<PAGE>

                                [Beach Picture]


                           Long Island Bancorp, Inc.



                              1996 ANNUAL REPORT



<PAGE>

Long Island Bancorp, Inc.
201 Old Country Road
Melville, New York 11747

<PAGE>

Long Island Bancorp, Inc. and Subsidiary


SHAREHOLDER INFORMATION


BRANCH LOCATIONS

Queens

35-01 30th Ave.
Astoria, NY 11103

22-02 31st Street
Astoria, NY 11105

30-27 Steinway Street
Astoria, NY 11103

72-35 Broadway
Jackson Heights, NY 11372

97-33 Queens Blvd.
Rego Park, NY 11374

153-01 10th Ave.
Whitestone, NY 11357

Nassau

1150 Franklin Ave.
Garden City, NY 11530

3105 Hempstead Turnpike
Levittown, NY 11756

1900 Northern Blvd.
Manhasset, NY 11030

1001 Park Blvd.
Massapequa Park, NY 11762

2090 Merrick Road
Merrick, NY 11566

53 North Park Ave.
Rockville Centre, NY 11570

339 Merrick Road
Rockville Centre, NY 11570

3887 Merrick Road
Seaford, NY 11783

50 Jackson Ave.
Syosset, NY 11791

120 South Franklin Ave.
Valley Stream, NY 11580

3366 Park Ave.
Wantagh, NY 11793

Suffolk

180 West Main Street
Babylon, NY 11702

300 East Main Street
Bay Shore, NY 11706

269 Middle Country Road
Coram, NY 11727

180 East Main Street
East Islip, NY 11730

696 Horseblock Road
Farmingville, NY 11738

845 Wheeler Road
Hauppauge, NY 11788

839 New York Ave., Ste. 140
Huntington, NY 11743

1229 East Jericho Turnpike
Huntington, NY 11743

599 Middle Country Road
Middle Island, NY 11953

718 Medford Ave.
Patchogue, NY 11772

1336 Montauk Highway
Oakdale, NY 11769

450 Jefferson Shopping Plaza
Port Jefferson Station, NY 11776

325 Route 25A
Rocky Point, NY 11778

999-25 Montauk Highway
South Port Shopping Center
Shirley, NY 11967

65 Nugent Street
Southampton, NY 11968

1047 North Country Road
Stony Brook, NY 11790

6348 Route 25A
Wading River, NY 11792

71 Sunset Ave.
Westhampton Beach, NY 11978

526 Union Blvd.
West Islip, NY 11795

Mortgage Origination Offices
Whitestone Executive Plaza
30-50 Whitestone Expressway
Flushing, NY 11354

201 Old Country Road
Melville, NY 11747
2780 Middle Country Road
Lake Grove, NY 11755

2 Gannett Drive, Ste. 200
White Plains, NY 10604

Plaza West Office Centers
2001 West Main Street, Ste. 140
Stamford, CT 06902

103 Foulk Road, Ste. 102
Wilmington, DE19803

2000 RiverEdge Pky., Ste. 880
Atlanta, GA 30328

410 Commerce Drive
Peachtree City, GA 30269
10005 Old Columbia Road, Ste. L260
Columbia, MD 21046

6 Montgomery Village Ave., Ste. 220
Gaithersburg, MD 20879
9 Law Drive
Fairfield, NJ 07004

240 Half Mile Road
Red Bank, NJ 07701
4325 Lake Boone Trail, Ste. 102
Raleigh, NC 27607

237 West Chocolate Ave.
Hershey, PA 17033

111 Gibraltar Road
Horsham, PA 19044

54 Quakertown Road
Pennsburg, PA 18073

1100 Berkshire Blvd., Ste. 120
Wyomyssing, PA 19610

303 E. Baltimore Pike,
P.O. Box 127
Media, PA 19063

8321 Old Courthouse Road, Ste. 110
Vienna, VA 22182

155 Creekside Lane
Winchester, VA 22602

220 Middle Street
Franklin, VA 23851

825 Diligence Drive, Ste. 130
Newport News, VA 23606

206 Temple Ave., Ste. C
Colonial Heights, VA 23834

5544 Greenwich Road, Ste. 101
Virginia Beach, VA 23462

7231 Forest Ave., Ste. 303
Richmond, VA 23226


<PAGE>

Contents

Company Profile               1

Letter to Shareholders        2

Products and Services         4

A Promise For The Future      8

Financial Review              9

Directors, Officers and
  Shareholder Information    66


<PAGE>

                      [Photograph - People walking on beach]
COMPANY PROFILE

  Long Island Bancorp, Inc. is the holding company for The Long Island Savings
Bank, FSB, a federally chartered FDIC-insured bank with $5.4 billion in assets.
The Company, headquartered in Melville, New York, has completed its second full
year as a publicly traded institution and, based on market capitalization, ranks
as one of the top three publicly traded thrifts in New York State and one of the
top 15 thrifts nationwide.

  Over the past 120 years, The Long Island Savings Bank has earned a reputation
for providing a broad range of financial products and superior service to its
customers. Currently, the Bank operates 36 full service branches located in the
tri-county New York area and a network of 25 mortgage offices in New York, New
Jersey, Connecticut, Pennsylvania, Delaware, Maryland, Virginia, North Carolina,
and Georgia. Outside the New York area, these offices operate under the name
Entrust, Home Financing Division of The Long Island Savings Bank. Through its
automated and telephone banking services, the Bank offers convenient ways to
serve its customers' various banking preferences.

  Through an Internet home page, located at the address http://www.lisb.com,
customers, shareholders and other interested parties can learn about the Bank's
latest products, rates and services, view news releases, and explore career
opportunities with the Bank.

  Long Island Bancorp, Inc.'s common stock is listed under the trading symbol
"LISB" on the Nasdaq National Market.

                                                                         Page 1

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TO OUR SHAREHOLDERS:

  This year was one of strong growth and continued progress for Long Island
Bancorp, Inc. and its subsidiary, The Long Island Savings Bank. The Company
successfully achieved targeted corporate objectives and established a platform
for continued growth.

  The Company generated primary and fully diluted earnings per share of $1.33
for the fiscal year ended September 30, 1996. Excluding the effect of a one-time
assessment that significantly reduced the premium disparity that existed between
SAIF-insured and BIF-insured institutions, and the one-time cost related to our
President's retirement, the Company would have reported primary and fully
diluted earnings per share of $1.83 for fiscal 1996. This can be compared with
our fiscal 1995 performance of primary and fully diluted earnings per share of
$1.73 and $1.71, respectively.

  We are pleased with the way our stock has been trading since the Company's
April, 1994 initial public offering. Over that time period, "LISB" stock has
provided shareholders with a 151% increase in its market value, rising from
$11.50 per share at the initial public offering to $28.88 at the end of fiscal
1996, outperforming both the Dow Jones Index and the Nasdaq Bank Index by a
considerable margin.

FINANCIAL HIGHLIGHTS

  We achieved several major strategic objectives in 1996 which we believe will
position the Company well for future growth. The Company produced a record $2.4
billion in mortgage volume, more than doubling the prior year's volume. This
increase reflects expanded mortgage banking capabilities and an increased
geographic reach into profitable new markets. The mortgage servicing portfolio
increased by 38% over the prior year, contributing substantially to the 11.5%
improvement in fee income.

  We continue to leverage our strong capital position of $519 million by growing
the consumer banking deposit franchise and augmenting it with borrowed funds to
support the growth in the mortgage banking business. As a result of our funding
decisions regarding the management of our balance sheet, we minimized the impact
of the compression caused by the interest rate environment on the Company's net
interest rate margin. Our net interest margin declined from 3.44% in 1995 to
3.24% in 1996, an impact which was less severe than that experienced by many of
our peers.

  We maintained profitability while enhancing our marketing efforts for our
principal business units, expanding our mortgage origination operations to 25
offices, and increasing our loan origination officers by 63%. By transitioning
to a new technology environment, the Company is positioned to continue the
creation and delivery of new products and services which will support the Bank
of a Lifetime relationship program. As we managed the growth of the Company's
principal businesses during 1996 we positioned ourselves to reverse the trend in
recently escalating costs by making modifications to our ESOP and other employee
benefit plans which will take effect in fiscal 1997. Furthermore, a high
priority for fiscal 1997 is performing a comprehensive review of the core
expenses that support each of our businesses, targeting reductions wherever
possible by converting fixed expenses to variable costs, and eliminating
unnecessary expenditures.

  Beyond the growth and strategic initiatives accomplished this year, we have
also improved the quality of our assets. The ratio of non-performing loans to
total loans improved to 1.70% in 1996, down from 2.67% in 1995, while the
actual level of non-performing loans remained stable at $53.2 million at
September 30, 1996. Net charge-offs also continued to improve, reaching a seven
year low of $6.6 million.

STRATEGIC GROWTH

  The Bank continues to be a market-driven franchise. We have expanded our
distribution and delivery channels to continually provide the increased
convenience and service that customers demand. We carefully leverage our branch
presence to support the expansion of our consumer lending, financial services,
and mortgage businesses. These efforts have resulted in a 79% increase in
consumer loan production this past year, a 74% increase in the sale of
investment products, and a strong contribution to our mortgage origination
volume, which has increased 125% over the prior year.

  During the year, the Bank continued to make acquisitions to complement its
mortgage operations. Seven new mortgage origination offices were added to our
existing franchise. The two acquired from Fleet Mortgage Corp.
of Columbia, South Carolina are located in Horsham, Pennsylvania and Raleigh,
North Carolina. The five additional offices acquired from First Home Mortgage
of Virginia, Inc. have expanded our presence in the state of Virginia.

Page 2

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  Through technology we provide our customers with easy access to our financial
products and services. We continue to develop our Internet web site located at
http://www.lisb.com, an increasingly important financial services distribution
channel for customers. In June, the Bank formed a strategic alliance with The
Multiple Listing Service of Long Island to jointly create an Internet web site,
located at http://www.mlsli.com. This site provides prospective homebuyers with
a convenient way to quickly search through a database of as many as 25,000 Long
Island homes for sale, and includes a worksheet to calculate how much of a
mortgage the buyer might afford. The Bank has the exclusive right to advertise
financial products and services on this web site.

INDUSTRY OUTLOOK

  We are pleased that Congress has passed legislation that significantly reduces
the FDIC premium disparity that existed between SAIF-insured institutions and
BIF-insured institutions. For community banks, such as The Long Island Savings
Bank, the premium disparity was particularly onerous. We look upon the one-time
after-tax special assessment of $0.45 per share as a positive investment, since
the Bank's annual assessment rate is expected to be reduced from the current
rate of 23 basis points to approximately 6.4 basis points, resulting in
significant future savings.

  On August 15, 1989, the Bank and its former wholly owned subsidiary, The Long
Island Savings Bank of Centereach, FSB filed suit against the United States
Government seeking damages 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. The Assistance
Agreement, among other things, provided for the inclusion of supervisory
goodwill as an asset on Centereach's balance sheet to be amortized over 40 years
for regulatory purposes and to be included in capital.

  The suit, which is pending before the United States Court of Federal Claims,
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 and held that the government had
breached its contracts with the Winstar parties and was liable in damages for
those breaches.

  The United States Court of Federal Claims is conducting hearings in all of the
related supervisory goodwill cases pending in the Court of Federal Claims to
consider various procedural matters concerning the management of the cases going
forward.
                                    [Picture]

                              John J. Conefry, Jr.

                     Chairman, President and Chief Executive Officer

  Over the next few years, we expect the regulatory environment and competitive
atmosphere will continue to be dynamic. Long Island Bancorp, Inc. remains
uniquely positioned for future growth, continued profitability, and success. We
welcome the many challenges and exciting opportunities that lie ahead as we
continue to focus on enhancing shareholder value. We believe our stock to be an
attractive investment and have continued to repurchase shares of "LISB" in the
open market.

  We would like to acknowledge the achievements of William E. Viklund, former
President and Chief Operating Officer, and wish him the best in his retirement.
We would like to thank our fellow shareholders for their support and the
directors and employees of The Long Island Savings Bank for their hard work and
continued dedication. We look forward to another successful year.

Sincerely,



John J. Conefry, Jr.
Chairman, President
and Chief Executive Officer


                                                                         Page 3
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UNDERSTANDING CUSTOMER NEEDS

  Our approach to understanding the customer reflects the Bank's philosophy that
each customer has a unique set of financial needs and objectives. These
financial needs can often be tied to major life cycle events, such as buying a
house, planning for college, or investing for retirement. By carefully
understanding each customer's individual objectives, The Long Island Savings
Bank provides sound financial advice and personalized attention.
This approach has been a successful one. Marketing research confirms that more
than 90% of our consumer banking customers would recommend us to a friend or
relative.

                                [Picture of ATM Card]

PROVIDING FINANCIAL PRODUCTS FOR CHANGING NEEDS

  Each day, our employees work toward a common goal of providing customers with
easy, simple, direct access to a wide array of products and services. This
comprehensive range of products and services includes Lifetime
Banking-Registered Trademark-, which rewards customers with benefits designed to
fit their distinct lifestyles, including higher rates on savings and lower rates
on mortgages and other loans. Other services include: 24-hour account access,
direct deposit, overdraft protection, automatic mortgage loan payments, and
automatic savings.

  Managing money by exploring financial alternatives is part of the Bank's
Lifetime Financial ServicesSM program. Using financial planning and asset
allocation practices, investment representatives guide customers in identifying
personal objectives and implementing a customized financial plan to
meet their specific goals.

  The Bank continues to offer a full range of adjustable and fixed rate
mortgages, and low down payment FHA, SONYMA and Community Home Buyers Programs
to help customers finance their dream homes. We understand that buying a home is
a major event and we simplify the mortgage process for our customers every step
of the way by providing competitive rates, home financing guidance, and
quality service. 


                [Photograph - Water Scene]

By carefully understanding each customer's individual objectives, The Long 
Island Savings Bank provides sound financial advice and personalized 
attention.

