Exhibit 13.0 Annual Report to Stockholders for the year ended September 30, 1996
<PAGE>

                             FINANCIAL BANCORP, INC.

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


                                   [Graphic]

                                FINANCIAL FEDERAL
                                  SAVINGS BANK

                    Bank on our strength to build your dreams



                               1996 ANNUAL REPORT
<PAGE>

                       SELECTED CONSOLIDATED FINANCIAL AND
                             OTHER DATA OF THE BANK

The following table sets forth certain summary historical financial information
concerning the financial position of Financial Bancorp, Inc. (the "Company"),
including its subsidiary, Financial Federal Savings Bank (the "Bank"), for the
period and at the dates indicated. The financial data is derived in part from,
and should be read in conjunction with, the consolidated financial statements
and related notes of the Company contained elsewhere herein. (In Thousands) At
September 30,

(In Thousands)                                   At September 30,
--------------------------------------------------------------------------------
                                  1996      1995      1994      1993      1992
                                ------------------------------------------------

Financial Condition Data:

Total assets .................  $266,763  $228,823  $171,642  $147,871  $156,749
Total loans receivable, net ..   140,314   110,062    83,505    83,425    94,708
Investment securities(1) .....    56,406    40,359    17,801     5,435    11,561
Mortgage-backed securities(2)     54,853    62,008    49,839    49,408    40,862
Deposits .....................   202,884   186,492   140,182   136,638   146,823
Borrowed funds ...............    33,652    12,501      --        --        --
Stockholders' equity .........    25,787    27,179    29,300     9,374     7,696

<TABLE>
<CAPTION>

(In Thousands)                                        Year Ended September 30,
--------------------------------------------------------------------------------------------
                                          1996       1995       1994       1993       1992
                                        ----------------------------------------------------
<S>                                     <C>        <C>        <C>        <C>        <C>     
Selected Operating Data:
Interest income ......................  $ 17,823   $ 14,256   $ 10,490   $ 11,305   $ 12,275
Interest expense .....................     8,691      6,286      4,000      4,383      6,569
                                        ----------------------------------------------------
Net interest income ..................     9,132      7,970      6,490      6,922      5,706

Provision for loan losses ............       543        342        183        732         75
                                        ----------------------------------------------------
Non-interest income:
  Fees, service charges, gain (loss)
    on sales and other income ........       490        309        355      1,063      1,087
  (Loss) from real estate operations        (313)      (618)      (300)      (380)      --
                                        ----------------------------------------------------
  Total non-interest income (loss):          177       (309)        55        683      1,087
                                        ----------------------------------------------------
Non-interest expense:
  Salaries and employee benefits .....     3,048      2,619      2,301      1,967      1,909
  Premises and equipment .............     1,064      1,048        826        920        984
  Advertising ........................        70        129         41         19         19
  Loss (income) from real estate owned        84         77        (12)       183         (2)
  Federal insurance premiums(3) ......     1,502        390        360        306        314
  Miscellaneous ......................     1,170      1,014        668        700        646
                                        ----------------------------------------------------
  Total non-interest expense .........     6,938      5,277      4,184      4,095      3,870
                                        ----------------------------------------------------
Income before income taxes ...........     1,828      2,042      2,178      2,778      2,848
Income tax expense(4) ................       675        836        921      1,099      1,308
                                        ----------------------------------------------------
Net income ...........................  $  1,153   $  1,206   $  1,257   $  1,679   $  1,540
============================================================================================
</TABLE>


6
<PAGE>

<TABLE>
<CAPTION>
                                                             At Year Ended September 30,
------------------------------------------------------------------------------------------------------
                                                1996        1995        1994        1993        1992
                                              --------------------------------------------------------
<S>                                              <C>        <C>         <C>          <C>         <C>  
Selected Financial Ratios and Other Data:
Retained earnings to assets at period end        9.67%      11.88%      17.07%       6.34%       4.91%
Return on average assets .................       0.47        0.60        0.79        1.09        1.00
Return on average equity .................       4.31        4.18        9.76       19.71       22.21
Average equity to average assets .........      10.97       14.27        8.08        5.54        4.49
Net interest rate spread .................       3.48        3.70        4.12        4.63        3.78
Net interest margin ......................       3.91        4.18        4.29        4.74        3.88

Operating expenses to average assets(5)(7)       2.20        2.57        2.63        2.55        2.51
Efficiency ratio(7) ......................      56.01       62.81       61.29       53.38       62.68
Non-performing assets to total assets ....       3.09        2.65        2.95        4.05        3.07
Non-performing loans to total loans ......       3.15        1.72        1.95        2.58        4.70
Allowance for loan losses to total loans .       1.09        1.10        1.31        1.18        0.36
Allowance for loan losses
  to non-performing assets(6) ............      19.08       20.50       22.09       16.78        7.13
Number of full-service facilities ........          5           5           5           5           6
</TABLE>

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

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

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

(4) Includes for the year ended September 30, 1993, an income tax benefit of
    $196,665, which reflects the cumulative effect of a change in accounting
    for income taxes resulting from the adoption of Statement of Financial
    Accounting Standards ("FASB") 109 as of October 1, 1992.

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

(6) Non-performing assets for the years ended September 30, 1996, 1995, 1994
    and 1993, include investments in real estate.

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


                                                                               7
<PAGE>

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

GENERAL

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

FINANCIAL CONDITION

As of September 30, 1996, total assets were $266.8 million, which represents a
$38.0 million, or a 16.6%, increase from $228.8 million as of September 30,
1995. During the same period, deposits increased by $16.4 million, or 8.8%, to
$202.9 million as of September 30, 1996 from $186.5 million at September 30,
1995. Furthermore, advances from the Federal Home Loan Bank of New York ("FHLB")
increased by $4.3 million to $9.7 million, at September 30, 1996, as compared to
$5.4 million at September 30, 1995. The treasury tax and loan account and other
short-term borrowings increased to $9.9 million at September 30, 1996, from zero
at September 30, 1995. Securities sold under agreements to repurchase increased
by $6.9 million, to $14.0 million at September 30, 1996, from $7.1 million at
September 30, 1995. Asset growth was funded by a combination of both the $16.4
million increase in the Bank's deposit base, the $4.3 million increase in FHLB
advances, in addition to the $16.8 million increase in other short-term
borrowings and securities sold under agreements to repurchase.

      At September 30, 1996, cash and cash equivalents totalled $5.1 million,
which represents a $2.8 million, or a 35.0%, decrease from $7.9 million, from
the same period in 1995. This decrease primarily resulted from the cash utilized
to fund the Company's stock repurchase programs.

      Investment securities available for sale increased to $3.6 million, at
September 30, 1996, as compared to zero at September 30, 1995. Furthermore,
mortgage-backed securities available for sale increased to $5.0 million, at
September 30, 1996, as compared to zero at September 30, 1995. In accordance
with an implementation guide for Statement of Financial Accounting Standards
("SFAS") 115, "Accounting for Certain Investments in Debt and Equity
Securities," released by the Financial Accounting Standards Board ("FASB") on
November 15, 1995, which permitted a one-time reassessment and related
reclassification, no later than December 31, 1995, the Bank, during this window
period, realigned its investment securities portfolio to provide greater
flexibility and maximize its total rate of return by transferring $2.0 million
of U.S. Treasury Securities from the held to maturity to the available for sale
portfolio.

      As of September 30, 1996, investment securities, including available for
sale, consisted primarily of medium-term U.S. Government Agency obligations,
with features such as calls and/or interest rate "step-ups," and Treasury
Securities increased $15.8 million, or 40.6%, to $54.7 million from $38.9
million as of September 30, 1995. Mortgage-backed securities decreased by $12.2
million, or 19.6%, to $49.8 million as of September 30, 1996, from $62.0 million
as of September 30, 1995, exclusive of $5.0 million in mortgage-backed
securities which were classified as available for sale. Loans receivable
increased by $30.3 million, or 27.5%, to $140.3 million as of September 30,
1996, from $110.0 million as of September 30, 1995. This $30.3 million, or 27.5%
increase in loans receivable primarily resulted from the origination of $34.3
million in mortgage loans, and the purchase of $14.3 million of one- to-four
family, adjustable rate residential mortgage loans, partially offset by normal
amortization, prepayments and satisfactions.

      Non-performing loans totaled $4.6 million, or 3.15% of total loans at
September 30, 1996 as compared to $1.9 million, or 1.72% of total loans at
September 30, 1995. The increase in non-performing loans represents the balance
of Thrift Association Service Corporation ("TASCO") pass-through securities. In
May 1996, the FDIC stated that they would not continue the scheduled
pass-through of principal and interest payments whether or not collected. At
September 30, 1996, the FDIC continued to withhold principal and interest
payments on these securities. At September 30, 1996, nonperforming assets
totalled $8.2 million, or 3.09% of total assets as compared to $6.1 million, or
2.65% of total assets as of September 30, 1995. The Company's allowance for loan
losses totalled $1.6 million at September 30, 1996, which represents a ratio of
allowance for loan losses to nonperforming assets and to total loans of 19.08%
and 1.09%, respectively, as compared to 20.51% and 1.10%, respectively, at
September 30, 1995. Of the $1.6 million in allowance for loan losses, $504,000
is attributable to one loan participation with Tasco.

      Total stockholders' equity was $25.8 million at September 30, 1996,
reflecting a $1.4 million, or 5.2%, decrease from the prior year. The decrease
in stockholders' equity was the result of the Company's repurchase of 


8
<PAGE>

192,266 shares as part of the Company's two, five percent repurchase programs,
each for five percent of the then outstanding common stock, at a total cost of
$2.5 million. As of September 30, 1996, the Company has repurchased 18.5% of the
total shares issued in the initial public offering. At September 30, 1996, the
Company had 1,790,622 common shares outstanding and the stated book value per
common share was $14.40, an increase of $0.62 per common share, or 4.5%, from
$13.78 per common share at September 30, 1995.

INTEREST RATE SENSITIVITY ANALYSIS

The Bank is subject to interest rate risk to the extent that its
interest-bearing liabilities reprice or mature more or less frequently than its
interest-earning assets. The Bank's interest rate risk management policy has
been structured to monitor and maintain the Bank's interest rate sensitivity to
within Board prescribed limits while attempting to maximize net interest income.
In connection with its interest rate risk management strategy, management has
emphasized the purchase of adjustable rate-mortgage loans, and has limited its
other investments to medium-term, U.S. Government Agency securities with an
average maturity of five years or less. This strategy is necessary to offset the
significant amount of fixed-rate loan origination activity. On the liability
side, management has closely monitored the pricing of its deposit products, and
has made a conscious effort to extend deposit maturities, and secure fixed-rate
borrowings when market conditions are favorable. In addition, the Bank has had
tremendous success in growing its noninterest-bearing demand accounts and
utilizing low cost sources of overnight and short-term borrowings to fund
short-to medium-term investments.

      The table below summarizes the estimated contractual maturities of the
Bank's interest-earning assets and interest-bearing liabilities at September 30,
1996. Maturities are adjusted using assumptions for prepayments and decay rates
as researched and developed by the Bank. The assumptions for prepayments on
fixed-rate mortgage loans and mortgage-backed securities range from 15% to 20%
dependent upon the type of property (single-family or multi-family) and type of
lien (first or second). The assumptions for deposits are: (i) certificate
accounts are not withdrawn prior to maturity; and (ii) the decay rates for NOW
accounts, money market and regular savings accounts range from 17% to 79% per
year. The table does not necessarily indicate the impact of general interest
rate movements on the Company's net interest income because the actual repricing
dates of various assets and liabilities are subject to customer discretion and
competitive and other pressures and, therefore, actual prepayment and withdrawal
experience may vary from that indicated.

      The effect of these assumptions is to quantify the dollar amounts of items
that are interest-sensitive and can be repriced within each of the periods
specified. The difference, or "gap," provides an indication of the extent to
which the Bank's net interest income may be affected by future changes in
interest rates. The Bank's cumulative one-year gap, as a percent of total
interest-earning assets, increased to a positive 11.12% at September 30, 1996
from a positive 8.97% at September 30, 1995. A positive gap denotes asset
sensitivity, which in a given period will result in more assets subject to
repricing than liabilities. Generally, asset sensitive gaps will result in a net
positive effect on net interest income and consequently, net income in an
increasing interest rate environment. Alternatively, asset sensitive gaps will
generally result in a net negative effect on net interest income and
consequently, net income in a decreasing interest rate environment.

<TABLE>
<CAPTION>

(Dollars in Thousands)                                                          At September 30, 1996
------------------------------------------------------------------------------------------------------------------------------------
                                                                More than               More than   More than
                                                     Three    Three Months  More than  Three Years  Five Years
                                                     Months    to Twelve   One Year to   to Five     to Ten     More than
                                                    or Less      Months    Three Years    Years       Years     Ten Years     Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>         <C>         <C>         <C>         <C>         <C>         <C>     
Interest-earning assets:
  Mortgage and other loans ......................   $  9,651    $ 40,874    $ 31,012    $ 27,688    $ 24,708    $ 10,759    $144,692
  Investment securities .........................     34,988      13,568       2,566       2,908        --          --        54,030
  Mortgage-backed securities ....................     17,348      14,765       5,347       5,665       7,750       3,978      54,853
  Repurchase agreements .........................      2,185        --          --          --          --          --         2,185
  FHLB stock and equity securities ..............       --          --          --          --          --         2,376       2,376
                                                    --------------------------------------------------------------------------------
Total interest-earning assets ...................   $ 64,172    $ 69,207    $ 38,925    $ 36,261    $ 32,458    $ 17,113    $258,136
                                                    ================================================================================
Interest-bearing liabilities:
  Savings and club accounts .....................   $  4,208    $  9,306    $ 18,843    $ 12,982    $ 17,422    $ 11,323    $ 74,084
  NOW accounts ..................................        738       2,214       3,030       1,203         713          79       7,977
  Money market accounts .........................      2,102       6,306       2,137          94           6        --        10,645
  Certificates of deposit .......................     15,514      37,663      29,097      19,873         875        --       103,022
  Borrowed funds ................................     24,452       1,200       8,000        --          --          --        33,652
                                                    --------------------------------------------------------------------------------
Total interest-bearing liabilities ..............   $ 47,014    $ 56,689    $ 61,107    $ 34,152    $ 19,016    $ 11,402    $229,380
                                                    ================================================================================
Interest-sensitivity gap ........................   $ 17,158    $ 12,518    $(22,182)   $  2,109    $ 13,442    $  5,711    $ 28,756
                                                    ================================================================================
Cumulative interest-sensitivity gap .............   $ 17,158    $ 28,676    $  7,494    $  9,603    $ 23,045    $ 28,756
                                                    ====================================================================

Cumulative interest-sensitivity gap as a
  percentage of total assets ....................       6.43%      11.12%       2.81%       3.60%       8.64%      10.78%

Cumulative net interest-earning assets as a
  percentage of interest-bearing liabilities ....     136.50%     128.62%     104.55%     104.83%     110.57%     112.54%
</TABLE>


                                                                               9
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS

The following table sets forth certain information relating to the Company's
average balance sheet and reflects the average yield on assets and the average
cost of liabilities for the periods indicated. Such yields and costs are derived
by dividing income or expense by the average monthly balance of assets or
liabilities, respectively, for the periods shown. Average balances are derived
from average month-end balances, except for federal funds, and borrowed funds
which are derived from average daily balances. Management does not believe that
the use of average monthly balances instead of average daily balances on all
other accounts has caused any material differences in the information presented.
The yields and costs include fees which are considered adjustments to yields.
(Dollars in Thousands) Year Ended September 30,

