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, 1997
                          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 
incorporation or organization)                       Identification No.)

            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 $37,333,603, based upon the last sales price as quoted on the
Nasdaq National Market for December 17, 1997.

     The number of shares  outstanding  of the  registrant's  Common Stock as of
December 17, 1997 was 1,709,700.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Annual Report to Stockholders  for the year ended September
30, 1997 are incorporated by reference into Part II of this Form 10-K.

     Portions of the Proxy Statement for the 1998 Annual Meeting of Stockholders
to be held on January 22, 1998 are  incorporated  by reference into Parts II and
III of this Form 10-K.


<PAGE>



                                      INDEX

                                     Part I

                                                                            Page

Item 1.   Business                                                             1
Item 2.   Properties                                                          36
Item 3.   Legal Proceedings                                                   36
Item 4.   Submission of Matters to a Vote 
          of Securities Holders                                               36

                             Part II

Item 5.   Market for Registrant's Common Equity                               
          and Related Stockholder Matters                                     37
Item 6.   Selected Financial Data                                             37
Item 7.   Management's Discussion and Analysis 
          of Financial Condition and Results of Operations                    37
Item 8.   Financial Statements and Supplementary Data                         37
Item 9.   Changes in and Disagreements with Accountants 
          on Accounting and Financial Disclosure                              37
          

                            Part III

Item 10.  Directors and Executive Officers 
          of the Registrant                                                   37
Item 11.  Executive Compensation                                              38
Item 12.  Security Ownership of Certain Beneficial 
          Owners and Management                                               38
Item 13.  Certain Relationships and Related Transactions                      38

                             Part IV

Item 14.  Exhibits, Financial Statement Schedules 
          and Reports on Form 8-K                                             38


<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  office.  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.

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.

                                        1


<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,
1997, the Bank's total loans receivable equaled $155.1 million,  of which $126.4
million, or 81.5%, were one- to four-family residential first mortgage loans. Of
the one- to four-family  residential  first  mortgage loans  outstanding at that
date, $60.0 million,  or 47.5% were  adjustable-rate  mortgage ("ARM") loans. At
September 30, 1997, the Bank's loan portfolio also included $2.6 million of one-
to four-family  residential second mortgage loans, $11.8 million of multi-family
loans,  $13.2 million of commercial real estate loans,  $575,000 of construction
loans and $494,000 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.

                                        2


<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,
                              ------------------------------------------------------------------------------------------------------
                                    1997                 1996                   1995                1994                1993
                              -------------------- -------------------  -------------------  ------------------- -------------------
                                         Percent               Percent              Percent            Percent              Percent
                               Amount    of Total   Amount    of Total   Amount    of Total   Amount   of Total   Amount    of Total
                              --------   --------  --------   --------  --------   --------  --------  --------  --------  --------
                                                                                     (Dollars in thousands)
<S>                           <C>           <C>    <C>           <C>    <C>           <C>    <C>          <C>    <C>          <C>   
Real estate loans:
 Residential one- to
   four-family:
  First mortgages .........   $126,440      81.50% $116,132      80.26% $ 93,361      82.55% $ 72,669     85.29% $ 72,274     85.41%
  Second mortgages ........      2,637       1.70     2,780       1.92     3,806       3.36     4,491      5.27     6,429      7.60
 Multi-family .............     11,779       7.59     8,231       5.69     4,296       3.80     3,213      3.77     2,320      2.74
 Commercial ...............     13,217       8.52    12,061       8.34     8,031       7.10     2,940      3.45     3,091      3.65
 Construction/land loans ..        575       0.37     4,920       3.40     3,080       2.72     1,455      1.71       109      0.13
                              --------   --------  --------   --------  --------   --------  --------  --------  --------  --------
   Total real estate loans     154,648      99.68   144,124      99.61   112,574      99.53    84,768     99.49    84,223     99.53

Consumer/commercial
  business:
 Consumer .................        417       0.27       400       0.27       404       0.36       400      0.47       332      0.40
 Commercial business ......         77       0.05       168       0.12       123       0.11        35      0.04        62      0.07
                              --------   --------  --------   --------  --------   --------  --------  --------  --------  --------
  Total consumer/commercial
    business loans ........        494       0.32       568       0.39       527       0.47       435      0.51       394      0.47
                              --------   --------  --------   --------  --------   --------  --------  --------  --------  --------
    Total loans receivable     155,142     100.00%  144,692     100.00%  113,101     100.00%   85,203    100.00%   84,617    100.00%
                                         ========             ========             ========            ========            ========
Less:
 Loans in process ............     201                2,509                1,485                  352                  44
 Unearned discounts and net                                                                                       
   deferred loan fees ........     243                  296                  311                  226                 143
 Allowance for loan losses ...   1,406                1,573                1,243                1,120               1,005
                              --------             --------             --------              -------             -------
                                 1,850                4,378                3,039                1,698               1,192
                              --------             --------             --------              -------             -------
  Total loans receivable, net $153,292             $140,314             $110,062              $83,505             $83,425
                              ========             ========             ========              =======             =======
                                                                                                               
Mortgage-backed securities:
 GNMA .....................   $ 23,335      48.73% $ 27,106      49.41% $ 33,144      53.45% $ 26,749     53.67% $ 24,156     48.89%
 FHLMC (1) ................     15,808      33.02    23,015      41.96    22,979      37.06    15,816     31.74    16,065     32.52
 FNMA (1) .................      6,835      14.28     2,697       4.92     3,388       5.46     4,368      8.76     5,741     11.62
 Others ...................      1,900       3.97     2,035       3.71     2,497       4.03     2,906      5.83     3,446      6.97
                              --------   --------  --------   --------  --------   --------  --------  --------  --------  --------
Total mortgage-backed
    securities(2) .........   $ 47,878     100.00% $ 54,853     100.00% $ 62,008     100.00% $ 49,839    100.00% $ 49,408    100.00%
                              ========   ========  ========   ========  ========   ========  ========  ========  ========  ========
</TABLE>

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

(1)  Includes  $9.4  million  and $5.0  million  in  Mortgage-backed  securities
     available for sale as of September 30, 1997 and 1996, respectively.

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

                                        3


<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, 1997.  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 $23.1 and $12.1 million  respectively,  for the twelve months
ended September 30, 1997.

<TABLE>
<CAPTION>
                                                                         Mortgage Loans and Other Loans
                                        --------------------------------------------------------------------------------------------
                                                                             At September 30, 1997
                                        --------------------------------------------------------------------------------------------
                                                                                                     Commer-               Mortgage-
                                          1 - 4        Multi-     Commercial                          cial      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 ...................      $ 28,448      $  --        $  --        $575      $209      $55      $ 29,287      $21,371
 After one year:
  One to three years ...............        20,544          610         --         --        192       22        21,368        6,114
  Three to five years ..............         7,549        2,061        1,157       --         12       --        10,779          824
  Five to ten years ................        14,651          747          159       --          4       --        15,561        3,185
  After ten years ..................        57,885        8,361       11,901       --        --        --        78,147       16,384
                                          --------      -------      -------      ----      ----      ---      --------      -------
 Total due or repricing
    after one year .................       100,629       11,779       13,217       --        208       22       125,855       26,507
                                          --------      -------      -------      ----      ----      ---      --------      -------
Total amounts due or
  repricing, gross .................      $129,077      $11,779      $13,217      $575      $417      $77      $155,142      $47,878
                                          ========      =======      =======      ====      ====      ===      ========      =======
</TABLE>


     The following  table sets forth at September 30, 1997, the dollar amount of
all loans  and  mortgage-backed  securities  due after  September  30,  1998 and
indicates  whether  such  loans and  mortgage-backed  securities  have  fixed or
adjustable interest rates.

