SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K


                   Annual Report pursuant to Section 13 of the
                         Securities Exchange Act of 1934

                  For the fiscal year ended September 30, 1998
                          Commission File No.: 0-18126


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

           DELAWARE                                      06-1391814
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

            42-25 Queens Boulevard, Long Island City, New York 11104
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (718) 729-5002
        Securities registered pursuant to Section 12 (b) of the Act: None
           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock par value $0.01 per share
                                (Title of Class)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No___

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in  Part  III of the  Form  10-K or any
amendment to this Form 10-K. _X_

     The aggregate  market value of the voting stock held by  non-affiliates  of
the registrant was $55,940,769, based upon the last sales price as quoted on the
Nasdaq National Market for December 11, 1998.

     The number of shares  outstanding  of the  registrant's  Common Stock as of
December 11, 1998 was 1,708,632.


<PAGE>


                                      INDEX

                                     Part I
                                                                            Page

Item 1.  Business..........................................................    3
Item 2.  Properties........................................................   30
Item 3.  Legal Proceedings.................................................   30
Item 4.  Submission of Matters to a Vote of Securities Holders.............   30

                                     Part II

Item 5.  Market for Registrant's Common Equity and Related
                  Stockholder Matters......................................   31
Item 6.  Selected Financial Data...........................................   32
Item 7.  Management's Discussion and Analysis of Financial Condition
                  and Results of Operations................................   33
Item 7A. Quantitative and Qualitative Disclosure about Market Risk ........   44
Item 8.  Financial Statements and Supplementary Data.......................   45
Item 9.  Changes in and Disagreements with Accountants on Accounting 
                  and Financial Disclosure ................................   88

                                    Part III

Item 10. Directors and Executive Officers of the Registrant................   88
Item 11. Executive Compensation............................................   91
Item 12. Security Ownership of Certain Beneficial Owners and Management....  100
Item 13. Certain Relationships and Related Transactions....................  100

                                     Part IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...  101

Signatures.................................................................


<PAGE>




                                     PART I

Item 1. BUSINESS OF THE COMPANY

General

     Financial Bancorp, Inc. (the "Company"), was formed in February 1994 as the
holding  company for Financial  Federal  Savings Bank (the "Bank") in connection
with the conversion of the Bank from mutual to stock form of ownership on August
17, 1994.  Effective  October 20, 1994, the Bank changed its name from Financial
Federal  Savings and Loan  Association  to Financial  Federal  Savings Bank. The
Company  is  headquartered  in Long  Island  City,  New York  and its  principal
business  currently  consists of the operations of the Bank.  The Company,  as a
savings and loan holding company,  and the Bank are subject to the regulation of
the  Office  of  Thrift  Supervision  ("OTS"),  the  Federal  Deposit  Insurance
Corporation  ("FDIC") and the Securities and Exchange  Commission  ("SEC").  The
Company is listed on the  Nasdaq  Stock  Market  under the  symbol  "FIBC".  The
Company  does  not  transact  any  material  business  other  than  through  its
subsidiary,  the Bank. The Bank's primary sources of funds are retail  deposits,
loan repayments and borrowings. The principal business of the Bank is attracting
retail  deposits from the areas  surrounding  its branch  offices.  The Bank may
borrow  funds  from the  Federal  Home  Loan Bank of New York  ("FHLB")  and the
Federal  Reserve  Bank  of  New  York  ("FRB")  or  through  reverse  repurchase
agreements.   These  funds  are  then  primarily   invested  in  fixed-rate  and
adjustable-rate  loans on one- to  four-family  residences,  mixed-use  property
loans,  multi-family  loans,  commercial real estate  mortgage  loans,  and to a
lesser extent  construction  loans. The Bank's revenues are derived  principally
from interest on loans,  mortgage-backed  securities,  interest and dividends on
investment  securities  and short-term  investments,  and other fees and service
charges.

Planned Merger

     On July 18, 1998, the Company  entered into an Agreement and Plan of Merger
with Dime Community Bancshares, Inc., a Delaware corporation ("Dime Community"),
pursuant to which the Company will be merged with and into Dime  Community  (the
"Merger").  The Merger is intended to constitute a tax-free  reorganization  for
federal  income tax  purposes.  Immediately  following the  consummation  of the
Merger,  Financial Federal Savings Bank, a federal savings bank and a subsidiary
of Financial  Bancorp,  will merge with and into The Dime Community Savings Bank
of  Williamsburgh,  a federal savings bank and a wholly owned subsidiary of Dime
Community.  On December 18, 1998, Financial Bancorp's  stockholders approved the
Merger.  The Merger is  expected  to be  completed  by the end of January  1999,
subject to the receipt by Dime  Community  of the  approval of the Merger by the
Office of Thrift Supervision.

Market Area and Competition

     The Bank has  been,  and  continues  to be,  a  community-oriented  savings
institution  offering a variety of  financial  services to meet the needs of the
communities it serves.  Its primary market areas are the areas  surrounding  its
offices,  while  its  lending  activities  extend  throughout  the New York City
metropolitan  area. In addition to its principal  office in the Long Island City
section of Queens, the Bank operates four other retail offices,  three in Queens
and one in Brooklyn.

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


                                       3
<PAGE>


     The Bank  serves  its market  area with a wide  selection  of  lending  and
deposit products and other retail financial services.  Management  considers the
Bank's  reputation  for customer  service and its strong  branch  network as its
major competitive advantages in attracting and retaining customers in its market
areas. The Bank also believes it benefits from its community orientation as well
as its established deposit base and significant levels of core deposits.

Lending Activities

     Loan and Mortgage-Backed Securities Portfolio Composition.  The Bank's loan
portfolio  consists  primarily of conventional  fixed-rate and  adjustable-rate,
first and second  mortgage loans secured by one- to  four-family  owner-occupied
residences, mixed-use property loans, multi-family real estate loans, commercial
real estate loans, and to a lesser extent  construction  loans. At September 30,
1998, the Bank's total loans receivable equaled $198.1 million,  of which $155.7
million, or 78.6%, were one- to four-family residential first mortgage loans. Of
the one- to four-family  residential  first  mortgage loans  outstanding at that
date, $59.0 million,  or 37.9% were  adjustable-rate  mortgage ("ARM") loans. At
September 30, 1998, the Bank's loan portfolio also included $2.5 million of one-
to four-family  residential second mortgage loans, $18.2 million of multi-family
loans,  $20.2 million of commercial real estate loans,  $925,000 of construction
loans and $542,000 of other consumer and commercial business loans.

     The types of loans that the Bank may  originate  are  regulated  by federal
laws and  regulations.  Interest rates charged by the Bank on loans are affected
principally  by the demand for such loans and market  conditions.  These factors
are, in turn, affected by general and economic conditions,  monetary policies of
the federal government,  legislative and tax policies and governmental budgetary
matters.


                                       4
<PAGE>


     The following table sets forth the composition of the Bank's loan portfolio
and mortgage-backed securities portfolio in dollar amounts and in percentages of
the portfolio at the dates indicated.


<TABLE>
<CAPTION>
                                                                    At September 30,
                                        -------------------------------------------------------------------------
                                                 1998                     1997                     1996          
                                        -----------------------  -----------------------  -----------------------
                                                      Percent                  Percent                  Percent  
                                          Amount      of Total     Amount      of Total     Amount      of Total 
                                        -----------  ----------  -----------  ----------  -----------  ----------
                                                                                     (Dollars in thousands)
<S>                                       <C>            <C>       <C>            <C>       <C>            <C>   
Real estate loans:
   Residential one- to four-family:
     First mortgages..................    $155,674       78.59%    $126,440       81.50%    $116,132       80.26%
     Second mortgages.................       2,492        1.26        2,637        1.70        2,780        1.92 
   Multi-family.......................      18,207        9.19       11,779        7.59        8,231        5.69 
   Commercial.........................      20,240       10.22       13,217        8.52       12,061        8.34 
   Construction/land loans............         925        0.47          575        0.37        4,920        3.40 
                                          --------      ------     --------      ------     --------      ------ 
       Total real estate loans........     197,538       99.73      154,648       99.68      144,124       99.61 

Consumer/commercial business:
   Consumer...........................         470        0.24          417        0.27          400        0.27 
   Commercial business................          72        0.03           77        0.05          168        0.12 
                                          --------      ------     --------      ------     --------      ------ 
     Total consumer/commercial
       business loans.................         542        0.27          494        0.32          568        0.39 
                                          --------      ------     --------      ------     --------      ------ 
       Total loans receivable.........     198,080      100.00%     155,142      100.00%     144,692      100.00%
                                                        ======                   ======                   ====== 
   Less:
     Loans in process.................         336                      201                    2,509
     Unearned discounts and net                                                                     
       deferred loan fees.............          60                      244                      296
     Allowance for loan losses........       1,657                    1,405                    1,573
                                          --------                 --------                 --------
                                             2,053                    1,850                    4,378
                                          --------                 --------                 --------
       Total loans receivable, net        $196,027                 $153,292                 $140,314
                                          ========                 ========                 ========

Mortgage-backed securities:
  GNMA ...............................     $17,274       35.31%    $ 23,335       48.73%    $ 27,106       49.41%
  FHLMC (1)...........................      17,993       36.78       15,808       33.02       23,015       41.96 
  FNMA (1) ...........................      12,011       24.55        6,835       14.28        2,697        4.92 
  Others..............................       1,643        3.36        1,900        3.97        2,035        3.71 
                                          --------      ------     --------      ------     --------      ------ 
Total mortgage-backed securities (2)       $48,921      100.00%    $ 47,878      100.00%    $ 54,853      100.00%
                                          ========      ======     ========      ======     ========      ====== 


<CAPTION>
                                                       At September 30,
                                        -------------------------------------------------
                                                 1995                      1994
                                        -----------------------  ------------------------
                                                      Percent                   Percent
                                          Amount      of Total     Amount       of Total
                                        -----------  ----------  -----------  -----------
                                      
<S>                                       <C>            <C>       <C>            <C>
Real estate loans:
   Residential one- to four-family:
     First mortgages..................     $93,361       82.55%     $72,669        85.29%
     Second mortgages.................       3,806        3.36        4,491         5.27
   Multi-family.......................       4,296        3.80        3,213         3.77
   Commercial.........................       8,031        7.10        2,940         3.45
   Construction/land loans............       3,080        2.72        1,455         1.71
                                          --------      ------      -------       ------
       Total real estate loans........     112,574       99.53       84,768        99.49

Consumer/commercial business:
   Consumer...........................         404        0.36          400         0.47
   Commercial business................         123        0.11           35         0.04
                                          --------      ------      -------       ------
     Total consumer/commercial
       business loans.................         527        0.47          435         0.51
                                          --------      ------      -------       ------
       Total loans receivable.........     113,101      100.00%      85,203       100.00%
                                                        ======                    ======
   Less:
     Loans in process.................       1,485                      352
     Unearned discounts and net
       deferred loan fees.............         311                      226
     Allowance for loan losses........       1,243                    1,120
                                          --------                  -------
                                             3,039                    1,698
                                          --------                  -------
       Total loans receivable, net        $110,062                  $83,505
                                          ========                  =======

Mortgage-backed securities:
  GNMA ...............................    $ 33,144       53.45%     $26,749        53.67%
  FHLMC (1)...........................      22,979       37.06       15,816        31.74
  FNMA (1) ...........................       3,388        5.46        4,368         8.76
  Others..............................       2,497        4.03        2,906         5.83
                                          --------      ------      -------       ------
Total mortgage-backed securities (2)      $ 62,008      100.00%     $49,839       100.00%
                                          ========      ======      =======       ======
</TABLE>


----------
(1)  Includes  $20.7 million,  $9.4 million and $5.0 million in  Mortgage-backed
     securities   available  for  sale  as  of  September  30,  1998  and  1997,
     respectively.

(2)  Mortgage-backed securities are net of premiums and discounts.


                                       5
<PAGE>


Loan and Mortgage-Backed Security Maturity and Repricing

     The following table shows the maturity or period to repricing of the Bank's
loan and  mortgage-backed  security  portfolio at September 30, 1998.  Loans and
mortgage-backed  securities that have adjustable rates are shown as being due in
the period during which the interest rates are next subject to change. The table
does not include  prepayments or scheduled principal  amortization.  Prepayments
and  scheduled  principal  amortization  on mortgage  loans and  mortgage-backed
securities totaled $34.2 million and $20.7 million respectively,  for the twelve
months ended September 30, 1998.


<TABLE>
<CAPTION>
                                 Mortgage Loans, and Other Loans and Mortgage-Backed Securities
                                                     At September 30, 1998
                          ---------------------------------------------------------------------------

                                                                                                                           Mortgage-
                                         1 - 4       Multi-    Commercial                          Commercial     Total     Backed
                                         Family      Family    Real Estate Construction  Consumer    Other        Loans   Securities
                                        --------    --------   ----------- ------------ ---------- ----------   --------  ----------
                                                                                (In thousands)
<S>                                     <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>     
Amounts due:
  Within one year ..................    $ 36,531    $    371    $     --    $    925    $     65    $     51    $ 37,943    $ 15,918
  After one year:
    One to two years ...............       3,727          --          --          --          60          21       3,808      10,073
    Two to three years .............       8,447          31          29          --         150          --       8,657       4,524
    Three to four years ............       1,282         439          26          --          12          --       1,759       7,230
    Four to five years .............      12,395       3,609       2,667          --          --          --      18,671       1,518
    After five years ...............      95,785      13,757      17,517          --         183          --     127,242       9,658
                                        --------    --------    --------    --------    --------    --------    --------    --------
    Total due or repricing
        after one year .............     121,636      17,836      20,239          --         405          21     160,137      33,003
                                        --------    --------    --------    --------    --------    --------    --------    --------
Total amounts due or
  repricing, gross .................    $158,167    $ 18,207    $ 20,239    $    925    $    470    $     72    $198,080    $ 48,921
                                        ========    ========    ========    ========    ========    ========    ========    ========
</TABLE>


     The following  table sets forth at September 30, 1998, the dollar amount of
all loans  and  mortgage-backed  securities  due after  September  30,  1999 and
indicates  whether  such  loans and  mortgage-backed  securities  have  fixed or
adjustable interest rates.


                                           Due After September 30, 1999
                                   --------------------------------------------
                                      Fixed        Adjustable         Total
                                   -----------    -------------    ------------
                                                  (In thousands)
Mortgage loans:
  One- to four-family............     $ 97,929          $23,707        $121,636
  Multi-family...................       14,268            3,568          17,836
  Commercial real estate.........       17,237            3,002          20,239
Other loans......................          240              186             426
                                      --------          -------        --------
Total loans......................     $129,674          $30,463        $160,137
                                      ========          =======        ========
Mortgage-backed securities.......     $ 12,323          $20,680        $ 33,003
                                      ========          =======        ========


                                       6
<PAGE>


     Set forth below is a table  showing the Bank's loan  origination,  purchase
and sales activity and activity in  mortgage-backed  security  portfolio for the
periods indicated.

<TABLE>
<CAPTION>
                                                                              For the Years Ended September 30,
                                                                       ------------------------------------------------
                                                                          1998               1997                1996
                                                                       ---------          ----------          ---------
                                                                                        (In thousands)

<S>                                                                    <C>                 <C>                 <C>      
Loans receivable at beginning of period .........................      $ 155,141           $ 144,692           $ 113,101
   Originations:
     First mortgages ............................................         37,872              18,894              21,241
     Second mortgages ...........................................            617                 403                 342
     Multi-family ...............................................          7,175               3,944               2,058
     Commercial .................................................          7,166               4,170               7,491
     Construction/land ..........................................            650                 130               2,870
     Consumer loans .............................................            427                 229                 212
     Student loans ..............................................             37                  35                  54
     Commercial business ........................................              4                   4                  69
     Loan purchases .............................................         24,302               6,717              14,848
                                                                       ---------           ---------           ---------
       Total originations and purchases .........................         78,250              34,526              49,185
                                                                       ---------           ---------           ---------
Transfer of mortgage loans to foreclosed real estate ............           (913)               (411)               (100)
Loans charged-off ...............................................           (149)               (602)               (213)
Repayments and sales ............................................        (34,249)            (23,064)            (17,281)
                                                                       ---------           ---------           ---------
   Total reductions .............................................         35,311             (24,077)            (17,594)
                                                                       ---------           ---------           ---------
Total loans receivable at end of period .........................      $ 198,080           $ 155,141           $ 144,692
                                                                       =========           =========           =========

Mortgage-backed securities at beginning of period ...............      $  47,878           $  54,853           $  62,008
   Purchases ....................................................         22,103               5,046               5,068
   Repayments ...................................................        (20,698)            (12,111)            (12,214)
   Premium amortization .........................................           (115)                (34)                (19)
   Unrealized gain (loss) .......................................           (247)                124                  10
                                                                       ---------           ---------           ---------
Mortgage-backed securities at end of period .....................      $  48,921           $  47,878           $  54,853
                                                                       =========           =========           =========
</TABLE>


                                       7
<PAGE>


     One- to Four-Family  Residential  Mortgage  Lending.  The Bank offers first
mortgage  loans  primarily  secured  by one-  to  four-family  residences.  Loan
originations are obtained from the Bank's loan originators  existing  customers,
referrals from real estate brokers, builders and through advertising and general
solicitations.  The Bank  originates  both ARM loans and  fixed-rate  loans.  At
September  30,  1998,  first  mortgage  loans  secured  by  residential  one- to
four-family  real estate totaled $155.7  million,  or 78.6% of total real estate
loans at such date. Of the Bank's first  mortgage loans secured by one- to four-
family residences, $59.0 million, or 37.9% were ARM loans.

     The Bank has, from time to time,  purchased  one- to  four-family  mortgage
loans which  generally  include loans secured by properties  located outside the
Bank's market area. All loans purchased by the Bank must generally meet the same
underwriting  criteria as loans  originated  by the Bank. At September 30, 1998,
the Bank had $37.8 million in one-to four-family  purchased  adjustable mortgage
loans and single-family loan participations serviced by others.

     The Bank  underwrites  all mortgage  loans  generally in  conformance  with
secondary market  guidelines and internally  generated  policies and procedures.
Upon receipt of a completed  loan  application  from a prospective  borrower,  a
credit report is ordered,  income and certain other information is verified, and
additional  financial  information  is  requested,   if  deemed  necessary.   An
independent  appraisal  of the  real  estate  intended  to  secure  the  loan is
undertaken by an independent  appraiser  previously approved by the Board. It is
the Bank's policy to obtain title  insurance on all real estate  mortgage loans.
Borrowers  must  also  obtain  hazard  and  flood  insurance  prior to  closing.
Borrowers  generally  are  required  to  advance  funds on a monthly  basis to a
mortgage escrow account,  from which the Bank makes disbursements for items such
as real estate taxes,  hazard and flood insurance  premiums and private mortgage
insurance premiums as they become due.

     The Bank generally makes mortgage loans secured by owner-occupied  one- and
two-family residences in amounts up to 95% of the appraised value or sales price
of the property on loans that do not exceed $300,000.  Mortgage loans originated
under the Bank's First Time Home Buyers'  Program may be in amounts of up to 85%
of property values, with additional monthly principal  repayments required for a
specified time in lieu of private mortgage  insurance  coverage.  Except for the
loans  originated  under the Bank's  First Time Home Buyers'  Program,  mortgage
loans on one-to four- family, owner-occupied residences are originated for up to
95% of the property  value  provided  that  mortgage  insurance on the amount in
excess of 80% is obtained.  The Bank's one- to four-family  residential mortgage
loans do not provide for negative amortization. When the information is obtained
and an appraisal is  completed,  loans are  underwritten  and then a decision is
made by two members of the loan committee.  The Loan Committee consists of three
outside directors, the Chief Executive Officer, the Chief Administrative Officer
and the Chief Financial Officer.

     The Bank offers  adjustable-rate  first  mortgage loans with interest rates
which adjust  periodically  based upon a spread above an agreed upon index, such
as a U.S.  Treasury  constant  maturity  index.  ARM loans may carry an  initial
interest rate which is less than the fully indexed rate for the loan.  Borrowers
of ARM loans,  that reset every  twelve  months,  or less are  qualified  at the
lesser of the first rate  adjustment  or the fully  indexed rate in an effort to
reduce  the  risk of  default  as the  interest  rate  and  underlying  payments
increase. ARM loans have periodic caps ranging from 1.0% to 2.75% per adjustment
period and  lifetime  caps of 5.0% to 6.0% over the initial  rate.  The Bank has
additional  ARM loan  products:  a 1/1 mortgage  loan,  3/1 mortgage  loan,  5/1
mortgage  loan, 7/1 mortgage loan and a 10/1 mortgage loan which provides for an
initial fixed rate period, thereafter adjusting each year.

     Equity and Second  Mortgage Loans.  The Bank  originates  equity and second
mortgage  loans on one- to  four-family  residences.  These loans  generally are
originated   as  either   fixed-rate   or   adjustable-rate   loans  secured  by
owner-occupied  one- to four-family  residences  with terms from 10 to 25 years.
The  Bank  offers  equity  and  second  mortgage  loans  with  maximum  combined
loan-to-value  ratios of up to 80%, or 85% if the borrower has an existing first
mortgage  with the Bank. At September  30, 1998,  the Bank had $2.5 million,  or
1.3% of total one- to  four-family  loans in equity and second  mortgage  loans,
including  $882,000 of purchased  second  mortgage  loans,  which are subject to
recourse against the seller.

     Multi-Family  and Commercial  Real Estate Loans.  The Bank also  originates
multi-family  and  commercial  real estate loans.  As of September 30, 1998, the
Bank's total loan portfolio  contained  $18.2 million,  or 9.2% of  multi-family
loans,  and  $20.2  million,  or 10.2% of  commercial  real  estate  loans.  The
multi-family and commercial real estate


                                       8
<PAGE>


loans in the Bank's  portfolio  consist of both  fixed-rate and  adjustable-rate
loans which were  originated at prevailing  market rates.  The Bank's policy has
been to originate multi-family and commercial real estate loans primarily in its
market area. In making  commercial real estate and multi-family  loans, the Bank
primarily  considers the ability of net operating  income  generated by the real
estate to support the debt.  Other factors  considered  are the credit  history,
financial resources,  income level and managerial expertise of the borrower, the
marketability  of the  property  and the  Bank's  lending  experience  with  the
borrower.  Maximum  loan to value ratios on  multi-family  and  commercial  real
estate  mortgage loans is 70%. In addition,  there are prepayment  penalties for
the life of these multi-family, and commercial real estate loans.

     Construction  Loans.  The Bank  originates  loans,  on a minimal basis,  to
finance  the  construction  of one- to  four-family  homes and to a much  lesser
extent other  properties  in its market  areas.  As of September  30, 1998,  the
Bank's  portfolio  contained  $925,000 of  construction  loans, or 0.5% of total
loans.  Construction loans generally provide for interest-only  payments and are
originated  for  a  short-term.   Borrowers  must   contribute   equity  in  the
construction  projects to establish  acceptable  loan-to-value  ratios. The Bank
requires personal  guarantees from the principals of the borrowing entity.  Loan
proceeds are disbursed in stages as  construction  progresses and as inspections
warrant.

     Mortgage-backed   Securities.   The   Bank   invests   in  a   variety   of
mortgage-backed  securities,  96.6% of which were insured or  guaranteed  by the
FHLMC,  GNMA or FNMA at September 30, 1998. The remaining 3.4% was invested in a
privately  issued  mortgage  pass-through   security.  At  September  30,  1998,
mortgage-backed  securities  totaled  $48.9  million,  or 15.4% of total assets,
$20.7 million of which are  classified by the Bank as available for sale. Of the
$48.9  million  in  mortgage-backed  securities,  $36.3  million,  or 74.3% were
adjustable-rate  and will  reprice  within  five  years.  During  the year ended
September  30,  1998,  the  Bank  purchased  $22.1  million  of  mortgage-backed
securities and received  prepayments  and scheduled  principal  amortization  of
$20.7 million.

Asset Quality

     Loan Collection. When a borrower fails to make a required payment, the Bank
generally  takes  immediate steps to induce the borrower to cure the delinquency
and restore the loan to a current  status.  The Bank will send a late notice and
contact the borrower in order to determine the reason for the delinquency and to
effect a cure. In most cases  delinquencies  are cured promptly;  however,  if a
loan has been delinquent for more than 60 days, the Bank reviews the loan status
more closely and, where appropriate, appraises the condition of the property and
the financial circumstances of the borrower.  Based upon the results of any such
investigation,  the Bank may: (1) accept a repayment  program for the  arrearage
from the borrower;  (2) seek  evidence,  in the form of a listing  contract,  of
efforts by the  borrower to sell the property if the borrower has stated that he
is  attempting  to  sell;  (3)  request  a deed in lieu of  foreclosure;  or (4)
initiate foreclosure proceedings.

     All loans 90 days  delinquent  are sent to the Bank's  attorney in order to
initiate  foreclosure  proceedings.  The Bank continues to accrue interest until
foreclosure  proceedings  have commenced,  at which time the accrual is excluded
from  income by an  offsetting  increase  in a special  reserve  account.  Under
certain circumstances prior to commencement of foreclosure  proceedings or prior
to the loan becoming 90 days delinquent,  when recovery of interest is doubtful,
the Bank will immediately offset such interest in a special reserve account.  If
such interest is ultimately collected, it is credited to income in the period of
recovery.

     At September 30, 1998, the Bank had 10 mortgage loans delinquent 90 days or
more  totaling  $1.6  million,  of which $1.6 million are  attributed to one- to
four-family  mortgage loans. At September 30, 1998, the Bank's real estate owned
totaled  $739,000,  of  which  $419,000,   comprised  of  4  one-to-four  family
properties.  The  balance of the  Bank's  real  estate  owned  consisted  of two
multi-family properties totalling $320,000.


                                       9
<PAGE>


     Delinquent and Non-Performing  Loans. At September 30, 1998, 1997 and 1996,
delinquencies in the Bank's loan portfolio were as follows:


<TABLE>
<CAPTION>
                                                  At September 30, 1998                           At September 30, 1997
                                    -------------------------------------------------  ---------------------------------------------
                                         60 - 89 Days            90 Days or More            60 - 89 Days          90 Days or More
                                    ---------------------    ------------------------  ----------------------  ---------------------
                                               Principal                 Principal                Principal                Principal
                                    Number of  Balance of    Number of   Balance of    Number of  Balance of   Number of  Balance of
                                      Loans      Loans        Loans        Loans        Loans       Loans        Loans       Loans
                                    ---------  ----------    ---------   ----------    ---------  ----------   ---------  ----------
                                                                        (Dollars in thousands)

<S>                                       <C>      <C>           <C>      <C>               <C>     <C>            <C>      <C>   
Residential one- to four-family:
  First mortgages ................        5        $517          10       $1,590            4       $419           16       $2,038
  Second mortgages................        1          42          --           --            1         45            2           11
Multi-family residential .........       --          --          --           --           --         --            2          350
Commercial real estate............       --          --          --           --           --         --           --           --
Consumer loans....................       --          --           4           10           --         --            4           32
Commercial Business...............       --          --          --           --           --         --           --           --
                                        ---        ----         ---       ------          ---       ----          ---       ------
         Total loans..............        6        $559          14       $1,600            5       $464           24       $2,431
                                        ===        ====         ===       ======          ===       ====          ===       ======

Delinquent loans and non-
performing loans to total loans...                 0.28%                    0.81%                   0.30%                     1.57%
</TABLE>


<TABLE>
<CAPTION>
                                                                                At September 30, 1996
                                                            -----------------------------------------------------------
                                                                  60 - 89 Days                      90 Days or More
                                                            -----------------------            -------------------------
                                                                         Principal                            Principal
                                                            Number of    Balance of            Number of      Balance of
                                                              Loans        Loans                 Loans          Loans
                                                            ---------    ----------            ---------      ----------
                                                                              (Dollars in thousands)
<S>                                                               <C>         <C>                  <C>           <C>   
Residential one- to four-family:
  First mortgages........................                         1           $175                 15            $1,486
  Second mortgages.......................                        --             --                  1               200
Multi-family residential.................                        --             --                  2               350
Commercial real estate...................                        --             --                 --                --
Consumer loans...........................                        --             --                  4                11
Commercial Business......................                        --             --                  1                45
                                                               ----           ----                ---            ------
         Total loans.....................                         1           $175                 23            $2,092
                                                               ====           ====                ===            ======

Delinquent and non-performing
  loans to total loans...................                                     0.12%                                1.45%
</TABLE>


                                       10
<PAGE>


     The following table sets forth information  regarding  non-accrual mortgage
loans, loans delinquent 90 days or more and still accruing interest, investments
in real estate,  real estate owned ("REO") and in-substance  foreclosure  loans.
The Bank continues to accrue interest on loans  delinquent 90 days or more until
commencement  of  foreclosure  proceedings  or until  recovery  of  interest  is
considered  by the Bank to be doubtful  based on the value of the  property  and
other considerations.  During the years ended September 30, 1998, 1997 and 1996,
the  amounts of  additional  interest  income  that would have been  recorded on
non-accrual  loans,  had they  been  current,  totaled  $117,000,  $242,000  and
$207,000,  respectively.  The Bank collected interest income on such non-accrual
loans in the  amounts of $40,000,  $70,000  and  $43,000  during the years ended
September 30, 1998, 1997 and 1996, respectively.


<TABLE>
<CAPTION>
                                                                                   At September 30,
                                                       -------------------------------------------------------------------------
                                                          1998           1997            1996            1995            1994
                                                       ----------     ----------      ----------      ----------      ----------
                                                                                    (In thousands)
<S>                                                      <C>             <C>             <C>             <C>             <C>   
Non-accrual delinquent mortgage
    loans ..........................................     $1,590          $2,164          $1,911          $1,794          $1,624
Delinquent other loans .............................         10              32              56              11               5
Mortgage loans delinquent 90 days
    or more and accruing ...........................         --             424             125             137              30
                                                         ------          ------          ------          ------          ------
    Total non-performing loans .....................      1,600           2,620           2,092           1,942           1,659
Investment in real estate (net
  valuation allowance) .............................      3,320           3,355           3,308           3,531           2,789
Real estate owned ..................................        739             471             378             591             620
                                                         ------          ------          ------          ------          ------
     Total non-performing assets ...................     $5,659          $6,446          $5,778          $6,064          $5,068
                                                         ======          ======          ======          ======          ======
Non-performing loans
    to total loans .................................       0.81%           1.69%           1.45%           1.72%           1.95%
Total non-performing assets
    to total assets ................................       1.78%           2.17%           2.17%           2.65%           2.95%
</TABLE>


     The above table does not include  participation loans serviced by TASCO and
its  successor in the amount of $1.9  million and $2.2 million at September  30,
1998 and 1997,  respectively.  Interest  income that could have been  recognized
based on contractual  terms amounts to $161,000 and $169,000 for the years ended
September 30, 1998 and 1997,  respectively.  Interest  income recorded only when
collected amounted to approximately  $108,000 and $79,000 during the years ended
September 30, 1998 and 1997, respectively.

     Impaired  loans and  related  amounts  recorded in the  allowance  for loan
losses at September 30, 1998 and 1997 are summarized as follows in thousands:


                                                            September 30,
                                                          -----------------
                                                           1998       1997
                                                          ------     ------
                                                           (In thousands)

     Recorded investment in impaired loans:
              With recorded allowance ...............     $2,060     $2,511
              Without recorded allowance ............         --         --
                                                          ------     ------
              Total impaired loans ..................      2,060      2,511
     Related allowances for loan losses .............        426        225
                                                          ------     ------
              Net impaired loans ....................     $1,634     $2,286
                                                          ======     ======

     For the year ended September 30, 1998 and 1997,  interest income that would
have been recognized for these loans had they been performing in accordance with
the original terms was approximately  $170,000 and $206,000,  respectively,  and
interest income recognized when received was $108,000 and $79,000, respectively.


                                       11

<PAGE>



     The average  balance of impaired loans during the years ended September 30,
1998 and 1997 approximated $2.2 million and $2.3 million, respectively.

     Classified  Assets.  Federal  regulations and the Bank's  Classification of
Assets Policy require the classification of loans and other assets, such as debt
and equity  securities  considered to be of lesser  quality,  as  "Substandard,"
"Doubtful"  or "Loss"  assets.  An asset is  considered  "Substandard"  if it is
inadequately  protected  by the  current  net worth and paying  capacity  of the
obligor or of the collateral pledged, if any. "Substandard" assets include those
characterized by the distinct possibility that the institution will sustain some
loss if the deficiencies are not corrected. Assets classified as "Doubtful" have
all of the weaknesses inherent in those classified "Substandard," with the added
characteristic  that the  weaknesses  present make  collection or liquidation in
full, on the basis of currently  existing facts,  conditions and values,  highly
questionable  and improbable.  Assets  classified as "Loss" are those considered
uncollectible  and of such little value that their continuance as assets without
the  establishment of a specific loss reserve is not warranted.  Assets which do
not  currently  expose the insured  institution  to  sufficient  risk to warrant
classification in one of the  aforementioned  categories but possess  weaknesses
are required to be designated  "Special Mention" or placed on an in-house "Watch
List"  by  management.  When  the  Bank  determines  that  an  asset  should  be
classified,  it generally does not establish a specific allowance for such asset
unless it  determines  that  such  asset  may  result  in a loss.  The Bank may,
however,  increase its general valuation  allowance in an amount deemed prudent.
The Bank believes that its policies are consistent with regulatory  requirements
regarding classified assets.

     At September 30, 1998,  classified assets totaled $6.5 million,  or 2.0% of
total  assets,  of which  $1,000  classified  as  "Doubtful"  and the  remaining
classified as "Substandard"  consisted of 10 one- to four-family  loans totaling
$1.6 million,  TASCO  participation  loans totaling  $794,000 and six foreclosed
real estate  properties  totaling  $739,000 and $3.3 million in investment  real
estate. Real estate owned and investment in real estate are carried at the lower
of cost or fair value less costs of disposal.  Assets  classified  as "Doubtful"
include 1 consumer  loan for $1,000.  Assets  designated  as  "Special  Mention"
totaled $1.5 million,  which consists  primarily of one commercial loan for $1.2
million.

Allowances  for Losses on Loans,  Investments  in Real  Estate  and Real  Estate
Owned.

     The Bank's  allowance for loan losses is  maintained at a level  considered
adequate to absorb future loan losses.  Management  of the Bank, in  determining
the  allowance  for  loan  losses,  considers  the  risks  inherent  in its loan
portfolio  and  changes in the nature and volume of its loan  activities,  along
with the general economic and real estate market conditions. The Bank utilizes a
two tiered approach in determining its allowance:  (1) identification of problem
loans and  establishment  of appropriate  loss allowances on such loans; and (2)
establishment  of general  valuation  allowances  on the  remainder  of its loan
portfolio.  The Bank  maintains a loan review system which allows for a periodic
review of its loan portfolio and the early  identification  of potential problem
loans.  Such system takes into  consideration,  among other things,  delinquency
status, amount, type of collateral and financial condition of the borrower. Loan
loss allowances are  established for identified  loans based on a review of such
data and/or  estimates of the fair value of the underlying  collateral.  General
loan loss allowances are based upon a combination of factors including,  but not
limited to,  actual loan loss  experience,  composition  of the loan  portfolio,
current economic conditions and management's judgment.

     While the Bank believes it utilized the best information available and that
it has  established  an  adequate  allowance  for loan  losses,  there can be no
assurance  that  regulators,  in reviewing the Bank's loan  portfolio,  will not
request the Bank to materially  increase its allowance for loan losses,  thereby
negatively  affecting the Bank's financial  condition and earnings at that time.
Although management believes that an adequate allowance for loan losses has been
established,  actual  losses are  dependent  upon  future  events  and, as such,
further  additions  and/or  adjustments  to the  specific  and general loan loss
allowances may become necessary.

