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                         Warwick Community Bancorp, Inc.
                                  Annual Report









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<PAGE>

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                                     [LOGO]
                                Mission Statement

Our objective is to be a leading financial services organization offering a full
range of consumer and  commercial  products and  services.  We endeavor to offer
these  products  and  services  with a  focus  on our  customers,  while  taking
appropriate  safety and soundness  principles  into  consideration.  As a public
company,   we  strive  to  enhance   profitability   and  ensure  the  long-term
appreciation of shareholder value. We will conduct our business in such a manner
as to exert a beneficial  influence in the  communities  we serve,  to be a good
corporate  citizen,  and to offer equal employment  opportunities to a competent
and professional  staff. The Company's  directors,  officers,  and employees are
proud of the  long-standing  values and traditions upheld by The Warwick Savings
Bank for more than a century,  and we are committed to remaining an independent,
community bank.

                                    [GRAPHIC]

The cover of this annual report features an  architectural  rendering of Warwick
Savings'  new branch  office and  Commercial  Loan  Headquarters  in the town of
Wallkill. This new facility includes new technology and greater conveniences for
our customers.  A focus on customer service is a hallmark of Warwick Savings and
demonstrates the Bank's commitment as Orange County's premiere community bank.

                                                                               1
<PAGE>


                                     [LOGO]
            The Board of Directors of Warwick Community Bancorp, Inc.
                          and The Warwick Savings Bank

                                     [PHOTO]

1st row (seated l to r): Wilbur L. Smith,  Director  Emeritus;  John W. Sanford,
Jr., Director  Emeritus;  Dr. Harry C. Sayre, Jr.,  Director  Emeritus.  2nd row
(standing l to r): Fred M. Knipp, President,  Warwick Valley Telephone Co.; Emil
R. Krahulik, Bank Counsel,  Attorney, Beattie & Krahulik; Henry L. Nielsen, Jr.,
President,  Nielsen Construction Co., Inc.; Timothy A. Dempsey, President & CEO,
The Warwick Savings Bank; Thomas F. Lawrence,  Jr., Retired  President,  Warwick
Auto Co.;  Frances M. Gorish,  Retired Vice President & Corp.  Sec., The Warwick
Savings Bank. 3rd row (standing l to r): John W. Sanford,  III, President,  John
W. Sanford & Son, Inc.; Robert N. Smith,  President,  Lazear-Smith Funeral Home,
Inc.; R. Michael Kennedy, President, Kennedy Companies, Inc.; Ronald J. Gentile,
Executive Vice President & COO, The Warwick Savings Bank.

                The Warwick Savings Foundation Board of Directors

Peter H. Alberghini,  Director of Development,  Orange County Community College;
Timothy A.  Dempsey,  President & CEO,  The  Warwick  Savings  Bank;  Frances M.
Gorish,  Retired Vice President & Corp. Sec., The Warwick Savings Bank;  Michael
P. Hoffman,  Executive Vice President,  External Affairs,  Franciscan Sisters of
the Poor; Thomas F. Lawrence, Jr., Retired President,  Warwick Auto Co.; Sr. Ann
Sakac,  President,  Mount  St.  Mary's  College;  Robert  N.  Smith,  President,
Lazear-Smith Funeral Home, Inc.

2 Warwick Community Bancorp, Inc. o Annual Report

<PAGE>

                                WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES


                              Corporate Highlights

July 1997

     o    Board of Trustees adopts Plan of Conversion to convert the Bank from a
          New York mutual savings bank to a New York stock savings bank.

October 1997

     o    Received  approval  from  the New  Jersey  Department  of  Banking  to
          establish WSB Mortgage Company of New Jersey, Inc., a mortgage banking
          subsidiary.

     o    Held ground  breaking  ceremony for new branch facility and Commercial
          Loan  Headquarters,  located at One Industrial  Drive,  in the Town of
          Wallkill.

December 1997

     o    Completed  the  conversion  from a mutual  savings  bank to a New York
          stock savings bank.

     o    Began trading on The Nasdaq Stock Market(SM) under the symbol "WSBI."

     o    Announced  the  formation  of  The  Warwick  Savings   Foundation,   a
          charitable organization in service to the needs of our community.

April 1998

     o    Announced first earnings release as a public company.

June 1998

     o    Announced fiscal year-end results highlighting strong loan growth.

     o    Shareholders  approve Stock Option Plan and  Recognition and Retention
          Plan at Special Shareholders' meeting. 

July 1998

     o    Opened new Wallkill branch office and Commercial Loan Headquarters.

                    Cassidy Vandervoort and her father,  Michael S. Vandervoort,
                    both of Westtown,  joined  Warwick  Savings  Executive  Vice
                    President and Chief Operating  Officer Ronald Gentile at the
[PHOTO]             Grand Opening  celebration of the Bank's new Wallkill Branch
                    Office.  A day of food,  fun, music and prizes for the whole
                    family culminated the week-long festivities at the facility,
                    which is also the new home of  Warwick  Savings'  Commercial
                    Loan Department.

                                                                               3
<PAGE>


                               President's Letter

[PHOTO]

To Our Shareholders, Customers & Friends:

     I am pleased to report that The Warwick  Savings Bank has  continued on the
path of  growth  and  profitability  that  you have  come to  expect  from  this
institution.  Throughout our 123 year history, we have emphasized our commitment
to  anticipating  and meeting the financial  needs of the  communities we serve.
While news of bank  consolidations  and mergers dominate the headlines,  Warwick
Savings  is  committed  to  remaining  a   locally-managed,   community-oriented
financial institution.  Given the challenges presented by competition from these
mega-banks,  our  success is even more  impressive.  Balancing  the  delivery of
personalized  service with the  implementation  of new technology and innovative
products and services has helped us address the changing  needs of both consumer
and commercial customers.

     The Bank's  conversion in December of 1997 from a mutual  savings bank to a
stock  savings  bank  has  been  a  catalyst  for  the  outstanding  performance
documented in this, our first annual report to shareholders. This landmark event
has enabled us to better address the core of the Bank's mission, to be a leading
financial  institution,  to emphasize long-term  profitability while maintaining
appropriate safety and soundness principles, to ensure long-term appreciation of
shareholder  value, and to conduct our business in a manner that enables Warwick
Savings to be a good corporate citizen.

     The concurrent  issuance and sale of all of the Bank's outstanding  capital
stock to the Company and the Company's sale of its common stock to the public at
the time of the  conversion  raised $64  million in gross  proceeds.  A total of
6,414,125 shares of common stock were sold at the  subscription  price of $10.00
per share.  The Company's common stock now trades on the Nasdaq Stock Market(SM)
under the symbol "WSBI."

     To underscore  our commitment to the people of Orange County we established
The Warwick  Savings  Foundation,  a charitable  organization  in service to the
needs of the community.  The Company's  contribution of 192,423 shares of common
stock to the  Foundation  in  connection  with  the  Bank's  conversion  clearly
demonstrates  our leadership in this area and will enable the community at large
to share in our continued success.

     While details of the Company's financial performance will be discussed more
fully later in this Annual  Report,  increases in total assets,  total loans and
shareholder  value are all highlights.  The hard work and dedication of everyone
from the Bank's  management team to our corporate and branch personnel have been
major factors in these achievements, and my thanks and praise go out to each and
every member of

4 Warwick Community Bancorp, Inc. o Annual Report

<PAGE>

                                WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES


the Warwick Savings' staff for their contributions.

     An emphasis on service and  convenience  has long been an integral  part of
our approach to community  banking,  as we seek to attract and retain  customers
through extended office hours, low turnover of employees,  and prompt,  flexible
and personalized production of a variety of loan and deposit products.

     In furtherance of this commitment,  it is our goal to increase market share
in the communities we serve through the acquisition or  establishment  of branch
offices and, if appropriate, the acquisition of smaller financial institutions.

     Our new Wallkill  Branch is a tangible  example of our commitment to growth
in  accordance  with the needs  and  demands  of both  consumer  and  commercial
customers.  This  facility,  which is also the new home of our  commercial  loan
department,  provides a wealth of new branch services including drive-up and ATM
facilities.  Its proximity to our former location at The Galleria at Crystal Run
will ensure  continued  convenience for existing  customers,  while enabling the
Bank to better serve both new and longtime customers alike.

     The expansion of our mortgage  banking  operations and lending into several
contiguous  counties in northern  New Jersey also  demonstrates  our strategy to
enter new markets as we seek to enhance profitability and performance.

     As technology continues to change the way we live in dramatic new ways, The
Warwick  Savings  Bank will  remain on the  forward  edge of  innovation  in the
banking  industry.  We are also committed to ensuring Year 2000  compliance.  In
1998,  we will  implement  PC banking for  commercial  customers,  along with an
expansion  in  business  products  such as sweep  accounts  and  small  business
banking.

     As we approach the new  millennium,  I believe The Warwick  Savings Bank is
uniquely  positioned to serve our expanding  marketplace with the right products
and services,  excellent facilities,  and the most service-oriented staff of any
bank in our marketplace.

     We  anticipate  continued  success and growth as we strive to reinforce our
position  as the  community  bank in  Orange  County.  On behalf of the Board of
Directors and the entire Warwick  Savings  family,  I want to thank you for your
support.


/s/ TIMOTHY A. DEMPSEY

Timothy A. Dempsey
President and Chief Executive Officer

                                                                        [LOGO] 5

<PAGE>


                                     [LOGO]
        The Executive Management Team of Warwick Community Bancorp, Inc.
                          and The Warwick Savings Bank


Experience, expertise and a commitment to a personalized approach to banking are
common  characteristics  of Warwick  Savings'  executive  management  team.  The
continued growth of the bank, in terms of both consumer and commercial  products
and  services,  is  being  overseen  on a  day-to-day  basis  by  the  executive
management team, whose vision is helping to reinforce  Warwick Savings' position
as Orange County's community banking leader.

                                     [PHOTO]

(l to r): Ronald J. Gentile, Executive Vice President & COO; Timothy A. Dempsey,
President & CEO;  Barbara A. Rudy,  Senior  Vice  President;  Arthur W.  Budich,
Senior Vice President & CFO;  Nancy L.  Sobotor-Littell,  Corporate  Secretary &
Director  of Human  Resources.  (Not  pictured:  Donna  M.  Lyons,  Senior  Vice
President & Auditor;  Laurence D. Haggerty,  Senior Vice  President,  Commercial
Loans).


6 Warwick Community Bancorp, Inc. o Annual Report

<PAGE>

                                WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES


                     Department of Mortgage Lending

[PHOTO]              Seated: Arthur S. Anderson, Executive Director.
                     Standing: (l to r) Beverly S. Bates, Chief Underwriter;
                     Kim Dando, Closing Supervisor;
                     Stephen A. Carle, Assistant Treasurer & Operations Manager.


                                     [LOGO]
The Warwick  Savings Bank has  traditionally  been a leading  mortgage lender in
Orange  County,  and the  Bank  continues  to  expand  in this  area,  including
exploring new  opportunities in New Jersey.  Additionally,  the Bank's expanding
commercial  lending  activities are earning  Warwick  Savings a reputation as an
important lending partner for the local business community.


                          Department of Commercial Lending 
                                                           
                Seated: C. Roland Newkirk, Vice President;               [PHOTO]
                   Kathryn Tiedemann, Assistant Treasurer. 
          Standing: Jill Singer, Assistant Vice President; 
                   Edward Lekis, Assistant Vice President. 
Not pictured: Laurence D. Haggerty, Senior Vice President. 
                                                                          

                                                                               7

<PAGE>


[LOGO]          SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

<TABLE>
<CAPTION>
                                                                                         At May 31,
                                                          -------------------------------------------------------------------------
                                                             1998            1997            1996           1995(7)         1994(7)
                                                          ---------       ---------       ---------       ---------       ---------
                                                                                       (In thousands)
<S>                                                       <C>             <C>             <C>             <C>             <C>      
Selected Financial Data:
    Total assets                                          $ 410,394       $ 286,545       $ 274,053       $ 258,679       $ 234,048
    Loans receivable, net (1)                               212,665         138,323         108,897         122,663         108,598
    Investment securities                                   170,749         126,393         144,284         110,333         105,433
    Real estate owned, net                                      409             224             330             493             306
    Deposits                                                222,722         221,211         232,965         229,011         207,527
    FHLB advances                                            62,850           5,250           3,600              --              --
    Securities sold
       under repurchase agreements                           27,190          23,090           4,700              --              --
    Stockholders' equity                                     86,150          28,114          24,770          23,076          21,910

<CAPTION>
                                                                                  For the year ended May 31,
                                                          -------------------------------------------------------------------------
                                                             1998            1997            1996           1995(7)         1994(7)
                                                          ---------       ---------       ---------       ---------       ---------
                                                                                       (In thousands)
<S>                                                       <C>             <C>             <C>             <C>             <C>      
Selected Operating Data:
    Interest income                                       $  23,777       $  20,691       $  18,333       $  16,253       $  15,786
    Interest expense                                          9,972           9,376           8,717           6,828           5,922
                                                          ---------       ---------       ---------       ---------       ---------
        Net interest income                                  13,805          11,315           9,616           9,425           9,864
        Less provision for loan losses                         (592)           (130)           (140)           (261)           (415)
                                                          ---------       ---------       ---------       ---------       ---------

        Net interest income after
           provision for loan losses                         13,213          11,185           9,476           9,164           9,449

    Other income
        Service and fee income                                2,134           1,915           1,768           1,369           1,996
        Securities transactions                                 742             816             356            (429)            845
        Loan transactions                                        94             137             119              14             123
        Other income (loss)                                     169             (89)           (159)            (79)            (17)
                                                          ---------       ---------       ---------       ---------       ---------
              Total other income, net                         3,139           2,779           2,084             875           2,947
                                                          ---------       ---------       ---------       ---------       ---------

    Other expense
        Salaries and employee benefits                        5,870           5,256           5,050           3,958           3,877
        ESOP benefits                                           730              --              --              --              --
        F.D.I.C. insurance                                       28              12              53             466             456
        Occupancy and equipment                               1,219           1,308           1,238           1,202           1,143
        Data processing                                         672             640             484             414             341
        Advertising                                             160             152             129             112              69
        Professional fees                                       583             240             325             222             270
        Contribution to
           The Warwick Savings Foundation                     1,924              --              --              --              --
        Other operating expenses                              2,001           1,735           1,791           1,722           1,606
                                                          ---------       ---------       ---------       ---------       ---------
              Total other expenses                           13,187           9,343           9,070           8,096           7,762

    Income before income tax
       expense and cumulative
       effect of change in
       accounting principle                                   3,165           4,621           2,490           1,943           4,634

    Income tax expense                                        1,304           1,756           1,024             794           2,115
                                                          ---------       ---------       ---------       ---------       ---------

    Income before cumulative effect
       of change in accounting principle                      1,861           2,865           1,466           1,149           2,519

    Cumulative effect of change
       in accounting principle                                   --              --              --            (645)             --
                                                          ---------       ---------       ---------       ---------       ---------

              Net income                                  $   1,861       $   2,865       $   1,466       $     504       $   2,519
                                                          =========       =========       =========       =========       =========
</TABLE>


8 Warwick Community Bancorp, Inc. o Annual Report

<PAGE>


<TABLE>
<CAPTION>
                                                                                At or For the Year Ended May 31,
                                                               -----------------------------------------------------------------
                                                                1998           1997          1996           1995(7)       1994(7)
                                                               -----          -----         -----          --------      -------
<S>                                                            <C>            <C>           <C>            <C>           <C> 
Selected Financial Ratios and Other Data (2):
    Performance Ratios:
        Return on average assets                                0.57%          1.00%         0.56%          0.21%         1.11%
        Return on average
           retained earnings                                    3.72          11.02          6.29           2.32         12.11
        Average retained
           earnings to average assets                          15.40           9.12          8.94           9.18          9.14
        Retained earnings to
           total assets                                        20.99           9.81          9.04           8.92          9.36
        Core deposits to
           total deposits (3)                                  68.16          66.08         63.28          59.49         77.25
        Net interest spread (4)                                 3.58           3.62          3.48           3.84          3.92
        Net interest margin (5)                                 4.50           4.20          3.98           4.27          4.35
        Operating expense to
           average assets                                       4.06           3.28          3.48           3.42          3.41
        Average interest-earning assets to
           average interest-bearing liabilities                 1.28           1.17          1.14           1.14          1.16
        Efficiency ratio (6)                                   81.87          71.10         80.80          75.56         65.54

Regulatory Capital Ratios:
    Bank:
        Tangible capital                                       13.91           9.53          9.51           9.79          9.95
        Core capital                                           25.55          19.46         17.52          16.00         20.00
        Risk-based capital                                     26.27          20.33         18.45          16.00         20.00

    Company:
        Tangible capital                                       21.44             --            --             --            --
        Core capital                                           40.07             --            --             --            --
        Risk-based capital                                     40.78             --            --             --            --

    Asset Quality Ratios:
        Non-performing loans
           to total loans                                       0.47           1.02          0.78           1.78          2.02
        Non-performing loans
           to total assets                                      0.30           0.50          0.31           0.85          0.95
        Non-performing assets
           to total assets                                      0.35           0.58          0.44           1.04          1.08
        Allowance for loan losses
           to total loans                                       0.75           0.88          1.18           0.97          0.83
        Allowance for loan losses
           to non-performing loans                            123.61          86.09        151.22          54.77         41.06

Other Data:
    Branch Offices                                                 4              4             4              4             4
</TABLE>

----------

(1)  Loans  receivable,  net represents  total loans less net deferred loan fees
     and the allowance for loan losses.

(2)  Regulatory  Capital  Ratios  and  Asset  Quality  Ratios  are end of period
     ratios.  With the exception of period-end  ratios,  all ratios are based on
     average monthly balances during the periods indicated.

(3)  The Bank  considers the following to be core deposits:  checking  accounts,
     passbook accounts, NOW accounts and money market accounts.

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

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

(6)  The efficiency ratio represents non-interest expense as a percentage of the
     sum of net interest income and  non-interest  income excluding any gains or
     losses on sales of assets.

(7)  The selected  financial  data of the Bank as of May 31, 1995 and 1994,  and
     for the year ended May 31,  1994 are not  derived  from  audited  financial
     statements.