                                                Due After September 30, 1998
                                             -----------------------------------
                                               Fixed     Adjustable      Total
                                              -------    ----------     --------
                                                     (In thousands)
Mortgage loans:
  One- to four-family ..................      $67,910      $32,719      $100,629
  Multi-family .........................        9,466        2,313        11,779
  Commercial real estate ...............       12,091        1,126        13,217
Other loans ............................          230         --             230
                                              -------      -------      --------
Total loans ............................      $89,697      $36,158      $125,855
                                              =======      =======      ========
Mortgage-backed securities .............      $21,659      $ 4,848      $ 26,507
                                              =======      =======      ========


                                        4


<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.


                       
                                   
                                            For the Years Ended September 30,
                                           -------------------------------------
                                              1997        1996       1995
                                           ---------    ---------    ---------
                                                      (In thousands)
Loans receivable at beginning
  of period .............................   $ 144,692    $ 113,101    $  85,203
 Originations:
  First mortgages .......................      18,894       21,241       19,344
  Second mortgages ......................         403          342          354
  Multi-family ..........................       3,944        2,058        1,136
  Commercial ............................       4,170        7,491        5,187
  Construction/land .....................         130        2,870        4,364
  Consumer loans ........................         229          212          279
  Student loans .........................          35           54           49
  Commercial business ...................           4           69          120
  Loan purchases ........................       6,717       14,848        9,045
                                            ---------    ---------    ---------
   Total originations and purchases .....      34,526       49,185       39,878
                                            ---------    ---------    ---------
Transfer of mortgage loans to
 foreclosed real estate .................        (411)        (100)        (682)
Loans charged-off .......................        (602)        (213)        (219)
Repayments ..............................     (23,064)     (17,281)     (11,079)
                                            ---------    ---------    ---------
  Total reductions ......................     (24,077)     (17,594)     (11,980)
                                            ---------    ---------    ---------
Total loans receivable at end of period .   $ 155,141    $ 144,692    $ 113,101
                                            =========    =========    =========

Mortgage-backed securities
 at beginning of period .................   $  54,853    $  62,008    $  49,839
  Purchases .............................       5,046        5,068       19,294
  Repayments ............................     (12,111)     (12,214)      (7,169)
  Discount (premium) amortization .......         (34)         (19)          44
  Unrealized gain .......................         124           10         --
                                            ---------    ---------    ---------
Mortgage-backed securities at
 end of period ..........................   $  47,878    $  54,853    $  62,008
                                            =========    =========    =========



                                        5


<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,  1997,  first  mortgage  loans  secured  by  residential  one- to
four-family  real estate totaled $126.4  million,  or 81.8% of total real estate
loans at such date. Of the Bank's first  mortgage loans secured by one- to four-
family residences, $60.0 million, or 47.5% 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, 1997,
the Bank had $26.6 million in one- to four-family  purchased  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

                                        6


<PAGE>



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 2.5% 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, 1997,  the Bank had $2.6 million,  or
2.0% of total one- to  four-family  loans in equity and second  mortgage  loans,
including $1.4 million 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, 1997, the
Bank's total loan portfolio  contained  $11.8 million,  or 7.6% of  multi-family
loans,  and  $13.2  million,  or 8.5%  of  commercial  real  estate  loans.  The
multi-family and commercial real estate 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 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%

     Construction  Loans.  The Bank  originates  loans,  on a selected 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, 1997,  the
Bank's portfolio contained $575,000,  or 0.4% of one-to-four family construction
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
generally  requires  personal  guarantees  from the  principals of the borrowing
entity. Loan proceeds are disbursed in stages as construction  progresses and as
inspections warrant.

     Consumer/Commercial  Business  Lending.  The Bank also  offers  secured and
unsecured  personal loans and commercial  business loans. At September 30, 1997,
the Bank's consumer and commercial  business loans totaled $494,000,  or 0.3% of
the Bank's  total loan  portfolio.  Of that amount,  $417,000  consisted of home
improvement,  personal,  passbook and student  loans;  and $77,000 of commercial
business loans.

                                        7


<PAGE>



     Mortgage-backed   Securities.   The   Bank   invests   in  a   variety   of
mortgage-backed  securities,  96.0% of which were insured or  guaranteed  by the
FHLMC,  GNMA or FNMA at September 30, 1997. The remaining 4.0% was invested in a
privately  issued  mortgage  pass-through   security.  At  September  30,  1997,
mortgage-backed securities totaled $47.9 million, or 16.1% of total assets, $9.4
million of which are  classified by the Bank as available for sale. Of the $47.9
million  in   mortgage-backed   securities,   $26.2   million,   or  54.8%  were
adjustable-rate  and will  reprice  within  three  years.  During the year ended
September  30,  1997,  the  Bank  purchased  $5.0  million  of   mortgage-backed
securities and received  prepayments  and scheduled  principal  amortization  of
$12.1 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, 1997,  the Bank had 24 loans  delinquent  90 days or more
totaling  $2.4  million,  of  which  $2.1  million  are  attributed  to  one- to
four-family  mortgage loans. At September 30, 1997, the Bank's real estate owned
totaled $471,000, comprising entirely of one-to-four family properties.

                                        8


<PAGE>



Delinquent  and  Non-Performing  Loans.  At September  30, 1997,  1996 and 1995,
delinquencies in the Bank's loan portfolio were as follows:

<TABLE>
<CAPTION>
                                                      At September 30, 1997                           At September 30, 1996
                                        ----------------------------------------------  --------------------------------------------
                                               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 .......................      4        $419        16        $2,038        1        $175        15        $1,486
 Second mortgages ......................      1          45         2            11        -         --          1           200
Multi-family residential ...............      -         --          2           350        -         --          2           350
Commercial real estate .................      -         --         --          --          -         --         --          --
Consumer loans .........................      -         --          4            32        -         --          4            11
Commercial Business ....................      -         --         --          --          -         --          1            45
                                              -        ----        --        ------        -        ----        --        ------
   Total loans .........................      5        $464        24        $2,431        1        $175        23        $2,092
                                              =        ====        ==        ======        =        ====        ==        ======
                                                                                                                         
Delinquent loans and non-
  performing loans to total loans.                     0.30%                   1.57%                0.12%                   1.45%
</TABLE>


<TABLE>
<CAPTION>
                                                      At September 30, 1997            
                                        ---------------------------------------------- 
                                               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        $  2         13        $1,216
  Second mortgages .....................     2          55         --          --
Multi-family residential ...............     -          --          3           677
Commercial real estate .................     -          --          1            38
Consumer loans .........................     -          --          4            11
Commercial Business ....................     -          --         --          --
                                             -         ---         --        ------
         Total loans ...................     3        $ 57         21        $1,942
                                             =         ===         ==        ======
Delinquent and non-performing                                                         
  loans to total loans...................              0.05%                   1.72%
</TABLE>



                                        9


<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, 1997, 1996 and 1995,
the  amounts of  additional  interest  income  that would have been  recorded on
non-accrual  loans,  had they  been  current,  totaled  $242,000,  $207,000  and
$171,000,  respectively.  The Bank collected interest income on such non-accrual
loans in the  amounts of $70,000 , $43,000  and  $24,000  during the years ended
September 30, 1997, 1996 and 1995, respectively.

<TABLE>
<CAPTION>
                                                   At September 30,
                                    ----------------------------------------------
                                     1997      1996      1995      1994      1993
                                    ------    ------    ------    ------    ------
                                                  (In thousands)
<S>                                 <C>       <C>       <C>       <C>       <C>   
Non-accrual delinquent mortgage
    loans .......................   $2,164    $1,911    $1,794    $1,624    $2,008
Delinquent other loans ..........       32        56        11         5        11
Mortgage loans delinquent 90 days
    or more and accruing ........      424       125       137        30       166
                                    ------    ------    ------    ------    ------
    Total non-performing loans ..    2,620     2,092     1,942     1,659     2,185
Investment in real estate (net
  valuation allowance) ..........    3,355     3,308     3,531     2,789     3,153
Real estate owned ...............      471       378       591       620       650
                                    ------    ------    ------    ------    ------
     Total non-performing assets    $6,446    $5,778    $6,064    $5,068    $5,988
                                    ======    ======    ======    ======    ======
Non-performing loans
    to total loans ..............     1.69%     1.45%     1.72%     1.95%     2.58%
Total non-performing assets
    to total assets .............     2.17%     2.17%     2.65%     2.95%     4.05%
</TABLE>


     The above table does not include  participation loans serviced by TASCO and
its  successor in the amount of $2.2  million and $2.4 million at September  30,
1997 and 1996,  respectively.  Interest  income that could have been  recognized
based on contractual  terms amounts to $169,000 and $196,000 for the years ended
September 30, 1997 and 1996,  respectively.  Interest  income recorded only when
collected amounted to approximately  $79,000 and $118,000 during the years ended
September 30, 1997 and 1996, respectively.