<TABLE>
<CAPTION>

(Dollars in Thousands)                                                  Year Ended September 30,
------------------------------------------------------------------------------------------------------------------------------------
                                                 1996                               1995                            1994
                                     -----------------------------   ---------------------------------  ----------------------------
                                     Average             Average     Average                 Average    Average            Average
                                     Balance  Interest  Yield/Cost   Balance     Interest   Yield/Cost  Balance  Interest Yield/Cost
                                     -----------------------------------------------------------------------------------------------
<S>                                   <C>       <C>        <C>      <C>            <C>           <C>    <C>        <C>      <C>  
Interest-earning assets:
  Federal funds sold and
    securities purchased
    under agreements to resell...     $  659    $  38      5.72%    $  2,296       $  136        5.91%  $  5,476   $  194   3.55%
  Investment securities(1).......     48,728    3,444      7.07       33,059        2,381        7.20     15,659      935   5.97
  Loans receivable(2)............    127,050   10,316      8.12       93,592        7,551        8.07     82,568    6,752   8.18
  Mortgage-backed securities(3)..     57,274    4,025      7.03       61,872        4,188        6.77     47,655    2,609   5.48
                                    --------  -------               --------       ------               --------   ------          
Total interest-earning assets....    233,711   17,823      7.63      190,819       14,256        7.47    151,358   10,490   6.93
                                              -------     -----                    ------       -----              ------  -----  
Non-interest-earning assets......     10,202                          11,386                               8,015
                                    --------                        --------                            --------
    Total assets.................   $243,913                        $202,205                            $159,373
                                    ========                        ========                            ========
Interest-bearing liabilities:                             
  NOW and money market deposits..   $ 18,818      436      2.31     $ 16,492       $  373        2.26   $ 18,623      424   2.28
  Savings deposits...............     75,243    1,674      2.22       79,679        1,930        2.42     85,803    1,994   2.32
  Certificates of deposit........     95,003    5,483      5.76       67,563        3,816        5.65     38,008    1,582   4.16
                                    --------  -------               --------       ------               --------   ------          
  Total interest-bearing deposits    189,064    7,593      4.01      163,734        6,119        3.741    42,434    4,000    2.81
  Borrowed funds.................     19,770    1,098      5.46        2,804          167        5.98       --       --       --
                                    --------  -------               --------       ------               --------   ------          
    Total interest-bearing                                
      liabilities ...............    208,834    8,691      4.15      166,538        6,286        3.771    42,434    4,000    2.81
                                              -------     -----                    ------        -----              ------  -----  
Non-interest bearing liabilities.      8,313                           6,809                               4,061
Total liabilities................    217,147                         173,347                             146,495
Stockholders' equity.............     26,766                          28,858                              12,878
                                    --------                        --------                            --------
    Total liabilities and                                 
      stockholders' equity.......   $243,913                        $202,205                            $159,373
                                    ========                        ========                            ========
                                                          
Net interest income..............             $ 9,132                             $ 7,970                         $ 6,490
                                              =======                             =======                         =======
Net interest rate spread(4)......                         3.48%                                  3.70%                       4.12%
                                                          ====                                   ====                        ====
Net interest-earning                                      
  assets/net interest margin(5)..   $ 24,877              3.91%     $ 24,281                     4.18%  $  8,924             4.29%
                                    ========              ====      ========                     ====   ========             ====
                                                          
Ratio of average interest-earning                         
  assets to average                                       
  interest-bearing liabilities...      1.12x                           1.15x                               1.06x
                                    ========                        ========                            ========
</TABLE>

----------
(1) Includes FHLB stock and investment securities available for sale.

(2) Includes non-accrual loans.

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

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

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


10
<PAGE>

RATE/VOLUME ANALYSIS

The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to: (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume); (iii) the changes attributable to the
combined impact of changes in volume and rate; and (iv) the net change.

<TABLE>
<CAPTION>

(In Thousands)                                      Year Ended September 30,                      Year Ended September 30,
-----------------------------------------------------------------------------------------------------------------------------------
                                                         1996 vs. 1995                                 1995 vs. 1994
                                            ---------------------------------------------------------------------------------------
                                                  Increase (Decrease) Due to                     Increase (Decrease) Due to
                                            ---------------------------------------------------------------------------------------
                                            Volume     Rate    Rate/Volume    Total       Volume      Rate     Rate/Volume   Total
                                            ---------------------------------------------------------------------------------------
<S>                                         <C>      <C>         <C>         <C>         <C>         <C>         <C>        <C>     
Interest income:
  Federal funds sold and securities
    purchased under agreements to resell    $  (97)  $    (2)    $     1     $   (98)    $  (113)    $   130     $   (75)   $   (58)
  Investment securities .................    1,128       (44)        (21)      1,063       1,039         193         214      1,446
  Loans receivable ......................    2,700        47          18       2,765         902         (91)        (12)       799
  Mortgage-backed securities ............     (311)      161         (13)       (163)        779         617         183      1,579
                                           ----------------------------------------------------------------------------------------
Total ...................................    3,420       162         (15)      3,567       2,607         849         310      3,766
                                           ----------------------------------------------------------------------------------------
Interest expense:                                                                                                          
  NOW and money market deposits .........       53        11           2          66         (49)         (3)          1        (51)
  Savings deposits ......................     (107)     (159)          9        (257)       (142)         84          (6)       (64)
  Certificates of deposit ...............    1,551        81          33       1,665       1,230         565         439      2,234
                                           ----------------------------------------------------------------------------------------
Total deposits ..........................    1,497       (67)         44       1,476       1,039         646         434      2,119
Borrowed funds ..........................    1,015       (12)        (22)        831        --          --           167        167
                                           ----------------------------------------------------------------------------------------
Total ...................................    2,512       (79)        (28)      2,405       1,039         646         601      2,286
                                           ----------------------------------------------------------------------------------------
Net change in net interest income .......  $   908   $   241     $    13     $ 1,162     $ 1,568     $   203     $  (291)   $ 1,480
                                           ========================================================================================
</TABLE>

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED
SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995. 

General. Net income for the year ended September 30, 1996 modestly decreased by
$53,000 to $1.15 million, or $0.64 per share, from $1.20 million, or $0.59 per
share, for the year ended September 30, 1995. This decrease was primarily due to
a $598,000, after-tax, one-time special assessment for the recapitalization of
the Savings Association Insurance Fund ("SAIF"), a $369,000 severance payment
made to the former president and chief executive officer of the Company and a
$201,000 increase in provisions for loan losses, which was partially offset by a
$1.2 million increase in net interest income before provision for loan losses.
For the year ended September 30, 1996, net income, excluding the $598,000
one-time after-tax special assessment for the recapitalization of the SAIF, was
$1.8 million, or $0.98 per share.

      Interest Income. Interest income increased by $3.6 million, or 25.0%, to
$17.8 million for the year ended September 30, 1996, from $14.2 million for the
year ended September 30, 1995. The increase primarily resulted from an increase
in interest-earning assets from the continued leveraging and growing of the
balance sheet to fund new loan originations, loan purchases and the purchase of
investment securities. The average yield on interest-earning assets increased 16
basis points to 7.63%, for the year ended September 30, 1996, from 7.47% from
the year ended September 30, 1995. The increase in the average yield primarily
resulted from a higher interest rate environment during fiscal 1996 in addition
to the Company's investment into higher yielding assets. For the year ended
September 30, 1996, average interest-earning assets were $233.7 million, as
compared to $190.8 million for the fiscal year ended September 30, 1995, which
represents a $42.9 million, or a 22.5% increase. The increase in the average
balance of interest-earning assets resulted from an increase in loans receivable
and investment securities. Interest income from loans increased by $2.8 million,
or 36.6%, to $10.3 million in fiscal 1996 from $7.5 million in fiscal 1995. This
increase was due to a $33.5 million, or 35.7%, increase in the average balance
of loans and a 5 basis point increase in the average yield on loans to 8.12% for
fiscal 1996 from 8.07% for the same period in 1995. The higher average balance
of loans receivable was consistent with management's strategy of deploying the
Company's funds into loans receivable. In fiscal 1996, interest income from
mortgage-backed securities decreased $163,000, or 3.9%, to $4.0 million from
$4.2 million for fiscal 1995. This decrease is primarily due to a $4.6 million,
or 7.4% decline in the average balance of mortgage-backed securities to $57.3
million in fiscal 1996 from $61.9 million in fiscal 1995, partially offset by a
26 basis point increase in the average yield on such securities to 7.03% for
fiscal 1996 from 6.77% for the corresponding period in 1995. Interest income on
investment securities increased $1.0 million, or 44.6%, to $3.4 million during
fiscal 1996 from $2.4 million during fiscal 1995, primarily due to an increase
of $15.7 million, or 47.4%, in the average balance of investment securities,
partially offset by a 13 basis point decrease in the average yield on such
securities of 7.07% during fiscal 1996 from 7.20% for fiscal year 1995. Interest
income from federal funds sold and securities purchased under agreements to
resell for fiscal 1996 decreased by $98,000, or 72.1%, to $38,000 in fiscal 1996
from $136,000 for fiscal 1995. This decrease resulted from a 


                                                                              11
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

$1.6 million, or 71.3%, decrease in the average asset balance, and a 19 basis
point decrease in the average rate earned on such assets from 5.91% to 5.72%.

      Interest Expense. Interest expense on total deposits for the year ended
September 30, 1996, increased $1.5 million, or 24.1%, to $7.6 million, from $6.1
million for the year ended September 30, 1995. The increase resulted from a 27
basis point increase in the average cost of interest-bearing deposits to 4.01%
for fiscal 1996 from 3.74% for fiscal 1995, and a $25.3 million, or 15.5%,
increase in the average balance of interest-bearing deposits to $189.0 million
in fiscal 1996 from $163.7 million in fiscal 1995. Interest expense on
borrowings increased $931,000 to $1.1 million, due to a $17.0 million increase
in the average balance of borrowed funds to $19.8 million in fiscal 1996 from
$2.8 million in fiscal 1995. The increase in the average cost of
interest-bearing liabilities resulted from the continued leveraging and growing
of the balance sheet, in addition to competitive pricing of longer-term
certificate of deposit accounts. Interest expense on savings accounts decreased
$257,000, or 13.3%, to $1.7 million for fiscal 1996 from $1.9 million for fiscal
1995, resulting from a $4.4 million reduction in average balances, in addition
to a 20 basis point decrease in the average cost of such deposits. The average
balance of savings and club accounts decreased to 39.8% of total average
deposits for fiscal 1996, as compared to 48.7% for fiscal 1995. For the year
ended September 30, 1996, interest expense on certificates of deposit increased
$1.7 million, or 43.7%, to $5.5 million, which resulted from a 40.6% increase in
the average balance of these accounts to $95.0 million for fiscal 1996 from
$67.6 million in fiscal 1995, and an 11 basis points increase in the average
cost of such accounts to 5.76% in fiscal 1996 from 5.65% in fiscal 1995.

      Net Interest Income. Net interest income for the year ended September 30,
1996, increased $1.1 million, or 14.6%, to $9.1 million from $8.0 million for
fiscal 1995. The Bank's net interest rate spread decreased to 3.48% in fiscal
1996 from 3.70% in fiscal 1995, and its net interest margin decreased to 3.91%
in fiscal 1996 from 4.18% in fiscal 1995. During the fiscal year ended September
30, 1996, the narrowing of the net interest rate spread and net interest margin
was primarily caused by the Bank's competitive deposit pricing in an effort to
attract new certificate of deposits during the first quarter of fiscal 1996 and
the simultaneous leveraging of the balance sheet in an effort to increase net
interest income. The average yield on interest-earning assets was 7.63% for the
year ended September 30, 1996, as compared to 7.47% for the year ended September
30, 1995. The average cost of interest-bearing liabilities was 4.15% for the
year ended September 30, 1996, as compared to 3.77% for the corresponding period
last year.

      Provision for Loan Losses. The provision for loan losses increased by
$201,000 to $543,000 for the year ended September 30, 1996 from $342,000 for the
year ended September 30, 1995, which resulted in an increase of the Bank's total
allowance for loan losses to $1.6 million at September 30, 1996. The increase in
the provision for losses is partially attributable to an increase in loss
provisions established for participation loans. In addition, the increase in the
provisions for losses is reflective of the significant increase in the loan
portfolio as a result of an increase in loan originations and the purchase of
one-to-four family mortgage loans. In determining its provision for loan losses,
management establishes loss allowances on identified problem loans and
establishes general allowances on the remainder of the loan portfolio.

      Non-Interest Income. Non-interest income for the year ended September 30,
1996, increased $486,000, or 157.1%, to $177,000 from a loss of $309,000 for the
year ended September 30, 1995. This significant increase is primarily
attributable to the decrease in provisions for losses on investments in real
estate, which represents a joint venture project in which a subsidiary of the
bank has a one-third interest. In addition, the increase in non-interest income
is attributable to a $109,000 increase in fees and service charges and a $37,000
net gain on sale of investment securities after the write-down for the decline
in market value of TASCO common stock.

      Non-Interest Expenses. Non-interest expense increased $1.66 million, or
31.5%, to $6.9 million for the year ended September 30, 1996 from $5.3 million
for the year ended September 30, 1995. Salaries and employee benefits increased
$430,000, or 16.4%, to $3.0 million for fiscal 1996 from $2.6 million for fiscal
1995. The increase in salaries and employee benefits is primarily attributable
to a one-time charge of $369,000 pursuant to the employment contract with the
former president and chief executive officer of the Company and Bank. For the
year ended September 30, 1996, office occupancy decreased by $50,000 to $493,000
from $543,000 for the year ended September 30, 1995. The decrease in occupancy
expense during fiscal 1996 is partly attributable to the collection of rental
income on the Bank owned properties. For the year ended September 30, 1996,
equipment expense increased by $65,000 to $571,000 from $506,000 for the fiscal
year ended September 30, 1995. The increase in equipment expense represents
costs associated with the Company's data processing service, deposit and check
processing service fees, automated teller machines ("ATMs") and other vendor
related services and contracts. In addition, advertising expense decreased by
$60,000 to $69,000 for fiscal 1996 from $129,000 for fiscal 1995. The Company
has limited its advertising expense in an effort to bolster earnings. Losses on
real estate owned increased $7,000 to $84,000 for fiscal 1996, 


12
<PAGE>

as compared to $77,000 in losses realized in fiscal 1995. It is management's
objective to dispose of real estate owned as rapidly as possible. For the fiscal
year ended September 30, 1996, the federal insurance premium increased by $1.1
million to $1.5 million from $400,000 for fiscal year ended September 30, 1995.
The increase is solely attributable to a $1.1 million one-time special
assessment to recapitalize the SAIF. Exclusive of the SAIF assessment and the
loss from real estate owned, the ratio of operating expenses to average assets
decreased by 22 basis points to 2.35% for fiscal 1996 from 2.57% for fiscal
1995.

      Income Tax Expense. Income tax expense decreased by $161,000, or 19.2%, to
$675,000 in fiscal 1996 from $836,000 in fiscal 1995, due primarily to a
decrease in income before income taxes. Income tax expense is indicative of the
normal level of income tax expense attributable to pre-tax income for the
period.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND
SEPTEMBER 30, 1994. 

General. Net income for the year ended September 30, 1995 decreased by $51,000
to $1.2 million, or $0.59 per share, from $1.3 million, or $0.62 per share, for
the year ended September 30, 1994. This decrease was primarily due to a $318,000
increase in losses from real estate operations, an additional $159,000 in
provisions for loan losses, and a $1.1 million increase in non-interest
expenses, which was partially offset by a $1.5 million increase in net interest
income before provisions for loan losses.

