<PAGE>
                                    UNITED STATES
                          SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C. 20549
                                           
                                      FORM 10-K
                                           
                                           
                   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF 
                         THE SECURITIES EXCHANGE ACT OF 1934
                                           
                     For the fiscal year ended SEPTEMBER 30, 1997
                                               ------------------

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

         DELAWARE                                          11-3198508
-------------------------------                 --------------------------------
(State or other jurisdiction of                 (I.R.S. Employer Identification
incorporation or organization)                               Number)

201 OLD COUNTRY ROAD, MELVILLE, NEW YORK                   11747-2724
----------------------------------------                   ----------
(Address of principal executive offices)                   (Zip Code)

                                    (516) 547-2000
                                    --------------
                 (Registrant's telephone number, including area code)

                                       0-23526
                                       -------
                               (Commission File Number)
                                           
                                    ______________
             (Securities registered pursuant to Section 12(b) of the Act)

                             COMMON STOCK $.01 PAR VALUE
                  --------------------------------------------------
             (Securities registered pursuant to Section 12(g) of the Act)

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. (X)
                                              ---

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

                                (1)   YES  X   NO  
                                          ---      ---    

    The aggregate market value of voting stock held by non-affiliates of the
registrant as of October 31, 1997:  Common Stock par value $.01 per share,
$988,122,367.

    This figure is based on the closing price on the Nasdaq National Market for
a share of the registrant's common stock on October 31, 1997, which was $44.50
as reported in the Wall Street Journal on November 3, 1997.  The number of
shares of the registrant's Common Stock outstanding as of October 31, 1997 was
24,024,095 shares.
                         DOCUMENTS INCORPORATED BY REFERENCE
         Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on February 17, 1998 and the Annual Report to
Stockholders for fiscal 1997 are incorporated herein by reference - Parts II and
III.


<PAGE>

                                CROSS REFERENCE INDEX

                                        PART I

                                                                            PAGE
                                                                            ----

Item 1.    Business . . . . . . . . . . . . . . . . . . . . . . . . .        3
Item 2.    Properties . . . . . . . . . . . . . . . . . . . . . . . .        39
Item 3.    Legal Proceedings. . . . . . . . . . . . . . . . . . . . .        39
Item 4.    Submission of Matters to a Vote of Security Holders. . . .        40

                                       PART II

Item 5.    Market for the Registrant's Common Stock and Related 
           Stockholder Matters. . . . . . . . . . . . . . . . . . . .        40
Item 6.    Selected Financial Data. . . . . . . . . . . . . . . . . .        40
Item 7.    Management's Discussion and Analysis of Financial 
           Condition and Results of Operations. . . . . . . . . . . .        40
Item 8.    Financial Statements and Supplementary Data. . . . . . . .        41
Item 9.    Changes in and Disagreements with Accountants on 
           Accounting and Financial Disclosure. . . . . . . . . . . .        41

                                       PART III

Item 10.   Directors and Executive Officers of the Registrant . . . .        41
Item 11.   Executive Compensation . . . . . . . . . . . . . . . . . .        41
Item 12.   Security Ownership of Certain Beneficial Owners and 
           Management . . . . . . . . . . . . . . . . . . . . . . . .        41
Item 13.   Certain Relationships and Related Transactions . . . . . .        41

                                       PART IV

Item 14.   Exhibits, Financial Statement Schedules and Reports 
           on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . .        41
           Signatures . . . . . . . . . . . . . . . . . . . . . . . .        43


                                          2

<PAGE>

                                        PART 1


ITEM 1.  BUSINESS

General

Long Island Bancorp, Inc. ("Holding Company") was incorporated in the State of
Delaware in December 1993 at the direction of the Board of Directors of The Long
Island Savings Bank, FSB ("Bank") for the purpose of becoming a holding company
to own all of the outstanding capital stock of the Bank upon its conversion from
a mutual to a stock form of organization.  The mutual-to-stock conversion was
completed on April 14, 1994.  In connection with the conversion the Holding
Company issued 26,040,214 shares of common stock ("Common Stock") at a price of
$11.50 per share to the Bank's depositors and its tax-qualified employee stock
benefit plans, and an additional 776,250 shares to the Bank's Management
Recognition and Retention Plans ("MRP's").  The Holding Company realized net
proceeds of $264.2 million from the sale of its Common Stock and utilized
approximately $164.0 million to purchase 100% of the issued and outstanding
shares of the Bank's common stock.

The primary business of the Holding Company is the operation of its wholly owned
subsidiary, the Bank.  In addition, the  Bank and the Holding Company
(collectively "the Company") invest its funds in U.S. government and federal
agency securities, investment grade preferred stock and federal funds. In the
future, the Holding Company may acquire or organize other operating
subsidiaries, including other financial institutions. 

The information presented in the financial statements and in this Form 10-K
reflect the financial condition and results of operations of the Company on a
consolidated basis.  At September 30, 1997, the Company had total assets of $5.9
billion.

The Bank's principal business has been and continues to be attracting retail
deposits from the general public and investing those deposits, together with
funds generated from operations, primarily in one-to-four family, owner occupied
residential mortgage loans. In addition, from time to time depending on market
conditions, the Bank will invest in mortgage-backed and asset-backed securities
to supplement its lending portfolio. The Bank also invests, to a lesser extent,
in multi-family residential mortgage loans, commercial loans, consumer loans,
small business loans and other marketable securities. Revenues are derived
principally from interest on real estate and other loans, mortgage-backed and
other debt securities, and dividends on investment securities. Primary sources
of funds are deposits, borrowings and principal and interest payments on loans
and mortgage-backed securities.

Market Area and Competition

The Bank historically has operated as a consumer-oriented community institution
primarily engaged in attracting deposits from the general public and investing
such deposits and other available funds in mortgage loans secured by one-to-four
family dwellings and mortgage-backed securities. At September 30, 1997 the Bank
conducted its business through 35 full service banking offices and 22 regional
lending centers.  Based on data published by the Federal Deposit Insurance
Corporation ("FDIC") as of June 1996 (the latest available data) the Bank is the
fourth largest institution in terms of deposits in Suffolk County with a 7.4%
market share, in Queens County, the Bank is ranked sixth with a 3.4% market
share and in Nassau County, the Bank is ranked tenth with a 3.5% market share.
Management considers the Bank's reputation and quality customer service as its
major competitive advantages in attracting and retaining customers in its market
areas.  In this respect, the Bank has performed extensive market research
studies which are designed to identify the specific products and services
required to serve each local community.  In order to better serve its customers,
the Bank has installed automated teller machines ("ATMs") in a majority of its
offices and other locations and has enhanced its computer technologies to
facilitate, among other things, the integration of the Bank's efforts to deliver
insurance and securities products, traditional deposit products and all lending
products.

When ranked against all Metropolitan Statistical Areas in the nation, based on
FDIC published data as of June 1996, the Queens, Nassau, and Suffolk market area
served by the Bank is the fifth largest banking market in the United States
based on combined bank deposits.  This market ranks among the top 5% in per
capita income and has the third highest population density.  The high population
density in these areas allows the Bank to serve a large number of customers with
an efficient network of branches.  Management believes that its branch offices
generally are located in communities that can be characterized as stable,
consisting of residential neighborhoods of predominantly one-to-four family
residences.  


                                          3

<PAGE>

During the last four years, unemployment and real estate values have been
relatively stable in New York, New Jersey and Connecticut ("New York
metropolitan area") which has had a corresponding impact on the Bank's asset
quality.  In order to mitigate the Bank's potential exposure to a concentration
of credit risk in the New York metropolitan area, the Bank has extended its
lending operations into Georgia, Maryland, Pennsylvania, Virginia and North and
South Carolina.  The following table sets forth the geographic distribution of
the Company's gross real estate loan portfolio, excluding home equity loans, at
September 30:
 

<TABLE>
<CAPTION>

                                                                 % of                          % of                          % of
               State                            1997             Total        1996             Total        1995             Total
----------------------------------------    ------------       ---------  ------------       ---------  ------------       ---------
                                                                      (Dollars in thousands)
<S>                                         <C>                <C>        <C>                <C>        <C>                <C>
Connecticut ...........................     $  241,677           6.98%    $  135,704           4.58%    $   51,679           2.67%
Georgia ...............................        155,344           4.48        120,070           4.06         77,820           4.01
Maryland ..............................        353,872          10.22        226,599           7.65         65,643           3.39
New Jersey ............................        275,621           7.95        167,406           5.66         93,165           4.81
New York ..............................      1,354,981          39.10      1,370,521          46.30      1,349,780          69.62
Pennsylvania ..........................        118,948           3.43         65,184           2.20         19,968           1.03
Virginia ..............................        299,909           8.65        180,732           6.11         80,477           4.15
Other states ..........................        665,049          19.19        693,984          23.44        200,381          10.32
                                            ----------         ------     ----------         ------     ----------         ------
   Total gross real estate loans ......     $3,465,401         100.00%    $2,960,200         100.00%    $1,938,913         100.00%
                                            ----------         ------     ----------         ------     ----------         ------
                                            ----------         ------     ----------         ------     ----------         ------

</TABLE>

 

The New York metropolitan area has a large number of financial institutions,
many of which are significantly larger and have greater financial resources than
the Bank, and all of which are competitors of the Bank to varying degrees. The
Bank's competition for loans comes principally from savings and loan
associations, savings banks, commercial banks, mortgage banking companies and
insurance companies. The Bank's most direct competition for deposits has
historically come from savings and loan associations, savings banks and
commercial banks. In addition, the Bank faces increasing competition for
deposits from non-bank institutions such as brokerage firms and insurance
companies that offer short-term money market funds, corporate and government
securities funds, mutual funds and annuities. 

Lending Activities

LOAN PORTFOLIO COMPOSITION.  Gross loans receivable, including loans held for
sale, comprised 61.85% of total assets at September 30, 1997. The Company's real
estate loan portfolio consists primarily of conventional first mortgage loans
secured by owner occupied one-to-four family residences and co-operative
apartment loans and, to a lesser extent, multi-family residences, second
mortgage loans, commercial real estate and construction and land loans. At
September 30, 1997, the Company had total real estate loans outstanding on one-
to-four family properties of $3.4 billion, or 91.66% of the Company's total
gross loans receivable, including $105.6 million, or 2.88%, of co-operative
apartment loans, $20.2 million, or 0.55%, of home equity loans and $4.0 million,
or 0.11%, of second mortgages. At that date, multi-family residential mortgage
loans totaled $45.3 million, or 1.24% of total gross loans receivable. The
remainder of the Company's real estate loans, which totaled $77.6 million, or
2.12% of total gross loans receivable at September 30, 1997, included $66.3
million of commercial real estate loans, or 1.81% of total gross loans
receivable, and $11.4 million of construction and land loans, or 0.31% of total
gross loans receivable. These amounts include $157.4 million of real estate
loans held for sale in the secondary market.  Commercial and other loans, which
consisted principally of secured and unsecured lines of credit and other
consumer loans, totaled $182.9 million, or 5.00% of total gross loans receivable
at September 30, 1997.  These amounts include $0.3 million of student loans held
for sale in the secondary market.


                                          4

<PAGE>

The following table sets forth at September 30, 1997, the amount of all loans
due after September 30, 1998 and whether such loans have fixed or adjustable
rates. 

 

<TABLE>
<CAPTION>

                                                       Due after September 30, 1998
                                                  -----------------------------------------
                                                  Adjustable         Fixed
                                                     Rate             Rate         Total
                                                  -----------     ------------  -----------
                                                                 (In thousands)

<S>                                              <C>              <C>          <C>
Real estate loans:
    One-to-four family (1)..................     $2,776,525       $298,775     $3,075,300
    Co-operative apartments (1).............         78,785         26,647        105,432
    Multi-family............................         20,616         23,934         44,550
    Commercial real estate..................         41,552         22,859         64,411
    Second mortgages........................          3,930             44          3,974
    Construction and land loans.............          4,053            ---          4,053
                                                 ----------       --------     ----------
 
        Total real estate loans.............      2,925,461        372,259      3,297,720
                                                 ----------       --------     ----------
Commercial and other loans (2):    
    Commercial loans........................          2,550          2,408          4,958
    Property improvement....................            ---              7              7
    Other consumer loans (3)................          5,362         96,391        101,753
                                                 ----------       --------     ----------
        Total commercial and other loans....          7,912         98,806        106,718
                                                 ----------       --------     ----------
Total gross loans............................    $2,933,373       $471,065     $3,404,438
                                                 ==========       ========     ==========

</TABLE>
 


(1) Excludes $157.4 million of real estate loans held for sale.
(2) Excludes lines of credit that are payable on demand and are therefore
    considered to be due within one year.
(3) Excludes student loans.


                                          5

<PAGE>
    The following table sets forth the composition of the Company's loan
portfolio at the dates indicated. 
<TABLE>
<CAPTION>

                                                                                    At September 30,
                                            --------------------------------------------------------------------------------------
                                                      1997                          1996                          1995            
                                            ----------------------------  ----------------------------  --------------------------
                                                               Percent                       Percent                       Percent
                                                                 of                            of                            of   
                                              Amount            Total       Amount            Total       Amount            Total 
                                            ----------       -----------  ----------       -----------  ----------       ---------
                                                                                 (Dollars in thousands)

<S>                                        <C>                <C>        <C>                <C>        <C>                <C>     
Real estate loans (1):
  One-to-four family.....................   $3,232,856          88.12%    $2,728,199          87.15%    $1,687,952          80.94%
  Home equity ...........................       20,171           0.55         18,564           0.59         18,115           0.87 
  Co-operative apartment ................      105,599           2.88        114,609           3.66        128,423           6.16 
  Multi-family ..........................       45,324           1.24         34,883           1.12         35,708           1.71 
  Commercial real estate.................       66,266           1.81         69,625           2.22         72,393           3.47 
  Second mortgages ......................        3,986           0.11          5,154           0.17          6,563           0.31 
  Construction ..........................        8,960           0.24          4,509           0.14          3,070           0.15 
  Land ..................................        2,410           0.07          3,221           0.10          4,804           0.23 
                                             ----------         ------     ----------         ------     ----------         ------
Total real estate loans .................    3,485,572          95.02      2,978,764          95.15      1,957,028          93.84 
Commercial and other loans:
  Commercial loans.......................        6,850           0.19          8,206           0.26          9,330           0.45 
  Property improvement ..................        7,087           0.19          9,028           0.29         11,131           0.53 
  Student (2)............................        8,483           0.23          7,084           0.23          3,324           0.16 
  Loans on deposit accounts..............        2,251           0.06          2,475           0.08          2,649           0.13 
  Lines of credit .......................       57,350           1.56         55,292           1.77         59,746           2.86 
  Other consumer loans ..................      100,882           2.75         69,575           2.22         42,284           2.03 
                                             ----------         ------     ----------         ------     ----------         ------

Total commercial and other loans ........      182,903           4.98        151,660           4.85        128,464           6.16 
                                             ----------         ------     ----------         ------     ----------         ------
Total loans receivable, gross ...........    3,668,475         100.00%     3,130,424         100.00%     2,085,492         100.00%
                                                                ------                        ------                        ------
                                                                ------                        ------                        ------
  Purchase accounting discounts,
    net .................................       (1,842)                       (2,727)                       (4,151)                
  Unearned premiums, discounts                        
    and deferred loan costs (fees), net..        8,959                         5,021                        (2,870)                
                                             ----------                    ----------                    ----------               
Loans receivable, net ...................    3,675,592                     3,132,718                     2,078,471                
  Allowance for possible loan
    losses ..............................      (33,881)                      (33,912)                      (34,358)                
  Allowance for market valuation
    for loans held for sale in the 
    secondary market ....................          ---                           ---                           ---                
                                             ----------                    ----------                    ----------               
Total loans receivable, net .............   $3,641,711                    $3,098,806                    $2,044,113                
                                             ----------                    ----------                    ----------               
                                             ----------                    ----------                    ----------               


<CAPTION>


                                                   ---------------------------------------------------------
                                                             1994                          1993              
                                                   ----------------------------  --------------------------- 
                                                                      Percent                       Percent  
                                                                        of                            of     
                                                     Amount            Total       Amount            Total   
                                                   ----------       -----------  ----------       ---------- 
<S>                                               <C>                <C>        <C>                <C>
Real estate loans (1):
  One-to-four family.....................          $1,236,778          73.35%    $1,453,790          74.26%   
  Home equity ...........................              21,225           1.26         27,381           1.40    
  Co-operative apartment ................             144,814           8.59        157,659           8.05    
  Multi-family ..........................              46,053           2.73         53,846           2.75    
  Commercial real estate.................              76,295           4.52         80,047           4.09    
  Second mortgages ......................               7,894           0.47         10,565           0.54    
  Construction ..........................               2,392           0.14          8,153           0.42    
  Land ..................................               6,673           0.40          9,535           0.49    
                                                    ----------          -----     ----------         -------  
Total real estate loans .................           1,542,124          91.46      1,800,976          92.00    
Commercial and other loans:                                                                                   
  Commercial loans.......................              12,456           0.74         17,013           0.87    
  Property improvement ..................              13,335           0.79         17,104           0.87    
  Student (2)............................              15,429           0.92         12,533           0.64    
  Loans on deposit accounts..............               2,924           0.17          3,393           0.17    
  Lines of credit .......................              63,102           3.74         67,258           3.44    
  Other consumer loans ..................              36,808           2.18         39,376           2.01    
                                                    ----------          -----     ----------         -------  
                                                                                                              
Total commercial and other loans ........             144,054           8.54        156,677           8.00    
                                                    ----------         ------     ----------         -------  
Total loans receivable, gross ...........           1,686,178         100.00%     1,957,653         100.00%   
                                                                       ------                        ------   
                                                                       ------                        ------   
  Purchase accounting discounts,                                                                              
    net .................................              (5,994)                       (8,167)                   
  Unearned premiums, discounts                                                                                
    and deferred loan costs (fees), net..              (5,667)                       (6,687)                   
                                                    ----------                    ----------                  
Loans receivable, net ...................           1,674,517                     1,942,799                   
  Allowance for possible loan                                                                                 
    losses ..............................             (35,713)                      (33,951)                   
  Allowance for market valuation                                                                              
    for loans held for sale in the                                                                            
    secondary market ....................                 (28)                           ---                   
                                                    ----------                    ----------                  
Total loans receivable, net .............          $1,638,776                    $1,908,848                   
                                                    ----------                    ----------                  
                                                    ----------                    ----------                  
</TABLE>

(1) These amounts include $157.4 million, $57.9 million, $49.3 million, $8.0
    million and $38.4 million of real estate loans held for sale in the
    secondary market at September 30, 1997, 1996, 1995, 1994 and 1993,
    respectively.  At September 30, 1993, this amount includes $110.0 million
    of non-performing real estate loans included in the bulk sale of certain
    loans and real estate owned ("Bulk Sale") of which $102.6 million were
    one-to-four family loans, $3.8 million were commercial real estate loans,
    $3.5 million were co-operative apartment loans and $0.1 million were land
    loans.
(2) Includes $0.3 million, $0.1 million and $30,000 of student loans held for
    sale in the secondary market at September 30, 1997,1996, and 1995,
    respectively.

                                          6
<PAGE>

The following table shows the contractual maturity of the Company's loan
portfolio at September 30, 1997.  The table does not include prepayments or
scheduled principal amortization. 