     Impaired  loans and  related  amounts  recorded in the  allowance  for loan
losses at September 30, 1997 and 1996 are summarized as follows in thousands:

                                                                 September 30,
                                                             -------------------
                                                             1997          1996
                                                             ------        ----
                                                                 (In thousands)
Recorded investment in impaired loans:
  With recorded allowance ............................        $2,511        $922
  Without recorded allowance .........................          --           --
                                                              ------        ----
  Total impaired loans ...............................         2,511        $922
Related allowances for loan losses ...................           225         504
                                                              ------        ----
    Net impaired loans ...............................        $2,286        $418
                                                              ======        ====


                                       10


<PAGE>



     For the year ended September 30, 1997 and 1996,  interest income that would
have been recognized for these loans had they been performing in accordance with
the original terms was  approximately  $206,000 and $78,000,  respectively,  and
interest income recognized when received was $79,000 and $31,000, respectively.

     The average  balance of impaired loans during the years ended September 30,
1997 and 1996 approximated $2.3 million and $933,000, 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, 1997,  classified assets totaled $6.2 million,  or 2.0% of
total assets,  of which  $200,000  classified  as  "Doubtful"  and the remaining
classified as "Substandard"  consisted of 13 one-to  four-family  loans totaling
$1.6 million,  2  multi-family  loans  totaling  $340,000 and 4 foreclosed  real
estate properties  totaling $471,000 and $3.4 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
second  mortgage  loan for  $200,000.  Assets  designated  as "Special  Mention"
totaled $1.8 million, which consists primarily of single family loans.

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

                                       11


<PAGE>



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,
                                               ---------------------------------------------------------------------
                                                1997         1996              1995           1994             1993
                                               ------        ------           ------         ------           ------
                                                                   (Dollars in thousands)
<S>                                            <C>           <C>              <C>            <C>                <C> 
Allowance for loan losses:
Balance at beginning of period........         $1,573        $1,243           $1,120         $1,005             $343
Charge-Offs:
     One- to four-family..............             39            --               31             51               50
     Multi-family.....................             --           213              189             --               --
     Commercial.......................            504            --               --             --               --
     Consumer and other loans.........             59            --               --             19               20
                                               ------        ------           ------         ------           ------
Total charge-offs.....................            602           213              220             70               70
Recoveries............................              7            --                1              2               --
Provision for loan losses.............            427           543              342            183              732
                                               ------        ------           ------         ------           ------
Balance at end of period .............         $1,405        $1,573           $1,243         $1,120           $1,005
                                               ======        ======           ======         ======           ======
Ratio of total charge-offs during the
  period to average loans outstanding
  during the period...................          0.41%         0.17%            0.23%          0.08%            0.08%
Ratio of allowance for loan losses to
  total loans at the end of the period          0.91%         1.09%            1.10%          1.31%            1.20%
Ratio of allowance for loan losses to
  non-performing loans at the end of
  the period..........................         53.63%        75.19%           63.97%         67.48%           46.00%
</TABLE>





                                       13


<PAGE>



     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,
                                     -----------------------------------------------------------------------------------------------
                                            1997                 1996               1995              1994                1993
                                     ------------------   ------------------  ------------------ ------------------  ---------------
                                              % 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
                                                 total              total              total              total               total
                                        Amount   loans     Amount   loans     Amount   loans     Amount    loans     Amount   loans
                                        ------   ------    ------   ------    ------   ------    ------   ------    ------   ------
                                                                  (Dollars in  thousands)
<S>                                     <C>       <C>      <C>       <C>      <C>       <C>      <C>       <C>      <C>       <C>   
Real Estate Loans:
   Residential one- to four-family ..   $1,040    83.20%   $  650    82.18%   $  305    85.91%   $  293    90.56%   $  235    93.01%
   Multi-family .....................      121     7.59        53     5.69       218     3.80       278     3.77       250     2.74
   Commercial .......................      231     8.52       757     8.34       686     7.10       529     3.45       500     3.65
Commercial business loans ...........        8     0.05        57     0.12        12     0.11         4     0.04      --       0.07
Construction/land ...................        2     0.37        53     3.40        17     2.72         9     1.71      --       0.13
Consumer ............................        3     0.27         3     0.27         5     0.36         7      0.4        20     0.40
                                        ------   ------    ------   ------    ------   ------    ------   ------    ------   ------
      Total allowance for
      loan losses ...................   $1,405   100.00%   $1,573   100.00%   $1,243   100.00%   $1,120   100.00%   $1,005   100.00%
                                        ======   ======    ======   ======    ======   ======    ======   ======    ======   ======
</TABLE>

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,  1997,  $37.1  million,  or 12.5% of the Bank's total assets were
invested in investment  securities and other short-term  investments that mature
in five years or less.

                                       14


<PAGE>



     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,
                              ---------------------------------------------------------
                                       1997              1996                 1995
                              -----------------  ------------------    ----------------
                              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 ......   $69,410   $69,223   $51,122   $49,903   $38,921   $38,842
Common stock (1) ..........      --        --        --        --          15        15
                                                  -------   -------   -------   -------
Total investment securities
   held to maturity .......   $69,410   $69,223   $51,122   $49,903   $38,936   $38,857
                              =======   =======   =======   =======   =======   =======
Available for sale:
U.S. Treasury securities ..   $  --     $  --     $ 2,908   $ 2,908   $  --     $  --
Equity securities .........       731       731       700       700      --        --
                              -------   -------   -------   -------   -------   -------
Total investment securities
    available for sale ....   $   731   $   731   $ 3,608   $ 3,608   $  --     $  --
                              =======   =======   =======   =======   =======   =======
</TABLE>

----------

(1)  Investment in common stock written down to estimated fair value.

         The following table sets forth the carrying  values,  market values and
average yields for the Bank's debt security portfolio by maturity,  call date or
repricing date, whichever is first, at September 30, 1997.

<TABLE>
<CAPTION>
                                                Less than One Year            One to Five Years        Total Investment Portfolio
                                             ----------------------------  ---------------------------- ----------------------------
                                             Carrying   Market   Average   Carrying   Market   Average  Carrying   Market    Average
                                              Value     Value     Yield     Value     Value     Yield     Value     Value     Yield 
                                             -------   -------   --------  -------   -------   --------  -------   -------   -------
                                                                             (Dollars in thousands)
<S>                                          <C>        <C>        <C>      <C>       <C>       <C>      <C>        <C>        <C>  
Debt securities:
U.S. Government
  agency securities .....................    $61,650    $61,455    7.06%    $7,760    $7,768    7.18%    $69,410    $69,223    7.08%
                                             -------    -------    ----     ------    ------    ----     -------    -------    ----
  Total .................................    $61,650    $61,455    7.06%    $7,760    $7,768    7.18%    $69,410    $69,223    7.08%
                                             =======    =======    ====     ======    ======    ====     =======    =======    ====
</TABLE>


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

                                       15


<PAGE>



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, 1997,  Silver  Certificates of Deposit
represented $16.9 million, or 14.9% 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.

     On February 24, 1995, the Bank  consummated the purchase of certain deposit
liabilities from the East New York Savings Bank and  consolidated  these deposit
liabilities into the Bank's Greenpoint, Brooklyn branch. Deposits totaling $14.8
million  were  acquired,  for which the Bank paid a  premium  of  $127,000.  The
transaction was accounted for under the purchase method of accounting.

