 1998, consisted of the following:
<TABLE>
<CAPTION>

                                                              2000         1999         1998
 ----------------------------------------------------------------------------------------------
                                                                    (In thousands)
<S>                                                         <C>          <C>          <C>
Interest cost...........................................    $   296      $   280      $   240
Service cost............................................        114          194          158
Amortization............................................        (30)         (12)          (9)
                                                            -----------------------------------
                                                            $   380      $   462      $   389
                                                            ===================================
</TABLE>

The  weighted-average  annual assumed rate of increase in the per capita cost of
covered  benefits  (i.e.,  health care cost trend rate) is 10.5% for the initial
year and is assumed to decrease 1% annually to 6% in 2003.  The health care cost
trend rate  assumption  has a significant  effect on the amounts  reported.  For
example,  increasing  the assumed health care cost trend rates by one percentage
point in each year would increase the APBO at June 30, 2000 by $561,000 (13.2%).
The increase in the aggregate of the service and interest cost components of the
net  periodic  postretirement  benefit  cost for 2000 would be $58,000  (14.5%).
Likewise,  decreasing the assumed health care cost trend rates by one percentage
point in each year would decrease the APBO at June 30, 2000 by $456,000 (10.8%).
The decrease in the aggregate of the service and interest cost components of the
net periodic  postretirement benefit cost for 2000 would be $46,000 (13.2%). The
weighted-average  discount  rate used in computing the APBO was 7.5% at June 30,
2000 and 7.0% at June 30, 1999.

11. Commitments and Contingencies

Lease Commitments

The Bank conducts a portion of its banking operations in leased facilities under
non-cancelable  operating  leases  expiring at various  periods through 2005 and
thereafter.  These  leases  contain  renewal  options  and certain of the leases
provide for increases based upon various  escalation  clauses.  Rent expense was
$1,203,500, $570,700 and $460,300 for the fiscal years ended June 30, 2000, 1999
and 1998, respectively.

The future minimum lease payments under such operating leases are as follows:
<TABLE>
<CAPTION>

                                                             Amount

-------------------------------------------------------------------------
                                                          (In thousands)
<S>                                                         <C>
Years ended June 30:
  2001..................................................    $ 1,025
  2002..................................................        943
  2003..................................................        914
  2004..................................................        893
  2005 and thereafter...................................       6,023
                                                            ---------
                                                            $ 9,798
                                                            =========
</TABLE>

Litigation

The Bank is a  defendant  in legal  actions  arising in the  ordinary  course of
business.  Management  believes that these actions are without merit or that the
ultimate  liability,  if any,  resulting  from such actions will not  materially
affect the Bank's consolidated financial position.

Loan Commitments

There were  outstanding  commitments to make loans at June 30, 2000 and 1999, of
$164.5 million and $134.4 million,  respectively.  Loan  commitments have credit
risk  essentially  the same as that involved in extending loans to customers and
are  subject to the Bank's  normal  credit  policy.  These  commitments  are not
reflected in the accompanying  consolidated  statements of financial  condition.
Management  expects  that all loan  originations  will be funded  from  existing
liquidity and normal monthly cash flow.

12. Regulatory Requirements

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

<PAGE>48

guidelines that involve quantitative measures of the Bank's assets, liabilities,
and certain  off-balance  sheet items as calculated under regulatory  accounting
practices.  The Bank's capital  amounts and  classification  are also subject to
qualitative judgments by the regulators about components,  risk weightings,  and
other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to  maintain  minimum  amounts and ratios (set forth  below) of
total and Tier I capital to risk-weighted  assets, and Tier I capital to average
assets (all as defined in the regulations).  Management believes, as of June 30,
2000,  that the Bank  meets all  capital  adequacy  requirements  to which it is
subject.