Page 4

<PAGE>

The Bank also offers many free seminars to educate prospective customers on
homebuying and other financial services.

  Many customers need to borrow to fund a college education, remodel a home or
just to have some extra cash on hand. With a 24-hour turnaround time and
competitive rates, our home equity financing is an attractive solution for many
of our customers. We expect the demand for home equity financing to continue to
be strong for the foreseeable future.

EMPHASIZING CONVENIENCE

                                  [Picture - SIGN]

  Demanding schedules and the multi-faceted responsibilities of personal and
professional lives are requiring consumers to seek new ways to balance their
daily activities. We understand discretionary time has become a luxury and
customers want to bank when and where it is most convenient for them. At The
Long Island Savings Bank, this includes the use of ATMs, telephone banking,
drive-up tellers, and branch office visits.

  As the Internet continues to evolve as an increasingly important distribution
channel for financial services, we continue to enhance our web site at
http://www.lisb.com. Visit our site to learn more about our wide array of
products and services, calculate mortgages, apply for jobs, and view investor
information on-line. In the future, look for the availability of on-line banking
as an added convenience to our customers.

  In June, the Bank formed a strategic alliance with The Multiple Listing
Service of Long Island to jointly create an Internet web site, located at
http://www.mlsli.com. This site provides prospective homebuyers a way to quickly
search through a database of as many as 25,000 homes for sale on Long Island.
This search can be conducted based on a homebuyer's specific selection criteria,
and includes a calculator which permits the homebuyer to determine how much of a
mortgage the buyer might afford. Each home is displayed with a full color
photograph and

                   [Photograph of Man and boy fishing]


                                                                         Page 5

<PAGE>

pertinent information including the price, number of bedrooms and baths, annual
taxes, and property size. After narrowing the search, the buyer can arrange an
appointment with the listing broker and see the selected homes in person. The
Long Island Savings Bank has the exclusive right to advertise financial products
and services on this web site.

                             [Picture - Computer]

  Our full service telephone banking center, strategically located branches, and
mortgage lending centers stand ready to serve customers who prefer personal
service. We are dedicated to providing customers with the financial solutions
they require when, where, and how they want them.

SERVING THE COMMUNITY

  During the year, the Bank and its employees actively supported a significant
number of outreach and philanthropic initiatives in the communities we serve.

  We believe that today's children are tomorrow's leaders. In addition to many
other important projects, we support two YMCA initiatives, Children's House, St.
Vincent's Services for Children, Big Brothers/Big Sisters, Little Flower
Children's Services, and the "Show You Care With a Bear" program, which makes a
difference in the lives of more than 800 children suffering from disabilities
and illnesses in our community.

  The Bank has initiated a Student Savings Program to bring PC based banking
on-site to students at their schools. Students can open an FDIC-insured savings
account in their own name without maintenance fees or minimum balance
requirements. An initial deposit of $1.00 per student is contributed by the
Bank. More than 20 schools throughout Queens, Nassau, and Suffolk counties have
been enrolled in the program this year and more are expected to join.

  The Bank supports the Long Island Development Corporation in its small
business assistance efforts. We also provide financial support for the
education, training, and counseling of women and minorities through small
business development and entrepreneurial programs. Additionally, the Bank
established a Scholarship Fund to help women who have decided to return to
college to complete their education and rejoin the workforce after raising their
families.

  Many of our employees actively volunteer their time to help others in the
community. Along with these employees, the Bank continues to support the New
York Special Olympics, Wheelchair Charities, Inc., Habitat for Humanity, and a
Thanksgiving Food Drive, which touched the lives of more than 200 needy
families. We also support those less fortunate with our annual fund-raiser,
where the proceeds benefit several agencies dedicated to helping the hungry and
homeless on Long Island including: Interfaith Nutritional Network, Long Island
Cares, and Island Harvest.

  The Bank appreciates and is involved in sponsoring artistic and cultural
events in the community. These include the Summer Concert Series throughout Long
Island and "Music of a Lifetime," a concert featuring the Senior POPs Orchestra.

  The Bank continually provides strong support for the Long Island Housing
Partnership, its Regional Lending Consortium, the Community Preservation
Corporation, Neighborhood Housing Services, Nassau-Suffolk Coalition for the
Homeless, and many other non-profit organizations in an effort to make
affordable housing available to residents of our community. We are proud that
our regulators continue to rate us as "Outstanding" for our community
reinvestment activities.

                      [Photograph of Man and Woman]

Page 6


<PAGE>

            [Photograph of Man and Woman walking on beach]

At The Long Island Savings Bank, we are dedicated to providing customers with
the financial solutions they require when, where, and how they want them.



                                                                         Page 7
<PAGE>


                        [Photograph of Man and Woman]


The Company manages

its balance sheet with

a careful focus on

profitability and in

conjunction with

long term goals.


A PROMISE FOR THE FUTURE

  Long Island Bancorp, Inc. continues to repurchase its own stock as part of
its third stock repurchase program. This program authorizes the Company to
repurchase up to five percent of its outstanding common shares, which represents
1,243,131 shares, by April 14, 1997. The repurchases will be made from time to
time, in open market transactions, at the discretion of management. Including
the shares repurchased in its first two programs, the Company has repurchased a
total of 2,497,554 shares, at an aggregate cost of $59.9 million.

  We manage our balance sheet with a careful focus on profitability and in
conjunction with our long term goals. Every strategic decision requires the
evaluation of a range of factors in managing the Company's corporate structure.
In considering whether to deploy capital for additional stock repurchases or to
support growth opportunities, we remain focused on and committed to our goal of
maximizing value for our shareholders.

  We will continue to build our franchise by emphasizing our customer focused
marketing strategy. This approach has proven to be a successful competitive
differentiation for the Bank in the marketplace and has earned us a reputation
as a highly professional provider of financial solutions.

  We will continue to pursue the expansion of the Bank's mortgage and consumer
loan capabilities, grow the investment services business and the consumer bank
network, and expand alternate delivery channels such as the Internet. We believe
this strategy will result in increased profitability, continued growth, and
value for our shareholders.

                     [Picture - Internet Advertisement]
Page 8


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Long Island Bancorp, Inc. and Subsidiary


FINANCIAL REVIEW


TABLE OF CONTENTS

Selected Financial Data ..............................   10

Glossary of Financial Terms ..........................   13

Management's Discussion and Analysis
of Financial Condition and Results of Operations .....   15

Consolidated Statements of Financial Condition .......   31

Consolidated Statements of Operations ................   32

Consolidated Statements of
Changes in Stockholders' Equity ......................   33

Consolidated Statements of Cash Flows ................   34

Notes to Consolidated Financial Statements ...........   35

Independent Auditors' Report .........................   64

Market Price of Common Stock .........................   65

Directors, Officers and Shareholder Information ......   66


Page 9


Long Island Bancorp, Inc. and Subsidiary


SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

                                                                      At September 30,
-----------------------------------------------------------------------------------------------------------------
                                              1996           1995           1994           1993            1992
                                             ------         ------         ------         ------          ------
                                                                       (In thousands)
<S>                                        <C>            <C>            <C>            <C>            <C>
SELECTED FINANCIAL DATA:
Total assets                               $5,363,791     $4,901,622     $4,516,137     $3,990,731     $5,628,596
Loans receivable held
 for investment, net                        3,040,837      1,994,741      1,630,820      1,760,455      2,756,255
Allowance for possible loan losses             33,912         34,358         35,713         33,951         32,157
Mortgage-backed securities, net(1)          1,740,202      2,276,750      2,060,793      1,386,115      1,609,570
Investment in debt and equity
 securities, net(2)                           180,650        289,247        433,840        351,415        435,262
Loans sold with recourse(3)                   289,464        250,423        201,083        223,032        255,987
Loans held for sale, net                       57,969         49,372          7,956        148,393         37,892
Total non-performing loans(4)                  53,166         55,676         54,036        145,316        195,058
Real estate owned, net                          8,155          8,893          7,187         25,812         35,255
Total non-performing assets(5)                 61,321         64,569         61,223        171,128        230,313
Total loans delinquent 60-89 days              12,002         11,960         11,925         24,801         59,279
Mortgage servicing rights, net(6)              29,687         11,328            759            957          1,835
Excess of cost over fair value
 of net assets acquired(7)(8)                      --             --             --             --        441,576
Deposits, net                               3,633,010      3,573,529      3,567,815      3,617,600      4,675,413
Borrowed funds                                978,023        633,675        325,022         44,500        259,138
Stockholders' equity-partially
 restricted(9)(10)(11)                        519,094        526,174        493,709        211,630        573,795

</TABLE>
(1)  Includes $1.7 billion, $938.8 million, $818.3 million and $845.0 million of
     mortgage-backed securities available-for-sale carried at market value as of
     September 30, 1996, 1995, 1994 and 1993, respectively.
(2)  Includes $180.7 million, $233.4 million, $348.2 million and $340.4 million
     of debt and equity securities available-for-sale carried at market value as
     of September 30, 1996, 1995, 1994 and 1993, respectively.
(3)  Loans sold with recourse represent the outstanding principal amount of
     residential property loans with the majority of these loans having been
     securitized with Federal National Mortgage Association ("FNMA") and Federal
     Home Loan Mortgage Corporation ("FHLMC").
(4)  Non-performing loans are those loans placed on non-accrual status
     (including restructured loans that, in the opinion of Long Island Bancorp,
     Inc. and subsidiary ("Company"), have not yet demonstrated a sufficient
     payment history to warrant return to performing status).
(5)  Non-performing assets include non-performing loans and real estate owned,
     net.
(6)  Includes mortgage servicing rights purchased, capitalized excess servicing
     fees and originated mortgage servicing rights pursuant to the Company's
     July 1, 1995 adoption of Statement of Financial Accounting Standards No.
     122 ("SFAS 122"), "Accounting for Mortgage Servicing Rights."
(7)  At September 30, 1996 and 1995, excess of cost over fair value of assets
     acquired totalled $5.3 million and $2.8 million, respectively, reflecting
     acquisitions and is included in Prepaid expenses and other assets on the
     Consolidated Statements of Financial Condition.
(8)  The Company adopted Statement of Financial Accounting Standards No. 72
     ("SFAS 72"), "Accounting for Certain Acquisitions of Banking or Thrift
     Institutions" as of October 1, 1992 which resulted in a reduction in the
     excess of cost over fair value of net assets acquired and a cumulative
     charge to income of $323.5 million. The Company wrote-off the remaining
     balance of the excess of cost over fair value of net assets acquired of
     $70.8 million after fiscal 1993 amortization of $47.2 million. See
     "Management's Discussion and Analysis of Financial Condition and Results of
     Operations--1993 Restructuring."
(9)  Includes $6.6 million, $6.9 million, $(3.1) million and $19.9 million after
     tax from unrealized gains (losses) from debt, equity and mortgage-backed
     securities available-for-sale at September 30, 1996, 1995, 1994 and 1993,
     respectively, in accordance with Statement of Financial Accounting
     Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt
     and Equity Securities." SFAS 115 was adopted as of September 30, 1993.
(10) Prior to April 14, 1994, represented Retained income-partially restricted.
(11) The decrease to September 30, 1993 from September 30, 1992 was primarily
     due to the restructuring activities that occurred during fiscal 1993. See
     "Management's Discussion and Analysis of Financial Condition and Results of
     Operations--1993 Restructuring." The increase to September 30, 1994 from
     September 30, 1993 was primarily due to the initial public offering of Long
     Island Bancorp, Inc. common stock that occurred April 14, 1994.

Page 10

<PAGE>

Long Island Bancorp, Inc. and Subsidiary

SELECTED FINANCIAL DATA
(Continued)

<TABLE>
<CAPTION>

                                                                          For the Year Ended September 30,
-----------------------------------------------------------------------------------------------------------------------
                                                           1996         1995           1994           1993       1992
                                                          ------       ------         ------         ------     ------
                                                                      (In thousands, except per share data)
<S>                                                      <C>          <C>            <C>          <C>          <C>
SELECTED OPERATING DATA:
Interest income                                          $351,571     $321,215       $272,157     $  340,629   $420,926
Interest expense                                          197,176      167,896        130,104        177,193    254,835
                                                         --------     --------       --------     ----------   --------
Net interest income                                       154,395      153,319        142,053        163,436    166,091
Provision for possible loan losses                          6,200        6,470         11,955         47,288     19,347
                                                         --------     --------       --------     ----------   --------
Net interest income after provision for
 possible loan losses                                     148,195      146,849        130,098        116,148    146,744
Non-interest income:
 Fees and other income:
  Loan fees and service charges                             3,217        2,494          3,025          3,173      3,331
  Loan servicing fees                                      13,863       12,873          8,725          3,794      3,796
  Income from insurance and securities commissions          1,608          805          1,215          2,408      3,451
  Deposit service fees                                      5,937        5,917          5,863          6,930      6,468
                                                         --------     --------       --------     ----------   --------
   Total fee income                                        24,625       22,089         18,828         16,305     17,046
  Other income                                              3,718        3,903          2,860          2,166      5,480
                                                         --------     --------       --------     ----------   --------
   Total fees and other income                             28,343       25,992         21,688         18,471     22,526
 Net gains (losses) on sale activity:
  Net gains on loans and
   mortgage-backed securities                               7,993        3,562          2,623         51,080      3,678
  Net gains (losses) on investment in
   debt and equity securities                                 340      (1,924)          (703)             36    (2,479)
  Net gains related to sale of deposits                        --           --             --          6,618         --
                                                         --------     --------       --------     ----------   --------
   Total net gains on sale activity                         8,333        1,638          1,920         57,734      1,199
 Net gain (loss) on investment in
  real estate and premises                                  4,118        1,467          (738)          1,281         --
                                                         --------     --------       --------     ----------   --------
Total non-interest income                                  40,794       29,097         22,870         77,486     23,725
                                                         --------     --------       --------     ----------   --------
Non-interest expense:
 General and administrative expense:
  Compensation, payroll taxes and fringe benefits          57,969       51,443         52,117         55,121     51,576
  Advertising                                               5,940        4,691          3,552          3,622      4,715
  Office occupancy and equipment                           20,631       18,547         17,922         19,998     22,762
  Federal insurance premiums                                9,055        8,961         10,120         11,413     11,238
  Other general and administrative expense                 18,612       17,101         16,272         18,778     14,411
                                                         --------     --------       --------     ----------   --------
   Total general and administrative expense               112,207      100,743         99,983        108,932    104,702
 SAIF special assessment                                   18,657           --             --             --         --
 Net loss on real estate owned                              2,090        1,790          4,052         13,700      7,754
 Amortization of excess of cost over fair
  value of net assets acquired(1)                              --           --             --         47,222     14,875
 Write-off of excess of cost over
  fair value of net assets acquired                            --           --             --         70,809         --
                                                         --------     --------       --------     ----------   --------
Total non-interest expense                                132,954      102,533        104,035        240,663    127,331
                                                         --------     --------       --------     ----------   --------
Income (loss) before income taxes and
 cumulative effect of accounting changes                   56,035       73,413         48,933       (47,029)     43,138
Provision for income taxes                                 23,760       29,897         18,046         11,504     21,813
                                                         --------     --------       --------     ----------   --------
Income (loss) before cumulative effect of
 accounting changes                                        32,275       43,516         30,887       (58,533)     21,325
Cumulative effect of changes in accounting(2)(3)               --           --          8,648      (323,545)         --
                                                         --------     --------       --------     ----------   --------
Net income (loss)                                        $ 32,275     $ 43,516       $ 39,535     $(382,078)   $ 21,325
                                                         --------     --------       --------     ----------   --------
                                                         --------     --------       --------     ----------   --------
Primary earnings per common share(4)                     $   1.33     $   1.73       $   0.70         N/A        N/A
                                                         --------     --------       --------
                                                         --------     --------       --------
Fully diluted earnings per common share(4)               $   1.33     $   1.71       $   0.70         N/A        N/A
                                                         --------     --------       --------
                                                         --------     --------       --------
</TABLE>