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

<TABLE>
<CAPTION>
                                                     For the Years Ended September 30,
                                                -------------------------------------------
                                                  1997           1996               1995
                                                --------       ---------           --------
                                                           (In thousands)
<S>                                             <C>             <C>                <C>        
Deposits...............................         $313,206        $267,595           $264,455(1)
Withdrawals............................          310,797         258,815            224,272
                                                --------       ---------           --------
Net increase (decrease) before interest
credited...............................            2,409           8,780             40,183
Interest credited......................            8,102           7,612              6,127
                                                --------       ---------           --------
Net increase (decrease) in deposits....         $ 10,511        $ 16,392           $ 46,310
                                                ========        ========           ========
</TABLE>

----------

(1)  Includes $14.8 million of deposits purchased in February 1995.

     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, 1997.

                                                                
Maturity Period:                                                (In thousands)

Three months or less..........................................     $ 2,357
Over three through six months.................................       1,231
Over six through 12 months....................................       2,122
Over 12 months................................................       5,806
                                                                   -------
      Total...................................................     $11,516
                                                                   =======



                                       16


<PAGE>



     The  following  table sets  forth the  distribution  of the Bank's  deposit
accounts at September 30, 1997,  1996 and 1995 and the weighted  average nominal
interest  rates on each  category of deposits  presented at September  30, 1997,
1996 and 1995.

<TABLE>
<CAPTION>
                                                            1997                        1996                        1995
                                                 ---------------------------- --------------------------- --------------------------
                                                                     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 .................     4.72%   $ 10,089     0.00%   3.52%   $  7,156   0.00%     1.98%   $  3,688   0.00%
Interest-bearing demand .....................     7.22      15,399     2.17    9.18      18,622   2.18      8.91      16,623   2.29
Savings and club ............................    34.73      74,109     2.20   36.52      74,084   2.11     41.49      77,370   2.44
Certificates of deposit .....................    53.33     113,797     5.80   50.78     103,022   5.85     47.62      88,811   5.98
                                                ------    --------           ------    --------           ------               ----
     Total deposits .........................   100.00%   $213,394     4.01% 100.00%   $202,884   3.94%   100.00%   $186,492   4.06%
                                                ======    ========           ======    ========           ======               ====
</TABLE>                                                                       



     The  following  table  presents  the amount of the Bank's  certificates  of
deposit outstanding,  based upon weighted-average rate categories,  at September
30,  1997,  1996 and 1995,  based  upon  contractual  periods  to  maturity,  at
September 30, 1997.

<TABLE>
<CAPTION>
                                                Period to Maturity from September 30, 1997                At September 30,
                                      ------------------------------------------------------------   -------------------------------
                                      Less Than    One to     Two to    Three to   Four to  After
                                         One         Two       Three      Four      Five    Five
                                         Year       Years      Years      Years     Years   Years     1997         1996        1995
                                        -------    -------    -------    ------    ------   -----    --------    --------    -------
                                                                         (In thousands)
<S>       <C>                           <C>        <C>        <C>        <C>          <C>    <C>     <C>         <C>         <C>    
Certificate accounts:
 3.00% to 3.99% ....................    $    45    $  --      $  --      $ --      $ --      $--     $     45    $    163    $ 1,121
 4.00% to 4.99% ....................     12,088         43         17      --        --       --       12,148      24,776     10,896
 5.00% to 5.99% ....................     59,167     11,587      1,224       761       317     --       73,056      50,468     36,702
 6.00% to 6.99% ....................      1,676      2,979      1,970     2,173     3,356     179      12,333      10,685     23,712
 7.00% to 7.99% ....................        224       --       10,917     5,020      --       --       16,161      16,879     16,313
 8.00% to 8.99% ....................       --         --         --          54      --       --           54          51         67
                                        -------    -------    -------    ------    ------    ----    --------    --------    -------
    Total ..........................    $73,200    $14,609    $14,128    $8,008    $3,673    $179    $113,797    $103,022    $88,811
                                        =======    =======    =======    ======    ======    ====    ========    ========    =======
</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 $39.6  million.
Advances under this line of credit, which expires on December 22, 1997, are made
for one-day periods. As of September 30, 1997, advances were secured by stock of
Federal Home Loan Bank in the amount of $1.8 million and mortgage  loans with an
unpaid balance of $34.3 million.  Information  concerning advances from FHLB are
summarized as follows:

<TABLE>
<CAPTION>
                                                                                       September 30,
                                                    Interest       ---------------------------------------------------
                 Maturity                             Rate              1997              1996               1995
------------------------------------------        -------------    -------------    --------------    ----------------
                                                                                       (In thousands)
<S>                                                   <C>              <C>               <C>                 <C>   
Overnight advances due
  October 1995............................            6.625%           $   --            $   --              $5,375
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                  --
                                                                       ------            ------              ------
                                                                       $8,000            $9,725              $5,375
                                                                       ======            ======              ======
</TABLE>


                                       18


<PAGE>



     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              1997              1996               1995
------------------------------------------        -------------    -------------    --------------    ----------------
                                                                                    (In thousands)
<S>                                                   <C>              <C>               <C>                 <C>   

November 1995                                        5.78%          $  --             $  --               $5,112
January 1996                                         5.75%             --                --                2,014
December 1996                                        5.44%             --              14,046               --
December 2001                                        5.291%           5,000              --                 --
May 2002                                             5.813%          10,000              --                 --
August 2002                                          5.62%           10,000              --                 --
                                                                     -------           -------             ------
                                                                     $25,000           $14,046             $7,126
                                                                     =======           =======             ======
                                                                 
</TABLE>

     At September 30, 1997, these borrowings are callable or will reprice within
two years and at periodic intervals thereafter.

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

<TABLE>
<CAPTION>
                                                                    Year Ended September 30,
                                             ----------------------------------------------------------------------
                                                    1997                    1996                     1995
                                             -------------------    --------------------   ------------------------
                                                                         (In thousands)
<S>                                               <C>                      <C>                     <C>   
Average balance during
  the year................................        $12,010                  $8,228                  $1,876
Average interest rate
  during the year.........................          5.53%                   5.70%                   6.01%
Maximum month end
   balance during the year................         25,000                  15,064                  $9,229
Investment securities underlying the 
  agreement at year end:
         Carrying value...................        $28,545                 $15,120                  $6,988
         Estimated market value...........        $28,427                 $14,520                  $7,047
</TABLE>


                                       19


<PAGE>



Treasury Tax and Loan Account Borrowings

     At September 30, 1997 and 1996,  the Bank had  borrowings  from the Federal
Reserve Bank of New York under the Treasury  Tax and  Depository  program in the
amount of $20.0 million and $9.9 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 $22.2  million and
$11.0 million and fair value of $21.2 million and $10.6 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,  1997,  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, 1997, 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. FinFed Development Corp. has invested $3.4 million,
which  represents  37.5% of the  capital  and loans from  partners  of the joint
venture at September 30, 1997. The  subsidiary  has a one-third  interest in any
profits realized from the sale of the developed property.  The investment in AFT
Associates has been classified as substandard. Furthermore, based upon a current
appraisal of the value of real estate owned by the joint venture,  an additional
$43,000 in provisions  for losses on investment in real estate were  established
for the fiscal year ended September 30, 1997.

                                       20


<PAGE>



     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, 1997,  its total assets were
$30,000.

     At September 30, 1997,  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.

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 is in 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 with
data  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 or the cost necessary to update software would not have a material
adverse effect on the Company's business.

Personnel

     As of  September  30,  1997  the  Bank  had 55  full-time  employees  and 6
part-time employees.

                           REGULATION AND SUPERVISION

General

     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
Office of Thrift Supervision ("OTS") under the Home Owners' Loan Act, as amended
(the "HOLA"). In addition,  the activities of savings institutions,  such as the
Bank,  are  governed by the HOLA and the  Federal  Deposit  Insurance  Act ("FDI
Act").