Based on its regulatory capital ratios at June 30, 2000, the Bank is categorized
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 I risk-based, and Tier I leverage ratios as set forth in
the table.  The Bank's actual  capital  amounts and ratios are also presented in
the table.
<TABLE>
<CAPTION>

                                                                                                     Minimum To Be
                                                                                                    Well Capitalized
                                                                                                      Under Prompt
                                                                               Minimum forCapital      Corrective
                                                                  Actual        Adequacy Purposes  Action Provisions
--------------------------------------------------------------------------------------------------------------------
                                                                                          Minimum             Minimum
                                                              Amount   Ratio     Amount    Ratio     Amount    Ratio
                                                            ---------------------------------------------------------
                                                                              (Dollars in thousands)
<S>                                                         <C>        <C>      <C>        <C>      <C>       <C>
As of June 30, 2000:
  Total Capital  (to RiskWeighted Assets)...............    $ 236,202  14.77%   $ 127,899   8.00%   $ 160,813  10.00%
  Tier I Capital (to Risk Weighted Assets)..............      221,504  13.85       63,949   4.00       96,488   6.00
  Tier I Capital (to Average Assets)....................      221,504   7.71      114,211   4.00      142,763   5.00
As of June 30, 1999:
  Total Capital  (to Risk Weighted Assets)..............    $ 299,650  19.84%   $ 126,272   8.00%   $ 157,841   10.00%
  Tier I Capital (to Risk Weighted Assets)..............      285,363  18.90       63,136   4.00       94,704   6.00
  Tier I Capital (to Average Assets)....................      285,363  10.96      122,614   4.00      153,267   5.00
</TABLE>

13. Fair Value of Financial Instruments

SFAS No. 107, "Disclosures about Fair Value of Financial  Instruments," requires
disclosure of fair value information about financial instruments, whether or not
recognized in the balance  sheet,  for which it is  practicable to estimate that
value.  Quoted market prices,  when  available,  are used as the measure of fair
value.  In cases where quoted market prices are not  available,  fair values are
based on present value  estimates or other valuation  techniques.  These derived
fair values are significantly affected by assumptions used, the timing of future
cash flows, and the discount rate.

Because  assumptions  are  inherently  subjective in nature,  the estimated fair
values cannot be substantiated by comparison to independent market quotes,  and,
in many cases, the estimated fair values would not necessarily be realized in an
immediate sale or settlement of the instrument.  The disclosure  requirements of
SFAS  No.  107  exclude  certain  financial  instruments  and  all  nonfinancial
instruments.  Accordingly,  the aggregate  fair value  amounts  presented do not
represent management's estimation of the underlying value of the Company.

The  carrying  values  and  estimated  fair  values  of the  Company's  material
financial instruments as of June 30, 2000 and 1999, are summarized as follows:
<TABLE>
<CAPTION>

                                                                June 30, 2000               June 30, 1999
-------------------------------------------------------------------------------------------------------------
                                                             Carrying       Fair        Carrying     Fair
                                                              Value         Value         Value      Value
                                                            -------------------------------------------------
                                                                              (In thousands)
<S>                                                         <C>         <C>            <C>          <C>
Financial assets:
Cash and due from banks.................................    $   47,684  $   47,684     $   55,773  $   55,773
Federal funds sold......................................            --          --         17,775      17,775
Securities available for sale:
  Investment securities.................................       257,485     257,485        297,611     297,611
  Mortgage-backed and mortgage-related securities.......       707,446     707,446        866,844     866,844
Securities held to maturity:
  Mortgage-backed and mortgage-related securities.......        57,161      54,068             --          --
  Real estate mortgage loans receivable.................     1,567,080   1,526,712      1,301,118   1,275,616
Other loans receivable..................................        21,426      21,417         26,294      26,236
Financial liabilities:
  Deposits..............................................     1,789,876   1,791,513      1,619,470   1,622,941
  Borrowings............................................       773,690     751,378        757,832     737,986

</TABLE>

<PAGE>49

The following methods and assumptions were used by the Company in estimating the
fair values of financial instruments:

Cash and Due from Banks and Federal  Funds Sold:  Carrying  amounts  approximate
fair  value,  since  these  instruments  are  either  payable  on demand or have
short-term maturities.