<TABLE>
<CAPTION>

                                                                                        AT SEPTEMBER 30, 1997
                                                              ---------------------------------------------------------------------
                                                                                          REAL ESTATE LOANS
                                                              ---------------------------------------------------------------------

                                                                  ONE TO                 CO-OP                           COMMERCIAL
                                                                   FOUR        HOME       APT.      SECOND     MULTI-       REAL
                                                                FAMILY (1)    EQUITY    LOANS (1) MORTGAGES    FAMILY      ESTATE
                                                              ------------- ---------- ---------  ---------  ----------   --------
                                                                                                                     (IN THOUSANDS)

Amounts due:

<S>                                                           <C>          <C>         <C>       <C>        <C>         <C>
   Within one year..........................................   $      353   $  20,171  $       5  $     12   $      774  $ 1,855
   After one year:

    One to three years......................................        1,714         ---        209        51        3,035    9,860
    Three to five years.....................................       14,914         ---        735        82        7,034   13,181
    Five to 10 years........................................       40,743         ---      2,463     2,386       12,880   20,344
    Ten to 20 years.........................................      447,839         ---     54,786     1,343       18,718   20,056
    Over 20 years...........................................    2,570,090         ---     47,239       112        2,883      970
                                                               -----------  --------------------- ---------  ----------- --------
     Total due after one year...............................    3,075,300         ---    105,432     3,974       44,550   64,411
                                                               -----------  ---------- ---------- ---------  ----------- --------
     Total amounts due......................................   $3,075,653   $  20,171  $ 105,437  $  3,986   $   45,324  $66,266
                                                               ===========  ========== ========== =========  =========== ========
   Purchase accounting

    discounts, net..........................................

   Unearned discounts, premiums

    and deferred loan fees, net.............................
   Allowance for  possible loan

    losses..................................................

   Loans receivable, net....................................

<CAPTION>

                                                                                                                   TOTAL
                                                                                LAND     COMMERCIAL   OTHER        LOANS
                                                                 CONSTRUCTION   LOANS       LOANS    LOANS (2)   RECEIVABLE
                                                                 ------------ ---------  ---------- ----------  ------------

Amounts due:

<S>

   Within one year..........................................     $    4,907   $  2,410  $   1,892   $  65,810  $     98,189
   After one year:
    One to three years......................................            384        ---      3,865      28,437        47,555
    Three to five years.....................................          3,669        ---        ---      27,020        66,635
    Five to 10 years........................................            ---        ---        ---      23,066       101,882
    Ten to 20 years.........................................            ---        ---        ---       6,276       549,018
    Over 20 years...........................................            ---        ---      1,093      16,961     2,639,348
                                                                 -----------  --------- ----------  ---------- -------------
     Total due after one year...............................          4,053        ---      4,958     101,760     3,404,438
                                                                 -----------  --------- ----------  ---------- -------------
     Total amounts due......................................     $    8,960   $  2,410  $   6,850   $ 167,570     3,502,627
                                                                 ===========  ========= ==========  ==========
   Purchase accounting

    discounts, net..........................................                                                         (1,842)
   Unearned discounts, premiums

    and deferred loan fees, net.............................                                                          8,959
   Allowance for  possible loan
    losses..................................................                                                        (33,881)
                                                                                                               -------------
   Loans receivable, net....................................                                                   $  3,475,863
                                                                                                               =============


</TABLE>

(1) Excludes $157.4 million of real estate loans held for sale.
(2) Excludes $8.5 million of student loans held for investment and sale.

                                          7
<PAGE>


The following table sets forth the Company's loan originations and loan
purchases, sales and principal repayments for the periods indicated:

<TABLE>
<CAPTION>


                                                                FOR THE YEAR ENDED SEPTEMBER 30,
                                                       --------------------------------------------------
                                                            1997             1996             1995
                                                       ---------------  ---------------  ----------------
                                                                        (IN THOUSANDS)

<S>                                                    <C>             <C>                <C>
Real estate loans, net at beginning of period:         $    2,978,764   $    1,957,028   $     1,542,124
Originated:
     One-to-four family (1)..................               2,159,671        1,395,388           640,164
     Co-operative apartment..................                   5,899            3,072             3,143
     Multi-family............................                  15,785           10,106               358
     Commercial real estate..................                  10,111            9,915             9,528
     Construction............................                  12,277            7,218             2,692
     Land....................................                     ---              ---             1,000
Purchases(2).................................                 362,329          949,437           397,776
                                                       ---------------  ---------------  ----------------
        Total real estate loans originated and              
purchased......................                             2,566,072        2,375,136         1,054,661
Transfers to real estate owned...............                  (9,599)         (10,001)          (10,312)
Write-offs...................................                  (2,877)          (3,869)           (4,608)
Principal repayments.........................                (615,959)        (331,680)         (202,509)
Sales of loans...............................                (749,940)        (649,064)         (278,649)
Securitized loans............................                (680,889)        (358,786)         (143,679)
                                                       ---------------  ---------------  ----------------

At end of period(3)..........................          $    3,485,572   $    2,978,764   $     1,957,028
                                                       ===============  ===============  ================

Commercial and other loans, net:

At beginning of period.......................          $      151,660   $      128,464   $       144,054
Commercial and other loans originated........                  84,106           89,827            63,540
                                                       
Purchases ...................................                  18,190              ---               ---

Write-offs...................................                  (4,039)          (4,330)           (5,015)
Principal repayments.........................                 (62,200)         (59,416)          (53,596)
Commercial and other loans sold..............                  (4,814)          (2,885)          (20,519)
                                                       ---------------  ---------------  ----------------

At end of period(4)..........................          $      182,903   $      151,660   $       128,464
                                                       ===============  ===============  ================

</TABLE>

(1) Includes home equity loan advances for the fiscal years ended September 30,
    1997, 1996, and 1995 in the amounts of $9.6 million, $6.6 million and $2.2
    million, respectively. 
(2) Composed predominantly of one-to-four family loans.
(3) Includes $157.4 million, $57.9 million, and $49.3 million of  real estate
    loans held for sale in the secondary market at September 30, 1997, 1996 and
    1995, respectively. 
(4) Includes $0.3 million, $0.1 million and $30,000 in student loans held for
    sale in the secondary market at September 30, 1997, 1996 and 1995,
    respectively.


ONE-TO-FOUR FAMILY MORTGAGE LENDING.  The Bank offers both fixed rate and
adjustable rate mortgage ("ARM") loans primarily secured by one-to-four family,
owner occupied residences.  Prior to 1995, the majority of such loans were
secured by properties located in Queens, Nassau and Suffolk counties.  During
fiscal 1995 and 1996, the Bank expanded its retail production offices into the
states of Pennsylvania, Delaware, Maryland, North Carolina, Virginia and
Georgia, while continuing to originate loans through its New York, New Jersey
and Connecticut offices.   Loan originations are generally obtained from
existing or past customers, members of local communities, mortgage bankers,
mortgage brokers, real estate agents and attorney referrals.  The Bank also
operates a national correspondent lending program to purchase, from mortgage
bankers, loans secured by owner occupied one-to-four family residences.  The
program is designed to expand the Bank's mortgage portfolio and reduce the risks
associated with geographic concentrations.  The Bank also accepts loan
application information through its telemarketing operations.  Generally, the
Bank's underwriting guidelines conform to Federal National Mortgage Association
("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC") guidelines.

                                          8
<PAGE>

The Bank generally originates one-to-four family residential mortgage loans in
amounts up to 80% of the lower of the appraised value or selling price of the
property securing the loan.  One-to-four family mortgage loans are also
originated with loan-to-value ratios of up to 100% of the appraised value of the
mortgaged property; however, private mortgage insurance is required whenever
loan-to-value ratios exceed 80% of the appraised value of the property securing
the loan.  The majority of the loans originated conform to FNMA and FHLMC loan
limits for one-to-four family residences, however, loans may be originated for
amounts up to $1.5 million.

During the 1986 to 1989 period, the Bank originated a significant number of
one-to-four family mortgage loans without verification of the borrower's
financial condition or employer verification of the borrower's level of income
if the borrower's financial condition and stated income was considered
reasonable for the employment position held ("low documentation loans").  The
Bank has experienced higher delinquency and default rates on such loans, as
compared to fully underwritten one-to-four family loans, and in recognition
thereof, discontinued the origination of low documentation loans in 1990.  From
time to time, on a selective basis, the Bank originates loans that involve
limited verification of the borrower's level of income or financial condition
("limited documentation loans").  All such limited documentation loans are
intended to conform to secondary market investor guidelines.

The Bank offers fixed rate one-to-four family residential, condominium and
co-operative unit loans up to the FNMA and FHLMC limits.  In addition, fixed
rate loans in principal amounts above the FNMA and FHLMC limits are offered in
amounts conforming to the limits permitted by various investors to whom the
loans are intended to be sold.  Interest rates charged on fixed rate loans are
competitively priced based on market conditions and the Bank's cost of funds. 
The terms of these loans are a maximum of 30 years.  Origination fees are
generally charged; however, the Bank offers loans with higher or lower fees
depending on the interest rates to be charged.

The Bank originates most fixed rate loans for immediate sale to FNMA, FHLMC or
other investors.  There is approximately a one month delay between funding and
the sale of the loans.  The total real estate loans held for sale aggregated
$157.4 million at September 30, 1997.  The Bank arranges for the sale of such
loans at the time the loan application is received through best effort and
mandatory delivery commitments and, on a regular basis, determines whether it is
best to retain or sell the servicing rights.  For the year ended September 30,
1997, the Bank sold real estate loans totaling $749.9 million, 47.84% of which
were sold on a servicing released basis in order to take advantage of market
prices for loan servicing.

The Bank offers a variety of ARM loans with maximum loan terms of up to 40
years, except for co-operative apartment loans which have a maximum loan term of
30 years.  These loans adjust periodically and are indexed to a specific
Treasury Bill rate, plus a margin.  These loans typically carry an initial
interest rate below the fully-indexed rate for the loan.  The Bank qualifies
borrowers at the second year rate with a minimum qualification interest rate
equal to the then applicable FNMA standard on one year ARM loans.  All other ARM
loans are underwritten at the initial start rate.  The initial discounted rate
is determined by the Bank in accordance with market and competitive factors. 
Generally, the ARM loans adjust by a maximum of 2% for each rate adjustment
period with a lifetime cap of 5% - 6% over the initial rate.  Accordingly, if
interest rates and the resulting cost of funds increase in a rapidly increasing
interest rate environment, it is possible for the interest rate increase to
exceed the cap levels on these loans and negatively impact net interest income. 
Origination fees and points of up to 3% may be charged for one-to-four family
ARM loans.  ARM loans generally pose a risk that as interest rates rise, the
amount of a borrower's monthly loan payment also rises, thereby increasing the
potential for delinquencies and loan losses.  However, this potential risk is
lessened by the Bank's policy of originating ARM loans with annual and lifetime
interest rate caps that limits the increase of a borrower's monthly payment.

The Bank has correspondent loan agreements with select mortgage bankers who
originate loans throughout the United States.  The Bank purchased 647 loans
amounting to $134.8 million of residential one-to-four family conforming and
jumbo loans through its correspondent mortgage originators in the fiscal year
ended September 30, 1997.  Such loans are underwritten to the Bank's standards. 
These loans are primarily from outside the Bank's core franchise area.  The
strategy of utilizing correspondent mortgage originators is to develop and
maintain multiple distribution channels, to increase geographic diversity and to
improve the stability of interest income.

SECOND MORTGAGE LOANS.  As of September 30, 1997, the balance of such loans is
predominantly one-to-four family loans, and was $4.0 million, or 0.11% of total
gross loans.   This category has been steadily decreasing since September 30,
1992, when such loan balances were $14.0 million, or 0.49% of total loans.

HOME EQUITY LOANS.  Home equity lines of credit are included in the Bank's
portfolio of real estate loans.  These loans are offered as prime rate indexed
loans on which interest only is due for an initial term of ten years and
thereafter principal and 

                                          9
<PAGE>

interest payments sufficient to liquidate the loan are required for the
remaining term, not to exceed 15 years.  These loans are made on one-to-four
family residential and condominium units, generally owner-occupied and subject
to an 80% combined loan-to-value ratio including prior liens or up to 90% if
private mortgage insurance is obtained.  They are granted in amounts from
$50,000 to $300,000 with an aggregate maximum of $1,000,000.  The underwriting
standards for home equity loans are generally the same as those for one-to-four
family mortgages. At September 30,1997, the Company had $20.2 million of home
equity loans, or  0.55% of total gross loans.

MULTI-FAMILY LENDING.  The Bank originates multi-family loans with contractual
terms of up to 25 years with interim rate adjustments.  These loans are
generally secured by apartment or co-operative buildings and mixed-use (business
and residential) properties, located in the Bank's primary market area and are
originated in amounts of up to 75% of the appraised value of the property.  In
making such loans, the Bank bases its underwriting decision primarily on type
and location of the property, the net income generated by the real estate to
support the debt service, the financial resources of the borrower, the
borrower's experience in owning or managing similar property, the marketability
of the property and the credit history of the borrowing entity.  The Bank
generally requires a debt service coverage ratio of at least 1.15x and may
require personal guarantees from borrowers depending upon the loan-to-value
ratio for the loan and the type of project.  As of September 30, 1997, $45.3
million, or 1.24% of the Company's total gross loan portfolio consisted of
multi-family residential loans.  At September 30, 1997, the Company's largest
multi-family loan had an outstanding balance of $3.7 million and was secured by
an 11 story apartment and office complex. 

COMMERCIAL REAL ESTATE LENDING.  The Bank originates commercial real estate
loans secured by properties such as retail stores, office buildings and
industrial buildings located in the Bank's primary market area.  The Bank's
commercial real estate loans are generally made in amounts up to 75% of the
appraised value of the property.  The Bank's underwriting standards and
procedures are similar to those applicable to its multi-family loans, whereby
the Bank considers the net operating income of the property and the borrower's
expertise, credit history and profitability.  The Bank generally requires that
the properties securing commercial real estate loans have debt service coverage
ratios of not less than 1.15x and may require personal guarantees from the
borrowers or the principals of the borrowing entity.  At September 30, 1997, the
Company's commercial real estate loan portfolio totaled $66.3 million, or 1.81%
of the Company's total gross loan portfolio.  At September 30, 1997, the
Company's largest commercial real estate loan relationship had an aggregate
outstanding balance of $14.2 million, including $2.6 million of unsecured
commercial debt, and was secured primarily by various commercial real estate
properties which are occupied by retail establishments.

CONSTRUCTION AND LAND LENDING.  The Bank's construction loans primarily have
been made to finance the construction  of one-to-four family residential
properties and, to a lesser extent multi-family and commercial properties. 
Construction and land development loans may be made in amounts up to 75% of the
value as completed.  The Bank generally requires personal guarantees of the
borrowers and an indication that the borrower has sufficient equity in the
project.  Construction loans generally are made with adjustable rates with
varying terms.  Loan proceeds are disbursed in increments as construction
progresses and as inspections warrant.  As of September 30, 1997, the Company
had $11.4 million, or 0.31% of its total gross loan portfolio invested in
construction and land loans.  At September 30, 1997, the Company's largest
construction and/or land loans relationship had an aggregate outstanding balance
of $4.8 million and was secured by the underlying land and subsequent
improvements.

COMMERCIAL AND OTHER LOANS.  The Bank offers a wide variety of other secured and
unsecured loans.  As of September 30, 1997 commercial and other loans totaled
$182.9 million or 4.98% of the Company's total gross loan portfolio.  The Bank
has de-emphasized its commercial loan portfolio since 1990, which has resulted
in a reduction in the balance of these loans to $6.9 million at September 30,
1997 from $17.0 million at September 30, 1993.  The largest component of other
loans is the Bank's line of credit products, including unsecured fixed rate and
prime rate based revolving credit lines, which  are granted up to a maximum
amount of $25,000, a fixed rate overdraft checking line product, and a junior
home equity line of credit product for amounts from $10,000 to $50,000.  The
terms for this product are similar to the home equity product, except that these
loans are subject to a 100% combined loan-to-value ratio. The Bank's tax
advantage installment loan product carries a fixed rate, is available for
amounts from $5,000 to $100,000 and is payable in terms of three to fifteen
years.  Those loans that exceed $25,000 are subject to an 80% combined
loan-to-value ratio or higher if involved in private mortgage insurance or an
alternative lending program.  Loans that do not fit the bank's approval criteria
are referred to Third Party Investors. Any loans approved by investors are
underwritten and closed by the bank and subsequently sold to the investors.  At
September 30, 1997, balances of these credit line products totaled $57.4
million, or 1.56% of total gross loans.  Property improvement loans are made up
to a maximum loan amount of $10,000 on an unsecured basis.  The Bank also
purchases and originates new and used automobile loans, personal loans, passbook
savings loans and government-guaranteed student loans.  The Bank is no longer
involved in the financing of auto leases. The underwriting standards employed by
the Bank for other 

                                          10
<PAGE>

loans include a determination of the applicants' payment history on other debts
and an assessment of the borrower's ability to meet payments on all of the
borrower's obligations.  In addition to the credit worthiness of the applicant,
the underwriting process also includes a comparison of the value of the
security, if any, to the proposed loan amount.  The Bank offers a Visa and
Mastercard credit card program on an agent bank basis to generate fee income. 
The associated credit card receivables are assets of the credit card issuing
bank.  The level of delinquencies in the Bank's other loan portfolio has
generally been within industry standards; however, there can be no assurance
that delinquencies will not increase in the future.

LOAN APPROVAL PROCEDURES AND AUTHORITY.  All one-to-four family ARM loans under
$650,000 may be approved by designated mortgage department personnel.  In
certain cases where loan amounts exceed predetermined levels and/or
loan-to-value ratios, loans must be approved by two or more authorized
individuals.  Loans over $650,000 require approval by the Loan Committee of the
Board of Directors ("Loan Committee").  When loan approval is required before
the next regularly scheduled Loan Committee meeting ("interim Loan Committee
approval"), approval must be obtained from four predetermined designated
individuals.  Loans reported to the Loan Committee will consist of any loan
approved as a result of the interim Loan Committee approval process plus loans
randomly selected by the internal audit department meeting particular criteria. 
All one-to-four family fixed rate mortgage loans may be approved by a designated
underwriter up to the loan maximum as set forth by the investor guidelines.  

All ARM loans and fixed rate mortgage loans greater than $350,000 made to
Directors, principal shareholders and related interests must be approved by the
Board of Directors.  All loans made to Senior Vice Presidents and above must be
approved by the Board of Directors.

Upon receipt of a completed loan application from a prospective borrower, a
credit report is ordered and certain other information is verified by the Bank's
loan underwriters and, if necessary, additional financial information is
obtained.  An appraisal of the real estate intended to secure the proposed loan,
if applicable, is required which  is performed by either staff appraisers of the
Bank or by independent appraisers designated and approved by the Bank.  The
Board of Directors annually approves the independent appraisers used by the Bank
and approves the Bank's appraisal policy.  It is the Bank's policy to require
borrowers to obtain title insurance and hazard insurance on all real estate
first mortgage loans prior to closing.  Hazard insurance is not required on
equity loans under $25,000 and title insurance is not required on equity loans
under $50,000.  Borrowers generally are required to advance funds on a monthly
basis together with each payment of principal and interest to a mortgage escrow
account from which the Bank makes disbursements for items such as real estate
taxes and in some cases hazard insurance premiums.

The above lending procedures also apply to commercial real estate and
multi-family loans with the exception of certain approval levels.  Loans under
$100,000 may be approved by an approved officer and loans between $100,000 and
$300,000 must be approved by two approved officers.  Loans over $300,000 must be
reported to the Loan Committee and loans over $350,000 must be approved by the
Loan Committee.

LOAN CONCENTRATIONS.  As a result of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA"), the Bank may not extend credit to a
single borrower or related group of borrowers in an amount greater than 15% of
the Bank's unimpaired capital and surplus.  An additional amount of credit may
be extended, equal to 10% of unimpaired capital and surplus, if the loan is
secured by readily marketable collateral, which does not include real estate.