                                                                        [LOGO] 9
<PAGE>


[LOGO]               MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

Warwick  Community  Bancorp,  Inc. (the  "Company"),  is a bank holding  company
incorporated  in  September  1997 under the laws of the State of Delaware and is
registered  under the Bank Holding Company Act of 1956, as amended.  The Company
was organized at the direction of The Warwick  Savings Bank (the "Bank") for the
purpose of acquiring  all of the common  stock of the Bank issued in  connection
with the  conversion  of the Bank from mutual to stock form  ("Conversion").  On
December 23,  1997,  the Bank  completed  its  Conversion,  and the Company sold
6,414,125  shares  of its  common  stock at a price  of  $10.00  per  share in a
subscription  offering  ("Offering")  to  certain  depositors  of the  Bank.  In
connection with the Conversion and Offering, the Company established The Warwick
Savings Foundation  ("Foundation") and made a charitable contribution of 192,423
shares of the Company's common stock to the Foundation,  which resulted in a one
time charge  relating to the funding of the  Foundation  of $1.9  million  ($1.2
million  net of tax).  The net  proceeds  from the  Offering  amounted  to $61.5
million,  and the Company  contributed 50% of the net proceeds from the Offering
to the Bank in exchange for all of the issued and  outstanding  shares of common
stock of the Bank.  The  remaining net proceeds were retained by the Company and
invested   primarily   in  federal   funds,   government   and  federal   agency
mortgage-backed securities,  other debt securities and equity securities.  Prior
to  the  Offering,  the  Company  had  no  significant  assets,  liabilities  or
operations.  Presently,  the only  significant  assets  of the  Company  are the
capital stock of the Bank, the note  evidencing the loan the Company made to the
Warwick Community Bancorp,  Inc. Employee Stock Ownership Plan ("ESOP") to allow
the ESOP to purchase 8% of the Company's common stock issued in the Offering and
the investment of the net proceeds of the Offering retained by the Company.

The  primary  business  of the  Company is the  operation  of its  wholly  owned
subsidiary, the Bank. The Bank's principal business has been and continues to be
attracting  retail deposits from the general public in the areas surrounding its
four branches and investing those  deposits,  together with funds generated from
operations and borrowings,  primarily in one to four-family residential mortgage
loans, mortgage-backed securities, commercial business and real estate loans and
various debt and equity securities.

The Bank's results of operations are dependent primarily on net interest income,
which  is  the   difference   between  the   interest   income   earned  on  its
interest-earning assets, such as loans and securities,  and the interest expense
on its  interest-bearing  liabilities,  such as deposits and borrowed funds. The
Bank also generates other income,  such as service charges and other fees, which
are primarily  servicing fees received from residential  mortgage loans that are
sold with  servicing  retained.  Other  expenses  primarily  consist of employee
compensation  and  benefits,   occupancy  expenses,  federal  deposit  insurance
premiums,  net  costs of real  estate  owned,  data  processing  fees and  other
operating  expenses.  The Bank's  results of operations  are also  significantly
affected by general economic and competitive conditions (particularly changes in
market interest rates), government policies, changes in accounting standards and
actions of regulatory agencies.

While the following  discussion of financial condition and results of operations
includes the  collective  results of the Company and the Bank,  this  discussion
reflects  primarily  the Bank's  activities.  Unless  otherwise  disclosed,  the
information presented in this Annual Report reflects the financial condition and
results of operations of the Company and the Bank on a consolidated basis.

Management Strategy

The Bank has  historically  employed an operating  strategy that  emphasizes the
origination of one to four-family  residential mortgage loans in its market area
with both fixed and variable rates and, to an increasing degree over the past 10
years,  its commercial  lending  business,  with mostly prime  rate-based  loans
secured by real estate located mainly in Orange County, New York. Due in part to
this strategy, the Bank historically has had profitable operations, resulting in
a strong  regulatory  capital  position.  The Bank's  goal of  maintaining  this
position has led to an overall  strategy of managed  growth in both deposits and
assets. The major elements of the Company's  operating strategy are to: (i) grow
and   diversify   the  Bank's  loan   portfolio  by   continuing   to  originate
owner-occupied  residential  mortgage,  commercial  business and commercial real
estate,  construction and consumer loans in its market area; (ii) complement the
Bank's mortgage  lending  activities by investing in  mortgage-backed  and other
securities;  (iii)  maintain  the Bank's  relatively  low cost of funds and (iv)
manage the Bank's  level of  interest  rate  risk.  From time to time,  the Bank
employs a leveraging  strategy,  whereby  borrowings  are used to fund  specific
investments in order to provide for a reasonable net margin of return.  The Bank
also seeks to attract and retain  customers  through  extended office hours, low
turnover of employees  and prompt,  flexible and  personalized  production  of a
variety of loan products.  In addition, it is a goal of the Bank to increase its
market  share  in  the   communities  it  serves  through  the   acquisition  or
establishment of branch offices and, if appropriate,  the acquisition of smaller
financial  institutions.  Additionally,  it is a goal of the Bank to expand into
new  markets.  For this  reason,  the Bank has  expanded  its  mortgage  banking
operations and lending into New Jersey.


10 Warwick Community Bancorp, Inc. o Annual Report

<PAGE>

                                WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES


Management of Interest Rate Risk

The principal objectives of the Bank's interest rate risk management  activities
are to: (i) evaluate the interest  rate risk  included in certain  balance sheet
accounts, (ii) determine the level of risk appropriate given the Bank's business
focus, operating environment, capital and liquidity requirements and performance
objectives,  (iii)  establish  prudent asset  concentration  guidelines and (iv)
manage the risk consistent with Board approved policies and guidelines.  Through
such  management,  the Bank seeks to reduce the  vulnerability  of its operating
results to changes in interest  rates and to manage the ratio of  interest  rate
sensitive  assets  to  interest  rate  sensitive  liabilities  within  specified
maturities or repricing  dates. The Bank closely monitors its interest rate risk
as such risk relates to its operating strategies.  The extent of the movement of
interest rates,  higher or lower,  is an uncertainty  that could have a negative
impact on the earnings of the Bank.

Historically,  the Bank had been a traditional thrift lender, but differentiated
itself from other thrifts by also focusing on commercial  lending since the late
1980's and  commission-based  mortgage  banking  operations since 1995. The Bank
also adopted a more competitive  pricing policy, more efficient lock-in policies
to close loans faster and more streamlined Federal National Mortgage Association
("FNMA")  approved  processing and underwriting  procedures.  Additionally,  the
Bank's  array of products  has  expanded to include  Federal  Housing  Authority
("FHA"),   Veterans  Administration  ("VA")  and  State  of  New  York  Mortgage
Association  ("SONYMA")  loans. As a result,  the Bank has invested a relatively
large  amount  of  its  earning  assets  in  fixed-rate   loans  and  fixed-rate
mortgage-backed securities with contractual maturities of up to 30 years. At May
31, 1998, an aggregate of $178.2 million, or 46.2% of total earning assets, were
invested in such assets. Based upon the assumptions used in the following table,
at May 31, 1998, the Company's total  interest-bearing  liabilities  maturing or
repricing within one year exceeded its total interest-earning assets maturing or
repricing  in the same time  period by $26.3  million,  representing  a one-year
cumulative  "gap," as defined below, as a percentage of total assets of negative
6.42%.  Accordingly,  management  views the Company as having a  manageable  gap
position, but still slightly vulnerable to a rising interest rate environment.

The Bank has taken several actions, under various market conditions, designed to
manage its level of  interest  rate  risk.  These  actions  have  included:  (i)
increasing the percentage of the loan  portfolio  consisting of  adjustable-rate
mortgage loans and prime rate-based  commercial loans through  originations,  as
market  conditions  permit,  (ii) selling  fixed-rate  loans,  but retaining the
servicing rights, (iii) purchasing  shorter-term  investment securities and (iv)
seeking to maintain a relatively  high  percentage  of checking  accounts in its
deposit  base.  Additionally,  in the normal  course of business,  the Bank uses
off-balance  sheet financial  instruments  primarily as part of mortgage banking
hedging strategies. Such instruments generally include put options purchased and
forward  commitments  to sell  mortgage  loans.  As a result  of  interest  rate
fluctuations,  these  financial  instruments  will develop  unrealized  gains or
losses that mitigate  changes in the  underlying  hedged  portion of the balance
sheet.  When effectively  used,  these  instruments are designed to moderate the
impact on earnings as interest rates move up or down.

Gap  Analysis.  The  matching  of assets  and  liabilities  may be  analyzed  by
examining  the extent to which such assets or  liabilities  are  "interest  rate
sensitive" and by monitoring an institution's  interest rate sensitivity  "gap."
An asset or liability is said to be interest  rate  sensitive  within a specific
time period if it will mature or reprice  within that 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  period.  A gap is  considered  positive  when the amount of interest  rate
sensitive  assets exceeds the amount of interest rate sensitive  liabilities.  A
gap  is  considered   negative  when  the  amount  of  interest  rate  sensitive
liabilities  exceeds  the amount of interest  rate  sensitive  assets.  During a
period of  rising  interest  rates,  therefore,  a  negative  gap would  tend to
adversely  affect net interest  income.  Conversely,  during a period of falling
interest  rates,  a  negative  gap would  tend to result in an  increase  in net
interest income.

The  following  table sets  forth the  amounts  of  interest-earning  assets and
interest-bearing  liabilities outstanding at May 31, 1998, which are anticipated
by the Bank, based upon certain assumptions, to reprice or mature in each of the
future time  periods  shown.  Except as stated  below,  the amount of assets and
liabilities  shown  which  reprice or mature  during a  particular  period  were
determined based on the earlier of term to repricing or the term to repayment of
the asset or liability. The table is intended to provide an approximation of the
projected  repricing of assets and  liabilities  at May 31, 1998 on the basis of
contractual  maturities,  anticipated prepayments and scheduled rate adjustments
within a three-month  period and subsequent  selected time  intervals.  The loan
amounts in the table reflect principal balances expected to be reinvested and/or
repriced as a result of contractual  amortization and anticipated  early payoffs
of  adjustable-rate  loans and fixed-rate  loans, and as a result of contractual
rate  adjustments  on  adjustable-rate  loans.  For loans on one to  four-family
residential  properties and mortgage-backed  securities,  assumed average annual
prepayment rates of 17.89% and 18.82%, respectively, were utilized.


                                                                       [LOGO] 11

<PAGE>


[LOGO]

<TABLE>
<CAPTION>
                                                                           At May 31, 1998
                                      ---------------------------------------------------------------------------------------------
                                                    More Than     More Than     More Than     
                                                      Three          One          Three       More Than                 
                                        Three       Months to      Year to      Years to        Five    
                                        Months        Twelve        Three         Five         Years to     More Than
                                       or Less        Months        Years         Years       Ten Years     Ten Years       Total
                                      ---------     ---------     ---------     ---------     ---------     ---------     ---------
                                                                         (Dollars in thousands)
<S>                                   <C>           <C>           <C>           <C>           <C>           <C>           <C>      
Interest-earning assets:
    Mortgage loans (1)(5)             $  27,668     $  12,073     $  17,151     $  12,528     $   2,285     $  78,808     $ 150,513
    Other loans (2)                      24,275         1,007         7,520        16,811        12,785         1,572        63,970
    Mortgage-backed
       securities, fixed (5)             14,792            --           827             5         1,017        61,954        78,595
    Mortgage-backed
       securities, variable (5)           2,283         1,274            --            --            --            --         3,557
    Mutual funds and
       preferred stock                       --        14,931            --            --            --         1,698        16,629
    Investment securities:
       held-to-maturity                     309           910         1,000           105            --         5,000         7,324
    Investment securities:
       available-for-sale                    --         7,132        10,278         2,904         4,514        39,815        64,643
                                      ---------     ---------     ---------     ---------     ---------     ---------     ---------

        Total interest-
           earning assets                69,327        37,327        36,776        32,353        20,601       188,847       385,231

Net deferred loan
   fees and costs (3)                       (34)          (21)          (39)          (44)          (21)         (133)         (292)
                                      ---------     ---------     ---------     ---------     ---------     ---------     ---------

        Net interest-
           earning assets                69,293        37,306        36,737        32,309        20,580       188,714       384,939
                                      ---------     ---------     ---------     ---------     ---------     ---------     ---------

Interest-bearing liabilities:
    Passbook accounts (4)                    --        16,130            --            --            --        64,520        80,650
    Escrow accounts                          --            --            --            --            --         2,266         2,266
    NOW accounts                             --            --            --            --            --        17,558        17,558
    Money market
       accounts                          26,863            --            --            --            --            --        26,863
    Certificates of
       deposit                           20,052        44,548         3,998         2,308            --            --        70,906
    Borrowed funds                        9,380        15,970        50,650        15,000            --            --        91,000
                                      ---------     ---------     ---------     ---------     ---------     ---------     ---------

        Total interest-
          bearing liabilities            56,295        76,648        54,648        17,308            --        84,344       289,243
                                      ---------     ---------     ---------     ---------     ---------     ---------     ---------

    Interest rate
       sensitivity gap                $  12,998     $ (39,342)    $ (17,911)    $  15,001     $  20,580     $ 104,370     $  95,696
                                      =========     =========     =========     =========     =========     =========     =========

    Cumulative interest
       rate sensitivity gap           $  12,998     $ (26,344)    $ (44,255)    $ (29,254)    $  (8,674)    $  95,696
                                      =========     =========     =========     =========     =========     =========

    Cumulative interest
       rate sensitivity gap
       as a percentage
       of total assets                     3.17%        (6.42)%      (10.78)%       (7.15)%       (2.11)%      (23.32)%

    Cumulative net
       interest-earning assets
       as a percentage
       of cumulative interest-
       bearing liabilities               123.09%        80.18%        76.41%        85.72%        95.77%       133.08%
</TABLE>

----------

(1)  For purposes of the gap analysis,  mortgage and other loans are not reduced
     for the allowance for loan losses and non-performing loans.

(2)  For purposes of the gap analysis, second mortgage loans are included in the
     "Other Loans" category.

(3)  For  purposes  of  the  gap  analysis,  unearned  fees  and  deferred  loan
     origination costs are prorated.

(4)  For  purposes  of the  gap  analysis,  based  upon  the  Bank's  historical
     experience,  management  traditionally and conservatively  slots 20% of the
     Bank's total savings account balances into the  twelve-month  time horizon.
     The remaining 80% are viewed as long-term deposits.

(5)  For loans on residential  properties an average annual  prepayment  rate of
     17.89% is utilized.  Mortgage-backed securities are assumed to prepay at an
     average annual rate of 18.82%.


12 Warwick Community Bancorp, Inc. o Annual Report

<PAGE>

                                WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES


Certain  shortcomings  are  inherent in the method of analysis  presented in the
foregoing table.  For example,  although certain assets and liabilities may have
similar maturities or periods to repricing,  they may react in different degrees
to changes in market interest  rates.  Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates,  while  interest rates on other types of assets 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 a change in interest rates,
prepayments and early withdrawal levels would likely deviate  significantly from
those assumed in calculating the table.  Finally,  the ability of many borrowers
to make scheduled  payments on their  adjustable-rate  loans may decrease in the
event of an interest rate increase.

The Company's  interest rate sensitivity is also monitored by management through
the use of a model which  internally  generates  estimates  of the change in net
portfolio value ("NPV") over a range of interest rate change  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. For purposes of the NPV table, prepayment speeds similar to those
used in the "gap" table were used,  reinvestment  rates were those in effect for
similar  products  being  offered and rates on core  deposits  were  modified to
reflect  recent trends.  The following  table sets forth the Company's NPV as of
May 31, 1998, as calculated by the Company.


<TABLE>
<CAPTION>
                                      Net Portfolio Value                   Portfolio Value of Assets
----------------------       ---------------------------------------       ---------------------------
 Rate in Basis Points
     (Rate Shock)
(Dollars in thousands)       $ Amount       $ Change        % Change       NPV Ratio      % Change (1)
----------------------       --------       --------        --------       --------       ------------
<S>                          <C>            <C>               <C>           <C>              <C>    
          200                $ 81,647       $(13,182)         (14)%         20.95%           (1.93)%
          100                  88,741         (6,088)          (6)          22.01            (0.87)
        Static                 94,829             --            0           22.88               --
         (100)                 92,472         (2,357)          (2)          22.01            (0.88)
         (200)                 87,583         (7,246)          (8)          20.68            (2.21)
</TABLE>

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

As in 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 actual market
interest  rates.  In this  regard,  the NPV  model  presented  assumes  that the
composition  of the Company's  interest rate  sensitive  assets and  liabilities
existing at the  beginning of a period  remains  constant  over the period being
measured  and  also  assumes  that a  particular  change  in  interest  rates is
reflected  uniformly  across  the yield  curve  regardless  of the  duration  to
maturity or repricing of specific assets and liabilities.  Accordingly, although
the NPV measurements and net interest income models provide an indication of the
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 will differ from actual results.


Analysis of Net Interest Income

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

Average  Balance  Sheets.  The table on the  following  page sets forth  certain
information  relating to the Company for the years ended May 31, 1998,  1997 and
1996. The yields and costs were derived by dividing  interest  income or expense
by the average balance of assets or liabilities,  respectively,  for the periods
shown.  Average balances were computed based on month-end  balances.  Management
believes the use of average monthly  balances  instead of average daily balances
does not have a material effect on the information presented. The yields include
deferred fees and discounts which are considered yield adjustments.


                                                                       [LOGO] 13

<PAGE>


[LOGO]

<TABLE>
<CAPTION>
                                                                        For the Year Ended May 31,
                                        -------------------------------------------------------------------------------------------
                                                      1998                          1997                           1996
                                        ------------------------------ ----------------------------   ------------------------------
                                                               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:
      Mortgage
         loans, net (1)                 $131,973    $ 10,191   7.72%   $ 90,771   $ 7,152     7.88%   $103,854   $  8,098      7.80%
      Consumer and                     
         other loans, net(1)              39,931       3,774   9.45      36,160     3,457     9.56      33,127      3,150      9.51
      Mortgage-backed                  
         securities                       75,020       5,533   7.38      80,255     5,897     7.35      19,612      1,617      8.24
      Federal funds sold                   3,130         172   5.50         283        15     5.30       6,058        322      5.32
      Interest earning                 
         accounts at banks                   635          34   5.35         395        18     4.56          93          5      5.38
      Investment securities               56,374       4,073   7.22      61,508     4,152     6.75      78,681      5,141      6.53
                                        --------    --------           --------     -----             --------   --------           
          Total interest-              
             earning assets              307,063      23,777   7.74     269,372    20,691     7.68     241,425     18,333      7.59
                                                    --------           --------                       --------                      
      Non-interest                     
         earning assets                   17,846                         15,856                         19,149
                                        --------                       --------                       --------
          Total assets                  $324,909                       $285,228                       $260,574
                                        ========                       ========                       ========
                                       
Liabilities and                        
     retained earnings:                
  Interest-bearing liabilities:        
      Passbook accounts                 $ 77,999    $  2,304   2.95%   $ 78,132   $ 2,323     2.97%   $ 77,868   $  2,365      3.04%
      Escrow deposits                      1,422          94   6.61       1,020        50     4.90       2,345         68      2.90
      NOW accounts                        15,384         245   1.59      14,117       227     1.61      12,638        215      1.70
      Money market                     
         accounts                         25,827         849   3.29      27,016       883     3.27      28,674        936      3.26
      Certificate accounts                74,618       3,823   5.12      79,155     3,985     5.03      89,831      5,109      5.69
                                        --------    --------           --------     -----             --------   --------           
      Total deposits                     195,250       7,315   3.75     199,440     7,468     3.74     211,356      8,693      4.11
      Borrowed funds                      44,437       2,657   5.98      31,249     1,908     6.11         489         24      4.91
                                        --------    --------           --------     -----             --------   --------           
          Total interest-              
             bearing                   
             liabilities                 239,687       9,972   4.16     230,689     9,376     4.06     211,845      8,717      4.11
                                                    --------           --------                       --------                      
  Non-interest                         
     bearing liabilities                  35,174                         28,528                         25,432
                                        --------                       --------                       --------
                                       
          Total liabilities              274,861                        259,217                        237,277
                                       
  Retained earnings                       50,048                         26,011                         23,297
                                        --------                       --------                       --------
                                       
          Total liabilities            
             and retained              
            earnings                    $324,909                       $285,228                       $260,574
                                        ========                       ========                       ========
                                       
  Net interest income/                 
     interest rate spread(2)                        $ 13,805   3.58%             $ 11,315     3.62%              $  9,616      3.48%
                                                    ========   ====              ========     ====               ========      ==== 
                                       
  Net interest-earning assets/         
     net interest margin(3)             $ 67,376               4.50%   $ 38,683               4.20%   $ 29,580                 3.98%
                                        ========               ====    ========               ====    ========                 ==== 
                                       
  Ratio of interest-earning            
     assets to interest-bearing        
     liabilities                                             128.11%                        116.77%                          113.96%
                                                             ======                         ======                           ====== 
 </TABLE>

----------
                                     
(1)  In  computing  the average  balance of loans,  non-accrual  loans have been
     included.