(1)  For the years ended September 30, 1996 and 1995, amortization of excess of
     cost over fair value of net assets acquired stemming from acquisitions
     totalled $0.3 million and $0.2 million, respectively, and is included in
     Other general & administrative expense in the Consolidated Statements of
     Operations.
(2)  The Company adopted SFAS 72 as of October 1, 1992 which resulted in a
     reduction in the excess of cost over fair value of net assets acquired and
     a cumulative charge to income of $323.5 million. The Company wrote-off the
     remaining balance of the excess of cost over fair value of net assets
     acquired of $70.8 million after fiscal 1993 amortization of $47.2 million.
     See "Management's Discussion and Analysis of Financial Condition and
     Results of Operations--1993 Restructuring."
(3)  The Company adopted Statement of Financial Accounting Standards No. 106
     ("SFAS 106"), "Employers' Accounting for Postretirement Benefits Other Than
     Pensions" and Statement of Financial Accounting Standards No. 109 ("SFAS
     109"), "Accounting for Income Taxes" as of October 1, 1993, which resulted
     in a cumulative charge to income of $10.7 million and a cumulative credit
     to income of $19.4 million, respectively.
(4)  Primary and fully diluted earnings per common share ("EPS") for the years
     ended September 30, 1996 and 1995 are calculated by dividing income by the
     sum of the weighted average number of shares of common stock outstanding
     and the weighted average number of shares issuable under the Company's
     stock benefit plans that have a dilutive effect on EPS. For the year ended
     September 30, 1994, EPS is based upon the weighted average number of shares
     of common stock outstanding and was determined based upon income earned
     during the period April 14, 1994 through September 30, 1994. The weighted
     average number of shares issuable under the Company's stock benefit plans
     were not materially dilutive and therefore were excluded from the
     calculation of EPS.


                                                                        Page 11

<PAGE>

Long Island Bancorp, Inc. and Subsidiary

SELECTED FINANCIAL DATA
(Continued)

<TABLE>
<CAPTION>

                                                                         At or For the Year Ended September 30,
----------------------------------------------------------------------------------------------------------------------------
                                                           1996           1995           1994           1993           1992
                                                          ------         ------         ------         ------         ------
                                                                                (Dollars in thousands)
<S>                                                       <C>            <C>           <C>            <C>              <C>
SELECTED FINANCIAL RATIOS
AND OTHER DATA:

PERFORMANCE RATIOS:
Return on average assets(1)                                 0.64%          0.93%          0.91%         (7.57)%         0.38%
Return on average stockholders' equity(1)                   6.16           8.52          11.41        (147.93)          3.78
Average stockholders' equity to average assets(2)          10.43          10.90           7.93           5.11          10.00
Stockholders' equity to total assets(3)                     9.68          10.73          10.93           5.30          10.19
Tangible stockholders' equity to total assets(4)            9.57          10.67          10.93           5.30           2.55
Interest rate spread during period                          2.89           3.10           3.30           3.46           3.43
Net interest margin(5)                                      3.24           3.44           3.47           3.47           3.37
Operating expenses to average assets(6)                     2.23           2.15           2.29           2.16           1.86
Efficiency ratio(7)                                        61.40          56.18          61.06          59.88          55.51
Average interest-earning assets to
 average interest-bearing liabilities                     108.60         109.25         105.36         100.22          98.95
Net interest income to operating expenses(8)                1.38x          1.52x          1.42x          1.50x          1.59x

ASSET QUALITY RATIOS:
Non-performing loans to total gross loans(9)                1.70%          2.67%          3.20%          7.42%(10)      6.84%
Non-performing assets to total assets(9)                    1.14           1.32           1.36           4.29(10)       4.09
Allowance for possible loan losses to
 non-performing loans                                      63.79          61.71          66.09          23.36          16.49
Other Data:
Loan originations and purchases                       $2,464,963     $1,118,201     $  497,900     $  545,926     $  549,088
Loans serviced for others                             $3,682,399     $2,563,866     $1,687,512     $1,669,787     $1,073,596
Average deposits per branch                           $  100,917     $   99,265     $   96,427     $   95,200     $   97,404
Number of deposit accounts                               396,986        391,217        381,606        402,238        508,729

FACILITIES:
Full-service customer service facilities                      36             36             37             38             48
Regional lending offices                                      25             16              5              5              6
</TABLE>

(1)  For fiscal 1993 the cumulative charge to income for the adoption of SFAS 72
     and the subsequent write-off of the remaining balance of the excess of cost
     over fair value of net assets acquired in fiscal 1993 are reflected in net
     income and stockholders' equity. For fiscal 1994, the cumulative charge and
     credit for the adoption of SFAS 106 and SFAS 109, respectively, are
     reflected in net income and stockholders' equity. For fiscal 1996,
     exclusive of the one-time SAIF assessment, return on average assets and
     return on average stockholders' equity would have been 0.86% and 8.20%,
     respectively.
(2)  For fiscal 1996, exclusive of the one-time SAIF assessment, average
     stockholders' equity to average assets would have been 10.44%.
(3)  For fiscal 1996, exclusive of the one-time SAIF assessment, stockholders'
     equity to total assets would have been 9.88%.
(4)  For purposes of calculating these ratios, stockholders' equity and total
     assets have been reduced by the excess of cost over fair value of net
     assets acquired.
(5)  Net interest margin is determined by dividing net interest income before
     provision for possible loan losses by average interest-earning assets.
(6)  Amount is determined by dividing total general and administrative expense
     by average assets.
(7)  Amount is determined by dividing total general and administrative expense
     by net interest income before the provision for possible loan losses plus
     total fee and other income.
(8)  Amount is determined by dividing net interest income before provision for
     possible loan losses by total general and administrative expense.
(9)  Non-performing loans excludes loans which have been restructured and are
     accruing and performing in accordance with the restructured terms.
     Restructured accruing loans totaled $11.8 million, $12.1 million, $12.8
     million, $8.9 million and $0 at September 30, 1996, 1995, 1994, 1993 and
     1992, respectively.
(10) Includes the effect of $25.0 million and $5.0 million reduction in carrying
     value in September 1993 relating to the bulk sale of non-performing loans
     and other real estate owned, respectively. Excluding the effect of such
     reduction in carrying value, the Bank's ratio of non-performing loans to
     total gross loans and non-performing assets to total assets would have been
     8.56% and 5.01%, respectively.


Page 12

<PAGE>

Long Island Bancorp, Inc. and Subsidiary

GLOSSARY OF FINANCIAL TERMS


ALLOWANCE FOR POSSIBLE LOAN LOSSES--A balance sheet account which is an
estimation of possible loan losses. The provision for possible loan losses is
added to the allowance account while charge-offs decrease the account.
Recoveries on loans previously charged off increase the allowance.

BASIS POINT--The smallest measure used in quoting interest rate yields. One
basis point is 0.01%. Thus a yield that moves from 7.00% to 7.50% moves up 50
basis points.

BOOK VALUE PER SHARE--Total stockholders' equity divided by numbers of shares of
common stock outstanding, net of treasury shares.

CAPITALIZED EXCESS SERVICING FEES--The discounted present value of any
difference between (i) the interest rate received and (ii) the interest rate
passed through to the purchaser of a loan, less a normal servicing fee.

CHARGE-OFFS--Loan balances written off against the allowance for possible loan
losses, rather than charged to current earnings, once a loan is deemed to be
uncollectible.

CORE DEPOSITS--Deposits that are traditionally stable, consisting of passbook,
statement savings, NOW and non-interest-bearing demand accounts.

COST OF FUNDS--The interest cost associated with interest-bearing liabilities. A
cost of funds ratio represents the ratio of interest expense to average
interest-bearing liabilities for the period.

EARNING ASSETS--Interest- or dividend-earning assets, including loans and
securities.

EARNINGS PER SHARE (EPS)--Net income divided by weighted average shares of
common stock outstanding and common stock equivalents, for example, stock
options. Primary EPS is calculated by dividing income by the sum of the weighted
average number of shares of common stock outstanding and the average number of
shares issuable under stock benefit plans that have a dilutive effect measured
under the treasury stock method. Fully diluted EPS is calculated by dividing
income by the sum of the weighted average number of shares of common stock
outstanding and the maximum dilutive effect of shares issuable under stock
benefit plans.

EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)--A type of tax-qualified retirement plan
for employees that maintains individual accounts on behalf of each plan
participant and annually credits individual accounts with contributions which
are invested in company common stock.

FEDERAL FUNDS--Generally one-day loans of excess reserves from one bank to
another. When a bank buys (borrows) federal funds, these funds are called
"federal funds purchased." When it sells (lends) them, they are called "federal
funds sold."

FORECLOSED ASSETS--Property acquired because the borrower defaulted on the loan.

GOODWILL--Excess of cost over fair value of net assets acquired.

INTEREST RATE SENSITIVITY GAP--The difference between the amount of
interest-earning assets maturing or repricing within a specific time period and
the amount of interest-bearing liabilities maturing or repricing within that
time period.

LEVERAGE RATIO--A ratio of equity to assets, defined as period-end Tier 1
capital less goodwill as a percentage of average assets for the most recent
quarter.

LIQUIDITY--The ability of current assets to meet current liabilities when due.
The degree of liquidity of an asset is the period of time anticipated to elapse
until the asset is realized or is otherwise converted into cash. A liquid bank
has less risk of being unable to meet debt obligations than an illiquid one.
Also, a liquid bank generally has more financial flexibility to take on new
investment opportunities.

MORTGAGE SERVICING RIGHTS (MSR'S)--The right to service loans for others
generally obtained by either the sale of loans with servicing retained, the open
market purchase of mortgage servicing rights or the creation of mortgage
servicing rights. MSR's are amortized as a reduction to loan service fee income
on a level-yield basis over the estimated remaining life of the underlying
loans.

NET INTEREST INCOME--The difference between interest income on interest-earning
assets and interest expense on interest-bearing liabilities.

NET INTEREST MARGIN--Net interest income as a percentage of average
interest-earning assets for the period.

NET INTEREST SPREAD--The difference between the yield on interest-earning assets
and the cost of interest-bearing liabilities.


                                                                       Page 13

<PAGE>

Long Island Bancorp, Inc. and Subsidiary

GLOSSARY OF FINANCIAL TERMS
(Continued)

NON-PERFORMING ASSETS--Non-performing loans and securities plus foreclosed
assets.

NON-PERFORMING LOANS--Loans upon which interest income is not currently
recognized because of the borrower's financial problems (non-accrual loans) or
certain loans which have been restructured.

REAL ESTATE OWNED (REO)--Real estate which the bank takes or to which it assumes
title in order to sell the property, obtained as the result of a loan default.

PROVISION FOR POSSIBLE LOAN LOSSES--A charge against current period earnings
which reflects an estimation of possible loan losses.

RETURN ON ASSETS--Net income as a percentage of average total assets for the
period. The return on assets measures profitability in terms of how efficiently
assets are being utilized.

RETURN ON EQUITY--Net income as a percentage of average total equity. The return
on equity measures profitability in terms of how efficiently equity or capital
is being invested.

REVERSE-REPURCHASE AGREEMENTS--Refers to a transaction that is accounted for as
a collateralized borrowing in which the seller-borrower sells securities to a
buyer-lender with an agreement to repurchase them at a stated price plus
interest at a specified date or in specified circumstances.

RISK-BASED CAPITAL--The sum of Tier 1 and Tier 2 capital minus other assets
required to be deducted.

STOCK OPTION--Right to purchase or sell a stock at a specified price within a
stated period.

TIER 1 CAPITAL--Common stockholders' equity, qualifying non-cumulative perpetual
preferred stock and minority interest in equity accounts of consolidated
subsidiaries, less goodwill and other disallowed intangibles.