     REO consists of real estate  acquired by  foreclosure  or a deed in lieu of
foreclosure and is initially  recorded at the lower of cost or fair value at the
earlier date of  acquisition.  Real estate owned is carried at the lower of cost
or fair value less estimated  selling costs.  Investments in real estate include
investments in non-consolidated  joint ventures.  These investments are recorded
at the lower of cost or fair value.  The  amounts  ultimately  recoverable  from
investments  in real  estate  could  differ from the net  carrying  value of the
assets. See "Subsidiary and Joint Venture Activities--FinFed Development Corp."


                                       12

<PAGE>



     The following table sets forth the Bank's allowances for loan losses at the
dates indicated:

<TABLE>
<CAPTION>
                                                             Year Ended September 30,
                                            ----------------------------------------------------------
                                             1998         1997         1996         1995         1994
                                            ------       ------       ------       ------       ------
                                                              (Dollars in thousands)
<S>                                         <C>          <C>          <C>          <C>          <C>   
Allowance for loan losses:
Balance at beginning of period .......      $1,405       $1,573       $1,243       $1,120       $1,005
Charge-Offs:
     One- to four-family .............          65           39           --           31           51
     Multi-family ....................         114           --          213          189           --
     Commercial ......................          --          504           --           --           --
     Consumer and other loans ........          --           59           --           --           19
                                            ------       ------       ------       ------       ------
Total charge-offs ....................         179          602          213          220           70
Recoveries ...........................          30            7           --            1            2
Provision for loan losses ............         401          427          543          342          183
                                            ------       ------       ------       ------       ------
Balance at end of period .............      $1,657       $1,405       $1,573       $1,243       $1,120
                                            ======       ======       ======       ======       ======
Ratio of total charge-offs during the
  period to average loans outstanding
  during the period ..................        0.10%        0.41%        0.17%        0.23%        0.08%
Ratio of allowance for loan losses to
  total loans at the end of the period        0.84%        0.91%        1.09%        1.10%        1.31%
Ratio of allowance for loan losses to
  non-performing loans at the end of
  the period .........................      103.56%       53.63%       75.19%       63.97%       67.48%
</TABLE>


     The  following  table sets forth the  allocation  of the allowance for loan
losses by loan category and the percent of loans in each category to total loans
receivable at the dates indicated.  The portion of the allowance for loan losses
allocated to each loan  category  does not  represent  the total  available  for
future losses which may occur within the loan category since the total loan loss
reserve is a valuation reserve applicable to the entire loan portfolio.

<TABLE>
<CAPTION>
                                                                      At September 30,
                       -------------------------------------------------------------------------------------------------------------
                              1998                   1997                   1996                  1995                 1994
                       --------------------  ---------------------  --------------------   --------------------  -------------------
                                 % of Loans             % of Loans            % of Loans            % of Loans           % of Loans
                                  in each                in each               in each                in each              in each
                                category to            category to           category to            category to          category to
                       Amount   total loans  Amount    total loans  Amount   total loans   Amount   total loans  Amount  total loans
                       ------   -----------  ------    -----------  ------   -----------   ------   -----------  ------  -----------
                                                                    (Dollars in thousands)
<S>                    <C>         <C>       <C>          <C>       <C>          <C>       <C>          <C>       <C>        <C>   
Real Estate Loans:
   Residential
one- to four-family    $1,066      64.34%    $1,040       83.20%    $  650       82.18%    $  305       85.91%    $  293     90.56%
   Multi-family ...       198      11.95        121        7.59         53        5.69        218        3.80        278      3.77
   Commercial .....       375      22.63        231        8.52        757        8.34        686        7.10        529      3.45
Commercial
business loans ....         3       0.18          8        0.05         57        0.12         12        0.11          4      0.04
Construction/land .        12       0.72          2        0.37         53        3.40         17        2.72          9      1.71
Consumer ..........         3       0.18          3        0.27          3        0.27          5        0.36          7       0.4
                       ------     ------     ------      ------     ------      ------     ------      ------     ------    ------
      Total
    allowance for
      loan losses .    $1,657     100.00%    $1,405      100.00%    $1,573      100.00%    $1,243      100.00%    $1,120    100.00%
                       ======     ======     ======      ======     ======      ======     ======      ======     ======    ======
</TABLE>



                                       13

<PAGE>



Investment Activities

     The Bank is required to maintain liquid assets at minimum levels which vary
from time to time.  The Bank  increases  or  decreases  its  liquid  investments
depending  on the  availability  of  funds  and  comparative  yields  on  liquid
investments  relative to the return  availability of mortgage loans.  The Bank's
liquid  investments  primarily include United States Government  callable agency
securities, and overnight federal funds.  Historically,  the Bank has maintained
its liquid assets at levels well above the minimum regulatory  requirements.  At
September  30,  1998,  $36.0  million,  or 11.3% of the Bank's total assets were
invested in investment securities with final maturities of five years or less.

     The following table sets forth certain  information  regarding the carrying
and market values of the Bank's portfolio of investment  securities at the dates
indicated:


<TABLE>
<CAPTION>
                                                                                At September 30,
                                                    ------------------------------------------------------------------------
                                                            1998                      1997                     1996
                                                    --------------------      --------------------     ---------------------
                                                    Carrying      Market      Carrying      Market     Carrying       Market
                                                     Value        Value        Value        Value        Value        Value
                                                    -------      -------      -------      -------      -------      -------
                                                                      (In thousands)
<S>                                                 <C>          <C>          <C>          <C>          <C>          <C>    
Investment Securities held to maturity:
U.S. Government and agency obligations .......      $46,200      $46,595      $69,410      $69,223      $51,122      $49,903
                                                    -------      -------      -------      -------      -------      -------
Total investment securities held to maturity .      $46,200      $46,595      $69,410      $69,223      $51,122      $49,903
                                                    =======      =======      =======      =======      =======      =======
Available for sale:
U.S. Treasury securities .....................      $    --      $    --      $    --      $    --      $ 2,908      $ 2,908
Corporate stocks .............................          708          708          731          731          700          700
Corporate bonds ..............................        5,580        5,580           --           --           --           --
                                                    -------      -------      -------      -------      -------      -------
Total investment securities available for sale      $ 6,288      $ 6,288      $   731      $   731      $ 3,608      $ 3,608
                                                    =======      =======      =======      =======      =======      =======
</TABLE>



                                       14

<PAGE>



         The following table sets forth the carrying  values,  market values and
average  yields for the Bank's debt security  portfolio by maturity at September
30, 1998.

<TABLE>
<CAPTION>
                           One to Five Years           Five to Ten Years            After Ten Years       Total Investment Portfolio
                      --------------------------  --------------------------  --------------------------  --------------------------
                      Carrying   Market  Average  Carrying   Market  Average  Carrying   Market  Average  Carrying   Market  Average
                       Value     Value    Yield    Value     Value    Yield    Value     Value    Yield    Value     Value    Yield
                      --------   -----   -------  --------   -----   -------  --------   -----   -------  --------   -----    -----
                                                              (Dollars in thousands)
<S>                   <C>       <C>       <C>     <C>       <C>       <C>     <C>       <C>       <C>     <C>       <C>       <C>  
U.S. Government
 agency securities .  $35,995   $36,304   6.25%   $ 7,237   $ 7,316   6.58%   $ 2,968   $ 2,975   8.20%   $46,200   $46,595   6.43%
Corporate bonds ....       --        --     --         --        --     --      5,853     5,580   6.31      5,853     5,580   6.31
                      =======   =======   ====    =======   =======   ====    =======   =======   ----    =======   =======   ----
      Total ........  $35,995   $36,304   6.25%   $ 7,237   $ 7,316   6.58%   $ 8,821   $ 8,555   6.94%   $52,053   $52,175   6.42%
                      =======   =======   ====    =======   =======   ====    =======   =======   ====    =======   =======   ====
</TABLE>


                                       15

<PAGE>



Sources of Funds

     General.  The Bank's  lending and investment  activities are  predominantly
funded by savings deposits,  interest and principal  payments on loans and other
investments, FHLB advances, other borrowings and proceeds from the maturities of
securities.

     Deposits. The Bank offers a variety of deposit accounts having a wide range
of interest  rates and terms.  The Bank's  deposits  consist of savings and club
accounts,  interest-bearing  and  non-interest-bearing  demand deposit accounts,
money market deposit  accounts and  certificates of deposit.  In addition to the
standard  certificates  of  deposit,  the Bank  has  designed  special  flexible
certificates  of deposit  ("CDs") to accommodate  its  customers.  The Bank also
offers the Silver  Certificate  of Deposit to all direct  deposit  customers  62
years of age or older.  This twelve  month time deposit pays a bonus rate of 1/8
of 1%  (.125%)  over the  standard  twelve  month  time  deposit  and allows one
withdrawal of principal per quarter without an early withdrawal  penalty.  As of
September 30, 1998, Silver Certificates of Deposit represented $15.6 million, or
12.7% of  certificates  outstanding.  The Bank only  solicits  deposits from its
market  area  and does not use  brokers  to  obtain  deposits.  The Bank  relies
primarily on competitive  pricing policies,  advertising and customer service to
attract new and retain existing deposits.

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

                                               For the Years Ended September 30,
                                               --------------------------------
                                                1998         1997        1996
                                               --------    --------    --------
                                                        (In thousands)

Deposits ...................................   $467,844    $313,206    $267,595
Withdrawals ................................    462,073     310,797     258,815
                                               --------    --------    --------
Net increase (decrease) before interest
credited ...................................      5,771       2,409       8,780
Interest credited ..........................      8,933       8,102       7,612
                                               --------    --------    --------
Net increase (decrease) in deposits ........   $ 14,704    $ 10,511    $ 16,392
                                               ========    ========    ========


     The  following  table  indicates the amount of the Bank's  certificates  of
deposit of $100,000 or more by the time remaining until maturity as of September
30, 1998.


                                                                 (In thousands)
Maturity Period:
Three months or less .......................................         $ 2,229
Over three through six months ..............................           1,711
Over six through 12 months .................................           2,736
Over 12 months .............................................           7,446
                                                                     -------
      Total ................................................         $14,122
                                                                     =======



                                       16

<PAGE>



     The  following  table sets  forth the  distribution  of the Bank's  deposit
accounts at September 30, 1998,  1997 and 1996 and the weighted  average nominal
interest  rates on each  category of deposits  presented at September  30, 1998,
1997 and 1996.

<TABLE>
<CAPTION>
                                                      1998                          1997                         1996
                                          --------------------------    ----------------------------  ---------------------------
                                                            Weighted                        Weighted                     Weighted
                                                             Average                         Average                      Average
                                          Percent    Amount   Rate      Percent     Amount    Rate    Percent    Amount     Rate
                                          -------    ------ --------    -------     ------    ----    -------    ------     ----
                                                         (Dollars in thousands)
<S>                                       <C>       <C>        <C>      <C>       <C>         <C>    <C>       <C>          <C>  
Non-interest-bearing demand ...........     5.73%   $ 13,065   0.00%      4.72%   $ 10,089    0.00%    3.52%   $  7,156     0.00%
Interest-bearing demand ...............     6.98      15,914   1.87       7.22      15,399    2.17     9.18      18,622     2.18
Savings and club ......................    33.43      76,267   2.13      34.73      74,109    2.20    36.52      74,084     2.11
Certificates of deposit ...............    53.86     122,850   5.61      53.33     113,797    5.80    50.78     103,022     5.85
                                          ------    --------            ------    --------           ------    --------      
     Total deposits ...................   100.00%   $228,096   3.86%    100.00%   $213,394    4.01%  100.00%   $202,884     3.94%
                                          ======    ========            ======    ========           ======    ========      
</TABLE>


     The  following  table  presents  the amount of the Bank's  certificates  of
deposit outstanding,  based upon weighted-average rate categories,  at September
30,  1998,  1997 and 1996,  based  upon  contractual  periods  to  maturity,  at
September 30, 1998.

<TABLE>
<CAPTION>
                                               Period to Maturity from September 30, 1998                    At September 30,
                                   ----------------------------------------------------------------   ------------------------------
                                               One to     Two to     Three to   Four to     After   
                                   Less Than     Two      Three       Four       Five       Five     
                                    One Year    Years     Years       Years      Years      Years       1998       1997      1996
                                   ---------   --------   --------   --------   --------   --------   --------   --------   --------
                                                                 (In thousands)
<S>                                 <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>     
Certificate accounts:
     3.00% to 3.99% .............   $  3,391   $     --   $     --   $     --   $     --   $     --   $  3,391   $     45   $    163
     4.00% to 4.99% .............     31,446        881        356        132        119         --     32,934     12,148     24,776
     5.00% to 5.99% .............     42,349     10,555      2,979        347      1,705        172     58,107     73,056     50,468
     6.00% to 6.99% .............      3,095      2,100      2,022      3,509        747         15     11,488     12,333     10,685
     7.00% to 7.99% .............         --     11,102      5,768         --         --         --     16,870     16,161     16,879
     8.00% to 8.99% .............         --         --         60         --         --         --         60         54         51
                                    --------   --------   --------   --------   --------   --------   --------   --------   --------

         Total ..................   $ 80,281   $ 24,638   $ 11,185   $  3,988   $  2,571   $    187   $122,850   $113,797   $103,022
                                    ========   ========   ========   ========   ========   ========   ========   ========   ========
</TABLE>


                                       17

<PAGE>



Borrowings

     Advances From Federal Home Loan Bank of New York. In the past and from time
to time,  the Bank has obtained  fixed-rate  advances from the Federal Home Loan
Bank of New York  ("FHLB") as a source of funding in order to take  advantage of
favorable  rates of interest in comparison  to its other  sources of funds.  The
Bank's FHLB advances are generally  secured by the Bank's mortgage loans and the
Bank's investment in the stock of the FHLB. In addition,  the Bank has available
an overnight  line of credit with the FHLB,  subject to the terms and conditions
of the  lender's  overnight  advance  program,  in the amount of $29.7  million.
Advances under this line of credit, which expires on December 23, 1998, are made
for one-day periods. As of September 30, 1998, advances were secured by stock of
Federal Home Loan Bank in the amount of $2.1 million and mortgage  loans with an
unpaid balance of $29.5 million.  Information  concerning advances from FHLB are
summarized as follows:

<TABLE>
<CAPTION>
                                                                                 September 30,
                                               Interest         -------------------------------------------------
                 Maturity                        Rate               1998              1997              1996
------------------------------------------  -------------       -------------    --------------    --------------
                                                                                  (In thousands)
<S>                                            <C>                <C>                <C>                <C>   
Overnight advances due
  October 1996 ............................    6.125%             $   --             $   --             $  525
Notes maturing in
  February 1997 ...........................    5.133%                 --                 --              1,200
Notes maturing in
  December 1997 ...........................    5.597%                 --              2,000              2,000
Notes maturing in
  December 1998 ...........................    5.670%              6,000              6,000              6,000
                                                                  ------             ------             ------
                                                                  $6,000             $8,000             $9,725
                                                                  ======             ======             ======
</TABLE>


     Securities Sold Under  Agreements to Repurchase.  Borrowings  under reverse
repurchase   agreements  involve  the  delivery  of  investment   securities  to
broker-dealers who arrange the transactions. The securities remain registered in
the name of the Bank,  and are returned to the Bank upon the  maturities  of the
agreements.


<TABLE>
<CAPTION>
                                                                                 September 30,
                                               Interest         -------------------------------------------------
                 Maturity                        Rate               1998              1997              1996
------------------------------------------  -------------       -------------    --------------    --------------
                                                                                (In thousands)
<S>                                            <C>               <C>                <C>                <C>   
December 1996                                   5.44%            $    --            $    --            $14,046
December 2001                                  5.291%                 --              5,000                 --
May 2002                                       5.813%             10,000             10,000                 --
August 2002                                     5.62%             10,000             10,000                 --
November 2004                                  5.963%              5,000                 --                 --
December 2004                                   5.93%              7,000                 --                 --
June 2008                                       5.05%             10,000                 --                 --
                                                                 -------            -------            -------
                                                                 $42,000            $25,000            $14,046
                                                                 =======            =======            =======
</TABLE>

     At September 30, 1998, these borrowings are callable or will reprice within
one year and at periodic  intervals  thereafter except the borrowing maturing in
May 2002, which is callable every three months.

     Information  concerning borrowings  collateralized by securities sold under
agreements to repurchase is summarized as follows:



                                       18

<PAGE>


                                                  Year Ended September 30,
                                              ---------------------------------
                                               1998         1997         1996
                                              -------      -------      -------
                                                       (In thousands)

Average balance during
  the year ..............................     $34,033      $12,010      $ 8,228
Average interest rate
  during the year .......................        5.79%        5.53%        5.70%
Maximum month end
   balance during the year ..............      42,000       25,000       15,064
Investment securities underlying
  the agreement at year end:
         Carrying value .................     $45,961      $28,545      $15,120
         Estimated market value .........     $45,844      $28,427      $14,520


Treasury Tax and Loan Account Borrowings

     At September 30, 1998 and 1997,  the Bank had  borrowings  from the Federal
Reserve Bank of New York under the Treasury  Tax and  Depository  program in the
amount of $7.8 million and $20.0 million,  respectively,  at an interest rate of
5.41% and 5.20%, respectively, per annum payable on demand. These borrowings are
secured by  investment  securities  with a carrying  value of $30.6  million and
$22.2 million and fair value of $30.8 million and $21.2 million, respectively.

Subsidiary and Joint Venture Activities

     The  following  is  a  description   of  the  current   subsidiaries   (the
"Subsidiaries")  of the  Company  and Bank.  The Bank uses the equity  method of
accounting to account for the Subsidiary's  investment in the joint venture. The
Subsidiary's joint venture real estate development activity involves risks which
may adversely  affect the  profitability  of the Bank.  Real estate  development
joint  ventures  generally  incur  substantial  costs to  acquire  land,  design
projects,  install site improvements and engage in marketing activities prior to
commencement  of  development.  Because the joint venture is unable to repay the
Subsidiary's loans and/or the Subsidiary's  capital  investments until the sales
of the lots are actually closed, there is negative cash flow in the early stages
of the project. In general, a Subsidiary's profit potential on any given project
may vary,  if overruns are  experienced,  the  underlying  value of the property
declines or a combination of these factors occurs.

     842 Manhattan Avenue Corp. 842 Manhattan Avenue, a wholly-owned  subsidiary
of the Company, was incorporated in October,  1995, for the purpose of holding a
Bank  owned  property  for lease.  At  September  30,  1998,  this  subsidiary's
investment consists of the building located at 842 Manhattan Avenue, Greenpoint,
Brooklyn.

     FinFed Funding Ltd.  FinFed Funding Ltd., a wholly-owned  subsidiary of the
Bank,  was  incorporated  in March  1985.  It serves as a  conduit  for  funding
investments  through  the  Bank's  real  estate  development  subsidiary.  As of
September 30, 1998, the subsidiary is inactive.

     FinFed  Development  Corp.  This  wholly-owned  subsidiary  of the Bank was
incorporated in May 1985 for the purpose of  participating  as a general partner
in a real estate  joint  venture,  AFT  Associates,  with  another New York City
metropolitan area financial  institution and a local real estate  developer.  In
May  1985,  AFT  Associates  acquired  a parcel of land for the  development  of
approximately 400 lots designated for both detached residences and condominiums.
In July 1996,  AFT  Associates  received  the  required  approvals  necessary to
develop  the land for resale.  The  subsidiary  has a one-third  interest in any
profits  realized from the sale of the developed  property.  As of September 30,
1998,  the  Bank's  investment  of  $3.3  million  in AFT  Associates  has  been
classified as substandard. Subsequent to

                                       19

<PAGE>



receiving  the  required  approvals  necessary  to develop  the land,  the joint
venture  entered  into an  agreement  to sell this  parcel of land  owned by AFT
Associates.  On November 23, 1998, AFT Associates  sold this parcel of land. The
sale of the joint  venture's land will have a positive effect on both the Bank's
level of classified assets and interest-earning assets. In addition, pursuant to
the Merger  Agreement,  the Company  will be permitted to pay a one time Special
Dividend of $1.00 per share to its  stockholders,  which was  contingent  on the
sale of this participation in the joint venture.

     FS Agency  Inc.  This  wholly-owned  subsidiary  of the Bank was  formed in
August 1988 as a conduit to the Bank for commissions on the sale of tax deferred
annuities and life  insurance.  As of September 30, 1998,  its total assets were
$33,000.

     At September 30, 1998,  the Bank's loans to and  investments  in one of its
wholly owned  subsidiaries,  FS Agency Inc.,  were not subject to the  deduction
from capital in accordance with FIRREA.  However,  the Bank's other wholly owned
subsidiaries,  FinFed  Funding Ltd. and FinFed  Development  Corp.  are, or have
been, engaged in real estate development activities that are not permitted for a
national  bank,  and thus are subject to the general rule  requiring  the Bank's
loans to and investments in the subsidiaries to be deducted from capital.

Personnel

     As of  September  30,  1998  the  Bank  had 54  full-time  employees  and 7
part-time employees.

                           REGULATION AND SUPERVISION

General

     The Bank is subject to extensive regulation, examination and supervision by
the OTS, as its chartering  agency,  and the FDIC, as the deposit  insurer.  The
Bank is a member of the FHLB System and its deposit  accounts  are insured up to
applicable limits by the Savings Association  Insurance Fund ("SAIF") managed by
the FDIC.  The Bank must file reports with the OTS and the FDIC  concerning  its
activities and financial condition in addition to obtaining regulatory approvals
prior  to  entering  into  certain   transactions   such  as  mergers  with,  or
acquisitions of, other financial  institutions.  There are periodic examinations
by the OTS and the FDIC to test the Bank's safety and  soundness and  compliance
with  various   regulatory   requirements.   This   regulation  and  supervision
establishes a comprehensive  framework of activities in which an institution can
engage and is intended  primarily for the  protection of the insurance  fund and
depositors.  The  regulatory  structure  also gives the  regulatory  authorities
extensive  discretion  in  connection  with their  supervisory  and  enforcement
activities  and  examination  policies,  including  policies with respect to the
classification  of assets and the  establishment  of adequate loan loss reserves
for regulatory  purposes.  Any change in such policies,  whether by the OTS, the
FDIC or  through  legislation,  could  have a  material  adverse  impact  on the
Company,  the Bank and their  operations.  The  Company,  as a savings  and loan
holding company,  is required to file certain reports with, and otherwise comply
with the rules and  regulations  of the OTS under the Home  Owners' Loan Act, as
amended (the "HOLA"),  and of the  Securities  and Exchange  Commission  ("SEC")
under the  federal  securities  laws.  Certain  of the  regulatory  requirements
applicable  to the Bank and to the  Company are  referred to below or  elsewhere
herein.

     The  description  of statutory  provisions  and  regulations  applicable to
savings  institutions set forth in this document do not purport to be a complete
description of such statutes and regulations and their effects on the Bank.

Federal Savings Institution Regulation

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


                                       20

<PAGE>



     Loans to One Borrower.  Under the HOLA, savings  institutions are generally
subject  to the  national  bank  limits  on loans  to one  borrower.  Unless  an
exception applies,  savings institutions may not make a loan or extend credit to
a single  or  related  group  of  borrowers  in  excess  of 15.0% of the  Bank's
unimpaired capital and surplus. An additional amount may be lent, equal to 10.0%
of unimpaired capital and surplus, if such loan is secured by readily-marketable
collateral,  which is defined  to  include  certain  financial  instruments  and
bullion, but does not include real estate. At September 30, 1998, limit on loans
to one borrower was $3.9  million.  At September  30, 1998,  the Bank's  largest
aggregate outstanding balance of loans to one borrower was $2.7 million.

     QTL Test. The HOLA requires savings institutions to meet a qualified thrift
lender  ("QTL")  test.  Under the QTL test, a savings bank is required to either
qualify as a "domestic building and loan association" as defined in the Internal
Revenue Code of 1986 or maintain at least 65.0% of its "portfolio assets" (total
assets  less (i)  specified  liquid  assets  up to 20.0% of total  assets,  (ii)
intangibles, including goodwill, and (iii) the value of property used to conduct
business)  in certain  "qualified  thrift  investments"  (primarily  residential
mortgages and related investments, including certain mortgage-backed and related
securities) on a monthly basis in 9 out of every 12 months.

     A  savings  institution  that  fails  the QTL test is  subject  to  certain
operating  restrictions and may be required to convert to a bank charter.  As of
September  30,  1998,  the Bank  maintained  85.6% of its  portfolio  assets  in
qualified  thrift  investments and had more than 65% of its portfolio  assets in
qualified  thrift  investments  for each of the 12 months  ending  September 30,
1998. Therefore,  the Bank met the QTL test. Recent legislation has expanded the
extent to which education loans,  credit card loans and small business loans may
be considered "qualified thrift investments."

     Limitation on Capital  Distributions.  OTS regulations  impose  limitations
upon all capital distributions by a savings institution, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another  institution  in a cash-out  merger and other  distributions  charged
against  capital.  The rule establishes  three tiers of institutions,  which are
based primarily on an  institution's  capital level. An institution that exceeds
all fully phased-in  capital  requirements  before and after a proposed  capital
distribution  ("Tier 1 Bank") and has not been  advised by the OTS that it is in
need of more than normal supervision, could, after prior notice to the OTS, make
capital  distributions  during a calendar year equal to the greater of: (i) 100%
of its net earnings to date during the calendar  year plus the amount that would
reduce by one-half  its  "surplus  capital  ratio" (the excess  capital over its
fully phased-in capital  requirements) at the beginning of the calendar year; or
(ii) 75.0% of its net earnings for the previous four  quarters.  Any  additional
capital  distributions would require prior regulatory approval. In the event the
Bank's  capital fell below its  regulatory  requirements  or the OTS notified it
that it was in need of more than normal supervision,  the Bank's ability to make
capital distributions could be restricted. In addition, the OTS could prohibit a
proposed  capital  distribution  by any  institution,  which would  otherwise be
permitted by the regulation,  if the OTS determines that such distribution would
constitute an unsafe or unsound practice.  At September 30, 1998, the Bank was a
Tier 1 Bank.

     Liquidity.  The Bank is required to  maintain an average  daily  balance of
liquid assets (cash,  certain time  deposits,  bankers'  acceptances,  specified
United States Government, state or federal agency obligations, shares of certain
mutual funds and certain  corporate debt securities and commercial  paper) equal
to a  monthly  average  of not  less  than a  specified  percentage  of its  net
withdrawable  deposit  accounts  plus  short-term  borrowings.   This  liquidity
requirement may be changed from time to time by the OTS to any amount within the
range of 4.0% to 10.0% depending upon economic  conditions and the savings flows
of member institutions, and is currently 4.0%. Monetary penalties may be imposed
for failure to meet these liquidity requirements. The Bank's liquidity ratio for
September 30, 1998 was 9.9% which exceeded the applicable requirements. The Bank
has never been subject to monetary  penalties  for failure to meet its liquidity
requirements.

     Assessments.  Savings  institutions  are required to pay assessments to the
OTS  to  fund  the  agency's  operations.  The  general  assessment,  paid  on a
semi-annual  basis, is computed as a percentage  upon the savings  institution's
total assets,  including  consolidated  subsidiaries,  as reported in the bank's
latest quarterly thrift financial report.

     Branching.  The  OTS  regulations  authorize  federally  chartered  savings
associations to branch nationwide to the extent allowed by federal statute. This
permits federal savings and loan associations with interstate networks

                                       21

<PAGE>



to  diversify   more  easily  their  loan   portfolios  and  lines  of  business
geographically.  The OTS authority preempts any state law purporting to regulate
branching by federal savings institutions.

     Community  Reinvestment.  Under the Community  Reinvestment Act ("CRA"), as
implemented  by OTS  regulations,  a savings  institution  has a continuing  and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire  community,  including  low and  moderate  income
neighborhoods.  The CRA does not  establish  specific  lending  requirements  or
programs  for  financial   institutions  nor  does  it  limit  an  institution's
discretion  to develop the types of products and  services  that it believes are
best  suited  to its  particular  community,  consistent  with the CRA.  The CRA
requires the OTS, in connection with its  examination of a savings  institution,
to assess the institution's  record of meeting the credit needs of its community
and to take such record into account in its  evaluation of certain  applications
by such  institution.  The CRA also  requires  all  institutions  to make public
disclosure of their CRA ratings.  The Bank received a "Satisfactory"  CRA rating
in its most recent examination.

     Transactions  with  Related  Parties.  The  Bank's  authority  to engage in
certain  transactions  with related parties or "affiliates"  (i.e.,  any company
that  controls or is under common  control with an  institution,  including  the
Company and any non-savings institution subsidiaries) is limited by Sections 23A
and 23B of the Federal  Reserve Act  ("FRA").  Section 23A limits the  aggregate
amount of "covered transactions" (including extension of credit to, purchases of
assets from or the  issuance of a guarantee,  acceptance  or letter of credit on
behalf of affiliate)  with any individual  affiliate to 10.0% of the capital and
surplus of the  savings  institution  and also  limits the  aggregate  amount of
transactions with all affiliates to 20.0% of the savings  institution's  capital
and surplus.  Certain transactions with affiliates are required to be secured by
collateral in an amount and of a type  described in Section 23A and the purchase
of low quality  assets from  affiliates  is  generally  prohibited.  Section 23B
generally provides that certain  transactions with affiliates,  (including loan,
asset sales or purchases, and any servicing, leases or other agreements) must be
on  terms  and  under  circumstances,   including  credit  standards,  that  are
substantially  the same or at least as  favorable  to the  institution  as those
prevailing at the time for comparable transactions with nonaffiliated companies.
Notwithstanding  Sections 23A and 23B, savings  institutions are prohibited from
lending to any affiliate that is engaged in activities  that are not permissible
for bank holding  companies  under Section 4 (c) of the Bank Holding Company Act
("BHC Act").  Further, no savings institution may purchase the securities of any
affiliate other than a subsidiary.

     The Bank's authority to extend credit to executive officers,  directors and
principal  shareholders  (generally considered to be those owners controlling or
having  the  power to vote ten  percent  or more of any  class of the  Company's
stock) as well as entities controlled by such persons, are currently governed by
Sections  22(g) and 22(h) of the FRA, and the Federal  Reserve  Board's  ("FRB")
Regulation O thereunder.  Among other  things,  these  regulations  require such
loans  to  be  made  on  terms  substantially  the  same  as  those  offered  to
unaffiliated  individuals  and may not  involve  more  than the  normal  risk of
repayment.  Recent legislation created an exception for loans made pursuant to a
benefit or compensation program that is widely available to all employees of the
institution  and does not give  preference  to  insiders  over other  employees.
Regulation O also places  individual and aggregate limits on the amount of loans
the Bank may make to insiders based, in part, on the Bank's capital position and
requires certain board approval procedures to be followed.

     Enforcement.   Under  the  FDI  Act,   the  OTS  has  primary   enforcement
responsibility over savings  institutions and has the authority to bring actions
against  the  institution  and  all  institution-affiliated  parties,  including
stockholders,  and any attorneys,  appraisers and  accountants  who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution.  Formal enforcement action may range from the issuance of a
capital  directive  or cease and  desist  order to removal  of  officers  and/or
directors to  institution  of  receivership,  conservatorship  or termination of
deposit  insurance.  Civil  penalties  cover a wide range of violations  and can
amount to $25,000 per day, or even $1 million  per day in  especially  egregious
cases.  Under  the FDI Act,  the  FDIC has the  authority  to  recommend  to the
Director of the OTS enforcement  action to be taken with respect to a particular
savings  institution.  If action is not taken by the Director,  the FDIC has the
authority  to take such action  under  certain  circumstances.  Federal law also
establishes criminal penalties for certain violations.

     Standards  for Safety and  Soundness.  The federal  banking  agencies  have
adopted Interagency  Guidelines  Prescribing  Standards for Safety and Soundness
("Guidelines")  and a final rule to  implement  safety and  soundness  standards
required  under the FDI Act. The  Guidelines  set forth the safety and soundness
standards that the federal

                                       22

<PAGE>



banking  agencies  use to identify  and address  problems at insured  depository
institutions  before capital  becomes  impaired.  The standards set forth in the
Guidelines  address internal  controls and information  systems;  internal audit
system;  credit underwriting;  loan documentation;  interest rate risk exposure;
asset growth; asset quality; earnings; and compensation, fees and benefits. Most
recently,  the agencies have issued safety and soundness standards for Year 2000
computer  compliance.  If the appropriate federal banking agency determines that
an  institution  fails to meet any standard  prescribed by the  Guidelines,  the
agency may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard, as required by the FDI Act. The final rule
establishes deadlines for the submission and review of such safety and soundness
compliance plans when such plans are required.

     Capital   Requirements.   The  OTS  capital   regulations  require  savings
institutions to meet three minimum capital  standards:  a 1.5% tangible  capital
standard,  a 3.0% leverage ratio (or core capital ratio) and an 8.0%  risk-based
capital standard. In addition,  the prompt corrective action standards discussed
below also establish,  in effect, a minimum 2% tangible capital  standard,  a 4%
leverage (core) capital ratio (3% for institutions  receiving the highest rating
on the CAMEL  financial  institution  rating  system),  and,  together  with the
risk-based  capital standard itself,  a 4% Tier I risk-based  capital  standard.
Core  capital is  defined as common  stockholders'  equity  (including  retained
earnings),  certain noncumulative perpetual preferred stock and related surplus,
and minority  interests in equity  accounts of  consolidated  subsidiaries  less
intangibles  other than  certain  mortgage  servicing  rights  and  credit  card
relationships.  The OTS regulations  also require that, in meeting the tangible,
leverage (core) and risk-based  capital  standards,  institutions must generally
deduct  investments  in and  loans to  subsidiaries  engaged  in  activities  as
principal that are not permissible for a national bank.

     The  risk-based  capital  standard  for savings  institutions  requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and   supplementary   capital)  to  risk  weighted  assets  of  4.0%  and  8.0%,
respectively.  In determining the amount of  risk-weighted  assets,  all assets,
including certain  off-balance sheet assets,  are multiplied by a risk-weight of
0% to 100%,  as assigned by the OTS  capital  regulation  based on the risks OTS
believes  are  inherent in the type of asset.  The  components  of Tier 1 (core)
capital are equivalent to those discussed  earlier under the 3.0% leverage ratio
standard.  The components of supplementary  capital currently include cumulative
preferred stock,  long-term  perpetual  preferred stock,  mandatory  convertible
securities, subordinated debt and intermediate preferred stock and allowance for
loan and  lease  losses.  Allowance  for loan and  lease  losses  includable  in
supplementary  capital is limited to a maximum of 1.25% of risk-weighted assets.
Overall,  the amount of supplementary  capital included as part of total capital
cannot exceed 100% of core capital.

     The OTS (and other federal  banking  agencies)  has revised the  risk-based
capital  standards to ensure that such  standards  take account of interest rate
risk. The OTS  regulations set forth the methodology for calculating an interest
rate risk component that would be incorporated  into the OTS risk-based  capital
regulations.  A savings  institutions  with "above  normal"  interest  rate risk
exposure  must deduct from total  capital a portion of its capital to cover such
interest  rate  risk  for  purposes  of  calculating  their  risk-based  capital
requirements.  A savings  institution's  interest  rate risk is  measured by the
decline in the net portfolio value of its assets (i.e.,  the difference  between
incoming  and  outgoing  discounted  cash flows  from  assets,  liabilities  and
off-balance  sheet  contracts)  that would result from a hypothetical  200-basis
point  increase or decrease in market  interest  rates  (except when the 3-month
Treasury bond equivalent yield falls below 4.0%, then the decrease will be equal
to one-half of that Treasury  rate) divided by the estimated  economic  value of
the institution's  assets, as calculated in accordance with guidelines set forth
by the OTS. A savings  institution  whose  measured  interest rate risk exposure
exceeds 2.0% must deduct an interest  rate  component in  calculating  its total
capital under the  risk-based  capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2.0%,  multiplied by the estimated  economic value of the
bank's  assets.  That dollar  amount is  deducted  from an  institution's  total
capital in calculating  compliance with its risk-based capital requirement.  For
the present time,  the OTS has deferred  implementation  of a capital  deduction
based on the  interest-rate  risk component.  If the Bank had been subject to an
interest-rate  risk  component as of September 30, 1998, the Bank would not have
been subject to any deduction from capital as a result of its interest rate risk
position.