Securities  Available for Sale and Held to Maturity:  The estimated  fair values
are based on independent dealer quotations and quoted market prices.

Real Estate Mortgage Loans and Other Loans Receivable: The estimated fair values
of real estate mortgage loans and other loans receivable are based on discounted
cash flow  calculations that apply interest rates currently being offered by the
Bank for loans with similar  remaining  maturities  to a schedule of  aggregated
expected monthly maturities.

Deposits:  The estimated  fair values of deposits are based on  discounted  cash
flow  calculations that apply interest rates currently being offered by the Bank
for  deposits  with similar  remaining  maturities  to a schedule of  aggregated
expected monthly maturities.

Borrowings:  The  estimated  fair  value  of  borrowed  funds  is  based  on the
discounted  value of contractual  cash flows using  interest rates  currently in
effect for borrowings with similar maturities and collateral requirements.

14. Parent-Only Financial Information

The earnings of the Bank are recognized by Richmond County  Financial Corp. (the
Holding   Company)   using  the  equity  method  of   accounting.   Accordingly,
undistributed  earnings  of the Bank are  recorded as  increases  in the Holding
Company's investment in the Bank.

The Condensed  Statements  of Financial  Condition as of June 30, 2000 and 1999,
are summarized as follows:
<TABLE>
<CAPTION>

                                                                   June 30,
----------------------------------------------------------------------------------
                                                               2000       1999
                                                            ----------------------
                                                                (In thousands)
<S>                                                         <C>         <C>
Assets:
  Cash and cash equivalents.............................    $   4,081   $   5,645
Securities available for sale:
  Investment securities.................................        4,150       7,887
Investment in subsidiary................................      162,116     284,180
ESOP loan receivable....................................       32,349      33,120
Other assets............................................       19,123       9,689
                                                            ----------------------
     Total assets.......................................    $ 221,819   $ 340,521
                                                            ======================
Liabilities and stockholders' equity:
  Liabilities...........................................    $   7,296   $   7,138
     Total stockholders' equity.........................      214,523     333,383
                                                            ----------------------
     Total liabilities and stockholders' equity.........    $ 221,819   $ 340,521
                                                            ======================
</TABLE>

The Condensed Statements of Operations  for the years ended June 30, 2000,  1999
and 1998 are as follows:
<TABLE>
<CAPTION>

                                                               2000       1999         1998
                                                            ---------------------------------
                                                                     (In thousands)
<S>                                                         <C>         <C>         <C>
Investment income.......................................    $     183    $  2,053   $     886
Other interest income...................................           39         596         745
Interest income - ESOP loan receivable..................        2,799       2,841       1,064
Non-interest income.....................................          715          --          --
Gain on sale of investments.............................           76         620          14
Cash dividends from Bank................................       73,946      19,000          --
                                                            ---------------------------------
                                                               77,758      25,110       2,709
Interest expense - borrowing from subsidiary............         (204)         --          --
Charitable donation.....................................           --          --     (19,553)
Other expenses..........................................       (4,083)     (2,580)       (221)
                                                            ---------------------------------
Income before income taxes and equity in
  undistributed earnings of subsidiary..................       73,471      22,530     (17,065)
Income tax benefit (expense)............................        4,424      (1,288)      7,763
                                                            ---------------------------------
Income before equity in undistributed
  earnings of subsidiary................................       77,895      21,242      (9,302)
Equity in undistributed earnings of subsidiary..........      (41,626)      5,402      13,828
                                                            ---------------------------------
Net income..............................................       36,269      26,644    $  4,526
                                                            =================================
</TABLE>