TIER 2 CAPITAL--The allowance for possible loan losses (limited to a certain
percentage of risk-weighted assets), perpetual and long-term preferred stock,
hybrid capital instruments (including perpetual debt and mandatory convertible
securities) and subordinated debt and intermediate-term preferred stock (subject
to certain limitations).


Page 14


<PAGE>

Long Island Bancorp, Inc. and Subsidiary


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


General

Long Island Bancorp, Inc. ("Holding Company") was formed in December 1993 to
serve as the holding company for The Long Island Savings Bank, FSB ("Bank"). On
April 14, 1994, the Bank completed its Conversion ("Conversion") from a
federally chartered mutual savings bank to a federally chartered stock savings
bank. In connection with the Conversion the Holding Company issued 26,816,464
shares of common stock ("Common Stock") at a price of $11.50 per share and
utilized a portion of the proceeds to acquire all of the issued shares of the
Bank. Prior to this offering, the Holding Company had no assets, liabilities or
operations.

The Holding Company is headquartered in Melville, New York and its primary
business currently consists of the operation of its wholly-owned subsidiary, the
Bank. In addition to directing, planning and coordinating the business
activities of the Bank, the Holding Company invests its funds primarily 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 Bank

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 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 equity securities. Primary sources of funds are deposits,
borrowings under reverse-repurchase agreements and principal and interest
payments on loans and mortgage-backed securities. Additionally the Bank issued a
funding note in fiscal 1996 which was collateralized by a pool of adjustable
rate residential mortgage loans.

While the following discussion of financial condition and results of operations
include the collective results of the Holding Company and the Bank (collectively
"Company"), this discussion reflects principally the Bank's activities.

The Company's results of operations are dependent primarily on net interest
income, which is the difference between the interest and dividend income earned
on its loan and securities portfolios and its cost of funds, consisting of the
interest paid on its deposits and borrowings. To a lesser degree, the results of
operations are also dependent on fee income which includes, for example, fees
received for servicing mortgage loans. The Company's operating expenses
principally consist of employee compensation, occupancy, federal deposit
insurance premiums, advertising and other operating expenses. The Company's
results of operations are also affected by its periodic provisions for possible
loan losses, by write-downs of assets, and net gains and losses on sales of
assets. Such results are also significantly affected by general economic and
competitive conditions, particularly changes in market interest rates,
government policies and actions of regulatory authorities.

Fleet Mortgage Company
Loan Origination Offices
Acquisition

On June 28, 1996, the Company acquired two mortgage origination offices from
Fleet Mortgage Company ("Fleet") of Columbia, South Carolina. The acquisition
was designed to expand the Company's mortgage production capabilities into North
Carolina and enhance its existing presence in Pennsylvania.

First Home Mortgage of
Virginia, Inc. Acquisition

On August 1, 1996, the Company acquired First Home Mortgage of Virginia, Inc.
("First Home") a mortgage banking company with five offices located in Virginia.
The acquisition was designed to expand the Company's mortgage production
capabilities throughout the mid-Atlantic states.

Recapitalization of the
Savings Association
Insurance Fund

On September 30, 1996, as part of an omnibus appropriations bill, Congress
passed and President Clinton signed the Deposit Insurance Funds Act of 1996
("Act"). The Act should significantly reduce and eventually end the premium
disparity that has existed between banks insured by the Bank Insurance Fund
("BIF") and thrifts insured by the Savings Association Insurance Fund ("SAIF").
The Act requires SAIF-insured institutions to pay a special one-time assessment.
The Act also requires BIF-insured institutions to include a portion of the
interest due on Finance Corporation ("FICO") bonds in their deposit insurance
premiums beginning January 1, 1997. Beginning on January 1, 2000 or the date at
which no savings institution continues to exist, BIF-insured institutions are
required to pay their full pro rata share of FICO payments. The one-time special
assessment charged to SAIF-insured institutions will enable the SAIF fund to
reach predetermined capitalization levels and therefore will result in a
reduction in future premiums paid by SAIF-insured institutions. Beginning
January 1, 1997 and continuing through December 31, 1999, the Company expects
its premium rate to be reduced from the current rate of 23 basis points to
approximately 6.4 basis points. Pursuant to these provisions of the Act, the
Bank's one-time SAIF insurance assessment amounted to $18.7 million, which was
accrued at September 30, 1996 and paid in November 1996. The payment of the
special assessment reduced the Bank's capital, net of tax, but did not affect
the Bank's compliance with its regulatory capital requirements. See Note 4 of
Notes to Consolidated Financial Statements.


                                                                       Page 15

<PAGE>

Long Island Bancorp, Inc. and Subsidiary


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

Goodwill

The Bank was organized in 1876 as a New York State chartered mutual savings
bank. In December 1982, the Bank converted to a federal mutual savings bank and
changed its name from The Long Island Savings Bank to The Long Island Savings
Bank, FSB ("Syosset"). The Bank's deposits are insured to the maximum allowable
amount by the SAIF which is administered by the Federal Deposit Insurance
Corporation ("FDIC").

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

The FSLIC-assisted supervisory acquisitions of Centereach and Flushing Federal
were accounted for using the purchase method of accounting which resulted in
supervisory goodwill (the excess of cost over fair value of net assets
acquired), an intangible asset, of $656.8 million. Of the $656.8 million of
supervisory goodwill, $625.4 million was recorded on Centereach's balance sheet
and $31.4 million on Syosset's balance sheet. Such goodwill was included in each
bank's regulatory capital. The Assistance Agreement related to the acquisition
of Centereach by Syosset provided for the inclusion of goodwill as an asset on
Centereach's balance sheet, to be amortized over 40 years for regulatory
purposes and includible in capital. Pursuant to the regulations adopted by the
OTS to implement the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA"), the regulatory capital requirement of each bank increased
and the amount of supervisory goodwill that each bank could include in its
regulatory capital decreased significantly. At September 30, 1989, on a
stand-alone basis, Syosset, excluding supervisory goodwill, exceeded the capital
requirements of FIRREA. At that date, however, Centereach, excluding supervisory
goodwill, did not meet any of the three required FIRREA capital ratios mandated
by the OTS and had negative tangible capital as defined in the OTS regulations.

On August 15, 1989, Syosset and Centereach filed suit against the U.S.
government seeking damages and/or other appropriate relief on the grounds, among
others, that the government had breached the terms of the Assistance Agreement.
The suit currently is pending before Chief Judge Loren Smith in the United
States Court of Federal Claims and is entitled Long Island Savings Bank, FSB. et
al. v. United States. The case had been stayed pending disposition by the United
States Supreme Court of three related supervisory goodwill cases ("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. On September 18, 1996 Judge Smith issued an Omnibus
Management Order ("Case Management Order" ) applicable to all Winstar-related
cases. The Case Management Order addresses certain timing and procedural matters
with respect to the administration of the Winstar-related cases including
organization of the parties, initial discovery, initial determinations regarding
liability and the resolution of certain common issues. The Case Management Order
provides that the parties will attempt to agree upon a Master Litigation Plan,
which may be in phases, to govern all further proceedings, including the
resolution of common issues (other than common issues covered by the Case
Management Order), dispositive motions, trials, discovery schedules, protocols
for depositions, document production, expert witnesses and other matters.

On November 1, 1996, the Bank filed a motion for summary judgment on liability.
Pursuant to the schedule set forth in the Case Management Order, within sixty
days of the filing of the motion, the government must file a response with
respect to whether a contract exists and whether the government acted
inconsistently with the contract. Within 120 days of filing of the motion, the
government must set forth any defenses it knows or has reason to know that
relate to these two issues.

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 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.

1993 Restructuring

To bring Centereach into capital compliance and avoid possible regulatory
sanctions against Centereach, on September 3, 1993, with the OTS's approval,
Centereach and Syosset sold $836.3 million in deposits from ten branch locations
and reduced their asset size by a similar amount ("Deposit Sale Transaction").
Concurrent with the sale of these deposits, Syosset was merged into Centereach
("Merger") and Centereach's name was changed to The Long Island Savings Bank,
FSB.

In connection with the Merger, the Company reviewed its accounting policies and
practices and decided to revise its past accounting practices relating to the
amortization of goodwill. See Note 3 of Notes to Consolidated Financial
Statements. As a result, the Company adopted Statement of Financial Accounting
Standards No. 72 ("SFAS 72") "Accounting for Certain Acquisitions of Banking or
Thrift Institutions" effective October 1, 1992. Accordingly, there


Page 16


<PAGE>

was a substantial reduction in the carrying amount of goodwill on Centereach's
books. The cumulative effect of adopting SFAS 72 and the amortization of
goodwill resulted in $323.5 million and $47.2 million, respectively, being
charged to earnings in fiscal 1993.

As a result of the significant restructuring activities which occurred during
fiscal 1993, principally the downsizing of the Company through the branch and
asset sales referred to above, the Merger and the prior year sales of branches
and assets acquired in the acquisitions described above, management determined
that the value of the remaining goodwill was substantially diminished.
Accordingly, the balance of the unamortized portion of the Centereach and
Flushing Federal goodwill, in the amount of $70.8 million, was written off as a
charge to earnings in September 1993.

In an effort to accelerate the resolution of certain of its problem assets, in
December 1993 the Company entered into a contract for the bulk sale of certain
loans and real estate owned ("Bulk Sale"). The sale of these loans was completed
by December 31, 1993 and the sale of the 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.

In anticipation of the Bulk Sale, the loans sold in this transaction were
included on the Company's consolidated statement of financial condition as of
September 30, 1993 as loans held for sale at their fair value, based on the
sales price established in the Bulk Sale contract. In order to adjust the loan
carrying value to reflect fair value, at September 30, 1993, the Company charged
off $32.0 million against the allowance for possible loan losses. In addition,
the carrying value at September 30, 1993 of other real estate owned to be sold
in such transaction was adjusted to reflect the fair value of these assets,
based on the sales price established in the Bulk Sale contract. In order to make
these adjustments, at September 30, 1993 the Company recorded a $9.0 million
provision for possible loan losses and a special provision of $5.0 million for
real estate owned.

As a result of the restructuring activities, including the Deposit Sale
Transaction, the elimination of the goodwill balance and the Bulk Sale, total
assets of the Company declined to $4.0 billion at September 30, 1993 from $5.6
billion at September 30, 1992.

Financial Condition

At September 30, 1996 total assets were $5.4 billion, an increase of $462.2
million from the amount reported at September 30, 1995. The growth in assets is
attributable to an increase of $1.0 billion in total net loans receivable held
for investment, partially offset by a $536.5 million decrease in mortgage-backed
securities ("MBS's"). The growth in total loans receivable reflects the
Company's emphasis on residential lending. Residential loans (including second
mortgages, co-operative apartment loans, home equity loans and certain loans
held for sale in the secondary market) amounted to $2.9 billion, or 91.57%, of
total gross loans at September 30, 1996. The remaining $263.9 million, or 8.43%,
of total gross loans receivable at September 30, 1996 consisted of $69.6 million
of commercial real estate loans, $34.9 million of multi-family loans, $7.7
million of construction loans and land loans, and $151.7 million of commercial
and other loans. For fiscal 1996, the Company originated or purchased real
estate loans in the amount of $2.4 billion of which $353.8 million was acquired
by bulk purchases. Commercial and other loans originated or purchased during
1996 amounted to $89.8 million. The Company remains committed to increasing the
volume of one-to- four family mortgage loans and to improving the efficiency and
lowering the cost of loan originations through increased automation of loan
application and processing procedures. In order to increase the volume of loan
originations, the Company continues to actively manage its origination channels
by increasing the number and productivity of the loan representatives in the
Company's 25 regional lending centers, increasing the number of lending centers,
leveraging the existing customer base at each of the Company's consumer banking
branches and expanding its telemarketing effort to solicit loans. Additionally,
during fiscal 1996 the Company entered into an agreement with Multiple Listing
Services of Long Island to utilize the Company's technological capabilities and
the Internet as another origination channel. The Company continues to monitor
opportunities that may exist to acquire loan origination capabilities similar to
the Company's 1996 acquisitions of First Home and the two lending offices of
Fleet. These and prior acquisitions have also contributed to the Company's
strategy of minimizing geographic risk as 56.54% of total real estate loans
(excluding home equity loans) are located in New York, New Jersey and
Connecticut ("NY metropolitan region") at September 30, 1996 down from 77.09%
and 99.39% at September 30, 1995 and 1994, respectively. The Company believes it
is possible to increase the volume of loan originations while maintaining
current underwriting standards.

MBS's declined to $1.7 billion at September 30, 1996 from $2.3 billion at
September 30, 1995 reflecting the redeployment of funds into real estate loans.
Additionally, effective December 31, 1995, the Company reclassified $1.2 billion
of MBS's previously classified as held-to-maturity into the
available-for-sale category in accordance with
the Special Report on Statement of Financial Accounting Standards No. 115
("SFAS 115") "Accounting for Certain Investments in Debt and Equity Securities"
issued in November 1995.



                                                                       Page 17
<PAGE>


Long Island Bancorp, Inc. and Subsidiary


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

Total liabilities increased by $469.2 million, or 10.72%, to $4.8 billion at
September 30, 1996 from $4.4 billion at September 30, 1995 principally
reflecting additional borrowed funds of $344.3 million and an increase in
deposits of $59.5 million. Historically, the Company has relied on its deposit
base as its principal source of funding. The Company places major emphasis on
its core deposit relationships, consisting of passbook accounts, NOW accounts,
statement savings, money market and non-interest-bearing demand accounts, which
typically tend to be more stable than other sources of funding. The Company's
core deposits as a percentage of total deposits decreased to 46.08% at September
30, 1996 from 48.49% at September 30, 1995. Management believes that this
decrease is attributable in part to an increase in interest rates and a shift in
customer preference towards short-term certificate accounts. The Company
continues to place emphasis on providing quality service to its customers to
retain and attract core deposits as opposed to soliciting time deposit accounts
with higher yields.