                                       23

<PAGE>



     At September 30, 1998, the Bank met each of its capital  requirements.  The
following table sets forth in terms of dollars and percentages the OTS tangible,
leverage and risk-based capital requirements,  and the Bank's historical amounts
and percentages at September 30, 1998.

<TABLE>
<CAPTION>
                                                            At September 30, 1998
                                       -----------------------------------------------------------------
                                         Capital     Required   Actual     Actual     Excess      Excess
                                       Requirement    Percent   Capital    Percent    Capital    Percent
                                       -----------    -------   -------    -------    -------    -------
<S>                                      <C>            <C>     <C>          <C>      <C>          <C>  
Tangible.......................          $  4,708       1.5%    $22,746      7.25%    $18,038      5.75%
Leverage.......................            12,554       4.0      22,746      7.25      10,192      3.25
Risk-based.....................            11,054       8.0      23,957     17.34      12,903      9.34
</TABLE>

     Prompt Corrective Regulatory Action. Under the OTS prompt corrective action
regulations,  the OTS is required to take certain  supervisory  actions  against
undercapitalized   institutions,   the  severity  of  which   depends  upon  the
institution's degree of undercapitalization. Generally, a savings institution is
considered  "well  capitalized"  if its ratio of total capital to  risk-weighted
assets is at least  10%,  its ratio of Tier I (core)  capital  to  risk-weighted
assets is at least 6%, its ratio of core capital to total assets is at least 5%,
and it is not  subject to any order or  directive  by the OTS to meet a specific
capital  level.  A  savings  institution  generally  is  considered  "adequately
capitalized" if its ratio of total capital to  risk-weighted  assets is at least
8%, its ratio of Tier I (core) capital to  risk-weighted  assets is at least 4%,
and its  ratio  of core  capital  to  total  assets  is at  least  4% (3% if the
institution receives the highest CAMEL rating). A savings institution that has a
ratio of total capital to risk-weighted  assets of less than 8%, a ratio of Tier
I (core)  capital  to  risk-weighted  assets  of less than 4% or a ratio of core
capital to total  assets of less than 4% (3% or less for  institutions  with the
highest  examination rating) is considered to be  "undercapitalized."  A savings
institution  that has a total  risk-based  capital  ratio less than 6%, a Tier 1
capital  ratio  of less  than 3% or a  leverage  ratio  that is less  than 3% is
considered to be "significantly undercapitalized" and a savings institution that
has a tangible  capital to assets ratio equal to or less than 2% is deemed to be
"critically  undercapitalized."  Subject  to a  narrow  exception,  the  banking
regulator is required to appoint a receiver or  conservator  for an  institution
that is  "critically  undercapitalized."  The  regulation  also  provides that a
capital restoration plan must be filed with the OTS within 45 days of the date a
savings   institution   receives   notice   that   it   is   "undercapitalized,"
"significantly  undercapitalized" or "critically  undercapitalized."  Compliance
with the plan must be guaranteed  by any parent  holding  company.  In addition,
numerous  mandatory  supervisory  actions  become  immediately  applicable to an
undercapitalized   institution,   including,   but  not  limited  to,  increased
monitoring by regulators and restrictions on growth,  capital  distributions and
expansion.  The OTS  could  also  take  any  one of a  number  of  discretionary
supervisory  actions,  including  the  issuance of a capital  directive  and the
replacement of senior executive officers and directors.

     Insurance  on  Deposit  Accounts.  The FDIC has  established  a  risk-based
assessment  system for insured  depository  institutions that takes into account
the risks attributable to different  categories and concentrations of assets and
liabilities. Under the risk-based assessment system, the average assessment rate
paid by institutions insured under the SAIF was increased. Under the risk- based
assessment  system,  the FDIC  assigns an  institution  to one of three  capital
categories based on the institution's  financial information as of the reporting
period ending seven months before the assessment period,  consisting of (1) well
capitalized,  (2) adequately capitalized or (3) undercapitalized.  The FDIC also
assigns an institution  to one of three  supervisory  subcategories  within each
capital group.  The supervisory  subgroup to which an institution is assigned is
based on a  supervisory  evaluation  provided  to the FDIC by the  institution's
primary  federal  regulator  and  information  that  the FDIC  determines  to be
relevant to the  institution's  financial  conditions  and the risk posed to the
deposit insurance funds (which may include, if applicable,  information provided
by the institution's state supervisor). An institution's assessment rate depends
on the capital category and supervisory category to which it is assigned.  Under
the risk-based assessment system, there are nine assessment risk classifications
(i.e.,  combinations  of capital  groups  and  supervisory  subgroups)  to which
different  assessment rates are applied. As a result of the  recapitalization of
the SAIF in 1996 after the enactment of the Deposit Funds Insurance Act of 1996,
the FDIC reduced the assessment rates for deposit insurance for  SAIF-assessable
deposits for fiscal 1998 to a range of 0 to 27 basis points. The assessment rate
for the Company's SAIF-assessable deposits for fiscal 1998

                                       24

<PAGE>



was 0 basis points.  In addition,  SAIF-assessable  deposits are also subject to
assessments  for payments on the bonds issued in the late 1980s by the Financing
Corporation  (the "FICO" bonds) to recapitalize  the now defunct Federal Savings
and Loan Insurance  Corporation.  The Company's total expense in fiscal 1998 for
the  assessment  for deposit  insurance and the FICO  payments was $125,000,  as
compared to $173,000 paid in fiscal 1997.

     Thrift  Rechartering  Legislation.  The  Funds Act  provides  that the Bank
Insurance  Fund (the  "BIF") and SAIF will merge on January 1, 1999 if there are
no more savings  associations  as of that date. That  legislation  also required
that the  Department  of  Treasury  submit  a  report  to  Congress  that  makes
recommendations  regarding a common financial  institutions  charter,  including
whether the separate charters for thrifts and banks should be abolished. Various
proposals to eliminate the federal thrift  charter,  create a uniform  financial
institutions  charter and abolish the OTS have been introduced in Congress.  The
bills would require federal  savings  institutions to convert to a national bank
or some type of state  charter by a  specified  date under some  bills,  or they
would  automatically  become  national banks.  Under some  proposals,  converted
federal thrifts would generally be required to conform their activities to those
permitted for the charter selected and divestiture of nonconforming assets would
be required over a two year period, subject to two possible one year extensions.
State chartered  thrifts would become subject to the same federal  regulation as
applies to state  commercial  banks.  A more  recent bill passed by the House of
Representatives  would not affect the federal thrift charter,  but would subject
unitary savings and loan holding  companies to the same activities  restrictions
applicable  to multiple  savings and loan  holding  companies.  Unitary  holding
companies  existing on or applied for by March 31, 1998 would be  grandfathered.
The Bank is unable to predict whether such  legislation  would be enacted or the
extent to which the legislation would restrict or disrupt its operations.

Federal Home Loan Bank System

     The Bank is a member of the FHLB  System,  which  consists  of 12  regional
FHLBs.  The FHLB  provides  a  central  credit  facility  primarily  for  member
institutions. The Bank, as a member of the FHLB, is required to acquire and hold
shares of capital  stock in that FHLB in an amount at least equal to 1.0% of the
aggregate principal amount of its unpaid residential  mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its advances  (borrowings)
from the  FHLB,  whichever  is  greater.  The Bank was in  compliance  with this
requirement  with an  investment  in FHLB stock at September  30, 1998,  of $2.1
million.  FHLB advances must be secured by specified types of collateral and all
long-term  advances may only be obtained for the purpose of providing  funds for
residential housing finance.

     The FHLBs are  required to provide  funds for the  resolution  of insolvent
thrifts  and  to  contribute  funds  for  affordable  housing  programs.   These
requirements  could reduce the amount of  dividends  that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their  members.  For the years ended  September  30, 1998,  1997 and
1996,  dividends  from the FHLB to the Bank  amounted to $146,000,  $115,000 and
$103,000,  respectively.  If dividends were reduced,  or interest on future FHLB
advances increased, the Bank's net interest income would likely also be reduced.
Further,  there can be no assurance  that the impact of FDICIA and the FIRREA on
the FHLBs will not also cause a decrease  in the value of the FHLB stock held by
the Bank.

Federal Reserve System

     The   FRB   regulations   require   savings    institutions   to   maintain
non-interest-earning  reserves against their transaction accounts (primarily NOW
and regular  checking  accounts).  The FRB  regulations  generally  require that
reserves be maintained against aggregate  transaction  accounts as follows:  For
accounts  aggregating  $47.8  million or less (subject to adjustment by the FRB)
the reserve  requirement is 3.0%;  and for accounts  greater than $47.8 million,
the reserve  requirement  is $1.48 million plus 10.0%  (subject to adjustment by
the FRB  between  8.0% and 14.0%)  against  that  portion  of total  transaction
accounts  in excess  of $47.8  million.  The first  $4.7  million  of  otherwise
reservable  balances  (subject to  adjustments by the FRB) are exempted from the
reserve requirements. The Bank is in compliance with the foregoing requirements.
The balances maintained to meet the reserve  requirements imposed by the FRB may
be used to satisfy liquidity requirements imposed by the OTS.

                                       25

<PAGE>


Holding Company Regulation

     The Company is a  non-diversified  unitary savings and loan holding company
within the meaning of the HOLA, as amended.  As such, the Company has registered
with the OTS and is subject to OTS  regulations,  examinations,  supervision and
reporting requirements.  In addition, the OTS has enforcement authority over the
Company and its non-savings institution  subsidiaries.  Among other things, this
authority permits the OTS to restrict or prohibit activities that are determined
to be a serious risk to the holding company's  subsidiary  savings  institution.
The Bank must  notify  the OTS 30 days  before  declaring  any  dividend  to the
Company.

     The  HOLA  prohibits  a  savings  and loan  holding  company,  directly  or
indirectly,  or through one or more subsidiaries,  from acquiring more than 5.0%
of the voting stock of another savings  institution or holding company  thereof,
without prior written approval of the OTS; or acquiring or retaining  control of
a  depository  institution  that  is not  insured  by the  FDIC.  In  evaluating
applications by holding companies to acquire savings institutions,  the OTS must
consider the financial  and  managerial  resources  and future  prospects of the
company and institution  involved,  the effect of the acquisition on the risk to
the insurance  funds, the convenience and needs of the community and competitive
factors.

     As a unitary savings and loan holding company (i.e., one that controls only
one thrift  subsidiary),  the Company  generally  will not be  restricted  under
existing  banking  laws as to the types of business  activities  in which it may
engage,  provided  that the Bank  continues to be a QTL.  See  "Federal  Savings
Institution  Regulation  - QTL Test" for a discussion  of the QTL  requirements.
Upon  any  non-supervisory   acquisition  by  the  Company  of  another  savings
association  or  savings  bank  that  meets  the QTL test and is  deemed to be a
savings institution by OTS, the Company would become a multiple savings and loan
holding company (if the acquired  institution is held as a separate  subsidiary)
and  would  be  subject  to  extensive  limitations  on the  types  of  business
activities  in which it  could  engage.  The HOLA  limits  the  activities  of a
multiple  savings  and loan  holding  company  and its  non-insured  institution
subsidiaries  primarily to  activities  permissible  for bank holding  companies
under  Section  4(c)(8) of the Bank Holding  Company  Act,  subject to the prior
approval of the OTS, and certain other activities  authorized by OTS regulation,
and no multiple  savings and loan holding  company may acquire more than 5.0% of
the stock of a company engaged in impermissible activities.

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

     Federal law  generally  provides  that no  "person,"  (defined to include a
company) acting directly or indirectly or through or in concert with one or more
other  persons,   may  acquire  "control,"  as  that  term  is  defined  in  OTS
regulations,  of a federally-insured savings institution without giving at least
60 days  written  notice  to the OTS and  providing  the OTS an  opportunity  to
disapprove  of the proposed  acquisition.  Such  acquisitions  of control may be
disapproved if it is determined,  among other things,  that (i) the  acquisition
would  substantially  lessen  competition;  (ii) the financial  condition of the
acquiring  person  might  jeopardize  the  financial  stability  of the  savings
institution  or  prejudice  the  interests  of  its  depositors;  or  (iii)  the
competency,  experience  or  integrity of the  acquiring  person or the proposed
management  personnel  indicates  that it would  not be in the  interest  of the
depositors  or the public to permit the  acquisition  of control by such person.
This requirement would apply to acquisitions of the Company's stock.

Federal Securities Laws

     The Company's  Common Stock is  registered  with the SEC under the Exchange
Act of 1934, as amended (the "Exchange  Act").  The Company and its officers and
directors are subject to periodic  reporting,  proxy  solicitation  regulations,
insider trading restrictions and other requirements under the Exchange Act.


                                       26

<PAGE>



     The registration under the Securities Act of 1933 (the "Securities Act") of
shares of the Common Stock issued in the Conversion or pursuant to the Company's
employee  stock benefit  plans does not cover the resale of such shares.  Shares
purchased  by an  affiliate  of the  Company  will  be  subject  to  the  resale
restrictions  of Rule 144 under the  Securities  Act. If the  Company  meets the
current public  information  requirements  of Rule 144 under the Securities Act,
each affiliate of the Company who complies with the other conditions of Rule 144
(including  those that require the affiliate's  sale to be aggregated with those
of certain other persons)  would be able to sell in the public  market,  without
registration,  a number of shares not to exceed, in any three-month  period, the
greater of (i) 1.0% of the outstanding shares of the Company or (ii) the average
weekly  volume of trading in such  shares  during the  preceding  four  calendar
weeks.  Shares acquired from the Company that are deemed to be restricted  under
the  definition  of that term in Rule 144, must be held for a period of at least
one year before they may be publicly resold. Provision may be made in the future
by the Company to permit  affiliates  to have their shares  registered  for sale
under the Securities Act under certain circumstances.

                           FEDERAL AND STATE TAXATION

Federal Taxation

     General.   The   Company   and  the  Bank   report   their   income   on  a
consolidated/unconsolidated basis and the accrual/cash method of accounting, and
are subject to federal income taxation in the same manner as other  corporations
with some  exceptions,  including  particularly the Bank's reserve for bad debts
discussed below.  The following  discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive  description of the tax rules
applicable  to the Bank or the  Company.  The Bank has not been  audited  by the
Internal  Revenue Service ("IRS") during the last eight (8) years.  For its 1998
taxable year, the Bank is subject to a maximum federal income tax rate of 34%.

     Bad Debt Reserves.  For fiscal years  beginning prior to December 31, 1995,
thrift  institutions which qualified under certain  definitional tests and other
conditions of the Internal  Revenue Code of 1986 (the "Code") were  permitted to
use certain  favorable  provisions to calculate  their  deductions  from taxable
income  for  annual  additions  to their bad debt  reserve.  A reserve  could be
established for bad debts on qualifying real property loans  (generally  secured
by  interests  in  real  property  improved  or to be  improved)  under  (i) the
Percentage of Taxable  Income  Method (the "PTI Method") or (ii) the  Experience
Method.  The reserve for  nonqualifying  loans was computed using the Experience
Method.

     In August 1996, provisions repealing the current thrift bad debt rules were
passed by Congress as part of "The Small  Business Job  Protection Act of 1996."
The new rules eliminate the 8% of taxable income method for deducting  additions
to the tax bad debt  reserves  for all  thrifts  for tax years  beginning  after
December  31,  1995.  These  rules also  require  that all  thrift  institutions
recapture all or a portion of their bad debt reserves  added since the base year
(last taxable year beginning  before  January 1, 1988).  The Bank has previously
recorded a deferred tax liability  equal to the bad debt  recapture and as such,
the new rules will have no effect on net income or federal  income tax  expense.
For taxable  years  beginning  after  September  30,  1998,  the Bank's bad debt
deduction will be equal to net  charge-offs.  The new rules allow an institution
to suspend the bad debt reserve recapture for the 1996 and 1997 tax years if the
institution's  lending  activity for those years is equal to or greater than the
institution's  average  mortgage  lending  activity  for the six  taxable  years
preceding 1996. For this purpose,  only home purchase and home improvement loans
are  included  and the  institution  can  elect to have the tax  years  with the
highest and lowest lending activity removed from the average calculation.  If an
institution is permitted and elects to postpone the reserve  recapture,  it must
begin its six year recapture no later than the 1998 tax year.  The  unrecaptured
base year reserves  will not be subject to recapture as long as the  institution
continues to carry on the business of banking.  In addition,  the balance of the
pre-1988 bad debt  reserves  continues to be subject to provision of present law
referred  to  below  that  require  recapture  in the  case  of  certain  excess
distributions to shareholders.

     Distributions.   To  the   extent   that  the  Bank   makes   "non-dividend
distributions"  to the Company that are  considered as made (i) from the reserve
for losses on qualifying real property loans, to the extent the reserve for such
losses  exceeds the amount  that would have been  allowed  under the  experience
method, or (ii) from the supplemental

                                       27

<PAGE>



reserve for losses on loans  ("Excess  Distributions"),  then an amount based on
the  amount   distributed  will  be  included  in  the  Bank's  taxable  income.
Non-dividend distributions include distributions in excess of the Bank's current
and accumulated  earnings and profits,  distributions in redemption of stock and
distributions in partial or complete liquidation. However, dividends paid out of
the Bank's  current or  accumulated  earnings and  profits,  as  calculated  for
federal income tax purposes,  will not be considered to result in a distribution
from the Bank's bad debt reserve.  Thus, any dividends to the Company that would
reduce  amounts  appropriated  to the Bank's bad debt  reserve and  deducted for
federal  income tax purposes  would  create a tax  liability  for the Bank.  The
amount of additional  taxable  income  created by an Excess  Distribution  is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the  distribution.  If the Bank makes a  "non-dividend  distribution,"
then approximately one and one-half times the amount so used would be includable
in gross  income for  federal  income tax  purposes,  presumably  taxed at a 34%
corporate  income tax rate  (exclusive of state and local taxes).  The Bank does
not intend to pay  dividends  that would result in a recapture of any portion of
its bad debt reserve.

     Corporate  Alternative  Minimum  Tax  ("AMT").  The Code  imposes  a tax on
alternative  minimum  taxable income ("AMTI") at a rate of 20%. Only 90% of AMTI
can be offset by net operating  loss  carryovers of which the Bank currently has
none.  AMTI is  increased  by an amount  equal to 75% of the amount by which the
Bank's adjusted current earnings exceeds its AMTI (determined  without regard to
this preference and prior to reduction for net operating losses).  The Bank does
not expect to be subject to the AMT.

     Dividends  Received  Deduction and Other  Matters.  The Company may exclude
from its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations.  The corporate dividends received deduction is
generally 70% in the case of dividends  received from unaffiliated  corporations
with which the  Company  and the Bank will not file a  consolidated  tax return,
except  that if the  Company  or the Bank  owns  more than 20% of the stock of a
corporation  distributing  a dividend then 80% of any dividends  received may be
deducted.

State and Local Taxation

     New York State and New York City  Taxation.  The Bank is subject to the New
York State  Franchise  Tax on  Banking  Corporations  in an amount  equal to the
greater of (i) 9.0% of "entire net income"  allocable  to New York State  during
the  taxable  year,  or  (ii)  the  applicable   alternative  minimum  tax.  The
alternative  minimum tax is  generally  the greater of (a) 3.0% of  "alternative
entire net income"  allocable to New York State,  (b) 0.01% of the Bank's assets
allocable  to New York  State,  or (c) $250.  Entire  net  income is  similar to
federal taxable income, subject to certain modifications (including the addition
of interest income on state and municipal obligations,  the partial exclusion of
interest income on certain United States Treasury,  New York State, and New York
City obligations,  and an additional New York State bad debt deduction). The New
York  State and New York City tax laws have been  amended  to  prevent  bad debt
recapture as  applicable to Federal  income  taxation,  and to permit  continued
future use of bad debt  reserve  methods for  purposes of  determining  New York
State and New York City tax liabilities.  Alternative entire net income is equal
to entire net income  without  certain  deductions  which are  allowable for the
calculation of entire net income. New York State also imposes several surcharges
on the  Franchise  Tax on Banking  Corporations  including a 17.0%  Metropolitan
Transportation Business Tax Surcharge.

     The Bank is also  subject to the New York City  Financial  Corporation  Tax
calculated,  subject to a New York City  income  and  expense  allocation,  on a
similar basis as the New York State Franchise Tax.

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


                                       28

<PAGE>



Impact of New Accounting Standards

     In June 1997, the FASB issued SFAS 130, "Reporting  Comprehensive  Income."
SFAS 130 requires that all items that are components of  "comprehensive  income"
be reported in a financial  statement that is displayed with the same prominence
as other financial statements. Comprehensive income is defined as the "change in
equity [net assets] of a business  enterprise  during a period from transactions
and other  events and  circumstances  from  nonowner  sources.  It includes  all
changes in equity during a period except those  resulting  from  investments  by
owners and distributions to owners."  Companies will be required to (a) classify
items of other comprehensive  income by their nature in the financial statements
and (b) display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of a
statement  of  financial  position.  SFAS  130 is  effective  for  fiscal  years
beginning after December 15, 1997 and requires  classification  of prior periods
represented.  As  the  requirement  of  SFAS  130  are  disclosure-related,  its
implementation  will have no  impact on the  Company's  financial  condition  or
results of operations.

     In June 1997,  the FASB issued SFAS 131,  "Disclosure  about Segments of an
Enterprise and Related  Information."  SFAS 131 requires that enterprises report
certain  financial  and  descriptive  information  about  operating  segments in
complete sets of financial  statements of the company and in condensed financial
statements  of interim  period issued to  shareholders.  It also requires that a
company report certain information about their products and services, geographic
areas in which they operate and their major customers. SFAS No. 131 is effective
for fiscal years beginning after December 15, 1997 and requires  interim periods
to be presented in the second year of application.  As the  requirements of SFAS
131 are  disclosure-related,  its  implementation  will  have no  impact  on the
Company's financial condition or results of operation.

     In April  1998,  the FASB  issued SFAS 131,  "Employers  Disclosures  About
Pensions  and  Other  Post  Retirement  Benefits."  SFAS  132  standardizes  the
disclosure  requirements for these plans and it requires additional  information
about  changes in the benefit  obligations  and fair value of plan  assets.  The
statement is effective for fiscal years  beginning  after  December 15, 1997 and
information for previous periods presented for comparative  purposes is required
to be restated.  As the statement  does not change  measurement  or  recognition
standards for these plans and is only  disclosure  related,  its  implementation
will  have  no  impact  on the  Company's  financial  condition  or  results  of
operation.

     In June 1998,  the FASB  issued SFAS No. 133,  "Accounting  for  Derivative
Instruments  and  Hedging   Activities"   which  addresses  the  accounting  for
derivative  instruments,  including certain derivative  instruments  embedded in
other  contracts,  and hedging  activities.  This Statement  supersedes SFAS 80,
"Accounting  for Futures  Contracts,"  105,  "Disclosure  of  Information  about
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk," and 119,  "Disclosure about Derivative Financial
Instruments and Fair Value of Financial  Instruments."  It amends Statement 107,
"Disclosures about Fair Value of Financial  Instruments" to include in Statement
107 the disclosure provisions about concentrations of credit risk from Statement
105.  This  Statement  is  effective  for all fiscal  quarters  of fiscal  years
beginning after June 15, 1999. Management of the Bank is currently assessing the
impact of this Statement on the Bank's financial reporting process.


                                       29

<PAGE>



ITEM 2. PROPERTIES

     The  Bank   conducts  its  business   through  its  main  office  and  four
full-service branch offices. Loan originations are processed at the main office.
The Bank believes that its current  facilities  are adequate to meet the present
and immediately foreseeable needs of the Bank and the Company.

<TABLE>
<CAPTION>
                                                                                 Lease                     Net
                                                               Date           Expiration Date           Book Value
                                             Owned/        Acquired or          Including              September 30,
               Location                      Leased           Leased             Options                    1998
--------------------------------------     -----------    --------------    -------------------    ------------------
                                                                                                     (In thousands)
<S>                                          <C>               <C>                 <C>                     <C>
Main Office:
   Long Island City
   42-25 Queens Boulevard.............        Owned            1962                 --                     $  556
Branches:
   Long Island City
   45-14 46th Street..................       Leased            1976                2001                         5
   Jackson Heights
   75-23 37th Avenue..................       Leased            1990                2005                       164
   Flushing
   59-23 Main Street..................       Leased            1974                2013                       191
   Brooklyn
   814 Manhattan Avenue...............        Owned            1995                 --                      1,025
                                                                                                           ------

Total                                                                                                      $1,941
                                                                                                           ======
</TABLE>


ITEM 3. LEGAL PROCEEDINGS

     Neither  the  Company  nor the  Bank  are  involved  in any  pending  legal
proceedings  other than  routine  legal  proceedings  occurring  in the ordinary
course of business, which in the aggregate involve amounts which are believed by
management  to be  immaterial  to the  financial  condition  and  results of the
operation of the Company and the Bank.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     A Special  Meeting of  Stockholders of the Company was held on December 18,
1998.

     The Stockholders approved the merger with Dime Community Bancshares,  Inc.,
with 1,153,206 (67.5%) shares cast in favor, 2,645 (.2%) shares cast against and
5,530 (.3%) shares abstaining.



                                       30

<PAGE>


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

     Financial  Bancorp,  Inc.  common  stock is traded on the  Nasdaq  National
Market under the symbol  "FIBC." The table below shows the reported high and low
sales price of the common stock during the periods indicated in the fiscal years
ended September 1998 and 1997.

<TABLE>
<CAPTION>
                                      1998                                                       1997
                     ----------------------------------                           ------------------------------------
                       High         Low       Dividends                             High          Low        Dividends
                     --------      ------     ---------                           --------      ------       ---------
                                                                                               
<S>                   <C>          <C>         <C>             <C>                <C>           <C>           <C>  
First Quarter.....    25 3/4       22 1/4      0.10            First Quarter....  15 1/4        14            0.075
Second Quarter....    27           22          0.125           Second Quarter...  18 1/2        15            0.10
Third Quarter.....    32 1/4       24 3/4      0.125           Third Quarter....  18 1/4        14 7/8        0.10
Fourth Quarter....    37 5/8       30 1/4      0.125           Fourth Quarter...  23 15/16      18 1/8        0.10
</TABLE>

     As of November 30, 1998, the Company had  approximately 621 stockholders of
record.  At December 11, 1998, the Company had 1,708,632  shares of common stock
outstanding.


                                       31

<PAGE>



ITEM 6. SELECTED FINANCIAL DATA

     The  following  table  sets  forth  certain  summary  historical  financial
information  concerning the financial position of Financial  Bancorp,  Inc. (the
"Company"),  including  its  subsidiary,  Financial  Federal  Savings  Bank (the
"Bank"),  for the  period  and at the dates  indicated.  The  financial  data is
derived in part from, and should be read in conjunction  with, the  consolidated
financial  statements  and  related  notes of the  Company  contained  elsewhere
herein.

<TABLE>
<CAPTION>
                                                                                       At September 30,
                                                           ------------------------------------------------------------------------
                                                             1998            1997            1996            1995            1994
                                                           --------        --------        --------        --------        --------
                                                                                        (In thousands)
<S>                                                        <C>             <C>             <C>             <C>             <C>     
Financial Condition Data:
Total assets .......................................       $318,611        $296,956        $266,763        $228,823        $171,642
Total loans receivable, net ........................        196,027         153,292         140,314         110,062          83,505
Investments securities (1) .........................         54,599          71,986          56,406          40,359          17,801
Mortgage-backed securities (2) .....................         48,921          47,878          54,853          62,008          49,839
Deposits ...........................................        228,096         213,394         202,884         186,492         140,182
Borrowed Funds .....................................         55,770          53,000          33,652          12,501              --
Stockholders' equity ...............................         29,175          26,856          25,787          27,179          29,300

<CAPTION>

                                                                              For the Year Ended September 30,
                                                          ------------------------------------------------------------------------
                                                            1998            1997            1996            1995            1994
                                                          --------        --------        --------        --------        --------
                                                                                        (In thousands)
<S>                                                        <C>             <C>             <C>             <C>             <C>     
Selected Operating Data:
Interest income ....................................       $ 21,965        $ 20,072        $ 17,823        $ 14,256        $ 10,490
Interest expense ...................................         11,790          10,029           8,691           6,286           4,000
                                                           --------        --------        --------        --------        --------
Net interest income ................................         10,175          10,043           9,132           7,970           6,490
                                                           --------        --------        --------        --------        --------
Provision for loan losses ..........................            401             427             543             342             183
                                                           --------        --------        --------        --------        --------
Non-interest income:
   Fees, service charges,
     gain/(loss) on sales and
     other income ..................................          1,015             655             490             309             355
   Gain/(loss) from real estate
     operations ....................................            (58)             28            (313)           (618)           (300)
                                                           --------        --------        --------        --------        --------
   Total non-interest income
     (loss): .......................................            957             683             177            (309)             55
                                                           --------        --------        --------        --------        --------

Non-interest expense:
   Salaries and employee
     benefits ......................................          2,965           3,207           3,048           2,619           2,301
   Occupancy and equipment .........................          1,195           1,155           1,064           1,048             826
   Advertising .....................................             84              62              70             129              41
   Loss (income) from real
     estate owned ..................................             22              16              84              77             (12)
   Federal insurance
     premiums (3) ..................................            125             173           1,502             390             360
   Miscellaneous ...................................          1,223           1,253           1,170           1,014             668
                                                           --------        --------        --------        --------        --------
   Total non-interest expense ......................          5,614           5,865           6,938           5,277           4,184
                                                           --------        --------        --------        --------        --------
Income before income taxes .........................          5,117           4,434           1,828           2,042           2,178
Income tax expense .................................          2,116           1,929             675             836             921
                                                           --------        --------        --------        --------        --------
Net income .........................................       $  3,001        $  2,505        $  1,153        $  1,206        $  1,257
                                                           ========        ========        ========        ========        ========
</TABLE>


                                       32

<PAGE>

<TABLE>
<CAPTION>
                                                                                                At or for the
                                                                                          Year Ended September 30,
                                                                      -------------------------------------------------------------
                                                                      1998          1997          1996          1995          1994
                                                                      ----          ----          ----          ----          ----
<S>                                                                   <C>           <C>           <C>           <C>           <C>  
Selected Financial Ratios and Other Data:
Stockholders' equity to assets at period end .................         9.16%         9.04%         9.67%        11.88%        17.07%
Return on average assets .....................................         0.92          0.92          0.47          0.60          0.79
Return on average equity .....................................        10.69          9.57          4.31          4.18          9.76
Net interest rate spread .....................................         2.95          3.43          3.48          3.70          4.12
Net interest margin ..........................................         3.45          3.87          3.91          4.18          4.29

Operating expenses to average assets (4)(5) ..................         1.81          2.05          2.20          2.57          2.63
Efficiency ratio(4)(5) .......................................        50.61         52.31         56.01         62.81         61.29
Non-performing assets to total assets ........................         1.78          2.17          2.17          2.65          2.95
Non-performing loans to total loans ..........................         0.81          1.69          1.45          1.72          1.95
Allowance for loan losses to total loans .....................         0.84          0.91          1.09          1.10          1.31
Number of full-service facilities ............................            5             5             5             5             5
</TABLE>

------------------------------
(1)  Includes  Federal Home Loan Bank of New York ("FHLB") stock and investments
     available for sale.

(2)  Includes mortgage-backed securities available for sale.

(3)  Includes  non-recurring  SAIF  assessment of $1,115,000  for the year ended
     September 30, 1996.

(4)  Operating expenses represent total non-interest expenses excluding (income)
     loss from real estate owned.

(5)  Excludes  non-recurring SAIF assessment of $1,115,000 and severance payment
     of $369,000 for the year ending September 30, 1996 and severance payment of
     $268,000 for the year ending September 30, 1997.


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

General

     Financial  Bancorp,  Inc.  ("the  Company"),  is the  holding  company  for
Financial  Federal  Savings Bank ("the  Bank"),  which  converted to a federally
chartered  stock  savings  association  on August  17,  1994 and to a  federally
chartered  stock savings bank on October 20, 1994. The Company is  headquartered
in Long Island City, New York and its principal  business  currently consists of
the  operations  of the Bank.  The Bank's  results of  operations  are primarily
dependent on net interest income,  which is the difference between income earned
on its loan, mortgage-backed securities and investment securities portfolio, and
its cost of funds, consisting primarily of the interest paid on its deposits and
borrowings.  The Bank's non-interest  expenses  principally consists of salaries
and  employee  benefits,  occupancy  and  equipment  expenses,  federal  deposit
insurance premiums,  and other general and administrative  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 and actions of regulatory authorities.

Planned Merger

     On July 18, 1998, the Company  entered into an Agreement and Plan of Merger
with  Dime   Community   Bancshares,   Inc.,  a  Delaware   corporation   ("Dime
Bancshares"),  pursuant to which the  Company  will be merged with and into Dime
Bancshares  (the  "Merger").  The Merger is  intended to  constitute  a tax-free
reorganization  for  federal  income tax  purposes.  Immediately  following  the
consummation  of the Merger,  Financial  Federal Savings Bank, a federal savings
bank and a subsidiary  of Financial  Bancorp,  will merge with and into The Dime
Community  Savings Bank of  Williamsburgh,  ("Dime of  Williamsburgh") a federal
savings bank and a wholly owned subsidiary of Dime Bancshares.


                                       33

<PAGE>



Financial Condition

     As  of  September  30,  1998,  total  assets  were  $318.6  million,  which
represents  a $21.6  million,  or a 7.3%,  increase  from  $297.0  million as of
September 30, 1997.  Asset growth was funded by a combination  of both the $14.7
million  increase in the Bank's  deposit base and the $2.8  million  increase in
overall borrowings.  During fiscal 1998, deposits increased by $14.7 million, or
6.9%,  to $228.1  million  as of  September  30,  1998 from  $213.4  million  at
September 30, 1997.  Securities sold under agreements to repurchase increased by
$17.0  million,  to $42.0 million at September  30, 1998,  from $25.0 million at
September  30, 1997.  The  treasury  tax and loan  account and other  short-term
borrowings  decreased by $12.2  million to $7.8  million at September  30, 1998,
from $20.0  million at September  30, 1997.  Advances from the Federal Home Loan
Bank of New  York  ("FHLB")  decreased  by $2.0  million  to  $6.0  million,  at
September 30, 1998, as compared to $8.0 million at September 30, 1997.

     At September  30, 1998,  cash and cash  equivalents  totalled $7.4 million,
which  represents  a $6.0 million  decrease  from $13.4  million,  from the same
period in 1997. This decrease primarily resulted from a $5.3 million decrease in
investment in securities  purchased under agreements to resell and federal funds
sold.

     Investment  securities  available  for sale  increased  to $6.3  million at
September  30,  1998,  as  compared  to  $731,000  at  September  30,  1997  and
mortgage-backed  securities  available  for sale  increased to $20.1  million at
September  30, 1998,  as compared to $9.4 million at  September  30, 1997.  This
increase was offset by a $23.2 million decrease in investment  securities,  held
to  maturity,  to $46.2  million at  September  30,  1998,  as compared to $69.4
million at September 30, 1997, and a $10.3 million  decrease in  mortgage-backed
securities,  held to  maturity,  to $28.2  million at  September  30,  1998,  as
compared to $38.5  million at  September  30, 1997.  As of  September  30, 1998,
investment  securities,  including  available for sale,  consisted  primarily of
medium-term  U.S.  Government  Agency  obligations,  with features such as calls
and/or interest rate "step-ups." Investment securities, including FHLB-NY stock,
decreased by $17.4 million,  or 24.2%, to $54.6 million from $72.0 million as of
September 30, 1997.  Mortgage-backed  securities  increased by $1.0 million,  or
2.2%,  to $48.9  million  as of  September  30,  1998 from  $47.9  million as of
September 30, 1997, including  mortgage-backed  securities which were classified
as available for sale. Loans receivable increased by $42.7 million, or 27.9%, to
$196.0  million as of September 30, 1998 from $153.3 million as of September 30,
1997.  This $42.7  million,  or 27.9%  increase  in loans  receivable  primarily
resulted  from the  origination  of $53.9  million in  mortgage  loans,  and the
purchase of $24.3 million of one- to-four family,  adjustable  rate  residential
mortgage  loans,  partially  offset  by  normal  amortization,  prepayments  and
satisfactions.