<PAGE>50

The Condensed Statements of Cash Flows for the years ended June 30, 2000,  1999
and 1998, are summarized as follows:
<TABLE>
<CAPTION>
                                                                           June 30,
                                                            -----------------------------------
                                                               2000         1999         1998
                                                            -----------------------------------
                                                                         (In thousands)
<S>                                                         <C>          <C>          <C>
Operating activities:
Net income..............................................    $ 36,269     $ 26,644     $ 4,526
 Adjustments to reconcile net income to net
  cash(used in)/provided  by operating activities:
    Equity in the undistributed earnings of
       subsidiary.......................................     (32,320)     (24,402)     (13,828)
    Charitable contribution of common stock.............          --           --       19,553
    MRP expense.........................................       3,738        1,991           --
    Net realized (gain) on sale of securities
       available-for-sale...............................         (74)        (620)         (14)
    Amortization of premium/(discount), on
       available-for-sale investments, net..............          --           46           18
    Increase in accrued interest receivable.............          16          (32)          --
    Decrease (increase) in receivable from
       subsidiary.......................................         321         (321)          --
    Increase in other assets............................      (9,985)      (1,264)      (8,072)
    Increase in liabilities.............................         159        6,228          138
                                                             ----------------------------------
       Net cash(used in)/provided by operating
         activities.....................................      (1,876)       8,270        2,321
Cash flows from investing activities:
 Investment securities available for sale:
    Sales and redemptions...............................       4,201       17,583          688
    Purchases...........................................          --      (10,351)     (15,909)
 Mortgage-backed and mortgage-related securities
  available for sale:
    Sales and redemptions...............................          --       34,726           --
    Principal collected.................................          --        4,252        1,563
    Purchases...........................................          --           --      (40,451)
 Decrease (increase) in bank subsidiary.................      74,661       18,944     (117,444)
 Net decrease (increase) in ESOP loan receivable........         771        1,111      (34,231)
                                                             ----------------------------------
       Net cash provided by/(used in) investing
         activities.....................................      79,633       66,265     (205,784)
Financing activities:
 Net proceeds of common stock issuance..................          --           --      234,908
 Purchase of MRP shares.................................          --      (16,118)          --
 Purchase of treasury shares............................     (65,431)     (75,529)          --
 Proceeds from options exercised........................         893          253           --
 Cash dividends paid on common stock....................     (14,783)      (7,620)      (1,321)
                                                             ----------------------------------
       Net cash (used in)/provided by financing
         activities.....................................     (79,321)     (99,014)     233,587
 Net (decrease) increase in cash and cash
     equivalents........................................      (1,564)     (24,479)      30,124
 Cash and cash equivalents at beginning of year.........       5,645       30,124           --
                                                             ----------------------------------
 Cash and cash equivalents at end of year...............     $ 4,081     $  5,645     $ 30,124
                                                             ==================================

</TABLE>

<PAGE>51

15. Selected Quarterly Financial Date (unaudited)

  The following  table provides a summary of operations by quarter for the years
  ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
                                                               Fiscal 2000 Quarter Ended
-----------------------------------------------------------------------------------------------------
                                                        June 30, March 31, December31,   September30,
                                                      -----------------------------------------------
                                                            (In Thousands, Except Per Share Data)
<S>                                                    <C>       <C>         <C>          <C>
Interest income..................................      $ 50,209  $ 49,136    $ 48,477     $ 46,715
Interest expense.................................        25,591    25,336      24,215       23,127
                                                      -----------------------------------------------
Net interest income before
  provision for possible loan losses.............        24,618    23,800      24,262       23,588
Provision for possible loan losses...............           300       300         300          300
                                                      -----------------------------------------------
  Net interest income after provision
    for possible loan losses.....................        24,318    23,500      23,962       23,288
  Non-interest income:
  Fee income and other...........................         3,348     3,135       3,452        3,214
  Net (losses)/gains  on  sale  of
    securities and loans.........................        (6,707)       24           7          703
                                                      -----------------------------------------------
  Total non-interest income......................        (3,359)    3,159       3,459        3,917
Non-interest expense:
  General and administrative expenses............        12,458    12,104      12,383       12,037
  Amortization of goodwill and
     other intangibles...........................           865       821         818          817
                                                      -----------------------------------------------
       Total non-interest expense................        13,323    12,925      13,201       12,854
                                                      -----------------------------------------------
Income  before  provision  for income
  taxes..........................................         7,636    13,734      14,220       14,351
(Benefit)/Provision for income taxes.............        (1,687)    4,925       5,192        5,242
                                                      -----------------------------------------------
Net income.......................................      $  9,323  $  8,809    $  9,028     $  9,109
                                                      ===============================================
  Basic and diluted earnings per share...........      $   0.37  $   0.34    $   0.33     $   0.32
                                                      ===============================================
Dividends declared per common share..............      $   0.16  $   0.14    $   0.13     $   0.12
Stock price per common share:
  High...........................................      $  19.88  $  18.50    $  19.25     $  20.00
  Low............................................      $  16.25  $  16.13    $  16.88     $  18.19
  Close..........................................      $  19.13  $  16.13    $  18.06     $  18.81
</TABLE>