      Interest Income. Interest income increased by $3.8 million, or 35.9%, to
$14.3 million for the year ended September 30, 1995 from $10.5 million for the
year ended September 30, 1994. The increase primarily resulted from an increase
in interest-earning assets from the investment of net proceeds from the initial
public offering, cash obtained from the Company's purchase of a branch with
$14.8 million in deposits, and income earned on the investment of cash realized
from borrowings obtained during the fiscal year. The average yield on interest
earning assets increased 54 basis points to 7.47%, for the year ended September
30, 1995, from 6.93% from the year ended September 30, 1994. The increase in the
average yield primarily resulted from a higher interest rate environment during
fiscal 1995. For the year ended September 30, 1995, average interest-earning
assets were $190.8 million, as compared to $151.4 million for the fiscal year
ended September 30, 1994, which represents a $39.4 million, or a 26.1% increase.
The increase in the average balance of interest-earning assets resulted from an
increase in loans receivable, investment securities, and mortgage-backed
securities. Interest income from loans increased by $799,000, or 11.8%, to $7.6
million in fiscal 1995 from $6.8 million in fiscal 1994. This increase was due
to an $11.0 million, or 13.4%, increase in the average balance of loans, offset
by an 11 basis point decrease in the average yield on loans to 8.07% for the
fiscal 1995 period from 8.18% for the corresponding period in 1994. In fiscal
1995, interest income from mortgage-backed securities increased $1.6 million, or
60.5%, to $4.2 million from $2.6 million for fiscal 1994. This increase is
primarily due to an increase in the average yield on such securities of 129
basis points to 6.77%, and by a $14.2 million, or 29.8% increase in the average
balance of mortgage-backed securities. Interest income on investment securities
increased $1.4 million, or 154.9%, to $2.4 million during fiscal 1995 from
$935,000 during fiscal 1994, primarily due to an increase of $17.4 million, or
111.1%, in the average balance of investment securities. The average yield on
investment securities increased 123 basis points to 7.20% during fiscal 1995
from 5.97% during fiscal 1994. Interest income from federal funds sold and
securities purchased under agreements to resell for fiscal 1995 decreased by
$58,000, or 29.9%, to $136,000 in fiscal 1995 from $194,000 for fiscal 1994.
This decrease resulted from a $3.2 million, or 58.1%, decrease in the average
asset balance, offset by a 236 basis points increase in the average rate earned
on such assets from 3.55% to 5.91%.

      Interest Expense. Interest expense on total deposits for the year ended
September 30, 1995, increased $2.1 million, or 53.0%, to $6.1 million for the
year ended September 30, 1995, from $4.0 million for the year ended September
30, 1994. The increase resulted from a 93 basis point increase in the average
cost of interest-bearing deposits to 3.74% for fiscal 1995 from 2.81% for fiscal
1994, and a $21.3 million, or 15.0%, increase in the average balance of
interest-bearing deposits. Interest expense on borrowings increased $168,000 due
to a $2.8 million increase in the average balance of borrowed funds. The
increase in the average cost of interest-bearing liabilities resulted from the
higher interest rate environment and the Bank's competitive deposit pricing
during the fiscal year. Interest expense on savings accounts decreased $64,000,
or 3.2%, to $1.9 million for fiscal 1995 from $2.0 million for fiscal 1994,
resulting from a $6.1 million reduction in average balances, partially offset by
a 10 basis point increase in the average cost of such deposits. The average
balance of savings and club accounts decreased to 48.7% of total average
deposits for fiscal 1995, as compared to 60.2% for fiscal 1994. For the year
ended September 30, 1995, interest expense on certificates of deposit increased
$2.2 million, or 141.2%, to $3.8 million, which resulted from a 77.8% increase
in the average balance of these accounts to $67.6 million for fiscal 1995 from
$38.0 million in fiscal 1994, and a 149 basis points increase in the average
cost of such accounts to 5.65% in fiscal 1995 from 4.16% in fiscal 1994.

      Net Interest Income. Net interest income for the year ended September 30,
1995, increased $1.5 million, or 22.8%, to $8.0 million for fiscal 1995 from
$6.5 million for fiscal 1994. The Bank's net interest rate spread decreased to
3.70% in fiscal 1995 from 4.12% in fiscal 1994, and its net interest margin
decreased to 4.18% in fiscal 1995 from 4.29% in fiscal 1994. The narrowing of
the net interest margin and spread reflects the impact of several Federal
Reserve rate increases during 1994 and the first three months of 1995, an
overall flattening of the yield curve, and the Bank's competitive deposit
pricing in an effort to attract new certificate of deposit accounts. The average
yield on interest-earning assets was 7.47% for the year ended 


                                                                              13
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

September 30, 1995, as compared to 6.93% for the year ended September 30, 1994.
The average cost of interest-bearing liabilities was 3.77% for the year ended
September 30, 1995, as compared to 2.81% for the corresponding period last year.

      Provision for Loan Losses. The provision for loan losses increased by
$159,000 to $342,000 for the year ended September 30, 1995 from $183,000 for the
year ended September 30, 1994, which resulted in an increase of the Bank's total
allowance for loan losses to $1.2 million at September 30, 1995. This increase
resulted from the decline in value of the Hyde Park Tasco loan participation,
along with additional valuation allowances required for the overall increase in
mortgage lending activity during fiscal 1995. In determining its provision for
loan losses, management establishes loss allowances on identified problem loans
and establishes general allowances on the remainder of the loan portfolio.

      Non-Interest Income. Non-interest income for the year ended September 30,
1995, decreased $364,000, or 661.8%, to a $309,000 loss from $55,000 in income
for the year ended September 30, 1994. This decrease is primarily attributable
to an additional $318,000 provision for losses on investment in real estate,
which reflects a current appraisal of the value of real estate owned by the
joint venture in which a subsidiary of the Bank has a one-third interest. The
remainder of the decrease represents a decline in other fees and service
charges.

      Non-Interest Expenses. Non-interest expenses increased $1.1 million, or
26.1%, to $5.3 million for the year ended September 30, 1995 from $4.2 million
for the year ended September 30, 1994. Salaries and employee benefits increased
$318,000, or 13.8%, to $2.6 million for fiscal 1995 from $2.3 million for fiscal
1994. The increase in salaries and employee benefits resulted from the
establishment and implementation of the Bank's Recognition and Retention Plan
(RRP) and the Company's Employee Stock Ownership Plan (ESOP), increased overtime
and additional staffing during the first half of 1995. The additional staffing
resulted from the temporary operation of two branches in Brooklyn at the time of
the purchase of deposits from the East New York Savings Bank. For the year ended
September 30, 1995, office occupancy and equipment expense increased by $122,000
and $100,000, respectively, to $542,000 and $506,000, respectively, from
$420,000 and $406,000, respectively, for the year ended September 30, 1994. The
increase in occupancy expense represents costs associated with the temporary
operation of two branches in Brooklyn at the time of the deposit purchase from
the East New York Savings Bank. The increase in equipment expense represents
costs associated with the Company's data processing service, automated teller
machines ("ATMs") and other vendor related services and contracts. In addition,
advertising and miscellaneous expense increased by $88,000 and $346,000,
respectively, to $129,000 and $1.0 million, respectively, for fiscal 1995 from
$41,000 and $668,000, respectively, for fiscal 1994. The substantial increase in
advertising expense represents the Company's gift and advertising campaign
associated with the deposit purchase in Brooklyn and a Company-wide campaign
emphasizing specific time deposits. The increase in miscellaneous expense is
attributable to additional stationery and printing costs associated with the
Bank's change of name and logo during the fiscal year, servicing costs related
to newly installed ATMs and other costs associated with a publicly traded
company, including but not limited to, legal costs. Losses on real estate owned
increased $89,000 to $77,000 for fiscal 1995, as compared to $13,000 in net
income in fiscal 1994. It is management's objective to dispose of real estate
owned as rapidly as possible.

      Income Tax Expense. Income tax expense decreased by $85,000, or 9.2%, to
$836,000 in fiscal 1995 from $921,000 in fiscal 1994, due primarily to a
decrease in income before income taxes. Income tax expense is indicative of the
normal level of income tax expense attributable to pre-tax income for the
period.

LIQUIDITY AND CAPITAL RESOURCES

The Bank is required to maintain an average daily balance of liquid assets (as
defined in the regulations) equal to a monthly average of not less than a
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement is currently 5%. OTS regulations also
require each member savings institution to maintain an average daily balance of
short-term liquid assets at a specified percentage (currently 1%) of the total
of its net withdrawable deposit accounts and borrowings payable in one year or
less. Monetary penalties may be imposed for failure to meet these liquidity
requirements. The liquidity of the Bank at September 30, 1996 was 13.9%, which
exceeded the then applicable 5.0% liquidity requirement. Its short-term
liquidity ratio at September 30, 1996 was 3.2%.

      The primary investment activities of the Bank are the origination of
mortgage loans, the purchase of mortgage loans, and the purchase of
mortgage-backed securities 


14
<PAGE>

and investment securities. During the years ended September 30, 1996, 1995 and
1994, the Bank originated mortgage loans in the amounts of $34.0 million, $30.4
million and $12.3 million, respectively, and purchased mortgage loans in the
amounts of $14.8 million, $9.0 million and zero, respectively. Purchases of
mortgage-backed securities totalled $5.1 million, $19.3 million, and $8.1
million for the same periods. Other investments primarily include U.S.
government and federal agency obligations.

      At September 30, 1996, the Bank had outstanding loan commitments of $7.4
million. The Bank anticipates that it will have sufficient funds available to
meet its current loan commitments. Certificates of deposit which are scheduled
to mature in one year or less from September 30, 1996, totalled $53.2 million.

IMPACT OF INFLATION AND CHANGING PRICES

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

IMPACT OF NEW LEGISLATION

Recapitalization of SAIF. On September 30, 1996, the President signed into law
the Deposit Insurance Funds Act of 1996 (the "Funds Act") which, among other
things, imposes 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. The Special Assessment of $1,115,000 was
paid in November 1996 and expensed in the fourth quarter of 1996.

      The Funds Act also spreads the obligations for payment of the Financing
Corporation ("FICO") bonds across all SAIF and BIF members. Beginning on January
1, 1997, BIF deposits will be assessed for FICO payments at a rate of 20% of the
rate assessed on SAIF deposits. Based on current estimates by the FDIC, BIF
deposits will be assessed a FICO payment of 1.3 basis points, while SAIF
deposits will pay an estimated 6.5 basis points on the FICO bonds. 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 recently proposed to lower SAIF
assessments to 0 to 27 basis points effective January 1, 1997, a range
comparable to that of BIF members. However, SAIF members will continue to make
the higher FICO payments described above. 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.


                                                                              15
<PAGE>

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                    Financial Bancorp, Inc. and Subsidiaries

<TABLE>
<CAPTION>
                                                                                                   September 30,
------------------------------------------------------------------------------------------------------------------------
                                                                        Note(s)                1996            1995
                                                                      -----------         -------------   --------------
<S>                                                                   <C>                  <C>             <C>       
Assets
Cash and cash amounts due from depository institutions.............                        $ 2,917,223     $ 2,395,316
Securities purchased under agreements to resell....................           3              2,185,000       5,458,000
                                                                                          ------------------------------
    Total cash and cash equivalents................................    1 and 21              5,102,223       7,853,316
Investment securities available for sale...........................                          3,608,125              --
Investment securities held to maturity, net;                          
  estimated fair value of $49,903,000                                 
  and $38,857,000 at September 30, 1996                               
  and 1995, respectively...........................................   1, 4 and 21           51,122,128      38,935,960
Mortgage-backed securities available for sale......................   1, 5 and 21            5,016,112              --
Mortgage-backed securities held to maturity, net;                     
  estimated fair value of $49,901,000 and $62,544,000                 
  at September 30, 1996 and 1995, respectively.....................   1, 5 and 21           49,836,734      62,008,234
Loans receivable, net..............................................   1, 6 and 21          140,314,158     110,061,579
Real estate owned, net.............................................     1 and 7                377,910         591,027
Investments in real estate.........................................   1, 8 and 20            3,493,153       3,531,166
Premises and equipment, net........................................   1, 9 and 20            2,522,264       1,862,127
Federal Home Loan Bank of New York stock, at cost..................                          1,675,800       1,423,000
Accrued interest receivable, net...................................   1, 10 and 21           1,788,970       1,575,020
Other assets.......................................................   15 and 19              1,904,945         981,927
                                                                                          ------------------------------
    Total assets...................................................                       $266,762,522    $228,823,356
                                                                                          ==============================
                                                                      
Liabilities and stockholders' equity                                  
                                                                      
Deposits...........................................................   11, 19 and 21       $202,883,766    $186,491,588
Advance payments by borrowers for taxes and insurance..............                          1,063,036         954,080
Advances from Federal Home Loan Bank of New York...................   12 and 21              9,725,000       5,375,000
Securities sold under agreements to repurchase.....................   13 and 21             14,046,000       7,126,250
Treasury tax and loan account and other short-term borrowings......   14 and 21              9,880,970
Other liabilities..................................................   15 and 17              3,376,552       1,697,410
                                                                                          ------------------------------
    Total liabilities..............................................                        240,975,324     201,644,328
                                                                                          ------------------------------
Commitments and contingencies......................................   20 and 21
Stockholders' equity:..............................................   1, 2, 15, 16
                                                                      17 and 18
                                                                      
  Preferred stock $0.01 par value, 2,500,000 shares authorized;       
    none issued and outstanding....................................                                  --              --
  Common stock $0.01 par value, 6,000,000 shares authorized;          
    1,790,622 and 1,971,963 shares issued and outstanding             
    at September 30, 1996 and 1995, respectively...................                             21,850          21,850
  Additional paid-in capital.......................................                         20,151,858      20,130,021
  Retained earnings--substantially restricted .....................   .                     12,218,607      11,544,464
  Common stock acquired by Employee Stock                             
    Ownership Plan ("ESOP")........................................                         (1,173,422)     (1,335,278)
  Common stock acquired by Recognition and                            
    Retention Plan ("RRP").........................................                           (454,221)       (590,487)
  Treasury stock, at cost; 394,378 and 213,037                        
    shares at September 30, 1996 and 1995..........................                         (4,976,986)     (2,591,542)
  Unrealized loss on securities available for sale,                   
    net of income taxes............................................                               (488)              0
                                                                                          ------------------------------
    Total stockholders' equity.....................................                         25,787,198      27,179,028
                                                                                          ------------------------------
    Total liabilities and stockholders' equity.....................                       $266,762,522    $228,823,356
                                                                                          ==============================
</TABLE>
                                                                         
See notes to consolidated financial statements.