At September 30, 1997, there were no borrowers who had loans, which when
aggregated in accordance with the applicable regulatory requirements, that
involved aggregate extensions of credit from the Bank exceeding its FIRREA
loans-to-one borrower limit of $73.1 million.

LOAN SERVICING.  As part of its efforts to increase non-interest income, the
Company has placed additional emphasis on increasing its loan servicing
portfolio.  At September 30, 1997 and 1996 loans aggregating $4.5 billion and
$3.7 billion, respectively, were being serviced for others.  Management intends
to continue to emphasize loan servicing to generate revenues and believes that
the growth of the servicing portfolio will increase the level of loan servicing
fee income in future years.  In this respect, during 1997 and 1996, the Bank
purchased mortgage servicing rights ("MSR's") in the amount of $4.1 million and
$15.2 million, respectively and in accordance with generally accepted accounting
principles, originated MSR's in the amount of $15.4 million and $6.0 million,
respectively.

                                          11
<PAGE>

NON-PERFORMING ASSETS

Loans are considered non-performing if they are in foreclosure and/or are 90 or
more days delinquent (excluding those restructured loans that have been returned
to performing status after developing a satisfactory payment history, generally
six months). Loans, other than education loans, accrue interest until considered
doubtful of collection by management, but in no case beyond 90 days delinquent.
Consumer loans (other than education loans) are generally written off upon
becoming 120 days delinquent in the case of installment loans and 180 days in
the case of revolving credit lines. Delinquent interest on education loans
continues to accrue, however, since these loans are backed by a government
agency guarantee and all interest and principal is ultimately expected to be
received. Once management reaches a decision to place a loan on non-accrual
status, all delinquent previously accrued interest on such loan is reversed
against previously recorded income. 

The Bank begins collection procedures with respect to mortgage loans by sending
a late notice when the loan is 15 days past due, and by the 17th day of
delinquency the matter is referred to the collection department for follow-up. 
During the next 60 days, a series of collection letters are sent and staff
collectors attempt to make phone contact with the borrower. Formal written
demand for the arrears is then made. The Bank usually authorizes commencement of
a foreclosure action between 90 and 120 days after the default if the loan is
not brought current or has not entered into a mutually satisfactory
reinstatement arrangement with the borrower. The same collection procedures are
used for delinquent home equity loans. 

The Bank's consumer loan collection procedures call for sending late notices by
the 15th day and then again on the 20th day of delinquency. The loan is referred
to the collection department by the 20th day if not brought current. Legal
action on installment loans is usually commenced if payments are not received
after the loan has been delinquent for 120 days.  Delinquent revolving credit
accounts involve similar procedures, except that legal action is usually
commenced after 180 days. 

The level of non-performing residential property loans is also affected by the
Bank's loan restructuring activities. Where borrowers have encountered hardship,
but are able to demonstrate to the Bank's satisfaction an ability and
willingness to resume regular monthly payments, the Bank seeks to provide them
with an opportunity to restructure their loans. Where successful, these
restructurings avoid the cost of completing the foreclosure process, as well as
any losses on acquisition of the properties and the costs of maintaining and
disposing of real estate owned. 

The Bank returns restructured residential loans that have complied with the
terms of their restructure agreement for a satisfactory period (generally six
months) to performing status. At September 30, 1997, restructured residential
loans included in performing and non-performing loans were $9.1 million and
$10.9 million, respectively. 

During December 1993, in an effort to accelerate resolution of certain of its
problem assets, the Company entered into a contract for the bulk sale of certain
loans and real estate owned ("Bulk Sale").  The sale of the loans was completed
by December 31, 1993 and the sale of real estate owned was completed in the
second quarter of fiscal 1994.  At September 30, 1993 the book value of the
loans anticipated to be sold was approximately $142.0 million, of which
approximately $110.0 million were then non-performing and approximately $32.0
million were then performing. At that date, the net book value of the real
estate owned anticipated to be sold was approximately $14.0 million.

The following table sets forth information regarding the components of
non-performing assets at September 30  for the years indicated. Restructured
loans that have not yet demonstrated a sufficient payment history to warrant a
return to performing status are included with non-performing loans. 

                                          12
<PAGE>

<TABLE>
<CAPTION>


                                                                              AT SEPTEMBER 30,
                                                     -----------------------------------------------------------------
                                                       1997          1996        1995          1994           1993
                                                     ----------   -----------------------  -------------   -----------
                                                                             (DOLLARS IN THOUSANDS)

Non-performing loans (1):
Residential:
<S>                                                  <C>          <C>          <C>         <C>            <C>
   One-to-four family..........................      $  37,621    $  39,573   $   39,661   $   33,359      $  107,441

   Co-operative apartments.....................          1,207          602        1,572        1,811           4,208

   Home equity.................................          1,478        3,489        4,915        6,577          13,857

   Second mortgage.............................            172          190          226          471           1,002

   Multi-family................................            246          896        1,512        1,123             430
                                                     ----------   ----------  -----------  -----------     -----------
      Total residential........................         40,724       44,750       47,886       43,341         126,938

Non-residential:

   Commercial real estate......................          2,923        4,336        4,093        4,459           8,301

   Construction................................            453          453          453          861           5,092

   Land........................................            585          675          836        1,847           2,659
                                                     ----------   ----------  -----------  -----------     -----------
Total real estate loans(2).....................         44,685       50,214       53,268       50,508         142,990

Other loans....................................          2,389        2,952        2,408        3,528           2,326
                                                     ----------   ----------  -----------  -----------     -----------
Total non-performing loans.....................         47,074       53,166       55,676       54,036         145,316

   Real estate owned, net......................          6,643        8,155        8,893        7,187          25,812
                                                     ----------   ----------  -----------  -----------     -----------
Total non-performing assets....................      $  53,717    $  61,321   $   64,569   $   61,223      $  171,128 (3)
                                                     ==========   ==========  ===========  ===========     ===========
Total non-performing loans to gross loans......           1.28%        1.70%        2.67%        3.20%           7.42%(3)

Total non-performing assets to total assets....           0.91         1.14         1.32         1.36            4.29 (3)


</TABLE>

(1) All non-performing loans are in non-accrual status. There are no loans 90
    days or more past due and still accruing interest (other than education
    loans which are guaranteed). 

(2) Includes $10.9 million, $11.4 million, $14.8 million, $15.8 million and
    $25.0 million of restructured real estate loans that have not yet complied
    with the terms of their restructure agreement for a satisfactory period
    (generally six months) as of September 30, 1997, 1996, 1995, 1994 and 1993,
    respectively.

(3) After giving effect to the consummation of the Bulk Sale, the total
    non-performing assets would have been $77.1 million and the Company's ratio
    of non-performing loans to total gross loans would have been 3.26% at
    September 30, 1993. The ratio of non-performing assets to total assets
    would have been 1.93% at September 30, 1993. 

    The principal amount of non-performing real estate loans, excluding
restructured loans, aggregated approximately $33.8 million, $38.8 million and
$38.5 million at September 30, 1997, 1996 and 1995, respectively.  Interest
income that would have been recorded if the loans had been performing in
accordance with their original terms aggregated $2.1 million, $2.9 million and
$2.7 million for the fiscal years ended September 30, 1997, 1996 and 1995,
respectively.  No interest income was recorded for these loans during the fiscal
years ended September 30, 1997, 1996 and 1995.  The principal amount of
non-performing commercial loans, excluding restructured loans, aggregated
approximately $1.2 million, $0.8 million and $0.8 million at September 30, 1997,
1996 and 1995, respectively.

    The principal amount of restructured real estate loans that have not
complied with the terms of their restructure agreement for a satisfactory period
(generally six months) aggregated approximately $10.9 million, $11.4 million and
$14.8 million at September 30, 1997, 1996 and 1995, respectively.  Interest
income that would have been recorded if the loans had been performing in
accordance with their original terms aggregated $140,000, $300,000 and $300,000
for the fiscal years ended September 30, 1997, 1996 and 1995, respectively.
Interest income recorded for these loans amounted to $50,000, $100,000 and
$100,000, for fiscal years 1997, 1996 and 1995.  Restructured loans that have
complied with the terms of their restructure agreements for a satisfactory
period (generally six months) and returned to performing status aggregated $9.1
million, $11.8 million and $12.1 million as of September 30, 1997, 1996, 1995,
respectively. 


    The principal amount of restructured commercial loans aggregated $0.3
million, $0.5 million and $0.9 million at September 30, 1997, 1996 and 1995,
respectively.  Interest income that would have been recorded if the loans had
been performing in accordance with their original terms aggregated $40,000,
$43,000 and $49,000 for fiscal years ended September 30, 1997, 1996 and 1995,
respectively.  Interest income recorded for these loans amounted to $26,000,
$29,000 and $40,000 for the fiscal years ended September 30, 1997, 1996 and
1995, respectively.

    Although there are indications that the New York metropolitan real estate
market has stabilized, there can be no assurance that economic conditions will
not decline and therefore lead to an increase in the level of non-performing
assets. Any such developments could further adversely affect the Company's
operations by requiring additional provisions for possible loan 

                                          13
<PAGE>

losses, as well as through decreased interest income and increased non-interest
expenses resulting from the allocation of resources to the management of
non-performing assets and from increased real estate owned expenses. 

NON-PERFORMING RESIDENTIAL PROPERTY LOANS

    At September 30, 1997, non-performing residential property loans were $40.7
million (including $8.6 million in loans that have been restructured and which
may be returned to performing status if they develop a satisfactory payment
history). The September 30, 1997 level of non-performing residential property
loans represents a decrease of $4.0 million from September 30, 1996.  This
decrease reflects the movement of non-performing loans through the foreclosure
process, the decrease in the amount of loans that became non-performing and, to
a lesser extent, non-performing loans that were satisfied or reinstated and the
effect of returning restructured loans that have demonstrated a satisfactory
payment history to performing status. 

    The volume of loans delinquent less than 90 days that are not in
non-performing status may, to some degree, be a leading indicator of future
levels of non-performing loans.  Residential property loan delinquencies (net of
those already in non-performing status) were as follows: 

                                       AT SEPTEMBER 30,
                        --------------------------------------------
                             1997           1996           1995
                                       (IN THOUSANDS)

60-89 Days....................  $13,848          $10,030   $10,415
30-59 Days....................   87,856           73,225    51,558

NON-PERFORMING COMMERCIAL REAL ESTATE LOANS

    At September 30, 1997 the level of non-performing commercial real estate
loans was $2.9 million, a decrease of $1.4 million from the September 30, 1996
level of $4.3 million.   The Company's commercial real estate loan portfolio,
like the residential property loan portfolio, reflects indications of a
stabilizing real estate market in the New York metropolitan area. However, it is
possible that the Company may experience some future increases in the level of
non-performing commercial real estate loans.  The largest non-performing
commercial real estate loan had an outstanding principal balance of $1.6 million
at September 30, 1997 and was secured by a retail shopping center.

    When feasible, the Bank seeks to work with delinquent commercial real
estate borrowers in an attempt to restructure loans to provide for a resumption
of regular monthly payments.  These arrangements, which are individually
negotiated based on the borrower's ability to maintain such payments generally
provide for interest rates that are lower than those initially contracted for,
and in some instances include a reduction in the principal amount of the loan,
which reduction must be written off by the Bank.  In each instance the Bank
evaluates the costs associated with a particular restructuring arrangement and
may enter into such an agreement if it believes it is economically beneficial to
the Bank. 

                                          14
<PAGE>

INVESTMENT IN REAL ESTATE AND PREMISES

     The following table summarizes the investment in real estate and premises
at September 30: 

<TABLE>
<CAPTION>
                                                                           1997              1996
                                                                       --------------    -------------
                                                                               (IN THOUSANDS)
REO:
<S>                                                                  <C>                <C>
One-to-four family........................................             $       4,294     $      5,835
Condo/co-op...............................................                     1,955            1,990
Commercial................................................                       394              330
                                                                       --------------    -------------
                                                                               6,643            8,155
DIRECT INVESTMENT:

Land......................................................                     2,460            2,525
                                                                       --------------    -------------
    Total Investment in Real Estate and Premises                       $       9,103     $     10,680
                                                                       ==============    =============
</TABLE>

    At September 30, 1997, the largest single investment in real estate was a
direct investment in a vacant parcel of land with a book value of $2.5 million. 

    CLASSIFIED ASSETS

    Federal regulations and the Bank's Classification of Assets Policy provide
for the classification of loans and other assets considered to be of lesser
quality as "substandard," "doubtful" or "loss" assets. An asset is considered
substandard if it is inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. Substandard assets
include those characterized by the "distinct possibility" that the Bank will
sustain "some loss" if the deficiencies are not corrected. Assets classified as
doubtful have all of the weaknesses inherent in those classified substandard
with the added characteristic that the weaknesses present make "collection or
liquidation in full," on the basis of currently existing facts, conditions, and
values, "highly questionable and improbable." Assets classified as loss are
those considered "uncollectible" and of such little value that their continuance
as assets without the establishment of a specific loss reserve is not warranted.
Assets which do not currently expose the Bank to sufficient risk to warrant
classification in one of the aforementioned categories but possess certain
weaknesses are required to be designated "special mention" by management. An
internal loan review function, which was created to review and rate the quality
of loans and other assets, reports to the Loan Committee on a quarterly basis. 

    The following table sets forth the Bank's classified assets (other than
"loss" classifications) and assets designated as special mention. Assets
classified as "loss" were charged-off. 

                                                 AT SEPTEMBER 30, 1997
                                                 ---------------------
                                                 (DOLLARS IN THOUSANDS)
                                                 ---------------------
                                                         PERCENT OF TOTAL
                                                         ----------------
                                           AMOUNT             ASSETS
                                           ------             ------
Classified assets:      
 Substandard, including real estate owned..$  64,983

 Doubtful..................................    1,515
                                            --------
  Total classified.........................   66,498           1.12%

Special mention............................   17,396
                                            --------

Total......................................  $83,894           1.41%
                                             -------
                                             -------
                                          15
<PAGE>
LOANS SOLD WITH RECOURSE

    Some residential property loans sold by the Company have been sold with
recourse. The majority of these loans were sold to FNMA and FHLMC. At September
30, 1997, loans sold with recourse aggregated $487.1 million, but the maximum
exposure under the Company's recourse obligations was $134.1 million. Included
in loans sold with recourse at September 30, 1997 were loans delinquent 90 or
more days with an aggregate outstanding balance of $3.2 million.  Although the
Company does not believe that its recourse obligations subject it to risk of
material loss in the future, the Company has established recourse reserves which
at September 30, 1997 aggregated approximately $0.6 million. 

    Recourse as discussed herein means that the Company is obligated to remit
to the investor the amount of contractual principal and interest due (less a
servicing fee), regardless of whether these payments are actually received from
the borrower. On completion of foreclosure, the entire balance of the loan must
be remitted to the investor, regardless of whether the sale of the real estate
owned property yields that amount. For loans sold to FNMA, it has been the
Bank's practice to repurchase from FNMA any loans sold with recourse that become
more than 90 days delinquent. By repurchasing these delinquent loans prior to
foreclosure, the Bank derives the benefit of substantial savings between the
interest rate that must be paid monthly to FNMA even if not received and the
Bank's own interest cost to fund the purchase of these loans; additionally,
repurchases permit the Bank to provide eligible borrowers with more flexible
workout options. During fiscal 1997, the Bank repurchased from FNMA residential
property loans sold with recourse totaling $1.8 million. 

    ALLOWANCE FOR POSSIBLE LOAN LOSSES

    The Company maintains a valuation allowance for possible loan losses. The
allowance for possible loan losses is established and maintained through a
provision for possible loan losses at a level deemed appropriate by management
to provide adequately for known and inherent risks in the portfolio. The
determination of the amount of the allowance for possible loan losses includes
estimates that are susceptible to significant changes due to changes in
appraised values of collateral and general economic conditions. In connection
with the determination of the allowance, management obtains independent
appraisals for significant properties. While management uses available
information to recognize losses on loans, future additions to the allowance may
be necessary.  The Bank's Classification of Assets Committee oversees the
valuation allowance process. 

    In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for possible loan
losses. Such agencies may require the Bank to recognize additions to the
allowance. 

    Management's evaluation of the risks inherent in its loan portfolio and the
general economy includes a review of all loans on which full collectibility may
not be reasonably assured considering, among other matters, the estimated fair
value of the underlying collateral, economic conditions, historical loan loss
experience and other factors that warrant recognition in providing for an
adequate loan loss allowance.  Other factors considered by management include
the size and risk exposure of each segment of the loan portfolio, present
indicators such as delinquency rates and the borrowers' current financial
condition and the potential for losses in future periods.  In evaluating the
adequacy of the allowance for possible loan losses management recognizes the
risks associated with each type of loan and the current outstanding balance. The
primary risk element considered by management with respect to each consumer and
one-to-four family mortgage loan is any current delinquency on the loan.  The
primary risk elements considered with respect to commercial real estate and
multi-family loans are the financial condition of the borrower, the sufficiency
of collateral (including changes in the appraised values of collateral) and the
record of payment.  A subjective review of all substantial non-performing loans,
other problem loans and overall delinquency is made prior to the end of each
calendar quarter to determine the adequacy of the allowance for possible loan
losses.  Additionally, current year charge-offs, charge-off trends, new loan
production and current balance by particular loan categories are factored into
the determination of allowance levels. 

    When real estate loans are foreclosed the loan balance is compared to the
fair value of the property. If the net carrying value of the loan at the time of
foreclosure exceeds the fair value of the property, the difference is charged to
the allowance for possible loan losses and the fair value of the property
becomes the book value of the real estate owned. The real estate owned is
subsequently carried at the lower of book value or fair value with any further
adjustments reflected as a charge against earnings. 
                                          16
<PAGE>

    The following table sets forth the Company's allowance for possible loan
losses at or for the years ended September 30:

<TABLE>
<CAPTION>


                                                               1997          1996         1995          1994           1993
                                                           -----------  -------------------------  --------------  -----------
                                                                                    (DOLLARS IN THOUSANDS)
<S>                                                        <C>          <C>         <C>            <C>            <C>
Balance at beginning of period.........................    $   33,912   $    34,358   $   35,713   $    33,951     $   32,157
Provision for possible loan losses.....................         6,000         6,200        6,470        11,955         47,288
Charge-offs:
      Real estate loans................................         2,877         3,869        4,608         5,852         39,508 (1)
      Commercial loans.................................           ---           562          917         1,551          1,054
      Other loans......................................         4,039         3,768        4,098         4,308          6,236
                                                           -----------  ------------  -----------  ------------    -----------
           Total charge-offs...........................         6,916         8,199        9,623        11,711         46,798
Recoveries:

      Real estate loans................................           161           691        1,006           482            685 
      Commercial loans.................................           263           319          141           577             67 
      Other loans......................................           461           543          651           459            552 
                                                           -----------  ------------  -----------  ------------    -----------
           Total recoveries............................           885         1,553        1,798         1,518          1,304 
                                                           -----------  ------------  -----------  ------------    -----------
Net charge-offs........................................         6,031         6,646        7,825        10,193         45,494 
                                                           -----------  ------------  -----------  ------------    -----------
Balance at end of period...............................    $   33,881   $    33,912   $   34,358   $    35,713     $   33,951    
                                                           ===========  ============  ===========  ============    ===========
Ratio of net loan charge-offs during the                                                                                         
      period to average loans, net, out-                                                                                         
      standing during the
      period...........................................         0.17%         0.27%        0.42%         0.59%          1.79%    
Ratio of allowance for possible loan                                                                                             
      losses to gross loans receivable at                                                                                        
      the end of the
      period...........................................          0.92          1.08         1.65          2.12          1.73 (2)
Ratio of allowance for possible loan                                                                                             
      losses to non-performing loans                                                                                             
      at the end of the
      period...........................................         71.97         63.79        61.71         66.09         23.36 (3)

</TABLE>


__________
(1) Includes $32.0 million in charge-offs related to the Bulk Sale.
(2) Giving effect to the consummation of the Bulk Sale, the ratio of allowance
    for possible loan losses to gross loans receivable at September 30, 1993
    would have been 1.84%. 
(3) Giving effect to the consummation of the Bulk Sale, the ratio of allowance
    for possible loan losses to non-performing loans at September 30, 1993
    would have been 56.29%. 