(2)  Interest rate spread represents the difference between the average yield on
     interest-earning   assets  and  the   average   cost  of   interest-bearing
     liabilities.

(3)  Net interest  margin on  interest-bearing  assets  represents  net interest
     income as a percentage of average-earning assets.


14 Warwick Community Bancorp, Inc. o Annual Report

<PAGE>

                                WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES


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 (i) changes  attributable to changes in volume (changes
in volume  multiplied by prior rate),  (ii) changes  attributable  to changes in
rate (changes in rate multiplied by prior volume) and (iii) the net change.  The
changes  attributable  to the  combined  impact  of  volume  and rate  have been
allocated  proportionately  to the  changes due to volume and the changes due to
rate.

<TABLE>
<CAPTION>
                                                                 Year Ended May 31, 1998                Year Ended May 31, 1997
                                                                       Compared to                            Compared to
                                                                 Year Ended May 31, 1997                Year Ended May 31, 1996
                                                           ---------------------------------      --------------------------------- 
                                                                   Increase (Decrease)                    Increase (Decrease)
                                                                 In Net Interest Income                 In Net Interest Income
                                                                         Due to                                 Due to
                                                           ---------------------------------      --------------------------------- 
                                                           Volume         Rate         Net        Volume         Rate         Net
                                                           -------      -------      -------      -------      -------      ------- 
                                                                                        (In thousands)
<S>                                                        <C>          <C>          <C>          <C>          <C>          <C>     
  Interest-earning assets:
      Mortgage loans, net                                  $ 3,246      $  (207)     $ 3,039      $(1,020)     $    74      $  (946)
      Consumer and other loans, net                            361          (44)         317          288           19          307
      Mortgage-backed securities                              (385)          21         (364)       5,000         (720)       4,280
      Federal funds sold                                       151            6          157         (307)          --         (307)
      Interest earning accounts at banks                        11            5           16           16           (3)          13
      Investment securities                                   (347)         268          (79)      (1,122)         133         (989)
                                                           -------      -------      -------      -------      -------      ------- 
                Total                                        3,037           49        3,086        2,855         (497)       2,358
                                                           -------      -------      -------      -------      -------      ------- 

  Interest-bearing liabilities:
      Passbook accounts                                         (4)         (15)         (19)           8          (50)         (42)
      Escrow accounts                                           20           24           44          (39)          20          (19)
      NOW accounts                                              20           (2)          18           25          (13)          12
      Money market accounts                                    (39)           5          (34)         (54)           1          (53)
      Certificates of deposits                                (228)          66         (162)        (607)        (517)      (1,124)
      Borrowed funds                                           805          (56)         749        1,510          374        1,884
                                                           -------      -------      -------      -------      -------      ------- 
                Total                                          574           22          596          843         (185)         658
                                                           -------      -------      -------      -------      -------      ------- 
Net change in net interest income                          $ 2,463      $    27      $ 2,490      $ 2,012      $  (312)     $ 1,700
                                                           =======      =======      =======      =======      =======      =======
</TABLE>


Asset Quality

Non-Performing  Loans.  Management and the Board of Directors  perform a monthly
review of  delinquent  loans.  The actions taken by the Bank with respect to the
delinquencies   vary  depending  on  the  nature  of  the  loan  and  period  of
delinquency.  The Bank's  policies on  residential  mortgage  loans provide that
delinquent mortgage loans be reviewed and that a late charge notice be mailed no
later than the 15th day of delinquency,  with the delinquency charge assessed on
the 16th day.  The Bank's  collection  policies on  residential  mortgage  loans
essentially mirror those shown in the FNMA servicing agreements. On other loans,
telephone contact and various delinquency notices at different intervals are the
methods used to collect past due loans.

It is the Bank's general policy to  discontinue  accruing  interest on all loans
when  management  has  determined  that  the  borrower  will be  unable  to meet
contractual  obligations or when interest or principal payments are 90 days past
due. When a loan is  classified  as  non-accrual,  the  recognition  of interest
income  ceases.  Interest  previously  accrued and remaining  unpaid is reversed
against income.  Cash payments  received are applied to principal,  and interest
income  is not  recognized  unless  management  determines  that  the  financial
condition and payment record of the borrower  warrant the recognition of income.
If a foreclosure  action is commenced and the loan is not brought current,  paid
in full or an  acceptable  workout  arrangement  is not agreed  upon  before the
foreclosure  sale,  the real  property  securing the loan is  generally  sold at
foreclosure.  Property  acquired  by the Bank as a result  of  foreclosure  on a
mortgage  loan is classified as "real estate owned" and is recorded at the lower
of the  unpaid  balance  or  fair  value  less  costs  to  sell  at the  date of
acquisition  and  thereafter.  Upon  foreclosure,  it is the  Bank's  policy  to
generally  require an appraisal of the property  and,  thereafter,  appraise the
property on an as-needed basis.

Other Real Estate Owned.  At May 31, 1998, the Bank's OREO, net, which consisted
of five single-family residential properties, totaled $409 thousand and was held
directly by the Bank.

The following table sets forth information  regarding  non-accrual  loans, other
past due  loans and OREO.  There  were no  troubled  restructurings  within  the
meaning of SFAS No. 15 at any of the dates presented below.


                                                                       [LOGO] 15

<PAGE>


[LOGO]

<TABLE>
<CAPTION>
                                                                                             At May 31,
                                                                 ------------------------------------------------------------------
                                                                  1998           1997           1996           1995           1994
                                                                 ------         ------         ------         ------         ------
                                                                                       (Dollars in thousands)
<S>                                                              <C>            <C>            <C>            <C>            <C>   
Non-accrual mortgage loans delinquent
   more than 90 days                                             $  699         $1,111         $  582         $1,093         $1,217
Non-accrual other loans delinquent
   more than 90 days                                                186             83             82            131             69
                                                                 ------         ------         ------         ------         ------
Total non-accrual loans                                             885          1,194            664          1,224          1,286
Total 90 days or more
   delinquent and still accruing                                    133            237            199            978            928
                                                                 ------         ------         ------         ------         ------
Total non-performing loans                                        1,018          1,431            863          2,202          2,214
Total foreclosed real estate,
   net of related allowance for losses                              409            224            330            493            306
                                                                 ------         ------         ------         ------         ------
Total non-performing assets                                      $1,427         $1,655         $1,193         $2,695         $2,520
                                                                 ======         ======         ======         ======         ======

Non-performing loans to total loans                                0.47%          1.02%          0.78%          1.78%          2.02%
Total non-performing assets to total assets                        0.35%          0.58%          0.44%          1.04%          1.08%
</TABLE>

Comparison of Financial Condition at May 31, 1998 and May 31, 1997

Total assets  increased  $123.9 million to $410.4 million at May 31, 1998,  from
$286.5  million at May 31, 1997,  reflecting the Company's  ongoing  strategy of
managed  growth.  This  increase  in total  assets was  primarily  the result of
increases in the Company's interest-earning assets, as the Company grew both its
loan and  investment  securities  portfolios.  The asset  growth was also funded
through  borrowings,  which  increased $61.7 million to $90.0 million at May 31,
1998,  and from the $61.5  million in net proceeds  raised by the Company in the
Offering.  At May 31, 1998,  the Company had $27.2  million in  securities  sold
under  repurchase  agreements  and $62.9  million in term loans from the Federal
Home Loan Bank of New York  ("FHLBNY").  Deposit  liabilities  increased by $1.5
million to $222.7 at May 31, 1998 from $221.2 million at May 31, 1997, primarily
due to  increases  in demand  checking  accounts,  NOW accounts and money market
accounts, offset by the decline in time certificates.

  [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]

================================================================================
                            Total Assets and Deposits

                                          Total Assets            Total Deposits
                                          ------------            --------------
                                                       (in millions)
5/31/94                                      $234                     $208
5/31/95                                      $259                     $229
5/31/96                                      $274                     $233
5/31/97                                      $287                     $221
5/31/98                                      $410                     $223

================================================================================

Asset growth was  concentrated  in mortgage  loans,  net which  increased  $50.8
million to $148.2  million at May 31, 1998 from $97.4  million at May 31,  1997.
Other  loans,  net showed an increase of $11.1  million to $47.2  million at May
31,1998 from $36.1 million at May 31, 1997. Total securities were $170.7 million
at May  31,  1998  compared  to  $126.4  million  at May  31,  1997.  Securities
held-to-maturity  at May 31,  1998  totaled  $7.3  million as  compared  to $6.1
million at May 31,1997.  Securities  available-for-sale  at May 31, 1998 totaled
$163.4 million as compared to $120.3  million at May 31, 1997.  This increase is
primarily the result of the Bank's utilization of additional  wholesale leverage
transactions in order to enhance earnings.

Other assets increased $2.6 million, or 92.9%, from $2.8 million at May 31, 1997
to $5.4 million at May 31, 1998.  This  increase was  primarily the result of an
increase in  capitalizable  costs  associated  with the Bank's new full  service
branch  office  located in the town of Wallkill that opened for business on July
27, 1998.  Upon being placed into  service,  approximate  costs of $2.3 million,
relating to land improvements, the construction of the building and the purchase
of furniture and equipment,  were  reclassified to "Bank premises and equipment,
net."

Total  stockholders'  equity increased $58.0 million to $86.1 million at May 31,
1998  from  $28.1  million  at  May  31,  1997.   This  increase  was  primarily
attributable  to the $61.5 million in net proceeds  raised by the Company in the
Offering in connection with the Bank's Conversion.

Comparison of Operating Results for the Fiscal Years Ended May 31, 1998 and 1997

General.  Net income for the fiscal year ended May 31,  1998,  which  included a
one-time  after-tax  charge  of  $1.2  million  for  the  establishment  of  the
Foundation,  totaled  $1.9  million,  or $0.30 per share,  as  compared  to $2.9
million 


16 Warwick Community Bancorp, Inc. o Annual Report

<PAGE>

                                WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES


 [THE FOLLOWING TABLES WERE REPRESENTED BY BAR CHARTS IN THE PRINTED MATERIAL.]

================================================================================

                      Residential Mortgage Loans Originated

                            For the Year Ended May 31
1998                                                                    $124,014
1997                                                                    $ 69,026
1996                                                                    $ 85,061
1995                                                                    $ 21,302
1994                                                                    $ 24,044
                

                            Consumer Loans Originated

                            For the Year Ended May 31
1998                                                                    $ 13,410
1997                                                                    $ 16,774
1996                                                                    $ 10,936
1995                                                                    $  8,918
1994                                                                    $  7,150


                          Commercial Loans Originated *

                            For the Year Ended May 31
1998                                                                    $ 26,628
1997                                                                    $ 14,966
1996                                                                    $ 12,326
1995                                                                    $ 11,585
1994                                                                    $ 12,595

*    Includes renewals and refinancings.

================================================================================

for the comparable 1997 fiscal year. However,  excluding the one-time charge for
the  Foundation,  net income for the fiscal  year ended May 31,  1998 would have
increased 5.2% to $3.1 million,  or $0.49 per share.  Earnings per share results
are not available for the fiscal year ended May 31, 1997 because the Company did
not complete its Offering until December 1997.

Net Interest  Income.  Net interest margin is net interest income expressed as a
percentage of total average  earning  assets.  For the fiscal year ended May 31,
1998 the net interest  margin was 4.50% as compared to 4.20% for the fiscal year
ended May 31, 1997.This increase was primarily attributable to the $37.7 million
increase in average  interest-earning assets from $269.4 million over the fiscal
year ended May 31,  1997 to $307.1  million  over the fiscal  year ended May 31,
1998,  while average  interest-bearing  liabilities  increased $9.0 million from
$230.7  million  to  $239.7  million  over the same  period.  Supplementing  the
increase in average  interest-bearing  liabilities,  funding for the increase in
average  interest-earning  assets  was  primarily  provided  by a $24.0  million
increase in average  retained  earnings,  which included the infusion of capital
derived from the Offering,  from $26.0 million for the fiscal year ended May 31,
1997, to $50.0 million for the comparable period ended May 31, 1998.

Net  interest  income for the  fiscal  year ended May 31,  1998  increased  $2.5
million,  or 22.0%,  to $13.8  million,  from $11.3  million for the fiscal year
ended May 31, 1997.

The increase in interest income resulted  primarily from the significant  growth
of the mortgage  loan  portfolio,  as home  purchasers  and existing  homeowners
capitalized on the opportunities afforded by lower mortgage loan interest rates.
Concurrently,  the more modest increase in interest expense  resulted  primarily
from an increase in interest on borrowed funds,  coupled with a decrease in time
deposit interest expense.

  [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]

================================================================================

                                   Net Income

                                                                   (in millions)

5/31/95                                                             $  503,765
5/31/96                                                             $1,465,580
5/31/97                                                             $2,865,503
5/31/98                                                             $1,860,945*

*    Impacted by $1.9 Million (before tax)  contributions to The Warwick Savings
     Foundation and initial $730 thousand (before tax) ESOP benefit.

================================================================================

Interest Income.  For the fiscal year ended May 31, 1998 interest income totaled
$23.8  million as  compared  to $20.7  million for the fiscal year ended May 31,
1997. The $3.1 million, or 14.9%, increase in 1998 was primarily attributable to
a $3.0  million,  or 42.5%,  increase  in the amount of  interest  earned on the
Bank's mortgage loan portfolio, which resulted primarily from an increase in the
average  balance of the  Company's  mortgage  loans from $90.7  million  for the
fiscal year ended May 31,  1997 to $132.0  million for the fiscal year ended May
31, 1998.  Interest  earned on other loans and on federal  funds sold during the
fiscal year ended May 31, 1998  increased by $317  thousand  and $157  thousand,
respectively,  compared to the fiscal year ended May 31, 1997.  Those increases,
however,  were largely offset by a $443 thousand  decrease in interest earned on
mortgage-backed and investment securities over the same period.

The increase in the average  yield on  interest-earning  assets to 7.74% for the
fiscal year ended May 31,  1998,  as compared to 7.68% for the fiscal year ended
May 31,  1997,  resulted  in part  from the sale of  relatively  lower  yielding
securities,  and the purchase of higher yielding securities with portions of the
proceeds from such sales, in connection with the Company's  restructuring of its
investment  securities  portfolio  during  the  summer  of  1997.  However,  the
improvement  in yield derived from  investments  was  partially  offset by lower
yields  earned on the Bank's loan  portfolios  due to lower  long-term  interest
rates at the start of 1998.

Interest  Expense.  Interest  expense for the fiscal year ended May 31, 1998 was
$10.0 million,  compared to $9.4 million for the fiscal year ended May 31, 1997,
due primarily to an increase of $13.2 million in the average balance of borrowed
funds,  a 171 basis point  increase in the average rate paid on escrow  deposits
and a $402  thousand  increase  in the  average  balance of escrow  deposits  in
connection  with the increase in the  Company's  mortgage  loans and  additional
wholesale leverage  transactions entered into during the 1998 fiscal year. These
increases  were  partially  offset by a $4.2  million  decrease  in the  average
balance of total  interest-bearing  deposits and by a 13 basis point decrease in
the average rate paid on borrowed funds.


                                                                       [LOGO] 17

<PAGE>


[LOGO]


Provision  For Loan Losses.  The  provision  for loan losses for the fiscal year
ended May 31, 1998 increased to $592 thousand,  as compared to $130 thousand for
the fiscal year ended May 31, 1997.  This increase  resulted  from  management's
assessment  of the  growth  in the  loan  portfolio,  the  level  of the  Bank's
allowance for possible  loan losses and its  assessment of the local economy and
market  conditions.  For the  fiscal  years  ended May 31,  1998 and 1997,  loan
charge-offs,  net of  recoveries,  aggregated  $311 thousand and $203  thousand,
respectively.  At May 31, 1998 and 1997,  the allowance for possible loan losses
totaled  $1.5  million  and $1.2  million,  respectively,  and the ratio of such
allowance to  non-performing  loans was 123.61% at May 31, 1998,  as compared to
86.09% at May 31, 1997.

Other Income.  Other income,  consisting of service and fee income and gains and
losses on  securities  and loan  transactions,  increased by $360  thousand,  or
13.0%,  to $3.1 million for the fiscal year ended May 31,  1998,  as compared to
$2.8 million for the fiscal year ended May 31, 1997. This increase was primarily
attributable  to an increase  of $219  thousand in service and fee income due to
the growth in  checking  account  deposits  during  1998 and an increase of $258
thousand in other  income  associated  with  increased  loan and loan  servicing
activity,  which was  partially  offset by a $74 thousand  reduction on sales of
securities and a $43 thousand reduction on loan sales.

Other Expense.  Other expense increased by $3.9 million to $13.2 million for the
fiscal year ended May 31, 1998,  as compared to $9.3 million for the fiscal year
ended May 31, 1997.  This increase  resulted  primarily  from an expense of $1.9
million relating to the Company's  contribution to the Foundation and an expense
of $730  thousand  relating to the first year's  allocation  of shares under the
ESOP which was  established in connection  with the Conversion and the Offering.
Salaries and employee  benefits expense also increased $615 thousand,  or 11.7%,
due to higher  levels of  expenses  incurred  in  connection  with the  employee
benefit plans established in connection with the Conversion and the Offering and
normal salary increases.  Professional fees increased $343 thousand primarily as
a result of various  consultation  and audit  activities in connection  with the
Conversion and the Offering.

Provision  for Income  Taxes.  The  provision  for income taxes  decreased  $452
thousand  from $1.8  million  for the  fiscal  year  ended May 31,  1997 to $1.3
million for the fiscal year ended May 31,  1998.  This  decrease  was  primarily
attributable to the tax benefit  derived from the Company's  contribution to the
Foundation.