16
<PAGE>

                        CONSOLIDATED STATEMENTS OF INCOME

                    Financial Bancorp, Inc. and Subsidiaries
<TABLE>
<CAPTION>
                                                                                         Year Ended September 30,
----------------------------------------------------------------------------------------------------------------------------
                                                             Note(s)             1996              1995            1994
                                                           ----------        ----------------------------------------------- 
<S>                                                         <C>               <C>              <C>             <C>        
Interest income:
  Loans..................................................   1 and 6           $10,316,082      $ 7,551,131     $ 6,751,742
  Mortgage-backed securities.............................         1             4,025,030        4,187,550       2,609,188
  Investments and other interest-earning assets..........         1             3,443,504        2,381,326         934,295
  Federal funds sold and securities purchased
    under agreements to resell...........................         1                38,354          135,739         194,185
                                                                             ----------------------------------------------- 
      Total interest income..............................                      17,822,970       14,255,746      10,489,410
                                                                             ----------------------------------------------- 
Interest expense:
  Deposits...............................................        11             7,592,723        6,118,726       3,999,910
  Borrowings.............................................                       1,098,104          167,609              --
                                                                             ----------------------------------------------- 
      Total interest expense.............................                       8,690,827        6,286,335       3,999,910
                                                                             ----------------------------------------------- 
Net interest income......................................                       9,132,143        7,969,411       6,489,500
Provision for loan losses................................   1 and 6               542,920          341,530         182,763
                                                                             ----------------------------------------------- 
Net income after provision for loan losses...............                       8,589,223        7,627,881       6,306,737
                                                                             ----------------------------------------------- 
Non-interest income (loss):

  Fees and service charges...............................                         402,813          293,722         306,158
  Gain (loss) on sale and write-down of investments......   1 and 4                36,089          (8,964)         (2,656)
  (Loss) from real estate operations.....................   1 and 8              (313,011)        (618,074)       (299,658)
  Miscellaneous..........................................                          50,635           24,255          51,041
                                                                             ----------------------------------------------- 
      Total non-interest income (loss)...................                         176,526         (309,061)         54,885
                                                                             ----------------------------------------------- 
Non-interest expenses:

  Salaries and employee benefits......................... 17 and 18             3,048,238        2,618,287       2,300,895
  Net occupancy expense of premises......................  1 and 20               492,507          542,375         420,332
  Equipment..............................................         1               571,180          505,834         406,238
  Advertising............................................                          69,510          129,237          40,967
  Loss (income) from real estate owned...................   1 and 7                84,123           76,890         (12,556)
  Federal insurance premium..............................                       1,502,263          390,011         359,715
  Miscellaneous..........................................                       1,169,816        1,014,132         668,124
                                                                             ----------------------------------------------- 
      Total non-interest expenses........................                       6,937,637        5,276,766       4,183,715
                                                                             ----------------------------------------------- 
Income before income taxes...............................                       1,828,112        2,042,054       2,177,907
Income taxes.............................................  1 and 15               675,227          836,092         920,984
                                                                             ----------------------------------------------- 
Net income...............................................                     $ 1,152,885      $ 1,205,962     $ 1,256,923
                                                                             =============================================== 

Net income per common share and

  common stock equivalents...............................         1           $      0.64      $      0.59     $      0.62
                                                                             =============================================== 

Weighted average number of common shares and

  common stock equivalents outstanding...................         1             1,790,900        2,039,500       2,033,000
                                                                             =============================================== 
</TABLE>

See notes to consolidated financial statements.


                                                                              17
<PAGE>

                       CONSOLIDATED STATEMENTS OF CHANGES
                             IN STOCKHOLDERS' EQUITY
                    Financial Bancorp, Inc. and Subsidiaries

<TABLE>
<CAPTION>
                                                                                                        Unrealized
                                                    Retained       Common      Common                     loss on
                                     Additional     Earnings--       Stock       Stock                   securities
                           Common      Paid-in    Substantially   Acquired    Acquired      Treasury     available
                            Stock      Capital     Restricted      By ESOP     By RRP         Stock    for sale, net      Total
                         -----------------------------------------------------------------------------------------------------------
<S>                      <C>        <C>           <C>           <C>          <C>          <C>           <C>           <C>         
Balance--
  October 1, 1993......  $   --     $       --    $ 9,374,129   $        --  $       --   $        --   $   --        $  9,374,129
Net income for the                                                                                                    
  year ended                                                                                                          
  September 30, 1994...      --             --      1,256,923            --          --            --       --           1,256,923
Net proceeds from                                                                                                     
  issuance of common                                                                                                  
  stock................   21,850    20,158,395             --            --          --            --       --          20,180,245
Acquisition of common                                                                                                 
  stock by the ESOP....       --            --             --    (1,529,500)         --            --       --          (1,529,500)
ESOP shares committed                                                                                                 
  to be released.......       --            --             --        18,208          --            --       --              18,208
                         -----------------------------------------------------------------------------------------------------------
Balance--                                                                                                             
  September 30, 1994...   21,850    20,158,395     10,631,052    (1,511,292)         --            --       --          29,300,005
Additional conversion                                                                                                 
  expenses.............       --       (43,099)            --            --          --            --       --             (43,099)
Net income for the                                                                                                    
  year ended                                                                                                          
  September 30, 1995...       --            --      1,205,962            --          --            --       --           1,205,962
ESOP shares committed                                                                                                 
  to be released.......       --        14,725             --       176,014          --            --       --             190,739
Acquisition of common                                                                                                 
  stock by the RRP.....       --            --             --            --    (681,331)           --       --            (681,331)
Amortization of cost of                                                                                               
  common stock                                                                                                        
  acquired by the RRP..       --            --             --            --      90,844            --       --              90,844
Purchase of 213,037                                                                                                   
  shares of                                                                                                           
  treasury stock.......       --            --             --            --          --    (2,591,542)      --          (2,591,542)
Dividends paid.........       --            --       (292,550)           --          --            --       --            (292,550)
                         -----------------------------------------------------------------------------------------------------------
Balance--                                                                                                             
  September 30, 1995...   21,850    20,130,021     11,544,464    (1,335,278)   (590,487)   (2,591,542)      --          27,179,028
Net income for the                                                                                                    
  year ended                                                                                                          
  September 30, 1996...      --             --      1,152,885            --          --            --       --           1,152,885
ESOP shares committed                                                                                                 
  to be released.......      --         55,705             --       161,856          --            --       --             217,561
Amortization of cost of                                                                                               
  common stock                                                                                                        
  acquired by the RRP..      --             --             --            --     136,266            --       --             136,266
Purchase of 192,266                                                                                                   
  shares of                                                                                                           
  treasury stock.......      --             --             --            --          --    (2,522,444)      --          (2,522,444)
Reissue of 10,925 shares                                                                                              
  of treasury stock                                                                                                   
  for stock options....      --        (33,868)            --            --          --       137,000       --             103,132
Dividends paid.........      --             --       (478,742)           --          --            --       --            (478,742)
Unrealized loss on                                                                                                    
  securities available                                                                                                
  for sale, net........      --             --             --            --          --            --     (488)               (488)
                         -----------------------------------------------------------------------------------------------------------
Balance--                                                                                                             
  September 30, 1996... $21,850    $20,151,858    $12,218,607   $(1,173,422)  $(454,221)  $(4,976,986)  $ (488)        $25,787,198
                         ===========================================================================================================
</TABLE>
                                                                   
See notes to consolidated financial statements.


18
<PAGE>

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    Financial Bancorp, Inc. and Subsidiaries

<TABLE>
<CAPTION>
                                                                         Year Ended September 30,
----------------------------------------------------------------------------------------------------------
                                                                     1996            1995           1994
                                                                ------------------------------------------
<S>                                                             <C>            <C>            <C>         
Cash flows from operating activities:
  Net income .................................................  $  1,152,885   $  1,205,962   $  1,256,923
  Adjustments to reconcile net income to
    net cash provided by operating activities:
    Depreciation and amortization of premises and equipment ..       298,613        302,168        274,285
    Amortization of premiums and accretion of
      discounts on investment securities, net ................       (91,107)         2,122        (42,781)
    Amortization of premiums and of accretion of discounts
      on mortgage-backed securities, net .....................        19,268        (44,020)       115,106
    Accretion of deferred loan fees and discounts ............       (84,132)       (39,114)       (45,071)
    Amortization of intangible assets ........................         5,373          8,500           --
    (Gain) on sale of investment securities available for sale       (51,029)          --             --
    Loss (gain) on sale of real estate owned .................        33,583         24,667       (116,359)
    Write-down on investment securities ......................        14,940          8,964          2,656
    Provision for loan losses ................................       542,920        341,530        182,763
    Provision for losses on real estate owned ................          --             --           48,195
    Deferred income taxes ....................................    (1,088,167)      (376,195)       109,427
    (Increase) in accrued interest receivable, net ...........      (213,950)      (913,785)       (64,530)
    (Increase) decrease in refundable income taxes ...........       (13,693)       123,292         82,985
    Decrease (increase) in other assets ......................       173,852       (177,832)       (29,690)
    Cost of ESOP and RRP .....................................       353,827        281,583         18,208
    Increase (decrease) in other liabilities .................     1,679,142        877,521        (65,633)
                                                                ------------------------------------------
        Net cash provided by operating activities ............     2,732,325      1,625,363      1,726,484
                                                                ------------------------------------------
Cash flows from investing activities:
  Purchases of investment securities available for sale ......    (8,596,719)          --             --
  Purchases of investment securities held to maturity ........   (48,040,000)   (28,413,729)   (26,406,271)
  Proceeds from maturities of investment securities
    held to maturity .........................................    33,930,000      6,000,000     14,000,000
  Proceeds from sale of investment securities available
    for sale .................................................     7,028,594           --             --
  Purchases of mortgage-backed securities available for sale .    (5,068,148)          --             --
  Purchases of mortgage-backed securities held to maturity ...          --      (19,294,195)    (8,082,017)
  Proceeds from principal repayments on mortgage-backed
    securities available for sale ............................        61,971           --             --
  Proceeds from principal repayments on mortgage-backed
    securities held to maturity ..............................    12,152,454      7,168,724      7,536,229
  Loan originations, net of repayments .......................   (16,486,091)   (18,521,635)      (853,669)
  Purchases of loans .........................................   (14,326,221)    (9,019,089)          --
  Proceeds from sale of and insurance recoveries on
    real estate owned ........................................       289,116        705,959        748,106
  Capitalized expenses on real estate owned ..................        (8,637)       (20,427)       (13,757)
  Net (increase) decrease in investments in real estate ......       217,450       (742,549)       364,729
  Additions to premises and equipment ........................    (1,138,187)      (645,783)       (97,622)
  (Purchase) redemption of Federal Home Loan Bank
    of New York stock ........................................      (252,800)      (155,100)        80,200
  Net cash received on acquisition of branch .................          --       14,638,010           --
                                                                ------------------------------------------
        Net cash (used in) investing activities ..............  $(40,237,218)  $(48,299,814)  $(12,724,072)
                                                                ------------------------------------------
</TABLE>

See notes to consolidated financial statements.


                                                                              19
<PAGE>

                CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                    Financial Bancorp, Inc. and Subsidiaries

<TABLE>
<CAPTION>
                                                                              Year Ended September 30,
----------------------------------------------------------------------------------------------------------------
                                                                          1996            1995           1994
                                                                      ------------------------------------------
<S>                                                                   <C>            <C>            <C>         
Cash flows from financing activities:
  Net increase in deposits .........................................  $ 16,392,178   $ 31,496,186   $  3,543,635
  Increase (decrease) in advance payments by borrowers
    for taxes and insurance ........................................       108,956       (340,661)       321,413
  Advances from Federal Home Loan Bank of New York .................     9,200,000           --             --
  Net change in short-term borrowings from Federal Home
    Loan Bank of New York ..........................................     9,196,000      5,375,000           --
  Net change in other borrowings ...................................     2,754,720      7,126,250           --
  Net proceeds from issuance of common stock .......................          --             --       20,180,245
  Additional conversion expenses ...................................          --          (43,099)          --
  Dividends paid ...................................................      (478,742)      (292,550)          --
  Acquisition of common stock by the ESOP ..........................          --             --       (1,529,500)
  Acquisition of common stock by the RRP ...........................          --         (681,331)          --
  Treasury stock acquired ..........................................    (2,522,444)    (2,591,542)          --
  Reissue of treasury stock for stock options ......................       103,132           --             --
                                                                      ------------------------------------------
    Net cash provided by financing activities ......................    34,753,800     40,048,253     22,515,793
                                                                      ------------------------------------------
Net (decrease) increase in cash and cash equivalents ...............    (2,751,093)    (6,626,198)    11,518,205
Cash and cash equivalents--beginning ...............................     7,853,316     14,479,514      2,961,309
                                                                      ------------------------------------------
Cash and cash equivalents--ending ..................................  $  5,102,223   $  7,853,316   $ 14,479,514
                                                                      ==========================================
Supplemental schedule of noncash investing and financing activities:
  Loans transferred to real estate owned ...........................  $    248,945   $    681,725   $     29,891
                                                                      ==========================================
  Loans to facilitate sales of real estate owned ...................  $    148,000   $       --     $     94,000
                                                                      ==========================================
  Securities transferred to available for sale from held to maturity  $  1,989,839   $       --     $       --
                                                                      ==========================================
Unrealized loss on securities available for sale ...................  $        871   $       --     $       --
Deferred income tax ................................................          (383)          --             --
                                                                      ------------------------------------------
                                                                      $        488   $       --     $       --
                                                                      ==========================================
Property transferred to investment in real estate,
  net of accumulated depreciation ..................................  $    190,174   $       --     $       --
                                                                      ==========================================
Assets acquired in connection with the acquisition of branch:
  Equipment ........................................................  $       --     $      4,871   $       --
  Other assets .....................................................          --           70,454           --
                                                                      ------------------------------------------
                                                                      $       --     $    175,325   $       --
                                                                      ==========================================
Supplemental disclosures of cash flows information:
  Cash paid (net of refunds received) during the year for:
    Federal, state and city income taxes ...........................  $  1,777,958   $  1,088,995   $    728,572
                                                                      ==========================================
    Interest .......................................................  $  8,676,430   $  6,208,733   $  3,998,039
                                                                      ==========================================
</TABLE>

See notes to consolidated financial statements.


20
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    Financial Bancorp, Inc. and Subsidiaries

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of financial statement presentation

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

      Effective October 20, 1994, the Bank changed its charter from that of a
federally chartered savings and loan association to that of a federally
chartered savings bank and changed its name to Financial Federal Savings Bank.
Such changes do not materially impact financial condition or operations.

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

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

(b) Cash and cash equivalents

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

(c) Investments and mortgage-backed securities

The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments
in Debt and Equity Securities," which established standards of financial
accounting and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. Pursuant to
SFAS 115, securities are to be classified into one of three categories:
held-to-maturity, available-for-sale, or trading.

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

      The Bank adopted SFAS 115, effective October 1, 1994. No securities were
classified as available for sale or trading at that time as the Bank elected to
maintain its original intent to hold its investments and mortgage-backed
securities until maturity. The equity securities have been marked down to fair
value as the result of a permanent impairment and are included in investment
securities held-to-maturity.

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

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

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


                                                                              21
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    Financial Bancorp, Inc. and Subsidiaries

      In October 1994, the FASB issued Statement of Financial Accounting
Standards No. 119 ("SFAS 119"), "Disclosure About Derivative Financial
Instruments and Fair Value of Financial Instruments." SFAS 119 requires
disclosure of all derivative financial instruments defined as "futures, forward,
swap, and option contracts, and other financial instruments with similar
characteristics." SFAS 119 also expands on and amends SFAS's 105 and 107 which
dealt with off-balance-sheet risk and disclosing the fair value of financial
instruments. The amendments require a distinction as to whether financial
instruments are held for sale or issued for trading, or other purposes. The
standard is effective for fiscal years ending after December 15, 1994. The
adoption of SFAS 119, effective October 1, 1994, did not have a material effect
on the Company's consolidated financial condition or results of operations as
the statements extends only to financial statement disclosure. Further, the
Company does not have any derivative financial instruments, as defined by SFAS
119, at September 30, 1996 and 1995.