    The provision for possible loan losses declined to $6.0 million for the
year ended September 30, 1997 from $6.2 million for the year ended September 30,
1996.  This reduction reflects the declining level of non-performing loans and
the eighth consecutive year of lower net charge-offs.

                                          17
<PAGE>

    The following table sets forth the Company's allocation of its allowance
for possible loan losses to the total amount of loans in each of the categories
listed below: 

<TABLE>
<CAPTION>

                                                                       AT SEPTEMBER 30,
                                        ---------------------------------------------------------------------------
                                                1997                     1996                       1995
                                        ----------------------  ------------------------  -------------------------
                                                    LOANS IN                  LOANS IN                  LOANS IN
                                                    CATEGORY                  CATEGORY                  CATEGORY
                                                    TO TOTAL                  TO TOTAL                  TO TOTAL
                                         AMOUNT    LOANS (1)      AMOUNT     LOANS (1)     AMOUNT      LOANS (1)
                                        ---------- -----------  ------------ -----------  ---------- --------------
                                                                    (DOLLARS IN THOUSANDS)
<S>                                      <C>        <C>          <C>            <C>        <C>           <C>
Real estate loans ............            $20,510     94.97 %       $20,226     95.16 %     $20,554        $93.84 %
Commercial loans .............              3,894      0.18           3,631      0.26         3,874          0.45
Other loans...................              9,477      4.85          10,055      4.58         9,930          5.71
                                        ---------- ---------    ------------ ---------    ----------  -------------
   Total allowance
     for possible loan
     losses ..................            $33,881    100.00 %       $33,912    100.00 %     $34,358        100.00 %
                                        ========== =========    ============ =========    ==========  ============



<CAPTION>

                                          --------------------------------------------
                                                1994                   1993
                                          ---------------------  ----------------------

                                                      LOANS IN                LOANS IN
                                                      CATEGORY                CATEGORY
                                                      TO TOTAL                TO TOTAL
                                          AMOUNT      LOANS (1)     AMOUNT    LOANS (1)
                                        -----------  ---------- ----------  -----------
                                          <C>        <C>         <C>         <C>
Real estate loans ............            $22,881    91.46 %      $24,951    92.00 %
Commercial loans .............              4,250     0.74          3,874     0.87
Other loans...................              8,582     7.80          5,126     7.13
                                        ---------   ----------   --------   ---------
   Total allowance
     for possible loan
     losses ..................            $35,713   100.00 %      $33,951   100.00 %
                                        =========   ==========   =========  =========
</TABLE>

(1) Gross loans used to calculate percentage.

INVESTMENT ACTIVITIES

    INVESTMENT POLICIES.  The investment policy of the Company, which is
established by senior management and approved by the Board of Directors, is
based upon its asset/liability management goals and emphasizes high credit
quality and diversified investments while seeking to optimize net interest
income within acceptable limits of liquidity, safety and soundness.  The
Company's investment activities are overseen by the Investment Committee of the
Board of Directors, which meets quarterly. 

    The Company's investment goal has been to invest available funds in
short-term, highly liquid instruments that are adjustable rate or that generally
do not exceed an average life of five years, or that meet specific requirements
of the Company's asset/liability goals.  The policy is designed to provide and
maintain liquidity to meet day-to-day, cyclical and long-term changes in the
Company's asset/liability structure. 

    The Company's investment policy permits it to invest in, among other
instruments, U.S. government obligations, securities of  various
government-sponsored agencies, including mortgage-backed securities
issued/guaranteed by FNMA, FHLMC and Government National Mortgage Association
("GNMA"), certificates of deposit of insured banks and savings associations,
bankers acceptances, federal funds, asset-backed securities, private issuer
investment grade mortgage-backed securities, investment grade preferred stock,
investment grade corporate debt securities and commercial paper. 

    The Company's investment policy permits purchases of privately issued
securities only if they are rated in one of the three highest categories by a
nationally recognized rating agency and does not permit purchases of securities
of below investment grade quality. In addition, the Company's investment policy
prohibits investment in certain types of mortgage derivative securities that
management considers high risk. The Company generally purchases only short-term
classes of collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMICs"). At September 30, 1997, the Company held no
securities issued by any one entity with a total carrying value in excess of 10%
of the Company's net worth at that date, except for obligations of the U.S.
government and government-sponsored agencies and certain mortgage-backed
securities which are fully collateralized by mortgages held by single purpose
entities. 

    Thrift Bulletin Number 52 ("TB-52"), the Office of Thrift Supervision
("OTS") Policy Statement on securities portfolio policies and unsuitable
investment practices requires that institutions classify mortgage derivative
products acquired, including certain tranches of REMICs and CMOs, as "high-risk
mortgage securities" if such products exhibit greater price volatility than a
benchmark fixed-rate 30-year mortgage-backed pass-through security. Institutions
may only hold high-risk mortgage securities to reduce interest-rate risk in
accordance with safe and sound practices and must also follow certain prudent
safeguards in the purchase and retention of such securities.

    The Company's investment policy also permits it to invest in certain
derivative financial instruments.  These instruments consist of interest rate
caps, floors, collars and swaps and are generally used to hedge against interest
rate exposure. 

    MORTGAGE-BACKED SECURITIES.  The Company invests in mortgage-backed
securities and uses such investments to complement its mortgage lending
activities and supplement such activities at times of low mortgage loan demand. 
At 

                                          18
<PAGE>

September 30, 1997, the net carrying value of mortgage-backed securities totaled
approximately $1.8 billion, or 30.87% of total assets, which equaled their
estimated fair value as substantially all mortgage-backed securities are
classified as available-for-sale.  Mortgage-backed securities in the Company's
held-to-maturity portfolio are carried at amortized cost. The mortgage-backed
securities portfolio includes REMICs and CMOs, with a net carrying value at
September 30, 1997 of $76.7 million.  A CMO is a special type of pass-through
debt security in which the stream of principal and interest payments on the
underlying mortgages or mortgage-backed securities is used to create classes
with different maturities and, in some cases, amortization schedules as well as
a residual interest, with each such class possessing different risk
characteristics. 

    At September 30, 1997, substantially all of the Company's mortgage-backed
securities portfolio was directly insured or guaranteed by FNMA, FHLMC or GNMA.
FNMA, FHLMC and GNMA provide the certificate holder a guarantee of timely
payments of scheduled principal and interest, whether or not they have been
collected.  Those securities not insured or guaranteed by FNMA , FHLMC or GNMA
are either privately insured or have senior subordinated structures, and are
rated AAA by one of the nationally recognized bond rating agencies.  The
Company's mortgage-backed securities portfolio had a weighted average yield of
6.76% at September 30, 1997.  At September 30, 1997, $1.5 billion or 84.29%, of
total mortgage-backed securities had adjustable rates and $284.0 million, or
15.71%, of total mortgage-backed securities had fixed rates, based on amortized
cost. 

    Mortgage-backed securities generally yield less than the loans that
underlie such securities because of the cost of payment guarantees or credit
enhancements that reduce credit risk.  In addition, mortgage-backed securities
are more liquid than individual mortgage loans and may be used more easily to
collateralize obligations of the Bank. In general, mortgage-backed securities
issued or guaranteed by FNMA and FHLMC and certain AAA-rated mortgage-backed
pass-through securities are weighted at no more than 20% for risk-based capital
purposes, compared to the risk weight assigned to non-securitized whole loans of
50%. 

    While mortgage-backed securities carry a reduced credit risk as compared to
whole loans, such securities remain subject to the risk that a fluctuating
interest rate environment, along with other factors such as the geographic
distribution of the underlying mortgage loans, may alter the prepayment rate of
such mortgage loans and so affect both the prepayment speed, and value of such
securities. In contrast to mortgage-backed securities in which cash flow is
received (and, hence, prepayment risk is shared) pro rata by all securities
holders, the cash flows from the mortgages or mortgage-backed securities
underlying REMICs or CMOs are segmented and paid in accordance with a
predetermined priority to investors holding various tranches of such securities
or obligations. A particular tranch of a REMIC or CMO may therefore carry
prepayment risk that differs from that of both the underlying collateral and
other tranches. 

    ASSET-BACKED SECURITIES.  The Company invests in asset-backed securities. 
At September 30, 1997 the Company's total asset-backed securities portfolio of
$11.8 million, or 0.20% of total assets, was classified as available-for-sale. 
These securities are rated AAA by one of the nationally recognized bond rating
agencies, carry a fixed rate, and are primarily secured by automobile loans.  

    PREFERRED AND COMMON STOCK.  The Company invests in preferred and common
stock.  At September 30, 1997, all preferred and common stock was classified as
available-for-sale and totaled $30.0 million, or 0.51% of total assets.  These
securities are investment grade and carry an A1P1 commercial paper rating as
determined by one of the nationally recognized bond rating agencies.

                                          19
<PAGE>

SECURITIES PORTFOLIO

    The table below sets forth certain information regarding the amortized cost
and fair value of the Company's debt and equity securities portfolio at the
dates indicated.  Securities held-to-maturity are recorded at amortized cost. 
Securities available-for-sale are recorded at estimated fair value.  The 1996
balances reflect the reassessment of the Company's portfolio in accordance with
the Special Report on SFAS 115 which resulted in debt securities in the amount
of $78.6 million previously classified as held-to-maturity to be classified as
available-for-sale.


<TABLE>
<CAPTION>


                                                                                    AT SEPTEMBER 30,
                                                    ------------------------------------------------------------------------------
                                                               1997                      1996                      1995
                                                    ----------------------------------------------------  ------------------------
                                                      AMORTIZED    ESTIMATED     AMORTIZED    ESTIMATED    AMORTIZED    ESTIMATED
                                                        COST       FAIR VALUE      COST      FAIR VALUE       COST     FAIR VALUE
                                                    ------------ ------------- ------------ ------------  ----------- ------------
                                                                                      (IN THOUSANDS)

SECURITIES HELD-TO-MATURITY:
Debt securities:
<S>                                                <C>          <C>            <C>          <C>           <C>         <C>
    U.S. government and agency obligations....      $    ---     $     ---     $     ---    $     ---     $    2,593  $     2,593
    U.S. government and agency obligations                             ---                        ---
        pledged as collateral ................           ---           ---           ---          ---          7,393        7,398
    Asset-backed securities ..................           ---           ---           ---          ---         45,853       45,880
                                                    ------------ ------------- ------------ ------------  ----------- ------------
Total debt securities held-to-maturity........      $    ---     $     ---     $     ---    $     ---      $  55,839  $    55,871
                                                    ============ ============= ============ ============  =========== ============

SECURITIES AVAILABLE-FOR- SALE:
Debt securities:

    U.S. government and agency obligations....      $    14,007  $     14,016  $    13,385  $    13,382   $   63,852  $    63,665
    U.S. government and agency obligations
        pledged as collateral.................           82,686        82,063       88,021       86,105        ---          ---
    Commercial Paper..........................              700           700        ---          ---          ---          ---
    Asset-backed securities...................           11,797        11,753       40,561       40,369      129,391      128,989
                                                    ------------ ------------- ------------ ------------  ----------- ------------
        Total debt securities.................          109,190       108,532      141,967      139,856      193,243      192,654

Equity securities:

    Preferred and common stock ...............           30,058        30,046       40,038       40,038       40,038       40,038
    Investment in mutual funds................           ---           ---             779          756          729          716
                                                    ------------ ------------- ------------ ------------  ----------- ------------
        Total equity securities...............           30,058        30,046       40,817       40,794       40,767       40,754
                                                    ------------ ------------- ------------ ------------  ----------- ------------
Total debt and equity securities available-
    for-sale..................................      $   139,248  $    138,578  $   182,784  $   180,650   $  234,010  $   233,408
                                                    ============ ============= ============ ============  =========== ============

FHLB - New York stock.........................      $    48,724  $     48,724  $    40,754  $    40,754   $   35,132  $    35,132
                                                    ============ ============= ============ ============  =========== ============

Federal funds sold............................      $    ---     $     ---     $    33,480  $    33,480   $   10,100  $    10,100
                                                    ============ ============= ============ ============  =========== ============

</TABLE>

                                          20
<PAGE>

    The table below sets forth certain information regarding the amortized cost
and fair values of the Company's mortgage-backed securities portfolio at the
dates indicated.  Mortgage-backed securities held-to-maturity are recorded at
amortized cost.  Mortgage-backed securities available-for-sale are recorded at
estimated fair value.  The 1996 balances reflect the reassessment of the
Company's portfolio in accordance with the Special Report on SFAS 115 which
resulted in mortgage-backed securities in the amount of $1.2 billion previously
classified as held-to-maturity to be classified as available-for-sale.

<TABLE>
<CAPTION>


                                                                                AT SEPTEMBER 30,
                                            ---------------------------------------------------------------------------------------
                                                        1997                          1996                         1995
                                            ---------------------------------------------------------------------------------------
                                             AMORTIZED      ESTIMATED      AMORTIZED        ESTIMATED     AMORTIZED     ESTIMATED
                                                COST        FAIR VALUE        COST        FAIR VALUE        COST       FAIR VALUE
                                            ------------- -------------- --------------- --------------  ------------  ------------
                                                                                 (IN THOUSANDS)
<S>                                        <C>            <C>             <C>             <C>            <C>           <C>
MORTGAGE-BACKED SECURITIES HELD-TO-
    MATURITY:
    FNMA pass-through certificates..        $ ---         $---           $ ---           $ ---           $   353,324   $   356,706
    FHLMC pass-through certificates.          ---          ---             ---             ---               362,646       362,237
    Real estate mortgage investment
      conduit.......................              16,144         14,109          17,017         15,041        17,693        17,693
    Other pass-through certificates.               6,079          6,079           6,079          6,079        62,082        61,929
    GNMA, FHLMC and FNMA securities
        pledged as collateral.......          ---          ---             ---             ---               540,354       540,449
                                            ------------- -------------- --------------- --------------  ------------  ------------
    Gross mortgage-backed securities              22,223         20,188          23,096         21,120     1,336,099     1,339,014
    Unamortized premiums (unearned
        discounts), net.............          ---          ---             ---             ---                 1,804     ---
                                            ------------- -------------- --------------- --------------  ------------  ------------

    Mortgage-backed securities held-
        to-maturity, net............        $     22,223  $      20,188  $       23,096  $      21,120   $ 1,337,903   $ 1,339,014
                                            ============= ============== =============== ==============  ============  ============

MORTGAGE-BACKED SECURITIES AVAILABLE-
    FOR-SALE:
    FNMA pass-through certificates..        $    297,087  $     301,307  $      483,480  $     485,696   $   274,501   $   279,776
    GNMA pass-through certificates..             251,362        253,577           3,582          3,632      ---          ---
    FHLMC pass-through certificates.             189,565        190,447         367,480        369,337       497,438       506,371
    Other pass-through certificates.              49,736         49,508          78,101         77,884         9,892         9,620
    GNMA, FHLMC and FNMA securities
       pledged as collateral........             994,012      1,013,632         767,263        780,557       140,072       143,080
                                            ------------- -------------- --------------- --------------  ------------  ------------
    Gross mortgage-backed securities           1,781,762      1,808,471       1,699,906      1,717,106       921,903       938,847
    Unamortized premiums (unearned
        discounts), net.............               3,238     ---                  3,270     ---                4,120     ---
                                            ------------- -------------- --------------- --------------  ------------  ------------
    Mortgage-backed securities
    available-for-sale, net.............    $  1,785,000  $   1,808,471  $    1,703,176  $   1,717,106   $   926,023   $   938,847
                                            ============= ============== =============== ==============  ============  ============
</TABLE>


                                          21
<PAGE>
    The table below  sets forth certain information regarding the carrying
value, weighted average yields and maturities of the Company's mortgage-backed
and debt and equity securities as of September 30, 1997.  

<TABLE>
<CAPTION>
                                            ONE YEAR OR LESS       ONE TO FIVE YEARS        FIVE TO TEN YEARS
                                         ----------------------  ---------------------    -------------------
                                                       WEIGHTED               WEIGHTED               WEIGHTED
                                         AMORTIZED     AVERAGE   AMORTIZED    AVERAGE     AMORTIZED  AVERAGE
                                            COST        YIELD       COST       YIELD        COST      YIELD
                                         ---------     -------   ----------   -------     ---------  -------
                                                                 (DOLLARS IN THOUSANDS)
DEBT AND EQUITY SECURITIES
   AVAILABLE-FOR-SALE:
<S>                                     <C>           <C>      <C>         <C>       <C>         <C>
U.S. government securities
   and obligations...................    $  16,822      5.63 %   $  4,999      5.88 %    $   74,872    6.04 %
Commercial Paper.....................          700      5.07          ---       ---             ---     ---
Asset-backed securities..............        1,517      5.24        6,514      4.82             ---     ---
                                         ----------   ------     --------    ------      ----------   ------
Total debt and equity
   securities available-for-sale.....    $  19,039      5.58 %   $ 11,513      5.28 %    $   74,872    6.04 %
                                         ==========   ======     =========   ======      ==========  ======
MORTGAGE-BACKED SECURITIES
   HELD-TO-MATURITY..................    $     ---       --- %   $ 16,144     10.00 %    $     ---      --- %
                                         ==========   ======     =========   ======      ==========  ======
MORTGAGE-BACKED SECURITIES
   AVAILABLE-FOR-SALE................    $  22,745      5.05 %   $174,889      5.83 %    $     ---      --- %
                                         ==========   ======     =========   ======      ==========  ======

FHLB-New York stock..................

Preferred and common stock ..........

<CAPTION>

                                        MORE THAN TEN YEARS                     TOTAL SECURITIES
                                       --------------------     -----------------------------------------------
                                                    WEIGHTED    WEIGHTED                 ESTIMATED     WEIGHTED
                                        AMORTIZED   AVERAGE     AVERAGE    AMORTIZED       FAIR        AVERAGE
                                           COST      YIELD       LIFE (1)     COST         VALUE        YIELD
                                       ------------ -------     -------   -----------   ---------    ----------

DEBT AND EQUITY SECURITIES           
   AVAILABLE-FOR-SALE:               
<S>                                    <C>           <C>     <C>           <C>          <C>             <C>
U.S. government securities           
   and obligations...................  $        ---      --- %     50.79   $   96,693   $   96,079        5.96
Commercial Paper.....................           ---      ---        9.34          700          700        5.07
Asset-backed securities..............         3,766     4.90       55.83       11,797       11,753        4.90
                                      -------------  =======    --------   -----------  -----------     ------
Total debt and equity                
   securities available-for-sale.....  $      3,766     4.90 %     51.07   $  109,190   $  108,532        5.84 %
                                      =============  =======    ========   ===========  ===========     ======
MORTGAGE-BACKED SECURITIES           
   HELD-TO-MATURITY..................  $      6,079    10.00 %    106.72   $   22,223   $   20,188       10.00 %
                                      =============  =======    ========   ===========  ===========     ======
MORTGAGE-BACKED SECURITIES           
   AVAILABLE-FOR-SALE................  $  1,587,366     6.85 %    344.31   $1,785,000   $1,808,471       6.72 %
                                      =============  =======    ========   ===========  ===========     ======
                                     
FHLB-New York stock..................                                      $   48,724   $   48,724       7.00 %
                                                                           ===========  ===========     ======

Preferred and common stock ..........                                      $   30,058   $   30,046       4.19 %
                                                                           ===========  ===========     ======
</TABLE>

(1)      This calculation is in months.