Comparison of Financial Condition at May 31, 1997 and May 31, 1996

Total assets  increased  $12.4 million to $286.5  million at May 31, 1997,  from
$274.1  million at May 31, 1996,  reflecting the Company's  ongoing  strategy of
managed growth. The asset growth was funded primarily through borrowings,  which
increased  $20.0  million to $28.3  million at May 31, 1997. As of May 31, 1997,
the Company had $23.1 million in securities sold under repurchase agreements and
$5.2  million in term loans from the  FHLBNY.  Deposit  liabilities  declined by
$11.8 million to $221.2  million at May 31, 1997 from $233.0  million at May 31,
1996,  primarily  due to continued  decreases  in  rollovers of a February  1995
offering   of  a   nine-month   certificate   of   deposit   account   ("Premium
Certificates"),  initially  priced  slightly above local market rates to provide
the Bank with additional  liquidity at the time of the failure of Nationar,  one
of the Bank's correspondent banks. FHLBNY advances and other borrowings are used
by the Bank as an alternative to traditional  retail  deposits and take the form
of overnight advances,  repriced daily, and one-month lines of credit,  repriced
monthly.

Asset growth was  concentrated  in mortgage  loans,  net, which  increased $25.5
million to $97.4  million at May 31,  1997 from $71.9  million at May 31,  1996.
This  loan  growth  (net of  amortizations  and  satisfactions)  contrasts  to a
decrease of $17.6  million for the year ended May 31, 1996.  In addition,  other
loans,  net,  increased $4.1 million to $36.1 million at May 31, 1997 from $32.0
million at May 31, 1996.  Total  securities  were $126.4 million at May 31, 1997
compared to $144.3 million at May 31, 1996, reflecting the reinvestment of funds
from  the  securities   portfolio  into  higher   yielding   loans.   Securities
held-to-maturity  at May 31,  1997  totaled  $6.1  million as  compared  to $7.1
million at May 31, 1996.  Securities  available-for-sale at May 31, 1997 totaled
$120.3  million as compared to $135.2  million at May 31,  1996.  The  Company's
available-for-sale portfolio was adjusted for an unrealized gain of $1.1 million
($500 thousand after-tax) for the fiscal year ended May 31, 1997.

Other  assets  decreased  by $4.3  million  to  $2.8  million  at May 31,  1997,
primarily due to the  satisfactory  liquidation  of the  Company's  $3.9 million
claim against the  Superintendent of Banks of the State of New York, as receiver
for  Nationar,  regarding  the  Superintendent's  seizure of  Nationar  in early
February, 1995.

As a result of adopting Statement of Financial Accounting Standards No. 122, the
Bank  capitalized $444 thousand of originated  mortgage  servicing rights during
fiscal year 1996.

Total net worth  increased  $3.3  million to $28.1  million at May 31, 1997 from
$24.8  million at May  31,1996,  resulting  from net income of $2.8  million and
approximately $500 thousand of unrealized  appreciation on securities  available
for sale, net of taxes.


18 Warwick Community Bancorp, Inc. o Annual Report

<PAGE>

                                WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES


Comparison of Operating Results for the Fiscal Years Ended May 31, 1997 and 1996

General.  Net income for the fiscal  year ended May 31,  1997 was $2.9  million,
compared to $1.5 million for the fiscal year ended May 31, 1996. The increase of
$1.3  million  resulted  primarily  from an 18%  increase in the  Company's  net
interest margin and greater profits on sales of mortgage-backed securities. Also
contributing  to the  increase  in net  income  was a decline  in the  Company's
provision for income taxes due to a change in tax regulations  from an effective
tax rate of 41% in fiscal 1996 to 38% in fiscal 1997.

Net Interest Income.  Net interest income for the fiscal year ended May 31, 1997
increased $1.7 million,  or 17.7%, to $11.3 million.  This increase reflects the
overall rise in the Company's average interest rate spread of 14 basis points to
3.62%,  and a rise in the  Company's  net interest  margin of 22 basis points to
4.20%  for  the  1997   fiscal   year,   as  well  as  a  greater   increase  in
interest-earning assets than interest-bearing liabilities.

Market  interest  rates were slightly  higher in the 1997 fiscal year across the
entire U.S. Treasury yield curve than in the 1996 fiscal year. While the Company
realized  a  higher   overall   yield  of  nine  basis  points  on  its  average
interest-earning  assets, yields on the Company's  interest-bearing  liabilities
declined by five basis points.

Interest Income. Interest income totaled $20.7 million for the fiscal year ended
May 31, 1997,  compared to $18.3 million for the fiscal year ended May 31, 1996.
This increase of $2.4 million, or 13.1%,  reflects an increase of more than $3.3
million in interest and dividends on  securities  due to the  securitization  of
approximately  $50 million of the Company's  mortgages in April and May of 1996,
offset,  in  part,  by  a  decrease  in  the  average  yield  on  the  Company's
mortgage-backed  securities  of 89 basis  points.  The  increase in interest was
offset,  in part,  by a decline  of over $600  thousand  in  interest  income on
mortgage  and other loans due to the  decreased  volume of such loans  resulting
mainly from such  securitization,  mitigated somewhat by an increase of 13 basis
points in the average yield on such loans. Interest income on federal funds sold
decreased  substantially  in the fiscal year ended May 31, 1997,  as compared to
the prior years, due to management's focus on extending maturities slightly,  in
its efforts to increase yield in a flattening yield curve environment.

Interest  Expense.  Interest  expense on deposits and borrowings  increased $660
thousand to $9.4  million for the fiscal  year ended May 31,  1997,  compared to
$8.7 million for the fiscal year ended May 31, 1996.  This increase  reflects an
increase in average  interest-bearing  liabilities  of $18.8 million  during the
1997 fiscal year and a decrease in the average rate paid on such  liabilities of
five basis points over the same period. The increase in average interest-bearing
liabilities is primarily  attributable  to an increase in the average balance of
borrowed  funds to $31.2 million for the 1997 fiscal year from $489 thousand for
the 1996  fiscal  year.  Average  certificate  of deposit  accounts  declined by
approximately  $10.7 million in fiscal year 1997,  partially due to the maturity
of the Premium Certificates which was attributable to the Company's decision not
to offer premium rates in a highly competitive rate environment. While there was
a 12%  decline  in average  certificate  of  deposit  accounts,  there was a 22%
decline in interest expense associated with such accounts,  from $5.1 million in
the fiscal year ended May 31, 1996 to $4.0 million in the 1997 fiscal year. As a
result,  the Company's total cost of funds decreased by five basis points,  from
4.11% to 4.06%,  despite the increases in market  interest  rates in fiscal year
1997.

Provision  for Loan  Losses.  The  provision  for loan losses  decreased to $130
thousand  for the fiscal  year  ended May 31,  1997 from $140  thousand  for the
fiscal year ended May 31, 1996, although there was an increase in non-performing
loans (consisting of loans over 90 days past due and non-accrual  loans) to $1.4
million at May 31, 1997,  from $863  thousand at May 31, 1996.  At May 31, 1997,
the  percentage of the  allowance  for loan losses to total loans was 0.88%,  as
compared to 1.18% as of May 31, 1996. However,  management's  analysis indicated
that  the  majority  of  the  non-performing   loans  were  one  to  four-family
residential  mortgage loans.  Moreover,  management  believes that most of these
loans are adequately secured by properties  affording low loan-to-value  ratios,
based upon current  evaluations.  In addition,  management  performs a quarterly
in-depth  analysis of its allowance  for loan losses.  Based upon loan types and
volumes, loan review and classification systems, and the factors described above
and various other factors,  management has made regular  determinations that its
allowance and monthly provisions are adequate.

Other  Income.  Other  income,  net,  for the  fiscal  year  ended May 31,  1997
increased  $696  thousand to $2.8  million from $2.1 million for the fiscal year
ended May 31, 1996. This increase was primarily  attributable to increased gains
on sales of  mortgage-backed  securities,  emanating from the Company's mortgage
banking operation.  Total service and fee income increased 8% to $1.9 million in
the  fiscal  year ended May 31,  1997,  due to  service  charges  and other fees
reflecting  increased loan and loan servicing activity,  as well as increases in
certain transaction fees during the 1997 fiscal year.

Other Expenses.  Other expenses  increased $273 thousand to $9.3 million for the
fiscal year ended May 31,  1997 from $9.1  million for the fiscal year ended May
31,  1996.  The  increase in other  expenses  primarily  reflects  increases  in
salaries  and  employee  benefits  and  occupancy  costs.  Salaries and employee
benefits  expense  increased  $206  thousand to $5.3 million for the 1997 fiscal
year  compared to $5.0  million  for the 1996 fiscal  year.  This  increase  was
primarily attributable to a general increase in salaries.  Data processing costs
and advertising costs increased by $156 thousand,  or 32%, and $23 thousand,  or
18%,  respectively.  The  Company's  ratio of other  expenses to average  assets
decreased to 3.28% in the 1997 fiscal year from 3.48% in the 1996 fiscal year.

                                                                       [LOGO] 19

<PAGE>


[LOGO]


Provision  for Income  Taxes.  The  provision  for income taxes  increased  $732
thousand  from $1.0  million  for the  fiscal  year  ended May 31,  1996 to $1.8
million for the fiscal year ended May 31,  1997.  This  increase  was  primarily
attributable to the increase of $2.1 million, or 86%, in pre-tax income,  offset
by savings due to a change in the Bank's  effective  tax rate from 41% in fiscal
1996 to 38% in fiscal 1997.

Liquidity and Capital Resources

The Bank's primary sources of funds are retail deposits,  wholesale funding from
FHLBNY or other bank borrowings,  securities sold under  repurchase  agreements,
principal and interest payments on loans and securities and, to a lesser extent,
proceeds  from  the  sale  of   securities.   While   maturities  and  scheduled
amortization of loans and securities  provide an indication of the timing of the
receipt of funds, changes in interest rates, economic conditions and competition
strongly  influence  mortgage  prepayment rates and deposit flows,  reducing the
predictability of the timing of sources of funds.

The Bank has no required  regulatory  liquidity  ratios or balances to maintain,
however,  it does adhere to a Liquidity and Funds Management  Policy approved by
its Board of Directors,  which sets minimum  internal  guidelines  for liquidity
purposes.

As a member of the FHLBNY,  the Bank has the availability of two lines of credit
for borrowings in the amounts of $17.0 million each,  one on an overnight  basis
and the other on a 30-day term basis.  In  accordance  with the FHLBNY's  credit
policy,  the Bank now has total credit  facilities  available  of nearly  $101.9
million,  inclusive  of the  aforementioned  amounts,  before  the  delivery  of
qualifying collateral is required.  Additionally,  the Bank has other sources of
liquidity  if the need  arises.  One source is to borrow up to $5 million from a
commercial  bank on an  unsecured  basis  and the other is the  ability  to sell
securities  under  repurchase  agreements  in an amount up to $10 million from a
securities investment company.

The  primary  investing  activities  of the Bank are the  origination  of one to
four-family  residential  mortgage loans,  commercial real estate and commercial
business loans, a variety of consumer loans, and the purchase of mortgage-backed
securities and debt and equity securities. During the fiscal years ended May 31,
1998,  1997 and 1996, the Bank's  disbursements  for loan  originations  totaled
$164.1 million,  $100.6 million and $108.4 million,  respectively.  Purchases of
mortgage-backed  securities  totaled  $59.6  million,  $23.2  million  and $12.1
million for the fiscal  years ended May 31, 1998,  1997 and 1996,  respectively.
Other debt and equity securities purchased during the fiscal years ended May 31,
1998,  1997 and 1996 were  $65.1  million,  $26.0  million  and  $23.4  million,
respectively.   The  Bank's   investing   activities  are  funded  primarily  by
borrowings,  net deposit  inflows,  sales of loans and  securities and principal
repayments on loans and  securities.  The Bank  increased  borrowings at May 31,
1998  and 1997 by  $61.7  million  and $20  million,  respectively,  to fund its
investments.

At May 31, 1998,  the  Company's  total  approved loan  origination  commitments
outstanding  totaled  $55.5  million  and  the   unadvanced/unused   portion  of
commercial  lines of credit totaled $5.6 million.  The Company  believes it will
have  sufficient  funds  available  to meet its current  originations  and other
lending commitments.  Certificates of deposit scheduled to mature in one year or
less from May 31, 1998 totaled $64.6 million. Based on historical experience and
pricing  strategy,  management  believes  that a  significant  portion  of  such
deposits will remain with the Bank.

At May 31,  1998,  the Company had cash and due from banks of $11.2  million and
securities  available  for sale of $163.4  million.  Management  believes  these
amounts,  together with the Company's  borrowing  capabilities,  to be more than
adequate to meet its short-term cash needs.


  [THE FOLLWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]

================================================================================

                     Net Worth or Capital Ratios of the Bank

                            For the Year Ended May 31

1998                                                                       26%
1997                                                                       20%
1996                                                                       18%
1995                                                                       16%
1994                                                                       20%

Risk-based Ratios of Tier 1 Capital.

================================================================================

Regulatory Capital Position.

The Bank is subject to minimum  regulatory capital  requirements  imposed by the
Federal Deposit  Insurance  Corporation which vary according to an institution's
capital  level and the  composition  of its assets.  An insured  institution  is
required to maintain  Tier I capital of not less than 3.00% of total assets plus
an  additional  amount of at least 100 to 200 basis  points  ("leverage  capital
ratio").  An insured  institution must also maintain a ratio of total capital to
risk-based  assets of 8.00%.  Although  the minimum  leverage  capital  ratio is
3.00%,  the  Federal  Deposit  Insurance  Corporation  Improvement  Act of  1991
("FDICIA")  stipulates  that an  institution  with  less  than a 4.00%  leverage
capital ratio is deemed to be an "undercapitalized"  institution,  which results
in the imposition of regulatory restrictions.  The Bank's capital ratios qualify
it to be deemed "well  capitalized"  under  FDICIA.  In addition,  the Company's
capital ratios exceed the minimum regulatory capital requirements imposed by the
Federal Reserve Board,  which are  substantially  similar to the requirements of
the FDIC. See Note 13 to the Notes to Consolidated  Financial Statements for the
Bank's and the  Company's  regulatory  capital  position  as of May 31, 1998 and
1997.


20 Warwick Community Bancorp, Inc. o Annual Report

<PAGE>

                                WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES


Year 2000 Compliance.

The Year 2000 issue is the result of the inability of certain  computer  systems
to recognize  the year 2000.  Many existing  computer  programs and systems were
initially  programmed  with six digit  dates  that  provided  only two digits to
identify the calendar  year in the date field without  considering  the upcoming
change in the century.  As a result,  such  programs and systems may recognize a
date using "00" as the year 1900 instead of the year 2000, which could result in
system failures or miscalculations.  Like most financial service providers,  the
Company and its operations may be significantly  affected by the Year 2000 issue
due to the nature of financial  information.  Software,  hardware and  equipment
both within and outside the Company's  direct  control and with whom the Company
electronically or operationally  interfaces (i.e., third party vendors providing
data processing,  information system management, maintenance of computer systems
and credit bureau information) are likely to be affected.

The  Company  has  implemented  a plan to respond to the Year 2000 issue and has
initiated formal discussions with all of its significant  suppliers to determine
the extent to which the Company is vulnerable to those third parties' failure to
remedy their own Year 2000 issue.  The Company  presently  believes  that,  with
modifications  to existing  software and  conversions to new software,  the Year
2000 issue may be mitigated  without  causing a material  adverse  impact on the
operations  of the  Company  or the Bank.  However,  if such  modifications  and
conversions are not made, or are not timely completed, the Year 2000 issue could
have an impact on the  operations  of the  Company  and the Bank.  At this time,
management  of the Company  does not believe  that the impact and any  resulting
costs will be material.

Monitoring and managing the Year 2000 issue will result in additional direct and
indirect  costs to the Company.  Direct  costs  include the  replacement  of the
Company's  non-compliant  computer  hardware and software,  potential charges by
third party vendors for product enhancements,  cost involved in testing software
products for Year 2000  compliance  and any resulting  costs for  developing and
implementing  contingency  plans for critical  software  products  which are not
enhanced.  Indirect costs will  principally  consist of time devoted by existing
employees in monitoring  software vendor  progress,  testing  enhanced  software
products and implementing any necessary  contingency plans. The Company does not
believe  that  such  costs  will  have  a  material  effect  on its  results  of
operations.  The Company's  costs  associated  with the Year 2000 issue have not
been material to date.

Impact of Inflation and Changing Prices.

The Financial  Statements and Notes thereto  presented herein have been prepared
in accordance with generally accepted accounting  principles,  which require the
measurement of financial  position and operating  results in terms of historical
dollars  without  considering  the changes in the relative  purchasing  power of
money over time due to inflation. Unlike industrial companies, nearly all of the
assets and liabilities of the Bank are monetary in nature. As a result, interest
rates have a greater  impact on the Bank's  performance  than do the  effects of
general levels of inflation.  Interest rates do not necessarily move in the same
direction or to the same extent as the price of goods and services.

Impact of New Accounting Standards.

See Note 1 to Notes to the Consolidated Financial Statements.

Market for Common Stock

The  Company's  common stock  commenced  trading on the Nasdaq  National  Market
System  under the  symbol  "WSBI"  following  the  completion  of the  Company's
Offering  on  December  23,  1997.  In the period from that date to the close of
business on May 29, 1998, the last trading date in the fiscal year ended May 31,
1998, the stock's low and high sales price was $15.25 and $18.13, respectively.

As of July 31, 1998,  there were 6,606,548  shares of the Company's common stock
outstanding  and  approximately  1,614 holders of record.  The holders of record
include banks and brokers who act as nominees,  each of whom may represent  more
than one stockholder.

The Board of  Directors  of the Company did not  declare  any  dividends  on the
common stock  during the fiscal year ended May 31, 1998.  The Board of Directors
of the Company  may  consider a policy of paying  cash  dividends  on the common
stock in the future subject to statutory and regulatory  requirements.  However,
no  decision  has  been  made as to the  amount  or  timing  of such  dividends.
Declarations of dividends by the Board of Directors,  if any, will depend upon a
number of  factors,  including,  but not limited  to,  investment  opportunities
available  to  the  Company  or  the  Bank,  capital  requirements,   regulatory
limitations,  the  Company's and the Bank's  financial  condition and results of
operations, tax considerations and general economic conditions. No assurance can
be  given,  however,  that any  dividends  will be paid or, if  commenced,  will
continue to be paid.