The Company often uses borrowings as an alternative and sometimes a less costly
source of funds. The Company's primary source of borrowing is through the sales
of securities under agreements to repurchase ("reverse-repurchase agreements")
with nationally recognized investment banking firms. Reverse-repurchase
agreements are accounted for as borrowings by the Company and are secured by
designated securities. At September 30, 1996 and 1995, the Company had
reverse-repurchase agreements outstanding of $800.0 million and $623.7 million,
respectively. In addition to reverse-repurchase agreements, on June 27, 1996 the
Company borrowed funds by issuing a funding note ("Funding note") in the amount
of $181.4 million which was collateralized by a pool of adjustable rate
residential mortgage loans. At September 30, 1996, the outstanding balance of
the Funding note was $178.0 million. See Note 14 of Notes to Consolidated
Financial Statements. The proceeds of borrowing transactions are used to meet
cash flow or asset/liability needs of the Company as well as to take advantage
of investment opportunities that may exist in the market that enable the Company
to earn a positive interest rate spread.

Stockholders' equity totalled $519.1 million at September 30, 1996, a decline of
$7.1 million from September 30, 1995. This decline was primarily due to the
purchase of treasury stock, net of reissuances in the amount of $38.0 million,
the declaration of $9.2 million in dividends and a decline of $0.3 million in
unrealized gains on securities, net of tax, classified as available-for-sale
which was partially offset by net income of $32.3 million and amortization of
$8.1 million related to the Company's Employee Stock Ownership Plan ("ESOP") and
the Bank's Management Recognition and Retention Plans ("MRPs").

Liquidity, Regulatory
Capital and Capital
Resources

General. The Company's primary sources of funds are deposits, principal and
interest payments on loans and MBS's, retained income and borrowings under
reverse-repurchase agreements. In addition, on June 27, 1996 the Bank issued a
Funding note in the amount of $181.4 million which was collateralized by a pool
of adjustable rate residential mortgage loans. Payments of principal and
interest on the Funding note shall be paid monthly based on the scheduled
payments due on the underlying loans. 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"). See Note 14 of Notes to Consolidated
Financial Statements. Proceeds from the sale of securities and loans are also a
source of funding. While maturities and scheduled amortization of loans and
MBS's are predictable sources of funds, deposit flows and mortgage prepayments
are greatly influenced by general interest rates, economic conditions and
competition.

The Bank is required to maintain minimum levels of liquid assets as defined by
OTS regulations. This requirement, which may be varied at the direction of the
OTS depending upon economic conditions and deposit flows, is based upon a
percentage of deposits and short-term borrowings. The required ratio is
currently 5.00%. The Bank's liquidity ratios were 9.34%, 12.35% and 14.61% at
September 30, 1996, 1995 and 1994, respectively. Currently, the Bank maintains a
liquidity ratio substantially above the regulatory requirements in accordance
with its investment objective of investing its liquid assets in short-term debt
securities. Future levels may vary.

The Company's most liquid assets are cash and short-term investments. The levels
of these assets are dependent on the Company's operating, financing, lending and
investing activities during any given period. At September 30, 1996, cash and
cash equivalents and short-term and intermediate-term investments
available-for-sale totalled $138.5 million.

The primary investment activity of the Bank is the origination and purchase of
real estate loans and other loans. During the years ended September 30, 1996 and
1995, the Bank originated or purchased real estate loans in the amounts of $2.4
billion and $1.1 billion and commercial and other loans in the amounts of $89.8
million and $63.5 million, respectively. Included in the 1996 real estate loan
purchases is $353.8 million which represents the bulk purchase of loans. The
Bank purchases MBS's to reduce liquidity not otherwise required to meet loan
demand. Purchases of MBS's totalled $0.2 billion and $0.9 billion for the years
ended September 30, 1996 and 1995, respectively. Additionally, the originations
of MBS's totalled $358.8 million in 1996. These activities were funded primarily
by principal repayments on loans and MBS's, borrowings under reverse-repurchase
agreements and the Funding note, and sales of loans and MBS's classified as
available-for-sale. Other investing activities include investing in U.S.
government securities, federal agency obligations and asset-backed securities.


Page 18

<PAGE>


During fiscal 1996, the Company purchased 1,611,554 shares of treasury stock at
a cost of $42.0 million. The costs incurred in the purchase of treasury stock
were partially mitigated by the reissuance of 179,225 shares and the related tax
benefits stemming from the exercise of stock options which totalled $4.1
million. As of September 30, 1996, the Company owned 2,172,307 shares of
treasury stock which represents 2,497,554 shares acquired at an aggregate cost
of $59.9 million offset by the cumulative reissuance of 325,247 shares and the
related tax benefits stemming from the exercise of stock options which totalled
$6.2 million.

Liquidity management of the Company is both a daily and long-term component of
management's strategy. Excess funds are generally invested in short-term and
intermediate-term securities. In the event that the Bank should require funds
beyond its ability to generate them internally, additional sources of funds are
available through the use of FHLB advances and reverse-repurchase agreements. In
addition, the Bank may access funds, if necessary, through lines of credit
totaling $75.0 million at September 30, 1996 from unrelated financial
institutions.

At September 30, 1996, the Bank had outstanding commitments to originate or
purchase loans of $439.2 million which includes commitments to extend credit.
The Bank anticipates that it will have sufficient funds available to meet its
current loan commitments. Certificates of deposit which are scheduled to mature
in one year or less from September 30, 1996 totalled $1.4 billion. Management
believes, based on historical experience, that a significant portion of such
deposits will remain with the Bank.

At the time of Conversion, the Bank was required by OTS to establish a
liquidation account which will be reduced to the extent that eligible account
holders reduce their qualifying deposits. The balance of the liquidation account
at September 30, 1996 was $77.8 million. In the unlikely event of a complete
liquidation of the Bank, each eligible account holder will be entitled to
receive a distribution from the liquidation account. The Bank is not permitted
to declare or pay a dividend on or to repurchase any of its capital stock if the
effect would be to cause the Bank's regulatory capital to be reduced below the
amount required for the liquidation account. During 1996, the Bank declared a
cash dividend of $10.5 million. Unlike the Bank, the Holding Company is not
subject to OTS regulatory restrictions on the declaration or payment of
dividends to its stockholders, although the source of such dividends could
depend upon dividend payments from the Bank. The Holding Company is subject,
however, to the requirements of Delaware law, which generally limit dividends to
an amount equal to the excess of its net assets (the amount by which total
assets exceed total liabilities) over its stated capital or, if there is no such
excess, to its net profits for the current and/or immediately preceding fiscal
year. During 1996, the Company declared quarterly cash dividends at an
annualized rate of $0.40 per common share totaling $9.2 million.

Regulatory Capital Position. The Bank had a tangible capital ratio of 7.84%, a
core capital ratio of 7.84%, and a total-risk based capital ratio of 16.48%, as
compared with the required OTS regulatory capital ratios of 1.50%, 3.00% and
8.00%, respectively. At September 30, 1996, the Bank met the criteria to be
considered a "well-capitalized" institution for certain regulatory purposes. See
Note 4 of Notes to Consolidated Financial Statements.

Asset Quality

Asset quality continues to remain stable as non-performing loans decreased to
$53.2 million at September 30, 1996 from $55.7 million at September 30, 1995
reflecting continued improvements in the local economy and the continued
stabilization of real estate market values in the New York metropolitan region,
the Bank's historical primary lending area. At September 30, 1996, 56.54% of the
Bank's real estate loans (excluding home equity loans) were derived from the New
York metropolitan area. Coverage for possible loan losses improved during 1996
as the ratio of the allowance for possible loan losses to non-performing loans
increased to 63.79% at September 30, 1996 from 61.71% at September 30, 1995.
Additionally, the ratio of non-performing loans to total gross loans improved by
97 basis points to 1.70% at September 30, 1996 from 2.67% at September 30, 1995
and the ratio of non-performing assets to total assets improved by 18 basis
points to 1.14% at September 30, 1996 from 1.32% at September 30, 1995. The
improvement in each of these ratios is due to the reduction in non-performing
loans and non-performing assets, coupled with the respective growth in total
gross loans and total assets. Net charge-offs declined to $6.6 million in fiscal
1996, the lowest level in the past seven years.

Management believes that a portion of the Company's non-performing assets is
attributable to the low documentation loans (as defined below) previously
originated by the Company. During the 1986 to 1989 period, the Company
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 were considered reasonable for the employment position held ("low
documentation loans"). The Company has experienced higher delinquency and
default rates on such loans, as compared to fully underwritten one-to-four
family loans, and in recognition thereof, the Company discontinued the
origination of low documentation loans in 1990. The Company is unable to
determine the aggregate dollar amount of low documentation loans originated
between 1986 and 1989 which still remain outstanding. At September 30, 1996,
however, approximately $536.1 million, or 19.25% of the Company's one-to-four
family residential loan and co- operative apartment loan portfolios consisted of
loans originated



                                                                       Page 19

<PAGE>

Long Island Bancorp, Inc. and Subsidiary


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

during the 1986 to 1989 period down from $604.2 million, or 34.19%, at September
30, 1995. To the extent such loans include a significant amount of low
documentation loans, the Company's delinquency and default rates could be
adversely impacted which may result in material losses. From time to time, on a
selective basis, the Company 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.

Managing of
Interest Rate
Risk

One of the Company's primary objectives is managing interest rate risk.
Generally, net interest income is subject to substantial risk due to changes in
interest rates or changes in market yield curves. The Company seeks to reduce
its exposure to interest rate risk through the origination and retention of
adjustable rate mortgage ("ARM") loans, which at September 30, 1996 represented
81.97% of the Company's total gross loans excluding loans held for sale. The
Company also maintains MBS's and mortgage-related securities portfolio which
consists primarily of ARM-backed securities and fixed rate MBS's with remaining
estimated lives of less than five years. In an effort to meet the needs of its
customers, the Company continues to originate fixed rate loans. These loans,
however, are originated for immediate sale in the secondary mortgage market to
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation ("FHLMC") or other investors. The Company sells loans to investors
on both a servicing released and servicing retained basis. At September 30,
1996, the Company's portfolio of loans serviced for investors was approximately
$3.7 billion. During fiscal 1996 as interest rates increased, loan prepayments
slowed and ARM loans have been in greater demand, however, should interest rates
decline this trend may reverse.

In its securities portfolio, the Company has emphasized maintaining adequate
liquidity, particularly through amortizing short-term and intermediate-term
investment instruments. Management believes that its policy of emphasizing
lower-cost core deposits also limits interest rate risk as these deposits are
considered by management to have relatively low volatility.

To a lesser degree, the Company has the ability to manage its interest rate risk
through the use of derivative financial instruments. During fiscal 1996, these
instruments consisted solely of two interest rate cap agreements which are
designed to help protect the Company from rising interest rates while involving
minimal risk. The Company does not expect to significantly increase its
utilization of derivative financial instruments in the future, however, it may
enter into such agreements from time to time to manage its interest rate risk
exposure. See Note 15 of Notes to Consolidated Financial Statements.

Interest Rate
Sensitivity
Analysis

Interest rate sensitivity may be analyzed by examining the extent to which such
assets and liabilities are "interest rate sensitive" and by monitoring an
institution's interest rate sensitivity "gap." An asset or liability is said to
be interest rate sensitive within a specific time period if it will mature or
reprice within that time period. The interest rate sensitivity gap is defined as
the difference between the amount of interest-earning assets maturing or
repricing within a specific time period and the amount of interest-bearing
liabilities maturing or repricing within that time period. A gap is considered
positive when the amount of interest-earning assets maturing or repricing
exceeds the amount of interest-bearing liabilities maturing or repricing within
the same period. A gap is considered negative when the amount of
interest-bearing liabilities maturing or repricing exceeds the amount of
interest-earning assets maturing or repricing within the same period. Generally,
in a rising interest rate environment, an institution with a positive gap would
generally be expected, absent the effects of other factors, to experience a
greater increase in the yield of its assets relative to the cost of its
liabilities and thus increase earnings. Conversely, the cost of funds for an
institution with a positive gap would generally be expected to decline less
quickly than the yield on its assets in a falling interest rate environment.
Changes in interest rates generally have the opposite effect on an institution
with a negative gap.


Page 20


<PAGE>

In the current interest rate environment, the Company has been investing
primarily in adjustable rate real estate loans with various maturities. In
addition, the Company also invests in federal agency and MBS's and asset-backed
securities with adjustable rates or, in the case of fixed rate securities,
maturities shorter than five years and has generally refrained from investing in
fixed rate assets with longer term maturities. As a result of this strategy, at
September 30, 1996, the Company's total interest-earning assets maturing or
repricing within one year exceeded its total interest-bearing liabilities
maturing or repricing in the same time by $381.9 million, representing a one
year cumulative positive gap ratio of 7.12% versus $467.3 million and 9.53% at
September 30, 1995. The decrease in the cumulative one year gap is attributable
to higher certificate accounts and borrowings repricing within one year
partially offset by the net growth in real estate loans and MBS's repricing
within one year. The Company closely monitors its interest rate risk as such
risk relates to its operational strategies. At September 30, 1996, the Company
has continued to maintain a positive gap position; however, there can be no
assurance that the Company will be able to maintain its positive gap position or
that its strategies will not result in a negative gap position in the future.
The Company has not attempted to retain short-term certificate of deposit
accounts or increase core deposits by maintaining interest rates above those
offered by its competitors. Instead, the Company has attempted to encourage
long-term depositors to maintain their accounts with the Company through
expanded customer service. To the extent that the Company's core deposits
run-off at a more rapid rate than the Company's assumptions on such deposits,
the Company's current positive gap positions could be negatively impacted. While
the Company has experienced some run-off in its core deposits, there can be no
assurance that such a run-off will not increase in the future if depositors
continue to seek higher yielding investments.