     Non-performing  loans  totaled  $1.6  million,  or 0.81% of total  loans at
September  30,  1998 as  compared  to $2.6  million,  or 1.69% of total loans at
September 30, 1997. At September 30, 1998,  nonperforming  assets  totalled $5.7
million, or 1.78% of total assets as compared to $6.4 million, or 2.17% of total
assets as of  September  30,  1997.  The  Company's  allowance  for loan  losses
totalled  $1.7  million at  September  30,  1998,  which  represents  a ratio of
allowance  for loan losses to  nonperforming  assets and to total loans of 29.3%
and  0.84%,  respectively,  as  compared  to 21.8% and 0.91%,  respectively,  at
September 30, 1997.

     Total  stockholders'  equity  was $29.2  million  at  September  30,  1998,
reflecting  a $2.3  million,  or an 8.6%,  increase  from the  prior  year.  The
increase in stockholders'  equity was the result of earnings  retained after the
payment  of the  Company's  quarterly  cash  dividend,  partially  offset by the
repurchase of the Company's Common Stock. At September 30, 1998, the Company had
1,708,632  common shares  outstanding and the stated book value per common share
was  $17.08,  an  increase  of $1.37 per common  share or 8.7%,  from $15.71 per
common share at September 30, 1997.

Interest Rate Sensitivity Analysis

     The  Bank  is  subject  to  interest  rate  risk  to the  extent  that  its
interest-bearing  liabilities reprice or mature more or less frequently than its
interest-earning  assets.  The Bank's interest rate risk  management  policy has
been structured to monitor and maintain the Bank's interest rate  sensitivity to
within Board prescribed limits while attempting to maximize net interest income.
In connection with its interest rate risk management strategy, management has

                                       34

<PAGE>



emphasized the  origination of  shorter-term  fixed-rate one- to four-family and
multi-family mortgage loans and the purchase of adjustable  rate-mortgage loans,
along with limiting investment  purchases to securities with a final maturity of
5 years or less.  This  strategy is necessary  to reduce the Bank's  exposure to
interest rate risk. On the liability side,  management has closely monitored the
pricing  of its  deposit  products,  and has made a  conscious  effort to extend
deposit maturities,  and secure fixed-rate borrowings when market conditions are
favorable.   In   addition,   the  Bank  has  had   success   in   growing   its
non-interest-bearing demand accounts and utilizing low cost sources of overnight
and short-term borrowings to fund short- to medium-term investments.

     The table below  summarizes  the  estimated  contractual  maturities of the
Bank's interest-earning assets and interest-bearing liabilities at September 30,
1998.  Maturities are adjusted using assumptions for prepayments and decay rates
as  researched  and applied by the Bank.  The  assumptions  for  prepayments  on
fixed-rate mortgage loans and  mortgage-backed  securities range from 10% to 20%
dependent upon the type of property  (single-family or multi-family) and type of
lien (first or second).  The  assumptions  for  deposits  are:  (i)  certificate
accounts are not withdrawn  prior to maturity;  and (ii) the decay rates for NOW
accounts,  money market and regular  savings  accounts range from 17% to 79% per
year. The table does not indicate the impact of general  interest rate movements
on the  Company's  net interest  income  because the actual  repricing  dates of
various assets and liabilities is subject to customer discretion and competitive
and other pressures and, therefore,  actual prepayment and withdrawal experience
may vary from that indicated.

     The effect of these  assumptions is to quantify the dollar amounts of items
that are  interest-sensitive  and can be  repriced  within  each of the  periods
specified.  The  difference,  or "gap",  provides an indication of the extent to
which the  Bank's  net  interest  income may be  affected  by future  changes in
interest  rates.  The  Bank's  cumulative  one-year  gap,  as a percent of total
interest-earning  assets,  decreased to a negative  7.59% at September  30, 1998
from a positive  1.58% at September  30, 1997. A negative gap denotes  liability
sensitivity,  which in a given period will result in more liabilities subject to
repricing than assets. Generally,  liability sensitive gaps will result in a net
negative  effect on net  interest  income  and  consequently,  net  income in an
increasing  interest rate environment.  Alternatively,  liability sensitive gaps
will  generally  result in a net  positive  effect on net  interest  income  and
consequently, net income in a decreasing interest rate environment.

                                       35

<PAGE>

<TABLE>
<CAPTION>
                                                                           At September 30, 1998
                                           -----------------------------------------------------------------------------------------
                                                                                  More than    More than 
                                                        More than    More than     3 Years      4 Years 
                                            1 Year      1 Year to    2 Years to     to 4         to 5        More than     
                                            or Less      2 Years      3 Years       Years        Years        5 Years       Total
                                           ---------    ---------    ---------    ---------    ---------     ---------    ---------
                                                                             (Dollars in thousands)
<S>                                        <C>          <C>          <C>          <C>          <C>           <C>          <C>      
Interest-earning assets:
  Mortgage and other loans ..............  $  55,416    $  18,797    $  21,520    $  12,806    $  28,165     $  61,376    $ 198,080
  Investment securities .................     46,201           --           --           --           --            --       46,201
  Mortgage-backed securities ............     17,367       11,304        5,571        8,120        2,274         4,285       48,921
  Federal funds sold ....................      5,375           --           --           --           --            --        5,375
  FHLB stock and equity securities ......         --           --           --           --          203         2,615        2,818
                                           ---------    ---------    ---------    ---------    ---------     ---------    ---------
Total interest-earning assets ...........  $ 124,359    $  30,101    $  27,091    $  20,926    $  30,642     $  68,276    $ 301,395
                                           =========    =========    =========    =========    =========     =========    =========

Interest-bearing liabilities:
  Savings and club accounts .............  $  13,089    $  10,740    $   8,915    $   7,399    $   6,141     $  29,984    $  76,268
  NOW accounts ..........................      2,491        1,570          989          623          392           668        6,733
  Money Market accounts .................      7,253        1,523          320           67           14             4        9,181
  Certificates of deposit ...............     80,298       24,661       11,184        3,987        2,572           148      122,850
  Borrowed funds ........................     43,770           --           --           --       12,000            --       55,770
                                           ---------    ---------    ---------    ---------    ---------     ---------    ---------
Total interest-bearing liabilities ......  $ 146,901    $  38,494    $  21,408    $  12,076    $  21,119     $  30,804    $ 270,802
                                           =========    =========    =========    =========    =========     =========    =========

Interest-sensitivity gap ................  $ (22,542)   $  (8,393)   $   5,683    $   8,850    $   9,523     $  37,472    $  30,593
                                           =========    =========    =========    =========    =========     =========    =========

Cumulative interest-sensitivity gap .....  $ (22,542)   $ (30,935)   $ (25,252)   $ (16,402)   $  (6,879)    $  30,593
                                           =========    =========    =========    =========    =========     =========
Cumulative interest-sensitivity gap as
    a percentage of total assets ........      (7.59)%     (10.42)%      (8.50)%      (5.52)%      (2.32)%       10.30%
Cumulative net interest-earning assets as
    a percentage of interest-bearing 
    liabilities .........................      84.65%       83.31%       87.79%       92.51%       97.13%       111.30%
</TABLE>

----------
(1)  Fair value of securities, including mortgage-backed securities, is based on
     quoted  market  prices,  where  available.  If quoted market prices are not
     available,  fair  value is based on  quoted  market  prices  of  comparable
     instruments.  Fair value of loans is,  depending on the type of loan, based
     on carrying  values or estimates  based on discounted  cash flow  analyses.
     Fair value of deposit  liabilities are either based on carrying  amounts or
     estimates based on a discounted cash flow calculation. Fair values for FHLB
     advances are estimated  using a discounted  cash flow analysis that applies
     interest  rates  concurrently  being  offered on  advances to a schedule of
     aggregated expected monthly maturities on FHLB advances.

                                       36

<PAGE>



Average Balances, Interest and Average Yields

     The  following  table  sets  forth  certain  information  relating  to  the
Company's average balance sheet and reflects the average yield on assets and the
average cost of liabilities for the periods indicated. Such yields and costs are
derived by dividing  income or expense by the average  monthly balance of assets
or  liabilities,  respectively,  for the periods  shown.  Average  balances  are
derived from average month-end balances,  except for federal funds, and borrowed
funds which are derived from average daily balances. Management does not believe
that the use of average  monthly  balances  instead of average daily balances on
all other  accounts  has  caused any  material  differences  in the  information
presented. The yields and costs include fees which are considered adjustments to
yields.

<TABLE>
<CAPTION>
                                                                           Year Ended September 30,
                                                     ------------------------------------------------------------------------
                                                                   1998                                  1997                     
                                                     ---------------------------------    ----------------------------------- 
                                                      Average                Average      Average                   Average   
                                                      Balance     Interest  Yield/Cost    Balance      Interest    Yield/Cost 
                                                      -------     --------  ----------    -------      --------    ---------- 
<S>                                                   <C>         <C>           <C>       <C>          <C>           <C>   
Interest earning assets:                                                    (Dollars in Thousands)
    Federal funds sold and securities purchased
         under agreements to resell ...............   $ 16,199    $    895      5.45%     $  1,448     $     77      5.23% 
    Investment securities (1) .....................     49,849       3,415      6.85        56,786        4,074      7.17  
    Loans receivable (2) ..........................    172,105      13,880      8.07       148,056       12,171      8.22  
    Mortgage-backed securities (3) ................     56,979       3,775      6.63        53,530        3,750      7.01  
                                                      --------    --------                --------     --------
Total interest-earning assets .....................    295,132      21,965      7.44       259,820       20,072      7.73  
                                                                  --------      ----                   --------      ----
Non-interest-earning assets .......................     14,658                              12,558                         
                                                      --------                            --------
         Total assets .............................   $309,790                            $272,378                         
                                                      ========                            ========                         
                                                                                                                   
Interest-bearing liabilities:                                                                                      
    NOW and money market deposits .................   $ 16,051         324      2.02      $ 16,875          360      2.13  
    Savings deposits ..............................     75,629       1,682      2.22        73,352        1,561      2.13  
    Certificates of deposit .......................    120,688       6,927      5.74       108,095        6,182      5.72  
                                                      --------    --------                --------     --------
    Total interest-bearing deposits ...............    212,368       8,933      4.21       198,322        8,103      4.09  
    Borrowed funds ................................     50,220       2,857      5.61        34,803        1,926      5.46  
                                                      --------    --------                --------     --------
         Total interest-bearing liabilities .......    262,588      11,790      4.49       233,125       10,029      4.30  
                                                                  --------      ----                   --------      ----
Non-interest bearing liabilities ..................     19,116                              13,084
                                                      --------                            --------
Total liabilities .................................    281,704                             246,929                         
Stockholders' equity ..............................     28,086                              26,169                         
                                                      --------                            --------
         Total liabilities and stockholders' equity   $309,790                            $272,378                         
                                                      ========                            ========                         
Net interest income ...............................               $ 10,175                             $ 10,043            
                                                                  ========                             ========            
                                                                                                                  
Net interest rate spread (4) ......................                             2.95%                                3.43% 
                                                                                ====                                 ====  
                                                                                                                   
Net interest-earning asset/net interest margin (5)    $ 32,544                  3.45%     $ 26,695                   3.87% 
                                                      ========                  ====      ========                   ====  
                                                                                                                   
Ratio of average interest-earning assets to average                                                                
  interest-bearing liabilities ....................                   1.12x                   1.11x                        
                                                                  ========                ========    
                                                                                                                 

<CAPTION>
                                                               Year Ended September 30,
                                                         ------------------------------------
                                                                         1996 
                                                         ------------------------------------
                                                         Average                   Average 
                                                         Balance      Interest    Yield/Cost
                                                         -------      --------    -----------
<S>                                                      <C>           <C>           <C>  
Interest earning assets:                                       (Dollars in Thousands)
    Federal funds sold and securities purchased
         under agreements to resell ...............      $    659          38        5.72%
    Investment securities (1) .....................        48,728       3,444        7.07
    Loans receivable (2) ..........................       127,050      10,316        8.12
    Mortgage-backed securities (3) ................        57,274       4,025        7.03
                                                         --------     -------
Total interest-earning assets .....................       233,711      17,823        7.63
                                                                      -------        ----
Non-interest-earning assets .......................        10,202     
                                                         --------
         Total assets .............................      $243,913     
                                                         ========     
Interest-bearing liabilities:                                         
    NOW and money market deposits .................      $ 18,818         436        2.31
    Savings deposits ..............................        75,243       1,674        2.22
    Certificates of deposit .......................        95,003       5,483        5.76
                                                         --------     -------
    Total interest-bearing deposits ...............       189,064       7,593        4.01
    Borrowed funds ................................        19,770       1,098        5.46
                                                         --------     -------
         Total interest-bearing liabilities .......       208,834       8,691        4.15
                                                                      -------        ----
Non-interest bearing liabilities ..................         8,313     
                                                         --------
Total liabilities .................................       217,147     
Stockholders' equity ..............................        26,766     
                                                         --------
         Total liabilities and stockholders' equity      $243,913     
                                                         ========     
                                                                      
Net interest income ...............................                   $ 9,132
                                                                      =======
                                                                      
Net interest rate spread (4) ......................                                  3.48%
                                                                                     ====
Net interest-earning asset/net interest margin (5)       $ 24,877                    3.91%
                                                         ========                    ==== 
                                                                      
Ratio of average interest-earning assets to average                   
  interest-bearing liabilities ....................          1.12x    
                                                         ========
</TABLE>
----------
(1)  Includes FHLB stock and securities available for sale.
                                                                      
(2)  Includes non-accrual loans.
                                                                    
(3)  Includes mortgage-backed securities available for sale.

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

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

                                       37

<PAGE>



Rate/Volume Analysis

     The following  table presents the extent to which changes in interest rates
and  changes  in the  volume of  interest-earning  assets  and  interest-bearing
liabilities  have affected the 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);  (iii) the changes  attributable  to the
combined impact of changes in volume and rate; and (iv) the net change.

<TABLE>
<CAPTION>
                                                          Year Ended September 30,                Year Ended September 30,
                                               ------------------------------------------------------------------------------------
                                                              1998 vs. 1997                             1997 vs. 1996
                                               ----------------------------------------    ----------------------------------------
                                                      Increase (Decrease) Due to               Increase (Decrease) Due to
                                               ----------------------------------------    ----------------------------------------
                                                                      Rate/                                       Rate/
                                               Volume      Rate      Volume      Total     Volume      Rate      Volume      Total
                                               -------    -------    -------    -------    -------    -------    -------    -------
                                                                                  (In thousands)
<S>                                            <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>    
Interest income:
   Federal funds sold and securities
     purchased under agreements to resell ..   $   784    $     3    $    31    $   818    $    45    $    (3)   $    (3)   $    39
   Investment securities ...................      (498)      (183)        22       (659)       570         52          8        630
   Loans receivable ........................     1,977       (231)       (37)     1,709      1,706        128         21      1,855
   Mortgage-backed securities ..............       240       (204)       (13)        25       (263)       (13)         1       (275)
                                               -------    -------    -------    -------    -------    -------    -------    -------
     Total .................................     2,505       (615)         3      1,893      2,058        164         27     (2,249)
                                               -------    -------    -------    -------    -------    -------    -------    -------

Interest expense:
   NOW and money market deposits ...........       (18)       (19)         1        (36)       (45)       (35)         4        (76)
   Savings deposits ........................        49         70          2        121        (42)       (73)         2       (113)
   Certificates of deposit .................       720         22          3        745        756        (50)        (7)       699
                                               -------    -------    -------    -------    -------    -------    -------    -------
   Total deposits ..........................       751         73          6        830        669       (158)        (1)       510
   Borrowed funds ..........................       853         54         24        931        828         --         --        828
                                               -------    -------    -------    -------    -------    -------    -------    -------
     Total .................................     1,604        127         30      1,761      1,497       (158)        (1)     1,338
                                               -------    -------    -------    -------    -------    -------    -------    -------
   Net change in net interest income .......   $   901    $  (742)   $   (27)   $   132    $   561    $   322    $    28    $   911
                                               =======    =======    =======    =======    =======    =======    =======    =======
</TABLE>




                                       38

<PAGE>



Comparison  of  Operating  Results  for the Years Ended  September  30, 1998 and
September 30, 1997

     General.  Net income for the year ended  September  30, 1998  increased  by
$496,000,  or 19.8%, to $3.0 million,  or $1.77 diluted earnings per share, from
$2.5 million,  or $1.50 diluted earnings per share, for the year ended September
30, 1997. The increase in net income was primarily  attributable  to a $132,000,
or a 1.3% increase in net interest income before provision for loan losses and a
$274,000,  or a 40.1% increase in non-interest income, and a $251,000, or a 4.3%
decrease  in  non-interest  expense,  partially  offset by  $187,000,  or a 9.7%
increase in income taxes.

     Interest  Income.  Interest income  increased by $1.9 million,  or 9.4%, to
$22.0  million for the year ended  September 30, 1998 from $20.1 million for the
year ended  September  30,  1997.  The  increase  in interest  income  primarily
resulted  from  an  increase  in  interest-earning  assets  from  the  continued
leveraging and growing of the balance sheet to fund new loan originations,  loan
purchases and the purchase of mortgage-backed  securities.  The average yield on
interest earning assets decreased by 29 basis points to 7.44% for the year ended
September  30,  1998,  from 7.73% for the year ended  September  30,  1997.  The
Company realized lower average yields on its  interest-earning  assets primarily
as a result of the purchase of lower-yielding adjustable-rate mortgage loans and
adjustable-rate  mortgage-backed  securities.  For the year ended  September 30,
1998, the average  balance of  interest-earning  assets was $295.1  million,  as
compared to $259.8 million for the fiscal year ended  September 30, 1997,  which
represents a $35.3  million,  or a 13.6%  increase.  The increase in the average
balance  of   interest-earning   assets  resulted  from  an  increase  in  loans
receivable.  Interest income from loans increased by $1.7 million,  or 14.0%, to
$13.9  million in fiscal 1998 from $12.2  million in fiscal 1997.  This increase
was due to a $24.0  million,  or a 16.2%,  increase  in the  average  balance of
loans,  partially  offset by 15 basis  points  decrease in the average  yield on
loans to 8.07% for fiscal 1998 from 8.22% for the same period in 1997.  Interest
income from  mortgage-backed  securities  increased by $25,000, or 0.7%, to $3.8
million in fiscal  1998.  This  increase  is  primarily  attributable  to a $3.5
million,  or  a  6.4%,  increase  in  the  average  balance  of  mortgage-backed
securities  to $57.0  million in fiscal 1998 from $53.5  million in fiscal 1997,
partially  offset by a 38 basis  points  decline  in the  average  yield on such
securities to 6.63% for fiscal 1998 from 7.01% for fiscal 1997.  Interest income
on investment  securities decreased by $660,000, or 16.2%, to 3.4 million during
fiscal 1998 from $4.1 million during fiscal 1997, which primarily  resulted from
a decrease  of $6.9  million,  or 12.2%,  in the average  balance of  investment
securities  and a 32  basis  points  increase  in  the  average  yield  on  such
securities  to 6.85%  during  fiscal 1998 from 7.17% for fiscal  1997.  Interest
income from federal  funds sold and  securities  purchased  under  agreements to
resell for fiscal 1998  increased by  $819,000,  to $895,000 in fiscal 1998 from
$77,000 for fiscal 1997. This increase resulted from a $14.8 million increase in
the average  asset  balance and a 22 basis  points  increase in the average rate
earned on such assets to 5.45% for fiscal 1998 from 5.23% for fiscal 1997.

     Interest  Expense.  Interest  expense on total  deposits for the year ended
September  30, 1998,  increased by $830,000,  or 10.2%,  to $8.9 million for the
year ended  September 30, 1998,  from $8.1 million for the year ended  September
30, 1997. The increase resulted from a $14.0 million, or a 7.1%, increase in the
average balance of  interest-bearing  deposits and a 12 basis points increase in
the  average  cost of  interest-bearing  deposits  to 4.21% for fiscal 1998 from
4.09% for fiscal 1997.  Interest expense on borrowings  increased by $931,000 to
$2.9  million,  due to a $15.4  million,  or a 44.3%,  increase  in the  average
balance of borrowed  funds to $50.2 million in fiscal 1998 from $34.8 million in
fiscal 1997.  The increase in the average cost of  borrowings  resulted from the
continued leverage and growing of the balance sheet. Interest expense on savings
accounts  increased by $121,000,  or 7.8%,  to $1.7 million for fiscal 1998 from
$1.6 million for fiscal 1997,  resulting from a $2.3 million increase in average
balances,  in addition to a 9 basis points  increase in the average cost of such
deposits. The average balance of savings and club accounts decreased to 35.6% of
the total average of  interest-bearing  deposits for fiscal 1998, from 37.0% for
fiscal  1997.  For the year  ended  September  30,  1998,  interest  expense  on
certificates  of deposit  increased by $745,000,  or 12.1%,  to $6.9 million for
fiscal 1998 from $6.2  million for fiscal  1997,  which  resulted  from an 11.6%
increase in the average  balance of these  accounts to $120.7 million for fiscal
1998 from $108.1 million for fiscal 1997,  and a 2 basis points  increase in the
average cost of such accounts to 5.74% in fiscal 1998 from 5.72% in fiscal 1997.

     Net Interest  Income.  Net interest income for the year ended September 30,
1998,  increased by $132,000,  or 1.3%,  to $10.2 million from $10.0 million for
the year ended September 30, 1997. The Bank's net interest rate spread decreased
to 2.95% in fiscal 1998 from 3.43% in fiscal 1997,  and its net interest  margin
decreased to 3.45% in fiscal

                                       39

<PAGE>



1998 from 3.87% in fiscal 1997. The average yield on interest-earning assets was
7.44% for the year ended  September  30, 1998, as compared to 7.73% for the year
ended September 30, 1997. The average cost of  interest-bearing  liabilities was
4.49% for the year  ended  September  30,  1998,  as  compared  to 4.30% for the
corresponding period in 1997.

     Provision  for Loan  Losses.  The  provision  for loan losses  decreased by
$25,921 to $401,000 for the year ended  September 30, 1998 from $427,000 for the
year ended September 30, 1997. At September 30, 1998,  allowance for loan losses
amounted to $1.7  million.  The decrease in the provision of losses is primarily
attributable to the Bank's loan recoveries  increasing by $23,000 and an overall
decrease in the level of non-performing  loans. In determining its provision for
loan losses,  management establishes loss allowances on identified problem loans
and establishes general allowances on the remainder of the loan portfolio.

     Non-Interest  Income.  Non-interest income for the year ended September 30,
1998  increased  by  $274,000  to  $957,000  from  $683,000  for the year  ended
September  30,  1997.  This  significant  increase  in  non-interest  income  is
primarily  attributable  to a $239,000,  or 41.5%,  increase in fees and service
charges to $815,000 for the year ended  September 30, 1998 from $576,000 for the
year ended September 30, 1997. This increase in non-interest  income  represents
fees associated  with the increase in the number of demand deposit  accounts and
automated  teller  machines  ("ATMs")  related  service fees.  In addition,  the
increase in non-interest  income was attributable to a $102,000  increase in the
gain on sale of investment  securities to $131,000 for the year ended  September
30,  1998,  as compared to $29,000 for the same period in 1997.  The increase in
non-interest  income was  partially  offset by the  $86,000  increase  in losses
realized on investments in real estate, which represents a joint venture project
in which a subsidiary of the Bank has a one-third interest.

     Non-Interest  Expenses.  Non-interest  expenses  decreased by $251,000,  or
4.3%, to 5.6 million for the year ended September 30, 1998 from $5.9 million for
the year ended September 30, 1997.  Salaries and employee benefits  decreased by
$242,000,  or 7.5%, to $3.0 million for fiscal 1998 from $3.2 million for fiscal
1997.  The  decrease  in  salaries  and  employee  benefits  during the year was
primarily  attributable to a non-recurring charge of $268,000 for the retirement
of a senior  executive  officer during fiscal 1997. For the year ended September
30, 1998,  occupancy  expense decreased by $23,000 to $504,000 from $527,000 for
the year  ended  September  30,  1997.  The  decrease  in  occupancy  expense is
primarily  attributable  to the  collection  of rental  income on the Bank owned
properties.  For the year ended September 30, 1998,  equipment expense increased
by $63,000 to $691,000 from $628,000 for the year ended  September 30, 1997. The
increase in equipment  expense  represents  costs  associated with the Company's
data processing  services,  including deposit and check processing service fees,
automated  teller  machines  ("ATM's")  and other  vendor  related  services and
contracts. In addition,  advertising expense increased by $22,000 to $84,000 for
fiscal 1998 from $62,000 for fiscal 1997.  The increase in  advertising  expense
was primarily  attributable to costs associated with loan and deposit  marketing
efforts,  in addition to the Bank's 50th  anniversary and related gift campaigns
early in fiscal 1998. Losses on real estate owned increased by $7,000 to $23,000
for  fiscal  1998 from  $16,000  for  fiscal  1997.  For the  fiscal  year ended
September 30, 1998, the federal deposit  insurance  premium decreased by $47,000
to $125,000 from $172,000,  while miscellaneous expenses decreased by $30,000 to
$1.2 million from $1.3 million for the fiscal year ended September 30, 1997. The
ratio of  operating  expense to average  assets,  was 1.81% for the fiscal  year
ended  September  30, 1998,  as compared to 2.05%.  Furthermore,  the  Company's
efficiency ratio was 50.6% for the year ended September 30, 1998, as compared to
52.3%.

     Income Tax  Expense.  Income tax  expense  increased  by  $187,000  to $2.1
million in fiscal 1998 from $1.9 million in fiscal 1997.  The  effective  income
tax rate for fiscal 1998 was 41.4%,  as compared to 43.5% for fiscal  1997.  The
decrease in the effective tax rate  primarily  relates to certain state and city
tax benefits realized during fiscal 1998.

Comparison  of  Operating  Results  for the Years Ended  September  30, 1997 and
September 30, 1996.

     General. Net income for the year ended September 30, 1997 increased by $1.3
million,  or 130.0%, to $2.5 million,  or $1.50 diluted earnings per share, from
$1.2 million,  or $0.64 diluted earnings per share, for the year ended September
30, 1996. Excluding the effect of a one-time Savings Association  Insurance Fund
("SAIF") insurance

                                       40

<PAGE>



assessment,  net income for the fiscal year ended  September 30, 1996 would have
been $1.8 million,  or $0.98 per share. The increase in net income was primarily
attributable to a $911,000  increase in net interest income before provision for
loan losses and a $507,000 increase in non-interest income,  partially offset by
a $42,000  increase in  non-interest  expense,  exclusive of the  one-time  SAIF
recapitalization assessment of $1.1 million.

     Interest Income.  Interest income  increased by $2.2 million,  or 12.6%, to
$20.1  million for the year ended  September 30, 1997 from $17.8 million for the
year ended  September  30,  1996.  The  increase  in interest  income  primarily
resulted  from  an  increase  in  interest-earning  assets  from  the  continued
leveraging and growing of the balance sheet to fund new loan originations,  loan
purchases  and the  purchase of  investment  securities.  The  average  yield on
interest earning assets increased by 10 basis points to 7.73% for the year ended
September  30,  1997,  from 7.63% for the year ended  September  30,  1996.  The
increase in the average yield primarily  resulted from the Company's  investment
into higher yielding assets,  without compromising the integrity of the loan and
investment  portfolios.  For the year ended  September  30,  1997,  the  average
balance of  interest-earning  assets was $259.8  million,  as compared to $233.7
million for the fiscal year ended September 30, 1996,  which  represents a $26.1
million,  or  an  11.2%  increase.  The  increase  in  the  average  balance  of
interest-earning  assets  resulted  from an  increase  in loans  receivable  and
investment securities.  Interest income from loans increased by $1.9 million, or
18.0%,  to $12.2 million in fiscal 1997 from $10.3 million in fiscal 1996.  This
increase was due to a $21.0 million, or a 16.5%, increase in the average balance
of loans along with a 10 basis points  increase in the average yield on loans to
8.22% for fiscal  1997 from 8.12% for the same period in 1996.  Interest  income
from mortgage-backed  securities decreased by $275,000, or 6.8%, to $3.7 million
in fiscal 1997 from $4.0  million for fiscal  1996.  This  decrease is primarily
attributable  to a $3.8 million,  or a 6.5%,  decline in the average  balance of
mortgage-backed securities to $53.5 million in fiscal 1997 from $57.3 million in
fiscal 1997,  along with a 2 basis points  decline in the average  yield on such
securities to 7.01% for fiscal 1997 from 7.03% for fiscal 1996.  Interest income
on investment securities increased by $631,000, or 18.3%, to $4.1 million during
fiscal 1997 from $3.4 million during fiscal 1996, which primarily  resulted from
an increase of $8.1  million,  or 16.5%,  in the average  balance of  investment
securities  and a 10  basis  points  increase  in  the  average  yield  on  such
securities  to 7.17%  during  fiscal 1997 from 7.07% for fiscal  1996.  Interest
income from federal  funds sold and  securities  purchased  under  agreements to
resell for fiscal 1997  increased  by $39,000,  or 100.3%,  to $77,000 in fiscal
1997 from $39,000 for fiscal 1996.  This increase  resulted from a $789,000,  or
119.7%,  increase in the average asset balance,  partially  offset by a 49 basis
points  decrease in the  average  rate earned on such assets to 5.23% for fiscal
1997 from 5.72% for fiscal 1996.

     Interest  Expense.  Interest  expense on total  deposits for the year ended
September 30, 1997, increased by $510,000, or 6.7%, to $8.1 million for the year
ended  September  30, 1997,  from $7.6 million for the year ended  September 30,
1996.  The  increase  resulted  from a $9.3  million,  or 4.9%,  increase in the
average balance of  interest-bearing  deposits and an 8 basis points increase in
the  average  cost of  interest-bearing  deposits  to 4.09% for fiscal 1997 from
4.01% for fiscal 1996.  Interest expense on borrowings  increased by $828,000 to
$1.9 million, due to a $15.0 million, or 79.8%,  increase in the average balance
of borrowed  funds to $34.8  million in fiscal 1997 from $19.8 million in fiscal
1996. The increase in the average cost of borrowings resulted from the continued
leverage and growing of the balance sheet.  Interest expense on savings accounts
decreased  by  $113,000,  or 6.7%,  to $1.6  million  for fiscal  1997 from $1.7
million for fiscal  1996,  resulting  from a $1.9  million  reduction in average
balances,  in addition to a 9 basis points  decrease in the average cost of such
deposits. The average balance of savings and club accounts decreased to 37.0% of
the total average of  interest-bearing  deposits for fiscal 1997, from 39.8% for
fiscal  1996.  For the year  ended  September  30,  1997,  interest  expense  on
certificates  of deposit  increased by $699,000,  or 12.7%,  to $6.2 million for
fiscal  1997 from $5.5  million for fiscal  1996,  which  resulted  from a 13.8%
increase in the average  balance of these  accounts to $108.1 million for fiscal
1997 from $95.0  million for fiscal  1996,  slightly  offset by a 4 basis points
decrease in the average cost of such accounts to 5.72% in fiscal 1997 from 5.76%
in fiscal 1996.

     Net Interest  Income.  Net interest income for the year ended September 30,
1997,  increased by $911,000,  or 10.0%,  to $10.0 million from $9.1 million for
the year ended September 30, 1996. The Bank's net interest rate spread decreased
to 3.43% in fiscal 1997 from 3.48% in fiscal 1996,  and its net interest  margin
decreased to 3.87% in fiscal 1997 from 3.91% in fiscal 1996.  During fiscal year
ended  September 30, 1997, the narrowing of the net interest rate spread and net
interest  margin was  primarily  caused by increased  leveraging  of the balance
sheet in an effort  to  increase  net  interest  income.  The  average  yield on
interest-earning assets was 7.73% for the year ended September 30, 1997,

                                       41

<PAGE>



as compared to 7.63% for the year ended  September 30, 1996. The average cost of
interest-bearing liabilities was 4.30% for the year ended September 30, 1997, as
compared to 4.15% for the corresponding period in 1996.

     Provision  for Loan  Losses.  The  provision  for loan losses  decreased by
$116,000 to $427,000 for the year ended September 30, 1997 from $543,000 for the
year ended September 30, 1996. At September 30, 1997,  allowance for loan losses
amounted to $1.4  million.  The decrease in the provision of losses is primarily
attributable  to a  loss  provision  of  $124,000  established  for  the  Thrift
Association  Service  Corporation  ("TASCO")  participation  loans during fiscal
1996. In determining its provision for loan losses,  management establishes loss
allowances on identified problem loans and establishes general allowances on the
remainder of the loan portfolio.

     Non-Interest  Income.  Non-interest income for the year ended September 30,
1997  increased  by  $507,000  to  $684,000  from  $177,000  for the year  ended
September  30,  1996.  This  significant  increase  in  non-interest  income  is
primarily  attributable  to the decrease of $307,000 in provisions for losses on
investments in real estate,  which represents a joint venture project in which a
subsidiary of the Bank has a one-third  interest.  In addition,  the increase in
non-interest  income is also attributable to a $173,000,  or 42.9%,  increase in
fees and service  charges to $576,000 for the year ended September 30, 1997 from
$403,000 for the year ended  September 30, 1996.  This increase in  non-interest
income  represents  fees  associated  with the  increase in the number of demand
deposit accounts.

     Non-Interest Expenses.  Non-interest expenses decreased by $1.0 million, or
15.5%,  to $5.9 million for the year ended  September 30, 1997 from $6.9 million
for the year ended  September 30, 1996.  Exclusive of the SAIF  recapitalization
assessment,  non-interest expense increased by $42,000, or 0.7%, to $5.9 million
for  fiscal  1997 from $5.8  million  for fiscal  1996.  Salaries  and  employee
benefits  increased by $159,000,  or 5.2%,  to $3.2 million for fiscal 1997 from
$3.0 million for fiscal 1996.  This  increase is primarily  attributable  to the
implementation  of company-wide  incentive awards and increased costs associated
with the Employee Stock  Ownership  Plan. For the year ended September 30, 1997,
occupancy  expense  increased by $34,000 to $527,000  from $493,000 for the year
ended September 30, 1996. This increase in occupancy  expenses  represents costs
associated  with an  increase  in the rent  expense of one of the Bank's  branch
offices,  offset,  in part by the  collection of rental income on the Bank owned
properties.  For the year ended September 30, 1997,  equipment expense increased
by $57,000 to $628,000 from $571,000 for the year ended  September 30, 1996. The
increase in equipment  expense  represents  costs  associated with the Company's
data processing  service,  deposit and check processing service fees,  automated
teller machines  ("ATM's") and other vendor related  services and contracts.  In
addition,  advertising  expense  decreased  by $7,000 to $63,000 for fiscal 1997
from  $70,000  for  fiscal  1996.  The  Company  has  on  occasion  limited  its
advertising  expense in an effort to bolster  current  earnings.  Losses on real
estate  owned  decreased  by $68,000 to $16,000 for fiscal 1997 from $84,000 for
fiscal  1996.  The  decrease  in  losses  on  real  estate  owned  is  primarily
attributable  to  the  decline  in  foreclosures   during  fiscal  1997.  It  is
management's  objective  to dispose of real estate owned as rapidly as possible.
For the fiscal year ended  September  30, 1997,  the federal  deposit  insurance
premium  decreased by $1.3 million to $173,000  from $1.5 million for the fiscal
year ended  September 30, 1996. The decrease is attributable to the $1.1 million
one-time  special  assessment  to  recapitalize  the SAIF in fiscal 1996 and the
lower premium  assessed on insured  deposits  commencing  in 1997.  The ratio of
operating  expense  to  average  assets,  was 2.15% for the  fiscal  year  ended
September  30,  1997,  as compared to 2.35%,  exclusive of the $1.1 million SAIF
assessment and the loss from real estate owned, for the year ended September 30,
1996.  Furthermore,  the Company's efficiency ratio was 54.8% for the year ended
September  30,  1997,  as compared to 59.7%  exclusive  of the $1.1 million SAIF
assessment and the loss from real estate owned for the  corresponding  period in
1996.