<TABLE>
<CAPTION>
                                                               Fiscal 1999 Quarter Ended
-----------------------------------------------------------------------------------------------------
                                                        June 30, March 31, December31,   September30,
                                                      -----------------------------------------------
                                                            (In Thousands, Except Per Share Data)
<S>                                                    <C>       <C>         <C>          <C>
Interest income..................................      $ 44,782  $ 30,988    $ 29,142     $ 27,662
Interest expense.................................        21,578    14,423      13,631       12,599
                                                      -----------------------------------------------
Net interest income before
  provision for possible loan losses.............        23,204    16,565      15,511       15,063
Provision for possible loan losses...............           600       600         600          750
                                                      -----------------------------------------------
  Net interest income after provision
    for possible loan losses.....................        22,604    15,965      14,911       14,313
  Non-interest income:
  Fee income and other...........................         2,327     1,432       1,098          935
  Curtailment gain on pension plan...............         2,021        --          --           --
  Net (losses)/gains  on  sale  of
    loans and securities.........................           972        81       1,614          909
                                                      -----------------------------------------------
  Total non-interest income......................         5,320     1,513       2,712        1,844
Non-interest expense:
  General and administrative expenses............        11,329     8,612       7,721        7,554
  Amortization of goodwill and
     other intangibles...........................           792       195          79           78
                                                      -----------------------------------------------
       Total non-interest expense................        12,121     8,807       7,800        7,632
                                                      -----------------------------------------------
Income  before  provision  for income
  taxes..........................................        15,803     8,671       9,823        8,525
(Benefit)/Provision for income taxes.............         5,913     3,291       3,803        3,171
                                                      -----------------------------------------------
Net income.......................................      $  9,890  $  5,380    $  6,020     $  5,354
                                                      ===============================================
  Basic and diluted earnings per share...........      $   0.34  $   0.24    $   0.27     $   0.22
                                                      ===============================================
Dividends declared per common share..............      $   0.11  $   0.09    $   0.08     $   0.07
Stock price per common share:
  High...........................................      $  19.31  $  16.31    $  17.13     $  18.69
  Low............................................      $  14.50  $  14.81    $  11.31     $  11.88
  Close..........................................      $  19.25  $  14.81    $  16.06     $  15.00
</TABLE>

<PAGE>52

 Report of Independent Auditors


The Board of Directors
Richmond County Financial Corp.

We have audited the accompanying  consolidated statements of financial condition
of Richmond County Financial Corp. (the "Company") as of June 30, 2000 and 1999,
and the related consolidated statements of operations,  changes in stockholders'
equity and cash flows for each of the three  years in the period  ended June 30,
2000.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 consolidated  financial  position of the
Company  at June  30,  2000  and  1999,  and  the  consolidated  results  of its
operations  and its cash flows for each of the three  years in the period  ended
June 30, 2000 in conformity with accounting principles generally accepted in the
United States.






August 11, 2000
New York, New York