Additionally, the Company's investment policy enables the Company to enter into
certain interest rate contracts, for example, interest rate swaps, caps, floors
and collars. These contracts may be used to hedge interest rates on certain
assets and liabilities. During fiscal 1996, the Bank had two interest rate cap
agreements outstanding for an aggregate unamortized cost of $0.1 million at
September 30, 1996, involving a notional amount totaling $90.0 million. Three
contracts were in effect during fiscal 1995. The amount paid for the interest
rate caps is being amortized into interest expense over the term of the
contracts. For the years ended September 30, 1996 and 1995, amortization
totalled $0.3 million per year. See Note 15 of Notes to Consolidated Financial
Statements.

The Company uses earning simulations, duration, as well as gap analysis to
analyze and project future interest rate risk. Computer generated scenarios are
based on various assumptions including: expected changes in the level of
interest rates and the shape of the yield curve, pricing strategies, portfolio
embedded option impacts and growth, volume and mix alternatives for each
portfolio. Projected statements are evaluated on a rolling 12 month period.
Duration measures the interest rate sensitivity of all financial instruments
based on their weighted average term to maturity of all cash flows. The
Asset/Liability Committee ("ALCO") evaluates decisions in a risk return
trade-off framework to ensure that the level of interest rate risk exposure
incurred does not exceed prudent levels. Specific limits for variation of net
interest income and net portfolio value under various interest rate scenarios
are set annually by ALCO and approved by the Board of Directors.

The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at September 30, 1996, which are
anticipated by the Company, based on certain assumptions, to reprice or mature
in each of the future time periods shown. Except as stated below, the amounts of
assets and liabilities shown to reprice or mature during a particular period
were determined in accordance with the earlier of term to repricing or the
contractual terms of the asset or liability. Prepayment assumptions ranging from
0% to 15% per year were applied, dependent upon the loan type and coupon.
Run-off rate assumptions for passbook savings, statement savings, NOW and money
market accounts, in the one year or less category are 51%, 51%, 40% and 100%,
respectively, rather than the OTS assumptions which, in the one year or less
period are 17%, 17%, 37% and 79%, respectively. These withdrawal rates and
prepayment assumptions are based on assumptions and analyses prepared internally
and are used in preparing the Regulatory Thrift Bulletin-13 Report and quarterly
management reports. These assumptions were used rather than the assumptions
published by the OTS because management believes they are more indicative of the
actual prepayments and withdrawals experienced by the Company. The assumptions
do not reflect any increases or decreases in interest rates paid on various
categories of deposits (whether by the Company or in general) since September
30, 1996.


                                                                        Page 21
<PAGE>


Long Island Bancorp, Inc. and Subsidiary


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

<TABLE>
<CAPTION>

                                                Interest Rate Sensitivity Gap Analysis At September 30, 1996
------------------------------------------------------------------------------------------------------------
                                                   More than        More than      More than      More than 
                                       3 Months     3 Months         6 Months        1 Year        3 Years  
                                        or Less    to 6 Months      to 1 Year      to 3 Years     to 5 Years
                                       ---------   -----------      ----------     ----------     ----------
                                                                            (Dollars in thousands)
<S>                                  <C>             <C>           <C>            <C>            <C>        
Interest-earning assets:
 Real estate loans(1)                $  232,498      $ 429,339     $  941,563     $  794,953     $  236,218 
 Commercial loans(1)                      7,406             --             --             --             65 
 Other loans(1)                          65,297          3,533          7,158         25,210         18,522 
 Mortgage-backed
  securities(2)                         388,815        316,449        527,521        359,081         83,634 
 Interest-earning cash
  equivalents                            37,357             --             --             --             -- 
 Debt and equity securities(2)            9,991          3,881         33,028         20,376          2,575 
 Stock in FHLB-NY                            --             --             --             --             -- 
                                     ----------      ---------     ----------     ----------     ---------- 
  Total interest-
   earning assets                       741,364        753,202      1,509,270      1,199,620        341,014 
Interest-bearing liabilities:
 Passbook accounts                      124,293         99,501        118,338        108,801        104,267 
 Statement savings accounts             120,625         96,077        114,254        105,048        100,671 
 NOW accounts                            35,555          4,593          9,186         36,744         35,213 
 Checking & demand
  deposit accounts                        2,735          1,172          2,345             --             -- 
 Money market accounts                   83,484         15,652         31,306             --             -- 
 Certificate accounts                   380,383        459,877        520,575        314,327        257,693 
 Borrowings                             364,023             --         38,000        576,000             -- 
                                     ----------      ---------     ----------     ----------     ---------- 
  Total interest-
   bearing liabilities                1,111,098        676,872        834,004      1,140,920        497,844 
                                     ----------      ---------     ----------     ----------     ---------- 
Interest sensitivity gap
 per period                         $ (369,734)     $   76,330     $  675,266     $   58,700     $(156,830) 
                                     ----------      ---------     ----------     ----------     ---------- 
                                     ----------      ---------     ----------     ----------     ---------- 
Cumulative interest
 sensitivity gap                    $ (369,734)     $(293,404)     $  381,862     $  440,562      $ 283,732 
                                     ----------      ---------     ----------     ----------     ---------- 
                                     ----------      ---------     ----------     ----------     ---------- 
Cumulative interest
 sensitivity gap as a
 percentage of total assets(3)           (6.89)%        (5.47)%         7.12%          8.21%          5.29% 
Cumulative net interest-earning
 assets as a percentage of net
 interest-bearing liabilities            66.72          83.59         114.56         111.71         106.66  




<CAPTION>

                                    
------------------------------------
                                             More                      
                                             than                      
                                            5 Years       Total        
                                            -------       -----        
                                                                       
<S>                                       <C>          <C>             
Interest-earning assets:                                               
 Real estate loans(1)                     $294,360     $2,928,931      
 Commercial loans(1)                            --          7,471      
 Other loans(1)                             23,849        143,569      
 Mortgage-backed                                                       
  securities(2)                             50,771      1,726,271      
 Interest-earning cash                                                 
  equivalents                                   --         37,357      
 Debt and equity securities(2)             112,933        182,784      
 Stock in FHLB-NY                           40,754         40,754      
                                          --------      ---------      
  Total interest-                                                      
   earning assets                          522,667      5,067,137      
Interest-bearing liabilities:                                          
 Passbook accounts                         114,041        669,241      
 Statement savings accounts                110,114        646,789      
 NOW accounts                                1,531        122,822      
 Checking & demand                                                     
  deposit accounts                              --          6,252      
 Money market accounts                          --        130,442      
 Certificate accounts                       25,936      1,958,791      
 Borrowings                                     --        978,023      
                                          --------      ---------      
  Total interest-                                                      
   bearing liabilities                     251,622      4,512,360      
                                          --------      ---------      
Interest sensitivity gap                                               
 per period                               $271,045     $  554,777      
                                          --------      ---------      
                                          --------      ---------      
Cumulative interest                                                    
 sensitivity gap                          $554,777                     
                                          --------                     
                                          --------                     
Cumulative interest                                                    
 sensitivity gap as a                                                  
 percentage of total assets(3)              10.34%                     
Cumulative net interest-earning                                        
 assets as a percentage of net                                         
 interest-bearing liabilities              112.29                      

</TABLE>

(1) Excludes non-performing loans and the allowance for possible loan losses.

(2) MBS's and debt and equity securities are shown excluding the market value
    appreciation of $11.8 million, before tax, from SFAS 115. 

(3) Amounts for fixed rate loans are based on scheduled payment dates and loans
    for which there is no amortization schedule, are included as three months 
    or less.


Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as ARM loans, have features which
limit changes in interest rates on a short-term basis and over the life of the
asset. Further, in the event of a change in interest rates, prepayment and early
withdrawal levels would likely deviate significantly from those assumed in
calculating the table. An interest rate increase may impair the ability of
borrowers to service their ARM loans.

Analysis of Net
Interest Income

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

The following table sets forth certain information relating to the Company's
Consolidated Statements of Financial Condition and the Consolidated Statements
of Operations for the fiscal years ended September 30, 1996, 1995 and 1994 and
reflects the average yield on assets and average cost of liabilities for the
periods indicated. Such yields and


Page 22

<PAGE>


costs are derived by dividing income or expense by the average balance of assets
or liabilities, respectively, for the periods shown. Average balances are
derived from the average daily balances. The yields and costs include fees which
are considered adjustments to yields.

<TABLE>
<CAPTION>

                                                                                       For the Year Ended September 30,
---------------------------------------------------------------------------------------------------------------------------------
                                                                          1996                              1995                 
                                                       -------------------------------     ------------------------------------  
                                                                               Average                                  Average  
                                                          Average               Yield/       Average                    Yield/   
                                                          Balance   Interest     Cost       Balance       Interest       Cost    
                                                       ----------   --------   -------      --------      --------     --------  
                                                                                               (Dollars in thousands)
<S>                                                    <C>          <C>        <C>          <C>           <C>          <C>       

Interest-earning assets:
Interest-earning
 cash equivalents                                      $   32,109    $  1,708    5.32%   $   47,153       $  2,560       5.43%   
Debt and equity securities 
 and FHLB-NY stock, net(1)                                268,344      15,008    5.59       391,556         22,390       5.72    
Mortgage-backed            
 securities, net(1)                                     1,952,217     134,064    6.87     2,176,416        140,173       6.44    
Real estate loans, net(2)                               2,380,633     185,241    7.78     1,724,834        140,268       8.13    
Commercial and other       
 loans, net(2)                                            125,629      15,550   12.38       117,993         15,824      13.41    
                                                       ----------   ---------  ------    ----------       -------      ------    
Total interest-earning assets                           4,758,932     351,571    7.39     4,457,952        321,215       7.21    
Other non-interest-        
 earning assets                                           268,355                           228,981                              
                                                       ----------   ---------            ----------       -------                
Total assets                                           $5,027,287    $351,571            $4,686,933       $321,215               
                                                       ----------   ---------            ----------       -------                
                                                       ----------   ---------            ----------       -------                

Interest-bearing liabilities:
Deposits:
 Time deposits                                         $1,895,594    $108,479    5.72%   $1,626,814       $ 87,849       5.40%   
 Statement savings                                        639,318      20,755    3.25       684,340         20,946       3.06    
 Passbooks                                                711,993      19,264    2.71       820,526         22,336       2.72    
 Checking and NOW          
  accounts(3)                                             268,406       3,419    1.27       255,744          3,488       1.36    
 Money market                                             142,192       3,913    2.75       182,147          5,022       2.76    
                                                       ----------   ---------  ------    ----------       -------      ------    
  Total deposits                                        3,657,503     155,830    4.26     3,569,571        139,641       3.91    
Borrowed funds                                            724,448      41,346    5.71       510,987         28,255       5.53    
                                                       ----------   ---------  ------    ----------       -------      ------    
Total interest-            
 bearing liabilities                                    4,381,951     197,176    4.50     4,080,558        167,896       4.11    
Non-interest-
 bearing liabilities                                      120,982                            95,689                              
                                                       ----------                        ----------                              
Total liabilities                                       4,502,933                         4,176,247                              
Total stockholders' equity                                524,354                           510,686                              
                                                       ----------   ---------  ------     ----------       -------     ------    
Total liabilities and                                                         
 stockholders' equity                                  $5,027,287     197,176            $4,686,933       167,896                
                                                       ----------   ---------            ----------       -------                
                                                       ----------   ---------            ----------       -------                
Net interest income/                                                          
 spread(4)                                                           $154,395    2.89%                   $153,319        3.10%   
                                                                    ---------  ------                     -------      ------    
                                                                    ---------  ------                     -------      ------    
Net interest margin as % of                                                                                                      
 interest-earning assets(5)                                                    3.24%                                     3.44%   
                                                                              ------                                   ------    
                                                                              ------                                   ------    
Ratio of interest-earning                                                                                                        
 assets to interest-                                                                                                             
 bearing liabilities                                                         108.60%                                   109.25%   
                                                                             ------                                    ------    
                                                                             ------                                    ------    



<CAPTION>
                                                       ------------------------------       
                                                                     1994                   
                                                        -----------------------------       
                                                                              Average       
                                                        Average               Yield/        
                                                        Balance    Interest    Cost         
                                                        --------   --------   -------       
                                                                                            
<S>                                                     <C>        <C>        <C>           
                                                                                            
Interest-earning assets:                                                                    
Interest-earning                                                                            
 cash equivalents                                      $  117,516   $  4,101    3.49%       
Debt and equity securities                                                                  
 and FHLB-NY stock, net(1)                                482,198     23,794    4.93        
Mortgage-backed                                                                             
 securities, net(1)                                     1,752,511    101,868    5.81        
Real estate loans, net(2)                               1,599,057    125,069    7.82        
Commercial and other                                                                        
 loans, net(2)                                            140,677     17,325   12.32        
                                                       ----------   -------- ------         
Total interest-earning assets                           4,091,959    272,157    6.65        
Other non-interest-                                                                         
 earning assets                                           275,571                           
                                                       ----------   --------                
Total assets                                           $4,367,530   $272,157                
                                                       ----------   --------                
                                                       ----------   --------                
                                                                                            
Interest-bearing liabilities:                                                               
Deposits:                                                                                   
 Time deposits                                         $1,296,402   $ 56,986    4.40%       
 Statement savings                                        891,392     26,202    2.94        
 Passbooks                                              1,003,287     27,706    2.76        
 Checking and NOW                                                                           
  accounts(3)                                             240,733      3,210    1.33        
 Money market                                             223,552      6,189    2.77        
                                                       ----------   -------- ------         
  Total deposits                                        3,655,366    120,293    3.29        
Borrowed funds                                            228,368      9,811    4.30        
                                                       ----------   -------- ------         
Total interest-                                                                             
 bearing liabilities                                    3,883,734    130,104    3.35        
Non-interest-                                                                               
 bearing liabilities                                      137,309                           
                                                       ----------                           
Total liabilities                                       4,021,043                           
Total stockholders' equity                                346,487                           
                                                       ----------  -------- ------          
Total liabilities and                                                                       
 stockholders' equity                                  $4,367,530    130,104                
                                                       ----------   -------- ------         
                                                       ----------   -------- ------         
Net interest income/                                                                        
 spread(4)                                                          $142,053   3.30%        
                                                                    -------- ------         
                                                                    -------- ------         
Net interest margin as % of                                                                 
 interest-earning assets(5)                                                    3.47%        
                                                                             ------         
                                                                             ------         
Ratio of interest-earning                                                                   
 assets to interest-                                                                        
 bearing liabilities                                                         105.36%        
                                                                             ------         
                                                                             ------         

</TABLE>


(1) MBS's and debt and equity securities are shown including the market value
    appreciation/(depreciation) of $12.7 million, $12.2 million and 
    $(5.4) million, before tax, from SFAS 115 for the years ended September 30,
    1996, 1995 and 1994, respectively.