     Income Tax  Expense.  Income tax expense  increased by $1.3 million to $1.9
million in fiscal 1997 from $675,000 in fiscal 1996.  The  effective  income tax
rate for fiscal  1997 was 43.5%,  as  compared  to 36.9% for  fiscal  1996.  The
increase in the effective tax rate  primarily  relates to certain state and city
tax benefits realized during fiscal 1996.


                                       42

<PAGE>



Liquidity And Capital Resources

     The Bank is required to maintain an average  daily balance of liquid assets
(as defined in the  regulations)  equal to a monthly  average of not less than a
specified  percentage of its net  withdrawable  deposit accounts plus short-term
borrowings.  This liquidity  requirement is currently 5%. OTS  regulations  also
require each member savings  institution to maintain an average daily balance of
short-term liquid assets at a specified  percentage  (currently 1%) of the total
of its net withdrawable  deposit accounts and borrowings  payable in one year or
less.  Monetary  penalties  may be imposed for  failure to meet these  liquidity
requirements.  The liquidity of the Bank at September  30, 1998 was 9.9%,  which
exceeded the then applicable 4.0% liquidity requirement.

     The  primary  investment  activities  of the  Bank are the  origination  of
mortgage  loans,   the  purchase  of  mortgage   loans,   and  the  purchase  of
mortgage-backed  securities  and investment  securities.  During the years ended
September 30, 1998,  1997 and 1996,  the Bank  originated  mortgage loans in the
amounts of $53.9  million,  $27.5 million and $34.0 million,  respectively,  and
purchased mortgage loans in the amounts of $24.3 million, $6.7 million and $14.8
million,  respectively.  Purchases of mortgage-backed  securities totalled $22.1
million,  $5.0 million and $5.1 million for the same periods.  Other investments
primarily include U.S. Government Agency obligations.

     At September 30, 1998, the Bank had  outstanding  loan  commitments of $8.0
million.  The Bank  anticipates  that it will have sufficient funds available to
meet its current loan  commitments.  Certificates of deposit which are scheduled
to mature in one year or less from September 30, 1998, totalled $80.7 million.

Impact of Inflation and Changing Prices

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

Impact of New Legislation

     On September 30, 1996,  legislation was enacted which,  among other things,
imposed a special  one-time  assessment on Savings  Association  Insurance  Fund
("SAIF") member  institutions,  including the Bank, to recapitalize the SAIF and
spread the obligation for payment of Financial Corporation ("FICO") bonds across
all SAIF and Bank Insurance Fund ("BIF") members.  The special assessment levied
amounted to 65.7 basis points on SAIF  assessable  deposits held as of March 31,
1995. The Bank took a charge of $1,115,000 as a result of the special assessment
during the year ended September 30, 1996. This legislation eliminated the amount
that BIF and SAIF members had to pay for deposit insurance premiums.

     The  recent  legislation  provides  that the BIF and the SAIF will merge on
January  1,  1999 if there are no more  savings  associations  as of that  date.
Several bills have been introduced in the current  Congress that would eliminate
the federal  thrift  charter and the OTS. A bill recently  reported by the House
Banking  Committee  would require  federal  thrifts to become  national banks or
state banks or savings banks within two years after  enactment or they would, by
operation of law,  become  national  banks.  A national  bank  resulting  from a
converted  federal  thrift  could  continue to engage in  activities,  including
holding any assets,  in which it was lawfully engaged on the day before the date
of enactment.  Branches  operated on the day before  enactment could be retained
regardless  of  their   permissibility   for  national   banks.   Subject  to  a
grandfathering  provision,  all savings and loan holding  companies would become
subject to the same  regulation  and  activities  restrictions  as bank  holding
companies. The grandfathering could be lost under certain circumstances, such as
a change in control of the holding company.  The legislative proposal would also
abolish the OTS and transfer its functions to the federal bank  regulators  with
respect to the institutions and to the Board of Governors of the Federal Reserve
Board with respect to the regulation of holding companies. The Bank is unable to

                                       43

<PAGE>



predict  whether the  legislation  will be enacted or,  given such  uncertainty,
determine  the extent to which the  legislation,  if enacted,  would  affect its
business.  The Bank is also  unable  to  predict  whether  the SAIF and BIF will
eventually be merged.

Year 2000 Compliance

     As the  year  2000  approaches,  a  critical  business  issue  has  emerged
regarding how existing  application  software programs and operating systems can
accommodate  this date  value.  In brief,  many  existing  application  software
products in the marketplace  were designed to only  accommodate a two digit date
position  which  represents  the year  (e.g.,  '95 is stored on the  system  and
represents  the year  1995).  The  Company,  through  a series  of  phases,  has
identified  the process of  implementing  a program  designed to ensure that all
software  used in  connection  with  the  Company's  business  will  manage  and
manipulate data involving the transition from 1999 to 2000 without functional or
data  abnormality  and without  inaccurate  results related to such data. To the
extent the Company's systems are not fully year 2000 compliant,  there can be no
assurance that potential systems interruptions to update software would not have
a material adverse effect on the Company's business. As previously reported, the
Company has completed both the Organization Awareness Phase and Assessment Phase
of its Year 2000 Compliance  Plan. The Company has drafted a compliance plan and
established  a steering  committee.  In the  Assessment  Phase,  the Company has
performed a complete  inventory  of internal  business  hardware and software as
well as an inventory of environmental  systems and critical vendor applications.
Critical  applications and a risk assessment in the event of non-compliance have
been defined and the Company has  identified  resources  needed to implement the
Year 2000 Plan. As of October 31, 1998,  the Company  completed  the  Renovation
Phase which involves  installing  required system hardware and software upgrades
and obtaining various vendor certifications.  As such, the Company has begun the
final phase called the Validation or Testing phase. In developing a strategy for
testing, the Company is following the FFIEC guidelines. The Company is currently
drafting a written test plan to test internal and external systems.  The results
of the hardware tests will be documented  and copies of the scripts  written for
these tests will be attached to the written test plan.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The above-captioned  information appears in this report under Part II, Item
7, "Management's  Discussion and Analysis of Financial  Condition and Results of
Operations," and is incorporated herein by reference.




                                       44
<PAGE>




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



RADICS & CO., LLC [LETTERHERAD]

                          INDEPENDENT AUDITORS' REPORT


To The Board of Directors
Financial Bancorp, Inc.
  and Subsidiaries

We have audited the consolidated statements of financial condition of Financial
Bancorp, Inc. (the "Company") and Subsidiaries as of September 30, 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 September 30, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to in the second
preceding paragraph present fairly, in all material respects, the financial
position of Financial Bancorp, Inc. and Subsidiaries as of September 30, 1998
and 1997, and the results of their operations and their cash flows for each of
the years in the three-year period ended September 30, 1998, in conformity with
generally accepted accounting principles.

                                                       /s/ Radics & CO., LLC 

Pine Brook, New Jersey
December 4, 1998


                                       45
<PAGE>




                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                                                                              September 30,
                                                                                                      ------------------------------
Assets                                                                              Notes                 1998              1997
------                                                                          -------------         ------------      ------------
<S>                                                                             <C>                   <C>               <C>
Cash and cash amounts due from depository institutions                                                $  2,001,493      $  2,738,392
Securities purchased under agreements
 to resell and federal funds sold                                                      3                 5,375,000        10,650,000
                                                                                                      ------------      ------------

      Total cash and cash equivalents                                               1 and 21             7,376,493        13,388,392

Investment securities available for sale                                          1, 4 and 21            6,287,750           730,750
Investment securities held to maturity; estimated fair value
 of $46,595,000 and $69,223,000 at September 30, 1998 and 1997,
 respectively                                                                   1,4,13,14 and 21        46,200,449        69,410,103
Mortgage-backed securities available for sale                                     1, 5 and 21           20,679,363         9,357,048
Mortgage-backed  securities  held to  maturity;  estimated
 fair value  value of $28,582,000 and $39,129,000 at
 September 30, 1998 and 1997, respectively                                         1,5 and 21           28,242,002        38,521,050
Loans receivable                                                                1, 6, 12 and 21        196,027,388       153,291,828
Real estate owned                                                                   1 and 7                739,403           471,417
Investments in real estate                                                          1 and 8              3,496,029         3,543,453
Premises and equipment                                                            1, 9 and 20            2,446,120         2,431,570
Federal Home Loan Bank of New York stock                                               12                2,110,400         1,845,000
Accrued interest receivable                                                       1, 10 and 21           2,043,279         2,248,578
Other                                                                                  15                2,962,720         1,716,727
                                                                                                      ------------      ------------

      Total assets                                                                                    $318,611,396      $296,955,916
                                                                                                      ============      ============
</TABLE>






See notes to consolidated financial statements.

                                       46
<PAGE>

                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                                                                        September 30,
                                                                                                 ------------------------------
Liabilities and stockholders' equity                                               Notes             1998             1997
------------------------------------                                           -------------     ------------     -------------
<S>                                                                             <C>              <C>              <C>
Liabilities

Deposits                                                                        11, 19 and 21    $ 228,095,902    $ 213,394,282
Advance payments by borrowers for taxes and insurance                                                1,518,016        1,267,896
Advances from Federal Home Loan Bank of New York                                  12 and 21          6,000,000        8,000,000
Securities sold under agreements to repurchase                                    13 and 21         42,000,000       25,000,000
Treasury tax and loan account borrowings                                          14 and 21          7,770,251       20,000,000
Other                                                                             15 and 17          4,051,936        2,437,504
                                                                                                 -------------    -------------

      Total liabilities                                                                            289,436,105      270,099,682
                                                                                                 -------------    -------------

Commitments and contingencies                                                     19 and 20           --               --

Stockholders' equity                                                             1,2,15,16
                                                                                 17 and 18
Preferred stock $.01 par value, 2,500,000 shares authorized;
  none issued and outstanding                                                                         --               --
Common stock $.01 par value, 6,000,000 shares authorized;                                 
  2,185,000 issued; 1,708,632 and 1,709,700 shares                                        
  outstanding at September 30, 1998 and 1997, respectively                                              21,850           21,850
Additional paid-in capital                                                                          20,505,364       20,239,758
Retained earnings - substantially restricted                                                        16,347,698       14,111,882
Common stock acquired by Employee Stock                                                    
  Ownership Plan ("ESOP")                                                                             (849,710)      (1,011,566)
Common stock acquired by Recognition and Retention Plan ("RPR")                                       (280,888)        (317,955)
Treasury stock, at cost; 476,368 and 475,300                                               
  shares at September 30, 1998 and 1997, respectively                                               (6,356,261)      (6,279,339)
Unrealized (loss) gain on securities available for sale, net of income taxes                          (212,762)          91,604
                                                                                                 -------------    -------------
                                                                                           
      Total stockholders' equity                                                                    29,175,291       26,856,234
                                                                                                 -------------    -------------
                                                                                           
      Total liabilities and stockholders' equity                                                 $ 318,611,396    $ 296,955,916
                                                                                                 =============    =============
</TABLE>


See notes to consolidated financial statements 

                                       47
<PAGE>

                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME


<TABLE>
<CAPTION>
                                                                                                 Year Ended September 30,
                                                                                    -----------------------------------------------
                                                                       Note(s)          1998              1997             1996
                                                                    ------------    ------------      ------------     ------------
<S>                                                                   <C>           <C>               <C>              <C>      
Interest income:
      Loans                                                             1 and 6     $ 13,880,178      $ 12,170,938     $ 10,316,082
      Mortgage-backed securities                                           1           3,774,638         3,749,723        4,025,030
      Investments and other interest-earning assets                        1           3,414,495         4,074,392        3,443,504
      Federal funds sold and securities 
       purchased under agreements to resell                                1             895,486            76,821           38,354
                                                                                    ------------      ------------     ------------

          Total interest income                                                       21,964,797        20,071,874       17,822,970
                                                                                    ------------      ------------     ------------
Interest expense:
      Deposits                                                             11          8,933,075         8,102,809        7,592,723
      Borrowings                                                                       2,856,927         1,926,223        1,098,104
                                                                                    ------------      ------------     ------------

          Total interest expense                                                      11,790,002        10,029,032        8,690,827
                                                                                    ------------      ------------     ------------

Net interest income                                                                   10,174,795        10,042,842        9,132,143
Provision for loan losses                                               1 and 6          400,679           426,600          542,920
                                                                                    ------------      ------------     ------------

Net interest income after provision for loan losses                                    9,774,116         9,616,242        8,589,223
                                                                                    ------------      ------------     ------------
Non-interest income:
      Fees and service charges                                                           815,012           575,821          402,813
      Gain on sale on securities available for sale                  1, 4 and 5          131,212            29,387           36,089
      (Loss) gain from real estate operations                             1              (58,238)           27,650         (313,011)
      Miscellaneous                                                                       69,432            50,607           50,635
                                                                                    ------------      ------------     ------------

          Total non-interest income                                                      957,418           683,465          176,526
                                                                                    ------------      ------------     ------------

Non-interest expenses:

      Salaries and employee benefits                                  17 and 18        2,964,817         3,206,774        3,048,238
      Net occupancy expense of premises                                1 and 20          503,694           526,583          492,507
      Equipment                                                           1              691,122           628,182          571,180
      Advertising                                                                         84,336            62,435           69,510
      Loss from real estate owned                                      1 and 7            22,518            15,823           84,123
      Federal insurance premium                                          19              125,382           172,577        1,502,263
      Miscellaneous                                                      18            1,222,576         1,253,033        1,169,816
                                                                                    ------------      ------------     ------------

          Total non-interest expenses                                                  5,614,445         5,865,407        6,937,637
                                                                                    ------------      ------------     ------------

Income before income taxes                                                             5,117,089         4,434,300        1,828,112
Income taxes                                                           1 and 15        2,116,145         1,929,477          675,227
                                                                                    ------------      ------------     ------------

Net income                                                                          $  3,000,944      $  2,504,823     $  1,152,885
                                                                                    ============      ============     ============

Earnings per common share:                                               1
   Basic                                                                            $       1.86      $       1.54     $       0.66
                                                                                    ============      ============     ============
   Diluted                                                                          $       1.77      $       1.50     $       0.65
                                                                                    ============      ============     ============

Weighted average number of common shares:                                1
   Basic                                                                               1,614,600         1,630,300        1,750,900
                                                                                    ============      ============     ============
   Diluted                                                                             1,695,700         1,670,300        1,786,000
                                                                                    ============      ============     ============
</TABLE>






See notes to consolidated financial statements.                              


                                       48
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                            Retained         Common            Common        
                                                         Additional         Earnings -       Stock             Stock         
                                        Common            Paid-in         Substantially      Acquired          Acquired      
                                        Stock             Capital           Restricted       By ESOP           By RRP        
                                      -----------      ------------      --------------    ------------      ------------    
<S>                                   <C>              <C>               <C>               <C>               <C>             
Balance - October 1, 1995             $  21,850        $ 20,130,021      $ 11,544,464      $ (1,335,278)     $   (590,487)   

Net income for the year ended
 September 30, 1996                           --               --           1,152,885              --                --      
ESOP shares committed
 to be released                               --             55,705              --             161,856              --      
Amortization of cost of common
 stock acquired by the RRP                    --               --                --                --             136,266    
Purchase of 192,266
 shares of treasury stock                     --               --                --                --                --      
Reissue of 10,925 shares of
 treasury stock for stock options             --            (33,868)             --                --                --      
Dividends paid                                --               --            (478,742)             --                --      
Unrealized loss on securities
 available for sale, net                      --               --                --                --                --      
                                      ------------     ------------       ------------     ------------      ------------    

Balance - September 30, 1996                21,850       20,151,858        12,218,607        (1,173,422)         (454,221)   

Net income for the year ended
 September 30, 1997                           --               --           2,504,823              --                --      
ESOP shares committed
 to be released                               --            117,067              --             161,856              --      
Amortization of cost of common
 stock acquired by the RRP                    --               --                --                --             136,266    
Purchase of 89,531 shares
 of treasury stock                            --               --                --                --                --      
Reissue of 8,609 shares of
 treasury stock for stock options             --            (29,167)             --                --                --      
Dividends paid                                --               --            (611,548)             --                --      
Unrealized gain on securities
 available for sale, net                      --               --                --                --                --      
                                      ------------     ------------      ------------      ------------      ------------    

Balance - September 30, 1997                21,850       20,239,758        14,111,882        (1,011,566)         (317,955)   

Net income for the year ended
 September 30, 1998                           --               --           3,000,944              --                --      
ESOP shares committed
 to be released                               --            280,941              --             161,856              --      
Amortization of cost of common
 stock acquired by the RRP                    --               --                --                --              37,067    
Purchase of 5,000 shares
 of treasury stock                            --               --                --                --                --      
Reissue of 3,932 shares of
 treasury stock for stock options             --            (15,335)             --                --                --      
Dividends paid                                --               --            (765,128)             --                --      
Unrealized loss on securities
 available for sale, net                      --               --                --                --                --      
                                      ------------     ------------      ------------      ------------      ------------    

Balance - September 30, 1998          $     21,850     $ 20,505,364      $ 16,347,698      $   (849,710)     $   (280,888)   
                                      ============     ============      ============      ============      ============    

<CAPTION>
                                                              Unrealized
                                                              Gain (Loss)
                                                             on Securities
                                          Treasury            Available
                                           Stock             for sale, net      Total
                                         ------------      ---------------   ------------
<S>                                      <C>               <C>               <C>         
Balance - October 1, 1995                $ (2,591,542)     $       --        $ 27,179,028

Net income for the year ended
 September 30, 1996                              --                --           1,152,885
ESOP shares committed
 to be released                                  --                --             217,561
Amortization of cost of common
 stock acquired by the RRP                       --                --             136,266
Purchase of 192,266
 shares of treasury stock                  (2,522,444)             --          (2,522,444)
Reissue of 10,925 shares of
 treasury stock for stock options             137,000              --             103,132
Dividends paid                                   --                --            (478,742)
Unrealized loss on securities
 available for sale, net                         --                (488)             (488)
                                         ------------      ------------      ------------

Balance - September 30, 1996               (4,976,986)             (488)       25,787,198

Net income for the year ended
 September 30, 1997                              --                --           2,504,823
ESOP shares committed
 to be released                                  --                --             278,923
Amortization of cost of common
 stock acquired by the RRP                       --                --             136,266
Purchase of 89,531 shares
 of treasury stock                         (1,412,789)             --          (1,412,789)
Reissue of 8,609 shares of
 treasury stock for stock options             110,436              --              81,269
Dividends paid                                   --                --            (611,548)
Unrealized gain on securities
 available for sale, net                         --              92,092            92,092
                                         ------------      ------------      ------------

Balance - September 30, 1997               (6,279,339)           91,604        26,856,234

Net income for the year ended
 September 30, 1998                              --                --           3,000,944
ESOP shares committed
 to be released                                  --                --             442,797
Amortization of cost of common
 stock acquired by the RRP                       --                --              37,067
Purchase of 5,000 shares
 of treasury stock                           (129,375)             --            (129,375)
Reissue of 3,932 shares of
 treasury stock for stock options              52,453              --              37,118
Dividends paid                                   --                --            (765,128)
Unrealized loss on securities
 available for sale, net                         --            (304,366)         (304,366)
                                         ------------      ------------      ------------

Balance - September 30, 1998             $ (6,356,261)     $   (212,762)     $ 29,175,291
                                         ============      ============      ============
</TABLE>



See notes to consolidated financial statements. 


                                       49
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                                Year Ended September 30,
                                                                                   -------------------------------------------------
                                                                                        1998             1997              1996
                                                                                   ------------      ------------      -------------
<S>                                                                                <C>               <C>               <C>
Cash flows from operating activities:
     Net income                                                                    $  3,000,944      $  2,504,823      $  1,152,885
     Adjustments to reconcile net income to
      net cash provided by operating activities:
        Depreciation and amortization                                                   276,085           300,589           298,613
        Amortization of premiums and accretion
         of discounts on investment securities, net                                    (244,197)         (201,544)          (91,107)
        Amortization of premiums and accretion
         of discounts on mortgage-backed securities, net                                114,501            34,159            19,268
        Accretion of deferred loan fees and discounts                                   (67,091)         (110,837)          (84,132)
        Amortization of intangible assets                                                17,045            17,045            18,489
        (Gain) on sale of investment securities available for sale                      (36,750)          (29,387)          (51,029)
        (Gain) on sale of mortgage-backed securities available for sale                 (94,462)             --                --
        (Gain) loss on sale of real estate owned                                        (30,541)            5,542            33,583
        Write-down on investment securities available for sale                             --                --              14,940
        Provision for loan losses                                                       400,679           426,600           542,920
        Deferred income taxes                                                           142,146           255,206        (1,088,167)
        Decrease (increase) in accrued interest receivable                              205,299          (459,608)         (213,950)
        (Increase) in refundable income taxes                                          (148,500)         (181,613)          (13,693)
        (Increase) decrease in other assets                                          (1,017,539)           25,222           160,736
        Cost of ESOP and RRP                                                            479,864           415,189           353,827
        Increase (decrease) in other liabilities                                      1,614,432          (939,048)        1,679,142
                                                                                   ------------      ------------      ------------

             Net cash provided by operating activities                                4,611,915         2,062,338         2,732,325
                                                                                   ------------      ------------      ------------

Cash flows from investing activities:
     Purchases of investment securities available for sale                           (6,550,375)       (4,939,672)       (8,596,719)
     Purchases of investment securities held to maturity                            (54,489,063)      (35,090,000)      (48,040,000)
     Proceeds from maturities of investment securities held to maturity              77,940,000        17,000,000        33,930,000
     Proceeds from sale of investment securities available for sale                     736,750         7,890,781         7,028,594
     Purchases of mortgage-backed securities available for sale                     (21,719,234)       (5,046,498)       (5,068,148)
     Purchases of mortgage-backed securities held to maturity                          (384,083)             --                --
     Proceeds from sale of mortgage-backed securities available for sale              3,797,846              --                --
     Proceeds from principal repayments on
      mortgage-backed securities available for sale                                   6,381,532           832,014            61,971
     Proceeds from principal repayments on
      mortgage-backed securities held to maturity                                    10,613,411        11,278,745        12,152,454
     Loan originations, net of repayments                                           (19,680,328)       (7,021,993)      (16,486,091)
     Purchases of loans                                                             (24,301,570)       (6,682,351)      (14,326,221)
     Proceeds from sale of and insurance recoveries on real estate owned                675,305           311,862           289,116
     Capitalized expenses on real estate owned                                             --                --              (8,637)
     Net decrease (increase) in investments in real estate                               35,200           (61,895)          217,450
     Additions to premises and equipment                                               (278,411)         (198,300)       (1,138,187)
     (Purchase) of Federal Home Loan Bank of New York stock                            (265,400)         (169,200)         (252,800)
                                                                                   ------------      ------------      ------------

             Net cash (used in) investing activities                                (27,488,420)      (21,896,507)      (40,237,218)
                                                                                   ------------      ------------      ------------
</TABLE>



See notes to consolidated financial statements.                              


                                       50
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                Year Ended September 30,
                                                                                   -------------------------------------------------
                                                                                        1998             1997               1996
                                                                                   ------------      ------------      -------------
<S>                                                                                <C>               <C>               <C>         
Cash flows from financing activities:
     Net increase in deposits                                                      $ 14,701,620      $ 10,510,516      $ 16,392,178
     Increase in advance payments by borrowers for taxes and insurance                  250,120           204,860           108,956
     Advances from Federal Home Loan Bank of New York                                      --                --           9,200,000
     Repayments of Federal Home Loan Bank of New York advances                       (2,000,000)       (1,200,000)             --
     Net change in short-term borrowings
      from Federal Home Loan Bank of New York                                              --            (525,000)       (4,850,000)
     Proceeds from securities sold under agreement to repurchase                     22,000,000        25,000,000        14,046,000
     Repurchase of securities sold under agreements to repurchase                    (5,000,000)      (14,046,000)       (7,126,250)
     Net (decrease) increase in treasury tax and loan account borrowings            (12,229,749)       10,119,030         9,880,970
     Dividends paid                                                                    (765,128)         (611,548)         (478,742)
     Treasury stock acquired                                                           (129,375)       (1,412,789)       (2,522,444)
     Reissue of treasury stock for stock options                                         37,118            81,269           103,132
                                                                                   ------------      ------------      ------------

             Net cash provided by financing activities                               16,864,606        28,120,338        34,753,800
                                                                                   ------------      ------------      ------------

Net (decrease) increase in cash and cash equivalents                                 (6,011,899)        8,286,169        (2,751,093)
Cash and cash equivalents - beginning                                                13,388,392         5,102,223         7,853,316
                                                                                   ------------      ------------      ------------

Cash and cash equivalents - ending                                                 $  7,376,493      $ 13,388,392      $  5,102,223
                                                                                   ============      ============      ============

Supplemental schedule of noncash investing and financing activities:
     Loans transferred to real estate owned                                        $  1,087,750      $    506,911      $    248,945
                                                                                   ============      ============      ============

     Loans to facilitate sales of real estate owned                                $    175,000      $     96,000      $    148,000
                                                                                   ============      ============      ============

     Securities transferred to available for sale from held to maturity            $       --        $       --        $  1,989,839
                                                                                   ============      ============      ============

     Unrealized (loss) gain on securities available for sale                       $   (543,511)     $    164,450      $       (871)
     Deferred income tax                                                                239,145           (72,358)              383
                                                                                   ------------      ------------      ------------

                                                                                   $   (304,366)     $     92,092      $       (488)
                                                                                   ============      ============      ============

     Property transferred to investment in real
      estate, net of accumulated depreciation                                      $       --        $       --        $    190,174
                                                                                   ============      ============      ============

Supplemental  disclosures of cash flows  information:
     Cash paid (net of refunds received) during the year for:
        Federal, state and city income taxes                                       $  2,122,499      $  1,857,768      $  1,777,958
                                                                                   ============      ============      ============

        Interest                                                                   $ 11,740,700      $  9,903,908      $  8,676,430
                                                                                   ============      ============      ============
</TABLE>


See notes to consolidated financial statements                               


                                       51
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of financial statement presentation

The consolidated financial statements, which have been prepared in conformity
with generally accepted accounting principles, include the accounts of Financial
Bancorp, Inc. (the "Company"), its wholly owned subsidiaries, 842 Manhattan
Avenue Corporation and Financial Federal Savings Bank (the "Bank"), a federally
chartered stock savings bank, and the Bank's wholly owned subsidiaries, FinFed
Development Corp., which participates in a joint venture for development of land
and sale of lots, FinFed Funding Ltd., which serves as a conduit for funding
investments in FinFed Development Corp., and F.S. Agency, Inc., which is engaged
in the sale of annuities. All significant intercompany accounts and transactions
have been eliminated in consolidation. Investments in non-consolidated joint
ventures are accounted for using the equity method of accounting.

In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the dates of the consolidated statements of financial
condition and revenues and expenses for the periods then ended. Actual results
could differ significantly from those estimates. Material estimates that are
particularly susceptible to significant changes relate to the determination of
the allowance for loan losses and the valuation of real estate owned and
investments in real estate. Management believes that the allowance for loan
losses is adequate, and that real estate owned and investments in real estate
are appropriately valued. While management uses available information to
recognize losses on loans, real estate owned and investments in real estate,
future additions to the allowance for loan losses or further writedowns of real
estate owned and investments in real estate may be necessary based on changes in
economic conditions in the market area.

In addition, various regulatory agencies, as an integral part of their
examination processes, periodically review the allowance for loan losses and the
valuations of real estate owned and investments in real estate. Such agencies
may require additions to the allowance or additional writedowns based on their
judgments about information available to them at the time of their examinations.

Cash and cash equivalents

Cash and cash equivalents include cash and amounts due from depository
institutions, federal funds sold and securities purchased under agreements to
resell, all with original maturities of three months or less.

                                       52
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

     Investments and mortgage-backed securities

     Investments in debt securities that the enterprise has the positive intent
     and ability to hold to maturity are classified as held-to-maturity
     securities and reported at amortized cost. Debt and equity securities that
     are bought and held principally for the purpose of selling them in the near
     term are classified as trading securities and reported at fair value, with
     unrealized holding gains and losses included in earnings. Debt and equity
     securities not classified as held-to-maturity or trading are classified as
     available for sale securities and reported at fair value, with unrealized
     holding gains or losses, net of applicable deferred income taxes, reported
     in a separate component of stockholders' equity.

     As permitted by the Financial Accounting Standards Board's ("FASB") "A
     guide to Implementation of Statement of Financial Accounting Standards
     ("SFAS") 115 on Accounting for Certain Investments in Debt and Equity
     Securities", the Bank reassessed the classification of its held-to-maturity
     portfolio during December, 1995 and transferred investment securities with
     a carrying value of $1,989,839 and a fair value of $2,005,630 from the held
     to maturity portfolio to the available-for-sale portfolio.

     Premiums and discounts on all securities are amortized/accreted to maturity
     by use of a method which approximates the level-yield method.

     Gains or losses on sales are recognized based on the specific
     identification method.

     Loans receivable

     Loans receivable are carried at unpaid principal balances less the
     allowance for loan losses and net deferred loan fees and discounts.

     Loan origination fees and certain direct loan origination costs are
     deferred and amortized as an adjustment of yield over the contractual lives
     of the related loans.

     Allowance for loan losses

     An allowance for loan losses is maintained at a level considered adequate
     to absorb losses inherent in the loan portfolio. Management of the Bank, in
     determining the allowance for loan losses, considers the risks inherent in
     the loan portfolio and changes in the nature and volume of loan activities,
     along with general economic and real estate market conditions. The Bank
     utilizes a two-tier approach: (1) identification of impaired loans and
     establishment of loss allowances on such loans; and (2) establishment of
     valuation allowances on the remainder of its loan portfolio. The Bank
     maintains a loan review system which allows for a periodic review of its
     loan portfolio and the early identification of potential impaired loans.
     Such system takes into consideration, among other things, delinquency
     status, size of loans, types of collateral and financial condition of the
     borrowers. Loan loss allowances are established for identified loans based
     on a review of such data and/or estimates of the fair value of the
     underlying collateral.


                                       53
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

     Allowance for loan losses (Cont'd)

     Loan loss allowances are established on the remainder of the loan portfolio
     based upon a combination of factors including, but not limited to, actual
     loan loss experience, composition of the loan portfolio, current economic
     conditions and management's judgment. Although management believes that
     adequate loan loss allowances are established, actual losses are dependent
     upon future events and, as such, further additions to the level of the loan
     loss allowance may be necessary.

     An impaired loan is evaluated based on the present value of expected future
     cash flows discounted at the loan's effective interest rate, or as a
     practical expedient, at the loan's observable market price or the fair
     value of the collateral if the loan is collateral dependent. A loan
     evaluated for impairment is deemed to be impaired when, based on current
     information and events, it is probable that the Bank will be unable to
     collect all amounts due according to the contractual terms of the loan
     agreement. An insignificant payment delay, which is defined as up to ninety
     days by the Bank, will not cause a loan to be classified as impaired. A
     loan is not impaired during a period of delay in payment if the Bank
     expects to collect all amounts due, including interest accrued at the
     contractual interest rate for the period of delay. Thus, a demand loan or
     other loan with no stated maturity is not impaired if the Bank expects to
     collect all amounts due, including interest accrued at the contractual
     interest rate, during the period the loan is outstanding All loans
     identified as impaired are evaluated independently. The Bank does not
     aggregate such loans for evaluation purposes. Payments received on impaired
     loans are applied first to accrued interest receivable and then to
     principal.

     Allowances for uncollected interest

     The Bank provides an allowance for the loss of uncollected interest on
     loans where collection of the uncollected interest is doubtful. Such
     interest ultimately collected is credited to income in the period of
     recovery. 

     Real estate owned

     Real estate owned consists of real estate acquired by foreclosure or deed
     in lieu of foreclosure. Real estate owned is initially recorded at the
     lower of cost or fair value at the date of acquisition and subsequently
     carried at the lower of such initially recorded amount or fair value less
     estimated selling costs. Fair value is defined as the amount reasonably
     expected to be received in a current sale between a willing seller and a
     willing buyer. Cost incurred in developing or preparing properties for sale
     are capitalized. Income and expense related to operating and holding
     properties are recorded in operations as incurred.

                                       54
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

     Real estate owned (Cont'd)

     Gains and losses on such properties are recognized as incurred. The amounts
     ultimately recoverable from real estate owned could differ from the net
     carrying value of these assets because of economic conditions and the
     current softness in certain geographic real estate markets.

     Investments in real estate

     Investments in real estate consist of investments in non-consolidated joint
     ventures and property held by a subsidiary and are recorded at the lower of
     cost or estimated fair values.

     Concentration of risk

     Lending and real estate activities are concentrated in real estate and
     loans secured by real estate located in the State of New York.

     Premises and equipment

     Premises and equipment are comprised of land, at cost, and buildings and
     improvements, leasehold improvements and furniture, fixtures and equipment,
     at cost, less accumulated depreciation and amortization. Depreciation and
     amortization charges are computed on the straight-line method over the
     following estimated useful lives:

     Buildings and improvements         6 to 40 years 
     Furniture, fixtures and equipment  5 to 10 years 
     Leasehold improvements             The lesser of useful life 
                                        or term of lease.

     Significant renewals and betterments are capitalized to the premises and
     equipment account. Maintenance and repairs are charged to expense in the
     period incurred. Rental income is netted against occupancy costs in the
     consolidated statements of income.

     Income taxes

     The Company and its subsidiaries file consolidated federal, state and city
     income tax returns, except for two of the subsidiaries, which file separate
     state and city income tax returns. Income taxes are allocated to the
     Company and its subsidiaries based upon the contribution of their
     respective income or loss to the consolidated returns. Federal, state and
     city income taxes have been provided on the basis of reported income. The
     amounts reflected on the tax returns differ from these provisions due
     principally to temporary differences in the reporting of certain items for
     financial reporting and tax reporting purposes. Deferred income tax expense
     or benefit is determined by recognizing deferred tax assets and liabilities
     for the estimated future tax consequences attributable to differences
     between the financial statement carrying amounts of existing assets and
     liabilities and their respective tax bases. Deferred tax assets and
     liabilities are measured using enacted tax rates expected to apply to
     taxable income in the years in which those temporary differences are
     expected to be recovered or settled. The effect on deferred tax assets and
     liabilities of a change in tax rates is recognized in earnings in the
     period that includes the enactment date. The realization of deferred tax
     assets is assessed and a valuation allowance provided, when necessary, for
     that portion of the asset which is not likely to be realized. Management
     believes, based upon current facts, that it is more likely than not that
     there will be sufficient taxable income in future years to realize the
     deferred tax assets.


                                       55
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

     Accounting for stock based compensation

     The Bank adopted, effective October 1, 1996, SFAS 123, "Accounting for
     Stock-Based Compensation". SFAS 123 established a fair value-based method
     of accounting for stock-based compensation arrangements with employees,
     rather than the intrinsic value-based method that is contained in
     Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
     Employees" ("APB 25"). SFAS 123 does not require an entity to adopt the new
     fair value-based method for purposes of preparing its basic financial
     statements, but permits each entity to elect the new method or to continue
     to use the APB 25 method. The Company has chosen to continue to use the APB
     25 method which, under SFAS 123, requires presentation in the notes to
     financial statements of pro forma net income and earnings per share
     information as if the fair value-based method had been adopted. The
     disclosure requirements are effective for financial statements for fiscal
     years beginning after December 15, 1995; however, the pro forma disclosures
     are required to include the effects of all awards granted in fiscal years
     that begin after December 15, 1994, which for the Company includes any
     awards granted after September 30, 1995.