                                                                       [LOGO] 21

<PAGE>


[LOGO]

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                              MAY 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                      1998              1997
                                                                  -------------    -------------
                                     ASSETS
<S>                                                               <C>              <C>          
ASSETS:
  Cash on hand and in banks                                       $  11,190,124    $  10,366,711
  Federal funds sold                                                         --        1,315,000
  Securities-
      Available-for-sale, at fair value                             163,425,416      120,301,288
      Held-to-maturity, at amortized cost (fair value of
      $7,276,933 and $6,116,184 in 1998 and 1997, respectively)       7,323,818        6,091,684
                                                                  -------------    -------------
             Total securities                                       170,749,234      126,392,972
                                                                  -------------    -------------

  Mortgage loans, net                                               148,242,725       97,440,203
  Mortgage loans held-for-sale                                       17,237,483        4,831,500
  Other loans, net                                                   47,184,643       36,051,438
  Mortgage servicing rights                                           1,051,496          835,079
  Accrued interest receivable                                         2,462,632        2,096,627
  Federal Home Loan Bank stock                                        3,392,500        1,731,300
  Bank premises and equipment, net                                    3,105,380        2,425,831
  Other real estate owned, net                                          409,363          223,782
  Other assets                                                        5,368,319        2,834,743
                                                                  -------------    -------------
             Total assets                                         $ 410,393,899    $ 286,545,186
                                                                  =============    =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILiTIES:
  Deposits                                                        $ 222,721,609    $ 221,211,137
  Mortgage escrow funds                                               2,265,878        1,397,584
  Securities sold under agreements to repurchase                     27,190,000       23,090,000
  Federal Home Loan Bank advances                                    62,850,000        5,250,000
  Accrued expenses and other liabilities                              9,216,802        7,482,034
                                                                  -------------    -------------
             Total liabilities                                      324,244,289      258,430,755
                                                                  =============    =============

COMMITMENTS AND CONTINGENCIES (NOTE 14)

STOCKHOLDERS' EQUITY:
  Preferred stock, $.01 par value;
     5,000,000 shares authorized; none issued                                --               --
  Common stock, $.01 par value; 15,000,000
     shares authorized; 6,606,548 shares issued                          66,065               --
  Additional paid-in capital                                         63,386,358               --
  Retained earnings--subject to restrictions                         29,355,454       27,494,509
  Unrealized appreciation on securities, net of taxes                 1,164,946          619,922
  Less- Unallocated common stock held by ESOP                        (7,823,213)              --
                                                                  -------------    -------------
             Total stockholders' equity                              86,149,610       28,114,431
                                                                  -------------    -------------
             Total liabilities and stockholders' equity           $ 410,393,899    $ 286,545,186
                                                                  =============    =============
</TABLE>


  The accompanying notes are an integral part of these consolidated statements.


22 Warwick Community Bancorp, Inc. o Annual Report

<PAGE>

                                WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES


                        CONSOLIDATED STATEMENTS OF INCOME
                 FOR THE YEARS ENDED MAY 31, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                                            1998           1997             1996
                                                        ------------    ------------    ------------
<S>                                                     <C>             <C>             <C>         
INTEREST INCOME:
  Interest on mortgage loans                            $ 10,191,223    $  7,151,702    $  8,098,219
  Interest on other loans                                  3,772,844       3,457,460       3,149,131
  Interest on securities                                   9,605,844      10,049,163       6,728,913
  Interest on federal funds sold                             172,638          14,504         321,903
  Interest on short-term money market instruments             34,116          18,290          34,870
                                                        ------------    ------------    ------------
             Total interest income                        23,776,665      20,691,119      18,333,036
                                                        ------------    ------------    ------------

INTEREST EXPENSE:
  Time deposits                                            3,822,525       3,984,829       5,108,712
  Money market deposits                                      848,801         882,979         936,218
  Savings deposits                                         2,549,228       2,550,704       2,580,121
  Mortgagors' escrow funds                                    93,689          49,588          68,165
  Borrowed funds                                           2,657,220       1,908,062          23,882
                                                        ------------    ------------    ------------
             Total interest expense                        9,971,463       9,376,162       8,717,098
                                                        ------------    ------------    ------------
             Net interest income                          13,805,202      11,314,957       9,615,938

PROVISION FOR LOAN LOSSES                                   (592,450)       (130,000)       (140,000)
                                                        ------------    ------------    ------------
             Net interest
             income after provision for loan losses       13,212,752      11,184,957       9,475,938
                                                        ------------    ------------    ------------

OTHER INCOmE (LOSS):
  Service and fee income                                   2,134,419       1,915,139       1,767,610
  Securities transactions                                    742,248         816,304         356,266
  Net gain on sale of loans                                   94,036         137,403         118,807
  Other income (loss)                                        169,198         (89,079)       (158,713)
                                                        ------------    ------------    ------------
             Total other income, net                       3,139,901       2,779,767       2,083,970
                                                        ------------    ------------    ------------

OTHER EXPENSES:
  Salaries and employee benefits                           5,870,423       5,255,869       5,049,942
  ESOP benefits                                              729,529              --              --
  FDIC insurance                                              27,836          12,447          53,226
  Occupancy                                                1,219,397       1,307,727       1,237,485
  Data processing                                            672,484         639,654         483,572
  Advertising                                                159,797         152,529         129,227
  Professional fees                                          583,311         240,513         325,392
  Contribution to The Warwick Savings Foundation           1,924,230              --              --
  Other                                                    2,000,434       1,734,616       1,791,244
                                                        ------------    ------------    ------------
             Total other expenses                         13,187,441       9,343,355       9,070,088
                                                        ------------    ------------    ------------
             Income before provision for income taxes      3,165,212       4,621,369       2,489,820


PROVISION FOR INCOME TAXES                                 1,304,267       1,755,866       1,024,240
                                                        ------------    ------------    ------------
             Net income                                 $  1,860,945    $  2,865,503    $  1,465,580
                                                        ============    ============    ============

WEIGHTED AVERAGE:
  Common shares                                            6,112,610          N/A              N/A
  Dilutive stock options                                          --          N/A              N/A
                                                        ------------ 
                                                           6,112,610          N/A              N/A
                                                        ============

EARNINGS PER SHARE SINCE CONVERSION:
  Basic                                                 $        .10          N/A              N/A
                                                        ============
  Diluted                                               $        .10          N/A              N/A
                                                        ============
</TABLE>

  The accompanying notes are an integral part of these consolidated statements.


                                                                       [LOGO] 23

<PAGE>


[LOGO]

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED MAY 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                                                        Unrealized  
                                                                                                       Appreciation
                                                                         Unallocated                   (Depreciation)   
                                                                           Common                      on Securities
                                             Common       Additional    Stock Held by     Retained      Available-
                                              Stock     Paid-in Capital     ESOP          Earnings     for-Sale, Net      Total
                                          ------------  --------------- -------------   ------------   -------------   ------------
<S>                                       <C>            <C>            <C>             <C>            <C>             <C>         
BALANCE, MAY 31, 1995                     $         --   $         --   $               $ 23,163,426   $    (87,288)   $ 23,076,138
  Net income                                        --             --             --       1,465,580             --       1,465,580
     Unrealized appreciation
     on securities
     available-for-sale, net                        --             --             --              --        228,755         228,755
                                          ------------   ------------   ------------    ------------   ------------    ------------

BALANCE, MAY 31, 1996                               --             --             --      24,629,006        141,467      24,770,473
  Net income                                        --             --             --       2,865,503             --       2,865,503
  Unrealized appreciation on
     securities
     available-for-sale, net                        --             --             --              --        478,455         478,455
                                          ------------   ------------   ------------    ------------   ------------    ------------

BALANCE, May 31, 1997                               --             --             --      27,494,509        619,922      28,114,431
  Net income                                        --             --             --       1,860,945                      1,860,945
  Unrealized appreciation
     on securities
     available-for-sale, net                        --             --             --              --        545,024         545,024
  Issuance of  6,414,125 shares of
     $.01 par value common stock in
     initial public offering, net of
     conversion related expenses                64,141     61,421,084             --              --             --      61,485,225
  Issuance of 192,423 shares
     of $.01 par value common
     stock to The Warwick
     Savings Foundation                          1,924      1,922,306             --              --             --       1,924,230
  Purchase of common
     stock by ESOP                                  --             --     (8,509,774)             --             --      (8,509,774)
  Allocation of ESOP stock                          --         42,968        686,561              --             --         729,529
                                          ------------   ------------   ------------    ------------   ------------    ------------
BALANCE, MAY 31, 1998                     $     66,065   $ 63,386,358   $ (7,823,213)   $ 29,355,454   $  1,164,946    $ 86,149,610
                                          ============   ============   ============    ============   ============    ============
</TABLE>


  The accompanying notes are an integral part of these consolidated statements.


24 Warwick Community Bancorp, Inc. o Annual Report

<PAGE>

                                WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES


                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED MAY 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                                     1998              1997                 1996
                                                                              -------------       -------------       -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                           <C>                 <C>                 <C>          
  Net income                                                                  $   1,860,945       $   2,865,503       $   1,465,580
  Adjustments to reconcile net income to net cash
     provided by operating activities-
      Depreciation                                                                  455,354             459,171             428,008
      Charitable contribution of Warwick Community
         Bancorp, Inc. common stock to The
         Warwick Savings Foundation                                               1,924,230                  --                  --
      Amortization of premium on investment securities                               70,641             264,120             497,342
      Accretion of discount on investment securities                               (893,335)           (189,667)           (509,755)
      Net (increase) decrease in accrued interest receivable                       (366,005)           (154,589)            140,166
      Net (increase) decrease in mortgage
         servicing rights and other assets                                       (2,935,574)          4,111,000          (2,165,524)
      Provision for loan losses                                                     592,450             130,000             140,000
      Net (gain) on sales of loans                                                  (94,036)           (137,403)           (118,807)
      Net (gain) on sale of securities                                             (742,249)           (816,304)           (356,266)
      Net increase (decrease) in accrued interest payable                           274,104              10,496            (174,460)
      Net increase in accrued expenses and other liabilities                      1,460,664             706,750           1,539,027
                                                                              -------------       -------------       -------------
            Net cash provided by operating activities                             1,607,189           7,249,077             885,311
                                                                              -------------       -------------       -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from maturities and calls of securities                               32,800,000          12,424,922          39,576,296
  Purchases of securities                                                      (155,073,028)        (70,743,474)       (108,398,408)
  Proceeds from sales of trading securities
     and securities available-for-sale                                           63,117,707          66,376,202          31,727,463
  Principal repayments from mortgage-backed securities                           16,446,960          10,469,393           3,637,431
  Purchases of Federal Home Loan Bank stock                                      (1,661,200)           (553,200)           (267,600)
  Net (increase) decrease in loans                                              (74,341,710)        (29,187,635)         14,537,389
  Purchases of banking premises and equipment, net                               (1,128,283)           (240,610)             60,174
                                                                              -------------       -------------       -------------
            Net cash used in investing activities                              (119,839,554)        (11,454,402)        (19,127,255)
                                                                              -------------       -------------       -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net increase (decrease) in deposits                                             1,510,472         (11,649,533)           (882,800)
  Net increase (decrease) in mortgage escrow funds                                  868,294             395,059           3,051,380
  Increase in borrowed funds                                                     61,700,000          20,040,000           8,300,000
  Purchase of common stock by ESOP                                               (8,509,774)                 --                  --
  ESOP allocation                                                                   686,561                  --                  --
  Proceeds from issuance of common stock                                         64,141,250                  --                  --
  Payments for conversion costs                                                  (2,656,025)                 --                  --
                                                                              -------------       -------------       -------------
            Net cash provided by financing activities                           117,740,778           8,785,526          10,468,580
                                                                              -------------       -------------       -------------
            Increase (decrease) in cash and cash equivalents                       (491,587)          4,580,201          (7,773,364)

CASH AND CASH EQUIVALENTS, beginning of year                                     11,681,711           7,101,510          14,874,874
                                                                              -------------       -------------       -------------
CASH AND CASH EQUIVALENTS, end of year                                        $  11,190,124       $  11,681,711       $   7,101,510
                                                                              =============       =============       =============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
    Interest on deposits and borrowed funds                                     $ 9,697,360       $   9,365,666       $   8,891,558
    Income taxes                                                                  1,312,041           2,117,500                  --
Reclassification from held-to-maturity to available-for-sale                             --                  --          26,180,452
</TABLE>


 The accompanying notes are an integral part of these consolidated statements.

                                                                       [LOGO] 25

<PAGE>


[LOGO]                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a description of the significant  accounting  policies followed
by Warwick  Community  Bancorp,  Inc.  and  subsidiary  (the  "Company")  in the
preparation of its consolidated financial statements:

BASIS OF PRESENTATION

The accompanying  consolidated  financial statements include the accounts of the
Company and its wholly owned subsidiary,  The Warwick Savings Bank (the "Bank").
All  significant  intercompany  balances  and  transactions  are  eliminated  in
consolidation.

As more fully discussed in Note 2, Warwick Community  Bancorp,  Inc., a Delaware
corporation,  was  organized by the Bank for the purpose of acquiring all of the
capital stock of the Bank pursuant to the conversion of the Bank from a New York
chartered  mutual savings bank to a New York  chartered  stock savings bank. The
Company is subject to the financial  reporting  requirements  of the  Securities
Exchange Act of 1934, as amended.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

In preparing the consolidated  financial  statements,  management is required to
make estimates and  assumptions  that affect the reported assets and liabilities
as of the date of the consolidated  statements of financial condition.  The same
is true of revenues and expenses  reported for the period.  Actual results could
differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company generally considers short-term instruments, with original maturities
of three months or less, measured from their acquisition date, and highly liquid
instruments readily convertible to known amounts of cash to be cash equivalents.

For purposes of reporting cash flows, cash and cash equivalents  include cash on
hand,  amounts due from banks and federal funds sold.  Generally,  federal funds
sold are sold for one-day periods.

SECURITIES

The Company classifies its securities as trading securities,  available-for-sale
securities,  or  held-to-maturity  securities  in accordance  with  Statement of
Financial  Accounting  Standards  ("SFAS")  No.  115,  "Accounting  for  Certain
Investments  in Debt and Equity  Securities."  Trading  securities  are debt and
equity securities that are bought principally for the purpose of selling them in
the near term, and  securities  classified as  held-to-maturity  consist of debt
securities  which the  Company  has the  positive  intent and ability to hold to
maturity  and are  carried at  amortized  cost.  Securities  considered  neither
trading nor held-to-maturity are classified as available-for-sale securities and
are  carried at fair  value  with  unrealized  gains and  losses  excluded  from
earnings and reported as a separate  component of  stockholders'  equity (net of
related  deferred  taxes).  Trading  securities  are  carried at fair value with
unrealized gains and losses included in earnings.

Federal Home Loan Bank stock is considered  restricted  stock under SFAS No. 115
and, accordingly, is carried at cost.

In November 1995, the Financial  Accounting  Standards  Board ("FASB")  issued a
special  report on the  implementation  of SFAS No.  115.  This  special  report
provided  an  opportunity  for  a  one-time  reassessment  of  an  institution's
classification  of securities as of a single  measurement  date between November
15, 1995 and  December  31,  1995.  In December  1995,  the Company  transferred
$26,180,452  of U.S.  Government  agency  securities  and  other  securities  to
available-for-sale from the held-to-maturity portfolio.

LOANS

Loans are stated at the principal  amount  outstanding,  net of unearned income.
Loans are placed on non-accrual  status when  management has determined that the
borrower will be unable to meet contractual principal or interest obligations or
when unsecured  interest or principal payments are 90 days past due. When a loan
is  classified  as  non-accrual,  the  recognition  of interest  income  ceases.
Interest  previously  accrued and remaining  unpaid is reversed  against income.
Cash  payments  received  are applied to principal  and  interest  income is not
recognized unless management determines that the financial condition and payment
record of the borrower warrant the recognition of income.


26 Warwick Community Bancorp, Inc. o Annual Report

<PAGE>

                                WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES


ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is a significant  estimate based upon management's
periodic  evaluation of the loan portfolio  under current  economic  conditions,
considering  factors  such as the  Company's  past  loss  experience,  known and
inherent  risks  in the  portfolio,  adverse  situations  that  may  affect  the
borrower's  ability  to  repay,  and  the  estimated  value  of  the  underlying
collateral.  Establishing  the  allowance for loan losses  involves  significant
management  judgment,  utilizing the best  available  information at the time of
review.  Those  judgments  are  subject  to further  review by various  sources,
including the Bank's  regulators.  While management  estimates loan losses using
the best  available  information,  future  adjustments  to the  allowance may be
necessary  based on changes  in  economic  and real  estate  market  conditions,
further  information  obtained regarding known problem loans, the identification
of additional problem loans, and other factors.

SFAS No. 114 defines an impaired loan as a loan for which it is probable,  based
on current  information,  that the lender will not collect all amounts due under
the contractual terms of the loan agreement.  The Company applies the impairment
criteria to all loans,  except for large  groups of smaller  balance  homogenous
loans  that are  collectively  evaluated  for  impairment,  such as  residential
mortgage and consumer  installment  loans.  Income  recognition  and  charge-off
policies  were not  changed as a result of this  statement.  At May 31, 1998 and
1997,  in addition to the  non-accrual  loans  discussed in Notes 4 and 5, there
were $630,946 and $504,265,  respectively, of loans identified by the Company as
impaired, as defined under SFAS No. 114 with no specific reserves for losses.

MORTGAGE LOANS HELD-FOR-SALE

Mortgage  loans  originated  and intended for sale in the  secondary  market are
carried at the lower of cost or estimated fair value in the aggregate,  with net
unrealized  losses (if any) reported in earnings.  Realized  gains and losses on
sales of loans are based on the cost of the specific loans sold.

LOAN ORIGINATION FEES AND RELATED COSTS

Loan fees and certain direct loan  origination  costs are deferred,  and the net
fee or cost is  recognized  in income  using  the  level-yield  method  over the
contractual  life of the  loans.  Unamortized  fees and  costs on loans  sold or
prepaid prior to contractual  maturity are recognized as an adjustment to income
in the year such loans are sold or prepaid.

MORTGAGE SERVICING RIGHTS

The cost of mortgage  servicing  rights  (purchased  or  originated  rights with
related  loans  sold) is  amortized  in  proportion  to, and over the period of,
estimated net servicing  revenues.  Impairment of mortgage  servicing  rights is
assessed  based on the fair value of those  rights.  For  purposes of  measuring
impairment,   the  servicing  rights  are  stratified  based  on  the  following
predominant risk  characteristics of the underlying loans: (a) loan type and (b)
origination or securitization date.

BANK PREMISES AND EQUIPMENT

Bank premises and equipment  are carried at cost less  accumulated  depreciation
and amortization.  Depreciation is computed on the straight-line method over the
estimated useful lives of the related assets.  Equipment under capital leases is
amortized on the straight-line  method over the shorter of the lease term or the
estimated useful life of the asset. Repairs and maintenance, as well as renewals
and  replacements  of a routine  nature,  are expensed  while costs  incurred to
improve or extend the life of existing assets are capitalized.

OTHER REAL ESTATE OWNED

Other real estate owned ("OREO")  represents  properties  acquired through legal
foreclosure.  Prior to  transferring  a real  estate  loan to OREO,  the loan is
written  down to the lower of the  recorded  investment  in the loan or the fair
value of the property.  Any resulting  write-downs  are charged to the allowance
for loan  losses.  Thereafter,  the  property is carried at the lower of cost or
fair value less costs to sell, with any  adjustments  recorded as an increase or
decrease to the allowance for losses on OREO.

INTEREST INCOME

Interest income includes interest income on loans and investment  securities and
dividend income received on investment securities.

The  operations of the Company are  substantially  dependent on its net interest
income,  which is the  difference  between  the  interest  income  earned on its
interest-earning  assets and the interest  expense paid on its  interest-bearing
liabilities. Like most savings institutions, the Company's earnings are affected
by changes in market interest rates and the economic factors beyond its control.
Decreases in the Company's  average  interest rate spread could adversely affect
the Company's net interest income.