(d) Loans receivable, net

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

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

(e) Allowance for loan losses

An allowance for loan losses is maintained at a level considered adequate to
absorb losses inherent in the loan portfolio. Management of the Bank, in
determining the allowance for loan losses, considers the risks inherent in 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-tier approach: (1) identification of problem loans and
establishment of loss allowances on such loans; and (2) establishment of
valuation allowances on the remainder of its loan portfolio. The Bank maintains
a loan review system which allows for a periodic review of its loan portfolio
and the early identification of potential problem loans. Such system takes into
consideration, among other things, delinquency status, size of loans, types of
collateral and financial condition of the borrowers. Loan loss allowances are
established for identified loans based on a review of such data and/or estimates
of the fair value of the underlying collateral. Loan loss allowances are
established on the remainder of the loan portfolio, based upon a combination of
factors including, but not limited to actual loan loss experience, composition
of the loan portfolio, current economic conditions and management's judgment.
Although management believes that adequate loan loss allowances are established,
actual losses are dependent upon future events and, as such, further additions
to the level of the loan loss allowance may be necessary.

      Effective October 1, 1995, the Bank adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan"("SFAS 114") and Statement of Financial Accounting Standards No. 118,
"Accounting by Creditors for Impairment of a Loan--Income Recognition and
Disclosures"("SFAS 118"). The provisions of these statements are applicable to
all loans, uncollateralized as well as collateralized, except large groups of
smaller-balance homogeneous loans that are collectively evaluated for impairment
and loans that are measured at fair value or at the lower of cost or fair value,
and to all loans that are renegotiated in a troubled debt restructuring
involving a modification of terms.

      SFAS 114 requires that impaired loans be measured based on the present
value of expected future cash flows discounted at the loan's effective interest
rate, or as a practical expedient, at the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent, except that
loans renegotiated as part of a troubled debt restructuring subsequent to the
adoption of SFAS 114 and 118 must be measured for impairment by discounting the
total expected cash flow under the renegotiated terms at each loan's original
effective interest rate.

      A loan evaluated for impairment pursuant to SFAS 114 is deemed to be
impaired when, based on current information and events, it is probable that the
Bank will be unable to collect all amounts due according to the contractual
terms of the loan agreement. An insignificant payment delay, which is defined as
up to ninety days by the Bank, will not cause a loan to be classified as
impaired. A loan is not impaired during a period of delay in payment if the Bank
expects to collect all amounts due, including interest accrued at the
contractual interest rate for the period of delay. Thus, a demand loan or other
loan with no stated maturity is not impaired if the Bank expects to collect all
amounts due, including interest accrued at the contractual interest rate, during
the period the loan is outstanding. All loans identified as impaired are
evaluated independently. The Bank does not aggregate such loans for evaluation
purposes.

      Payments received on impaired loans are applied first to accrued interest
receivable and then to principal.


22
<PAGE>

(f) Allowances for uncollected interest

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

(g) Real estate owned, net

Real estate owned consists of real estate acquired by foreclosure or deed in
lieu of foreclosure. Real estate owned is initially recorded at the lower of
cost or fair value at the date of acquisition and subsequently carried at the
lower of cost or fair value less estimated selling costs. Fair value is defined
as the amount reasonably expected to be received in a current sale between a
willing seller and a willing buyer. Cost incurred in developing or preparing
properties for sale are capitalized. Income and expense related to operating and
holding properties are recorded in operations as incurred. Gains and losses on
such properties are recognized as incurred. The amounts ultimately recoverable
from real estate owned could differ from the net carrying value of these assets
because of weak economic conditions and the current softness in certain
geographic real estate markets.

(h) Investments in real estate

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

(i) Concentration of risk

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

(j) Premises and equipment, net

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

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

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

(k) Income taxes

The Company and its subsidiaries file consolidated federal, state and city
income tax returns, except for one of the subsidiaries, which files separate
state and city income tax returns. Income taxes are allocated to the Company and
its subsidiaries based upon the contribution of their respective income or loss
to the consolidated returns. Federal, state and city income taxes have been
provided on the basis of reported income. The amounts reflected on the tax
returns differ from these provisions due principally to temporary differences in
the reporting of certain items for financial reporting and tax reporting
purposes. In accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109"), deferred income tax expense or
benefit is determined by recognizing deferred tax assets and liabilities for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
realization of deferred tax assets is assessed and a valuation allowance
provided, when necessary, for that portion of the asset which is not likely to
be realized. Management believes, based upon current facts, that it is more
likely than not that there will be sufficient taxable income in future years to
realize the deferred tax assets. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in earnings in the period
that includes the enactment date.

(l) Net income per common share

Net income per common share is calculated by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding, adjusted for the unallocated portion of shares held by the ESOP in
accordance with the American Institute of Certified Public Accountants'
("AICPA") Statement of Position ("SOP") 93-6. Stock options granted are
considered common stock equivalents and therefore considered in net income per
common share calculation, if dilutive, using the treasury stock method.

      Net income per common share for the year ended September 30, 1994 is
calculated based on the net income for the entire year. The weighted average
number of common shares outstanding, adjusted for the unallocated portion of
shares held by the ESOP, from the date of conversion to stock form (August 17,
1994) through September 30, 1994, assume such shares were outstanding for the
entire year (as if the conversion had taken place on October 1, 1993).


                                                                              23
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    Financial Bancorp, Inc. and Subsidiaries

(m) Fair value of financial instrument

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

      Cash and cash equivalents, term deposits and interest receivable: The
carrying amounts reported in the consolidated financial statements for cash and
cash equivalents and interest receivable approximate their fair value.

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

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

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

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

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

(n) Impact of new accounting standards

In March 1995, the FASB issued SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of." SFAS 121 established
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. SFAS 121 does not apply to financial instruments, long-term
customer relationships of a financial institution (i.e. core deposit
intangibles), mortgage and other servicing rights, or deferred tax assets. SFAS
121 requires that long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. In such cases, an impairment loss is to be recognized if the
carrying value of such asset exceeds its fair value. In regard to long-lived
assets to be disposed of either through sales or abandonment, such assets are to
be carried at the lower of cost or fair value less costs to sell. SFAS 121 is
effective for fiscal years beginning after December 15, 1995 and restatement of
previously issued financial statements is not permitted. SFAS 121 was adopted
effective October 1, 1996 and such adoption did not have a material adverse
effect on the Company's consolidated financial condition or results of
operations.

      In June 1995, the FASB issued SFAS 122, "Accounting for Mortgage Servicing
Rights." SFAS 122 amends SFAS 65, "Accounting for Certain Mortgage Banking
Activities," to require that a mortgage banking enterprise recognize as separate
assets rights to service mortgage loans for others, however those servicing
rights were acquired, should such loans be sold or securitized and the related
mortgage servicing rights retained. The servicing rights are to be recorded
based on an allocation of the total investment in related loans to the relative
fair values of the loans and the separated servicing rights retained, providing
it is practical to estimate those fair values. SFAS 122 is effective
prospectively in fiscal years beginning after December 15, 1995. Retroactive
capitalization of mortgage servicing rights retained in transactions in which a
mortgage banking enterprise originates mortgage loans and sells or securitizes
those loans before adoption of SFAS 122 is prohibited. SFAS 122 was adopted
effective October 1, 1996 and such adoption did not have a material adverse
effect on the Company's consolidated financial condition or results of
operations.

      In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based
Compensation." SFAS 123 establishes financial accounting and reporting standards
for stock-based employees compensation plans. SFAS 123 encourages all entities
to adopt the "fair value base method" of accounting for employee stock
compensation plans. However, SFAS 123 also allows an entity to continue to
measure compensation cost under such plans using the "intrinsic value based
method." Under the fair value based method, compensation cost is measured at the
grant date based on the value of the award and its recognized over the service
period, usually the vesting period. Fair value is determined using an option
pricing model that takes into account the stock price at the grant date, the
exercise price, the expected life of the option, the volatility of the
underlying stock and the expected dividends on it, and the risk free interest
rate over the expected life of the option. Under the intrinsic value based
method, compensation cost is the excess, if any, of the quoted market price of
the stock at the grant date or other measurement date over the amount an
employee must pay to acquire the stock. Most stock plans have no intrinsic value
at date of grant, and under previous accounting guidance, no compensation cost
was to be recognized.


24
<PAGE>

      The accounting requirements of SFAS 123 are effective for transactions
entered into in fiscal years that begin after December 15, 1995. The Company
intends to continue accounting for compensation cost under the intrinsic value
based method and will provide proforma disclosures for all awards granted after
October 1, 1996. Such disclosures include net income and earnings per share as
if the fair value based method of accounting has been applied.

      In September 1996 the FASB issued SFAS 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities"("SFAS 125").
This Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of 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 a pledge of collateral. SFAS 125 is effective for transfers and servicing
of financial assets and extinguishments of liabilities occurring after December
31, 1996, and should be applied prospectively. Earlier or retroactive
application of SFAS 125 is not permitted. SFAS 125, when adopted, is not
expected to have a material adverse effect on the Company's consolidated
financial condition or results of operations.

(o) Reclassification

Certain amounts for the years ended September 30, 1995 and 1994 have been
reclassified to conform to the current period's presentation.

2. STOCK FORM OF OWNERSHIP

On December 21, 1993, the Board of Directors of Financial Federal Savings and
Loan Association (the "Association") approved plans to convert the Association
from a federally chartered mutual savings association to a federally chartered
stock savings association. Concurrent with the conversion, the Company was
organized under the laws of the State of Delaware for the purpose of acquiring
all of the capital stock of the Association. The shares of the Company were
offered for subscription by eligible members of the Association. On August 17,
1994, the Company offered 2,185,000 shares of common stock, at a par value
$0.01, at a price of $10.00 per share, resulting in net proceeds, after
conversion expenses, of $20,180,000. The ESOP purchased 152,950 shares from the
initial offering. Simultaneous with the issuance of common stock, the Company
purchased all the capital stock issued by the Association for $10,115,000. The
financial position and results of operations of the Company only, as of and for
the year ended September 30, 1996 and 1995 and as of and for the period from
completion of conversion through September 30, 1994, are presented in Note 22.

    At the time of conversion, the Association established a liquidation account
in an amount equal to its total retained earnings at June 30, 1994. The
liquidation account will be maintained by the Bank for the benefit of eligible
account holders who continue to maintain savings accounts with the Bank after
conversion. In the unlikely event of a complete liquidation of the Bank,
eligible depositors who continue to maintain accounts shall be entitled to
receive a distribution from the liquidation account. The total amount of the
liquidation account may be decreased if the balances of eligible account holders
decreased on the annual determination date. The balance of the liquidation
account on September 30, 1996 was $3,143,000. The Bank shall not declare or pay
any dividend on or repurchase any of its capital stock if the effect thereof
would cause its net worth to be reduced below: 1) the amount required for the
liquidation account, or 2) the net worth requirements contained in Section
563.13(b) of the Rules and Regulations of Office of Thrift Supervision.

      During the year ended September 30, 1995, the Company approved plans to
repurchase 311,635 shares of common stock outstanding, up to five percent (5%)
of common stock outstanding at any single instance. In accordance with the
plans, 213,037 shares at an aggregate cost of $2,591,542 were purchased in the
open market.

      During the year ended September 30, 1996 the Company approved similar
plans to repurchase 183,199 shares of common stock outstanding and in accordance
with the plans, 192,266 shares, at an aggregate cost of $2,522,444, were
purchased in the open market. These repurchases are reflected as treasury stock
in the consolidated statements of financial condition. Subsequent to September
30, 1996, the Company began purchasing the remaining 89,531 shares of approved
repurchases in open market transactions.

3. SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL

The Company purchases securities under agreements to resell substantially
identical securities. These agreements represent short-term loans and are
included as cash equivalents in the consolidated statements of financial
condition as all such agreements mature within ninety days.

      During the years ended September 30, 1996 and 1995, the average balances
of securities purchased under agreements to resell totalled $133,000 and
$102,000 respectively and the maximum amount outstanding at any month end was
$5,240,000 and $7,000,000 respectively. The average interest rate for 1996 and
1995 was 5.89% and 5.70%, respectively.


                                                                              25
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    Financial Bancorp, Inc. and Subsidiaries

4. INVESTMENT SECURITIES

<TABLE>
<CAPTION>
                                                                     September 30, 1996
-----------------------------------------------------------------------------------------------------
                                                                       Gross Unrealized    
                                                          Carrying    -----------------    Estimated
                                                            Value     Gains      Losses    Fair Value
                                                        ---------------------------------------------
<S>                                                     <C>          <C>      <C>         <C>        
Available for sale
U.S. Government obligations maturing within five years  $ 2,919,153  $  --    $   11,028  $ 2,908,125
Corporate preferred stock ............................      700,000     --          --        700,000
                                                        ---------------------------------------------
                                                        $ 3,619,153  $  --    $   11,028  $ 3,608,125
                                                        =============================================

Held to Maturity
U.S. Government (including agencies):
  After one through five years .......................  $18,000,000  $22,100  $   25,000  $17,997,100
  After five through ten years .......................   11,972,067     --       483,707   11,488,360
  After ten years ....................................   21,150,061     --       732,805   20,417,256
                                                        ---------------------------------------------
                                                        $51,122,128  $22,100  $1,241,512  $49,902,716
                                                        =============================================

<CAPTION>
                                                                     September 30, 1996
-----------------------------------------------------------------------------------------------------
                                                                       Gross Unrealized    
                                                          Carrying    -----------------    Estimated
                                                            Value     Gains      Losses    Fair Value
                                                        ---------------------------------------------
<S>                                                     <C>          <C>      <C>         <C>        
Held to Maturity
U.S. Government (including agencies):
  Less than one year .................................  $ 2,494,879  $  --    $   19,879  $ 2,475,000
  After one through five years .......................   15,984,918   42,748     218,506   15,809,160
  After five through ten years .......................   19,441,223  137,836      37,308   19,541,751
  After ten years ....................................    1,000,000   16,240        --      1,016,240
Common stock .........................................       14,940     --          --         14,940
                                                        ---------------------------------------------
                                                        $38,935,960  $196,824 $  275,693  $38,857,091
                                                        =============================================
</TABLE>

      At December 31, 1995, the Bank transferred investment securities with a
carrying value of $1,989,839 and a fair value of $2,005,630 from held to
maturity to available for sale.

      There were no sales of investment securities held to maturity during the
years ended September 30, 1996, 1995, and 1994. Proceeds from sales investment
securities available for sale during the year ended September 30, 1996 were
$7,028,594. Gross gains of $51,029 were realized on these sales. Provision for
losses of $14,940, $8,964 and $2,656 representing permanent impairment in the
value of common stock, were charged to operations during the years ended
September 30, 1996, 1995 and 1994, respectively. 