     Earnings per common share

     The Company, during the first quarter of fiscal year 1998, adopted SFAS
     128, "Earnings per share", which supersedes Accounting Principles Board
     ("APB") Opinion No. 15, "Earnings per Share". SFAS 128 replaces the primary
     and fully diluted earnings per common share presentations previously
     required by APB Opinion No. 15 with basic and diluted earnings per common
     share presentations. As required by SFAS 128, all prior period earnings per
     common share have been restated. Basic earnings per common share have been
     computed by dividing net income by the weighted average number of shares of
     common stock outstanding, adjusted for the unallocated portion of common
     shares held by ESOP. Diluted earnings per common share have been computed
     by dividing net income by weighted average number of shares of common stock
     outstanding, as adjusted and dilutive common stock equivalents outstanding
     (using the treasury stock method) during the period.

     Interest rate risk

     The Bank is principally engaged in the business of attracting deposits from
     the general public and using these deposits, along with borrowings and
     other funds, to make loans secured by real estate and to purchase
     mortgage-backed and investment securities. The potential for interest-rate
     risk exists as a result of the generally shorter duration of the Bank's
     interest-sensitive liabilities compared to the generally longer duration of
     its interest-sensitive assets. In a rising interest rate environment,
     liabilities will reprice faster than assets, thereby reducing the market
     value of long-term assets and net interest income. For this reason,
     management regularly monitors the maturity structure of the Bank's
     interest-earning assets and interest-bearing liabilities in order to
     measure its level of interest-rate risk and to plan for future volatility.

     Fair value of financial instruments

     The following methods and assumptions were used in estimating the fair
     value of financial instruments:

     Cash and cash equivalents and accrued interest receivable: The carrying
     amounts reported in the consolidated financial statements for cash and cash
     equivalents and accrued interest receivable approximate their fair values.



                                       56
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

     Fair value of financial instruments (Cont'd.)

     Investment and mortgage-backed securities: Fair value is determined by
     reference to quoted market prices where available. If quoted market prices
     are not available, fair values are based on quoted market prices of
     comparable instruments.

     Loans receivable: The fair value of loans receivable is determined by
     reference to market prices for similar loans with the same maturities and
     interest rates.

     Deposits: The carrying amounts reported in the consolidated financial
     statements for demand, savings and club accounts approximate their fair
     values. For fixed-maturity time deposits, fair value is estimated using
     market rates currently offered for deposits of similar remaining
     maturities.

     Advances from Federal Home Loan Bank of New York, Securities sold under
     agreements to repurchase, and Treasury tax and loan account borrowings: The
     fair values of these instruments are estimated using rates currently
     available to the Bank for borrowings with similar terms and remaining
     maturities.

     Commitments to extend credit: The fair value of commitments is estimated
     using fees currently charged to enter into similar agreements, taking into
     account the remaining terms of the agreements and the present
     creditworthiness of counterparties. For fixed-rate loan commitments, fair
     value also considers the difference between current levels of interest
     rates and the committed rates.

     Impact of new accounting standards

     In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income".
     SFAS 130 requires that all items that are components of "comprehensive
     income" be reported in a financial statement that is displayed with the
     same prominence as other financial statements. Comprehensive income is
     defined as the "change in equity [net assets] of a business enterprise
     during a period from transactions and other events and circumstances from
     nonowner sources. It includes all changes in equity during a period except
     those resulting from investments by owners and distributions to owners".
     Companies will be required to (a) classify items of other comprehensive
     income by their nature in the financial statements and (b) display the
     accumulated balance of other comprehensive income separately from retained
     earnings and additional paid-in capital in the equity section of a
     statement of financial position. SFAS No. 130 is effective for fiscal years
     beginning after December 15, 1997 and requires reclassification of prior
     periods presented. As the requirements of SFAS 130 are disclosure-related,
     its implementation will have no impact on the Company's financial condition
     or results of operations.

     In June 1997, the FASB issued SFAS 131, "Disclosure about Segments of an
     Enterprise and Related Information". SFAS 131 requires that enterprises
     report certain financial and descriptive information about operating
     segments in complete sets of financial statements of the company and in
     condensed financial statements of interim period issued to shareholders. It
     also requires that a company report certain information about their
     products and services, geographic areas in which they operate and their
     major customers. SFAS No. 131 is effective for fiscal years beginning after
     December 15, 1997 and requires interim periods to be presented in the
     second year of application. As the requirements of SFAS 131 are
     disclosure-related, its implementation will have no impact on the Company's
     financial condition or results of operations.



                                       57
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

     Impact of new accounting standards (Cont'd)

     In April 1998, the FASB issued SFAS 132, "Employers Disclosures About
     Pensions and Other Post Retirement Benefits". SFAS 132 standardizes the
     disclosure requirements for these plans and it requires additional
     information about changes in the benefit obligations and fair value of plan
     assets. SFAS 132 is effective for fiscal years beginning after December 15,
     1997 and information for previous periods presented for comparative
     purposes is required to be restated. SFAS 132 does not change measurement
     or recognition standards for these plans and is only disclosure related,
     therefore its implementation will have no impact on the Company's financial
     condition or results of operations.

     In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
     Instruments and Hedging Activities" which addresses the accounting for
     derivative instruments, including certain derivative instruments embedded
     in other contracts, and hedging activities. SFAS 133 supersedes SFAS 80,
     "Accounting for Futures Contracts", SFAS 105, "Disclosure of Information
     about Financial Instruments with Off-Balance-Sheet Risk and Financial
     Instruments with Concentrations of Credit Risk", and SFAS 119, "Disclosure
     about Derivative Financial Instruments and Fair Value of Financial
     Instruments." It amends SFAS 107, "Disclosures about Fair Value of
     Financial Instruments" to include in SFAS 107 the disclosure provisions
     about concentrations of credit risk from SFAS 105. SFAS 133 is effective
     for all fiscal quarters of fiscal years beginning after June 15, 1999. As
     the Company does not have any derivative instruments or similar contracts,
     the representation of SFAS 133 will have no impact on the Company's
     financial condition or results of operations.

     Reclassification

     Certain amounts for the years ended September 30, 1997 and 1996 have been
     reclassified to conform to the current period's presentation.

2.   LIQUIDATION ACCOUNT AND STOCK REPURCHASES

     At the time of conversion to the stock form of organization, the Bank
     established a liquidation account in an amount equal to its total retained
     earnings at June 30, 1994. The liquidation account will be maintained by
     the Bank for the benefit of eligible account holders who continue to
     maintain savings accounts with the Bank after conversion. In the unlikely
     event of a complete liquidation of the Bank, eligible depositors who
     continue to maintain accounts shall be entitled to receive a distribution
     from the liquidation account. The total amount of the liquidation account
     may be decreased if the balances of eligible account holders decreased on
     the annual determination date. The Bank did not determine the balance of
     liquidation account as of September 30, 1998. The Bank shall not declare or
     pay any dividend on or repurchase any of its capital stock if the effect
     thereof would be to cause its net worth to be reduced below: 1) the amount
     required for the liquidation account, or 2) the net worth requirements
     contained in Section 563.13(b) of the Rules and Regulations of Office of
     Thrift Supervision ("OTS").

     During the years ended September 30, 1998, 1997 and 1996, the Company
     repurchased, in the open market, 5,000, 89,531, and 192,266 shares,
     respectively, of common stock at an aggregate cost of $129,375, $1,412,789,
     and $2,522,444, respectively. These repurchases are reflected as treasury
     stock in the consolidated statements of financial condition.



                                       58
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.   SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL

The Company purchases securities under agreements to resell substantially
identical securities. These agreements represent short-term loans and are
included as cash equivalents in the consolidated statements of financial
condition as all such agreements mature within ninety days. During the years
ended September 30, 1998, 1997 and 1996, the average balances of securities
purchased under agreements to resell totalled $1,583,000, $15,200 and $133,000,
respectively, and the maximum amount outstanding at any month end was
$15,000,000, $2,000,000 and $5,240,000, respectively. The average interest rate
for 1998, 1997 and 1996 was 5.75%, 5.85% and 5.89%, respectively.


4.   INVESTMENT SECURITIES

<TABLE>
<CAPTION>
                                                                                       September 30, 1998
                                                             -----------------------------------------------------------------------
                                                                                       Gross Unrealized            
                                                               Amortized        --------------------------------          Estimated
                                                                 Cost              Gains                Losses            Fair Value
                                                             ---------------    ------------         -----------         -----------
<S>                                                          <C>                 <C>                 <C>                 <C>        
Available for Sale
Corporate stocks                                             $   701,000         $     6,750         $      --           $   707,750
Corporate bonds                                                5,853,289                --               273,289           5,580,000
                                                             -----------         -----------         -----------         -----------

                                                             $ 6,554,289         $     6,750         $   273,289         $ 6,287,750
                                                             ===========         ===========         ===========         ===========
Held to Maturity
U.S. Government (including agencies):
     After one through five years                            $35,994,830         $   309,610         $      --           $36,304,440
     After five through ten years                              7,237,211              78,849                --             7,316,060
     After ten years                                           2,968,408               6,332                --             2,974,740
                                                             -----------         -----------         -----------         -----------

                                                             $46,200,449         $   394,791         $      --           $46,595,240
                                                             ===========         ===========         ===========         ===========
</TABLE>


<TABLE>
<CAPTION>
                                                                                       September 30, 1997
                                                             -----------------------------------------------------------------------
                                                                                       Gross Unrealized            
                                                               Amortized        --------------------------------          Estimated
                                                                 Cost              Gains                Losses            Fair Value
                                                             ---------------    ------------         -----------         -----------
<S>                                                          <C>                 <C>                 <C>                 <C>        
Available for Sale
Corporate stocks                                             $   701,000         $    29,750         $      --           $   730,750
                                                             ===========         ===========         ===========         ===========

Held to Maturity
U.S. Government (including agencies):
     After one through five years                            $22,090,000         $    65,521         $       300         $22,155,221
     After five through ten years                             26,975,436                --                45,156          26,930,280
     After ten years                                          20,344,667                 505             207,992          20,137,180
                                                             -----------         -----------         -----------         -----------

                                                             $69,410,103         $    66,026         $   253,448         $69,222,681
                                                             ===========         ===========         ===========         ===========
</TABLE>



                                       59
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


4.   INVESTMENT SECURITIES (Cont'd)

There were no sales of investment securities held to maturity during the years
ended September 30, 1998, 1997, and 1996. Proceeds from sales of investment
securities available for sale during the years ended September 30, 1998, 1997
and 1996 were $736,750, $7,890,781 and $7,028,594, respectively. Gross gains of
$36,750, $29,387 and $51,029, were realized on these sales. Provision for losses
of $14,940, representing permanent impairment in the value of common stock, was
charged to operations during the year ended September 30, 1996. At September 30,
1998 approximately $42,241,000 of investment securities held to maturity are
callable within one year and at periodic intervals thereafter.



5.   MORTGAGE-BACKED SECURITIES
<TABLE>
<CAPTION>
                                                                                           September 30, 1998
                                                               ---------------------------------------------------------------------
                                                                 Principal          Unamortized         Unearned           Amortized
                                                                  Balance             Premiums          Discounts            Cost
                                                               ------------        ------------       -----------        -----------
<S>                                                             <C>                <C>                <C>                <C>        
Available for Sale
Federal Home Loan Mortgage Corporation                          $10,402,921        $   133,784        $      --          $10,536,705
Federal National Mortgage Association                            10,145,905            110,146               --           10,256,051
                                                                -----------        -----------        -----------        -----------

                                                                $20,548,826        $   243,930        $      --          $20,792,756
                                                                ===========        ===========        ===========        ===========
Held to Maturity
Government National Mortgage Association                        $17,109,250        $   198,426        $    34,130        $17,273,546
Federal Home Loan Mortgage Corporation                            7,542,184             12,147             22,315          7,532,016
Federal National Mortgage Association                             1,774,626             18,087               --            1,792,713
Other pass-through                                                1,649,914               --                6,187          1,643,727
                                                                -----------        -----------        -----------        -----------

                                                                $28,075,974        $   228,660        $    62,632        $28,242,002
                                                                ===========        ===========        ===========        ===========
</TABLE>


<TABLE>
<CAPTION>
                                                                                         September 30, 1998
                                                               ---------------------------------------------------------------------
                                                                                         Gross Unrealized            
                                                                 Amortized        -------------------------------        Estimated
                                                                   Cost              Gains              Losses           Fair Value
                                                               ------------       ------------        -----------        -----------
<S>                                                            <C>                 <C>                <C>                <C>
Available for Sale
Federal Home Loan Mortgage Corporation                          $10,536,705        $      --          $    76,061        $10,460,644
Federal National Mortgage Association                            10,256,051               --               37,332         10,218,719
                                                                -----------        -----------        -----------        -----------

                                                                $20,792,756        $      --          $   113,393        $20,679,363
                                                                ===========        ===========        ===========        ===========

Held to Maturity
Government National Mortgage Association                        $17,273,546        $   304,112        $    83,543        $17,494,115
Federal Home Loan Mortgage Corporation                            7,532,016            144,192             26,935          7,649,273
Federal National Mortgage Association                             1,792,713              8,646              4,823          1,796,536
Other pass-through                                                1,643,727               --                1,650          1,642,077
                                                                -----------        -----------        -----------        -----------

                                                                $28,242,002        $   456,950        $   116,951        $28,582,001
                                                                ===========        ===========        ===========        ===========
</TABLE>

                                       60
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5.   MORTGAGE-BACKED SECURITIES (Cont'd)

<TABLE>
<CAPTION>
                                                                                           September 30, 1997
                                                               ---------------------------------------------------------------------
                                                                 Principal          Unamortized      Unearned           Amortized
                                                                  Balance             Premiums       Discounts            Cost
                                                               ------------        ------------     -----------        -----------
<S>                                                             <C>               <C>               <C>                <C>        
Available for Sale
Federal Home Loan Mortgage Corporation                          $ 4,406,263       $   15,835        $      --          $ 4,422,098
Federal National Mortgage Association                             4,787,656           13,465               --            4,801,121
                                                                -----------       -----------       -----------        -----------

                                                                $ 9,193,919       $   29,300        $      --          $ 9,223,219
                                                                ===========       ===========       ===========        ===========
Held to Maturity
Government National Mortgage Association                        $23,122,551       $  257,872        $   45,262         $23,335,161
Federal Home Loan Mortgage Corporation                           11,310,317           16,524            28,298          11,298,543
Federal National Mortgage Association                             1,973,407           14,530               --            1,987,937
Other pass-through                                                1,906,558             --               7,149           1,899,409
                                                                -----------       -----------       -----------       ------------

                                                                $38,312,833       $  288,926        $   80,709        $ 38,521,050
                                                                ===========       ===========       ===========       ============
</TABLE>


<TABLE>
<CAPTION>
                                                                                         September 30, 1997
                                                               ---------------------------------------------------------------------
                                                                                         Gross Unrealized            
                                                                 Amortized        -------------------------------        Estimated
                                                                   Cost              Gains              Losses           Fair Value
                                                               ------------       ------------        -----------        -----------
<S>                                                            <C>                 <C>                <C>                <C>
Available for Sale
Federal Home Loan Mortgage Corporation                          $ 4,422,098        $    87,448        $      --          $ 4,509,546
Federal National Mortgage Association                             4,801,121             46,381               --            4,847,502
                                                                -----------        -----------        -----------        -----------

                                                                $ 9,223,219        $   133,829        $      --          $ 9,357,048
                                                                ===========        ===========        ===========        ===========

Held to Maturity
Government National Mortgage Association                        $23,335,161        $   463,125        $    47,080        $23,751,206
Federal Home Loan Mortgage Corporation                           11,298,543            252,820             71,109         11,480,254
Federal National Mortgage Association                             1,987,937             14,767              4,986          1,997,718
Other pass-through                                                1,899,409               --                 --            1,899,409
                                                                -----------        -----------        -----------        -----------

                                                                $38,521,050        $   730,712        $   123,175        $39,128,587
                                                                ===========        ===========        ===========        ===========
</TABLE>


                                       61
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5.   MORTGAGE-BACKED SECURITIES (Cont'd)

The scheduled maturities of all mortgage-backed securities as of September 30,
1998 follows (in thousands):

                                                    Amortized       Estimated
                                                      Cost          Fair Value
                                                    ----------     ------------

     Within five years                               $ 6,451        $ 6,506
     After five through ten years                      2,521          2,506
     After ten years                                  40,063         40,249
                                                     -------        -------

                                                     $49,035        $49,261
                                                     =======        =======


Proceeds from sale of mortgage-backed securities available for sale during the
year ended September 30, 1998 were $3,797,846. Gross gains of $94,462 were
realized on these sales. There were no sale of mortgage-backed securities held
to maturity during the year ended September 30, 1998. There were no sales of
mortgage-backed securities available for sale or held to maturity during the
years ended September 30, 1997 and 1996.


                                       62
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.   LOANS RECEIVABLE

                                                           September 30,
                                                   -----------------------------
                                                       1998             1997
                                                   ------------     ------------
Real estate mortgages:
      One-to-four family                           $155,674,406     $126,440,274
      Equity and second mortgages                     2,492,492        2,637,065
      Multi-family                                   18,206,979       11,778,942
      Commercial                                     20,239,513       13,216,661
                                                   ------------     ------------

                                                    196,613,390      154,072,942

Construction                                            925,000          574,500
                                                   ------------     ------------

Consumer:
      Passbook or certificate                           241,625          176,307
      Home improvement                                    1,531            3,785
      Guaranteed student loans                          208,673          213,701
      Personal                                           18,600           23,637
                                                   ------------     ------------

                                                        470,429          417,430
                                                   ------------     ------------

Commercial, including lines of credit                    71,586           76,567
                                                   ------------     ------------

          Total loans                               198,080,405      155,141,439
                                                   ------------     ------------

Less: Loans in process                                  336,250          200,860
         Allowance for loan losses                    1,657,235        1,405,404
         Deferred loan fees and discounts                59,532          243,347
                                                   ------------     ------------

                                                      2,053,017        1,849,611
                                                   ------------     ------------

                                                   $196,027,388     $153,291,828
                                                   ============     ============



At September 30, 1998, 1997 and 1996, loans serviced by the Bank for the benefit
of others totalled approximately $6,498,000, $8,329,000 and $10,067,000,
respectively.

An analysis of the allowance for loan losses follows:

                                           Year Ended September 30,
                                  -------------------------------------------
                                      1998           1997            1996
                                  -----------    ------------    ------------

     Balance - beginning          $ 1,405,404     $ 1,573,338     $ 1,243,068
     Provision for loan losses        400,679         426,600         542,920
     Charge offs                     (179,198)       (601,674)       (212,650)
     Recoveries                        30,350           7,140            --
                                  -----------     -----------     -----------

     Balance - ending             $ 1,657,235     $ 1,405,404     $ 1,573,338
                                  ===========     ===========     ===========




                                       63
<PAGE>

                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6.   LOANS RECEIVABLE (Cont'd)

Non-accrual loans totalled approximately $3,520,000, $4,324,000 and $4,380,000
at September 30, 1998, 1997 and 1996, respectively. Interest income that would
have been recognized on loans for which the accrual of income has been
discontinued totalled approximately $284,000, $411,000 and $403,000 for the
years ended September 30, 1998, 1997 and 1996, respectively. Interest income on
these loans, which is recorded only when collected, amounted to approximately
$148,000, $149,000 and $160,000 for the years ended September 30, 1998, 1997 and
1996, respectively.

Impaired loans and related amounts recorded in the allowance for loan losses are
summarized as follows:

                                                      September 30.
                                               -------------------------
                                                  1998           1997
                                               ----------    -----------
     Recorded investment in impaired loans:
          With recorded allowance              $2,060,091    $2,510,632
          Without recorded allowance                 --            --
                                               ----------    ----------

          Total impaired loans                  2,060,091     2,510,632
     Related allowances for loan losses           426,000       225,125
                                               ----------    ----------

          Net impaired loans                   $1,634,091    $2,285,507
                                               ==========    ==========


For the years ended September 30, 1998, 1997 and 1996, interest income
recognized on impaired loans was $108,000, $79,000 and $31,000, respectively.
The average balance of impaired loans during the years ended September 30, 1998,
1997 and 1996 approximated $2,176,000, $2,315,000 and $933,000, respectively.

The following is a summary of loans to the directors and officers (and to any
associates of such persons) of the Company and its subsidiaries exclusive of
loans to any such persons which in the aggregate did not exceed $60,000:

                                              Year Ended September 30,
                                           -------------------------------
                                              1998                 1997
                                           -----------         -----------
     Balance - beginning                   $   678,772         $   395,523
     New loans                                 395,800             380,000
     Repayments                                (17,421)             (5,955)
     Loans removed                                --               (90,796)
                                           -----------         -----------

     Balance - ending                      $ 1,057,151         $   678,772
                                           ===========         ===========


                                       64
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7.   REAL ESTATE OWNED

Real estate owned is summarized as follows:

                                                      September 30,
                                                --------------------------
                                                   1998             1997
                                                ---------        ---------
Acquired by foreclosure                         $ 739,403        $ 471,417
                                                =========        =========

The following is an analysis of loss from real estate owned:

                                                Year Ended September 30,
                                             -------------------------------
                                               1998        1997       1996
                                             --------    --------   --------
Operational expenses, net of rental income   $ 53,059    $ 10,281   $ 50,540
(Gain) loss on sale                           (30,541)      5,542     33,583
                                             --------    --------   --------
Net loss                                     $ 22,518    $ 15,823   $ 84,123
                                             ========    ========   ========


8.   INVESTMENTS IN REAL ESTATE

                                                           September 30,
                                                   -----------------------------
                                                      1998               1997
                                                   ----------         ----------
Held for rental operations                         $  176,063         $  188,287
Held for development                                3,319,966          3,355,166
                                                   ----------         ----------
                                                   $3,496,029         $3,543,453
                                                   ==========         ==========

The Bank's wholly owned subsidiary has entered into a joint venture agreement
with a builder/developer and a financial institution to acquire land, design
projects and install site improvements thereon and engage in marketing
activities to sell the improved lots. Profits and losses are shared in
accordance with a partnership agreement.



                                       65
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.   INVESTMENTS IN REAL ESTATE (Cont'd)

The following represents the combined statements of financial condition, loss
and partners' capital of the joint ventures:

                        STATEMENTS OF FINANCIAL CONDITION

                                                             September 30,
                                                       -------------------------
Assets                                                    1998          1997
                                                       -----------   -----------
Cash                                                   $     2,183   $    11,418
                                                       -----------   -----------
Investments                                                134,393       134,085
                                                       -----------   -----------
Land and construction-in-progress:
     Land                                                7,210,900     7,210,900
     Construction-in-progress                            8,966,698     8,483,285
                                                       -----------   -----------
                                                        16,177,598    15,694,185
     Less allowances for inventory valuation             4,074,600     3,774,000
                                                       -----------   -----------
                                                        12,102,998    11,920,185
                                                       -----------   -----------
         Total assets                                  $12,239,574   $12,065,688
                                                       ===========   ===========

Liabilities and partners' capital

Liabilities

Loan payable to Bank's subsidiary                      $ 1,256,934   $ 1,256,934
Loan payable to other partner                            1,256,934     1,256,934
                                                       -----------   -----------
         Total loan payable                              2,513,868     2,513,868
                                                       -----------   -----------
Other liabilities                                        3,074,337     2,794,851
                                                       -----------   -----------
         Total liabilities                               5,588,205     5,308,719
                                                       -----------   -----------
Partners' capital

Bank subsidiary                                          2,188,726     2,223,926
Other partners                                           4,462,643     4,533,043
                                                       -----------   -----------
         Total partners' capital                         6,651,369     6,756,969
                                                       -----------   -----------
         Total liabilities and partners' capital       $12,239,574   $12,065,688
                                                       ===========   ===========



                                       66
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8.   INVESTMENTS IN REAL ESTATE (Cont'd)

                              STATEMENTS OF (LOSS)


                                                 Year Ended September 30,
                                          -------------------------------------
                                             1998          1997          1996
                                          ---------     ---------     ---------
Allowance for inventory valuation         $(300,600)    $(129,000)    $(894,000)
                                          ---------     ---------     ---------
Net (loss)                                $(300,600)    $(129,000)    $(894,000)
                                          =========     =========     =========


                         STATEMENTS OF PARTNERS' CAPITAL

<TABLE>
<CAPTION>
                                                Bank's
Partners' capital                            Subsidiaries          Others            Total
-----------------                            ------------          ------            -----
<S>                                           <C>               <C>               <C>        
Balance October 1, 1995                       $ 2,399,926       $ 6,085,043       $ 8,484,969
Capital contribution                               75,000           150,000           225,000
(Loss) for year ended September 30, 1996         (298,000)         (596,000)         (894,000)
                                              -----------       -----------       -----------
Balance September 30, 1996                      2,176,926         5,639,043         7,815,969
Capital contribution                               90,000           180,000           270,000
(Loss) for year ended September 30, 1997          (43,000)          (86,000)         (129,000)
Distribution of capital                              --          (1,200,000)       (1,200,000)
                                              -----------       -----------       -----------
Balance September 30, 1997                      2,223,926         4,533,043         6,756,969
Capital contribution                               65,000           130,000           195,000
(Loss) for year ended September 30, 1998         (100,200)         (200,400)         (300,600)
                                              -----------       -----------       -----------
Balance September 30, 1998                    $ 2,188,726       $ 4,462,643       $ 6,651,369
                                              ===========       ===========       ===========
</TABLE>


                                       67
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.   PREMISES AND EQUIPMENT

                                                              September 30,
                                                        ------------------------
                                                           1998          1997
                                                        ----------    ----------
Land                                                    $  220,000    $  220,000
Buildings and improvements                               2,177,218     2,161,668
Leasehold improvements                                   1,393,782     1,393,782
Furniture, fixtures and equipment                          915,676       845,167
                                                        ----------    ----------
                                                         4,706,676     4,620,617
Less accumulated depreciation and amortization           2,260,556     2,189,047
                                                        ----------    ----------
                                                        $2,446,120    $2,431,570
                                                        ==========    ==========


10.  ACCRUED INTEREST RECEIVABLE

                                                          September 30,
                                                   -----------------------------
                                                      1998               1997
                                                   ----------         ----------
Loans                                              $  929,028         $  693,958
Mortgage-backed securities                            357,398            314,088
Investment securities                                 756,853          1,240,532
                                                   ----------         ----------
                                                   $2,043,279         $2,248,578
                                                   ==========         ==========


11.  DEPOSITS

<TABLE>
<CAPTION>
                                                                 September 30,
                                 ------------------------------------------------------------------------------
                                                  1998                                    1997
                                 -------------------------------------    -------------------------------------
                                                              Weighted                                 Weighted
                                                               Average                                  Average
                                 Percent        Amount          Rate      Percent        Amount          Rate
                                 -------     ------------     --------    -------     ------------     --------
<S>                              <C>         <C>                 <C>      <C>         <C>                 <C>  
Non-interest-bearing demand        5.73      $ 13,064,996        0.00%      4.72      $ 10,088,755        0.00%
Interest-bearing demand            6.98        15,913,714        1.87%      7.22        15,399,555        2.17%
Savings and club                  33.43        76,267,570        2.13%     34.73        74,109,004        2.20%
Certificates of deposit           53.86       122,849,622        5.61%     53.33       113,796,968        5.80%
                                 ------      ------------                 ------      ------------        
     Total deposits              100.00      $228,095,902        3.86%    100.00      $213,394,282        4.01%
                                 ======      ============        ====     ======      ============        
</TABLE>


                                       68
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11.  DEPOSITS (Cont'd)

The following table presents certificates of deposit outstanding based upon
interest rate ranges:

                                                            September 30,
                                                     ---------------------------
                                                       1998               1997
                                                     --------           --------
                                                            (In Thousands)
Certificate accounts:
  3.00% to 3.99%                                     $  3,391           $     45
  4.00% to 4.99%                                       32,934             12,148
  5.00% to 5.99%                                       58,107             73,056
  6.00% to 6.99%                                       11,488             12,333
  7.00% to 7.99%                                       16,870             16,161
  8.00% to 8.99%                                           60                 54
                                                     --------           --------
                                                     $122,850           $113,797
                                                     ========           ========

The scheduled maturities of certificates of deposit were as follows:

                                                           September 30,
                                                   -----------------------------
                                                     1998                 1997
                                                   --------             --------
                                                           (In Thousands)
One year of less                                   $ 80,234             $ 73,200
One to two years                                     24,660               14,609
Two to three years                                   11,185               14,128
Thereafter                                            6,771               11,860
                                                   --------             --------
      Total                                        $122,850             $113,797
                                                   ========             ========

Certificates of deposit of $100,000 or more totalled approximately $14,122,000
and $11,516,000 at September 30, 1998 and 1997, respectively.

Interest expense on deposits consists of the following:

                                              Year Ended September 30,
                                      ------------------------------------------
                                         1998            1997            1996
                                      ----------      ----------      ----------
Demand                                $  324,437      $  359,612      $  439,309
Savings and clubs                      1,682,214       1,560,734       1,672,529
Certificates of deposit                6,926,424       6,182,463       5,480,885
                                      ----------      ----------      ----------
                                      $8,933,075      $8,102,809      $7,592,723
                                      ==========      ==========      ==========



                                       69
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.  ADVANCES FROM FEDERAL HOME LOAN BANK OF NEW YORK ("FHLB")


                                                             September 30,
                                                      --------------------------
                                   Interest Rate         1998            1997
                                   -------------      ----------      ----------
Notes maturing on:
     December 19, 1997                5.597%          $     --        $2,000,000
     December 28, 1998                5.670%           6,000,000       6,000,000
                                                      ----------      ----------
                                                      $6,000,000      $8,000,000
                                                      ==========      ==========

The Bank also has an available overnight line of credit with the FHLB, subject
to the terms and conditions of the lender's overnight advance program, in the
amount of $44,487,000 and $39,598,000 at September 30, 1998 and 1997,
respectively. Advances under this line of credit, which expires on December 23,
1998, are made for one-day periods. The advances were secured by stock of the
FHLB in the amount of $2,110,400 and $1,845,000 at September 30, 1998 and 1997,
respectively, and mortgage loans with an unpaid balance of $29,483,000 and
$34,254,000 at September 30, 1998 and 1997, respectively.


13.  SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

<TABLE>
<CAPTION>
                                                                      September 30,
                                                              -----------------------------
        Lender               Maturity        Interest Rate       1998              1997
----------------------   -----------------   -------------    -----------       -----------
<S>                      <C>                     <C>          <C>               <C>        
Federal Home Loan Bank   December 18, 2001       5.291%       $      --         $ 5,000,000
Federal Home Loan Bank   May 30, 2002            5.813%        10,000,000        10,000,000
Security broker dealer   August 19, 2002         5.620%        10,000,000        10,000,000
Federal Home Loan Bank   November 2, 2004        5.963%         5,000,000              --
Federal Home Loan Bank   December 19, 2004       5.930%         7,000,000              --
Federal Home Loan Bank   June 18, 2008           5.050%        10,000,000              --
                                                              -----------       -----------
                                                              $42,000,000       $25,000,000
                                                              ===========       ===========
</TABLE>

At September 30, 1998, the securities sold under agreements to repurchase are
all callable or will reprice within one year and at periodic intervals
thereafter.


                                       70
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13.  SECURITIES SOLD UNDER AGREEMENTS TO PURCHASE (Cont'd)

Information concerning borrowings collateralized by securities sold under
agreements to repurchase is summarized as follows:

<TABLE>
<CAPTION>
                                                               Year Ended September 30,
                                                          -----------------------------------
                                                           1998          1997          1996
                                                          -------       -------       -------
                                                                 (Dollars in Thousands)
<S>                                                       <C>           <C>           <C>    
Average balance during the year                           $34,033       $12,010       $ 8,228
Average interest rate during the year                        5.79%         5.53%         5.70%
Maximum month-end balance during the year                 $42,000       $25,000       $15,064
Investment and mortgage-backed securities underlying
  the agreement at year end:
    Carrying value                                        $45,961       $28,545       $15,150
    Estimated fair value                                  $45,844       $28,427       $14,520
</TABLE>


14.  TREASURY TAX AND LOAN ACCOUNT BORROWINGS

At September 30, 1998 and 1997, the Bank had borrowings from the Federal Reserve
Bank of New York under the Treasury Tax and Depository program in the amount of
$7,770,251 and $20,000,000, respectively, at an interest rate of 5.41% and
5.20%, respectively, per annum payable on demand. These borrowings are secured
by investment securities with a carrying value of $30,572,000 and $22,225,000
and fair value of $30,755,000 and $22,133,000, respectively.


15.  INCOME TAXES

The Bank qualifies as a Savings Institution under the provisions of the Internal
Revenue Code and was therefore permitted, prior to October 1, 1996, to deduct
from taxable income an allowance for bad debts based on the greater of; (1)
actual loan losses (the "experience method"); or (2) eight (8) percent of
taxable income before such bad debt deduction less certain adjustments (the
"percentage of taxable income method"). For the tax years 1996 and, 1995, the
Bank used the percentage of taxable income method.

On August 21, 1996, legislation was signed into law which repealed the
percentage of taxable income method for the federal income tax bad debt
deduction. The repeal is effective for the Bank's taxable year beginning after
September 30, 1996. In addition, the legislation requires the Company to include
in taxable income its bad debt reserves in excess of its base year reserves over
a six, seven, or eight year period depending upon the attainment of certain loan
origination levels. Since the percentage of taxable income method for the
Federal tax bad debt deduction and the corresponding increase in the Federal tax
bad debt reserve in excess of the base year have been recorded as temporary
differences pursuant to SFAS 109, this change in the tax law does not have a
material adverse effect on the Company's consolidated statement of income. The
New York State and New York City tax laws have been amended to prevent a similar
recapture of the Bank's bad debt reserve, and to permit continued future use of
the bad debt reserve methods, for purposes of determining New York State and New
York City tax liabilities.



                                       71
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


15.  INCOME TAXES (Cont'd)

Retained earnings at September 30, 1998 include approximately $3,127,000 related
to bad debt deductions for federal income tax purposes for which income taxes
have not been provided. If such amount is used for purposes other than bad debt
losses, including distributions in liquidation, it will be subject to income tax
at the then current rates.

The components of income taxes are summarized as follows:

                                             Year Ended September 30,
                                     ------------------------------------------
                                        1998           1997            1996
                                     -----------    -----------     -----------
Current tax expense:
  Federal income                     $ 1,373,767    $ 1,164,599     $ 1,186,475
  State and city income                  600,232        509,672         576,919
                                     -----------    -----------     -----------
                                       1,973,999      1,674,271       1,763,394
                                     -----------    -----------     -----------

Deferred tax expense (benefit):
  Federal income                          57,934        178,353        (609,709)
  State and city income                   84,212         76,853        (478,458)
                                     -----------    -----------     -----------
                                         142,146        255,206      (1,088,167)
                                     -----------    -----------     -----------
                                     $ 2,116,145    $ 1,929,477     $   675,227
                                     ===========    ===========     ===========

The following table presents a reconciliation between reported income taxes and
the income taxes which would be computed by applying the federal statutory rate
of 34% to income before income taxes:

<TABLE>
<CAPTION>
                                                               Year Ended September 30,
                                                       -----------------------------------------
                                                           1998           1997           1996
                                                       -----------    -----------    -----------
<S>                                                    <C>            <C>            <C>        
Federal income taxes                                   $ 1,739,810    $ 1,507,662    $   621,558
Increase (reduction) of income taxes resulting from:
  New York state and city taxes,
    net of federal income tax effect                       451,733        387,106         79,010
  Cost of ESOP and RRP                                      15,381        (21,605)       (14,835)
  Other                                                    (90,779)        56,314        (10,506)
                                                       -----------    -----------    -----------
                                                       $ 2,116,145    $ 1,929,477    $   675,227
                                                       ===========    ===========    ===========
</TABLE>

At September 30, 1998 and 1997, refundable income taxes of $366,453 and
$217,953, respectively are included in other assets.