                                          22
<PAGE>

    SOURCES OF FUNDS

    GENERAL.  Deposits, repayments and maturities on loans and mortgage-backed
securities, redemptions of debt and equity securities and  borrowings are the
primary source of the Company's funds for use in lending, investing and for
other general purposes. 

    DEPOSITS.  The Bank offers a variety of deposit accounts having a range of
interest rates and terms.  The Bank's deposits consist of passbook savings,
demand and NOW, money market, statement savings and certificate accounts.  The
flow of deposits is influenced significantly by general economic conditions,
changes in money market rates, prevailing interest rates and competition.  The
Bank's deposits are obtained primarily from the areas in which its branch
offices are located.  The Bank relies on customer service and long-standing
relationships with customers to attract and retain these deposits.  Certificate
accounts in excess of $100,000 are not actively solicited by the Bank.   Since
1990, when market rates decreased, the Bank has not attempted to retain
certificate accounts by keeping its rates above those offered by competitors. 
Despite this strategy, certificate accounts increased to 56.74% of total
deposits at September 30, 1997 from 53.92% of total deposits at September 30,
1996.  Management believes that this increase is attributable to the rise in
interest rates that occurred during fiscal 1997 and 1996 and the return of funds
to certificate accounts that had been temporarily invested in short term liquid
accounts.  Management monitors the Bank's certificate accounts and, based on
historical experience, believes it will retain a large portion of the funds held
in such accounts upon maturity.  

    The following table sets forth the distribution of the Bank's deposit
accounts at the dates indicated and the weighted average nominal interest rates
on each category of deposits presented. Management believes that the use of year
end balances instead of average balances does not result in any material
difference in the information presented. 


<TABLE>
<CAPTION>


                                                                             AT SEPTEMBER 30,
                                         ---------------------------------------------------------------------------
                                                          1997                                 1996             
                                         ----------------------------------- ---------------------------------------
                                                                  WEIGHTED                               WEIGHTED
                                                        PERCENT    AVERAGE                   PERCENT     AVERAGE
                                                        OF TOTAL   NOMINAL                   OF TOTAL    NOMINAL
                                             AMOUNT     DEPOSITS     RATE       AMOUNT       DEPOSITS       RATE
                                          ------------ ---------- ---------  ----------    -----------  ------------
                                                                              (DOLLARS IN THOUSANDS)
<S>                                      <C>            <C>         <C>       <C>            <C>           <C>
Passbook accounts.....................   $    608,618     16.31 %    2.76 %  $     669,241    18.42 %         2.76 %
Demand and NOW accounts...............        261,324      7.01      0.97          227,747     6.27           1.30
                                         ------------- ---------             -------------   -------

   Total..............................        869,942     23.32                    896,988    24.69          

Money market accounts.................        109,874      2.95      2.75          130,442     3.59            2.75

Statement savings accounts............        633,868     16.99      3.23          646,789    17.80            3.24

Certificate accounts:

   Jumbo within 1 year................        127,825      3.43      5.52          110,565     3.04            5.41
   Other within 1 year................      1,233,602     33.07      5.56        1,250,270    34.42            5.41
   One to three years.................        596,603     15.99      6.21          314,327     8.65            5.68
   Three or more years..............          158,789      4.25      6.02          283,629     7.81            6.42
                                         ------------- ---------             -------------- --------
   Total..............................      2,116,819     56.74                  1,958,791    53.92
                                         ------------- ---------             -------------- --------
Total deposits........................   $  3,730,503    100.00 %            $   3,633,010   100.00 %
                                         ============= =========             ============== ========









<CAPTION>
                                                            -------------------------------------
                                                                             1995
                                                            -------------------------------------
                                                                                         WEIGHTED
                                                                           PERCENT       AVERAGE 
                                                                           OF TOTAL      NOMINAL 
                                                              AMOUNT       DEPOSITS       RATE   
                                                            ------------ ------------  ----------
                                                                                                          
                                                             <C>          <C>        <C>     
Passbook accounts....................................         $  730,060    20.43 %     2.76 %
Demand and NOW accounts..............................            223,232     6.25       1.29
                                                            ------------- ---------
                                                                                                          
   Total.............................................            953,292    26.68
                                                                                                          
Money market accounts................................            154,938     4.33       2.75
                                                                                                          
Statement savings accounts...........................            624,707    17.48       3.24
                                                                                                          
Certificate accounts:                                                                                     
                                                                                                          
   Jumbo within 1 year...............................             86,698     2.43       5.62
   Other within 1 year...............................          1,075,725    30.10       5.53
   One to three years................................            423,644    11.86       6.13
   Three or more years...............................            254,525     7.12       6.50
                                                            ------------- ---------
   Total.............................................          1,840,592    51.51
                                                            -----------------------
Total deposits.......................................       $  3,573,529   100.00 %
                                                            =======================
</TABLE>



                                          23
<PAGE>


    The following table presents, by various rate categories, the amount of
certificate accounts outstanding at September 30, 1997, 1996 and 1995 and the
periods to maturity of the certificate accounts outstanding at September 30,
1997:

<TABLE>
<CAPTION>
                                                                       PERIOD TO MATURITY FROM SEPTEMBER 30, 1997
                                                                -------------------------------------------------------
                                                                                  ONE TO
                                 AT SEPTEMBER 30,                  WITHIN         THREE
                         ------------------------------
                          1997          1996         1995         ONE YEAR         YEARS        THEREAFTER      TOTAL
                         ------       -------       ------     --------------  -----------   ---------------   -------
                                                               (IN THOUSANDS)
<S>                    <C>          <C>          <C>           <C>            <C>            <C>            <C>
Certificate                                    
 accounts:                                     
4.99% or less....      $   52,907   $  292,547   $   160,797   $   50,257     $     2,650       $     --     $   52,907
5.00%-5.99%......       1,509,192    1,160,668       897,341    1,205,707         248,720         54,765      1,509,192
6.00%-6.99%......         457,324      393,757       650,183      103,707         252,715        100,902        457,324
7.00% or greater.          97,396      111,819       132,271        1,756          92,517          3,123         97,396
                       ----------   ----------   -----------   ----------     -----------       --------     ----------
                       $2,116,819   $1,958,791   $ 1,840,592   $1,361,427     $   596,602       $158,790     $2,116,819
                       ----------   ----------   -----------   ----------     -----------       --------     ----------
                       ----------   ----------   -----------   ----------     -----------       --------     ----------
</TABLE>

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

                                       FOR THE YEARS ENDED SEPTEMBER 30,
                                      ----------------------------------
                                      1997          1996               1995
                                      ----          ----               ----
                                                 (IN THOUSANDS)

Opening balance...................$3,633,010     $3,573,529        $3,567,815
Net withdrawals...................   (60,199)       (96,367)         (133,966)
Interest credited.................   157,692        155,848           139,680
                                  ----------      ---------        ----------
Ending balance....................$3,730,503     $3,633,010        $3,573,529
                                  ----------     ----------        ----------
                                  ----------     ----------        ----------

    The following table presents time deposits at September 30, 1997 over
$100,000:

MATURITY PERIOD                                                      AMOUNT
---------------                                                      ------
                                                                (In thousands)

Three months or less.........................................      $  44,633
Over three through six months................................         37,064
Over six through 12 months...................................         46,128
Over 12 months...............................................         69,922
                                                                -------------
     Total...................................................       $197,747
                                                                -------------
                                                                -------------

BORROWINGS

    Although deposits are the Bank's primary source of funds, the Bank often
uses borrowings as an alternative and sometimes a less costly source of funds. 
The Bank's primary source of borrowing is sales of securities under agreements
to repurchase ("reverse-repurchase agreements"), generally from 30 days up to 54
months, with nationally recognized investment banking firms.  Reverse-repurchase
agreements are accounted for as borrowings by the Bank and are secured by
designated securities.  The proceeds of these transactions are used to meet cash
flow or asset/liability needs of the Bank as well as to take advantage of
investment opportunities that may exist in the market which enable the Bank to
earn a positive interest rate spread.  At September 30, 1997, the Bank had
reverse-repurchase agreements outstanding of $1.0 billion.  

Additionally, the Company's investment policy enables the Company to enter into
certain interest rate contracts to hedge interest rates on certain assets and
liabilities.  During fiscal 1997, the Bank issued a medium-term note in the
amount of $300.0 million  due June  2002 and simultaneously entered into an
interest rate swap agreement (See Note 12 of notes to Consolidated Financial
Statements).  The medium-term note is part of a $1.0 billion medium-term note
program the Bank established in 1997 in which notes can be issued bearing
interest at either a fixed or floating rate and have maturities ranging from
nine months to 30 years from their respective dates.  At September 30, 1997, the
Bank has the ability to issue up to an additional $700.0 million under this
program.

                                          24
<PAGE>
 

During fiscal 1996, the Bank issued a Funding note in the amount of $181.4
million which is collateralized by a pool of adjustable rate residential
mortgage loans.  Payments of principal and interest on the Funding note are paid
monthly based on the scheduled payments due on the underlying loans.  The
scheduled final maturity of the Funding note is June 2001.  The interest on the
Funding note changes monthly and bears interest at a rate of 50 basis points
over the one month London Interbank Offered Rate ("LIBOR").  

    The following table sets forth certain information regarding borrowed funds
for the dates indicated: 



<TABLE>
<CAPTION>


                                                                     AT OR FOR THE YEAR ENDED SEPTEMBER 30,
                                                                     --------------------------------------
                                                                     1997           1996           1995 
                                                                     ----           ----           ----
                                                                            (DOLLARS IN THOUSANDS)

FHLB-NY note payable:
<S>                                                                  <C>            <C>            <C>
  Average balance outstanding....................................   $ 84,648     $  2,461        $   875
  Maximum amount outstanding at any month-end during the
          year...................................................    200,000          ---         30,000
  Balance outstanding at end of year.............................    33,120           ---         10,000
  Weighted average interest rate during the year.................    5.96%          5.73%         6.32%
  Weighted average interest rate at end of year..................    6.63             ---         6.63
Reverse-repurchase agreements and short-term loans payable:               
  Average balance outstanding....................................   $1,025,079   $675,104        $510,111
  Maximum amount outstanding at any month-end during the
          year...................................................    1,126,400    805,942         743,952
  Balance outstanding at end of year.............................    1,013,400    800,000         623,675
  Weighted average interest rate during the year.................     5.74%         5.69%         5.53%
  Weighted average interest rate at end of year..................     5.73          5.52          5.69
Funding note:
  Average balance outstanding....................................   $  168,845   $ 46,883          ---
  Maximum amount outstanding at any month-end during the year....      177,111    181,370          ---
  Balance outstanding at end of year.............................      155,540    178,023          ---
  Weighted average interest rate during the year.................    6.07%          6.11%          ---
  Weighted average interest rate at end of year..................    6.00           6.00           ---
Medium-term note:            
  Average balance outstanding....................................      90,411         ---          ---
  Maximum amount outstanding at any month-end during the year....     300,000         ---          ---
  Balance outstanding at end of year.............................     300,000         ---          ---
  Weighted average interest rate during the year.................    7.12% (a)        ---          ---
  Weighted average interest rate at end of year..................    7.00             ---          ---
Total borrowings:
  Average balance outstanding ...................................   $1,368,982   $724,448        $510,986
  Maximum amount outstanding at any month-end during the
          year...................................................    1,514,762    981,119         743,952
  Balance outstanding at end of year.............................    1,502,060    978,023         633,675
  Weighted average interest rate during the year.................    5.82%          5.71%         5.53%
  Weighted average interest rate at end of year..................    6.03           5.61          5.70
</TABLE>

(a) Weighted Average Interest Rate during the year reflecting the rate swap was
    6.06%.



PURCHASE ACCOUNTING


    In 1983, with the assistance of the Federal Savings and Loan Insurance
Corporation ("FSLIC") as set forth in an assistance agreement ("Assistance
Agreement"), the Bank acquired, as a wholly-owned subsidiary, The Long Island
Savings Bank of Centereach FSB ("Centereach").  The Bank and Centereach reported
to the Federal Home Loan Bank Board of New York ("FHLB-NY"), forerunner of the
OTS, as two separate entities.  In 1986, with FSLIC assistance, the Bank
acquired Flushing Federal Savings and Loan Association ("Flushing Federal") by
merger.

                                           25
<PAGE>

    The FSLIC-assisted supervisory acquisitions of Centereach and Flushing
Federal were accounted for using the purchase method of accounting and resulted
in goodwill of $656.8 million. The goodwill constituted an intangible asset on
Centereach's and the Bank's balance sheets, and was included in determining
regulatory capital.  As a result of FIRREA, however, each bank was required to
deduct "non-qualifying" goodwill from all measures of regulatory capital and
phase out "qualifying supervisory goodwill" from core (and therefore also from
risk-based) capital by December 31, 1994. 

    To bring Centereach into capital compliance and avoid possible regulatory
sanctions against Centereach on September 3, 1993, with the OTS's approval,
Centereach and the Bank sold $836.3 million in deposits from ten branch
locations and reduced their asset size by a similar amount.  Concurrent with the
sale of these deposits, the Bank was merged into Centereach ("Merger") and 
Centereach's name was changed to The Long Island Savings Bank, FSB.  The
Company, in connection with the Merger, reviewed its accounting policies and
practices and decided to revise its past practices relating to the amortization
of goodwill.  The $625.4 million in goodwill on Centereach's books, as a result
of "pushdown" accounting related to the Centereach acquisition, was originally
to be amortized over 40 years in accordance with Accounting Principles Board
Opinion No. 17 ("APB 17"), "Intangible Assets." In fiscal 1993 the Company
decided to amortize all of this goodwill at a constant rate over the average
lives of acquired long-term interest-earning assets (after adjustment for
estimated prepayments of assets subject to prepayment), in accordance with
Statement of Financial Accounting Standards No. 72 ("SFAS 72"), "Accounting for
Certain Acquisitions of Banking or Thrift Institutions."  The principal effect
of the retroactive adoption of SFAS 72 was to reallocate the amortization of the
goodwill so that a greater proportion of such goodwill was amortized in earlier
years. This resulted in the additional amortization of $323.5 million of
goodwill against fiscal 1993 earnings as a cumulative effect of a change in
accounting principle effective October 1, 1992. In addition, the balance of the
Centereach unamortized goodwill, $59.2 million, was written off in September
1993 as a charge to current earnings. 

    The unamortized balance of goodwill recorded in connection with the 1986
acquisition of Flushing Federal of $11.6 million was also written off in
September 1993 as a charge to current earnings.

    The November 1994 acquisitions of Entrust Financial Corporation ("Entrust")
and Developer's Mortgage Corporation ("Developers") and the August 1996
acquisition of First Home were accounted for using the purchase method of
accounting and resulted in goodwill to be charged to earnings on a straight line
basis over 15 years.  As of September 30, 1997 the unamortized balance of
goodwill related to these acquisitions was $5.1 million.

    The following table sets forth the net effect on income of purchase
accounting adjustments for the fiscal years ended September 30:  




<TABLE>
<CAPTION>

                                                                RECOGNITION OF
                                                                   DISCOUNT
                        AMORTIZATION   PURCHASE ACCOUNTING      (PREMIUM) DUE          NET EFFECT
FISCAL YEAR             OF GOODWILL       DISCOUNTS, NET        TO ASSET SALES         ON INCOME
-----------             -----------    -------------------      --------------         ----------
                                            (IN THOUSANDS) 
<S>                     <C>            <C>                      <C>                 <C>
1995....................         $(211)     $      1,492                $  56           $ 1,337
1996....................          (284)            1,081               (1,308)             (511)
1997....................          (458)              652                 ----               194
</TABLE>

                                           26
<PAGE>

    The following table sets forth the scheduled amortization of remaining
purchase accounting discounts (premiums) for the fiscal years ending September
30:




                                                                PURCHASE
                                                                ACCOUNTING
FOR THE FISCAL                                                  DISCOUNTS/
YEAR ENDING                                                     (PREMIUMS)
-----------                                                     ----------
                                                              (IN THOUSANDS)

1998.................................................           $     224
1999.................................................                 173
2000-2004............................................                (299)
2005 -2009...........................................              (1,065)
2010 thereafter......................................                (855)
                                                                     -----
                                                                  $(1,822)
                                                                  --------
                                                                  --------

OTHER FEE BASED PRODUCTS

    In 1990, the Bank organized the Long Island Savings Agency ("LISA") as a
wholly-owned service corporation to offer non-traditional, fee-based products to
its customers.  LISA was formed to engage in the business of selling single
premium deferred annuity products and was expanded in 1993 to offer a broader
range of financial products and services including an expanded line of annuities
and other investment products by marketing a line of mutual funds with a variety
of investment objectives.  The insurance products and mutual funds sold are
products of unrelated insurance and securities firms from which LISA earns
commissions. During the fiscal years ended September 30, 1997, 1996 and 1995,
LISA generated gross fee income of $2.5 million, $1.6 million and $0.8 million,
respectively. 

SUBSIDIARY ACTIVITIES

    The Bank currently has 18 wholly-owned subsidiaries.  These subsidiaries
have been primarily created to (a) take title to foreclosed properties, (b) take
title to land held for investment, (c) develop or own investment properties, (d)
act as holding companies, (e) sell insurance and securities products and (f)
facilitate borrowings. 

    (a)  Foreclosed Property Subsidiaries.  Longrich Investors, Inc., Oldfield
Realty, Inc., Syosset N.J. Realty, Inc. and Syosset Connecticut Realty, Inc.
were all formed for the sole purpose of holding title to foreclosed property. 
Two subsidiaries take title to properties located in New York and one each in
New Jersey and Connecticut. Such properties are included in  investment in real
estate and premises in the Consolidated Statements of Financial Condition.

    (b)  Subsidiaries Holding Land for Investment.  Christa Realty, Inc., Kyle
Development, Inc. and 63 Ocean Realty Corp. were primarily formed to take title
to undeveloped land held for investment purposes.  Such properties are included
in Investment in real estate and premises in the Consolidated Statements of
Financial Condition.

    (c) Real Estate Development/Rental Subsidiaries.  Longpond Investors Inc.
and Longco Investors Inc. were created primarily to serve as joint venture
partners where the joint venture built and now operates rental real estate. 
Suffco Development Corp. was formed for the same purpose except that the
projects are sold upon completion.  Suffco Development Corp. also serves as
document custodian to facilitate operations with FNMA.  3366 Park Avenue Corp.
owns an office building that contains branch facilities and operates the
property. 

    (d) Holding Company Subsidiaries.  Mortgage Headquarters Inc. was formed
primarily for the purpose of serving as a holding company for lower tier
subsidiary operations.  In addition, Mortgage Headquarters Inc. serves as a
joint venture partner where the joint venture originates mortgage loans.

    (e) Insurance Products and Mutual Funds Subsidiary.  LISA was formed to
market insurance products and mutual funds.  The insurance products and mutual
funds sold are products of unrelated insurance and securities firms from which
LISA earns commissions. 

    (f) Financing Subsidiaries.  201 Old Country Road Inc. was formed to serve
as a special purpose subsidiary which currently holds mortgage loans that serve
as collateral for the Funding note previously described. Starline Development 

                                           27
<PAGE>

Corp. was formed as a real estate investment trust for the purpose of acquiring,
holding and managing real estate mortgage assets.

    (g) Other Subsidiaries. All other subsidiaries of the Bank are currently
inactive.