                                                                       [LOGO] 27

<PAGE>


INCOME TAXES
         
Deferred tax assets and  liabilities  are  recognized for the future tax effects
attributable  to  "temporary  differences"  (differences  between the  financial
statement  carrying  amounts  of  existing  assets  and  liabilities  and  their
respective  tax bases) and tax loss and tax credit  carryforwards.  Deferred tax
assets  are  reduced  by a  valuation  allowance  if,  based on an  analysis  of
available evidence,  management  determines that it is more likely than not that
some portion or all of the  deferred  tax assets will not be realized.  Deferred
tax assets and  liabilities  are measured  using  enacted tax rates  expected to
apply to  taxable  income in the years in which the  temporary  differences  are
expected  to be  recovered  or settled.  The effect on  deferred  tax assets and
liabilities  of a change  in tax laws or rates is  recognized  in  income in the
period that includes the enactment date of the change.

EMPLOYEE STOCK OWNERSHIP PLAN

The Company follows AICPA Statement of Position 93-6, "Employers' Accounting for
Employee  Stock  Ownership  Plans"  ("SOP  93-6"),  to account  for the  Warwick
Community  Bancorp,  Inc.  Employee  Stock  Ownership  Plan  ("ESOP").  SOP 93-6
requires  that  compensation  expense be recognized  for shares  committed to be
released to directly compensate  employees equal to the fair value of the shares
committed.  In addition,  SOP 93-6 requires that leveraged ESOP debt and related
interest  expense be  reflected  in the  employer's  financial  statements.  The
application of SOP 93-6 will result in fluctuations in compensation expense as a
result of changes in the fair value of the Company's common stock;  however, any
such compensation expense  fluctuations will result in an offsetting  adjustment
to paid-in capital. Therefore, total capital will not be affected.

EARNINGS PER SHARE

The Company adopted SFAS No. 128, "Earnings Per Share." Basic earnings per share
excludes dilution and is computed by dividing net income by the weighted average
number of common shares outstanding for the period.  Diluted earnings per share,
which  reflects the  potential  dilution that could occur if  outstanding  stock
options  were  exercised  and resulted in the issuance of common stock that then
shared in the earnings of the Company, is computed by dividing net income by the
weighted average number of common shares and dilutive instruments. As of May 31,
1998,  the Company has no securities  that could be converted  into common stock
nor does the Company  have any  contracts  that could  result in the issuance of
common stock.

RECLASSIFICATIONS

Certain  reclassifications were made to the accompanying 1997 and 1996 financial
statements to conform to 1998 presentation.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued SFAS No. 130 "Reporting  Comprehensive Income" and
SFAS  No.  131  "Disclosures   about  Segments  of  an  Enterprise  and  Related
Information."  These  statements are effective for fiscal years  beginning after
December 15, 1997 and  restatement of financial  statements or  information  for
earlier periods provided for comparative purposes is required. The provisions of
these  statements  will not  affect  the  Company's  results  of  operations  or
financial condition.

In February 1998,  the FASB issued SFAS No. 132  "Employers'  Disclosures  About
Pensions  and Other  Post-retirement  Benefits."  SFAS No.  132  supercedes  the
disclosure requirements for pension and other post-retirement plans as set forth
in SFAS No. 87 "Employers'  Accounting  for  Pensions,"  SFAS No. 88 "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for  Termination   Benefits,"  and  SFAS  No.  106  "Employers'  Accounting  for
Post-retirement  Benefits  Other Than  Pensions."  SFAS No. 132 does not address
measurement or recognition for pension and other post-retirement  benefit plans.
SFAS No. 132 is effective for fiscal years  beginning  after  December 15, 1997.
Restatement of disclosures for earlier periods provided for comparative purposes
is required unless the information is not readily  available,  in which case the
notes to the financial statements shall include all available  information and a
description of the  information  not available.  The provision of this statement
will not affect the Company's results of operations or financial condition.

In  June  1998,  the  FASB  issued  SFAS  No.  133  "Accounting  for  Derivative
Instruments and Hedging  Activities." This statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999 and should not be applied
retroactively to financial  statements of prior periods.  The provisions of this
statement  will not affect the  Company's  results of  operations  or  financial
condition.


28 Warwick Community Bancorp, Inc. o Annual Report

<PAGE>


WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES


2. CONVERSION TO STOCK FORM OF OWNERSHIP

On July 10, 1997,  the Board of Trustees of the Bank adopted a proposed  Plan of
Conversion ("Plan") to convert the Bank from a New York mutual savings bank to a
New York  stock  savings  bank and to become a wholly  owned  subsidiary  of the
Company.  The Company completed its initial public offering on December 23, 1997
and sold 6,414,125  shares of common stock  resulting in proceeds of $61,485,225
net of expenses totaling  $2,656,025.  The Company used $30,742,613,  or 50%, of
the net  proceeds  to purchase  all of the  outstanding  stock of the Bank.  The
Company also loaned  $8,509,774 to the ESOP,  which purchased  528,523 shares of
the Company's stock.

As part of the  Plan,  the Bank  and the  Company  formed  The  Warwick  Savings
Foundation and donated  192,423  shares of the Company's  common stock valued at
$1,924,230.   The  Company   recorded  a  contribution   expense  charge  and  a
corresponding  deferred tax benefit of $769,692 for this donation. The formation
of this private charitable foundation is to further the Bank's commitment to the
communities that it serves.

The Company may not declare or pay cash  dividends on or  repurchase  any of its
shares of common stock if the effect thereof would cause stockholders' equity to
be reduced below applicable  regulatory capital  maintenance  requirements,  the
amount required for the liquidation  account, or if such declaration and payment
would otherwise violate regulatory requirements.

3. SECURITIES

A summary of securities at May 31, 1998 and 1997 follows:

<TABLE>
<CAPTION>
                                                                                                 1998
                                                                 -------------------------------------------------------------------
                                                                                         Gross          Gross              Estimated
                                                                  Amortized           Unrealized       Unrealized            Fair
                                                                     Cost                Gains          Losses               Value
                                                                 ------------      ------------      ------------        -----------
<S>                                                              <C>               <C>               <C>                <C>         
Securities available-for-sale:
    Debt securities-
        U.S. Government and agency
           obligations                                           $ 44,464,532      $    433,987      $   (664,499)      $ 44,234,020
        Industrial and financial                                      822,419            28,270                --            850,689
        Collateralized mortgage obligations                        19,592,884             6,060           (40,380)        19,558,564
        Mortgage-backed securities                                 81,097,563         1,192,142          (137,495)        82,152,210
                                                                 ------------      ------------      ------------       ------------
              Total debt securities                               145,977,398         1,660,459          (842,374)       146,795,483

    Common stock                                                      582,215                --            (5,678)           576,537
    Preferred stock                                                 1,101,654            20,346                --          1,122,000
    Mutual fund shares                                             13,822,573         1,122,698           (13,875)        14,931,396
                                                                 ------------      ------------      ------------       ------------
              Total securities available-for-sale                 161,483,840         2,803,503          (861,927)       163,425,416
                                                                 ------------      ------------      ------------       ------------

Securities held-to-maturity:
    U.S. Government and agency
       obligations                                                  6,658,864            14,551           (63,450)         6,609,965
    Obligations of state and political
       subdivisions                                                   664,954             2,014                --            666,968
                                                                 ------------      ------------      ------------       ------------
              Total securities held-to-maturity                     7,323,818            16,565           (63,450)         7,276,933
                                                                 ------------      ------------      ------------       ------------
              Total securities                                   $168,807,658      $  2,820,068      $   (925,377)      $170,702,349
                                                                 ============      ============      ============       ============
</TABLE>


                                                                       [LOGO] 29

<PAGE>


[LOGO]
<TABLE>
<CAPTION>
                                                                                                1997
                                                                 -------------------------------------------------------------------
                                                                                      Gross             Gross              Estimated
                                                                   Amortized        Unrealized        Unrealized             Fair
                                                                     Cost             Gains             Losses              Value
                                                                 ------------      ------------      ------------        -----------
<S>                                                              <C>               <C>               <C>                <C>         
Securities available-for-sale:
    Debt securities-
        U.S. Government and
           agency obligations                                    $ 29,901,648      $    160,787      $    (40,877)      $ 30,021,558
        Public utilities                                              999,340                --            (7,710)           991,630
        Industrial and financial                                    6,991,615            51,779            (5,700)         7,037,694
        Collateralized mortgage obligations                         2,695,832                --           (11,354)         2,684,478
        Mortgage-backed securities                                 72,811,663           770,367          (310,970)        73,271,060
                                                                 ------------      ------------      ------------       ------------
              Total debt securities                               113,400,098           982,933          (376,611)       114,006,420

    Preferred stock                                                   203,518             1,011               (29)           204,500
    Mutual fund shares                                              5,597,002           493,366                --          6,090,368
                                                                 ------------      ------------      ------------       ------------
              Total securities available-for-sale                 119,200,618         1,477,310          (376,640)       120,301,288
                                                                 ------------      ------------      ------------       ------------
Securities held-to-maturity:
    U.S. Government and
       agency obligations                                           5,684,812            38,720           (16,932)         5,706,600
    Obligations of state and
       political subdivisions                                         406,872             2,712                --            409,584
                                                                 ------------      ------------      ------------       ------------
              Total securities held-to-maturity                     6,091,684            41,432           (16,932)         6,116,184
                                                                 ------------      ------------      ------------       ------------
              Total securities                                   $125,292,302      $  1,518,742      $   (393,572)      $126,417,472
                                                                 ============      ============      ============       ============
</TABLE>


A  summary  of the  carrying  value  of  debt  securities  at May  31,  1998  by
contractual   maturity  is  shown  below.  Actual  maturities  may  differ  from
contractual  maturities  because certain  security issuers may have the right to
call or prepay their obligations.
<TABLE>
<CAPTION>

                                                                    After One        After Five
                                                   One Year         Through           Through          After Ten
                                                   or Less          Five Years       Ten Years           Years              Total
                                                 ------------      ------------     ------------     -----------         -----------
<S>                                             <C>               <C>               <C>               <C>               <C>         
Available-for-sale-
    U.S. Government and
       agency obligations                       $  1,015,000      $  3,148,120      $ 19,813,760      $ 20,257,140      $ 44,234,020
    Industrial and financial                          19,836           830,853                --                --           850,689
    Collateralized mortgage
       obligations                                        --                --                --        19,558,564        19,558,564
    Mortgage-backed securities                            --         1,024,722         1,252,674        79,874,814        82,152,210
                                                ------------      ------------      ------------      ------------      ------------
        Total available-for-sale                $  1,034,836      $  5,003,695      $ 21,066,434      $119,690,518      $146,795,483
                                                ============      ============      ============      ============      ============
Held-to-maturity-
    U.S. Government and
       agency obligations                       $    309,218      $  1,349,646      $         --      $  5,000,000      $  6,658,864
    Obligations of state and
       political subdivisions                        560,000           104,954                --                --           664,954
                                                ------------      ------------      ------------      ------------      ------------
        Total held-to-maturity                  $    869,218      $  1,454,600      $         --      $  5,000,000      $  7,323,818
                                                ============      ============      ============      ============      ============


Proceeds  from  sales  of  securities  (trading  and   available-for-sale)   are
summarized as follows:
<CAPTION>

                                                                                            Years Ended May 31
                                                                     ---------------------------------------------------------------
                                                                         1998                     1997                       1996
                                                                     -----------               -----------               -----------
<S>                                                                  <C>                       <C>                       <C>        
Proceeds from sales                                                  $63,117,707               $66,376,202               $31,727,463
                                                                     ===========               ===========               ===========
Gross gains on sales                                                 $   922,582               $ 1,046,199               $   545,577
                                                                     ===========               ===========               ===========
Gross losses on sales                                                $   180,333               $   229,895               $   189,311
                                                                     ===========               ===========               ===========
</TABLE>

No  securities  held-to-maturity  were sold during the three years ended May 31,
1998.

30 Warwick Community Bancorp, Inc. o Annual Report

<PAGE>


                                WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES


4. MORTGAGE LOANS

A summary of mortgage loans at May 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
                                                            1998                       1997
                                                       -------------              -------------
<S>                                                    <C>                        <C>          
Conventional 1-4 family residential loans originated   $ 127,812,039              $  79,096,961
Conventional 1-4 family residential loans purchased        2,103,550                  2,706,457
Loans partially guaranteed by VA or insured by FHA           594,827                    748,520
Home equity loans                                         15,875,753                 13,449,077
Construction loans                                         6,703,046                  4,109,840
                                                       -------------              -------------
                                                         153,089,215                100,110,855
Undisbursed portion of construction loans                 (3,939,460)                (2,117,833)
Net deferred loan fees                                      (535,434)                  (328,740)
Allowance for loan losses                                   (371,596)                  (224,079)
                                                       -------------              -------------
                                                       $ 148,242,725              $  97,440,203
                                                       =============              =============
</TABLE>


The Bank has sold certain  conventional  mortgage loans without recourse and has
retained the related  servicing  rights.  The  remaining  principal  balances of
mortgage loans serviced for others,  which are not included in the  accompanying
consolidated   financial   statements,   were  approximately   $144,283,000  and
$122,311,000 at May 31, 1998 and 1997, respectively.

Mortgage loans in arrears three months or more were  approximately  $970,000 and
$1,214,000 at May 31, 1998 and 1997, respectively. Mortgage loans on non-accrual
status at May 31,  1998 and 1997 were  approximately  $699,000  and  $1,111,000,
respectively.  Interest  income  that would have been  recorded if the loans had
been performing in accordance with their original terms aggregated approximately
$100,000,  $93,000 and $54,000  during the years  ended May 31,  1998,  1997 and
1996, respectively.

5. OTHER LOANS

A summary of other loans at May 31, 1998 and 1997 follows:

<TABLE>
<CAPTION>
                                                           1998                        1997
                                                       -------------              -------------
<S>                                                    <C>                        <C>         
Commercial                                             $ 34,113,671               $ 23,417,939
Automobile                                                8,351,918                  7,738,516
Student                                                   1,352,784                  1,331,569
Credit card                                               1,239,391                  1,334,548
Other consumer loans                                      3,025,549                  3,053,852
                                                       ------------               ------------
                                                         48,083,313                 36,876,424
Net deferred loan fees                                      242,704                    182,590
Allowance for loan losses                                (1,141,374)                (1,007,576)
                                                       ------------               ------------
                                                       $ 47,184,643               $ 36,051,438
                                                       ============               ============
</TABLE>


Commercial loans in arrears three months or more were approximately $292,000 and
$121,000 at May 31, 1998 and 1997, respectively. Commercial loans on non-accrual
status  at May 31,  1998 and  1997  were  approximately  $159,000  and  $26,000,
respectively.  Consumer loans in arrears three months or more were approximately
$27,000 and $96,000 at May 31, 1998 and 1997, respectively.


                                                                       [LOGO] 31

<PAGE>


[LOGO]


6. ALLOWANCE FOR LOAN LOSSES

The activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>

                                                           Years Ended May 31
                                     --------------------------------------------------------------
                                         1998                     1997                     1996
                                     -----------              -----------              ------------
<S>                                  <C>                      <C>                      <C>        
Balance at beginning of period       $ 1,231,655              $ 1,304,765              $ 1,206,486
    Provision for loan losses            592,450                  130,000                  140,000
    Charge-offs                         (325,524)                (213,042)                (149,877)
  Recoveries                              14,389                    9,932                  108,156
                                     -----------              -----------              -----------
Balance at end of period             $ 1,512,970              $ 1,231,655              $ 1,304,765
                                     ===========              ===========              ===========
</TABLE>

7. MORTGAGE SERVICING RIGHTS

Mortgage servicing rights as of May 31, 1998 and 1997 consist of the
following:

<TABLE>
<CAPTION>

                                                    1998                1997
                                                 -----------        -----------
<S>                                              <C>                <C>        
Mortgage Servicing Rights                        $ 1,180,858        $   885,992
Less-Accumulated amortization                       (129,362)           (50,913)
                                                 -----------        -----------
                                                 $ 1,051,496        $   835,079
                                                 ===========        ===========
</TABLE>


The Bank  capitalized  originated  mortgage  servicing  rights of  $342,720  and
$216,047 for the years ended May 31, 1998 and 1997, respectively.

8. BANK PREMISES AND EQUIPMENT

A summary of bank premises and equipment at May 31, 1998 and 1997 follows:

<TABLE>
<CAPTION>
                                                    1998                1997
                                                 -----------        -----------
<S>                                              <C>                <C>        
Land                                             $ 1,169,109        $   340,587
Buildings and improvements                         2,745,075          2,720,751
Equipment                                          2,684,039          2,522,432
Furniture and fixtures                               647,091            584,896
                                                 -----------        -----------
                                                   7,245,314          6,168,666
Less-Accumulated depreciation                     (4,139,934)        (3,742,835)
                                                 -----------        -----------
                                                 $ 3,105,380        $ 2,425,831
                                                 ===========        ===========
</TABLE>

9. DEPOSITOR ACCOUNTS

Deposit account  balances and stated interest rates at May 31, 1998 and 1997 are
summarized as follows:

<TABLE>
<CAPTION>                                         
                                                                                             
                                               1998                                               1997   
                                              Stated                                             Stated                    
                                               Rates                    1998                      Rates                     1997
                                            -----------              -----------               -----------               -----------
<S>                                         <C>                      <C>                       <C>                      <C>         
      Demand checking accounts                    --  %              $26,743,222                     --  %              $ 23,854,838
      Negotiable order of                                                                                       
         withdrawal accounts (NOW)          1.00 - 2.25               17,557,881               1.00 - 2.25                15,023,912
      Savings accounts                      2.00 - 3.25               80,650,580                   3.00                   80,175,311
      Money market accounts                 2.35 - 3.50               26,863,318               2.35 - 3.50                27,119,239
      Time certificates                     4.50 - 5.00               70,906,608               4.30 - 5.50                75,037,837
                                                                    ------------                                        ------------
                Total deposits                                      $222,721,609                                        $221,211,137
                                                                    ============                                        ============
</TABLE>


32 Warwick Community Bancorp, Inc. o Annual Report

<PAGE>

Time  certificate  balances at May 31, 1998 and 1997 are summarized by remaining
period to contractual maturity as follows:

                                                       1998              1997
                                                   -----------       -----------
Under one year                                     $64,599,733       $69,248,768
One year to under three years                        3,998,068         3,792,718
Three years and over                                 2,308,807         1,996,351
                                                   -----------       -----------
                                                   $70,906,608       $75,037,837
                                                   ===========       ===========


The aggregate  amount of time  certificates in denominations of $100,000 or more
was  approximately   $6,107,000  and  $5,174,000  at  May  31,  1998  and  1997,
respectively.