(2) Net of unearned discounts, premiums, deferred loan fees, purchase
    accounting discounts and premiums and allowance for possible loan losses, 
    and including non-performing loans and loans held for sale.

(3) Includes non-interest-bearing checking accounts.

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

(5) Net interest margin represents net interest income divided by average
    interest-earning assets.


                                                                        Page 23

<PAGE>

Long Island Bancorp, Inc. and Subsidiary


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

Rate/Volume
Analysis

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



<TABLE>
<CAPTION>
                                                    Year Ended September 30, 1996        Year Ended September 30, 1995
                                                             Compared to                           Compared to
                                                     Year Ended September 30, 1995       Year Ended September 30, 1994
                                                        Increase/(Decrease)                   Increase/(Decrease)
------------------------------------------------------------------------------       --------------------------------
                                                           Due to                                Due to
                                                ------------------------------       --------------------------------
                                                Volume      Rate        Net          Volume        Rate        Net
                                               -------    --------    -------        -------     ---------   --------
                                                                           (In thousands)
<S>                                            <C>         <C>        <C>           <C>          <C>        <C>
Interest-earning assets:
 Interest-earning cash equivalents(1)           $  (801)   $    (51)   $  (852)     $ (1,647)    $    106   $ (1,541)
 Debt and equity securities(2)(3)                (6,901)       (481)    (7,382)       (4,856)       3,452     (1,404)
 Mortgage-backed securities(3)                  (15,022)      8,913     (6,109)       26,477       11,828     38,305
 Real estate loans(4)                            51,262      (6,289)    44,973        10,096        5,103     15,199
 Commercial loans and other loans(4)                988      (1,262)      (274)       (2,954)       1,453     (1,501)
                                                -------      ------     ------        ------       ------     ------
  Total                                          29,526         830     30,356        27,116       21,942     49,058
                                                -------      ------     ------        ------       ------     ------
Interest-bearing liabilities:
 Deposits                                         3,504      12,685     16,189        (2,882)      22,230     19,348
 Borrowed funds                                  12,156         935     13,091        14,973        3,471     18,444
                                                -------      ------     ------        ------       ------     ------
  Total                                          15,660      13,620     29,280        12,091       25,701     37,792
                                                -------      ------     ------        ------       ------     ------
Net change in interest income                  $ 13,866   $ (12,790)  $  1,076      $ 15,025    $  (3,759)  $ 11,266
                                                -------      ------     ------        ------       ------     ------
                                                -------      ------     ------        ------       ------     ------
</TABLE>


(1) Cash equivalents include amounts due from banks and short-term loans to   
    commercial banks with original terms to maturity of less than three       
    months.                                                                   

(2) Includes FHLB-NY stock.

(3) MBS's and debt and equity securities are shown including the market value  
    appreciation/(depreciation) of $12.7 million, $12.2 million and $(5.4)     
    million, before tax, from SFAS 115 for the years ended September 30,       
    1996, 1995 and 1994, respectively.                                         

(4) In computing the volume and rate components of net interest income for  
    loans, non-performing loans and loans held for sale have been included. 


Comparison of
Operating Results
for the Fiscal Years
Ended September 30,
1996 and 1995

GENERAL. Net income declined by $11.2 million, or 25.83%, to $32.3
million in fiscal 1996 from $43.5 million in fiscal 1995. The decrease was
primarily attributable to a special one-time federal insurance assessment of
$18.7 million and higher general and administrative ("G&A") costs of $11.5
million over the comparable 1995 period. Partially offsetting these additional
costs were increases in non-interest income and net interest income of $11.7
million and $1.1 million, respectively, coupled with a reduction in the
provision for income taxes of $6.1 million. 

INTEREST INCOME. Interest income increased by $30.4 million, or 9.45%, to 
$351.6 million in fiscal 1996 from $321.2 million in 1995. The improvement is 
due to an increase of $301.0 million in average interest-earning assets 
coupled with an increase of 18 basis points in the average yield of 
interest-earning assets. 

Average real estate loans increased by $655.8 million, or 38.02%, to $2.4 
billion at September 30, 1996 from $1.7 billion at September 30, 1995. The 
increase reflects loan originations and purchases funded by additional 
borrowings and the redeployment of funds from principal payments and sales of 
MBS's and debt and equity securities classified as available-for-sale into 
real estate loans. The redeployment of funds also contributed to an increase 
in the overall yield on average interest-earning assets by replacing lower 
yielding MBS's and debt and equity securities with higher yielding real 
estate loans. Despite the improvement in the overall yield on 
interest-earning assets, the yield on average real estate loans declined to 
7.78% in 1996 from 8.13% in 1995 principally reflecting the significant 
amount of ARM loans originated and retained in the portfolio during the last 
two years which are not fully indexed. The net result of the increase in 
average real estate loans and the decline in the yield on such loans amounted 
to an increase in interest income of $44.9 million, or 32.06%, to $185.2 
million in 1996 from $140.3 million in 1995. 

Average MBS's declined by $224.2 million, or 10.30%, to $2.0 billion in 1996 
from $2.2 billion in 1995 reflecting the redeployment of funds previously 
described and the average yield increased by 43 basis points to 6.87% in 1996 
from 6.44% in 1995. The net result of the lower average balances and higher 
yields was a reduction in interest income from MBS's of $6.1 million, or 
4.36%, to $134.1 million in 1996 from $140.2 million in 1995. 

Average debt and equity securities declined by $123.3 million, or 31.47%, to 
$268.3 million in 1996 from $391.6 million in 1995 due to the redeployment of 
funds previously described into real estate loans. In addition, the yield on 
average

Page 24


<PAGE>

debt and equity securities declined by 13 basis points to 5.59% in 1996 from
5.72% in 1995. The net result of the lower average balances coupled with a
decline in the yield contributed to a reduction in interest income from debt and
equity securities of $7.4 million, or 32.97%, to $15.0 million in 1996 from
$22.4 million in 1995.

INTEREST EXPENSE. Interest expense increased by $29.3 million, or 17.44%, to
$197.2 million in 1996 from $167.9 million in 1995. The increase is principally
the result of an increase in average deposit liabilities of $87.9 million to
$3.7 billion in 1996 from $3.6 billion in 1995 coupled with an increase in the
cost of average deposits of 35 basis points to 4.26% in 1996 from 3.91% in 1995.
The net result of higher average deposit liabilities and the greater cost
associated with such funds resulted in an increase in interest expense from
deposit liabilities of $16.2 million, or 11.59%, to $155.8 million in 1996 from
$139.6 million in 1995. Interest expense on certificate accounts increased by
$20.6 million, or 23.48%, to $108.5 million in 1996 from $87.9 million in 1995
reflecting increased average balances of $268.8 million coupled with an increase
in the average cost of 32 basis points. The effect of this increase is partially
mitigated by declines in interest expense on passbook accounts of $3.1 million,
or 13.76%, to $19.3 million in 1996 and money market accounts of $1.1 million,
or 22.08%, to $3.9 million in 1996 primarily reflecting decreased average
balances of $108.5 million, and $40.0 million, respectively.

Further contributing to the increase in interest expense was an increase in
average borrowed funds of $213.4 million, or 41.77%, to $724.4 million in 1996
from $511.0 million in 1995 coupled with an increase in the cost of average 
borrowed funds of 18 basis points to 5.71% in 1996 from 5.53% in 1995. Although
deposits are the Bank's primary source of funds, the Bank has the ability to use
borrowings as an alternative, and sometimes less costly, source of funds. The
increase in borrowed funds that occurred during 1996 enabled the Bank to meet
cash flow or asset/liability needs as well as to take advantage of investment
opportunities that existed in the market and enabled the Bank to earn a positive
interest rate spread. The greater volume of borrowed funds and the higher cost
of such funds resulted in an increase in interest expense from borrowed funds of
$13.0 million, or 46.33%, to $41.3 million in 1996 from $28.3 million in 1995.
During 1996 and 1995, interest expense also includes the amortization of
premiums paid for interest rate cap agreements in the amount of $0.3 million for
each year. See Note 15 of Notes to Consolidated Financial Statements.

NET INTEREST INCOME.  Net interest income was $154.4 million in 1996, an
increase of $1.1 million, or 0.70%, from $153.3 million in 1995. The increase is
primarily attributable to the Company's higher level of real estate loans
partially offset by greater cost of funds. The net interest margin declined by
20 basis points to 3.24% in 1996 from 3.44% in 1995 and the net interest spread
declined by 21 basis points to 2.89% in 1996 from 3.10% in 1995. Contributing to
these declining ratios were rises in short term interest rates during 1996 and,
although adding to higher overall net interest income, the use of higher costing
borrowed funds.

PROVISION FOR POSSIBLE LOAN LOSSES.  The provision for possible loan losses
decreased by $0.3 million, or 4.17%, to $6.2 million in 1996 from $6.5 million
in 1995. The reduction reflects the stable level of non-performing loans, which
declined by $2.5 million to $53.2 million at September 30, 1996 from $55.7
million at September 30, 1995. Additionally, the ratio of non-performing loans
to total gross loans declined by 97 basis points to 1.70% in 1996 from 2.67% in
1995 and net charge-offs declined to a seven year low of $6.6 million. Coverage
for possible future loan losses, as measured by the ratio of the allowance for
possible loans losses to non-performing loans, improved by 208 basis points to
63.79% at September 30, 1996 from 61.71% at September 30, 1995, although the
level of the allowance for possible loan losses declined to $33.9 million at
September 30, 1996 from $34.4 million at September 30, 1995.

NON-INTEREST INCOME.  Non-interest income increased by $11.7 million, or 40.20%,
to $40.8 million in 1996 from $29.1 million in 1995. Contributing to the
improvement were increases in total fees and other income of $2.3 million, net
gains on sale activity of $6.7 million and the net gain on investment in real
estate and premises of $2.7 million. Total fees and other income increased by
$2.3 million, or 9.05%, to $28.3 million in 1996 from $26.0 million in 1995
primarily due to improvements in loan fees and service charges, loan servicing
fees and income from insurance and securities commissions. Loan fees and service
charges increased by $0.7 million, or 28.99%, to $3.2 million in 1996 from $2.5
million in 1995 primarily reflecting greater mortgage late charges and tax
search fees. Loan servicing fee income increased by $1.0 million, or 7.69%, to
$13.9 million in 1996 from $12.9 million in 1995. The growth in loan servicing
fees reflects the Company's strategy of increasing its mortgage servicing
portfolio which grew to $3.7 billion at September 30, 1996 from $2.6 billion at
September 30, 1995. Loan service fee income is reported net of the amortization
of mortgage servicing rights of $2.7 million and $1.4 million in 1996 and 1995,
respectively. See Note 7 of Notes to Consolidated Financial Statements. Income
from insurance and securities commissions increased by $0.8 million, 
or 99.75%, to $1.6 million in 1996 from $0.8 million in 1995 reflecting the
Company's expansion of its delivery channels and its change to a new third party
provider of financial products and services during 1995. Net gains on sale
activity increased by $6.7 million to $8.3 million in 1996 from $1.6 million in
1995. The increase in net gains on sale activity reflects the Company's strategy
of periodically realizing profits in the Company's loan, securities available-
for-sale and funding portfolios. As interest rates changed during the year, the
Company realized profits in the 

                                                                         Page 25
<PAGE>



Long Island Bancorp, Inc. and Subsidiary

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

available-for-sale portfolios which resulted in increased liquidity and improved
the Company's ability to take advantage of higher yielding investments as they
became available. Net gains from sale activity varies from year to year based
on, among other things, the interest rate environment, alternative investment
opportunities and the Company's goals in managing its available-for-sale
portfolios. Further contributing to the improvement in net gains on sale
activity was the write-down during 1995 of $1.8 million stemming from the
Company's investment in Nationar, a failed bank service institution. 

Net gain on investment in real estate and premises increased by $2.7 million to
$4.1 million in 1996 from $1.5 million in 1995 primarily reflecting the
disposition of ten non-strategic real estate investment properties. The
properties were not necessary to support the Company's core businesses and were
mostly the result of various business acquisitions.

NON-INTEREST EXPENSE. Non-interest expense increased by $30.5 million, or
29.67%, to $133.0 million in 1996 from $102.5 million in 1995. The primary
factors contributing to the increase were higher federal insurance costs and
greater compensation and benefit costs. Federal insurance costs increased by
$18.8 million during 1996 as compared with 1995 reflecting Congressional action
previously described to resolve disparities that had existed among the deposit
insurance funds. Beginning on January 1, 1997, the Company anticipates a
reduction in its deposit assessment rate from 23 basis points to 6.4 basis
points. Compensation and benefit costs increased by $6.6 million, or 12.69%, to
$58.0 million in 1996 from $51.4 million in 1995. The increase in compensation
and benefit costs primarily reflects the increase in the price of the Common
Stock and its impact on the Company's stock based benefit plans. Stock based
benefit plans costs increased to $7.1 million in 1996 from $4.0 million in 1995.
Beginning on January 1, 1997, the Company anticipates a reduction in its stock
based benefit costs as a result of plan modifications recently adopted. Further
contributing to the rise in compensation and benefit costs were normal salary
increases, retirement costs related to the retirement of the Company's president
and increases resulting from the expansion of our loan production centers.