                                       72
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


15.  INCOME TAXES (Cont'd)

The tax effects of existing temporary differences that give rise to significant
portions of the deferred income tax assets and deferred income tax liabilities
are as follows:

<TABLE>
<CAPTION>
                                                                    September 30,
                                                             --------------------------
Deferred income tax assets                                      1998            1997
--------------------------                                   ----------      ----------
<S>                                                          <C>             <C>       
Uncollected interest                                         $   78,808      $  279,421
Allowance for loss on loans
 in excess of tax bad debt deductions                           629,530         470,815
Deferred loan fees                                               58,467          66,147
Accrued pension and benefits                                    109,697         126,280
Deferred compensation                                            72,523         186,796
Depreciation                                                    189,274         131,594
ESOP and RRP cost                                                44,822          98,524
Unrealized loss on investments available for sale               167,170            --
                                                             ----------      ----------
                                                              1,350,291       1,359,577
                                                             ----------      ----------
Deferred income tax liabilities
-------------------------------
Deferred premiums and discounts                                  11,190          11,588
Deferred loss on investments in real estate                      67,989         116,693
Unrealized gain on securities available for sale                   --            71,975
State and city taxes                                             82,451          67,659
                                                             ----------      ----------
                                                                161,630         267,915
                                                             ----------      ----------
Net deferred income tax assets included in other assets      $1,188,661      $1,091,662
                                                             ==========      ==========
</TABLE>


16.  REGULATORY CAPITAL

The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the Bank.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of Total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier 1 capital to assets (as defined).



                                       73
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


16.  REGULATORY CAPITAL (Cont'd)

The following tables present a reconciliation of capital per generally accepted
accounting principles ("GAAP") and regulatory capital and information as to the
Bank's capital levels at September 30, 1998 (in thousands):


GAAP capital                                                           $ 25,958
Add unrealized loss on securities available for sale                        217
Less goodwill and other intangibles                                        (109)
Less investment in "non-includable"
  subsidiaries                                                           (3,320)
                                                                       --------
Core and tangible capital                                                22,746
Add general valuation allowance                                           1,211
                                                                       --------
Regulatory capital                                                     $ 23,957
                                                                       ========

<TABLE>
<CAPTION>
                                                                                   To Be Well Captialized
                                                           Minimum Capital        Under Prompt Corrective
                                        Actual              Requirements             Action Provisions
                                   ----------------       -----------------         ------------------- 
                                    Amount    Ratio        Amount     Ratio         Amount        Ratio
                                   -------    -----       --------    -----         -------       ----- 
                                                       (Dollars in Thousands)
<S>                                <C>        <C>         <C>         <C>           <C>           <C>   
Total Capital                      $23,957    17.34%      $ 11,054    8.00%         $13,818       10.00%
 (to risk-weighted assets)

Tier 1 Capital                     $22,746    16.46%          --        --          $ 8,291        6.00%
 (to risk-weighted assets)

Core (Tier1) Capital
 (to adjusted total assets)        $22,746     7.25%      $ 12,555    4.00%         $15,693        5.00%

Tangible Capital
 (to adjusted total assets)        $22,746     7.25%      $  4,708    1.50%            --            --
</TABLE>

As of June 30, 1998, the most recent notification from the OTS, the Bank was
categorized as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain
minimum total, risk-based and Tier I leverage ratios of 10%, 6% an 5%,
respectively. There are no conditions existing or events which have occurred
since notification that management believes have changed the institution's
category.

The dividend payments to the Company by the Bank are subject to the
profitability of the Bank and applicable regulations. On October 30, 1997, the
Bank paid a dividend of $1,881,000 to the Company.



                                       74
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


17.  BENEFIT PLANS

Pension Plan

The Bank has a non-contributory defined benefit pension plan covering all
eligible employees. The benefits are based upon each employee's years of
service. The Bank's policy is to fund the plan with annual contributions equal
to the maximum amount deductible for federal income tax purposes.

The following table sets forth the plan's funded status:

<TABLE>
<CAPTION>
                                                                     September 30,
                                                              --------------------------
                                                                  1998           1997
                                                              -----------    -----------
<S>                                                           <C>            <C>        
Actuarial present value of benefit obligation, including
 vested benefits of $2,606,121 and $2,170,928, respectively   $ 2,683,465    $ 2,183,045
                                                              ===========    ===========

Projected benefit obligation                                   (2,953,686)   $(2,634,154)
Plan assets at fair value                                       3,006,807      2,518,311
                                                              -----------    -----------
Plan assets at fair value in excess of (less than)
 projected plan obligation                                         53,121       (115,843)
Unrecognized (gain)                                              (489,923)      (423,050)
Unrecognized net transition obligation at
 October 1, 1988 being amortized over fifteen years               143,325        170,625
Unrecognized prior service cost at
 October 1, 1989 being amortized over 11.1 years                   60,230        111,212
                                                              -----------    -----------
(Accrued) pension cost included in other liabilities          $  (233,247)   $  (257,056)
                                                              ===========    ===========
</TABLE>

Net periodic pension cost included the following components:

<TABLE>
<CAPTION>
                                                     Year Ended September 30,
                                               -------------------------------------
                                                 1998          1997          1996
                                               ---------     ---------     ---------
<S>                                            <C>           <C>           <C>      
Service cost                                   $  86,991     $  88,225     $  87,457
Interest cost                                    199,801       173,867       169,729
Actual return on plan assets                    (601,202)     (285,480)     (217,332)
Net amortization and deferral                    290,601       141,159       115,821
                                               ---------     ---------     ---------
Net periodic pension (benefit) cost
 included in salaries and employee benefits    $ (23,809)    $ 117,771     $ 155,675
                                               =========     =========     =========
</TABLE>

Assumptions used in accounting for the plan are as follows:

                                                    Year Ended September 30,
                                                -------------------------------
                                                  1998        1997        1996
                                                -------     -------     -------
Discount rate                                      7.75%       7.75%       7.50%
Rate of increase in compensation                   5.50%       5.50%       5.50%
Long-term rate of return on plan assets            8.00%       8.00%       8.00%


                                       75
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


17.  BENEFIT PLANS (Cont'd)

Savings Incentive Plan

The Bank has a savings incentive plan, pursuant to Section 401(K) of the
Internal Revenue Code, for all eligible employees of the Bank. Employees may
elect to save from 1% to 15% of their eligible compensation, of which the Bank
will match the lesser of 25% of the employees' contribution or 1% of the
employees' compensation. The Bank may make a special elective employer
contribution in addition to its matching contribution. Total savings incentive
plan expense for the years ended September 30, 1998, 1997 and 1996 was
approximately $17,000, $14,000 and $14,000, respectively.


18.  STOCK BENEFIT PLANS

ESOP

Effective upon conversion, an ESOP was established for all eligible employees.
The ESOP used $1,529,500 of proceeds from a term loan from the Company to
purchase 152,950 shares of Company common stock in the initial offering. The
term loan from the Company to the ESOP was payable initially over seven annual
installments commencing on December 31, 1994. Interest on the term loan is
payable annually, commencing on December 31, 1994, at a rate of 7.75 percent per
annum. Each year, the Bank intends to make discretionary contributions to the
ESOP which will be equal to principal and interest payments required from the
ESOP on the term loan less any dividends received by the ESOP on unallocated
shares. Shares purchased with the loan proceeds were initially pledged as
collateral for the term loan and are held in a suspense account for future
allocation among participants. Contributions to the ESOP and shares released
from the suspense account will be allocated among the participants on the basis
of compensation, as described by the Plan, in the year of allocation. During the
years ended September 30, 1998 and 1997, the Bank made cash contributions of
$287,347 and $232,066, respectively, to the ESOP, of which $197,523 and
$133,520, respectively, were applied to the principal. Effective January 1,
1995, the terms of the term loan were renegotiated between the Company and the
ESOP and the remaining term to maturity was extended from six to nine years. At
September 30, 1998 and 1997, the loan had an outstanding balance of $935,440 and
$1,132,963, respectively.

The ESOP is accounted for in accordance with SOP 93-6 "Accounting for Employee
Stock Ownership Plans", which was issued by the AICPA in November 1994.
Accordingly, the ESOP shares pledged as collateral are reported as unearned ESOP
shares in the consolidated statements of financial condition. As shares are
committed to be released from collateral, the Company reports compensation
expense equal to the current market price of the shares, and the shares become
outstanding for net income per common share computations. Dividends on allocated
ESOP shares are recorded as a reduction of retained earnings. Contributions
equivalent to dividends on unallocated ESOP shares are recorded as a reduction
of debt. ESOP compensation expenses were $442,797, $278,923 and $217,561 for the
years ended September 30, 1998, 1997, and 1996, respectively.



                                       76
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


18.  STOCK BENEFIT PLANS (Cont'd)

ESOP (Cont'd)

The ESOP shares are summarized as follows:

                                                           September 30,
                                                    ----------------------------
                                                       1998              1997
                                                    ----------        ----------
Allocated shares                                        59,506            39,653
Shares to be released                                    8,473            12,140
Unreleased shares                                       84,971           101,157
                                                    ----------        ----------
Total ESOP shares                                      152,950           152,950
                                                    ==========        ==========
Fair value of unreleased shares                     $2,814,664        $2,276,033
                                                    ==========        ==========

RRP

On January 26, 1995, the Bank established a RRP to provide both key employees
and outside directors of the Bank with a proprietary interest in the company in
a manner designed to encourage such persons to remain with the Bank. The Bank
contributed $681,331 from available liquid assets to the RRP to enable the trust
to acquire 65,550 shares of the Company's common stock in open market
transactions.

Under the RRP, awards are granted in the form of common stock held by the RRP
trust. The awards vest over a period of time not more than five years commencing
one year from the date of award. The awards become fully vested upon termination
of employment due to death, disability or normal retirement. The awards to
officers, employees and outside directors become fully vested upon a change in
control of the Bank or the Company. During the year ended September 30, 1995,
54,407 shares were awarded to employees and officers and 3,500 shares were
awarded to outside directors. During the year ended September 30, 1996, 6,964
shares were awarded to employees and officers and 13,547 shares were forfeited.
During the year ended September 30, 1997, 1,089 shares were awarded to outside
directors, 19,429 shares were awarded to employees and officers and 6,292 shares
were forfeited. During the year ended September 30, 1998, 963 shares to
employees were forfeited.

The Company recorded compensation expense for the RRP of $37,067, $136,266 and
$136,266 for the years ended September 30, 1998, 1997 and 1996, respectively.

Stock Option Plan

The Company has adopted an Incentive Stock Option Plan ("ISO Plan") authorizing
the grant of stock options and limited rights equal to 152,950 shares of common
stock to officers and employees of the Bank or the Company. Options granted
under the ISO Plan may be either options that qualify as incentive stock options
as defined in section 422 of the Internal Revenue Code of 1986, as amended, or
non-statutory options. Options will be exercisable on a cumulative basis in
equal installments at the rate of 20% per year commencing one year from the date
of grant. All options granted will be exercisable in the event the optionee
terminates employment due to death, disability or normal retirement or in the
event of a change in control of the Bank or the Company. The options expire ten
years from the date of the grant. Simultaneously with the grant of options, the
Company granted "limited rights" with respect to the shares covered by the
options, which enables the optionee, upon a change of control of the Bank or the
Company, to elect to receive cash for each option granted, equal to the
difference between the exercise price of the option and the fair market value of
the common stock on the date of exercise.



                                       77
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


18.  STOCK BENEFIT PLANS (Cont'd)

Stock Option Plan (Cont'd)

The Company adopted a stock option plan for outside directors (the "Option
Plan") authorizing the grant of non-statutory stock options equal to 65,550
shares of common stock to outside directors of the Bank and/or the Company.
Options granted will be exercisable on a cumulative basis in equal installments
at the rate of 20% per year commencing one year from the date the individual
began serving as outside director, including service prior to adoption of the
Plan. All options granted under the Option Plan expire upon the earlier of ten
years following the date of grant or one year following the date the optionee
ceases to be a Director for any reason other than removal for cause. If a
director is removed for cause, all options awarded to him shall expire upon such
removal. Upon the death or disability of the participant, all options previously
granted would automatically be exercisable.

Activity for the stock option plans is as follows:

                                                                        Weighted
                                                                        Average
                                             Option        Option       Exercise
                                 ISO Plan     Plan     Price Per Share    Price
                                 --------   -------    ---------------    -----
Options reserved                  152,950    65,550
                                  =======   =======
Balance at September 30, 1995      86,970    43,700        $9.44          $9.44

Granted                              --       5,000        13.50          13.50
Exercised                            --     (10,925)        9.44           9.44
Cancelled                         (19,534)     --           9.44           9.44
                                  -------   -------
Balance at September 30, 1996      67,436    37,775     9.44 to 13.50      9.63

Granted                            63,000    16,850    14.25 to 18.00     17.33
Exercised                          (8,609)     --           9.44           9.44
Cancelled                         (10,096)     --           9.44           9.44
                                  -------   -------
Balance at September 30, 1997     111,731    54,625     9.44 to 18.00     13.35

Granted                            10,000      --          26.00          26.00
Exercised                          (3,932)     --           9.44           9.44
Cancelled                          (2,624)     --           9.44           9.44
                                  -------   -------
Balance at September 30, 1998     115,175    54,625     9.44 to 26.00     14.24
                                  =======   =======
Shares execisable at
  September 30, 1998               37,905    47,625     9.44 to 18.00     11.84
                                  =======   =======



                                       78
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


18.  STOCK BENEFIT PLANS (Cont'd.)

Stock Option Plan (Cont'd)

Had compensation cost for the Company's stock benefit plans been determined
consistent with SFAS 123 for awards made after September 30, 1995, estimating
fair values on the date of grant using the Black- Scholes option pricing model
with the following assumptions, the Company's net income and net income per
common share would have been reduced to the pro forma amounts reflected below:

<TABLE>
<CAPTION>
                                                           Year Ended September 30,
                                                  -----------------------------------------
                                                    1998            1997            1996
                                                  ---------       ---------       ---------
                                                            (Dollars in Thousands,
                                                          except for per share data)
<S>                                               <C>             <C>             <C>      
Net income:
  As reported                                     $   3,001       $   2,505       $   1,153
  Pro forma                                       $   2,964       $   2,488       $   1,152
Net income per common share:
  As reported:
    Basic                                         $    1.86       $    1.54       $    0.66
    Diluted                                       $    1.77       $    1.50       $    0.65
  Pro forma:
    Basic                                         $    1.84       $    1.53       $    0.66
    Diluted                                       $    1.75       $    1.49       $    0.65


Weighted average fair value at date of grant      $    5.55       $    3.77       $    3.04
Dividend yield                                         1.92%           2.32%           1.48%
Expected volatility                                   16.73%          17.48%          17.48%
Risk free interest rate                                5.64%           6.19%           5.28%
Expected lives of options (in years)                      5               5               5
</TABLE>


19.  LEGISLATIVE MATTER

On September 30, 1996, legislation was enacted which, among other things,
imposed a special one-time assessment on Savings Association Insurance Fund
("SAIF") member institutions, including the Bank, to recapitalize the SAIF and
spread the obligation for payment of Financial Corporation ("FICO") bonds across
all SAIF and Bank Insurance Fund ("BIF") members. The special assessment levied
amounted to 65.7 basis points on SAIF assessable deposits held as of March 31,
1995. The Bank took a charge of $1,115,198 as a result of the special assessment
during the year ended September 30, 1996. This legislation eliminated the
substantial disparity between the amount that BIF and SAIF members had been
paying for deposit insurance premiums.



                                       79
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


19.  LEGISLATIVE MATTER (Cont'd.)

Currently, the FDIC has estimated that, in addition to normal deposit insurance
premiums, BIF members will pay a portion of the FICO payment equal to 1.3 basis
points on BIF-insured deposits compared to 6.4 basis points by SAIF members on
SAIF-insured deposits. All institutions will pay a pro-rata share of the FICO
payment on the earlier of January 1, 2000 or the date upon which the last
savings association ceases to exist. The legislation also requires BIF and SAIF
to be merged by January 1, 1999, provided that legislation is adopted to
eliminate the savings association charter and no savings associations remain as
of the time.

The FDIC has lowered SAIF assessments to a range comparable to that of BIF
members. However, SAIF members will continue to make the higher FICO payments as
described above. Management cannot predict the precise level of FDIC insurance
assessments on an ongoing basis or whether BIF and SAIF will eventually be
merged.


20.  COMMITMENTS AND CONTINGENCIES

The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments primarily include commitments to extend credit and purchase
securities. The commitments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the consolidated
statements of financial condition. The Bank's exposure to credit loss in the
event of non-performance by the other party to the financial instrument for
commitments to extend credit is represented by the contractual notional amount
of those instruments. The Bank uses the same credit policies in making
commitments as it does for on-balance sheet instruments.

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 without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation of
the counterparty. Collateral held varies but primarily includes residential real
estate.

The Bank has the following outstanding commitments to originate conventional
mortgage loans. All commitments expire within three months.

                                                          September 30,
                                                 -------------------------------
                                                    1998                 1997
                                                 ----------           ----------
Conventional mortgages                           $7,983,000           $8,565,000
                                                 ==========           ==========

At September 30, 1998, of the $7,983,000 in outstanding commitments to originate
loans, $6,675,000 are at fixed rates ranging from 6.38% to 9.50% and $1,308,000
are at adjustable rates with initial rates ranging from 6.00% to 8.25%.



                                       80
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


20.  COMMITMENTS AND CONTINGENCIES (Cont'd.)

Rentals under long-term operating leases for certain branch offices amounted to
approximately $188,000, $178,000 and $144,000 for the years ended September 30,
1998, 1997 and 1996, respectively. At September 30, 1998, the minimum rental
commitments under all non-cancelable leases with initial or remaining terms of
more than one year and expiring through August 31, 2005 are as follows:

               Year Ending                            Minimum
              September 30,                            Rent
              -------------                          --------
                  1999                               $190,000
                  2000                                139,000
                  2001                                102,000
                  2002                                 48,000
                  2003                                 48,000
               Thereafter                             101,000
                                                     --------
                                                     $628,000
                                                     ========

The Bank also has, in the normal course of business, commitments for services
and supplies. Management does not anticipate losses on any of these
transactions.

The Company and its subsidiaries, in the conduct of their business, are involved
in normal litigation matters. In the opinion of management, the ultimate
disposition of such litigation should not have a material adverse effect on the
consolidated financial position or results of operations of the Company and
Subsidiaries.


21.  FAIR VALUES OF FINANCIAL INSTRUMENTS

The carrying amounts and fair values of the corporation's financial instruments
are as follows:

<TABLE>
<CAPTION>
                                                                                 September 30,
                                                              --------------------------------------------------
                                                                       1998                       1997
                                                              ----------------------      ----------------------
                                                              Carrying        Fair        Carrying        Fair
Financial assets                                                Value         Value         Value         Value
                                                              --------      --------      --------      --------
                                                                                (In Thousands)
<S>                                                           <C>           <C>           <C>           <C>     
Cash and cash equivalents                                     $  7,376      $  7,376      $ 13,388      $ 13,388
Investment securities, including available for sale             52,488        52,883        70,141        69,953
Mortgage-backed securities, including available for sale        48,921        49,261        47,878        48,486
Loans receivable                                               196,027       202,422       153,292       156,083
Accrued interest receivable                                      2,043         2,043         2,249         2,249

Financial liabilities

Deposits                                                       228,096       229,984       213,394       214,103
Advances and other borrowings                                   55,770        56,578        53,000        51,452

Commitments

To originate loans                                               7,983         7,983         8,565         8,565
</TABLE>


                                       81
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


21.  FAIR VALUES OF FINANCIAL INSTRUMENTS (Cont'd.)

The fair value estimates are made at a discrete point in time based on relevant
market information and information about the financial instruments. Fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and, therefore, cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates. Further, the foregoing estimates may not reflect the actual
amount that could be realized if all or substantially all of the financial
instruments were offered for sale.

In addition, the fair value estimates were based on existing on-and-off balance
sheet financial instruments without attempting to value the anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets and liabilities that are not
considered financial assets and liabilities include premises and equipment and
advances from borrowers for taxes and insurance. In addition, the tax
ramifications related to the realization of the unrealized gains and losses can
have a significant effect on fair value estimates and have not been considered
in any of the estimates.

Finally, reasonable comparability between financial institutions may not be
likely due to the wide range of permitted valuation techniques and numerous
estimates which must be made given the absence of the active secondary markets
for many of the financial instruments. This lack of uniform valuation
methodologies introduces a greater degree of subjectivity to these estimated
fair values.



                                       82
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


22.  PARENT ONLY FINANCIAL INFORMATION

Financial Bancorp, Inc. operates two wholly owned subsidiaries, Financial
Federal Savings Bank and 842 Manhattan Avenue Corp. The earnings of the
subsidiaries are recognized by the holding company using the equity method of
accounting. Accordingly, earnings of the subsidiaries are recorded as increases
in the Company's investment in the subsidiary. The following are the condensed
financial statements for Financial Bancorp, Inc. (Parent company only) as of
September 30, 1998 and 1997 and for the three-year period ended September 30,
1998.

                   CONDENSED STATEMENTS OF FINANCIAL CONDITION


                                                             September 30,
                                                      --------------------------
Assets                                                    1998           1997
                                                      -----------    -----------
Cash and amounts due from depository institution      $   579,752    $   396,357
Investment securities available for sale                  706,750           --
Accrued interest receivable                                76,427         65,853
ESOP loan receivable                                      935,440      1,132,963
Investment in Financial Federal Savings Bank           25,958,635     24,717,432
Investment in 842 Manhattan Avenue Corp.                  297,936        264,590
Other assets                                              620,351        319,595
                                                      -----------    -----------
     Total assets                                     $29,175,291    $26,896,790
                                                      ===========    ===========
Liabilities and stockholders' equity
Other liabilities                                     $      --      $    40,556
Stockholders' equity                                   29,175,291     26,856,234
                                                      -----------    -----------
     Total liabilities and stockholders' equity       $29,175,291    $26,896,790
                                                      ===========    ===========



                                       83
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


22.  PARENT ONLY FINANCIAL INFORMATION (Cont'd)

                         CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                  Year Ended September 30,
                                         -------------------------------------------
                                             1998            1997            1996
                                         -----------     -----------     -----------
<S>                                      <C>             <C>             <C>        
Interest income                          $    99,397     $    90,849     $   112,031
Equity in earning of the subsidiaries      2,983,831       2,583,008       1,211,457
                                         -----------     -----------     -----------

                                           3,083,228       2,673,857       1,323,488
Expenses                                     128,295         226,680         201,401
                                         -----------     -----------     -----------

Income before income taxes                 2,954,933       2,447,177       1,122,087
Income tax (benefit)                         (46,011)        (57,646)        (30,798)
                                         -----------     -----------     -----------

Net income                               $ 3,000,944     $ 2,504,823     $ 1,152,885
                                         ===========     ===========     ===========
</TABLE>



                                       84
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


22.  PARENT ONLY FINANCIAL INFORMATION (Cont'd)

                       CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                        Year Ended September 30,
                                                              -------------------------------------------
                                                                  1998            1997            1996
                                                              -----------     -----------     -----------
<S>                                                           <C>             <C>             <C>        
Cash flows from operating activities:
  Net income                                                  $ 3,000,944     $ 2,504,823     $ 1,152,885
  Adjustments to reconcile net income
   to net cash used in operating activities:
     Equity in undistributed earnings of the subsidiaries      (1,102,831)     (2,583,008)     (1,211,457)
     (Increase) decrease in accrued interest receivable           (10,574)          9,205          11,126
     (Increase) decrease in other assets                         (303,726)         82,214        (315,105)
     (Decrease) increase  in other liabilities                    (40,556)          1,196          39,360
                                                              -----------     -----------     -----------
       Net cash provided by (used in) operating activities      1,543,257          14,430        (323,191)
                                                              -----------     -----------     -----------

Cash flows from investing activities:
  Decrease in ESOP loan receivable                                197,523         133,520         190,184
  Capital contribution to 842 Manhattan Avenue Corp.                 --              --          (236,000)
  Purchase of investment securities available for sale           (700,000)           --              --
                                                              -----------     -----------     -----------
       Net cash (used in) provided by investing activities       (502,477)        133,520         (45,816)
                                                              -----------     -----------     -----------
Cash flows from financing activities:
  Acquisition of treasury stock                                  (129,375)     (1,412,789)     (2,522,444)
  Payment of dividends on common stock                           (765,128)       (611,548)       (478,742)
  Treasury stock reissued for stock options                        37,118          81,269         103,132
                                                              -----------     -----------     -----------
       Net cash (used in) financing activities                   (857,385)     (1,943,068)     (2,898,054)
                                                              -----------     -----------     -----------
Net increase (decrease) in cash and cash equivalents              183,395      (1,795,118)     (3,267,061)
Cash and cash equivalents - beginning                             396,357       2,191,475       5,458,536
                                                              -----------     -----------     -----------
Cash and cash equivalents - ending                            $   579,752     $   396,357     $ 2,191,475
                                                              ===========     ===========     ===========
</TABLE>



                                       85
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


23.  QUARTERLY FINANCIAL DATA (UNAUDITED)


<TABLE>
<CAPTION>
                                            First      Second       Third       Fourth
Year Ended September 30, 1998              Quarter     Quarter     Quarter     Quarter
-----------------------------              ------      ------      ------      ------
                                              (In thousands, except per share data)
<S>                                        <C>         <C>         <C>         <C>   
Interest income                            $5,318      $5,395      $5,568      $5,684
Interest expense                            2,802       2,970       2,962       3,056
                                           ------      ------      ------      ------
     Net interest income                    2,516       2,425       2,606       2,628

Provision for loan losses                     110          85         118          88
Non-interest income                           183         325         314         135
Non-interest expenses                       1,355       1,353       1,566       1,340
Income taxes                                  534         575         457         550
                                           ------      ------      ------      ------
Net income                                 $  700      $  737      $  779      $  785
                                           ======      ======      ======      ======
Earnings per commons share:
   Basic                                   $ 0.43      $ 0.46      $ 0.48      $ 0.49
   Diluted                                 $ 0.42      $ 0.44      $ 0.46      $ 0.45
                                           ======      ======      ======      ======

<CAPTION>
                                           First      Second       Third       Fourth
Year Ended September 30, 1997              Quarter     Quarter     Quarter     Quarter
-----------------------------              ------      ------      ------      ------
                                              (In thousands, except per share data)
<S>                                        <C>         <C>         <C>         <C>   
Interest income                            $4,912      $4,809      $5,070      $5,281
Interest expense                            2,458       2,330       2,527       2,714
                                           ------      ------      ------      ------
     Net interest income                    2,454       2,479       2,543       2,567

Provision for loan losses                     100          96         111         120
Non-interest income                           140         171         175         197
Non-interest expenses                       1,384       1,659       1,446       1,376
Income taxes                                  517         315         500         597
                                           ------      ------      ------      ------
Net income                                 $  593      $  580      $  661      $  671
                                           ======      ======      ======      ======
Earnings per common share:
   Basic                                   $ 0.36      $ 0.35      $ 0.41      $ 0.42
   Diluted                                 $ 0.35      $ 0.35      $ 0.40      $ 0.40
                                           ======      ======      ======      ======
</TABLE>



                                       86
<PAGE>


                             FINANCIAL BANCORP, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


24.  MERGER WITH DIME COMMUNITY BANCHARES, INC.

On July 18, 1998, the Company entered into a definitive merger agreement with
Dime Community Bancshares, Inc. ("Dime Community"), pursuant to which the
Company will be merged with and into Dime Community. Immediately following the
consummation of the merger, Financial Federal Savings Bank, a subsidiary of the
Company, will merge with and into Dime Community Savings Bank of Williamsburgh,
a wholly owned subsidiary of Dime Community.

Under the terms of the agreement, holders of the Company common stock will
receive cash or shares of Dime Community common stock pursuant to an election,
proration and allocation procedure subject to holders of 50% of the Company's
shares receiving cash and 50% receiving stock. The number of shares of stock any
Company stockholder receives will be determined based upon an exchange ratio
designed to produce a value of $40.50 per share when Dime Community stock has a
market value, during a pricing period specified in the agreement, of between
$22.95 and $31.05. The maximum exchange ratio is 1.7647 and the minimum exchange
ratio is 1.3043. To the extent that the market value of Dime Community common
stock during the pricing period exceeds $31.05 or is less than $22.95, the per
share value of the consideration to be received by the Company stockholders in
the merger, whether in cash or stock, will increase or decrease, respectively.

The Company granted Dime Community an irrevocable option to purchase up to
339,627 shares of common stock at a purchase price equal to $32.00 per share. In
no event shall the number of option shares exercised exceed 19.9% of the issued
and outstanding shares of the Company. The Dime Community may exercise the
option, in whole or in part, at anytime and from time to time, following the
occurrence of purchase events, as defined, which occur prior to termination. The
option shall terminate at the earlier of the effective time of merger or other
events specified in the agreement. Purchase events include issuance, sale or
other disposition by the Company of securities representing 20% or more voting
power of the Company or any of its significant subsidiaries. Deferred merger
costs in the amount of $488,000 are included in other assets at September 30,
1998.


                                       87
<PAGE>


ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE

     Not Applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following  table sets forth, as of September 30, 1998, the names of the
directors,  their ages, a brief description of their recent business experience,
including  present  occupations and employment,  certain  directorships  held by
each,  the year in which each became a  director,  the year in which their terms
(or in the case of the  nominees,  their  proposed  terms)  as  director  of the
Company  expire.  The table also sets  forth the amount of Common  Stock and the
percent  thereof  beneficially  owned by each and all  directors  and  executive
officers as a group as of the Record Date.




                                       88
<PAGE>


<TABLE>
<CAPTION>
                                                                                            Shares of
Name and Principal                                                        Expiration       Common Stock
Occupation at Present                                        Director     of Term as       Beneficially      Percent of
and for Past Five Years                             Age      Since(1)      Director          Owned(2)          Class
-----------------------                             ---      --------      --------          --------          -----
<S>                                                  <C>       <C>           <C>              <C>               <C>  
DIRECTORS                                           
Peter S. Russo                                       52        1987          2000             53,760(4)         3.12%
  Chairman of the Board.  Managing                  
  partner in Trio Realty Co. and Quad               
  Realty Co., owner of various retail and           
  commercial properties.  President of Ven-         
  Rea Corp., a photo retailer.                      

Dominick L. Segrete                                  58        1974          2001             69,262(4)          4.03
  President and Chief Executive Officer of          
  Tucci, Segrete and Rosen Consultants Inc.,        
  an architectural design firm.                     

Frank S. Latawiec                                    63        1996          2001             30,956(3)(6)       1.80
  President and Chief Executive Officer of          
  the Company and the Bank since August             
  6, 1996.  Prior to that,  Vice President          
  for LCM  Marketing, Inc., a financial services    
  company, and Senior Vice President for            
  Hamilton Federal Savings, F.A.                    

Richard J. Hickey                                    60        1988          1999             22,354(4)          1.30
  Partner in the firm of Girardi & Hickey,          
  certified public accountants.  Prior to that,     
  Mr. Hickey was a partner in the firm of           
  Girardi, Hickey and Napolitano, certified         
  public accountants.                               

Raymond M. Calamari                                  67        1996          1999              8,000(5)          0.47
  Business Consultant, self-employed.               
  Office Manager for LCM Marketing, Inc.,           
  a financial services company. Prior to            
  that, Vice President for Marketing for            
  H.T.C. Inc., an industrial products               
  company, and President and Chief                  
  Executive Officer of D.A.V. Corp., an             
  industrial products fabricator.                   
</TABLE>



                                       89
<PAGE>



<TABLE>
<CAPTION>
                                                                                            Shares of
Name and Principal                                                        Expiration       Common Stock
Occupation at Present                                        Director     of Term as       Beneficially      Percent of
and for Past Five Years                             Age      Since(1)      Director          Owned(2)          Class
-----------------------                             ---      --------      --------          --------          -----
<S>                                                  <C>       <C>           <C>              <C>               <C>  
NAMED EXECUTIVE OFFICERS
  WHO ARE NOT DIRECTORS
P. James O'Gorman                                    39        --            --                40,518(3)(6)      2.36%
  Executive Vice President, Chief Financial
  Officer and Treasurer of the Company
  and the Bank since March 1997.

STOCK OWNERSHIP OF ALL                               --        --            --                250,194(6)(7)    14.07
  DIRECTORS AND EXECUTIVE
  OFFICERS AS A GROUP
   (9 PERSONS)
</TABLE>

----------
(1)  Includes years of service as a director of the Company's  predecessor,  the
     Bank.

(2)  Each  person  effectively  exercises  sole (or shares  with spouse or other
     immediate family member) voting or dispositive  power as to shares reported
     herein (except as noted).

(3)  Includes 3,002,  4,002 and 2,001 unvested shares held by Mr. Latawiec under
     Part I,  Part II and  Part  III,  respectively,  of the  Financial  Federal
     Savings Bank  Recognition  and  Retention  Plan ("RRP")  which will vest in
     equal annual  installments until September 24, 2001,  February 18, 2002 and
     June 17,  2002,  respectively.  Includes  3,117,  2,801 and 1,613  unvested
     shares  held  by  Mr.  O'Gorman  under  Part  I,  Part  II  and  Part  III,
     respectively, of the RRP which will vest in equal annual installments until
     January 26, 2000, February 18, 2002 and June 17, 2002, respectively.

(4)  Includes  10,925,  16,850 and 16,850 shares  subject to options held by Mr.
     Segrete,  Mr.  Russo and Mr.  Hickey,  respectively,  under  the  Financial
     Bancorp,  Inc.  1995 Stock Option Plan for Outside  Directors  ("Directors'
     Option Plan"), which are currently exercisable.

(5)  Includes  1,000 and 1,000 shares  subject to options  held by Mr.  Calamari
     under the Directors'  Option Plan, which became  exercisable on October 22,
     1997 and October 22,  1998,  respectively.  Does not include the  remaining
     3,000  shares  subject  to  options  granted  to  Mr.  Calamari  under  the
     Directors'  Option  Plan,  which  will  continue  to vest in  equal  annual
     installment on October 22, 1999, 2000 and 2001, respectively.

(6)  Includes  4,590,  3,200 and 1,200  shares  subject to  options  held by Mr.
     O'Gorman under Part I, Part II and Part III, respectively, of the Incentive
     Stock Option Plan  ("Incentive  Option Plan") which became  exercisable  in
     equal annual  installments on January 26, 1996,  February 18, 1998 and June
     17, 1998,  respectively.  Does not include the remaining 3,058,  12,800 and
     4,800 shares subject to option granted to Mr.  O'Gorman under the Incentive
     Option Plan which will continue to vest in equal annual  installments until
     January  26,  2000,  February  18,  2002 and June 17,  2002,  respectively.
     Includes  3,000,  4,800 and 1,800  shares  subject to  options  held by Mr.
     Latawiec  under  the  Directors'  Option  Plan and  Part II and  Part  III,
     respectively,  of the Incentive Stock Option Plan which became  exercisable
     in equal annual installments beginning December 21, 1996, February 18, 1998
     and June 17, 1998. Does not include 2,000,  19,200 and 7,200 shares subject
     to options  granted to Mr.  Latawiec  under the  Directors'  and  Incentive
     Option Plan which will continue to vest in equal annual  installments until
     December 21, 2000, February 18, 2002 and June 17, 2002, respectively.

(7)  Includes 49,625 shares which may be acquired  through the exercise of stock
     options  granted  under the  Directors'  Option  Plan,  19,937  shares with
     respect  to all  executive  officers  which  may be  acquired  through  the
     exercise of stock options under the Incentive Stock Option Plan, and 23,568
     unvested shares awarded to executive officers under the RRP.