     The Bank is subject to extensive regulation, examination and supervision by
the OTS, as its primary federal regulator, and the FDIC, as the deposit insurer.
The Bank is a member  of the  Federal  Home Loan Bank  ("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

                                       21


<PAGE>



regulatory approvals prior to entering into certain transactions such as mergers
with, or acquisitions  of, other savings  institutions.  The OTS and/or the FDIC
conduct  periodic  examinations  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  regulatory  requirements  and
policies,  whether by the OTS, the FDIC or the  Congress,  could have a material
adverse  impact on the Company,  the Bank and their  operations.  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 and their holding companies set
forth in this Form 10-K does not  purport to be a complete  description  of such
statutes and regulations and their effects on the Bank and the Company.

Holding Company Regulation

     The Company is a  nondiversified  unitary  savings and loan holding company
within the meaning of the HOLA. As a unitary  savings and loan holding  company,
the Company  generally is not restricted  under existing laws as to the types of
business activities in which it may engage,  provided that the Bank continues to
be  a  qualified  thrift  lender  ("QTL").   See  "Federal  Savings  Institution
Regulation - QTL Test." Upon any  non-supervisory  acquisition by the Company of
another  savings  institution  or  savings  bank that  meets the QTL test and is
deemed  to be a savings  institution  by the 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 ("BHC Act"),
subject to the prior approval of the OTS, and certain  activities  authorized by
OTS regulation.

     The  HOLA  prohibits  a  savings  and loan  holding  company,  directly  or
indirectly, or through one or more subsidiaries,  from acquiring more than 5% of
the voting stock of another  savings  institution  or holding  company  thereof,
without prior written approval of the OTS; acquiring or retaining,  with certain
exceptions,  more than 5% of a nonsubsidiary company engaged in activities other
than  those  permitted  by the HOLA;  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.

                                       22


<PAGE>



     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.

     Although  savings and loan  holding  companies  are not subject to specific
capital  requirements  or specific  restrictions  on the payment of dividends or
other capital distributions, HOLA does prescribe such restrictions on subsidiary
savings  institutions as described  below.  The Bank must notify the OTS 30 days
before declaring any dividend to the Company. In addition,  the financial impact
of a holding company on its subsidiary institution is a matter that is evaluated
by the OTS and the agency has  authority  to order  cessation of  activities  or
divestiture of subsidiaries  deemed to pose a threat to the safety and soundness
of the institution.

Federal Savings Institution Regulation

     Capital   Requirements.   The  OTS  capital   regulations  require  savings
institutions to meet three minimum capital  standards:  a 1.5% tangible  capital
ratio, a 3% leverage (core) capital ratio and an 8% risk-based capital ratio. 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
purchased  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 not permissible for a national
bank.

     The  risk-based  capital  standard  for savings  institutions  requires the
maintenance of Tier I (core) and total capital (which is defined as core capital
and supplementary  capital) to risk-weighted  assets of 4% and 8%, respectively.
In determining the amount of risk-weighted assets, all assets, including certain
off-balance sheet assets,  are multiplied by a risk-weight factor 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 I (core)  capital  are
equivalent to those discussed earlier.  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 the allowance for loan and lease losses 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.

                                       23


<PAGE>



     The OTS regulatory  capital  requirements also incorporate an interest rate
risk  component.  Savings  institutions  with "above normal"  interest rate risk
exposure  are  subject  to a  deduction  from  total  capital  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
divided  by the  estimated  economic  value  of  the  institution's  assets.  In
calculating  its total  capital  under the  risk-based  capital  rule, a savings
institution whose measured interest rate risk exposure exceeds 2% must deduct an
amount equal to one-half of the difference  between the  institution's  measured
interest rate risk and 2%,  multiplied by the  estimated  economic  value of the
institution's  assets.  The  Director  of the OTS may  waive or defer a  savings
institution's  interest rate risk component on a  case-by-case  basis. A savings
institution with assets of less than $300 million and risk-based  capital ratios
in excess of 12% is not subject to the interest rate risk component,  unless the
OTS  determines   otherwise.   For  the  present  time,  the  OTS  has  deferred
implementation  of the interest rate risk component.  At September 30, 1997, the
Bank met each of its  capital  requirements,  in each case on a fully  phased-in
basis and it is  anticipated  that the Bank will not be subject to the  interest
rate risk component.

     The following  table presents the Bank's capital  position at September 30,
1997 relative to fully phased-in regulatory  requirements.  For a description of
the Bank's delayed phase-in schedule, see "Business of the Bank - Subsidiary and
Joint Venture Activities."

<TABLE>
<CAPTION>
                                                                                         Capital
                                                            Excess          ---------------------------------
                         Actual           Required        (Deficiency)          Actual           Required
                         Capital           Capital           Amount            Percent            Percent
                    -----------------   -------------   -----------------   --------------    ---------------
                                                     (Dollars in thousands)
<S>                      <C>              <C>                <C>                <C>               <C>  
Tangible............     $21,144          $4,395             $16,749            7.22%             1.50%
Core (Leverage).....      21,144          $8,790             $12,354            7.22%             3.00%
Risk-based..........      22,324          $9,548             $12,776           18.71%             8.00%
</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

                                       24


<PAGE>



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 of Deposit  Accounts.  Deposits of the Bank are presently insured
by the SAIF,  except for deposits  acquired in a branch  purchase  from East New
York Savings Bank which are insured by the Bank Insurance Fund ("BIF"). Both the
SAIF and the BIF, (the deposit  insurance fund that covers most  commercial bank
deposits),  are statutorily  required to be  recapitalized to a 1.25% of insured
reserve deposits ratio. Until recently,  members of the SAIF and BIF were paying
average deposit  insurance  premiums of between 24 and 25 basis points.  The BIF
met the required  reserve in 1995,  whereas the SAIF was not expected to meet or
exceed  the  required  level  until 2002 at the  earliest.  This  situation  was
primarily  due to the statutory  requirement  that SAIF members make payments on
bonds  issued  in the  late  1980s  by the  Financing  Corporation  ("FICO")  to
recapitalize the predecessor to the SAIF.

     In view of the BIF's achieving the 1.25% ratio, the FDIC ultimately adopted
a new  assessment  rate  schedule of 0 to 27 basis points under which 92% of BIF
members  paid an annual  premium of only  $2,000.  With  respect to SAIF  member
institutions,  the FDIC adopted a final rule retaining the  previously  existing
assessment  rate  schedule  applicable to SAIF member  institutions  of 23 to 31
basis points.  As long as the premium  differential  continued,  it may have had
adverse  consequences  for  SAIF  members,  including  reduced  earnings  and an
impaired  ability to raise  funds in the  capital  markets.  In  addition,  SAIF
members,  such as the Bank could have been placed at a  substantial  competitive
disadvantage  to BIF members  with  respect to pricing of loans and deposits and
the ability to achieve lower operating costs.

     On September 30, 1996, the President signed into law the Deposit  Insurance
Funds Act of 1996 (the "Funds Act") which, among other things, imposed a special
one-time  assessment  on  SAIF  member  institutions,  including  the  Bank,  to
recapitalize  the SAIF. As required by the Funds Act, the FDIC imposed a special
assessment of 65.7 basis points on SAIF assessable deposits held as of March 31,
1995,  payable  November  27,  1996 (the "SAIF  Special  Assessment").  The SAIF
Special

                                       25


<PAGE>



Assessment of  $1,115,000  was  recognized by the Bank as an expense  during the
quarter  ended  September  30, 1996 and is generally  tax  deductible.  The SAIF
Special  Assessment  recorded by the Bank  amounted to $1.1 million on a pre-tax
basis and $598,000 on an after-tax basis.

     The Funds Act also  spreads the  obligations  for payment of the FICO bonds
across all SAIF and BIF members. Beginning on January 1, 1997, BIF deposits were
assessed for FICO  payments of 1.3 basis  points,  while SAIF  deposits paid 6.4
basis points.  Full pro rata sharing of the FICO  payments  between BIF and SAIF
members  will  occur on the  earlier  of January 1, 2000 or the date the BIF and
SAIF are merged. The Funds Act specifies that the BIF and SAIF will be merged on
January 1, 1999, provided no savings associations remain as of that time.