SAVINGS BANK LIFE INSURANCE

As an issuing bank, the Bank offers Savings Bank Life Insurance ("SBLI") to its
customers up to the legal maximum of $50,000 per insured individual and, as a
trustee bank, offers an additional $500,000 in group coverage per insured under
SBLI's Financial Institution Group Life Insurance policy.  During April 1996,
approximately 8,800 life insurance policies were transferred from East River
Savings Bank at no cost to the Company.  As of September 30, 1997, the SBLI
Department had approximately 15,637 policies in effect.  The SBLI Department's
activities are segregated from the Bank and, while they do not materially affect
the Bank's earnings, management believes that offering SBLI is beneficial to the
Bank's relationship with its depositors and the  general public.

PERSONNEL

As of September 30, 1997, the Bank had 1,376 full-time employees and 94
part-time employees. The employees are not represented by a collective
bargaining unit, and the Bank considers its relationship with its employees to
be good. 


                                        TAXATION

FEDERAL TAXATION

GENERAL.  The Holding Company and the Bank report their income on a consolidated
basis, using a calendar year and the accrual method of accounting and are
currently subject to federal income taxation in the same manner as other
corporations.  Prior to January 1, 1996, the Bank was entitled to establish a
reserve for bad debts under Section 593 ("IRC 593") of the Internal Revenue Code
of 1986, as amended ("Code").  IRC 593 was repealed in August 1996 as part of
the Small Business Job Protection Act of 1996.  The following discussion of tax
matters is intended only as a summary and does not purport to be a comprehensive
description of the tax rules applicable to the Holding Company or the Bank. The
Bank is currently under exam by both the Internal Revenue Service and New York
State Department of Taxation and Finance, however, no material tax deficiencies
are anticipated. 

BAD DEBT DEDUCTION.  The Bank is required to use the specific charge-off method
for calculating its bad debt deduction effective the first tax year after
December 31, 1995.  The specific charge-off method under the Code Section 166(a)
permits a taxpayer to deduct any debt (or portion thereof) that becomes wholly
(or partially) worthless during the tax year.

As part of the repeal of IRC 593, the Bank is required to recapture (that is,
include in taxable income) its post-1987 additions to its bad debt reserves
whether the additions were computed using a percentage based on the Bank's
actual loss experience ("experience method"), or a percentage equal to 8% of the
Bank's taxable income, computed with certain modifications, without regard to
the Bank's actual loss experience, and reduced by the amount of any addition
permitted to the reserve for non-qualifying loans.  The recapture is to be
determined under Code Section 481(a) and will be added into taxable income
ratably over a six year period beginning with the first tax year after 1995. 
The amount to be recaptured is approximately $2.7 million and will not have a
material impact on the Company.  The Bank may postpone the recapture of the
post-1987 excess reserves for up to two years if the Bank meets certain
residential loan requirements.  The residential loan requirements provide for
deferral during 1996 and 1997 if the principal amount of residential loans
originated by the Bank during each year is not less than its base amount.  The
base amount is defined as the average of the principal amounts of residential
loans originated by the Bank during the six most recent tax years beginning
before January 1, 1996.  Residential loans are defined as loans secured by
residential real property, church property and certain mobile homes, but only to
the extent that the loan is made to the owner of the property to acquire,
construct or improve the property.  By this definition, mortgage refinancing and
home equity loans are not considered residential loans, except to the extent
that the loan proceeds are used to acquire or improve qualified residential
property. Recapture was deferred for calendar year 1996.

DISTRIBUTIONS.  To the extent that (i) the Bank's reserve for losses on
qualifying real property loans exceeds the amount that would have been allowed
under the experience method and (ii) the Bank makes "non-dividend distributions"
to stockholders that are considered to result in distributions from the excess
tax bad debt reserve or the supplemental reserve for losses on 

                                           28
<PAGE>

loans ("Excess Distributions"), then an amount based on the amount distributed
will be included in the Bank's taxable income. Non-dividend distributions
include distributions in excess of the Bank's current and accumulated earnings
and profits, distributions in redemption of stock and distributions in partial
or complete liquidation. However, dividends paid out of the Bank's current or
accumulated earnings and profits, as calculated for federal income tax purposes,
will not be considered to result in a distribution from the Bank's bad debt
reserves. 


The amount of additional taxable income created from an Excess Distribution is
an amount that when reduced by the tax attributable to the income is equal to
the amount of the distribution. Thus, if certain portions of the Bank's
accumulated bad debt reserve are used for any purpose other than to absorb
qualified bad debt losses, such as for the payment of dividends or other
distributions with respect to the Bank's capital stock (including distributions
upon redemption or liquidation), approximately one and one-half times the amount
so used would be includible in gross income for federal income tax purposes,
assuming a 35% corporate income tax rate (exclusive of state taxes). The Bank
does not intend to pay dividends that would result in a recapture of any portion
of its bad debt reserves. 

The recapture of the pre-1988 reserves also applies if the taxpayer fails to
qualify as a bank as defined by Code Section 581.  A bank is defined as a bank
or trust company incorporated and doing business under the laws of the United
States (including laws relating to the District of Columbia) or any State, a
substantial part of the business of which consists of receiving deposits and
making loans and discounts, or of exercising fiduciary powers similar to those
permitted to national banks under authority of the Comptroller of the Currency,
and which is subject by law to supervision and examinations by State,
Territorial or Federal Authority having supervision over banking institutions. 
The Bank intends to continue to qualify as a bank under Code Section 581.

The pre-1988 reserves and supplemental reserves will be treated as tax
attributes to which Code Section 381 applies.  In the case of mergers,
acquisitions, spin-offs and other reorganizations of a thrift, the surviving
institution will inherit the pre-1988 reserves and the accumulated earnings and
profits of the former thrift.  As stated above, the pre-1988 reserves will be
restored into income in the case of any distribution in redemption of the stock
of the surviving institution or any partial or complete liquidation following a
merger.

DIVIDENDS RECEIVED DEDUCTION AND OTHER MATTERS.  The Holding Company may exclude
from its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Holding Company will not file a consolidated tax return.  The
deduction is increased to 80% if the Holding Company owns more than 20% of the
stock of a non-affiliate corporation distributing a dividend. 

STATE AND LOCAL TAXATION

NEW YORK STATE TAXATION.  The Company is subject to New York State franchise
taxes on net income (federal taxable income with adjustments) or one of several
alternative bases, whichever results in the highest tax.  The Company will file
a combined tax return in the same manner as other corporations with some
exceptions, including the Bank's reserve for bad debts as discussed below. 
Generally, the Holding Company would not be required to pay New York State tax
on dividends and interest received from the Bank or on gains realized on the
sale of Bank stock. 

New York State passed legislation that incorporated the provisions of IRC 593
into New York Sate tax law.  The impact of this legislation enabled the Bank to
defer the recapture of the New York State tax bad debt reserves that would have
occurred as a result  of the federal repeal of IRC 593.  The legislation also
enabled the Bank to continue to utilize the reserve method for computing its bad
debt deduction.  The following discussion of the reserve for bad debts is
intended only as a summary and does not purport to be a comprehensive
description of the New York State tax rules applicable to the Bank or the
Holding Company.

BAD DEBT DEDUCTION.  Savings institutions such as the Bank which meet certain
definition tests primarily relating to their assets and the nature of their
business ("qualifying thrifts") are permitted to establish a reserve for bad
debts and to make annual additions thereto, which additions may, within
specified formula limits, be deducted in arriving at their taxable income.  The
Bank will be a qualifying thrift only if, among other requirements, at least 60%
of its assets are assets described in Section 1453(h)(1) of the New York State
Tax Law.  These assets generally include cash, obligations of the United States
or an agency or instrumentality thereof, certain obligations of a state or
political subdivision thereof, residential real estate loans and related loans,
loans secured by savings accounts, student loans and property used by the Bank
in the conduct of its 

                                           29
<PAGE>

business.  If the Bank failed to meet the 60% test in any taxable year or
otherwise failed to be a qualifying thrift, the Bank would be considered a
"large bank" (based on its current assets) and as such it would not be permitted
to deduct additions to a bad debt reserve.  In addition, the Bank would be
required to recapture all or a portion of its bad debt reserves, which may be
spread over a period of years.  The Bank presently satisfies the 60% test. 
Although there can be no assurance that the Bank will satisfy the 60% test in
the future, management believes that this level of qualifying assets can be
maintained by the Bank.  The Bank's deduction for additions to its bad debt
reserve with respect to qualifying loans may be computed using the experience
method or a percentage equal to 32% of the Bank's taxable income, computed with
certain modifications, without regard to the Bank's actual loss experience, and
reduced by the amount of any addition permitted to the reserve for
non-qualifying loans ("NYS percentage of taxable income method").  Use of the
NYS percentage of taxable income method of calculating the addition to the bad
debt reserve may have the effect of reducing the marginal rate of tax on the
Bank's income derived from qualifying loans to a rate as low as 7.2%, exclusive
of any alternative tax, as compared to the generally applicable maximum
corporate New York State income tax rate of 10.53%.  The Bank's deduction with
respect to non-qualifying loans must be computed under the experience method
which is based on the qualifying thrift's actual loss experience.  Under the
experience method, the amount of a reasonable addition, in general, equals the
amount necessary to increase the balance of the bad debt reserve at the close of
the taxable year to the greater of (i) the amount that bears the same ratio to
loans outstanding at the close of the taxable year as the total net bad debts
sustained during the current and five preceding taxable years bears to the sum
of the loans outstanding at the close of those six years, or (ii) the balance of
the bad debt reserve at the close of the base year (assuming that the loans
outstanding have not declined since then). Any deduction for the addition to the
reserve for non-qualifying loans reduces the taxable addition to the reserve for
qualifying real property loans calculated under the NYS percentage of taxable
income method.  Each year the Bank reviews the most favorable way to calculate
the deduction attributable to an addition to the bad debt reserve.

The amount of the addition to the reserve for losses on qualifying real property
loans under the NYS percentage of taxable income method cannot exceed the amount
necessary to increase the balance of the reserve for losses on qualifying real
property loans at the close of the taxable year to 6% of the balance of the
qualifying real property loans outstanding at the end of the taxable year. Also,
if the qualifying thrift uses the NYS percentage of taxable income method, then
the qualifying thrift's aggregate addition to its reserve for losses on
qualifying real property loans cannot, when added to the addition to the reserve
for losses on non-qualifying loans, exceed the amount by which (i) 12% of the
amount that the total deposits or withdrawable accounts of depositors of the
qualifying thrift at the close of the taxable year exceeded (ii) the sum of the
qualifying thrift's surplus, undivided profits and reserves at the beginning of
such year.  The Bank's balance of its reserve for losses on qualifying real
property loans, for New York State tax purposes, was approximately $118 million
at December 31, 1996.

NEW YORK CITY AND OTHER STATES.  The Company is required to file tax returns in
New York City and ten other states and jurisdictions where it maintains mortgage
lending offices.  New York City has followed New York State and enacted
legislation which would prevent the recapture of federal bad debt reserves from
being subject to New York City tax.   The New York City tax rate is 9.0% of the
net income allocable to New York City.  The Company's tax rates in the other ten
states in which it conducts business vary from 6.0% to 11.25% on allocable net
income for the specific jurisdiction.  In addition, the Holding Company is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.

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<PAGE>

                                       REGULATION

GENERAL

Set forth below is a brief description of certain laws and regulations which
relate to the regulation of the Holding Company and the Bank. The description is
not complete and is qualified in its entirety by reference to applicable laws
and regulations. 

The Holding Company, as a savings and loan holding company, is required to file
certain reports and otherwise comply with the rules and regulations of the OTS. 
The Company is also required to comply with the rules and regulations of the
Securities and Exchange Commission ("SEC") under the federal securities laws.
The Bank is a federally chartered savings bank, the deposits of which are
insured by the Savings Association Insurance Fund ("SAIF"), which is
administered by the FDIC.  Accordingly, the Bank is subject to broad regulation
and oversight by regulators, the OTS and the FDIC.  The Bank is also subject to
certain limited regulation by the Board of Governors of the Federal Reserve
System ("FRB"). The OTS periodically examines the Holding Company and the Bank
for compliance with various regulatory requirements.  The FDIC also has the
authority to conduct special examinations of the Bank.  The Bank must file
periodic reports with the OTS describing its activities and financial condition.
Certain regulatory requirements applicable to the Holding Company and the Bank
are discussed below  or elsewhere herein.

HOLDING COMPANY REGULATION

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

The HOLA prohibits a savings and loan holding company, directly or indirectly,
or through one or more subsidiaries, from acquiring another savings institution
or holding company thereof, without prior written approval of the OTS; acquiring
or retaining, with certain exceptions, more than 5% of a non-subsidiary savings
institution, a non-subsidiary holding company, or a non-subsidiary company
engaged in activities other than those permitted by the HOLA; or acquiring or
retaining control of a depository institution that is not federally insured.  In
evaluating applications by holding companies to acquire savings institutions,
the OTS must consider the financial and managerial resources and future
prospects of the company and institution involved, the effect of the acquisition
on the risk to the insurance funds, the convenience and needs of the community
and competitive factors. 

As a unitary savings and loan holding company, the Company generally will not be
restricted under existing laws as to the types of business activities in which
it may engage, provided that the Bank continues to meet the QTL test. See
"--Federal Regulation of Savings Association-Qualified Thrift Lender Test" for a
discussion of the QTL requirements.  Upon any non-supervisory acquisition by the
Holding Company of another savings and loan association or savings bank that
meets the QTL test and is deemed to be a savings institution by the OTS, the
Holding Company would become a multiple savings and loan holding company (if the
acquired institution is held as a separate subsidiary) and would be subject to
extensive limitations on the types of business activities in which it could
engage.  The HOLA generally limits the activities of a multiple savings and loan
holding company and its non-insured institution subsidiaries primarily to
activities permissible for bank holding companies under Section 4(c)(8) of the
Bank Holding Company Act.

The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies, and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions.  Under
New York law, reciprocal interstate acquisitions are authorized for savings and
loan holding companies and savings institutions. Certain states do not authorize
interstate acquisitions under any circumstances; however, federal law
authorizing acquisitions in supervisory cases preempts such state law. 

Federal law generally provides that no "person," acting directly or indirectly
or through or in concert with one or more other persons, may acquire "control,"
as that term is defined in OTS regulations, of a federally-insured savings
institution without giving at least 60 days written notice to the OTS and
providing the OTS an opportunity to disapprove the proposed acquisition.  Such
acquisitions of control may be disapproved if it is determined, among other
things, that (i) the acquisition 

                                           31
<PAGE>

would substantially lessen competition; (ii) the financial condition of the
acquiring person might jeopardize the financial stability of the savings
institution or prejudice the interests of its depositors; or (iii) the
competency, experience or integrity of the acquiring person or the proposed
management personnel indicates that it would not be in the interest of the
depositors or the public to permit the acquisition of control by such person. 

There is, as of the date of this report proposed legislation pending in Congress
that, if passed and enacted, would eliminate the thrift charter and require the
Bank to convert to a bank charter and the Holding company to convert to a bank
holding company. In such an event, the Bank will be regulated by the Office of
the Comptroller of the Currency and the Holding Company would be regulated by
the FRB. It is possible that Congress could modify the thrift, unitary holding
company, and/or bank charters, and/or create one or more new unified charters.
It is also possible that Congress will take no action  with respect to the
thrift charter. Management does not believe that any regulatory change to the
charters of the Bank or the Holding Company would have a material, adverse
effect on the Bank or the Holding Company, although there can be no assurance
that this would not be the case.

FEDERAL REGULATION OF SAVINGS ASSOCIATIONS

The activities of savings institutions are governed by "HOLA" and, in certain
respects, the Federal Deposit Insurance Act ("FDIA").  The HOLA and the FDIA
were amended by FIRREA and the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA").  FDICIA, among other things, requires that federal
banking regulators intervene promptly when a depository institution experiences
financial difficulties.  FDICIA also requires the establishment of a risk-based
deposit insurance assessment system and the imposition of numerous additional
safety and soundness operational standards and restrictions.  FIRREA and FDICIA
contain provisions affecting numerous aspects of the operations and regulations
of federally-insured savings and loan associations and empower the OTS and the
FDIC, among other agencies, to promulgate regulations implementing their
provisions.

The investment and lending authority of the Bank is restricted by federal laws
and regulations.  Savings associations are restricted as to the amount that may
be invested in nonresidential real property loans and may not invest in
non-investment grade debt securities, nor may they generally make equity
investments, other than investments in service corporation subsidiaries. 
Transactions between the Bank and its affiliates are limited to certain
percentages of the Bank's capital and certain other restrictions.  The OTS may
impose additional restrictions on transactions with affiliates if necessary to
protect the safety and soundness of savings associations and has adopted
regulations against insider abuse. 

LOANS-TO-ONE BORROWER LIMITS.  Savings associations, such as the Bank, generally
are subject to the same loans-to-one borrower limits that apply to national
banks.  With certain exceptions, loans and extensions of credit outstanding at
one time to one borrower (including certain related entities of the borrower)
may not exceed 15% of the unimpaired capital and surplus of the savings
association, plus an additional 10% of unimpaired capital and surplus for loans
fully secured by certain readily marketable collateral.  At September 30, 1997,
the maximum amount the Bank could lend to one borrower was approximately $73.1
million, and at that date the Bank had no lending relationships which exceeded
such loans-to-one borrower limitation. 

INSURANCE OF ACCOUNTS.  FIRREA established two separate deposit insurance funds
that are not to be commingled.  The two funds are the Bank Insurance Fund
("BIF") to insure banks and the SAIF to insure savings associations.  The
deposits of the Bank are insured up to $100,000 per depositor (as defined by law
and regulation) by the SAIF, which is administered by the FDIC and backed by the
full faith and credit of the United States government.  The FDIC is authorized
to conduct examinations of, and to require reporting by, insured institutions,
such as the Bank. It may prohibit any insured institution from engaging in any
activity the FDIC determines by regulation or order to pose a serious threat to
the insurance fund. The FDIC also has the authority to initiate enforcement
actions where the OTS has failed or declined to take such action after receiving
a request to do so from the FDIC. 

FDICIA eliminated limitations on increases in federal deposit insurance premiums
and authorized the FDIC to increase the assessment rates to the extent necessary
to protect the SAIF and the BIF.  FDICIA also directs the FDIC to implement a
risk-based deposit insurance assessment system. Pursuant to this requirement,
the FDIC adopted a risk-based assessment system, effective January 1, 1994,
under which all insured depository institutions are placed into one of nine
categories and assessed insurance premiums currently ranging from zero to 0.27%
of deposits, based upon their level of capital and supervisory evaluation. 
Under the system, institutions classified as well capitalized (i.e., those with
a core capital ratio of at least 5%, a ratio of Tier 1 or core capital to
risk-weighted assets ("Tier 1 risk-based capital") of at least 6% and a total
risk-based capital 

                                           32
<PAGE>

ratio of at least 10% and considered financially sound with no material
weaknesses) would pay the lowest premium while institutions that are less than
adequately capitalized (i.e., those with core and Tier 1 risk-based capital
ratios of less than 4% or a risk-based capital ratio of less than 8% and
considered of substantial supervisory concern) would pay a higher premium. Risk
classification of all insured institutions is determined by the FDIC
periodically. As of the date of this Report, the FDIC has informed the Bank that
its annual assessment for deposit insurance is 0.06%. 

The FDIC may terminate the deposit insurance of any insured depository
institution, including the Bank, if it determines after a hearing that the
institution has engaged or is engaging in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, order or any condition imposed by a written
agreement with the FDIC. It also may suspend deposit insurance temporarily
during the hearing process for the permanent termination of insurance, if the
institution has no tangible capital. If insurance of accounts is terminated, the
accounts at the institution at the time of the termination, less subsequent
withdrawals, shall continue to be insured for a period of six months to two
years, as determined by the FDIC. Management is aware of no existing
circumstances pursuant to which the FDIC would seek to impose sanctions on the
Bank or which could result in termination of the Bank's deposit insurance. 