                                       90
<PAGE>


Executive Officers Who Are Not Directors

     The following  table sets forth  certain  information  regarding  executive
officers of the Company, at September 30, 1998, who are not also directors.


           Name         Age           Position Held
--------------------------------------------------------------------------------

P. James O'Gorman        39     Executive Vice President, Chief Financial 
                                Officer and Treasurer

Robert E. Adamec         55     Senior Vice President and Corporate Secretary

Valerie M. Swaya         32     Vice President and Chief Administrative Officer

Dennis Hodne             52     Senior Vice President, Retail Operations

     P. James O'Gorman. Mr. O'Gorman joined the Bank in 1990 as Controller,  and
in March 1991 was promoted to Treasurer of the Bank. From November 1993 to March
1994,  Mr.  O'Gorman  served as Vice  President  and Treasurer of the Bank until
March 1994, when Mr.  O'Gorman was named Senior Vice President,  Chief Financial
Officer and  Treasurer of the Bank,  and in March 1997 was promoted to Executive
Vice President. Mr. O'Gorman is a Certified Public Accountant.

     Robert E. Adamec.  Mr.  Adamec has been  employed  with the Bank since July
1990.  From October 1990 to November  1993,  he served as Vice  President of the
Bank.  In November  1993,  Mr.  Adamec was elected  Senior  Vice  President  and
Corporate Secretary of the Bank.

     Valerie M. Swaya.  Ms.  Swaya has been  employed by the Bank since  October
1994. In January 1995, Ms. Swaya was named Vice  President,  Investor  Relations
and  Compliance.  In March 1997, Ms. Swaya was promoted to Chief  Administrative
Officer.  Prior to October  1994,  Ms.  Swaya was an Examiner  for the Office of
Thrift Supervision.

     Dennis  Hodne.  Mr. Hodne has been employed by the Bank since April 1998 as
Senior Vice President.  Prior to April 1998, Mr. Hodne was Senior Vice President
and Branch  Administrator at Home Federal Savings Bank and Senior Vice President
of Hamilton Federal Savings and Loan Association from 1992 to 1994.

ITEM 11. EXECUTIVE COMPENSATION

Directors' Fees

     Directors of the Company do not receive any fees or retainer for serving on
the Company's Board of Directors. For the 1998 fiscal year, outside directors of
the Bank  received an annual  retainer of $35,000 and the  Chairman  received an
annual retainer of $25,000,  All fees are paid to outside directors on a monthly
basis.  Directors  of  the  Bank  receive  no  fee  or  other  compensation  for
participation on committees of the Board. Directors who are also officers of the
Bank or the  Company  receive no fee or other  compensation  for their  Board or
Committee participation.  In addition,  commencing in January 1998, Mr. Calamari
receives $500 per month for  building/property  inspections  for potential  loan
originations of mixed-use, multi-family and commercial real estate loans.

Outside Directors' Consultation and Retirement Plan.

     The Bank  maintains  the  Financial  Federal  Savings and Loan  Association
Outside Directors'  Consultation and Retirement Plan (the "Directors' Retirement
Plan") to provide  benefits to outside  directors and to ensure their  continued
service  and  assistance  in the  conduct of the Bank's  business in the future.
Directors who currently are not officers or

                                       91
<PAGE>



employees of the Bank  ("Outside  Directors"),  have served as a director for at
least seven years and who,  within thirty days of  retirement,  agree to provide
consulting  services to the Bank are eligible,  upon  retirement,  to receive an
annual benefit,  based on the Outside  Director's annual retainer fee determined
at the date of termination, equal to the lesser of ten (10) years or one half of
the number of months of such  participant's  credited  service.  The  Directors'
Retirement Plan provides that, in the event of a change in control of either the
Company or the Bank, any requirement for the performance of consulting  services
is waived,  and the compensation  that would have been payable to each currently
serving,  eligible  outside director in the event of his retirement will be paid
in a single lump sum without  discount for early  payment.  Consummation  of the
Merger  with Dime  Bancshares  will result in a change in control of the Company
and the Bank for purposes of the Directors'  Retirement Plan. Assuming a closing
date of February 1, 1999,  the following lump sum amounts would be payable as of
the Effective Time to the following current directors:  Mr. Russo, $195,417; Mr.
Segrete, $250,000; and Mr. Hickey, $129,167.

Outside Directors' Option Plan.

     The  Company   maintains  the  Stock  Option  Plan  for  Outside  Directors
("Directors'  Option Plan") for all directors who are not also  employees of the
Company or the Bank.  The  Directors'  Option Plan  authorizes  the  granting of
non-statutory  options for a total of 65,550  shares of Common  Stock to certain
members of the Board of Directors of the Company.  Directors who were serving as
directors  on both the date of the  Company's  initial  public  offering and the
effective  date of the  Directors'  Option Plan and who were not also serving as
employees of the Company or any of its affiliates are eligible to participate in
the Directors' Option Plan. Each member of the Board of Directors who was not an
officer of the Bank or the  Company  received  options  to  purchase a number of
shares of Common Stock,  depending upon length of Board service,  at an exercise
price of 100% of the Fair Market Value of the Common Stock of the Company on the
date of grant. Each outside director with years of service in excess of five (5)
years was  granted  non-statutory  options to purchase  10,925  shares of Common
Stock.  Each  outside  director  with less than  five (5) years of  service  was
granted  non-statutory options to purchase 5,000 shares of Common Stock. Options
granted  after  September  24,  1996  under the  Directors  Option  Plan  become
exercisable in the amount of twenty  percent (20%) per year  commencing one year
from the date of grant.  In addition,  options  granted in December  1995 to Mr.
Latawiec  under the Directors  Option Plan became  exercisable  in the amount of
twenty percent (20%) per year commencing one year from the date of grant.

Recognition and Retention Plan for Outside Directors.

     The  Company  maintains  the  Recognition  and  Retention  Plan for Outside
Directors ("RRP") which grants awards to directors who are not also employees of
the Company or the Bank.  The RRP  authorizes  the granting of plan share awards
("Plan Share Awards") in the form of up to 65,550 shares of Common Stock.  Under
Part  II of the  RRP,  outside  directors  serving  in such  capacity  as of the
effective  date of the RRP were  awarded  Plan Share Awards based upon length of
Board service.  Each outside  director with years of service in excess of twenty
(20) years was granted an award of 1,500  shares of Common  Stock.  Each outside
director  with  between ten (10) and twenty (20) years of service was granted an
award of 1,000 shares of Common Stock.  Each outside  director with between five
(5) and ten (10) years of service  was  granted an award of 500 shares of Common
Stock. Plan Share Awards are  nontransferable  and nonassignable.  Recipients of
the Plan Share  Awards will earn (i.e.,  become  vested in) the shares of Common
Stock  covered by the Plan Share Awards over a period of time.  At September 30,
1997,  all Plan Share Awards  granted to Outside  Directors to date were vested.
Plan Share  Awards to  subsequent  Outside  Directors  shall vest at the rate of
twenty percent (20%) annually commencing one year from the date of grant.

     Pursuant to the terms of the FIBC Option  Plans and the  Financial  Federal
Savings Bank Recognition and Retention Plan (together,  the "FIBC Stock Plans"),
upon  consummation of the Merger,  each FIBC Option will become fully vested and
exercisable  and each  award of  restricted  shares of FIBC  Common  Stock  will
immediately  vest. As of October 30, 1998,  the executive  officers of FIBC held
FIBC Options at the indicated  weighted  average  exercise price:  Mr. Latawiec,
38,000 shares at $17.17  (29,400 of which are currently  unvested);  Mr. Adamec,
7,244 shares at $11.53 (3,697 of which are currently  unvested);  Mr.  O'Gorman,
29,648 shares at $15.59 (20,658 of which are currently unvested); and Ms. Swaya,
4,000 shares at $17.00 (3,200 of which are currently unvested). As of such date,
such

                                       92
<PAGE>


executive  officers held shares of restricted  stock, as follows:  Mr. Latawiec,
9,003 shares;  Mr. Adamec,  2,671 shares;  Mr. O'Gorman,  7,531 shares;  and Ms.
Swaya,  4,361  shares.  As of October 30, 1998,  the directors of FIBC held FIBC
Options at the indicated  weighted average  exercise price: Mr. Calamari,  5,000
shares at $14.25; Mr. Hickey,  16,850 shares at $12.10; Mr. Russo, 16,850 shares
at $12.10; and Mr. Segrete, 10,925 shares at $9.44.

Executive Compensation

     The report of the Compensation  Committee and the stock  performance  graph
shall  not  be  deemed  incorporated  by  reference  by  any  general  statement
incorporating  by  reference  this proxy  statement  into any  filing  under the
Securities Act of 1933, as amended (the  "Securities  Act") or the Exchange Act,
except  as to  the  extent  that  the  Company  specifically  incorporates  this
information  by  reference,  and shall not  otherwise be deemed filed under such
Acts.

     Compensation  Committee  Report  on  Executive  Compensation.  Under  rules
established by the Securities and Exchange  Commission  ("SEC"),  the Company is
required to provide certain data and  information in regard to the  compensation
and  benefits  provided  to the  Company's  Chief  Executive  Officer  and other
executive  officers of the Company.  The disclosure  requirements  for the Chief
Executive  Officer and other executive  officers include the use of tables and a
report  explaining  the rationale  and  considerations  that led to  fundamental
compensation  decisions  affecting  those  individuals.  In  fulfillment of this
requirement,  the executive  compensation committee of the Bank at the direction
of the Board of Directors  has prepared the  following  report for  inclusion in
this proxy statement.

     This report is  submitted  by the  Compensation  Committee of the Boards of
Directors of the Company and Bank (the "Compensation  Committee") and summarizes
its involvement in the compensation decisions,  policies and programs adopted by
the Bank and Company  for  executive  officers,  including  the Chief  Executive
Officer ("CEO"), during the fiscal year ended September 30, 1998. The members of
the Compensation Committee include Messrs. Hickey (Chairman), Segrete, Russo and
Calamari, all of whom are outside directors.

     General Policy.  The stated purpose of the  Compensation  Committee and its
corresponding  practices  are  designed  to reward and  provide  incentives  for
executives,  based upon the Company's financial performance and the individual's
performance. One of the primary objectives of the executive compensation program
is to retain  skilled and motivated  executive  officers,  along with  promoting
growth and  profitability for the Company.  Compensation  levels are established
subsequent  to  a  review  of  certain  quantitative  and  qualitative  factors,
including,   but  not  limited  to,  financial  performance,   the  individual's
commitment, leadership and level of responsibilities.

     The Compensation  Committee is responsible for conducting  periodic reviews
of  compensation  for executive  officers,  including the CEO. The  Compensation
Committee  determines salary levels for executive  officers,  other officers and
employees,  and short-term cash incentive awards, if and as deemed  appropriate,
in addition to grants under the Bank and Company's stock-based benefit plans.

     Components of  Compensation.  In  evaluating  executive  compensation,  the
Compensation Committee reviews and analyzes three fundamental components,  which
include salary,  short-term  incentive awards (performance awards) and long-term
incentive compensation,  which includes, but is not limited to, grants under the
Company's stock-based benefit plans.

     Salary.  Salary  levels  for  executive  officers  and other  officers  are
reviewed by the  Compensation  Committee on an annual basis.  Evaluations of the
executive  officers and their specific cash  compensation  levels are based upon
the  Company's  financial  performance  for the said fiscal year, in addition to
certain  discretionary  criteria;  however,  no  specific  formula  was  used to
determine annual cash  compensation  levels or performance  awards for executive
officers,  although the Company's financial performance was a major factor which
determined  compensation  levels.  Salary levels are designed to be commensurate
with the individual's  responsibilities,  experience and marketplace conditions.
In making such determination, the Compensation Committee reviewed the "1998 Bank
Executive  and  Director  Compensation  Survey"  published  by  Sheshunoff.  The
institutions  reviewed  by the  compensation  committee  in the  survey  are not
necessarily  comprised of the same group of institutions  used in the peer group
of the Stock Performance


                                       93
<PAGE>


Graph. For purposes of determining  compensation,  the Bank generally  considers
its peer group to consist of thrift institutions and banks with deposits between
$250  million and $500  million,  operating  in the  Mid-Atlantic  region,  with
particular emphasis on the New York City Metropolitan Area.

     Short-term  Incentive  Compensation  (Performance  Awards).  The  Board  of
Directors adopted, as part of its Executive  Compensation  Policy, a program for
quarterly incentive performance awards.  Historically,  the short-term incentive
component of executive  compensation  has been granted  based upon the Company's
annual  profitability.  The short-term  incentive awards are in the form of cash
distributions  or stock-based  benefit awards to executives based upon financial
performance,  as well as  individual  achievements.  The  financial  performance
component consists of certain factors,  including,  but not limited to, earnings
per share,  return on average assets and return on average equity.  Although the
Compensation   Committee   analyzes  these  individual   factors,   no  specific
mathematical  weightings of these factors are used to calculate the  performance
awards.  However, the Compensation Committee makes these performance measures as
quantitative and objective as possible.

     The  Compensation  Committee  has  the  authority  and  discretion  to make
adjustments to the short-term  incentive plan as deemed prudent and appropriate.
The  Compensation  Committee  determined  that short-term  incentive  awards for
executive   officers  be  determined  and  distributed  on  a  quarterly  basis,
subsequent to a review of the Company's quarterly financial results. The CEO and
the other  executive  officers  were  granted  cash  incentive  awards for three
quarters of fiscal 1998.

     Long-term  Incentive  Compensation.  The long-term  incentive  compensation
portion of the Bank and Company's compensation program consists of the ESOP, the
RRP and the Incentive  Option Plan.  After the Company's first Annual Meeting of
Shareholders  held on January 26, 1995, the Committee  granted stock options and
restricted  stock awards  during fiscal 1995,  1996 and 1997,  which vest over a
five year period.  These stock-based  benefit plans are designed as an incentive
for the executive officers and key employees of the Bank to encourage and retain
longer-term   performance,   and  to  align  the  financial  interests  of  such
individuals with those of the Company's shareholders.

     All stock options granted under the Incentive  Option Plan have an exercise
price equal to the fair market  value of the common  stock on the date of grant.
Under the RRP,  the  awards are  granted in the form of shares of the  Company's
Common  Stock,  which  are  held in trust  until  the  share  award  vests.  The
Compensation  Committee may grant awards at its discretion under the plan at any
time. Although there is no specific formula, the factors utilized in determining
an  individual's  eligibility in the plans are  commensurate  with the executive
officer's position, responsibilities and contributions to the Company.

     Compensation of the Chief Executive  Officer.  In assessing the appropriate
level of compensation for the CEO, the Compensation  Committee reviews corporate
performance,  individual  performance,  and a published compensation survey. For
fiscal 1998, the CEO's annual base salary was $120,016.

     The  Compensation  Committee  recognizes  the  CEO's  contributions  to the
Company's  operations  and  attempts  to ensure that the CEO's  compensation  is
commensurate with the Company's peer group.  Subsequent to a review of the "1998
Bank Executive and Director  Compensation  Survey" published by Sheshunoff,  the
Compensation  Committee  determined that the CEO's cash  compensation is in line
with the average disclosed in the compensation survey.

     Although  certain  quantitative  and  qualitative  factors were reviewed to
determine  the CEO's  compensation,  no  specific  formula  was  utilized in the
Compensation  Committee's decisions nor did the Committee set a specified salary
level based upon the corporate performance.



                                       94
<PAGE>



                           The Compensation Committee

                          Richard J. Hickey (Chairman)
                                 Peter S. Russo
                               Dominick L. Segrete
                               Raymond M. Calamari



                                       95
<PAGE>


     Stock  Performance  Graph.  The following graph shows a comparison of total
shareholder  return on the Company's Common Stock,  based on the market price of
the Common  Stock with the  cumulative  total  return of companies in The Nasdaq
Stock  Market  and The  Nasdaq  Stock  Market  Bank  Stock  Index for the period
beginning on August 17, 1994, the day the Company's  Common Stock began trading,
through  September 30, 1998. The data was supplied by the Center for Research in
Security Prices ("CRSP").

             Comparison of Total Returns of Financial Bancorp, Inc.
                   Nasdaq Market Index and Nasdaq Bank Stocks

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



                                     Summary

<TABLE>
<CAPTION>
                             8/17/94     9/30/94      9/29/95     9/30/96      9/30/97      9/30/98
                             -------     -------      -------     -------      -------      -------
<S>                           <C>         <C>          <C>         <C>          <C>          <C>  
Financial Bancorp, Inc.       100.0        92.2        127.3       142.5        211.4        315.5
Nasdaq Market Index           100.0       102.9        142.1       168.6        231.4        236.5
Nasdaq Bank Stocks Index      100.0        98.6        124.3       158.6        264.3        262.3
</TABLE>

Notes:

A.   The lines  represent  annual index levels  derived  from  compounded  daily
     returns that include all dividends.

B.   The indexes are reweighted  daily,  using the market  capitalization on the
     previous trading day.

C.   If the monthly interval, based on the fiscal year-end is not a trading day,
     the preceding trading day is used.

D.   The index level for all series was set to $100.00 on 8/17/94.




                                       96
<PAGE>


     Summary  Compensation Table. The following table shows, for the years ended
September 30, 1998,  1997 and 1996, the cash  compensation  paid by the Bank, as
well as certain  other  compensation  paid or accrued for those  years,  to each
person serving as chief executive  officer during fiscal year 1998 and executive
officers of the Company and the Bank who received  salary and bonus in excess of
$100,000 in fiscal year 1998 ("Named  Executive  Officers").  No other executive
officer  of the  Company  and the Bank  received  salary  and bonus in excess of
$100,000 in fiscal year 1998. The Company does not pay any cash compensation.

<TABLE>
<CAPTION>
                                                  Annual Compensation                 Long-Term Compensation
                                         -------------------------------------  -----------------------------------
                                                                                          Awards            Payouts
                                                                                --------------------------  -------
                                                                                               Securities
                                                                  Other Annual   Restricted    Underlying    LTIP             
        Name and                          Salary       Bonus      Compensation  Stock Awards  Options/SARs  Payouts    All Other
    Principal Office             Year     ($)(1)        ($)          ($)(2)        ($)(3)        (#)(4)       (5)    Compensation
    ----------------             ----    --------    --------     ------------  ------------  ------------  -------  ------------
<S>                              <C>     <C>         <C>            <C>           <C>            <C>         <C>     <C>     
Frank S. Latawiec ............   1998    $120,016    $ 75,000(8)    $    --       $     --       5,000(9)    None    $     --
  President and Chief            1997     120,016      51,500            --        130,313      33,000       None          --
  Executive Officer of           1996      17,541          --            --         76,250          --       None      10,500(6)
  the Company and the
  Bank

P. James O'Gorman ............   1998    $ 83,980    $ 64,000(8)    $    --       $     --          --       None    $ 58,466(7)
  Executive Vice                 1997      83,980      31,000            --         97,693      22,000       None      27,405
  President, Chief               1996      79,307       6,000            --             --          --       None      12,677
  Financial Officer of the
 Company and the Bank
</TABLE>

(1)  Salary  includes  compensation  deferred  at  the  election  of  the  Named
     Executive Officers through the Bank's 401(k) Plan.

(2)  There were no (a)  perquisites  over the lesser of $50,000 or 10% of either
     of the Named  Executive  Officer's total salary and bonus for the year; (b)
     payments of above-market  preferential  earnings on deferred  compensation;
     (c) payments of earnings with respect to long-term incentive plans prior to
     settlement  or  maturation;   (d)  tax  payment   reimbursements;   or  (e)
     preferential discounts on stock.

(3)  Mr. Latawiec and Mr. O'Gorman held an aggregate of 9,005 and 7,531 unvested
     shares of Common Stock, respectively,  pursuant to the RRP. Unvested awards
     to Mr.  Latawiec and Mr.  O'Gorman  will vest in equal annual  installments
     from the  respective  dates of their grants.  When shares become vested and
     are  distributed,  the  recipient  will also  receive  an  amount  equal to
     accumulated  dividends  and  earnings  thereon  (if any).  All awards  vest
     immediately  upon  termination  of employment  due to death,  disability or
     change in control.  As of September 30, 1998, the market value of the 9,005
     unvested  shares held by Mr.  Latawiec was $298,291 and the market value of
     the 7,531 unvested shares held by Mr. O'Gorman was $249,464.

(4)  Includes options awarded under the Incentive Option Plan. To the extent not
     already exercisable,  the options become exercisable upon death, disability
     or a change in control. See "Incentive Stock Option Plan."

(5)  For fiscal years 1998,  1997 and 1996, the Bank had no long-term  incentive
     plans in  existence,  and  therefore  made no payouts or awards  under such
     plans.

(6)  Represents directors' fees paid to Mr. Latawiec during fiscal 1996 prior to
     his  appointment as President and Chief  Executive  Officer of the Bank and
     the Company.

(7)  Represents  shares of Common Stock granted pursuant to the ESOP. For fiscal
     year 1998, Mr. O'Gorman was allocated 1,765 shares of Common Stock.  Dollar
     amounts  reflect  market  value  $58,466  as  of  September  30,  1998.  No
     discretionary contributions were made to the 401(k) for fiscal 1998.

(8)  Bonuses are earned on a fiscal year basis and are paid quarterly. A portion
     of the fiscal year 1998 bonus was paid during the first  fiscal  quarter of
     1999.  Mr.  Latawiec and Mr.  O'Gorman  were  awarded  $75,000 and $64,000,
     respectively, in short-term incentive awards.

(9)  Includes  options  awarded under the Directors  Incentive Stock Option Plan
     during the time Mr. Latawiec served as an outside director.

                                       97
<PAGE>


     Employment/Salary and Benefit Continuation  Agreements.  FIBC has in effect
Employment  Agreements  with each of Messrs.  Adamec and O'Gorman which provide,
among other things,  for severance and other benefits to be paid in the event of
a qualifying termination of the executive's employment with FIBC during the term
of the Employment Agreement and following a change in control (as defined in the
Employment Agreements). In addition to cash severance payments, the executive is
entitled under his Employment Agreement to continued  welfare-type  benefits for
the 36-month period following the date of such termination of employment, and to
receive  benefits  due to him or  contributed  on his behalf to any  retirement,
incentive,  profit  sharing,  bonus,  performance  disability or other  employee
benefit plan maintained by FIBC or Financial Federal on the executive's  behalf.
In  connection  with the  Merger,  Dime  Bancshares  has  entered  into a letter
agreement with each of Messrs.  Adamec and O'Gorman whereby such executives will
receive on the Closing Date in full  settlement of their rights to severance pay
under the  Employment  Agreement  a lump sum in cash equal to,  for Mr.  Adamec,
$319,958;  and Mr. O'Gorman,  $462,747 (each executive will still be entitled to
continued welfare-type benefits as described above).  Consummation of the Merger
will constitute a change in control for purposes of the Employment Agreements.

     FIBC has in effect Salary Continuation Agreements with each of Mr. Latawiec
and Ms. Swaya which  provide for salary  continuation  and other  benefits to be
paid in the event of a change in control (as defined in the Salary  Continuation
Agreements).  In addition to salary  continuation  payments,  the  executive  is
entitled   under  his  or  her  Salary   Continuation   Agreement  to  continued
welfare-type  benefits for the two-year period following the date of such change
in control.  Each Salary  Continuation  Agreement  provides  that the  aggregate
benefits to be received by the executive under such agreement will be reduced in
order  to avoid  any  portion  of such  benefits  being  treated  as an  "excess
parachute  payment"  (within  the  meaning  of  Section  280G of the  Code).  In
connection  with the Merger,  Dime  Bancshares and each of Mr.  Latawiec and Ms.
Swaya have entered into a letter agreement  whereby such executives will receive
in full  settlement of their rights to salary  continuation  payments  under the
Employment  Agreement  the lesser of (i) the  maximum  amount  which may be paid
without any portion of such amount being treated as an excess parachute  payment
and (ii) a lump sum in cash equal to, for Mr.  Latawiec,  $240,032;  and for Ms.
Swaya, $130,416 (each executive will still be entitled to continued welfare-type
benefits as described above). The Merger will constitute a change in control for
purposes of the Salary Continuation Agreements.

     In exchange for the receipt of severance or salary  continuation  payments,
as  applicable,  on the Closing  Date,  each  executive  has agreed to execute a
general  release  of  FIBC,  Financial  Federal,  Dime  Bancshares  and  Dime of
Williamsburgh  from any claims which the  executive has or may have with respect
to the  Employment  Agreement or Salary  Continuation  Agreement,  as applicable
(except for claims with respect to continued welfare benefits).

     Incentive  Stock Option Plan.  The Company  maintains the  Incentive  Stock
Option Plan, which provides  discretionary  awards to officers and key employees
as determined by a committee of disinterested directors who administer the plan.
No stock appreciation rights were granted to the Named Executive Officers during
fiscal year 1998.


                                       98
<PAGE>


     The following table provides certain information with respect to the number
of shares of Common Stock  represented by outstanding  options held by the Named
Executive  Officers as of September  30, 1998.  Also  reported are the value for
"in-the-money"  options which represent the positive spread between the exercise
price of any such existing  stock  options and the year-end  price of the Common
Stock.


                        FISCAL YEAR END OPTION/SAR VALUES

<TABLE>
<CAPTION>
                                            Securities Underlying Number           Value of Unexercised In-the-
                                            of Unexercised Options/SARs               Money Options/SARs at
                                               at Fiscal Year End (#)                  Fiscal Year End ($)
                                         ----------------------------------    ------------------------------------

                                          Exercisable       Unexercisable        Exercisable        Unexercisable
                                         --------------    ----------------    ---------------    -----------------
<S>                                          <C>                <C>                <C>                <C>        
Frank S. Latawiec....................        9,600              28,400             $160,500           $445,750(1)
P. James O'Gorman....................        8,990              20,658              176,464            343,429(2)
</TABLE>

----------
(1)  Market value of underlying  securities  at fiscal year end ($33.125)  minus
     the exercise or base price ($13.50, $18.00 and $17.00) per share for 2,000,
     19,200 and 7,200 shares subject to options, respectively.

(2)  Market value of underlying  securities  at fiscal year end ($33.125)  minus
     the exercise or base price ($9.44,  $18.00 and $17.00) per share for 3,058,
     12,800 and 4,800 shares subject to options, respectively.

     Retirement Plan. The Bank maintains the Financial  Federal Savings and Loan
Association  Retirement  Income Plan  ("Retirement  Plan"),  a  non-contributory
defined  benefit plan.  The  following  table  indicates  the annual  retirement
benefit that would be payable  under the plan upon  retirement  at age 65, or at
age 60 with 30 years of  service,  to a  participant  electing  to  receive  his
retirement  benefit in the standard form of benefit,  assuming various specified
levels of plan compensation and various specified years of credited service. The
benefits listed in the retirement  benefit table are based upon salary and bonus
and are subject to any Social Security amounts.

                            AS OF SEPTEMBER 30, 1998
                                RETIREMENT AGE 65
                                -----------------

                                     Years of Credited Service
               -----------------------------------------------------------------
    Average                                                                     
    Annual                                                                      
 Compensation      15            20           25            30           35
-------------- -----------   -----------   ----------   ----------   -----------
   $ 25,000      $  5,625      $  7,500     $  9,375      $11,250     $  13,125
     50,000        12,665        16,887       21,109       25,331        29,553
     75,000        20,166        26,887       33,609       40,331        47,053
    100,000        27,665        36,887       46,109       55,331        64,553
    150,000        42,665        56,887       71,109       85,331        99,553
    160,000        45,665        60,887       76,109       91,331       106,553

The maximum annual  compensation on which retirement  benefits may be calculated
under Section 401(a)(17) of the Internal Revenue Code is limited to $160,000.


                                       99
<PAGE>


     The following table sets forth the years of credited service (i.e., benefit
service) as of September 30, 1998 for each executive officer.


                                               Credited Service
                                 --------------------------------------------
Name                                  Years                      Months
                                 ---------------            -----------------
Frank S. Latawiec                       2                           1
P. James O'Gorman                       7                          11
Robert E. Adamec                        8                           2
Valerie M. Swaya                        3                          11
Dennis Hodne                            0                           5


Management of Dime Bancshares after the Merger

     The Merger  Agreement  provides that, at the Effective  Time, the directors
and officers of Dime  Bancshares  will consist of the  directors and officers of
Dime  Bancshares  immediately  prior to the  Effective  Time.  The directors and
officers of Dime of Williamsburgh  following the Bank Merger will consist of the
directors  and  officers  of  Dime of  Williamsburgh  immediately  prior  to the
Effective Time.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information relating to security ownership of certain beneficial owners
and management is incorporated  herein by reference to Part III, Item 10 of this
Annual Report on Form 10-K.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions With Certain Related Persons

     The Bank's current  policy  provides that all loans made by the Bank to its
directors  and  officers  are made on  substantially  the same terms,  including
interest rates and  collateral,  as those  prevailing at the time for comparable
transactions  with other persons and do not involve more than the normal risk of
collectibility or present other unfavorable  features.  Prior to the FIRREA, the
Bank made loans to officers with discounted  interest rates and loan origination
fees.


                                      100
<PAGE>



     Set forth below is certain  information  as of  September  30,  1998,  with
respect to loans made by the Bank on  preferential  terms to executive  officers
whose  aggregate  indebtedness  to the Bank  exceeded  $60,000 at any time since
October 1, 1997.

<TABLE>
<CAPTION>
                                                                            Balance     Interest Rate
                                           Maturity    Largest Amount        as of          as of
                                  Date       Date     Outstanding Since    September      September       Type of
Name and Position               of Loan    of Loan     October 1, 1997     30, 1998       30, 1998         Loan
-----------------               -------    -------     ---------------     ---------      ---------        -----
<S>                             <C>        <C>            <C>              <C>               <C>          <C>
Valerie M. Swaya                07/26/95   08/01/25       $ 98,935         $ 97,155           7.0%        Mortgage
  Vice President and
  Chief Administrative
  Officer

P. James O'Gorman               03/09/98   04/01/13       $240,800         $236,874          6.75%        Mortgage
  Executive Vice President,
  Chief Financial Officer
</TABLE>

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

     (a) (1) The following are filed as a part of this report:

               o    Independent Auditors' Report

               o    Consolidated   Statements  of  Financial   Condition  as  of
                    September 30, 1998 and 1997

               o    Consolidated  Statements  of Income for Each of the Years in
                    the Three-Year Period Ended September 30, 1998

               o    Consolidated  Statements of Changes in Stockholders'  Equity
                    for  Each  of the  Years  in  the  Three-Year  Period  Ended
                    September 30, 1998

               o    Consolidated  Statements of Cash Flows for Each of the Years
                    in the Three-Year Period Ended September 30, 1998

               o    Notes to Consolidated Financial Statements

          (2)  All financial  statement  schedules are omitted  because they are
               not required or applicable,  or the required information is shown
               in the consolidated financial statements or the notes thereto.

          (3)  Exhibits


                                      101
<PAGE>



   Exhibit
   Number
   ------

     2.0    Agreement and Plan of Merger by and between Financial Bancorp,  Inc.
            and Dime Community Bancshares, Inc. dated as of July 18, 1998. (1)

     3.1    Certificate of Incorporation of Financial Bancorp, Inc. (2)

     3.2    Bylaws of Financial Bancorp, Inc. (2)

     4.0    Stock Certificate of Financial Bancorp, Inc. (2)

     10.1   Financial Federal Savings Bank Recognition and Retention Plan (3)

     10.2   Financial Bancorp, Inc. 1995 Incentive Stock Option Plan (4)

     10.3   Financial Bancorp, Inc. 1995 Stock Option Plan for Outside Directors
            (3)

     10.4   Financial Savings and Loan Association Employee Stock Ownership Plan
            and Trust (2)

     10.5   Amended and  Restated  Salary and  Benefits  Continuation  Agreement
            between Financial Bancorp,  Inc., Financial Federal Savings Bank and
            Frank S. Latawiec (6)

     10.6   Salary  and  Benefits   Continuation   Agreement  between  Financial
            Bancorp,  Inc.,  Financial Federal Savings Bank and Valerie M. Swaya
            (6)

     10.7   Employment  Agreement  between  Financial  Federal  Savings and Loan
            Association and P. James O'Gorman (5)

     10.8   Employment  Agreement  between  Financial  Federal  Savings and Loan
            Association and Robert E. Adamec (5)

     10.9   Employment  Agreement between Financial  Bancorp,  Inc. and P. James
            O'Gorman (5)

     10.10  Employment  Agreement between Financial Bancorp,  Inc. and Robert E.
            Adamec (5)

     10.11  Financial  Federal Savings and Loan Association  Outside  Directors'
            Consultation and Retirement Plan (2)

     11.0   Computation of earnings per share (filed herewith)

     21.0   Subsidiary  information  is  incorporated  herein  by  reference  to
            "Subsidiaries"

     23.0   Consent of Radics & Co., LLC (filed herewith)

     27.0   Financial Data Schedule

     99.0   Stock  Option  Agreement,  dated July 18,  1998,  between  Financial
            Bancorp, Inc. and Dime Community Bancshares, Inc. (1)

----------
(1)  Incorporated by reference from the Form 8-K, filed with the SEC on July 23,
     1998.

(2)  Incorporated  herein by reference  into this  document from the Exhibits to
     Form S-1, Registration Statement and amendments thereto, initially filed on
     March 18, 1994, Registration No. 33-76664.

(3)  Incorporated  herein  by  reference  into  this  document  from  the  Proxy
     Statement for the January 17, 1996 Annual Meeting of Stockholders  filed on
     December 18, 1995.

(4)  Incorporated  herein  by  reference  into  this  document  from  the  Proxy
     Statement for the January 26, 1995 Annual Meeting of Stockholders  filed on
     December 15, 1994.

(5)  Incorporated  herein by reference into this document from the Annual Report
     on Form 10-K for the fiscal  year ended  September  30, 1994 filed with the
     SEC on December 20, 1994.

(6)  Incorporated  by  reference  into this  document  from the  Exhibits to the
     Annual  Report on Form 10-K for the fiscal year ended  September  30, 1997,
     filed with the SEC on December 29, 1997.

(b)  Reports on Form 8-K 

     On July 20,  1998,  the Company and Dime  Community  Bancshares,  Inc.  the
holding  company for the Dime  Savings  Bank of  Williamsburgh,  entered  into a
definitive  merger  agreement  pursuant  to which Dime  Community  will  acquire
Financial  Bancorp,  Inc.,  subject  to  regulatory  and  shareholder  approval.
Subsequently  on July 23, 1998, the Company filed a Form 8-K, which reported the
terms of the merger. The Merger Agreement was filed as an exhibit thereto.

                                      102

<PAGE>


                                   SIGNATURES

     Pursuant to the  requirements of Section 13 of the Securities  Exchange Act
of 1934,  the  Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                         FINANCIAL BANCORP, INC.


                                         By:  /s/Frank S. Latawiec
                                              ------------------------------
                                              Frank S. Latawiec
                                              President, Chief Executive
                                              Officer and Director
                                              (Principal Executive Officer)

     Pursuant  to  the   requirements  of  the  Securities  Act  of  1933,  this
Registration  Statement  has  been  signed  by  the  following  persons  in  the
capacities and on the dates indicated.

      Name                 Title                                     Date
      ----                 -----                                     ----

/s/Frank S. Latawiec       President, Chief Executive          December 29, 1998
-----------------------    Officer and Director          
Frank S. Latawiec          (Principal Executive Officer) 
                           


/s/P. James O'Gorman       Executive Vice President, Chief     December 29, 1998
-----------------------    Financial Officer and Treasurer
P. James O'Gorman          (Principal Accounting Officer) 
                           


/s/Peter S. Russo          Chairman of the Board               December 29, 1998
-----------------------
Peter S. Russo



/s/Dominick L. Segrete     Director                            December 29, 1998
-----------------------
Dominick L. Segrete


/s/Richard J. Hickey       Director                            December 29, 1998
-----------------------
Richard J. Hickey


/s/Raymond M. Calamari     Director                            December 29, 1998
-----------------------
Raymond M. Calamari