     As a result of the Funds  Act,  the FDIC  voted to  effectively  lower SAIF
assessments to 0 to 27 basis points as of January 1, 1997, a range comparable to
that of BIF members.  However,  SAIF members continued to make the FICO payments
described  above.  The FDIC also  lowered the SAIF  assessment  schedule for the
fourth quarter of 1996 to 18 to 27 basis points.  Management  cannot predict the
level of FDIC insurance  assessments on an on-going  basis,  whether the savings
association  charter  will be  eliminated  or  whether  the BIF  and  SAIF  will
eventually be merged.

     The  Bank's  assessment  rate for fiscal  1996 was 23 basis  points and the
premium paid for this period was $387,065,  exclusive of the  $1,115,000 or 65.7
basis points one-time SAIF special assessment.

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

     Thrift  Rechartering  Legislation.  The Funds Act 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
predict whether the legislation will be

                                       26


<PAGE>



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.

     Loans to One Borrower.  Under the HOLA, savings  institutions are generally
subject to the limits on loans to one  borrower  applicable  to national  banks.
Generally, savings institutions may not make a loan or extend credit to a single
or related  group of  borrowers in excess of 15% of its  unimpaired  capital and
surplus.  An additional  amount may be lent, equal to 10% of unimpaired  capital
and surplus, if such loan is secured by readily-marketable  collateral, which is
defined to include certain financial  instruments and bullion.  At September 30,
1997,  the Bank's limit on loans to one borrower was $3.7 million.  At September
30,  1997,  the Bank's  largest  aggregate  outstanding  balance of loans to one
borrower was $2.4 million.

     QTL Test. The HOLA requires savings  institutions to meet a QTL test. Under
the QTL test,  a savings and loan  association  is required to maintain at least
65% of its "portfolio assets" (total assets less: (i) specified liquid assets up
to 20% 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  securities)  in at least 9 months out of each 12 month
period.

     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,  1997,  the Bank  maintained  82.7% of its  portfolio  assets  in
qualified thrift investments and, therefore, met the QTL test.

     Limitation on Capital  Distributions.  OTS regulations  impose  limitations
upon all capital distributions by savings institutions,  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 but without
obtaining approval of 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% of its net income 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.  In  December  1994,  the  OTS  proposed  amendments  to  its  capital
distribution  regulation that would  generally  authorize the payment of capital
distributions  without OTS approval provided that the payment does not cause the
institution to be  undercapitalized  within the meaning of the prompt corrective
action regulation. However,

                                       27


<PAGE>



institutions  in a holding  company  structure  would still have a prior  notice
requirement. At September 30, 1997, the Bank was a Tier 1 Bank.

     Liquidity.  The Bank is required to  maintain an average  daily  balance of
specified  liquid assets 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 for fiscal 1997 was 5%, but may be changed from time
to time by the OTS to any amount  within the range of 4% to 10%  depending  upon
economic  conditions  and  the  savings  flows  of  member   institutions.   OTS
regulations also required each member savings institution to maintain an average
daily balance of short-term liquid assets at a specified  percentage (1%) of the
total of its net  withdrawable  deposit  accounts and borrowings  payable in one
year or less.  Monetary  penalties  may be  imposed  for  failure  to meet these
liquidity requirements. The Bank's liquidity and short-term liquidity ratios for
September  30,  1997  were  6.1% and  14.9%  respectively,  which  exceeded  the
applicable  requirements.  The Bank has never been subject to monetary penalties
for  failure to meet its  liquidity  requirements.  In  November  1997,  the OTS
amended the liquidity  requirements to reduce the general requirement from 5% to
4% and eliminated the short-term requirement.

     Assessments.  Savings  institutions  are required to pay assessments to the
OTS to  fund  the  agency's  operations.  The  general  assessments,  paid  on a
semi-annual  basis,  are computed upon the savings  institution's  total assets,
including consolidated subsidiaries,  as reported in the Bank's latest quarterly
thrift  financial  report.  The assessments paid by the Bank for the fiscal year
ended September 30, 1997 totaled $172,600.

     Branching.   OTS  regulations  permit  nationwide  branching  by  federally
chartered  savings  institutions to the extent allowed by federal statute.  This
permits federal savings  institutions  to establish  interstate  networks and to
geographically  diversify their loan  portfolios and lines of business.  The OTS
authority  preempts any state law  purporting  to regulate  branching by federal
savings institutions.

     Transactions  with  Related  Parties.  The  Bank's  authority  to engage in
transactions  with  related  parties or  "affiliates"  (e.g..,  any company that
controls or is under common control with an  institution,  including the Company
and its 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  with any  individual  affiliate to 10% of the capital and
surplus of the savings institution. The aggregate amount of covered transactions
with all affiliates is limited to 20% 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 loans
and asset purchases, must be on terms and under circumstances,  including credit
standards,  that are  substantially  the same or at  least as  favorable  to the
institution  as those  prevailing at the time for comparable  transactions  with
non-affiliated companies. In addition,  savings institutions are prohibited from
lending to any affiliate that is engaged in activities  that are not permissible
for  bank  holding  companies  and  no  savings  institution  may  purchase  the
securities of any affiliate other than a subsidiary.

                                       28


<PAGE>



     The Bank's authority to extend credit to executive officers,  directors and
10%  shareholders,  as well as entities  such  persons  control,  is governed by
Sections  22(g) and 22(h) of the FRA and  Regulation O  thereunder.  Among other
things,  such loans are required to be made on terms  substantially  the same as
those  offered to  unaffiliated  individuals  and to not  involve  more than the
normal risk of  repayment.  Regulation O also places  individual  and  aggregate
limits on the amount of loans the Bank may make to such persons 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
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 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; and compensation,  fees and benefits.
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.

Federal Reserve System

     The Federal  Reserve Board  regulations  require  savings  institutions  to
maintain  non-interest  earning  reserves  against  their  transaction  accounts
(primarily NOW and regular checking  accounts).  During fiscal 1997, the Federal
Reserve Board regulations generally required that reserves be maintained against
aggregate  transaction  accounts  as follows:  for  accounts  aggregating  $52.0
million or less (subject to adjustment by the Federal Reserve Board) the reserve
requirement is 3%; and for accounts  aggregating greater than $52.0 million, the
reserve  requirement  is $1.6  million plus 10%  (subject to  adjustment  by the
Federal  Reserve  Board  between  8% and  14%)  against  that  portion  of total
transaction  accounts  in excess of $52.0  million.  The first  $4.3  million of
otherwise reservable

                                       29


<PAGE>



balances (subject to adjustments by the Federal Reserve Board) are exempted from
the  reserve  requirements.  The  Bank  is  in  compliance  with  the  foregoing
requirements.  Effective  December 16, 1997, the Federal Reserve has amended the
Reserve Requirements as follows: the amount of transaction accounts subject to a
reserve  requirement  ratio of 3% will  decrease  from  $49.3  million  to $47.8
million and the amount of reservable  liabilities  that is exempted from reserve
requirements  will  increase  from $4.4  million to $4.7  million.  The balances
maintained to meet the reserve requirements imposed by the Federal Reserve Board
may be used to satisfy liquidity requirements imposed by the OTS.

                           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 seven  years.  For its 1997
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.

     The Small Business Job  Protection Act of 1996 (the "1996 Act"),  which was
enacted on August 20, 1996,  requires  savings  institutions to recapture (i.e.,
take into income) certain portions of their  accumulated bad debt reserves.  The
1996 Act repeals the reserve  method of accounting  for bad debts  effective for
tax years beginning  after 1995.  Thrift  institutions  that would be treated as
small banks are  allowed to utilize the  Experience  Method  applicable  to such
institutions,  while thrift  institutions that are treated as large banks (those
generally  exceeding  $500  million  in  assets)  are  required  to use only the
specific charge-off method.  Thus, the PTI Method of accounting for bad debts is
no longer available for any financial institution.

     Use of the PTI Method  had the  effect of  reducing  the  marginal  rate of
federal  tax on the  Bank's  income  to  32.2%,  exclusive  of  any  minimum  or
environmental  tax, as compared to the maximum corporate federal income tax rate
of 35%.