26
<PAGE>

5. MORTGAGE-BACKED SECURITIES

<TABLE>
<CAPTION>
                                                                     September 30, 1996
-----------------------------------------------------------------------------------------------------
                                                        Principal Unamortized  Unearned    Carrying
                                                          Balance   Premiums   Discounts     Value
                                                        ---------------------------------------------
<S>                                                     <C>          <C>      <C>         <C>        
Available for sale
Federal Home Loan Mortgage Corporation ...............  $ 4,988,029  $17,926  $     --    $ 5,005,955
                                                        =============================================

Held to maturity
Government National Mortgage Association .............  $26,853,877  $304,560 $   52,458  $27,105,979
Federal Home Loan Mortgage Corporation ...............   18,013,608   20,823      35,545   17,998,886
Federal National Mortgage Association ................    2,681,985   15,434        --      2,697,419
Other pass-through ...................................    2,042,108     --         7,658    2,034,450
                                                        ---------------------------------------------
                                                        $49,591,578  $340,817 $   95,661  $49,836,734
                                                        =============================================

<CAPTION>
                                                                     September 30, 1996
-----------------------------------------------------------------------------------------------------
                                                        Principal Unamortized  Unearned    Carrying
                                                          Balance   Premiums   Discounts     Value
                                                        ---------------------------------------------
<S>                                                     <C>          <C>      <C>         <C>        
Held to maturity
Government National Mortgage Association .............  $32,834,845  $371,382 $   61,871  $33,144,356
Federal Home Loan Mortgage Corporation ...............   23,035,466   26,742      83,363   22,978,845
Federal National Mortgage Association ................    3,367,166   20,711        --      3,387,877
Other pass-through ...................................    2,506,555     --         9,399    2,497,156
                                                        ---------------------------------------------
                                                        $61,744,032  $418,835 $  154,633  $62,008,234
                                                        =============================================

<CAPTION>
                                                                     September 30, 1996
-----------------------------------------------------------------------------------------------------
                                                                       Gross Unrealized    
                                                          Carrying    -----------------    Estimated
                                                            Value     Gains      Losses    Fair Value
                                                        ---------------------------------------------
<S>                                                     <C>          <C>      <C>         <C>        
Available for sale
Federal Home Loan Mortgage Corporation ...............  $ 5,005,955  $10,157  $     --    $ 5,016,112
                                                        =============================================
Held to maturity
Government National Mortgage Association .............  $27,105,979  $307,930 $  215,575  $27,198,334
Federal Home Loan Mortgage Corporation ...............   17,998,886  149,978     189,156   17,959,708
Federal National Mortgage Association ................    2,697,419   12,211       1,545    2,708,085
Other pass-through ...................................    2,034,450     --          --      2,034,450
                                                        ---------------------------------------------
                                                        $49,836,734  $470,119 $  406,276  $49,900,577
                                                        =============================================

<CAPTION>
                                                                     September 30, 1996
-----------------------------------------------------------------------------------------------------
                                                                       Gross Unrealized    
                                                          Carrying    -----------------    Estimated
                                                            Value     Gains      Losses    Fair Value
                                                        ---------------------------------------------
<S>                                                     <C>          <C>      <C>         <C>        
Held to maturity
Government National Mortgage Association .............  $33,144,356  $496,694 $  152,628  $33,488,422
Federal Home Loan Mortgage Corporation ...............   22,978,845  360,929     149,089   23,190,685
Federal National Mortgage Association ................    3,387,877   18,342      38,385    3,367,834
Other pass-through ...................................    2,497,156     --             1    2,497,155
                                                        ---------------------------------------------
                                                        $62,008,234  $875,965 $  340,103  $62,544,096
                                                        =============================================
</TABLE>


                                                                              27
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    Financial Bancorp, Inc. and Subsidiaries

      The schedule of maturities as of September 30, 1996 follows (in
thousands):

                                                        Carrying       Estimated
                                                          Value       Fair Value
                                                       -------------------------
After one through five years ...................         $ 5,903         $ 5,888
After five through ten years ...................           2,762           2,755
After ten years ................................          46,188          46,274
                                                       -------------------------
                                                         $54,853         $54,917
                                                       =========================

      There were no sales of mortgage-backed securities available for sale or
held to maturity during the years ended September 30, 1996, 1995 and 1994.

6. LOANS RECEIVABLE, NET

                                                             September 30,
--------------------------------------------------------------------------------
                                                       1996              1995
                                                  ------------------------------
Real estate mortgages:
  One-to-four family .......................      $115,499,853      $ 93,360,878
  Equity and second mortgages ..............         2,779,860         3,806,267
  Multi-family .............................         5,622,129         4,295,959
  Commercial ...............................        15,301,665         8,030,860
                                                  ------------------------------
                                                   139,203,507       109,493,964
                                                  ------------------------------
Construction ...............................         4,919,747         3,079,975
                                                  ------------------------------
Consumer:
  Passbook or certificate ..................           171,055           152,374
  Home improvement .........................             6,844             9,508
  Student education guaranteed
    by the State of New York ...............           201,789           214,295
  Personal .................................            21,468            27,414
                                                  ------------------------------
                                                       401,156           403,591
                                                  ------------------------------
Commercial, including lines
  of credit ................................           167,910           123,050
                                                  ------------------------------
    Total loans.............................       144,692,320       113,100,580
                                                  ------------------------------
Less: Loans in process .....................         2,508,812         1,485,237
        Allowance for loan losses ..........         1,573,338         1,243,068
        Deferred loan fees
          and discounts ....................           296,012           310,696
                                                  ------------------------------
                                                     4,378,162         3,039,001
                                                  ------------------------------
                                                  $140,314,158      $110,061,579
                                                  ==============================

      At September 30, 1996, 1995 and 1994, loans serviced by the Bank for the
benefit of others totalled approximately $10,067,000, $11,877,000 and
$13,653,000 respectively.

    An analysis of the allowance for loan losses follows:

                                             Year Ended September 30,
--------------------------------------------------------------------------------
                                       1996           1995              1994
                                  ----------------------------------------------
Balance--beginning ..........     $ 1,243,068      $ 1,119,542      $ 1,004,668
Provision for
  loan losses ...............         542,920          341,530          182,763
Charge-offs .................        (212,650)        (218,716)         (70,476)
Recoveries ..................            --                712            2,587
                                  ----------------------------------------------
Balance--ending .............     $ 1,573,338      $ 1,243,068      $ 1,119,542
                                  ==============================================

      Non-accrual loans totalled approximately $4,380,000, $1,794,000 and
$1,629,000 at September 30, 1996, 1995 and 1994, respectively. Interest income
that would have been recognized on loans for which the accrual of income has
been discontinued totalled approximately $256,000, $171,000 and $165,000 for the
years ended September 30, 1996, 1995 and 1994, respectively. Interest income on
these loans, which is recorded only when collected, amounted to approximately
$43,000, $24,000 and $17,000 for the years ended September 30, 1996, 1995 and
1994, respectively.

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

Recorded investment in impaired loans:
  With recorded allowance ....................................          $922,426
  Without recorded allowance .................................              --
                                                                        --------
  Total impaired loans .......................................           922,426
Recorded allowances for loan losses ..........................           504,095
                                                                        --------
  Net impaired loans .........................................          $418,331
                                                                        ========

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

      The average balance of impaired loans during the year ended September 30,
1996 approximated $933,000.


28
<PAGE>

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

                                                            Year Ended
                                                           September 30,
--------------------------------------------------------------------------------
                                                     1996               1995
                                                  ------------------------------
Balance--beginning .....................          $ 651,939           $ 351,469
New loans ..............................               --               310,000
Repayments .............................             (6,581)             (9,530)
Loans removed ..........................           (249,835)               --
                                                  ------------------------------
Balance--ending ........................          $ 395,523           $ 651,939
                                                  ==============================

7. REAL ESTATE OWNED, NET

Real estate owned is summarized as follows:

                                                           September 30,
--------------------------------------------------------------------------------
                                                     1996               1995
                                                  ------------------------------
Acquired by foreclosure                           $377,910             $591,027
                                                  ==============================

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

                                                Year Ended September 30,
--------------------------------------------------------------------------------
                                            1996         1995            1994
                                          --------------------------------------
Provision for losses ..............       $  --         $  --         $  48,195
Operational expenses,
  net of rental
  income ..........................        50,540        52,223          55,608
Loss (gain) on sale
  and write down ..................        33,583        24,667        (116,359)
                                          --------------------------------------
Net loss (income) .................       $84,123       $76,890       $ (12,556)
                                          ======================================

8. INVESTMENTS IN REAL ESTATE

                                                             September 30,
--------------------------------------------------------------------------------
                                                          1996           1995
                                                      --------------------------
Investment in real estate including:
  Real estate held for
    rental operations ..........................      $  184,987      $     --
  Investment in real estate
    for development ............................       3,308,166       3,531,166
                                                      --------------------------
                                                      $3,493,153      $3,531,166
                                                      ==========================

      The Bank's wholly owned subsidiary has entered into joint venture with
builders, developers and one financial institution to acquire land, design
projects and install site improvements thereon and engage in marketing
activities to sell the improved lots. Profits and losses are shared in
accordance with partnership agreements, under which the subsidiary shares of
33.33% of profits and losses.

Combined Statements of Financial Condition

                                                            September 30,
--------------------------------------------------------------------------------
Assets                                                  1996             1995
                                                    ----------------------------
Cash .........................................      $    19,738      $    90,489
                                                    ----------------------------
Investments ..................................          133,163           49,507
                                                    ----------------------------
Land and construction-in-progress:
  Land .......................................        7,210,900        7,210,900
  Construction-in-progress ...................        7,848,912        7,018,280
                                                    ----------------------------
                                                     15,059,812       14,229,180
                                                    ----------------------------
  Less allowances for inventory
    valuation ................................        3,645,000        2,751,000
                                                    ----------------------------
                                                     11,414,812       11,478,180
                                                    ----------------------------
  Total assets ...............................      $11,567,713      $11,618,176
                                                    ============================
Liabilities and partners' capital
Liabilities
Loan payable to Bank's
  subsidiary .................................      $ 1,256,934      $ 1,256,934
Loan payable to other partner ................        1,256,934        1,256,934
                                                    ----------------------------
  Loans payable ..............................        2,513,868        2,513,868
Other liabilities ............................        1,237,876          619,339
                                                    ----------------------------
  Total liabilities ..........................        3,751,744        3,133,207
                                                    ----------------------------
Partners' capital
Bank's subsidiaries ..........................        2,176,926        2,399,926
Other partners ...............................        5,639,043        6,085,043
                                                    ----------------------------
  Total partners' capital ....................        7,815,969        8,484,969
                                                    ----------------------------
  Total liabilities and
    partners' capital ........................      $11,567,713      $11,618,176
                                                    ============================


                                                                              29
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    Financial Bancorp, Inc. and Subsidiaries

Combined Statements of Income (Loss)

                                               Year Ended September 30,
                                         1996            1995            1994
                                      ------------------------------------------
Allowance for inven-
  tory valuation ................     $(894,000)     $(1,842,000)     $(909,000)
(Loss) on sale of
  real estate ...................          --               --           (2,393)
                                      ------------------------------------------
Net (loss) ......................     $(894,000)     $(1,842,000)     $(911,393)
                                      ==========================================

Combined Statements of Partners' Capital

                                    Bank's
Partners' capital                Subsidiaries        Others           Total
                                 -----------------------------------------------
Balance
  October 1, 1993 ..........     $ 3,153,346      $ 7,229,761      $ 10,383,107
Capital
  contribution .............         335,000          522,553           857,553
(Loss) for year ended
  September 30,
  1994 .....................        (286,313)        (625,080)         (911,393)
Distribution of
  capital ..................        (413,416)            --            (413,416)
                                 -----------------------------------------------
Balance September 30,
  1994 .....................       2,788,617        7,127,234         9,915,851
Capital
  contribution .............         225,309          185,809           411,118
(Loss) for year ended
  September 30,
  1995 .....................        (614,000)      (1,228,000)       (1,842,000)
                                 -----------------------------------------------
Balance September 30,
  1995 .....................       2,399,926        6,085,043         8,484,969
Capital
  contribution .............          75,000          150,000           225,000
(Loss) for year ended
  September 30,
  1996 .....................        (298,000)        (596,000)         (894,000)
                                 -----------------------------------------------
Balance September 30,
  1996 .....................     $ 2,176,926      $ 5,639,043      $  7,815,969
                                 ===============================================

      See Note 20 to consolidated financial statements regarding related
commitments.

9. PREMISES AND EQUIPMENT, NET
                                                            September 30,
                                                        1996            1995
                                                    ----------------------------
Land .......................................        $  220,000        $  102,000
Buildings and improvements .................         2,174,114         1,594,663
Leasehold improvements .....................         1,245,011         1,238,491
Furniture, fixtures and
  equipment ................................           904,034           868,620
                                                    ----------------------------
                                                     4,543,159         3,803,774
Less accumulated depreciation
  and amortization..........................         2,020,895         1,941,647
                                                    ----------------------------
                                                    $2,522,264        $1,862,127
                                                    ============================

10. ACCRUED INTEREST RECEIVABLE, NET
                                                            September 30,
                                                        1996            1995
                                                    ----------------------------
Loans, net of allowance for
  uncollected interest of
  $473,000, and $353,000
  at September 30, 1996 and
  1995, respectively .......................        $  605,257        $  401,176
Mortgage-backed securities .................           382,225           405,353
Investment securities ......................           801,142           766,741
Other interest-earning assets ..............               346             1,750
                                                    ----------------------------
                                                    $1,788,970        $1,575,020
                                                    ============================

11. DEPOSITS

<TABLE>
<CAPTION>
                                                               September 30,
-----------------------------------------------------------------------------------------------------
                                                1996                                1995
                                  --------------------------------------------------------------------
                                                           Weighted                           Weighted
                                                            Average                           Average
                                  Percent      Amount        Rate      Percent       Amount    Rate
                                  --------------------------------------------------------------------
<S>                                  <C>   <C>               <C>         <C>   <C>             <C>  
Non-interest bearing demand          3.52  $  7,155,614      0.00%       1.98  $  3,688,019    0.00%
Interest-bearing demand ...          9.18    18,621,553      2.18%      8.911     6,622,561    2.29%

Savings and club ..........         36.52    74,084,490      2.11%      41.49    77,370,417    2.44%
Certificates of deposit ...         50.78   103,022,109      5.85%      47.62    88,810,591    5.98%
                                   --------------------                --------------------
  Total deposits ..........        100.00  $202,883,766      3.94%     100.00  $186,491,588    4.06%
                                   ====================                ====================
</TABLE>


30
<PAGE>

      The following table presents certificates of deposit outstanding, based
upon interest rate ranges, at September 30, 1996 and 1995:

(In Thousands)                                                September 30,
--------------------------------------------------------------------------------
                                                          1996            1995
                                                       -------------------------
Certificate accounts:
  3.00% to 3.99% ............................          $    163          $ 1,121
  4.00% to 4.99% ............................            24,776           10,896
  5.00% to 5.99% ............................            50,468           36,702
  6.00% to 6.99% ............................            10,685           23,712
  7.00% to 7.99% ............................            16,879           16,313
  8.00% to 8.99% ............................                51               67
                                                       -------------------------
                                                       $103,022          $88,811
                                                       =========================

      The scheduled maturities of certificates of deposit were as follows:

(In Thousands)                                                September 30,
--------------------------------------------------------------------------------
                                                         1996             1995
                                                      --------------------------
One year or less ..........................           $ 53,177           $56,201
One to two years ..........................             23,168            11,264
Two to three years ........................              5,929             3,053
Thereafter ................................             20,748            18,293
                                                      --------------------------
    Total .................................           $103,022           $88,811
                                                      ==========================

      Certificates of deposit of $100,000 or more totalled approximately
$7,860,000 and $6,677,000 at September 30, 1996 and 1995, respectively.