On September 30, 1996, as part of an omnibus appropriations bill,  the Deposit
Insurance Funds Act of 1996 ("Act") was enacted. The Act required i) SAIF
institutions to pay a one-time special assessment, ii) BIF institutions to
include in their deposit insurance premiums beginning January 1, 1997 a portion
of the interest due on the Finance Corporation ("FICO") bonds, and iii) BIF
institutions to pay their full pro rata share of the FICO payments starting the
earlier of January 1, 2000 or the date at which no savings institution continues
to exist.  The FDIC has estimated that beginning January 1, 1997, thrifts will
pay a rate of 6.4 cents per $100 of deposits (a 72.2% reduction from the current
assessment of 23 cents) and banks will pay 1.3 cents per $100 deposits to fund
FICO bond interest payments until the earlier of January 1, 2000 or the date at
which the last savings association continues to exist.  At that time the
payments will be shared on a pro-rata basis.  Pursuant to these provisions of
the Act, the Bank paid a special SAIF premium assessment totaling $18.7 million
on November 27, 1996.  The Bank also anticipates that, commencing on January 1,
1997 and through December 31, 1999, its annual SAIF assessment will drop to $2.4
million and in the year 2000 will drop to approximately $0.5 million.  The Bank
paid $3.9 million in SAIF assessments in fiscal 1997 and received a refund of
$.4 million from prior year payments in accordance with the Act.

LIQUIDITY REQUIREMENTS.  All savings associations are required to maintain an
average daily balance of liquid assets (cash, certain time deposits, bankers'
acceptances, specified United States Government, state and federal agency
obligations, shares of certain mutual funds and certain corporate debt
securities and commercial paper) equal to a certain percentage of the sum of its
average daily balance of net withdrawable deposit accounts and borrowings
payable in one year or less.  The liquidity requirement, which is currently 4%,
may be changed from time to time by the OTS (between 4.0% and 10.0%) depending
upon economic conditions and savings flows of all savings associations. 
Short-term liquid assets currently must constitute at least 1.0% of a savings
association's average daily balance of net withdrawable deposit accounts and
current borrowings. Monetary penalties may be imposed upon savings associations
for violations of liquidity requirements.  The Bank's liquidity and short-term
liquidity ratios for September 30, 1997 were 8.05% and 4.09%, respectively,
which exceeds the applicable requirements. 

ACCOUNTING REQUIREMENTS.  FIRREA requires the OTS to establish accounting
standards to be applicable to all savings associations except to the extent
otherwise specified in the capital standards.  Such standards must incorporate
generally accepted accounting principals ("GAAP") to the same degree as is
prescribed by the Federal banking agencies for banks or may be more stringent
than such requirements.

QUALIFIED THRIFT LENDER TEST.  All savings associations, including the Bank, are
required to meet a qualified thrift lender ("QTL") test to avoid certain
restrictions on their operations.  Under FDICIA, a savings association has been
required to have at least 65.0% of its portfolio assets (which consist of total
assets less intangibles, properties used to conduct the savings association's
business and liquid assets not exceeding 20.0% of total assets) in "qualified
thrift investments" (primarily residential mortgage loans and related
investments, including certain mortgage-backed and mortgage-related securities)
on a monthly average basis in nine of every 12 months.  A savings association
that fails the QTL test must either convert to a bank charter or operate under
certain restrictions.  If the savings association does not convert to a bank
charter, it generally will be prohibited from: (i) making an investment or
engaging in any new activity not permissible for a national bank, (ii) paying
dividends not permissible under national bank regulations, (iii) obtaining
advances from any Federal Home Loan Bank ("FHLB"), and (iv) establishing any new
branch office in a location not permissible for a national bank in the
association's home state.  One year following the association's failure to meet
the QTL test, any holding company parent of the association must register and be
subject to supervision as a bank holding company.  In addition, beginning three
years after the 

                                           33
<PAGE>

association fails the QTL test, the association would be prohibited from
refinancing any investment or engaging in any activity not permissible for a
national bank and would have to repay any outstanding advances from a FHLB as
promptly as possible.  On September 30, 1996, as part of the omnibus
appropriations bill, Congress enacted the Economic Growth and Paperwork
Reduction Act of 1996 ("Regulatory Paperwork Reduction Act"), modifying and
expanding investment authority under the QTL test.  Prior to the enactment of
the Regulatory Paperwork Reduction Act, commercial, corporate, business, or
agricultural loans were limited in the aggregate to 10% of a thrift's assets and
education loans were limited to 5% of a thrift's assets.  Further, in order to
qualify for favorable tax treatment, federal savings associations also had to
meet a different asset test under the Code (the "domestic building and loan
association test").  The amendments permit federal thrifts to invest in, sell,
or otherwise deal in education and credit card loans without limitation and
raise from 10 to 20 percent of total assets the aggregate amount of commercial,
corporate, business, or agricultural loans or investments that may be made by a
thrift, subject to a requirement that amounts in excess of 10% of total assets
be used only for small business loans.  In addition, the legislation defines
"qualified thrift investment" to include, without limit, education, small
business, and credit card loans; and removes the 10% limit on personal, family,
or household loans for purposes of the QTL test.  The legislation also provides
that a thrift meets the QTL test if it qualifies as a domestic building and loan
association under the Code.  As of September 30, 1997, the Bank maintained
104.37% of its "portfolio assets" (which, as defined in the OTS regulations,
exclude liquidity items and office properties) in qualified thrift investments
and met the QTL test. At September 30, 1997, 96.34% of the Bank's total assets
were invested in qualified thrift investments. 

TRANSACTIONS WITH RELATED PARTIES.  Transactions between savings institutions
and any "affiliate" are governed by Sections 23A and 23B of the Federal Reserve
Act ("FRA").  An affiliate of a savings institution is any company or entity
which controls, is controlled by or is under common control with the savings
institution, including any holding company parent of the association and its
non-savings institution subsidiaries.  Generally, Sections 23A and 23B (i) limit
the extent to which the savings institution or its subsidiaries may engage in
"covered transactions" with any one affiliate to an amount equal to 10.0% of
such institution's capital stock and surplus, and contain an aggregate limit on
all such transactions with all affiliates to an amount equal to 20.0% of such
capital stock and surplus, and (ii) require that all such transactions be on
terms substantially the same, or at least as favorable, to the institution or
subsidiary as those provided to a non-affiliate. Each loan or extension of
credit to an affiliate by a savings association must be secured by collateral
with a market value ranging from 100% to 130% (depending on the type of
collateral) of the amount of credit extended.  The term "covered transaction"
includes the making of loans, purchase of assets, issuance of a guarantee and
other similar types of transactions.  In addition to the restrictions imposed by
Sections 23A and 23B, no savings institution may (i) loan or otherwise extend
credit to an affiliate, except for any affiliate which engages only in
activities which are permissible for bank holding companies under Section 4(c)
of the Bank Holding Company Act, or (ii) purchase or invest in any stocks,
bonds, debentures, notes or similar obligations of any affiliates, except for
affiliates which are subsidiaries of the savings institution. 

In addition, loans to directors, executive officers and to greater than 10.0%
stockholders of a savings institution or the company that controls the savings
institution, and certain affiliated interests of such insiders, are governed by
Sections 22(g) and 22(h) of the FRA, and Regulation O promulgated thereunder. 
Such loans, together with all other outstanding loans to such person and
affiliated interests, may not exceed the institution's loans-to-one borrower
limit.  Loans to directors, executive officers and principal stockholders must
also be made on terms substantially the same as offered in comparable
transactions to other persons, except for extensions of credit made pursuant to
a benefit or compensation program that is widely available to all employees of
the institution and does not give preference to insiders over other employees,
with prior board approval required for certain loans.  In addition, the
aggregate amount of extensions of credit by a savings institution to all
insiders cannot exceed the institution's unimpaired capital and surplus. 
Furthermore, Section 22(g) places additional restrictions on loans to executive
officers. 

RESTRICTIONS ON CAPITAL DISTRIBUTIONS.  The OTS imposes limitations on all
capital distributions by savings associations, which include cash dividends,
stock redemptions or repurchases, cash-out mergers, interest payments on certain
convertible debt and other distributions charged to the capital account of a
savings association.  Generally, the applicable regulation permits specified
levels of capital distributions by associations meeting at least their minimum
capital requirements, so long as such associations provide the OTS with at least
30 days advance notice and receive no objection to the distribution from the
OTS. 

The regulation establishes three tiers of savings associations, based primarily
on an association's capital level.  Generally, Tier 1 associations, which are
savings associations that before and after the proposed distribution meet or
exceed their fully phased-in capital requirements and have not been informed by
the OTS that they are in need of more than normal supervision, may make capital
distributions during any calendar year equal to the higher of (i) 100.0% of net
income for the 

                                           34
<PAGE>

calendar year-to-date plus 50.0% of its "surplus capital ratio" at the beginning
of the calendar year or (ii) 75.0% of net income over the most recent four
quarter period.  The "surplus capital ratio" is defined to mean the percentage
by which the association's ratio of total capital to assets exceeds the ratio of
its fully phased-in capital requirement to assets, and "fully phased-in capital
requirement" is defined to mean an association's capital requirement under the
statutory and regulatory standards applicable on December 31, 1994, as modified
to reflect any applicable individual minimum capital requirements imposed upon
an association. Any additional capital distributions would require prior
regulatory approval.  In the event the Bank's capital fell below its
fully-phased in requirement or the OTS notified it that it was in need of more
than normal supervision, the Bank's ability to make capital distributions would
be restricted. In addition, the OTS could prohibit a proposed capital
distribution by any association, which would otherwise be permitted by the
regulation, if the OTS determines that such distribution would constitute an
unsafe or unsound practice.  Furthermore, under FDICIA, the Bank would be
prohibited from making any capital distributions if, after the distribution, the
Bank would have: (i) a total risk-based capital ratio of less than 8.0%, (ii) a
Tier 1 risk-based capital ratio of less than 4.0% or (iii) a leverage ratio of
less than 4.0% (3.0% in the event that the Bank is assigned a Composite Rating
of 1 under the CAMEL rating system, the highest OTS examination rating for
savings institutions).  As of September 30, 1997, the Bank qualified as a Tier 1
institution for purposes of this regulation. 

Tier 2 institutions are those in compliance with their current, but not their
fully phased-in, capital requirements.  Tier 2 institutions may make
distributions of up to 75% of their net income for the most recent four-quarter
period.  Tier 1 and Tier 2 institutions may seek OTS approval to pay dividends
beyond these amounts. 

Tier 3 institutions have capital levels below their current required minimum
levels and may not make any capital distributions without the prior written
approval of the OTS. 

In order to make distributions under these safe harbors, Tier 1 and Tier 2
associations must submit 30 days written notice to the OTS prior to making the
distribution.  The OTS may object to the distribution during that 30-day period
based on safety and soundness concerns.  In addition, a Tier 1 association
deemed to be in need of more than normal supervision by the OTS may be treated
as a Tier 2 or Tier 3 association as a result of such a determination. 

FEDERAL HOME LOAN BANK ("FHLB") SYSTEM.  The Bank is a member of the Federal
Home Loan Bank Board of New York ("FHLB-NY"), which is one of 12 regional FHLBs
governed and regulated by the Federal Housing Finance Board. Each FHLB serves as
a source of liquidity for its members within its assigned region.  It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System.  It makes loans to members (i.e., advances) in accordance with
policies and procedures established by its Board of Directors.  At September 30,
1997, the Bank had $33.1 million in outstanding advances from the FHLB-NY. 

As a member, the Bank is required to purchase and maintain stock in the FHLB-NY
in an amount equal to the greater of 1.0% of its aggregate unpaid residential
mortgage loans, home purchase contracts or similar obligations at the beginning
of each year or 5.0% of total advances.  At September 30, 1997, the Bank had
$48.7 million in FHLB stock, which was in compliance with this requirement.  For
the fiscal year ended September 30, 1997, dividends received from the FHLB-NY by
the Bank totaled $3.0 million. 

ASSESSMENTS.  Savings institutions are required by OTS regulations to pay
assessments to the OTS to fund the operations of the OTS.  The general
assessment, paid on a semi-annual basis, is computed based upon the savings
institution's total assets, including consolidated subsidiaries, as reported in
the institution's latest quarterly thrift financial report.  The assessments
paid by the Bank in fiscal 1997 totaled $0.8 million. 

BRANCHING.  OTS rules permit federally chartered savings associations to branch
nationwide to the extent allowed by federal statute.  The OTS authority preempts
any state law purporting to regulate branching by federal savings associations. 

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

                                           35
<PAGE>

unsatisfactory rating may be used as a basis for denial of an application by the
OTS.  The CRA also requires all institutions to make public disclosure of their
CRA ratings.  Federal banking agencies, including the OTS, have recently revised
their CRA regulations and their methodology for determining an institution's
compliance with the CRA.  The Bank received a CRA Rating of Outstanding in its
most recent CRA examination, which was conducted prior to the effective date of
the amended OTS regulations. 

BROKERED DEPOSITS.  The FDIC has promulgated regulations implementing the FDICIA
limitations on brokered deposits.  Under the regulations, well-capitalized
institutions are not subject to brokered deposit limitations, while adequately
capitalized institutions are able to accept, renew or roll over brokered
deposits only (i) with a waiver from the FDIC and (ii) subject to the limitation
that they do not pay an effective yield on any such deposit which exceeds by
more than (a) 75 basis points the effective yield paid on deposits of comparable
size and maturity in such institution's normal market area for deposits accepted
in its normal market area or (b) 120 basis points for retail deposits and 130
basis points for wholesale deposits accepted outside the institution's normal
market area, respectively, from the current yield on comparable maturity U.S.
Treasury obligations.  Undercapitalized institutions are not permitted to accept
brokered deposits and may not solicit deposits by offering an effective yield
that exceeds by more than 75 basis points the prevailing effective yields on
insured deposits of comparable maturity in the institution's normal market area
or in the market area in which such deposits are being solicited.  Pursuant to
the regulation, the Bank, as a well-capitalized institution, may accept brokered
deposits. The Bank, however, had no brokered deposits outstanding as of
September 30, 1997.

REGULATORY CAPITAL REQUIREMENTS

GENERAL.  Federally insured savings associations, such as the Bank, are required
to maintain minimum levels of regulatory capital. Pursuant to FIRREA, the OTS
established capital standards applicable to all Federal savings associations. 
These standards generally must be no less stringent than the capital
requirements applicable to national banks.  The OTS also is authorized to impose
capital requirements in excess of these standards on individual associations on
a case-by-case basis.

Any savings association that fails any of the capital requirements is subject to
possible enforcement actions by the OTS or the FDIC.  Such actions could include
a capital directive, a cease and desist order, civil monetary penalties, the
establishment of restrictions on an association's operations and the appointment
of a conservator or receiver.  The OTS' capital regulation provides that such
actions, through enforcement proceedings or otherwise, may require one or more
of a variety of corrective actions. 

The capital regulations create three capital requirements: a tangible capital
requirement, a leverage or core capital requirement and a risk-based capital
requirement.  At September 30, 1997, the Bank was in compliance with all three
capital requirements.  These three capital standards are described below. 

TANGIBLE CAPITAL REQUIREMENT.  Under current OTS regulations, each savings
association must maintain tangible capital equal to at least 1.50% of its
adjusted total assets (as defined by regulation).  Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related earnings plus mortgage
servicing rights up to 50% of the amount of tangible capital as described.  At
September 30, 1997, the Bank had recorded mortgage servicing rights of $41.8
million. The Bank's tangible capital was $453.5 million or 7.72% at September
30, 1997.

In calculating adjusted total assets, adjustments are made to total assets to
give effect to the exclusion of certain assets from capital and to appropriately
account for the investments in and assets of both includible and non-includible
subsidiaries. 

CORE CAPITAL REQUIREMENT.  Each savings association must maintain core capital
equal to at least 3.0% of its adjusted total assets.  Core capital includes
common stockholders' equity (including retained income but excluding net
unrealized gains or losses on securities available-for-sale), non-cumulative
perpetual preferred stock and related surplus, minority interest in the equity
accounts of fully consolidated subsidiaries and a percentage of qualifying
intangible assets.  The Bank's core capital was $453.5 million or 7.72% at
September 30, 1997.

RISK-BASED REQUIREMENT.  The risk-based capital standard adopted by the OTS
requires savings associations to maintain a minimum ratio of total capital to
risk-weighted assets of 8.0%.  Total capital consists of core capital, defined
above, and supplementary capital.  Supplementary capital consists of certain
capital instruments that do not qualify as core capital, and general valuation
loan and lease loss allowances up to a maximum of 1.25% of risk-weighted assets.
Supplementary capital 

                                           36
<PAGE>

may be used to satisfy the risk-based requirement only in an amount equal to the
amount of core capital.  In determining the risk-based capital ratios, total
assets, including certain off-balance sheet items, are multiplied by a risk
weight assigned by OTS to certain categories of assets.  The risk weights
assigned by the OTS for significant categories of assets are (i) 0.0% for cash
and securities issued by the Federal government or unconditionally backed by the
full faith and credit of the Federal government; (ii) 20.0% for securities
(other than equity securities) issued by Federal government sponsored agencies
and mortgage-backed securities issued by, or fully guaranteed as to principal
and interest by, FNMA or FHLMC, except for those classes with residual
characteristics or stripped mortgage-related securities; (iii) 50.0% for
prudently underwritten permanent one-to-four family first lien mortgage loans
not more than 90 days delinquent and having a loan-to-value ratio of not more
than 80.0% at origination unless insured to such ratio by private mortgage
insurance by an insurer approved by FNMA or FHLMC and certain qualifying
multi-family mortgage loans; and (iv) 100.0% for all other loans and
investments, including consumer loans, commercial loans, and one-to-four family
residential real estate loans more than 90 days delinquent, and all repossessed
assets or assets more than 90 days past due. 

On August 31, 1993, the OTS issued a final rule incorporating an interest rate
risk ("IRR") component into its risk-based capital rules, but deferred full
implementation of the IRR component until an appeals process for affected
institutions had been adopted.  Under the rule, an institution with a greater
than "normal" level of IRR will be subject to a deduction of its IRR component
from total capital for purposes of calculating the risk-based capital
requirement.  As a result, such an institution may be required to maintain
additional capital in order to comply with the risk-based capital requirement. 
An institution with a greater than "normal" IRR is defined as an institution
that would suffer a loss of net portfolio value exceeding 2.0% of the estimated
market value of its assets in the event of a 200 basis point increase or
decrease (with certain minor exceptions) in interest rates. The IRR component
will be calculated, on a quarterly basis, as one-half of the difference between
an institution's measured IRR and 2.0%, multiplied by the market value of its
assets. The rule also authorizes the director of the OTS, or his designee, to
waive or defer an institution's IRR component on a case-by-case basis.  On
August 21, 1995, the OTS issued procedures that allow eligible thrifts (i) to
request an adjustment to their IRR component, as calculated by OTS, or (ii)
calculate their IRR exposure using their own computer models.  At the same time,
the OTS deferred until further notice application of its IRR rule requiring
thrifts with above normal IRR exposure to adjust their  regulatory capital
requirements.  The OTS continues to monitor the IRR of individual institutions
and retains the right to impose minimum capital on individual institutions. 
Based on the Bank's IRR profile and the level of interest rates at September 30,
1997, as well as the Bank's level of risk-based capital at September 30, 1997
which was $487.4 million or 16.24%, management believes that the Bank does not
have a greater than normal level of IRR as measured under the OTS rule and will
not be required to increase its capital as a result of the rule.

FEDERAL RESERVE SYSTEM.  The FRB requires all depository institutions to
maintain reserves against their transaction accounts (primarily NOW and Super
NOW checking accounts) and non-personal time deposits.  At September 30, 1997,
the Bank was in compliance with these requirements. 