                                       30


<PAGE>



     A thrift  institution  required to change its method of computing  reserves
for bad debts  will  treat  such  change  as a change  in method of  accounting,
initiated by the taxpayer, and having been made with the consent of the IRS. Any
Section 481(a) adjustment  required to be taken into income with respect to such
change  generally  will be taken into income  ratably  over a  six-taxable  year
period,  beginning with the first taxable year beginning after 1995,  subject to
the residential loan requirement.

     Under the residential loan requirement provision, the recapture required by
the  1996 Act  will be  suspended  for  each of two  successive  taxable  years,
beginning  in 1996 or 1997 in which the  Bank's  loan  originations  is at least
equal to the  average  of the  principal  amounts of such loans made by the Bank
during its six most recent tax years prior to 1996.

     The  provisions of the 1996 Act are  effective for the Bank's  taxable year
beginning  October 1, 1996,  and the Bank is permitted to make  additions to bad
debt reserves based on experience method only. In addition, the Bank is required
to recapture  (i.e. take into taxable income) over a six year period or not more
than an eight year period if residential  loan  requirements are met, the excess
of the balance of its bad debt reserves as of September 30, 1996 (other than its
supplemental reserves for losses on loans) over the balance of such reserves for
the base year (i.e. the last year beginning  before 1988).  Since the percentage
of  taxable   income  method  for  Federal  tax  bad  debt   deduction  and  the
corresponding increase in the Federal tax bad debt reserve in excess of the base
year has been  recorded  as  temporary  differences  pursuant  to  Statement  of
Financial  Accounting Standards ("SFAS") No. 109, this change in the tax law had
no adverse effect on the Bank's statement of operations.

     Distributions.  Under  the  1996  Act,  if  the  Bank  makes  "non-dividend
distributions"  to the Company,  such  distributions  will be considered to have
been made from the Bank's  unrecaptured  tax bad debt  reserves  (including  the
balance of its reserves as of December 31, 1987) to the extent thereof, and then
from the Bank's supplemental reserve for losses on loans, to the extent thereof,
and an amount based on the amount  distributed  (but not in excess of the amount
of such reserves) will be included in the Bank's  taxable  income.  Non-dividend
distributions  include  distributions  in  excess  of  the  Bank's  current  and
accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock,  and  distributions in partial or complete
liquidation.  Dividends paid out of the Bank's  current or accumulated  earnings
and profits will not be so included in the Bank's taxable income.

     The amount of additional  taxable income  triggered by a non-dividend is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution.  Thus, if the Bank makes a non-dividend distribution
to the  Company,  approximately  one  and  one-half  times  the  amount  of such
distribution  (but  not in  excess  of the  amount  of such  reserves)  would be
includable  in income for federal  income tax  purposes,  assuming a 35% federal
corporate  income tax rate. The Banks does/does not intend to pay dividends that
would result in a recapture of any portion of its bad debt reserves.

                                       31


<PAGE>



     SAIF Recapitalization  Assessment.  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
30,1 996. This  legislation  eliminated the  substantial  disparity  between the
amount that BIF and SAIF members had been paying for deposit insurance premiums.

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.

Impact of New Accounting Standards

     In March 1995, the Financial  Accounting Standards Board (FASB) issued SFAS
No. 121,  "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be  Disposed  Of." SFAS No.  121  prescribes  the  accounting  for the
impairment of long-lived  assets and goodwill  related to those assets.  The new
rules  specify when assets should be reviewed for  impairment,  how to determine
whether  an asset is  impaired,  how to  measure an  impairment  loss,  and what
financial

                                       32


<PAGE>



statement disclosures are necessary.  Also prescribed is the accounting for long
lived assets and  identifiable  intangibles  that a company plans to dispose of,
other than those that are a part of a discontinued operation.  Any impairment of
a long-lived asset resulting from  management's  review is to be recognized as a
component of noninterest expense. The Company adopted SFAS No. 121 on January 1,
1996.  Management  believes that the impact of adoption will not have a material
effect on the consolidated financial statements of the Company.

     In October  1995,  FASB issued SFAS No. 123,  "Accounting  for  Stock-Based
Compensation,"  which is  effective in 1996.  SFAS No. 123 requires  that a fair
value-based  method be used to value  employee  compensation  plans that include
stock-based  awards.  The statement permits a company to recognize  compensation
expense under SFAS No. 123 or continue to use the prior  accounting  rules which
did not consider the market value of stock in certain  award plans.  If adoption
of the  statement's  fair value  procedures  are not used in the  computation of
compensation  expense in the income  statement,  the company must  disclose in a
footnote to the  financial  statements  the pro forma  impact of  adoption.  The
Company will be adopting the disclosure method of the statement.

     In September 1996 the FASB issued SFAS No. 125,  "Accounting  for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
125") which was amended by SFAS No. 127. This Statement provides  accounting and
reporting  standards  for  transfers  and  servicing  of  financial  assets  and
extinguishments   of   liabilities   based  on  consistent   application   of  a
financial-components   approach  that  focuses  on  control.   It  distinguishes
transfers of  financial  assets that are sales from  transfers  that are secured
borrowings.  Under  the  financial-components  approach,  after  a  transfer  of
financial  assets,  an entity  recognizes all financial and servicing  assets it
controls and liabilities it has incurred and derecognizes financial assets it no
longer   controls   and   liabilities   that   have   been   extinguished.   The
financial-components  approach  focuses on the assets and liabilities that exist
after the  transfer.  Many of these assets and  liabilities  are  components  of
financial assets that existed prior to the transfer. If a transfer does not meet
the criteria for a sale,  the transfer is accounted  for as a secured  borrowing
with  pledge of  collateral.  The  Statement  is  effective  for  transfers  and
servicing of financial assets and extinguishments of liabilities occurring after
December  31,  1996  or  in  the  care  of  repurchase  agreements  and  similar
transactions, occurring after December 31, 1997. Retroactive application of this
Statement  is  not  permitted.   The  Company  does  not  anticipate   that  the
implementation  of SFAS No.  125 will have a material  impact on its  results of
operations or financial condition.

     In February  1997,  the FASB  released  SFAS No. 128,  "Earnings Per Share"
("SFAS  No.  128").  SFAS  No.  128  establishes  standards  for  computing  and
presenting earnings per share ("EPS") and applies to entities with publicly held
common stock or potential  common stock.  SFAS No. 128  simplifies the standards
for  computing  earnings  per share  previously  found in APB  Opinion  No.  15,
"Earnings Per Share," and makes them comparable to international  EPS standards.
It replaces the presentation of primary EPS with a presentation of basic EPS. It
also  requires  dual  presentation  of basic and  diluted EPS on the face of the
numerator and  denominator  of the diluted EPS  computation.  Basic EPS excludes
dilution and is computed by dividing income available to common  stockholders by
the weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the  potential  dilution  that could occur if  securities  or other
contracts

                                       33


<PAGE>



to issue common stock were  exercised or converted into common stock or resulted
in the  issuance of common stock that then shared in the earnings of the entity.
Diluted EPS is computed  similarly to fully  diluted EPS pursuant to APB Opinion
No. 15. SFAS No. 128 is effective  for financial  statements  issued for periods
ending after December 15, 1997,  including interim periods;  earlier application
is not permitted.

     In March 1997,  the FASB issued SFAS No. 129,  "Disclosure  of  Information
About Capital  Structure"  ("SFAS No. 129"). SFAS No. 129 continues the existing
requirements  to disclose the pertinent  rights and privileges of all securities
other than ordinary common stock but expands the number of companies  subject to
portions of its requirements.  Specifically, the Statement requires all entities
to provide the capital structure disclosures  previously required by APB Opinion
No. 15.  Companies  that were exempt from the  provisions  of APB Opinion No. 15
will now need to make those disclosures.