10. INCOME TAXES

The tax effects of temporary  differences  that give rise to the Bank's deferred
tax assets and deferred tax  liabilities,  on a combined basis,  for federal and
state tax purposes at May 31, 1998 and 1997, are as follows:

                                                                   1998     1997
                                                                   -----   -----
                                                                 (000's omitted)
Deferred tax assets:
    Charitable contribution benefit                              $  496     $ --
    Allowance for loan losses                                       620      504
    Accrued post-retirement benefits                                646      618
    Other deductible temporary differences                           49      141
                                                                 ------   ------

          Total gross deferred tax assets                         1,811    1,263
                                                                 ------   ------
Deferred tax liabilities:
    Bad debt reserves for income tax purposes in
       excess of the base-year reserves                             289      289
    Net unrealized gain on securities available-for-sale            755      438
    Other taxable temporary differences                             170      479
                                                                 ------   ------
          Total gross deferred tax liabilities                    1,214    1,206
                                                                 ------   ------
          Net deferred tax asset (included in other assets)      $  597   $   57
                                                                 ======   ======


Management believes that it is more likely than not that it will realize the net
deferred tax asset.

Provision for income taxes is comprised of the following:

                                              Years Ended May 31
                              --------------------------------------------------
                                   1998              1997                1996
                              -----------        -----------        ------------
Current:
    Federal                   $ 1,636,872        $ 1,302,494        $   945,021
    State                         445,276            450,864            350,741
                              -----------        -----------        -----------
                                2,082,148          1,753,358          1,295,762
                              -----------        -----------        -----------
Deferred:
    Federal                      (614,224)           109,410           (198,026)
    State                        (163,657)          (106,902)           (73,496)
                              -----------        -----------        -----------
                                 (777,881)             2,508           (271,522)
                              -----------        -----------        -----------
                              $ 1,304,267        $ 1,755,866        $ 1,024,240
                              ===========        ===========        ===========


                                                                       [LOGO] 33

<PAGE>


[LOGO]


The  provision  for income  taxes for the three years ended May 31, 1998 differs
from that computed at the federal statutory rate as follows:

<TABLE>
<CAPTION>
                                                                            Years Ended May 31
                                                          -------------------------------------------------- 
                                                              1998              1997                 1996
                                                          -----------        -----------        ------------
<S>                                                       <C>                <C>                 <C>        
Tax at federal statutory rate                             $ 1,076,172        $ 1,571,265         $   846,539
State taxes, net of federal income tax benefit                218,379            322,566             182,981
Reversal of New York State Deferred Taxes                          --           (164,817)                 --
Other                                                           9,716             26,852              (5,280)
                                                          -----------        -----------         -----------
          Total income tax expense                        $ 1,304,267        $ 1,755,866         $ 1,024,240
                                                          ===========        ===========         ===========
Effective rate                                                  41.21%             37.99%              41.14%
</TABLE>

As a thrift  institution,  the Bank is  subject  to  special  provisions  in the
federal  and New  York  State  tax laws  regarding  its  allowable  tax bad debt
deductions and related tax bad debt reserves. These deductions historically have
been  determined  using  methods  based on loss  experience  or a percentage  of
taxable  income.  Tax bad debt  reserves  are  maintained  for  qualifying  real
property  loans and for  non-qualifying  loans in amounts equal to the excess of
allowable deductions over actual bad debt losses and other reserve reductions. A
supplemental reserve is also maintained.  The qualifying and non-qualifying loan
reserves consist of a defined base-year amount, plus additional amounts ("excess
reserves") accumulated after the base year. SFAS No. 109 requires recognition of
deferred tax liabilities  with respect to such excess  reserves,  as well as any
portion of the base-year amount or the supplemental reserve which is expected to
become taxable (or "recaptured") in the foreseeable future.

Certain  amendments to the federal tax bad debt  provisions were enacted in July
1996.     The    federal     amendments     include     elimination    of    the
percentage-of-taxable-income  method for tax years  beginning after December 31,
1995 and  imposition of a requirement  to recapture  into taxable income (over a
six-year  period) the qualifying and  non-qualifying  loan reserves in excess of
the base-year amounts.  However, such recapture  requirements were suspended for
each of the two successive  taxable years beginning January 1, 1996 in which the
Bank originates a minimum amount of certain  residential loans during such years
that is not less than the average of the principal amounts of such loans made by
the Bank  during its six  taxable  years  preceding  January  1, 1996.  The Bank
previously established,  and will continue to maintain, a deferred tax liability
with respect to such excess federal reserves.

The New York State  amendments  enacted in August of 1996 redesignate the Bank's
State bad debt reserves at May 31, 1997 as the base-year amount and also provide
for    future    additions    to    the    base-year     reserve    using    the
percentage-of-taxable-income  method.  This change  effectively  eliminated  the
excess  New York State  reserves  for which a deferred  tax  liability  had been
recognized,  and  accordingly,  the Bank reduced its  deferred tax  liability by
$164,817 (with a corresponding  reduction in income tax expense) during the year
ended May 31, 1997.

In  accordance  with  SFAS  No.  109,  deferred  tax  liabilities  have not been
recognized with respect to the base-year and  supplemental  reserves,  since the
Bank does not expect that these amounts will become  taxable in the  foreseeable
future.  Under the tax laws as amended,  events that would result in taxation of
these reserves  include:  (i) reductions in the reserves for purposes other than
tax  bad  debt  losses,  (ii)  failure  of the  Bank  to  maintain  a  specified
qualifying-assets ratio or meet other thrift definition tests for New York State
tax  purposes  and  (iii)  certain  stock   redemptions,   partial  or  complete
liquidation or  distribution  in excess of post-1951  earnings and profits.  The
reserve  balance of  $4,713,000  at December  31,  1987 has not been  subject to
deferred taxes.

11. BENEFIT PLANS

Pension Plan

All eligible  employees of the Bank are  included in a  noncontributory  defined
benefit pension plan administered by Actuarial Pension Analysts,  Inc. Under the
terms of the  Plan,  participants  vest 100% upon  completion  of five  years of
service  as  defined  in the plan  document.  The  Bank's  policy is to fund the
consulting actuary's recommended  contribution. 


34 Warwick Community Bancorp, Inc. o Annual Report

<PAGE>

WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES


The funded status of the Bank's pension  plan was as follows at May 31, 1998 and
1997:

<TABLE>
<CAPTION>
                                                                                    1998                 1997
                                                                                -----------          ------------
<S>                                                                             <C>                  <C>
Actuarial present value of benefit obligations: 
    Accumulated benefit obligation, including vested benefits of
       $3,474,680 and $3,188,237 at May 31, 1998 and 1997, respectively         $(3,513,332)         $(3,203,156)
    Effect of projected future compensation levels                               (1,038,139)            (915,896)
                                                                                -----------          -----------
          Projected benefit obligation                                           (4,551,471)          (4,119,052)
                                                                                -----------          -----------
Plan assets at fair value, primarily fixed income and equity funds                5,820,424            4,990,430
                                                                                -----------          -----------
          Excess of plan assets over projected benefit obligation                 1,268,953              871,378
Unrecognized net gain from past experience different from that assumed
   and effect of changes in assumptions                                          (1,096,860)            (515,120)
Unrecognized past service liability                                                 (38,937)             (45,471)
Unrecognized net transition asset                                                      --                (19,099)
                                                                                -----------          -----------
          Net prepaid pension cost (included in other assets)                   $   133,156          $   291,688
                                                                                ===========          ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                                       Years Ended May 31
                                                                      -------------------------------------------------- 
                                                                         1998                1997                1996
                                                                      -----------         -----------        -----------
<S>                                                                   <C>                 <C>                 <C>      
Net pension cost includes the following components:
    Service costs--benefits earned during the period                  $ 277,347           $ 228,068           $ 176,483
    Interest cost on projected benefit obligation                       302,451             275,763             266,739
    Actual return on assets                                            (393,466)           (357,442)           (321,582)
    Amortization of transition assets                                   (21,266)            (33,311)            (33,311)
    Amortization of prior service cost                                   (6,534)             (6,534)             (6,024)
                                                                      ---------           ---------           ---------
              Net pension cost                                        $ 158,532           $ 106,544           $  82,305
                                                                      =========           =========           =========
Major assumptions utilized as follows:
    Discount rate                                                          7.50%               7.50%               7.50%
    Rate of increase in compensation levels                                5.50                5.50                5.50
    Expected long-term rate of return on Plan assets                       8.00                8.00                8.00
</TABLE>

Post-retirement Benefits Other Than Pensions

The Bank also provides post-retirement health care (medical and dental) benefits
and life  insurance  benefits to certain  retirees if they meet  certain age and
length of service  requirements  prior to  retirement.  For  retirees who retire
after April 24, 1996, the  continuation of such benefits is conditioned upon the
retiree  contributing a portion of the cost of such  benefits.  For retirees who
retire  before April 25, 1996,  such benefits are not  conditioned  upon retiree
contributions.

The  Bank  adopted  SFAS No.  106 in  fiscal  1995 and  changed  its  method  of
accounting for these post-retirement  benefits.  Under SFAS No. 106, the cost of
post-retirement  health care and life  insurance  benefits is  recognized  on an
accrual  basis as such  benefits  is earned by  active  employees.  Prior to the
adoption of SFAS No. 106, the Bank  recognized  the cost of these  benefits on a
cash basis.


                                                                       [LOGO] 35

<PAGE>


[LOGO]


At  May  31,  1998  and  1997,  the  actuarial  and  accrued   liabilities   for
post-retirement health care and life insurance benefits, none of which have been
funded, were as follows:

<TABLE>
<CAPTION>
                                                                                                         1998               1997
                                                                                                     -----------        -----------
<S>                                                                                                  <C>                <C>        
Accumulated post-retirement benefit obligations:
    Retirees                                                                                         $   540,033        $   629,490
    Other active participants                                                                            733,962            654,434
                                                                                                     -----------        -----------
          Accumulated post-retirement benefit obligation                                               1,273,995          1,283,924
Unrecognized (gain) loss                                                                                (303,975)          (200,486)
                                                                                                     -----------        -----------
          Accrued post-retirement benefit cost (including in other liabilities)                      $ 1,577,970        $ 1,484,410
                                                                                                     ===========        ===========
Effect of 1% increase in health care cost trend rate--
   accumulated post-retirement benefit obligation                                                    $   194,887        $   154,095
                                                                                                     ===========        ===========
</TABLE>

Net  periodic   post-retirement  benefit  cost  is  included  in  the  following
components:

<TABLE>
<CAPTION>
                                                                                                 Years Ended May 31
                                                                                       ---------------------------------------------
                                                                                         1998              1997              1996
                                                                                       ---------         ---------         ---------
<S>                                                                                    <C>               <C>               <C>      
Service cost--benefits attributed to service during period                             $  63,209         $  59,341         $  72,156
Interest cost on accumulated post-retirement benefit obligation                           91,391           101,806           102,074
Amortization of prior service cost                                                       (35,240)             --                --
Amortization of (gains) losses                                                             4,904           (17,141)           13,845
                                                                                       ---------         ---------         ---------
          Net periodic post-retirement benefit cost                                    $ 124,264         $ 144,006         $ 188,075
                                                                                       =========         =========         =========
</TABLE>

The  accumulated  post-retirement  benefit  obligation was determined  using the
projected unit cost method,  as required by SFAS No. 106, and a discount rate of
7.2% in 1998,  8.00% in 1997 and 7.50% in 1996.  The assumed rate of increase in
future  health  care  costs  was 9.0% in 1998,  9.50% in 1997 and 10.0% in 1996,
gradually  decreasing  to 5.0% in the year  2006  and  remaining  at that  level
thereafter.

401(k) Plan
The Bank has a 401(k) plan (the "Plan") covering full-time employees who satisfy
the  eligibility  requirement  and elect to  participate  in the plan.  The Plan
provides for employer  matching  contributions  subject to a specified  maximum.
Amounts  charged to operations  for the years ended May 31, 1998,  1997 and 1996
were approximately $110,000, $86,000 and $65,000, respectively.

Benefit Restoration Plan
The Bank  adopted  the Benefit  Restoration  Plan of The  Warwick  Savings  Bank
("BRP") to provide certain designated  employees with the benefits that would be
due to such  employees  under the Pension Plan,  the 401(k) Plan and the ESOP if
such benefits were not limited under the Internal Revenue Code.  Expense related
to the BRP included in the  consolidated  statements of income is  approximately
$70,000 for the year ended May 31, 1998.

Employee Stock Ownership Plan
The Company has established an ESOP for eligible employees.  Generally full-time
employees of the Company or the Bank who have been  credited with at least 1,000
hours during a twelve-month period are eligible to participate.

The ESOP  borrowed  $8,509,774 at an interest rate of 8.00% from the Company and
used the funds to purchase  528,523 shares of the Company's  common stock issued
in the Conversion.  Generally,  the loan is repaid  principally  from the Bank's
discretionary  contributions to the ESOP over a 10-year period. At May 31, 1998,
the loan had an  outstanding  balance of  $8,014,720.  Interest  expense for the
obligations was $262,095 for the year ended May 31, 1998.  Shares purchased with
the  loan  proceeds  are  held  in  a  suspense  account  for  allocation  among
participants as the loan is paid.  Contributions to the ESOP and shares released
from the loan collateral in an amount  proportional to the repayment of the ESOP
loan are allocated among participants on the basis of compensation, as described
in the plan, in the year of allocation.  Benefits  generally  become 100% vested
after  seven  years of  vesting  service  and are  immediately  vested on death,
retirement or disability.  In addition,  in the event of a change in control, as
defined in the plan, any unvested  portion of benefits  shall vest  immediately.
Forfeitures are used to reduce employer contributions. Benefits are payable upon
death,  retirement,  disability,  or  separation  from service  based on vesting
status and share allocations made.


36 Warwick Community Bancorp, Inc. o Annual Report

<PAGE>


                                WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES


As of May 31, 1998,  31,016  shares were  allocated to  participants  and 13,213
shares were  committed to be released.  As shares are released from  collateral,
the shares become outstanding for earnings per share computations. As of May 31,
1998, the fair market value of the 484,294 unearned shares was $8,232,998.

12. BORROWED FUNDS AND REPURCHASED AGREEMENTS

Securities  sold under  agreements  to repurchase at May 31, 1998 and 1997 which
were transacted with a major securities firm are as follows:

<TABLE>
<CAPTION>
                              1998                                                         1997
    ------------------------------------------------------         -----------------------------------------------------
       Amount                 Rate              Maturity               Amount              Rate               Maturity
    -------------          -------------     -------------         -------------       -------------        ------------
<S> <C>                       <C>               <C>                <C>                     <C>                <C>   
    $   490,000               5.64%             06/15/98           $   705,000             5.69%              06/18/97
      4,000,000               5.64              06/15/98             4,685,000             5.69               06/18/97
      1,300,000               5.95              06/19/98             1,300,000             6.00               06/19/97
      1,300,000               6.40              06/19/98             1,300,000             6.40               06/19/98
      5,000,000               5.69              06/30/98             4,700,000             6.65               07/01/98
      4,700,000               6.32              05/24/99             1,000,000             6.65               06/19/99
      1,000,000               6.65              06/19/99             4,700,000             6.32               05/24/99
      4,700,000               6.65              06/30/99             4,700,000             6.53               08/01/99
      4,700,000               6.53              08/01/99           -----------             
    -----------                                                    $23,090,000
    $27,190,000                                                    ===========
    =========== 
</TABLE>


Information relating to borrowings under repurchase  agreements is summarized as
follows:

<TABLE>
<CAPTION>
                                                                                               Years Ended May 31
                                                                         -----------------------------------------------------------
                                                                             1998                    1997                    1996
                                                                         ------------            -------------         -------------
<S>                                                                      <C>                      <C>                  <C>        
Average balance during the year                                          $24,056,648              $19,685,315          $   101,075
Average interest rates during the year                                          6.18%                    6.20%                6.32%
Maximum month-end balance during the year                                 27,500,000               23,300,000            4,700,000
Securities underlying agreement at year-end:                                                   
    Amortized cost                                                        37,729,203               25,470,851            5,000,000
    Estimated market value                                                38,071,150               25,508,437            4,981,000
</TABLE>

Federal Home Loan Bank advances are as follows at May 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                               Available           Outstanding             Rate              Maturity
                                               ---------           -----------           --------            --------
<S>                                            <C>                <C>                      <C>               <C>       
  1998:
      Revolving line of credit                 $16,982,150        $ 7,600,000              5.81%               Daily
      Repricing line of credit                  16,982,150                 --                                 Monthly
      Term loans                                                      250,000              6.96              06/19/00
                                                                    5,000,000              5.79              12/18/01
                                                                   20,000,000              5.02              01/30/08
                                                                   10,000,000              5.79              02/26/08
                                                                    5,000,000              5.26              04/30/08
                                                                    5,000,000              5.63              04/30/08
                                                                   10,000,000              5.47              05/29/01
                                                                  -----------              
                                                                  $62,850,000
                                                                  ===========
  1997:
      Revolving line of credit                 $14,417,000        $        --                --                Daily
      Repricing line of credit                  14,417,000                 --                --               Monthly
      Term loans                                                      250,000              6.96               6/19/00
                                                                    5,000,000              5.79              12/18/01
                                                                  -----------              
                                                                  $ 5,250,000
                                                                  ===========
</TABLE>

In addition, the Bank has a $5 million line of credit from a commercial bank and
a $10 million line of credit from a securities  investment  company which expire
on November 30, 1998. As of May 31, 1998 and 1997 the credit lines were unused.


                                                                       [LOGO] 37

<PAGE>


[LOGO]

13. REGULATORY CAPITAL REQUIREMENTS

The Company 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
Company's  financial  statements.  Under  capital  adequacy  guidelines  and the
regulatory  framework  for  prompt  corrective  action,  the  Company  must meet
specific capital guidelines that involve quantitative  measures of the Company's
assets,  liabilities,  and  certain  off-balance  sheet items  calculated  under
regulatory   accounting   practices.   The   Company'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 Company  and the Bank to  maintain  minimum  amounts and ratios (set
forth in the  table  below)  of total  and Tier 1  capital  (as  defined  in the
regulations)  to risk  weighted  assets (as  defined)  and of Tier 1 capital (as
defined) to average  assets (as  defined).  Management  believes,  as of May 31,
1998,  that the Company and the Bank meet all capital  adequacy  requirements to
which it is subject.

The most recent  notification  from the Federal  Deposit  Insurance  Corporation
categorized  the Bank as well  capitalized  under the  regulatory  framework for
prompt corrective  action. To be categorized as well capitalized,  the Bank must
maintain minimum total risk-based,  Tier 1 risk-based, Tier 1 leverage ratios as
set  forth  in  the  table.  There  are  no  conditions  or  events  since  that
notification that management believes have changed the institution's category.