The balances maintained to meet the reserve requirements imposed by the FRB may
be used to satisfy liquidity requirements imposed by the OTS.  Because required
reserves must be maintained in the form of vault cash or a non-interest-bearing
account at a FRB, the effect of this reserve requirement is to reduce an
association's earning assets.  The amount of funds necessary to satisfy this
requirement has not had a material effect on the Bank's operations. 

As a creditor and a financial institution, the Bank is also subject to
additional regulations promulgated by the FRB, including, without limitation,
regulations implementing requirements of the Truth in Savings Act, the Expedited
Funds Availability Act, the Equal Credit Opportunity Act and the
Truth-in-Lending Act. 

FINANCIAL REPORTING.  Depository institutions whose accounts are insured by the
FDIC ("insured institutions") are required to submit independently audited
annual reports to the FDIC and the appropriate agency (and state supervisor when
applicable).  These publicly available reports must include (i) annual financial
statements prepared in accordance with GAAP and such other disclosure
requirements as required by the FDIC or the appropriate agency and (ii) a
report, signed by the chief executive officer and the chief financial officer or
chief accounting officer of the institution which contains statements about the
adequacy of internal controls and compliance with designated laws and
regulations, and an attestation by independent auditors related to the former. 

Insured institutions are required to monitor the above activities through an
independent audit committee which, in the case of institutions with assets over
$500 million, has access to independent legal counsel. 

                                           37
<PAGE>

SAFETY AND SOUNDNESS GUIDELINES

Under FDICIA, as amended by the Riegle Community Development and Regulatory
Improvement Act of 1994 ("CDRI Act"), each federal banking agency is required to
establish safety and soundness standards for institutions under its authority. 
On July 10, 1995, the federal banking agencies, including the OTS, jointly
released Interagency Guidelines Establishing Standards For Safety and Soundness
and published a final rule establishing deadlines for submission and review of
safety and soundness compliance plans.  The guidelines, among other things,
require savings associations to maintain internal controls, information systems
and internal audit systems that are appropriate to the size, nature and scope of
the association's business.  The guidelines also establish certain standards for
loan documentation, credit underwriting, interest rate exposure, and asset
growth.  Savings associations are required to maintain safeguards to prevent the
payment of compensation, fees and benefits that are excessive or that could lead
to material financial loss.  The OTS may determine that a savings association is
not in compliance with the safety and soundness guidelines and, upon doing so,
may require the association to submit an acceptable plan to achieve compliance
with the guidelines.  A savings association must submit an acceptable compliance
plan to the OTS within 30 days of receipt or request for such a plan.  Failure
to submit or implement a compliance plan may subject the association to
regulatory actions.  Management believes that the Bank currently meets the
standards adopted in the interagency guidelines and does not believe that
implementation of the regulatory standards will materially affect the Bank's
operations.

Additionally, under FDICIA, as amended by the CDRI Act, federal banking agencies
are required to establish standards relating to asset quality and earnings that
the agencies determine to be appropriate.  On August 27, 1996, the federal
banking agencies, including the OTS, adopted guidelines relating to asset
quality and earnings.  Under the proposed guidelines, a savings association
would be required to maintain systems, consistent with its size and the nature
and scope of its operations, to identify problem assets and prevent
deterioration in those assets as well as to evaluate and monitor earnings and
insure that earnings are sufficient to maintain adequate capital and reserves. 
Management believes that the asset quality and earnings guidelines, as adopted
by the banking agencies, would not have a material effect on the Bank's
operations.

PROMPT CORRECTIVE REGULATORY ACTION.  Under Section 38 of the FDIA, as added by
FDICIA, each appropriate agency and the FDIC is required to take prompt
corrective action to resolve the problems of insured depository institutions
that do not meet minimum capital ratios.  Such action must be accomplished at
the least possible long-term cost to the appropriate deposit insurance fund. 

The federal banking agencies, including the OTS, have adopted substantially
similar regulations to implement Section 38 of the FDIA.  Under these
regulations, an institution shall be deemed to be (i) "well capitalized" if it
has total risk-based capital of 10.0% or more, has a Tier 1 risk-based capital
ratio of 6.0% or more, has a Tier 1 leverage capital ratio of 5.0% or more and
is not subject to any order or final capital directive to meet and maintain a
specific capital level for any capital measure, (ii) "adequately capitalized" if
it has a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based
capital ratio of 4.0% or more and a Tier 1 leverage capital ratio of 4.0% or
more (3.0% under certain circumstances) and does not meet the definition of
"well capitalized," (iii) "undercapitalized" if it has a total risk-based
capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio that is
less than 4.0% or a Tier 1 leverage capital ratio that is less than 4.0% (3.0%
under certain circumstances), (iv) "significantly undercapitalized" if it has a
total risk-based capital ratio that is less than 6.0%, a Tier 1 risk-based
capital ratio that is less than 3.0% or a Tier 1 leverage capital ratio that is
less than 3.0%, and (v) "critically undercapitalized" if it has a ratio of
tangible equity to total assets that is equal to or less than 2.0%. Section 38
of the FDIA and the regulations promulgated thereunder also specify
circumstances under which a federal banking agency may reclassify a well
capitalized institution as adequately capitalized and may require an adequately
capitalized institution or an undercapitalized institution to comply with
supervisory actions as if it were in the next lower category (except that the
FDIC may not reclassify a significantly undercapitalized institution as
critically undercapitalized). At September 30, 1997, the Bank met the criteria
to be considered a "well capitalized" institution. 

                                           38
<PAGE>

FEDERAL SECURITIES LAWS

The Holding Company's common stock is registered with the SEC under Section
12(g) of the Securities Exchange Act of 1934, as amended ("Exchange Act").  The
Holding Company is subject to the information, proxy, solicitation, insider
trading restrictions and other requirements under the Exchange Act.

ITEM 2. PROPERTIES

    The Bank conducts its business through its office in Melville, N.Y., 35
full service branch offices, and 22 regional lending centers.  Six of the Bank's
offices are located in Queens County of New York City, 10 are located in Nassau
County-Long Island, and 19 are located in Suffolk County-Long Island.  Six of
the Bank's regional lending centers are located in Virginia; 3 each in  Georgia
and New York; 5 in Maryland; 2 in North Carolina, and 1 each in  New Jersey,
Pennsylvania and South Carolina.  The Bank believes that the current facilities
are adequate to meet the present and immediately foreseeable needs of the Bank. 

ITEM 3. LEGAL PROCEEDINGS.

On March 24, 1994, the Bank received notice that it had been named as a
defendant in a class action lawsuit filed in the United States District Court
for the Eastern District of New York against James J. Conway, Jr., former
chairman and chief executive officer of the Bank who resigned from the Bank in
June 1992, his former law firm, certain predecessor firms of that law firm,
certain partners of that law firm and the Bank.  The lawsuit is entitled RONNIE
WEIL ALSO KNOWN AS RONNIE MOORE, FOR HERSELF AND ON BEHALF OF ALL OTHER PERSONS
WHO ATTAINED MORTGAGE LOANS FROM THE LONG ISLAND SAVINGS BANK, FSB DURING THE
PERIOD JANUARY 1, 1983 THROUGH DECEMBER 31, 1992 AGAINST THE LONG ISLAND SAVINGS
BANK, FSB.  The complaint alleges that the defendants caused mortgage loan
commitments to be issued to mortgage loan borrowers, and submitted legal
invoices to the borrowers at the closing of mortgage loans, which falsely
represented the true legal fees charged for representing the Bank in connection
with the mortgage loans and failed to advise that a part of the listed legal fee
would be paid to Mr. Conway, thereby defrauding the borrowers.  The complaint
does not specify the amount of damages sought.

On or about June 9, 1994, the Bank was served with an Amended Summons and
Amended Complaint adding the Bank's directors as individual defendants.  On or
about July 29, 1994, the Bank and the individual director defendants served on
plaintiffs a motion to dismiss the Amended Complaint.  On or about August 29,
1994, the plaintiffs served papers in response to the motion.  The remaining
schedule on the motion has been held in abeyance pending certain discovery.

Management believes that the likelihood is remote that this case will have a
material adverse impact on the Company's consolidated financial position.

On August 15, 1989 the Bank and its former wholly owned subsidiary, The Long
Island Savings Bank of Centereach, FSB ("Centereach"), filed suit against the
United States seeking damages and/or other appropriate relief on the grounds,
among others, that the government had breached the terms of the 1983 assistance
agreement between the Bank and the Federal Savings and Loan Insurance
Corporation pursuant to which the Bank acquired Centereach ("Assistance
Agreement").  The Assistance Agreement, among other things, provided for the
inclusion of supervisory goodwill as an asset on Centereach's balance sheet to
be included in capital and amortized over 40 years for regulatory purposes.

The suit is pending before Chief Judge Loren Smith in the United States Court of
Federal Claims and is entitled THE LONG ISLAND SAVINGS BANK, FSB ET AL. VS THE
UNITED STATES.  (The case had been stayed pending disposition by the United
States Supreme Court of three related supervisory goodwill cases (the WINSTAR
cases).  On July 1, 1996 the Supreme Court ruled in the WINSTAR cases the
government had breached its contracts with the WINSTAR parties and was liable in
damages for those breaches.  Therefore, the stay applicable to the WINSTAR-
related cases, including the Bank's case, was lifted.

On November 1, 1996, the Bank filed a motion for summary judgment on liability. 
On January 27, 1997 the government filed a response opposing the Bank's motion
and cross-moving for summary judgment.  No decision has been rendered on the
Bank's motion or the government's cross-motion.  Discovery has begun.

In its complaint, the Bank did not specify the amount of damages it was seeking
from the United States.  There have been no decisions determining damages in the
WINSTAR cases or any of the WINSTAR-related cases.  The Bank is unable to
predict the outcome of its claim against the United States and the amount of
damages that may be awarded to the Bank, if any, in the 

                                           39
<PAGE>

event that judgment is rendered in the Bank's favor.  Consequently, no
assurances can be given as to the results of this claim or the timing of any
proceedings in relation thereto.


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

None.
                                         PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER 
         MATTERS

Long Island Bancorp, Inc. common stock is traded on the Nasdaq National Market
and quoted under the symbol "LISB".

Information regarding Long Island Bancorp, Inc. common stock and its price for
the 1997 fiscal year appears on page 63 of the 1997 Annual Report under the
caption "Market Price of Common Stock" and its incorporated herein by this
reference.

As of September 30, 1997, Long Island Bancorp, Inc. had approximately 3,180
stockholders of record, not including the number of persons or entities holding
stock in nominee or street name through various brokers and banks.

On December 22, 1994, Long Island Bancorp, Inc. adopted a dividend policy to pay
an annual dividend, payable in equal quarterly installments, should the earnings
of the  Company warrant.   Dividends of fifteen cents per Common Share have been
paid in fiscal 1997 to shareholders as follows:


Declaration Date        Record Date              Payment Date
---------------------   --------------------     ----------------------
December 19, 1996       January 15, 1997         February 14, 1997
March 25, 1997          April 14, 1997           May 14, 1997
June 24, 1997           July 16, 1997            August 14, 1997
September 23, 1997      October 15, 1997         November 14, 1997

Long Island Bancorp, Inc. initiated its first, second, third and fourth stock
repurchase programs on March 9, 1995, September 9, 1995, April 15, 1996 and
April 21, 1997, respectively, as authorized by the OTS.  As of September 30,
1997, Long Island Bancorp, Inc. repurchased 3,230,054 shares, or 13.45% of the
outstanding common stock, at an aggregate cost of $83.9 million under the four
stock repurchase plans.

ITEM 6.  SELECTED FINANCIAL DATA

Information regarding selected financial data appears on page 10 of the 1997
Annual Report and is incorporated herein by this reference.

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

Information regarding management's discussion and analysis of financial
condition and results of operations appears on pages 15 through 28 of the 1997
Annual Report under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and is incorporated herein by
this reference.

                                           40
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information regarding the financial statements and the Independent Auditors'
Report appears on pages 29 through 62 of the 1997 Annual Report and is
incorporated herein by this reference.

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

None.

                                        PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding the directors and executive officers of the Registrant
appears on pages 6 through 10 of the Company's Proxy Statement for the Annual
Meeting of Shareholders to be held February 17, 1998 under the captions "Board
Nominees, Directors and Executive Officers," "Biographical Information -
Directors and Board Nominees" and "- Executive Officers Who Are Not Directors"
and is incorporated herein by this reference.


ITEM 11. EXECUTIVE COMPENSATION

Information regarding executive compensation appears on pages 15 through 18 of
the Company's Proxy Statement for the Annual Meeting of Shareholders to be held
February 17, 1998 and is incorporated herein by this reference.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information regarding security ownership of certain beneficial owners appears on
page 3 of the Company's Proxy Statement for the Annual Meeting of Shareholders
to be held February 17, 1998 under the caption "Stock Ownership of Certain
Beneficial Owners" and is incorporated herein by this reference.

Information regarding security ownership of management appears on pages 4 and 5
of the Company's Proxy Statement for the Annual Meeting of Shareholders to be
held February 17, 1998 under the caption "Stock Ownership of Management" and is
incorporated herein by this reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding certain relationships and related transactions appears on
pages 11 and 12 of the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on February 17, 1998 under the caption "Transactions
with Certain Related Persons" and is incorporated herein by this reference.

                                         PART IV

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

(A) 1.        FINANCIAL STATEMENTS

The following financial statements are included in the Company's Annual Report
to Shareholders for the year ended September 30, 1997 and are incorporated by
this reference:

-   Consolidated Statements of Financial Condition at September 30, 1997 and
    1996
-   Consolidated Statements of Operations for each of the years in the three
    year period ended September 30, 1997
-   Consolidated Statements of Changes in Stockholders' Equity for each of the
    years in the three year period ended September 30, 1997
-   Consolidated Statements of Cash Flows for each of the years in the three
    year period ended September 30, 1997
-   Notes to Consolidated Financial Statements
-   Independent Auditors' Report

                                           41
<PAGE>

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


2.  FINANCIAL STATEMENT SCHEDULES

Financial Statement Schedules have been omitted because they are not applicable
or the required information is shown in the Consolidated Financial Statements or
Notes thereto.

(B)      REPORTS ON FORM 8-K FILED DURING THE LAST QUARTER OF FISCAL 1997

Press release dated July 22, 1997 in connection with the earnings for the third
quarter of fiscal year 1997.


Press release dated September 23, 1997 announced the declaration of the
Company's twelfth consecutive quarterly dividend. 

(C)      EXHIBITS REQUIRED BY SECURITIES AND EXCHANGE COMMISSION REGULATION S-K


EXHIBIT
NUMBER
-------
3.1   Restated Certificate of Incorporation of Long Island Bancorp, Inc. (1)
3.2   Restated By-Laws of Long Island Bancorp, Inc. (1)
10.1  Employment Agreements between Long Island Bancorp, Inc. and Certain
      Officers
10.2  Employment Agreements or Other Arrangements between The Long Island
      Savings Bank, FSB and Certain Officers
10.3  The Long Island  Savings Bank, FSB Management Recognition and
      Retention Plans for Non-Employee Directors (2)
10.4  The Long Island Savings Bank, FSB Management Recognition and Retention
      Plan for Executive Officers (2)
10.5  Long Island Bancorp, Inc. 1994 Stock Incentive Plan (2)
10.6  Long Island Bancorp, Inc. 1994 Non-Employee Directors Stock Option
      Program (2)
10.7  Form of The Long Island Savings Bank, FSB Employee Stock Ownership
      Plan and Trust (1)
10.8  Long Island Bancorp Inc. Non-Employee Director Retirement Benefit Plan (3)
10.9  ESOP Loan Documents (1)
10.10 Amendment to The Long Island Savings Bank, FSB 401 (k) Savings Plan (4)
10.11 Amendments to Retirement Plan of The Long Island Savings Bank, FSB in
      Retirement System for Savings Institutions(4)
10.12 Form of The Long Island Bancorp, Inc. Non-Employee Directors Stock
      Compensation Plan
10.13 The Long Island Savings Bank, FSB Deferred Pension Plan (1)
10.14 Amendments to the ESOP (4)
10.15 Separation agreement with President of the Bank and Holding Company(4)
10.16 Separation agreement with Chief Lending Officer of the Bank and
      Holding Company
11.0  Statement Re: Computation of Per Share Earnings
13.0  1997 Annual Report to Shareholders
21    Subsidiaries of Registrant
27    Financial Data Schedule
99.0  Proxy Statement for the Annual Meeting of Stockholders to be held on
      February 17, 1998

(1)   Incorporated by reference to Exhibits filed with the Registration
      Statement on Form S-1, Registration No. 33-73694

(2)   Incorporated by reference to Exhibits filed with the Proxy Statement
      for the Special Meeting of Stockholders held August 3, 1994.

(3)   Incorporated by reference to Exhibits filed with Form 10-K for the
      fiscal year ended September 30, 1994.

(4)      Incorporated by reference to Exhibits filed with Form 10-K for the
         fiscal year ended September 30, 1996.

                                           42
<PAGE>

SIGNATURES

Pursuant to the requirements of section 13 or 15(d) of The Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

LONG ISLAND BANCORP, INC.              Dated: December 18, 1997
-------------------------
    (Registrant)


/s/ John J. Conefry, Jr.
------------------------
John J. Conefry, Jr.
Chairman and Chief Executive Officer

                                           43
<PAGE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:

<TABLE>
<CAPTION>

NAME                                        TITLE                         DATE 
----                                        -----                         ----
<S>                           <C>                                 <C>
/s/ John J. Conefry, Jr.      Chairman, Chief Executive Officer   December 18, 1997
------------------------      and Director                        -----------------
John J. Conefry, Jr.


/s/ Lawrence W. Peters        President, Chief                    December 18, 1997
----------------------        Operating Officer and Director      -----------------
Lawrence W. Peters


/s/ Mark Fuster
-----------------------                                           December 18, 1997
Mark Fuster                   Chief Financial Officer             -----------------


/s/ Bruce M. Barnet                                               December 18, 1997
-----------------------                                           -----------------
Bruce M. Barnet               Executive Vice President 
                              and Director   


/s/ Clarence M. Buxton                                            December 18, 1997
-----------------------                                           -----------------
Clarence M. Buxton            Director  


/s/ Edwin M. Canuso                                               December 18, 1997
-----------------------                                           -----------------
Edwin M. Canuso               Director  


/s/ Richard F. Chapdelaine                                        December 18, 1997
--------------------------                                        -----------------
Richard F. Chapdelaine        Director  


/s/ Brian Conway                                                  December 18, 1997
-----------------------                                           -----------------
Brian Conway                  Director  


/s/ Robert J. Conway                                              December 18, 1997
------------------------                                          -----------------
Robert J. Conway              Director  


/s/ Frederick DeMatteis                                           December 18, 1997
------------------------                                          -----------------
Frederick DeMatteis           Director  
         

/s/ George R. Irwin                                               December 18, 1997
------------------------                                          -----------------
George R. Irwin               Director  


/s/ Herbert J. McCooey                                            December 18, 1997
------------------------                                          -----------------
Herbert J. McCooey            Director  
</TABLE>

                                           44
<PAGE>

<TABLE>
<CAPTION>

NAME                                TITLE                               DATE
----                                -----                               ----

<S>                           <C>                                 <C>
/s/ Robert S. Swanson, Jr.                                        December 18, 1997
------------------------                                          -----------------
Robert S. Swanson, Jr.        Director  


/s/ James B. Tormey                                               December 18, 1997
------------------------                                          -----------------
James B. Tormey               Director  


/s/ Leo J. Waters                                                 December 18, 1997
------------------------                                          -----------------
Leo J. Waters                 Director  


/s/ Donald D. Wenk                                                December 18, 1997
------------------------                                          -----------------
Donald D. Wenk                Director  
</TABLE>

                                           45