     In June  1997,  the FASB  issued  SFAS No.  130,  "Reporting  Comprehensive
Income" ("SFAS No. 130").  SFAS No. 130 establishes  standards for reporting and
display of comprehensive income and its components (revenues,  expenses,  gains,
and losses) in a full set of general purpose financial statements.  SFAS No. 130
requires  that all items that are  required to be  recognized  under  accounting
standards  as  components  of  comprehensive  income be  reported in a financial
statement  that is  displayed  with  the  same  prominence  as  other  financial
statements. SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive  income by their nature in a financial  statement  and (b) display
the accumulated balance of other comprehensive  income separately from net worth
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.  Reclassification of financial statements for earlier periods provided
for  comparative  purposes  is  required.   Management  is  in  the  process  of
determining the impact, if any, this statement will have on the Bank.

     In June 1997, the FASB issued SFAS No. 131,  "Disclosures About Segments of
an Enterprise and Related  Information"  ("SFAS No. 131"). SFAS No. 131 requires
disclosures  for each segment that are similar to those  required  under current
standards  with the addition of quarterly  disclosure  requirements  and a finer
partitioning of geographic  disclosures.  It requires  limited segment data on a
quarterly  basis.  It also requires  geographic  data by country,  as opposed to
broader geographic regions as permitted under current standards. SFAS No. 131 is
effective  for fiscal  year  beginning  after  December  15,  1997 with  earlier
application permitted.

                                       34


<PAGE>



Additional Item. Executive Officers Who Are Not Directors

     The following  table sets forth  certain  information  regarding  executive
officers of the Company, at September 30, 1997, who are not also directors.

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

P. James O'Gorman          38        Executive Vice President, Chief Financial
                                     Officer and Treasurer
Robert E. Adamec           54        Senior Vice President and Corporate
                                     Secretary
Valerie M. Swaya           31        Vice President and Chief Administrative
                                     Officer


     P. James O'Gorman.  Mr. O'Gorman joined the Bank in 1990 as Controller.  In
March 1991,  he 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. 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.

                                       35


<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                 1997     
--------------------------------------     -----------    --------------    -------------------    ------------------
                                                                                                     (In thousands)
<S>                                         <C>                <C>              <C>                    <C>
Main Office:
   Long Island City
   42-25 Queens Boulevard.............        Owned            1962                 --                  $   570
Branches:
   Long Island City
   45-14 46th Street..................       Leased            1976                2001                       7
   Jackson Heights
   75-23 37th Avenue..................       Leased            1990                2005                     189
   Flushing
   59-23 Main Street..................       Leased            1974                1999                     250
   Brooklyn
   814 Manhattan Avenue...............        Owned            1995                 --                    1,055
                                                                                                          -----

Total                                                                                                    $2,071
                                                                                                         ======
</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

     None.

                                       36


<PAGE>



                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholders Matters

     Information  relating  to the  market  for  Registrant's  common  stock and
related  stockholder  matters  appears  under  Common Stock  Information  in the
Registrant's  1997 Annual Report to Stockholders on the inside back cover and is
incorporated herein by reference.

Item 6. Selected Financial Data

     The selected financial data appears under Selected  Consolidated  Financial
and  Other  Data of the  Company  in the  Registrant's  1997  Annual  Report  to
Stockholders on pages 6 through 7 and is incorporated herein by reference.

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

     The above-captioned  information appears under Management's  Discussion and
Analysis of Financial  Condition and Results of  Operations in the  Registrant's
1997 Annual  Report to  Stockholders  on pages 8 through 15 and is  incorporated
herein by reference.

Item 8. Financial Statements and Supplementary Data

     The  Consolidated   Financial  Statements  and  related  notes  thereto  of
Financial Bancorp,  Inc. and its subsidiaries,  together with the report thereon
by  Radics & Co.,  LLC,  appears  in the  Registrant's  1997  Annual  Report  to
Stockholders on pages 16 through 40 and are incorporated herein by reference.

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  information  relating  to  Directors  and  Executive  Officers  of the
Registrant  is  incorporated  herein  by  reference  to the  Registrant's  Proxy
Statement  for the 1998 Annual  Meeting of  Stockholders  to be held January 22,
1998 pages 5 through 6.

                                       37


<PAGE>



Item 11. Executive Compensation

     The information  relating to executive  compensation is incorporated herein
by reference to the Registrant's  Proxy Statement for the 1998 Annual Meeting of
Stockholders  to be held on January 22, 1998 at pages 7 through 9 and 13 through
15, excluding the Compensation Committee Report.

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 the  Registrant's  Proxy
Statement for the 1998 Annual Meeting of  Stockholders to be held on January 22,
1998 at pages 5 through 7.

Item 13. Certain Relationships and Related Transactions

     The information relating to certain  relationships and related transactions
is incorporated  herein by reference to the Registrant's Proxy Statement for the
1998 Annual Meeting of Stockholders to be held on January 22, 1998 at page 17.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 10-K.

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

     (1)  Consolidated  Financial  Statements  of  Financial  Bancorp,  Inc. are
          incorporated  by reference to the  indicated  pages of the 1997 Annual
          Report to Stockholders.

                                                                            PAGE
                                                                            ----

Independent Auditors' Report............................................... 40

Consolidated Statements of Financial Condition as of
         September 30, 1997 and 1996....................................... 16

Consolidated Statements of Income for Each of the Years in
         the Three-Year Period Ended September 30, 1997.................... 17

Consolidated Statements of Changes in Stockholders' Equity for Each
         of the Years in the Three-Year Period Ended September 30, 1997.... 20

Consolidated Statements of Cash Flows for Each
         of the Years in the Three-Year Period Ended September 30, 1997.... 18

Notes to Consolidated Financial Statements................................. 21

The remaining information appearing in the 1997 Annual Report to Stockholders is
not  deemed to be filed as part of this  report,  except as  expressly  provided
herein.

                                       38


<PAGE>



(2)       All 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

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

3.1       Certificate of Incorporation of Financial Bancorp, Inc.*

3.2       Bylaws of Financial Bancorp, Inc.*

4.0       Stock Certificate of Financial Bancorp, Inc.*

10.1      Financial Federal Savings Bank Recognition and Retention Plan**

10.2      Financial Bancorp, Inc. 1995 Incentive Stock Option Plan***

10.3      Financial Bancorp, Inc. 1995 Stock Option Plan for Outside Directors**

10.4      Financial  Savings and Loan Association  Employee Stock Ownership Plan
          and Trust*

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

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

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

10.8      Employment  Agreement  between  Financial  Federal  Savings  and  Loan
          Association and Robert E. Adamec****

10.9      Employment  Agreement  between  Financial  Bancorp,  Inc. and P. James
          O'Gorman****

10.10     Employment  Agreement  between Financial  Bancorp,  Inc. and Robert E.
          Adamec****

10.11     Financial  Federal  Savings and Loan  Association  Outside  Directors'
          Consultation and Retirement Plan*

11.0      Computation of earnings per share (filed herewith)

13.0      Annual Report to  Stockholders  for the year ended  September 30, 1997
          (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      Proxy Statement for 1998 Annual Meeting (filed herewith)

----------

*    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.

**   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.

***  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.

**** 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.

(b)  Reports on Form 8-K 
     None

                                       39


<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.

<TABLE>
<CAPTION>
           Name               Title                                       Date
           ----               -----                                       ----
<S>                           <C>                                  <C>
/s/Frank S. Latawiec          President, Chief Executive           December 31, 1997
------------------------
Frank S. Latawiec             Officer and Director
                              (Principal Executive Officer)

/s/P. James O'Gorman          Executive Vice President, Chief      December 31, 1997
------------------------
P. James O'Gorman             Financial Officer and Treasurer
                              (Principal Accounting Officer)

/s/Peter S. Russo             Chairman of the Board                December 31, 1997
------------------------
Peter S. Russo

/s/Dominick L. Segrete        Director                             December 31, 1997
------------------------
Dominick L. Segrete

/s/Richard J. Hickey          Director                             December 31, 1997
------------------------
Richard J. Hickey

/s/Raymond M. Calamari        Director                             December 31, 1997
------------------------
Raymond M. Calamari
</TABLE>