      Interest expense on deposits consists of the following:

                                               Year Ended September 30,
--------------------------------------------------------------------------------
                                          1996            1995           1994
                                      ------------------------------------------
Demand .........................      $  439,309      $  372,698      $  423,873
Savings and clubs ..............       1,672,529       1,930,106       1,994,256
Certificates of
  deposit ......................       5,480,885       3,815,922       1,581,781
                                      ------------------------------------------
                                      $7,592,723      $6,118,726      $3,999,910
                                      ==========================================

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

                                                      September 30,
--------------------------------------------------------------------------------
                                           Interest
                                             Rate        1996           1995
                                         ---------------------------------------
Overnight advances due:
  October 2, 1995 ...............           6.625%   $     --         $5,375,000
  October 1, 1996 ...............           6.125%      525,000             --
Notes maturing on:
  February 14, 1997 .............           5.133%    1,200,000             --
  December 19, 1997 .............           5.597%    2,000,000             --
  December 28, 1998 .............           5.670%    6,000,000             --
                                                     ---------------------------
                                                     $9,725,000       $5,375,000
                                                     ---------------------------

      The Bank has an available overnight line of credit with the FHLB, subject
to the terms and conditions of the lender's overnight advance program in the
amount of $22,330,400 and $20,956,300, at September 30, 1996 and 1995,
respectively. Advances under this line of credit, which expires on December 22,
1996, are made for one-day periods. The advances were secured by stock of the
FHLB in the amount of $1,675,000 and $1,423,000 and mortgage loans with an
unpaid balance of $5,185,000 and $6,716,000 at September 30, 1996 and 1995,
respectively.

13. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
                                                             September 30,
                                               Interest ------------------------
Lender                            Maturity       Rate      1996         1995
--------------------------------------------------------------------------------
Security broker-dealer .....  November 9, 1995   5.78%  $      --    $5,112,500
Security broker-dealer .....  January 26, 1996   5.75%         --     2,013,750
Federal Home Loan Bank .....  December 18, 1996  5.46%    4,600,000        --
Federal Home Loan Bank .....  December 20, 1996  5.46%    4,768,000        --
Federal Home Loan Bank .....  December 26, 1996  5.40%    4,678,000        --
                                                        ------------------------
                                                        $14,046,000  $7,126,250
                                                        ========================


                                                                              31
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    Financial Bancorp, Inc. and Subsidiaries

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

                                                                Year Ended
                                                               September 30,
--------------------------------------------------------------------------------
                                                            1996          1995
                                                          ----------------------
                                                          (Dollars in Thousands)
Average balance during
  the year ........................................       $ 8,228        $1,876
Average interest rate
  during the year .................................          5.70%         6.01%
Maximum month-end
  balance during the year .........................       $15,064        $9,229
Investment securities underlying the
  agreement at year end:
    Carrying value ................................       $15,150        $6,988
    Estimated fair value ..........................       $14,520        $7,047

14. TREASURY TAX AND LOAN ACCOUNT AND OTHER SHORT TERM BORROWINGS

At September 30, 1996, the Bank had borrowings from the Federal Reserve Bank of
New York under the Treasury Tax and Depository program in the amount of
$9,880,970 at an interest rate of 5.20 per annum payable on demand. These
borrowings are secured by investment securities with a carrying value of
$10,972,000 and fair value of $10,570,000.

15. INCOME TAXES

The Bank qualifies as a Savings and Loan Association under the provisions of the
Internal Revenue Code and was therefore permitted to deduct from taxable income
an allowance for bad debts based on the greater of; (1) actual loan losses (the
"experience method"); or (2) eight (8) percent of taxable income before such bad
debt deduction less certain adjustments (the "percentage of taxable income
method"). For the tax years 1996, 1995, and 1994, the Bank used the percentage
of taxable income method.

      On August 21, 1996, legislation was signed into law which repealed the
percentage of taxable income method for tax bad debt deduction. The repeal is
effective for the Bank's taxable year beginning October 1, 1996. In addition,
the legislation requires the Company to include in taxable income its bad debt
reserves in excess of its base year reserves over a six, seven, or eight year
period depending upon the attainment of certain loan origination levels. Since
the percentage of taxable income method for Federal tax bad debt deduction and
the corresponding increase in the Federal tax bad debt reserve in excess of the
base year have been recorded as temporary differences pursuant to SFAS 109, this
change in the tax law is not expected to have a material adverse effect on the
Company's statement of operations.

      Retained earnings at September 30, 1996 include approximately $3,127,000
related to bad debt deductions for income tax purposes for which income taxes
have not been provided. If such amount is used for purposes other than for bad
debt losses, including distributions in liquidation, it will be subject to
income tax at the then current rates.

      The components of income taxes are summarized as follows:

                                                Year Ended September 30,
--------------------------------------------------------------------------------
                                           1996             1995          1994
                                      ------------------------------------------
Current tax expense:
  Federal income ................     $ 1,186,475      $   846,068      $499,873
  State and city
    income ......................         576,919          366,219       311,684
                                      ------------------------------------------
                                        1,763,394        1,212,287       811,557
                                      ------------------------------------------
Deferred tax expense
(benefit):
  Federal income ................        (609,709)        (220,292)       71,730
  State and city
    income ......................        (478,458)        (155,903)       37,697
                                      ------------------------------------------
                                       (1,088,167)        (376,195)      109,427
                                      ------------------------------------------
                                      $   675,227      $   836,092      $920,984
                                      ==========================================

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

                                                  Year Ended September 30,
--------------------------------------------------------------------------------
                                             1996          1995         1994
                                          --------------------------------------
Federal income
  taxes .............................     $ 621,558      $694,298     $ 740,488
Increase (reduction) of
  income taxes
  resulting from:
    New York state
    and city taxes,
    net of federal
    income tax
    effect ..........................        79,010       138,809       230,591
  ESOP and MRP ......................       (14,835)         --            --
  Other .............................       (10,506)        2,985       (50,095)
                                          --------------------------------------
                                          $ 675,227      $836,092     $ 920,984
                                          --------------------------------------

      Refundable income taxes of $36,340 and $22,647 at September 30, 1996 and
1995, respectively, and net deferred income taxes of $1,419,226 and $330,676 at
September 30, 1996 and 1995, respectively are included in other assets.


32
<PAGE>

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

                                                              September 30,
--------------------------------------------------------------------------------
                                                          1996            1995
                                                      --------------------------
Deferred tax assets
Uncollected interest .........................        $  219,699        $169,444
Allowance for loss on loans
  in excess of tax bad debt
  deductions .................................           352,744         176,505
Deferred loan fees ...........................            73,972         108,052
Prepaid pension ..............................            93,084          49,824
Depreciation .................................           131,650         104,818
ESOP and RRP cost ............................            99,702          94,387
Special assessment of
  Federal Insurance ..........................           517,452            --
Other ........................................            59,922          11,313
                                                      --------------------------
                                                       1,548,225         714,343
                                                      --------------------------
Deferred tax liabilities
Deferred premiums
  and discounts ..............................            11,953          12,993
Deferred loss on investments in
  real estate ................................           117,046         287,600
State and city taxes .........................              --            68,643
Other ........................................              --            14,431
                                                      --------------------------
                                                         128,999         383,667
                                                      --------------------------
Net deferred tax assets
    (liabilities) ............................        $1,419,226        $330,676
                                                      ==========================

16. REGULATORY CAPITAL

The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") and the regulations prescribed by the Office of Thrift Supervision
(the "OTS") prescribed capital requirements, which include three separate
measurements of capital adequacy (the "Capital Rule"). The Capital Rule requires
each savings institution to maintain tangible capital equal to at least 1.5% of
its adjusted total assets and core capital equal to at least 3.0% of its
adjusted total assets. The Capital Rule further requires each savings
institution to maintain total capital equal to at least 8.0% of its
risk-weighted assets.

      The following table sets forth the capital position of the Bank as
calculated under the Capital Rule:

<TABLE>
<CAPTION>
                                                        Tangible                Core                Risk-based
                                                  ----------------------------------------------------------------
                                                    Amount    Percent     Amount    Percent     Amount    Percent
------------------------------------------------------------------------------------------------------------------
                                                                       (Dollars in Thousands)
<S>                                               <C>            <C>    <C>            <C>    <C>           <C>  
GAAP stockholders' equity ......................  $ 21,660       8.31   $ 21,660       8.31   $ 21,660      20.78
Less goodwill and other intangibles ............      (143)     (0.05)      (143)     (0.05)      (143)     (0.14)
Less investment in "non-includable" subsidiaries
  required to be deducted ......................    (3,308)     (1.27)    (3,308)     (1.27)    (3,308)     (3.17)
Add general valuation allowance ................      --         --         --         --        1,021       0.98
                                                  ----------------------------------------------------------------
Capital as calculated under FIRREA .............    18,209       6.99     18,209       6.99     19,230      18.45
Capital as required under FIRREA ...............     3,908       1.50      7,816       3.00      8,337       8.00
                                                  ----------------------------------------------------------------
Excess .........................................  $ 14,301       5.49   $ 10,393       3.99   $ 10,893      10.45
                                                  ================================================================
</TABLE>

      The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") imposes increased requirements on the operations of financial
institutions and mandates the development of regulations designed to empower
regulators to take prompt corrective action with respect to institutions that
fall below certain capital standards. FDICIA stipulates that an institution with
less than 4% core capital is deemed to be undercapitalized.


                                                                              33
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    Financial Bancorp, Inc. and Subsidiaries

17. BENEFIT PLANS

Pension Plan

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

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

                                                          September 30,
--------------------------------------------------------------------------------
                                                      1996              1995
                                                  ------------------------------
Actuarial present value of
  benefit obligation, including
  vested benefits of $1,840,708
  and $1,857,122, respectively .............      $ 1,903,127       $ 1,922,763
                                                  ==============================
Projected benefit obligation ...............      $(2,299,516)      $(2,318,598)
Plan assets at fair value ..................        2,234,942         2,009,196
                                                  ------------------------------
Projected benefit obligation
  in excess of plan assets .................          (64,574)         (309,402)
Unrecognized (gain) loss ...................         (536,887)         (318,597)
Unrecognized net obligation
  at October 1, 1988 being
  amortized over 15 years ..................          197,925           225,225
Unrecognized prior service cost
  at October 1, 1989 being
  amortized over 11.1 years ................          145,598           179,984
Contributions made during
  the three months ended
  September 30 .............................           57,290           120,527
                                                  ------------------------------
(Accrued) pension cost included
  in other liabilities .....................      $  (200,648)      $  (102,263)
                                                  ==============================

      Net periodic pension cost included the following components:

                                               Year Ended September 30,
--------------------------------------------------------------------------------
                                         1996            1995            1994
                                      ------------------------------------------
Service cost ...................      $  87,457       $  74,246       $  70,308
Interest cost ..................        169,729         210,445         199,052
Actual return on
  plan assets ..................       (217,332)       (141,270)       (147,514)
Net amortization
  and deferrals ................        115,821          61,686          61,686
                                      ------------------------------------------
Net periodic pension
  cost included in
  salaries and
  employee benefits ............      $ 155,675       $ 205,107       $ 183,532
                                      ==========================================

      Assumptions used in accounting for the plan are as follows:

                                                   Year Ended September 30,
--------------------------------------------------------------------------------
                                               1996          1995          1994
                                               ---------------------------------
Discount rate ........................         7.50%         8.25%         8.25%
Rate of increase in
  compensation .......................         5.50%         6.00%         6.00%
Long-term rate of
  return on
  plan assets ........................         8.00%         8.00%         8.00%

Savings Incentive Plan

The Bank has a savings incentive plan, pursuant to Section 401(K) of the
Internal Revenue Code, for all eligible employees of the Bank. Employees may
elect to save from 1% to 15% of their eligible compensation, of which the Bank
will match the lesser of 25% of the employees' contribution or 1% of the
employees' compensation. The Bank may make a special employer contribution in
addition to its matching contribution. Total savings incentive plan expense for
the years ended September 30, 1996, 1995 and 1994 was approximately $13,700,
$22,000 and $36,000, respectively.

18. STOCK BENEFIT PLANS

Employee Stock Ownership Plan

Effective upon conversion, an ESOP was established for all eligible employees.
The ESOP used $1,529,500 of proceeds from a term loan from the Company to
purchase 152,950 shares of Company common stock in the initial offering. The
term loan from the Company to the ESOP was payable initially over seven annual
installments commencing on December 31, 1994. Interest on the term loan is
payable annually, commencing on December 31, 1994, at a rate of 7.75 percent per
annum. Each year, the Bank intends to make discretionary contributions to the
ESOP which will be equal to principal and interest payments required from the
ESOP on the term loan less any dividends received by the ESOP on unallocated
shares. Shares purchased with the loan proceeds were initially pledged as
collateral for the term loan and are held in a suspense account for future
allocation among participants. Contributions to the ESOP and shares released
from the suspense account will be allocated among the participants on the basis
of compensation, as described by the Plan, in the year of allocation. During the
years ended September 30, 1996 and 1995, the Bank made $302,190 and $127,284
cash contributions to the ESOP of which $190,184 and $72,833 were applied to the
principal. During the year  


34
<PAGE>

ended September 30, 1994, no contributions were made to the ESOP and no loan
repayments were due. Effective January 1, 1995, the terms of the term loan were
renegotiated between the Company and the ESOP and the remaining term to maturity
was extended from six to nine years. At September 30, 1996, the loan had an
outstanding balance of $1,266,483.

      The ESOP is accounted for in accordance with SOP 93-6 "Accounting for
Employee Stock Ownership Plans," which was issued by the AICPA in November 1993.
Accordingly, the ESOP shares pledged as collateral are reported as unearned ESOP
shares in the consolidated statements of financial condition. As shares are
committed to be released from collateral, the Company reports compensation
expense equal to the current market price of the shares, and the shares become
outstanding for net income per common share computations. Dividends on allocated
ESOP shares will be recorded as a reduction of retained earnings. Contributions
equivalent to dividends on unallocated ESOP shares are recorded as a reduction
of debt. ESOP compensation expenses were $218,000, $191,000 and $18,000 for the
years ended September 30, 1996, 1995 and 1994, respectively.

      The ESOP shares at September 30, 1996 and 1995 were as follows:

                                                        1996             1995
                                                     ---------------------------
Allocated shares .............................           26,302            7,283
Shares committed to be released ..............            9,306           12,139
Unreleased shares ............................          117,342          133,528
                                                     ---------------------------
Total ESOP shares ............................          152,950          152,950
                                                     ===========================
Fair value of unreleased shares ..............       $1,768,344       $1,886,083
                                                     ===========================

Recognition and Retention Plan

On January 26, 1995, the Bank established a Recognition and Retention Plan
("RRP") to provide both key employees and outside directors of the Bank with a
proprietary interest in the Company in a manner designed to encourage such
persons to remain with the Bank. The Bank contributed $681,331 from available
liquid assets to the RRP to enable the trust to acquire 65,550 shares of the
Company's common stock in open market transactions. As of September 30, 1995,
3,500 of the total of 4,589 shares allotted to outside directors have been
awarded and 54,407 of the total of 60,961 shares allotted to officers and
employees have been awarded.

      Under the RRP, awards are granted in the form of common stock held by the
RRP trust. The awards vest over a period of time not more than five years
commencing one year from the date of award. The awards become fully vested upon
termination of employment due to death, disability or normal retirement. The
awards to officers, employees and outside directors become fully vested upon a
change in control of the Bank or the Company. At September 30, 1995, 1,500
shares awarded were vested. During the year ended September 30, 1996, an
additional 6,964 shares were awarded to officers and employees and awards for
13,547 shares were forfeited. As of September 30, 1996, 11,274 shares to
officers and employees and 1900 shares to outside directors were distributed and
1600 shares to outside directors were vested. $136,266 and $90,844 of expenses
related to the RRP shares are included in the consolidated statements of income
for years ended September 30, 1996 and 1995, respectively.

Stock Option Plan

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

      As of September 30, 1995, 86,970 shares of common stock had been granted
under the ISO Plan at an option price of $9.44 per common share (the market
price on the date approved by the stockholders). No options are exercisable as
of September 30, 1995 and no options were exercised during the year then ended.
During the year ended September 30, 1996, options previously granted for 19,534
shares were canceled. At September 30, 1996, options to purchase 4,064 shares
are exercisable.