The Bank's  actual  capital  amounts and ratios are  presented in the  following
table (000's omitted):

<TABLE>
<CAPTION>
                                                                                                  To Be Well
                                                                                               Capitalized Under
                                                                    For Capital Adequacy       Prompt Corrective
                                                 Actual                   Purposes             Action Provisions
                                          --------------------       -------------------       -----------------
                                          Amount         Ratio       Amount        Ratio       Amount      Ratio
                                          ------         -----       ------        -----       ------      -----
<S>                                     <C>               <C>        <C>             <C>       <C>           <C>  
 As of May 31, 1998:
      Total Capital
       (to risk weighted assets)        $54,910           26.27%     $16,721        >8.0%      $20,901      >10.0%
    Tier 1 Capital
       (to risk weighted assets)         53,397           25.55        8,360        >4.0        12,540      >6.0
    Tier 1 Capital
       (to average assets)               53,397           13.91       15,352        >4.0        19,190      >5.0

As of May 31, 1997:
    Total Capital
       (to risk weighted assets)        $28,726           20.33%     $11,302        >8.0%      $14,127      >10.0%
    Tier 1 Capital
       (to risk weighted assets)         27,495           19.46        5,651        >4.0         8,476      >6.0
    Tier 1 Capital
       (to average assets)               27,495            9.53       11,535        >4.0        14,419      >5.0
</TABLE>

38 Warwick Community Bancorp, Inc. o Annual Report

<PAGE>

                                WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES

The Company's  actual capital  amounts and ratios are presented in the following
table (000's omitted):

<TABLE>
<CAPTION>
                                                                                                  To Be Well
                                                                                               Capitalized Under
                                                                    For Capital Adequacy       Prompt Corrective
                                                 Actual                   Purposes             Action Provisions
                                         --------------------       --------------------       -----------------
                                         Amount         Ratio       Amount        Ratio         Amount      Ratio
                                         ------         -----       ------        -----         ------      -----
<S>                                     <C>             <C>        <C>             <C>         <C>           <C>
As of May 31, 1998:
   Total Capital
     (to risk weighted assets)          $86,498         40.78%     $16,968        >8.0%        $21,211       >10.0%
   Tier 1 Capital                     
     (to risk weighted assets)           84,985         40.07        8,484        >4.0          12,726        >6.0
   Tier 1 Capital                     
     (to average assets)                 84,985         21.44       15,855        >4.0          19,818        >5.0
</TABLE>

14. COMMITMENTS AND CONTINGENCIES

Lease Commitments

Rental expense included in the statements of income was approximately  $281,000,
$267,000  and  $249,000  for the  years  ended  May 31,  1998,  1997  and  1996,
respectively.

In 1993,  the Bank  entered  into an  agreement  with a company to provide  data
processing  services.  Such  agreement  expires in July 2000. The commitment for
future  payments  fluctuates  with the  level of  service  provided.  The  costs
incurred in  connection  with this  agreement  are  included in data  processing
expenses in the accompanying statements of income.

Loan Commitments
Loan  commitments  and unused  lines of credit as of May 31, 1998 are as follows
(with comparative totals as of May 31, 1997):

<TABLE>
<CAPTION>
                                                         Commitments             Unused
                                                        to Originate            Lines of
                                                            Loans                Credit                  Total
                                                       --------------         ------------           -------------
<S>                                                     <C>                   <C>                    <C>          
      Mortgage loans                                    $  42,034,747         $         --           $  42,034,747
      Construction loans                                    7,047,106                   --               7,047,106
      Commercial loans                                             --            5,558,603               5,558,603
      Other loans                                           6,414,805                   --               6,414,805
                                                        -------------         ------------           -------------
                Total as of May 31, 1998                $  55,496,658         $  5,558,603           $  61,055,261
                                                        =============         ============           =============
                Total as of May 31, 1997                $  30,011,669         $  4,275,202           $  34,286,871
                                                        =============         ============           =============
</TABLE>

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since  commitments may expire,  the total  commitment
amounts do not necessarily represent future cash requirements.

The Bank's exposure to credit loss in the event of  nonperformance  by the other
party to the loan commitments is represented by their  contractual  amount.  The
Bank  controls the credit risk of loan  commitments  through  credit  approvals,
limits and monitoring  procedures.  The amount of collateral obtained, if deemed
necessary, is based on management's credit evaluation of the borrower.


                                                                       [LOGO] 39

<PAGE>


[LOGO]

Concentration of Credit Risk
The Bank grants residential mortgage loans, construction loans, commercial loans
and consumer loans to customers located primarily in Orange County, New York and
the  surrounding  counties of Rockland and Dutchess in New York.  The borrowers'
ability to repay loan principal and accrued  interest is dependent  upon,  among
other things, the economic conditions prevailing in the Bank's lending area.

Hedging
In the normal  course of business,  the Bank uses  off-balance  sheet  financial
instruments  primarily  as part of mortgage  banking  hedging  strategies.  Such
instruments  generally include put options purchased and forward  commitments to
sell  mortgage  loans.  As  a  result  of  interest  rate  fluctuations,   these
off-balance sheet financial  instruments will develop unrealized gains or losses
that mitigate  changes in the  underlying  hedged  portion of the balance sheet.
When  effectively  used,  these  off-balance  sheet  financial  instruments  are
designed to moderate the impact on earnings as interest rates move up or down.

Litigation
The Bank is  involved  in legal  proceedings  incurred  in the normal  course of
business.  In the opinion of management,  none of these proceedings are expected
to have a material effect on the consolidated  financial  position or results of
operations of the Bank.

15. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:

     Cash and Due from Banks and Federal Funds Sold
     For these  short-term  instruments,  the  carrying  amount is a  reasonable
     estimate of fair value.

     Accrued Interest and FHLB Stock
     The carrying amount is a reasonable estimate of fair value.

     Securities
     Fair  values for  securities  are based on quoted  market  prices or dealer
     quotes. If a quoted market price is not available,  fair value is estimated
     using quoted market prices for similar securities.

     Loans, net
     For  certain  homogeneous  categories  of loans,  such as some  residential
     mortgages  and other  consumer  loans,  fair value is  estimated  using the
     quoted market prices for securities  backed by similar loans,  adjusted for
     differences in loan characteristics.

     For other loan types,  fair value is based on the credit and interest  rate
     characteristics  of individual  loans.  These loans are stratified by type,
     maturity, interest rate, underlying collateral where applicable, and credit
     quality  ratings.  Fair value is estimated by  discounting  scheduled  cash
     flows  through   estimated   maturities   using  discount  rates  which  in
     management's  opinion best reflect current market interest rates that would
     be charged on loans with similar characteristics and credit quality. Credit
     risk concerns are reflected by adjusting cash flow forecasts,  by adjusting
     the discount rate or by adjusting both.

     Depositor Accounts
     The fair value of demand  deposits,  savings  accounts,  and certain  money
     market  deposits is the amount payable on demand at the reporting date. The
     fair value of fixed-maturity certificates of deposit is estimated using the
     rates currently offered for deposits of similar remaining maturities.


40 Warwick Community Bancorp, Inc. o Annual Report

<PAGE>

                                WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES


     Mortgage Escrow Funds and Borrowed Funds

     The carrying amount is a reasonable estimate of fair value.

     The following is a summary of the carrying values and estimated fair values
     of the Bank's  financial  assets and  liabilities  at May 31, 1998 and 1997
     (000's omitted):

<TABLE>
<CAPTION>
                                                                    1998                               1997
                                                         --------------------------         --------------------------
                                                          Carrying          Fair             Carrying         Fair
                                                            Value           Value              Value          Value
                                                         ------------   -----------         ------------   -----------
<S>                                                      <C>            <C>                <C>            <C>        
      Financial assets:
          Cash on hand and in banks                      $   11,190     $   11,190         $   10,367     $    10,367
          Federal funds sold                                     --             --              1,315           1,315
          Securities                                        170,749        170,702            126,393         126,417
          Loans, net                                        212,665        215,186            138,323         139,126
          Accrued interest receivable                         2,463          2,463              2,097           2,097
          Federal Home Loan Bank stock                        3,393          3,393              1,731           1,731

      Financial liabilities:
          Demand, NOW, statement savings and
             passbook, and money market accounts          $ 151,815      $ 151,815          $ 146,173      $  146,173
          Time certificate accounts                          70,907         70,998             75,038          75,003
          Mortgage escrow funds                               2,266          2,266              1,398           1,398
          Borrowed funds                                     90,040         90,040             28,340          28,340
          Accrued interest payable                            1,486          1,486              1,211           1,211
</TABLE>


                                                                       [LOGO] 41

<PAGE>


[LOGO]


16. WARWICK COMMUNITY BANCORP, INC.-PARENT COMPANY ONLY FINANCIAL STATEMENTS

The following statement of financial condition as of May 31, 1998, the statement
of income for the year ended May 31, 1998,  and the related  statements  of cash
flows for the year ended May 31, 1998,  reflect the Company's  investment in its
wholly owned subsidiary, the Bank, using the equity method of accounting.

<TABLE>
<CAPTION>
                        STATEMENT OF FINANCIAL CONDITION
                                  MAY 31, 1998
                      (000's omitted except share amounts)

                   ASSETS
<S>                                                                                     <C>     
Assets:
    Cash and cash equivalents                                                           $ 19,976
    Investment securities available for sale                                               2,901
    Accrued interest receivable                                                              262
    Other assets                                                                             783
    ESOP loan to the trustee of the ESOP                                                   8,015
    Investment in The Warwick Savings Bank                                                54,503
                                                                                        --------
          Total assets                                                                  $ 86,440
                                                                                        ========

                   LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
    Other liabilities                                                                   $    252
    Income taxes payable                                                                      39
                                                                                        --------
          Total liabilities                                                                  291
                                                                                        --------
Stockholders' equity:
    Preferred stock, $.01 par value;
       5,000,000 shares  authorized;  none issued                                             --
    Common stock, $.01 par
       value; 15,000,000 shares authorized,
       6,606,548 shares issued                                                                66
    Additional paid-in capital                                                            63,386
    Less-Unallocated common stock held by ESOP                                            (7,823)
    Retained earnings - subject to restrictions                                           29,355
    Unrealized appreciation on securities available for sale, net                          1,165
                                                                                        --------
          Total stockholders' equity                                                      86,149
                                                                                        --------
          Total liabilities and stockholders' equity                                    $ 86,440
                                                                                        ========

                               STATEMENT OF INCOME
                         FOR THE YEAR ENDED MAY 31, 1998
                                 (000'S OMITTED)

Interest income:
    ESOP loan to the trustee of the ESOP                                                $    262
    Investment securities                                                                     24
                                                                                        --------
          Total interest income                                                              286

Interest expense                                                                              --
                                                                                        --------
    Net interest income before provision for loan losses                                     286

Provision for loan losses                                                                     --
                                                                                        --------
    Net interest income after provision for loan losses                                      286
                                                                                        --------
Non-interest income:
    Gain on sale of investment securities                                                     28
    Equity in undistributed net income of subsidiary bank                                  2,941
                                                                                        --------
                                                                                           2,969

Non-interest expense                                                                       2,054
                                                                                        --------
          Income before provision for income taxes                                         1,201

Income tax benefit                                                                          (660)
                                                                                        --------
          Net income                                                                    $  1,861
                                                                                        ========
</TABLE>


42 Warwick Community Bancorp, Inc. o Annual Report

<PAGE>

                                WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                             STATEMENT OF CASH FLOWS
                         FOR THE YEAR ENDED MAY 31, 1998
                                 (000's omitted)

<S>                                                                                   <C>       
Cash flows from operating activities:
      Net income                                                                      $   1,861
      Adjustments to reconcile net income to net cash
         provided by operating activities-
          Undistributed earnings of subsidiary bank                                      (2,941)
          Charitable contribution to The Warwick Savings Foundation                       1,924
          Gain on sale of securities                                                        (30)
      (Increase) decrease in assets-
          Accrued interest receivable                                                      (262)
          Other assets                                                                     (783)
      Increase in liabilities-
          Other liabilities                                                                 252
          Income taxes payable                                                               39
                                                                                      --------- 
                Net cash provided by operating activities                                    60
                                                                                      --------- 

Cash flows from investing activities:
      Payment made to purchase 100% of the outstanding stock of the Bank                (30,743)
      Purchases of securities available for sale                                         (4,592)
      Proceeds from sale of securities available for sale                                 1,781
                                                                                      --------- 
                Net cash used in investing activities                                   (33,554)
                                                                                      --------- 

Cash flows from financing activities:
      (Increase) in ESOP loan receivable                                                 (8,015)
      Proceeds from issuance of common stock                                             61,485
                                                                                      --------- 
                Net cash provided by financing activities                                53,470
                                                                                      --------- 
                Net increase in cash and cash equivalents                                19,976

Cash and cash equivalents, beginning of year                                                 --
                                                                                      --------- 
Cash and cash equivalents, end of year                                                $  19,976
                                                                                      =========
</TABLE>


                                                                       [LOGO] 43
<PAGE>


[LOGO]


17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the quarterly  results of operations for the years
ended May 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                         Three Months Ended
                                            ---------------------------------------------------------------------------
                                             May 31,            February 28,            November 30,          August 31,
                                              1998                  1998                    1997                 1997
                                            --------             ----------              ----------          ----------
<S>                                         <C>                  <C>                     <C>                 <C>     
Total interest income                       $  7,046             $  6,208                $  5,291            $  5,232
Total interest expense                         2,844                2,335                   2,434               2,359
Net interest income                            4,202                3,873                   2,857               2,873
Provision for loan losses                        125                  104                      60                 303
Non-interest income                              987                  764                     711                 678
Non-interest expense and                   
   provision for income taxes                  3,835                5,133                   2,814               2,710
Net income (loss)                              1,229                 (600)                    694                 538
Basic earnings (loss) per common share           .20                 (.10)                    N/A                 N/A
Diluted earnings (loss) per common share         .20                 (.10)                    N/A                 N/A

<CAPTION>
                                                                         Three Months Ended
                                            ---------------------------------------------------------------------------
                                             May 31,            February 28,             November 30,         August 31,
                                               1997                1997                     1996                1996
                                            --------            ----------              ------------          ---------
<S>                                         <C>                 <C>                       <C>                 <C>     
Total interest income                       $  5,274            $  5,356                  $  5,150            $  4,911
Total interest expense                         2,400               2,342                     2,354               2,280
Net interest income                            2,874               3,014                     2,796               2,631
Provision for loan losses                         50                  30                        30                  20
Non-interest income                              574                 539                       683                 984
Non-interest expense and provision                                                  
   for income taxes                            2,751               2,832                     2,769               2,747
Net income                                       647                 691                       680                 848
Basic earnings per common share                  N/A                 N/A                       N/A                 N/A
Diluted earnings per common share                N/A                 N/A                       N/A                 N/A
</TABLE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors & Stockholders of 
Warwick Community Bancorp, Inc:

We have audited the accompanying  consolidated statements of financial condition
of Warwick Community Bancorp, Inc. and subsidiaries as of May 31, 1998 and 1997,
and the related  consolidated  statements  of income,  changes in  stockholders'
equity and cash flows for each of the years in the  three-year  period ended May
31, 1998.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Warwick Community Bancorp, Inc.
and  subsidiaries  as of May 31,  1998  and  1997,  and  the  results  of  their
operations and their cash flows for each of the years in the  three-year  period
ended May 31, 1998, in conformity with generally accepted accounting principles.


/s/ ARTHUR ANDERSEN LLP

New York, New York
June 19, 1998


44  Warwick Community Bancorp, Inc. o Annual Report

<PAGE>

                                WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES


Shareholder Information

Stock Information
Warwick  Community  Bancorp,  Inc.  common  stock  trades  on The  Nasdaq  Stock
Market(SM)  under the symbol  WSBI.  When trades  occur,  the stock is listed as
either  Warwick  or WSBI in The  Nasdaq  Stock  Market(SM)  section of the Times
Herald Record, Wall Street Journal and other leading newspapers.

The Company's  common stock  commenced  trading on December 23, 1997.  The table
below  shows the  reported  high and low sales  price of the  common  stock from
December  23, 1997 to the close of business on May 29,  1998,  the last  trading
date of the fiscal year ended May 31, 1998.

 Fiscal Year       Quarter Ending      High            Low       Dividends Paid
--------------------------------------------------------------------------------
    1998              Feb. 28         $17.38          $15.25          N/A
                      May 31          $18.13          $15.94          N/A


Shareholder Relations Contact:
Margaret Sgombick
The Warwick Savings Bank
18 Oakland Avenue
P.O. Box 591
Warwick, NY 10990
914-986-2206, ext. 265


Shareholders  wishing to change  the name,  address or  ownership  of stock,  to
report lost  certificates  or to  consolidate  accounts are asked to contact the
Company's stock registrar and transfer agent directly:

Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
1-800-368-5948

                                                                       [LOGO] 45
<PAGE>


[LOGO]


Executive Officers

Executive Staff
Timothy A. Dempsey, President & CEO
Ronald J. Gentile, Executive
   Vice President, COO & CRA Officer
Nancy L. Sobotor-Littell, Corporate Secretary
Lois E. Ulatowski, Assistant Secretary

Auditing
Donna M. Lyons, Senior Vice President/Auditor
Abigail M. Opper, Assistant Auditor

Branch Administration
Mary Ann More, Assistant Treasurer/
   Branch Administrator
Barbara A. Ligarzewski, Assistant Manager
Carol A. Green, Assistant Manager

Commercial Lending
Laurence D. Haggerty, Senior Vice President
C. Roland Newkirk, Vice President
Jill A. Singer, Assistant Vice President
Edward F. Lekis, Assistant Vice President
Kathryn A. Tiedemann, Assistant Treasurer

Compliance
Thomas C. Gargan, Vice President, BSA
   & Security Officer

Consumer Lending
Barbara D. Forman, Assistant Treasurer
Mary K. Serringer, Assistant Manager
Carla A. Harris, Assistant Manager

Facilities
Dominic P. Mazza, Vice President,
   Facilities Manager

Finance
Arthur W. Budich, Senior Vice President,
   Treasurer & CFO
Donna F. Parisi, Assistant Treasurer
Kathleen A. Faith-Schott, Assistant Treasurer
Karen J. Hall, Assistant Treasurer

Information Systems
Rosemary Kosinski, M.I.S. Director

Loan Servicing
Barbara A. Rudy, Senior Vice President
Edson E. Moore, Assistant Vice President
Deborah K. Langlitz, Assistant Treasurer
Mary Kearney, Manager

Marketing & Shareholder's Relations
Margaret E. Sgombick, Assistant Vice
   President/Marketing Director

Mortgage Lending
Arthur S. Anderson, Executive Director
Stephen J. Howe, Sales Manager
Lana M. Neilan, Assistant Treasurer
Stephen A. Carle, Assistant Treasurer &
   Operations Manager
Beverly S. Bates, Chief Underwriter


46  Warwick Community Bancorp, Inc. o Annual Report

<PAGE>

                                WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES


Branch Locations

Warwick Office
18 Oakland Avenue

Pamela A. Pinnavaia, Branch Manager
Shelley M. Kirk, Customer Service Manager

Monroe Office
591 Route 17M

Michelle L. Mabee-Pawliczak,
   Assistant Treasurer/Branch Manager
Delvia L. Alsina, Assistant Branch Manager
Jean A. Kennedy, Assistant Branch Manager
Catherine A. Casson, Customer Service
   Manager

Woodbury Office
556 Route 32

Erica J. Leampreau, Branch Manager
Christine Manson, Assistant
   Branch Manager
Shivali Jaggi, Customer Service Manager

Wallkill Office
One Industrial Drive

Gerard T. Loughren, Assistant Vice
   President/Branch Manager
Lisette D. Cuba, Assistant Branch Manager
Cheryl M. Meyer, Assistant Branch
   Manager
Barbara E. Szydlowski, Customer
   Service Manager


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