      The Company adopted a stock option plan for outside directors (the "Option
Plan") authorizing the grant of non-statutory stock options equal to 65,550
shares of common stock to outside directors of the Bank and/or the Company.
Options granted will be exercisable on a cumulative basis in equal installments
at the rate of 20% per year commencing one year from the date the individual
began serving as outside director, including service prior to adoption of the
Plan. All options granted under the Option Plan expire upon the earlier of ten
years following the date of grant or one year following the date the optionee
ceases to be a Director for any reason other than removal for cause. If Director
is removed for cause, all options awarded to him shall expire upon such removal.
Upon the death or disability of the participant, all options previously granted
would automatically be exercisable. As of September 30, 1995, 43,700 shares of
common stock were granted under the Option Plan at an option price of $9.44 per
common share (the market price on the date approved by the stockholders).
Options to purchase 10,925 shares of common stock were exercised during the year
ended September 30, 1996 and options to purchase 32,775 shares are exercisable.


                                                                              35
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    Financial Bancorp, Inc. and Subsidiaries

      Activity for the stock option plans is as follows:

Stock Options                                                            Option
                                                               Option    Price
                                                     ISO Plan   Plan   Per Share
                                                    ----------------------------
Balance at
  September 30, 1994 ...........................       --         --        --
Granted ........................................     86,970     43,700     $9.44
Exercised ......................................       --         --        --
Cancelled ......................................       --         --        --
                                                    ----------------------------
Balance at
  September 30, 1995 ...........................     86,970     43,700     $9.44
                                                    ----------------------------
Exercised ......................................       --       10,925      9.44
Cancelled ......................................     19,534       --        --
                                                    ----------------------------
Balance at
  September 30, 1996 ...........................     67,436     32,775     $9.44
                                                    ============================

19. BRANCH ACQUISITION

On February 24, 1995, the Bank purchased deposit liabilities associated with a
branch office located in Greenpoint, Brooklyn. The Bank assumed deposit
liabilities in the amount of $14,813,000 and paid a premium of $127,000. The
premium, along with other costs of acquisition, is amortized on a straight-line
basis over a period of ten years. At September 30, 1996, the unamortized premium
and other acquisition costs totalling $143,000 are included in other assets. The
amortization expense for the years ended September 30, 1996 and 1995 were
$19,000 and $9,000, respectively.

20. COMMITMENTS AND CONTINGENCIES

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

      Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since commitments may expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation of
the counterparty. Collateral held varies but primarily includes residential real
estate.

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

                                                           September 30,
--------------------------------------------------------------------------------
                                                      1996               1995
                                                   -----------------------------
Conventional mortgages ...................         $7,355,000         $4,122,000
                                                   =============================

      At September 30, 1996, of the $7,355,000 in outstanding commitments to
originate loans, $6,768,000 are at a fixed rate within ranges from 7.08% to
10.00% and $587,000 are at adjustable rates with initial rates within a range
from 6.23% to 8.00%.

      Rentals under long-term operating leases for certain branch offices
amounted to approximately $144,000, $142,000 and $109,000 for the years ended
September 30, 1996, 1995 and 1994, respectively. At September 30, 1996, the
minimum rental commitments under all non-cancelable leases with initial or
remaining terms of more than one year and expiring through August 31, 2005 are
as follows:

Year Ending
September 30,                                                       Minimum Rent
--------------------------------------------------------------------------------
   1997 ...............................................                 $179,000
   1998 ...............................................                  187,000
   1999 ...............................................                  190,000
   2000 ...............................................                  139,000
Thereafter ............................................                  299,000
                                                                        --------
                                                                        $994,000
                                                                        ========

      At September 30, 1996, a real estate joint venture, in which FinFed
Development Corp. ("FDC") is a partner, may require additional contributions to
the joint venture over the next two-year period to enable development of the
property, and its share of the normal operating costs of the joint venture.

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

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


36
<PAGE>

21. FAIR VALUES OF FINANCIAL INSTRUMENTS 

The carrying amounts and fair values of the corporation's financial instruments
at September 30, 1996 are as follows:

                                                       Carrying          Fair
                                                         Value           Value
                                                       -------------------------
                                                            (In Thousands)
Financial assets
Cash and cash equivalents ....................         $  5,102         $  5,102
Investment securities ........................           54,730           53,511
Mortgage-backed securities ...................           54,853           54,917
Loans receivable .............................          140,314          140,464
Interest receivable ..........................            1,789            1,789
Financial liabilities
Deposits .....................................          202,884          203,510
Advances and borrowings ......................           33,652           33,486
Commitments
To originate loans ...........................            7,355            7,355

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

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

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

22. PARENT ONLY FINANCIAL INFORMATION

Financial Bancorp, Inc. operates two wholly owned subsidiaries, Financial
Federal Savings Bank, and 842 Manhattan Avenue Corp. ("Corporation"). The
earnings of the subsidiaries are recognized by the holding company using the
equity method of accounting. Accordingly, earnings of the subsidiaries are
recorded as increases in the Company's investment in the Subsidiary. The
following are the condensed financial statements for Financial Bancorp, Inc.
(Parent company only) as of September 30, 1996 and 1995 and for the periods then
ended. The Company had no operations prior to the Bank's conversion to stock
form on August 17, 1994.

Statements of Financial Condition

                                                            September 30,
--------------------------------------------------------------------------------
                                                         1996           1995
                                                    ----------------------------
Assets
Cash and amounts due from depository institutions   $      6,475   $        536
Repurchase agreements ............................     2,185,000      5,458,000
                                                    ----------------------------
  Cash and cash equivalents ......................     2,191,475      5,458,536
Accrued interest receivable ......................        75,058         86,184

ESOP loan to Financial Federal Savings Bank ......     1,266,483      1,456,667
Investment in Financial Federal Savings Bank .....    21,660,028     20,090,937

Investment in 842 Manhattan Avenue Corp. .........       232,193           --
Other assets .....................................       401,809         86,704
                                                    ----------------------------
    Total assets .................................  $ 25,827,046   $ 27,179,028
                                                    ============================
Liabilities and stockholders' equity
Other liabilities ................................  $     39,360   $       --
                                                    ----------------------------
    Total liabilities ............................        39,360           --
                                                    ----------------------------
Stockholders' equity
Common stock .....................................        21,850         21,850
Paid-in capital ..................................    20,151,858     20,130,021
Retained earnings ................................    12,218,607     11,544,464
Employees Stock Ownership Plan ...................    (1,173,422)    (1,335,278)
Recognition and Retention Plan ...................      (454,221)      (590,487)
Treasury stock ...................................    (4,976,986)    (2,591,542)
                                                    ----------------------------
    Total stockholders' equity ...................    25,787,686     27,179,028
                                                    ----------------------------
    Total liabilities and stockholders' ..........  $ 25,827,046   $ 27,179,028
                                                    ============================


                                                                              37
<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                    Financial Bancorp, Inc. and Subsidiaries

Statements of Income
<TABLE>
<CAPTION>
                                                                                  From Inception
                                                                                   August 17, to
                                                        Year Ended September 30,   September 30,
------------------------------------------------------------------------------------------------
                                                          1996          1995           1994
                                                     -------------------------------------------
<S>                                                  <C>           <C>                <C>     
Interest income ...................................  $   112,031   $   119,883        $ 14,817
Equity in undistributed earning of the subsidiaries    1,211,457     1,262,813         382,243
                                                     -------------------------------------------
                                                       1,323,488     1,382,696         397,060
Expenses ..........................................      201,401       226,383           2,180
                                                     -------------------------------------------
Income before income taxes ........................    1,122,087     1,156,313         394,880
Income tax (benefit) expense ......................      (30,798)      (49,649)          5,932
                                                     -------------------------------------------
Net income ........................................  $ 1,152,885   $ 1,205,962        $388,948
                                                     ===========================================
</TABLE>

Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                       From Inception
                                                                                        August 17, to
                                                           Year Ended September 30,     September 30,
-----------------------------------------------------------------------------------------------------
                                                               1996           1995           1994
                                                           ------------------------------------------
<S>                                                        <C>           <C>           <C>         
Cash flows from operating activities:
  Net income ............................................  $ 1,152,885   $ 1,205,962   $    388,948
  Adjustments to reconcile net income to net cash used
   in operating activities:
    Equity in undistributed earnings of the subsidiary ..   (1,211,457)   (1,262,813)      (382,243)
    Decrease (increase) in accrued interest receivable ..       11,126       (71,367)       (14,817)
    (Increase) in other assets ..........................     (315,105)      (80,818)        (5,886)
    Increase (decrease) in other liabilities ............       39,360        (5,932)         5,932
                                                           ------------------------------------------
      Net cash (used in) operating activities ...........     (323,191)     (214,968)        (8,066)
                                                           ------------------------------------------
Cash flows from investing activities:

  Purchase of all outstanding stock of the Bank .........         --            --      (10,114,817)
  Decrease (increase) in ESOP loan receivable ...........      190,184        72,833     (1,529,500)
  Capital contribution to 842 Manhattan Avenue Corp. ....     (236,000)         --             --
                                                           ------------------------------------------
      Net cash (used in) provided by investing activities      (45,816)       72,833    (11,644,317)
                                                           ------------------------------------------
Cash flows from financing activities:
  Net proceeds from issuance of common stock ............         --            --       20,180,245
  Acquisition of treasury stock .........................   (2,522,444)   (2,591,542)          --
  Payment of dividends on common stock ..................     (478,742)     (292,550)          --
  Payment of conversion expenses ........................         --         (43,099)          --
  Treasury stock reissued for stock options .............      103,132          --             --
                                                           ------------------------------------------
     Net cash (used in) provided by financing activities    (2,898,054)   (2,927,191)    20,180,245
                                                           ------------------------------------------
Net (decrease) increase in cash and cash equivalents ....   (3,267,061)   (3,069,326)     8,527,862
Cash and cash equivalents--beginning ....................    5,458,536     8,527,862           --
                                                           ------------------------------------------
Cash and cash equivalents--ending .......................  $ 2,191,475   $ 5,458,536   $  8,527,862
                                                           ==========================================
</TABLE>


38
<PAGE>

23. QUARTERLY FINANCIAL DATA (UNAUDITED)

                                        First    Second      Third       Fourth
Year ended September 30, 1996          Quarter   Quarter    Quarter      Quarter
--------------------------------------------------------------------------------
                                          (In Thousands, except per share data)
Interest income ....................    $4,212    $4,393    $ 4,532     $ 4,686
Interest expense ...................     2,071     2,170      2,131       2,319
                                        ----------------------------------------
  Net interest income ..............     2,141     2,223      2,401       2,367
Provision for loan losses ..........        54        76        159         254
Non-interest income (loss) .........        77        92       (110)        117
Non-interest expenses ..............     1,301     1,353      1,332       2,951
Income taxes .......................       379       391        295        (390)
                                        ----------------------------------------
Net income (loss) ..................    $  484    $  495    $   505     $  (331)
                                        ----------------------------------------
Net income (loss) per common share
  and common stock equivalents .....    $ 0.26    $ 0.27    $  0.29     $ (0.19)
                                        ========================================

                                        First    Second      Third       Fourth
Year ended September 30, 1996          Quarter   Quarter    Quarter      Quarter
--------------------------------------------------------------------------------
                                          (In Thousands, except per share data)
Interest income ....................    $2,978    $3,388    $ 3,844     $ 4,046
Interest expense ...................     1,079     1,442      1,788       1,977
                                        ----------------------------------------
  Net interest income ..............     1,899     1,946      2,056       2,069
Provision for loan losses ..........        30        36         32         244
Non-interest income (loss) .........        12        45         60        (426)
Non-interest expenses ..............     1,265     1,384      1,332       1,296
Income taxes .......................       259       240        317          20
                                        ----------------------------------------
Net income .........................    $  357    $  331    $   435     $    83
                                        ----------------------------------------
Net income per common share and                                       
  common stock equivalents .........    $ 0.18    $ 0.16    $  0.21     $  0.04
                                        ========================================


                                                                              39
<PAGE>

                              INDEPENDENT AUDITORS'
                                     REPORT

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

We have audited the consolidated statements of financial condition of Financial
Bancorp, Inc. (the "Company") and Subsidiaries as of September 30, 1996 and
1995, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended September 30, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

      In our opinion, the consolidated financial statements referred to in the
second preceding paragraph present fairly, in all material respects, the
financial position of Financial Bancorp, Inc. and Subsidiaries as of September
30, 1996 and 1995, and the results of their operations and their cash flows for
each of the years in the three-year period ended September 30, 1996, in
conformity with generally accepted accounting principles.

      As discussed in Note 1 to consolidated financial statements, the Company
changed its methods of accounting for debt and equity securities as of October
1, 1994.

/s/ Radics & Co., LLC
Pine Brook, New Jersey
November 19, 1996


                            MANAGEMENT RESPONSIBILITY
                                    STATEMENT

Management of Financial Bancorp, Inc. and Subsidiaries is responsible for the
preparation of the consolidated financial statements and all other consolidated
financial information included in this report. Consolidated financial statements
were prepared in accordance with generally accepted accounting principles.

      All consolidated financial information included in the report agrees with
the consolidated financial statements. In preparing the consolidated financial
statements, management makes informed estimates and judgments, with
consideration given to materiality, about the expected results of various events
and transactions.

      Management maintains a system of internal accounting control that includes
personnel selection, appropriate division of responsibilities and formal
procedures and policies consistent with high standards of accounting and
administrative practice. Consideration has been given to the necessary balance
between the costs of systems of internal control and the benefits derived.

      Management reviews and modifies its systems of accounting and internal
control in light of changes in conditions and operations as well as in response
to recommendations from the independent certified public accountants. Management
believes that the accounting and internal control systems provide reasonable
assurance that assets are safeguarded and the consolidated financial information
is reliable.

      The Board of Directors through its Audit Committee of non-management
directors, is responsible for determining that management fulfills its
responsibilities in the preparation of the consolidated financial statements and
the control of operations. The Board appoints the independent certified public
accountants. The Audit Committee meets with management, the independent
certified public accountants and the internal auditor, approves the overall
scope of audit work and related fee arrangements, and reviews audit reports and
findings.


/s/ Frank Latawiec
Frank Latawiec
President/Chief Executive Officer

/s/ Irene C. Greco
Irene C. Greco
Executive Vice President/
Chief Operating Officer


/s/ P. James O'Gorman
P. James O'Gorman
Senior Vice President/Chief Financial Officer


40
<PAGE>

Common Stock Information

Financial Bancorp, Inc. common 
stock is traded on the Nasdaq 
National Market under the symbol 
"FIBC." The table below shows the 
reported high and low sales price of 
the common stock during the periods 
indicated in the fiscal years ended
September 1996 and 1995.

                        1996
---------------------------------
                  High      Low
---------------------------------
First Quarter     14       13
Second Quarter    13 3/4   12 1/2
Third Quarter     13 1/2   12 1/2
Fourth Quarter    16 1/4   12 1/2

                        1995
---------------------------------
                  High      Low
---------------------------------

First Quarter     10 1/2    8 1/2
Second Quarter    10 3/4    8 7/8
Third Quarter     12 1/4   10 1/2
Fourth Quarter    15       11 3/4

As of December 3, 1996, the 
Company had approximately 175 
stockholders of record, not including 
the number of persons or entities 
holding stock in nominee or street 
name through broker-dealers and 
banks. At December 3, 1996, the
Company had 1,747,686 shares of 
common stock outstanding.