Office occupancy and equipment costs increased by $2.1 million, or 11.24%, to
$20.6 million in 1996 from $18.5 million in 1995 primarily reflecting the
Company's continued technological investments to improve its information and
communication systems coupled with its recent acquisitions previously described.

Advertising costs increased by $1.2 million, or 26.63%, to $5.9 million in 1996
from $4.7 million in 1995 reflecting the Company's television advertising
campaign.

Other G&A costs increased by $1.5 million, or 8.84%, to $18.6 million in 1996
from $17.1 million in 1995. The increase principally reflects greater costs
stemming from increased loan volume and the expansion of the Company's mortgage
business in the mid-Atlantic states.

PROVISION FOR INCOME TAXES.  The provision for income tax expense declined by
$6.1 million, or 20.53%, to $23.8 million in 1996 from $29.9 million in 1995,
primarily reflecting a lower level of taxable income in 1996. The effective tax
rate increased to 42.40% in 1996 from 40.72% in 1995 principally as a result of
the limitations placed on the tax deductibility of ESOP contributions that arise
from increases in the price of the Common Stock.

--------------------------------------------------------------------------------
Comparison of Operating Results
for the Fiscal Years Ended September 30, 1995 and 1994

GENERAL.  The Company realized net income of $43.5 million in fiscal 1995. For
the year ended September 30, 1994, the Company realized net income of $30.9
million prior to the benefit of the changes in accounting principles of 
$8.6 million. The 1995 increase was principally attributable to an increase in
net interest income of $11.2 million, a reduction in the provision for possible
loan losses of $5.5 million, an increase in total non-interest income of $6.2 
million and a reduction in the loss on real estate owned of $2.3 million, which
were partially offset by increased tax expense of $11.9 million.

INTEREST INCOME.  Interest income was $321.2 million in 1995, an increase of
$49.0 million, or 18.03%, from $272.2 million in 1994. The increase is primarily
attributable to the earnings on the net proceeds from the initial public
offering ("IPO") which were invested during the entire 1995 year as compared
with only five and one-half months during 1994, the investment of additional
borrowed funds during 1995 at a positive interest rate spread and the rising
interest rate environment that existed during 1995. The increase in interest
rates resulted in a 56 basis point increase in the average yield on
interest-earning assets to 7.21% in 1995 from 6.65% in 1994. The funds received
from both the IPO and from additional borrowings were invested primarily in real
estate loans and MBS's and, as a result, interest income on real estate loans
and MBS's constituted approximately 87.31% and 83.38% of total interest income
for 1995 and 1994, respectively. Interest income on real estate loans increased
by $15.2 million in 1995 from 1994 as a result of an increase in average real
estate loans outstanding of $125.7 million coupled with an increase of 31 basis
points in the average yield on these loans to 8.13% in 1995 from 7.82% in 1994.
Interest income on MBS's increased by $38.3 million in 1995 from 1994 as a
result of an increase in average MBS's of $423.9 million coupled with an
increase of 63 basis points in the average yield to 6.44% in 1995 from 5.81% in
1994. Interest income on debt and 
                                                                         Page 26
<PAGE>

equity securities (including FHLB-NY stock) decreased by $1.4 million, or 5.90%,
to $22.4 million in 1995 from $23.8 million in 1994 reflecting a decrease in the
average balance outstanding of $90.6 million which was partially offset by an
increase of 79 basis points in the average yield to 5.72% in 1995 from 4.93% in
1994. The decline in the average balance reflects the temporary deployment of a
portion of the IPO funds in debt and equity securities at September 30, 1994 and
the redeployment of these funds into real estate loans and mortgage related
investments at September 30, 1995. Interest income on commercial and other loans
decreased by a total of $1.5 million, or 8.66%, to $15.8 million in 1995 from
$17.3 million in 1994. The decrease resulted principally from a $22.7 million,
or 16.12%, decrease in the average balance of these loans partially offset by a
109 basis point increase in the average yield on these loans. Interest income on
cash and cash equivalents decreased by $1.5 million, or 37.58%, to $2.6 million
in 1995 from $4.1 million in 1994 which reflects a decline of $70.3 million in
the average balance partially offset by an increase of 194 basis points in the
average yield. The decline in the average balance reflects the temporary
deployment of a portion of the IPO funds in cash and cash equivalents at
September 30, 1994 and the redeployment of these funds into real estate loans
and mortgage related investments at September 30, 1995.

INTEREST EXPENSE.  Interest expense was $167.9 million in 1995, an increase of
$37.8 million, or 29.05%, from $130.1 million in 1994 primarily reflecting an
increase in the average balance of borrowed funds of $282.6 million coupled with
rising interest rates which resulted in a 123 basis point increase in the
average cost of borrowings. Interest expense on deposits increased as the rise
in interest rates contributed to a shift in consumer preference towards
certificate accounts and away from core accounts. Overall, interest expense on
total deposits increased $19.3 million, or 16.08%, to $139.6 million in 1995
from $120.3 million in 1994 and reflects a 62 basis point increase in the
average cost of deposits which was partially offset by an $85.8 million
reduction in average deposits outstanding. Although average deposits declined,
the ending balance increased by $5.7 million at September 30, 1995 as compared
to September 30, 1994 due to deposit inflows that occurred during the last
quarter of fiscal 1995. As interest rates rose during 1995, customer preference
towards short-term certificate accounts became prevalent and resulted in a
decline in the average balance of lower costing core deposits. Interest expense
on time deposits increased $30.8 million, or 54.16%, to $87.8 million in 1995
from $57.0 million in 1994 which reflects an increase in the average balance of
certificate accounts of $330.4 million, or 25.49%, to $1.6 billion in 1995 from
$1.3 billion in 1994. Interest expense on statement savings accounts decreased
by $5.3 million, or 20.06%, to $20.9 million in 1995 from $26.2 million in 1994
reflecting lower average balances of $207.1 million partially offset by a 12
basis point increase in the average cost. Interest expense on passbook accounts
decreased by $5.3 million, or 19.08%, to $22.4 million in 1995 from $27.7
million in 1994 reflecting lower average balances of $180.2 million coupled with
a decrease of 4 basis points in the average cost. 

Interest expense on borrowed funds increased by $18.5 million, or 188.00%, to
$28.3 million in 1995 from $9.8 million in 1994. This increase reflects the
growth in the average balance of borrowed funds of $282.6 million, or 123.76%,
to $511.0 million in 1995 from $228.4 million in 1994 coupled with a 123 basis
point increase in the average cost to 5.53% in 1995 from 4.30% in 1994. In 1995,
interest expense also includes the amortization of premiums paid for interest
rate cap agreements in the amount of $0.3 million. No such agreements were in
effect during 1994. See Note 15 of Notes to Consolidated Financial Statements.

NET INTEREST INCOME.  Net interest income was $153.3 million in 1995, an
increase of $11.2 million, or 7.93%, from $142.1 million in 1994. The increase
is attributable to an increase in net interest-earning assets of $169.2 million
which was partially offset by a decline in the net interest spread of 20 basis
points to 3.10% in 1995 from 3.30% in 1994. The reduction in the net interest
spread primarily reflects the rise in interest rates that occurred during 1995.
While further contributing to the decline in the net interest spread, the use of
additional borrowed funds enabled the Bank to increase net interest income. The
net interest margin declined slightly to 3.44% in 1995 from 3.47% in 1994 and
the ratio of interest-earning assets to interest-bearing liabilities increased
to 109.25% in 1995 from 105.36% in 1994.

PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses
decreased by $5.5 million, or 45.88%, to $6.5 million in 1995 from $12.0 million
in 1994. This decrease resulted from management's assessment of the loan
portfolio and the level of the Bank's allowance for possible loan losses. In
establishing the provision, management also considered the overall decrease in
net charge-offs which have declined three consecutive years to $7.8 million in
1995 from $10.2 million and $45.5 million in 1994 and 1993, respectively. In
addition, management assessed the local and regional economic and market
conditions as well as its continued attention to collection and workout efforts
with its borrowers. At September 30, 1995, the allowance for possible loan
losses declined marginally to $34.4 million from $35.7 million at September 30,
1994.


                                                                         Page 27

<PAGE>

Long Island Bancorp, Inc. and Subsidiary

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

NON-INTEREST INCOME.  Non-interest income is composed of fee income for bank
services, profits from the sale of assets and operating results from investment
in real estate and premises. Total fee income increased by $4.3 million, or
19.85%, to $26.0 million in 1995 from $21.7 million in 1994. The increase in fee
income was primarily due to increased loan servicing fees of $4.2 million as a
result of growth in the Company's loan servicing portfolio coupled with an
increase in the realization of fee income from the September 1993 sale of home
equity loans. Loan service fee income in 1995 and 1994 is reported net of the
amortization of mortgage servicing rights of $1.4 million and $0.6 million,
respectively. See Note 7 of Notes to Consolidated Financial Statements. Other
fee income increased by $1.0 million, or 36.47%, to $3.9 million in 1995 from
$2.9 million in 1994 primarily reflecting the settlement of a $0.9 million claim
that had arisen from a prior acquisition. The increases in loan service fee
income and other fee income were partially offset by reductions in loan fees and
service charges as well as a decline in income from insurance and securities
commissions. Loan fees and service charges declined by $0.5 million, or 17.55%,
to $2.5 million in 1995 from $3.0 million in 1994 reflecting lower prepayment
penalties and origination fees. Income from insurance and securities commissions
declined by $0.4 million, or 33.74%, to $0.8 million in 1995 from $1.2 million
in 1994 reflecting changes in customer preference away from annuities and
securities during the rising interest rate environment that existed during 1995.
Income from insurance and securities commissions was further impacted during
fiscal 1995 as the Company switched to a new third party provider of financial
products and services and realigned the goals of its personnel to further
complement the strategic initiatives of the Company. Net gains on sale activity
decreased by $0.3 million, or 14.69%, to $1.6 million in 1995 from $1.9 million
in 1994. Net gains (losses) from sales activity vary from year to year based on,
among other things, the interest rate environment, alternative investment
opportunities and the Company's goals in managing its available-for-sale
securities portfolio. Included in the net gains (losses) on sale activity during
1995 was a $1.8 million charge-off of the Company's investment in Nationar,
which was partially offset by an increase in net gains on the sale of loans and
MBS's. Net gain (loss) on investment in real estate and premises increased by
$2.2 million to $1.5 million in 1995 from a loss of $0.7 million in 1994. The
variance is primarily due to a $1.8 million write-down recorded in 1994 to
properly reflect the reduced carrying value of certain real estate that was held
for sale.

NON-INTEREST EXPENSE.  Non-interest expense was $102.5 million in 1995, a
decrease of $1.5 million, or 1.44%, from $104.0 million in 1994. Contributing to
the overall decline was a reduction in the net loss on real estate owned which
was partially offset by an increase in total G&A expenses. The net loss on real
estate owned decreased by $2.3 million, or 55.82%, to a loss of $1.8 million in
1995 from a loss of $4.1 million in 1994. This decrease is principally
attributable to the completion of the Bulk Sale of real estate owned that was
finalized in the first quarter of fiscal 1994. Total G&A expenses increased by
$0.7 million, or 0.76%, to $100.7 million in 1995 from $100.0 million in 1994.
Contributing to the rise in G&A expenses were increased advertising expenses of
$1.1 million reflecting the expanding marketing efforts in the consumer banking
and mortgage businesses through the introduction of programs designed to
increase the Company's market presence. Further contributing to the rise in
total G&A expenses was an increase in other G&A expenses of $0.8 million, or
5.09%, to $17.1 million in 1995 from $16.3 million in 1994 which primarily
reflects the additional operational costs stemming from the acquisitions of
Entrust Financial Corporation ("Entrust") and Developer's Mortgage Corporation
("Developer's"). Entrust and Developer's also contributed to the rise in office
occupancy and equipment expense which increased by $0.6 million, or 3.49%, to
$18.5 million in 1995 from $17.9 million in 1994. Partially offsetting the
increase in total G&A expenses were reductions in federal insurance premiums and
compensation and benefit costs. Federal insurance premiums declined by $1.1
million, or 11.45%, reflecting the Company's success in reducing its SAIF
assessment rate during 1995. Compensation and benefit costs decreased by $0.7
million, or 1.29%, to $51.4 million in 1995 from $52.1 million in 1994 primarily
reflecting lower pension and insurance expenses of $3.5 million in fiscal 1995
which were partially offset by an increase in ESOP and MRP amortization of $2.6
million and costs associated with Entrust and Developer's of approximately $0.6
million.

PROVISION FOR INCOME TAXES.  Income tax expense was $29.9 million in 1995, an
increase of $11.9 million, or 65.67%, from $18.0 million in 1994 primarily
reflecting a higher level of taxable income in 1995. In addition, the effective
tax rate increased to 40.72% in 1995 from 36.88% in 1994 principally as a result
of the partial reversal of the deferred tax valuation allowance in 1995 of $0.5
million as compared to $2.1 million in 1994.

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE.  Effective October 1, 1993,
the Company adopted SFAS 109. SFAS 109 requires a change from the deferred
method to the asset and liability method of accounting for income taxes. Under
the asset and liability method, deferred tax assets and liabilities are recorded
to recognize the estimated future tax consequences of the differences between
the tax basis and financial reporting basis of the Company's assets and
liabilities. SFAS 109 requires the Company to take into account the effect of
changes in tax laws and rates on recorded assets and liabilities in the year of
enactment. While SFAS 109 allows for the recognition of deferred tax assets for
future deductible amounts, it also requires the establishment of a valuation
reserve to reduce deferred tax assets if it is "more likely than not" that the
related tax benefits will not be realized. The adoption of SFAS 109 was recorded
as a cumulative effect of change in accounting and resulted in a credit to
earnings of $19.4 million and an offsetting adjustment to the Company's net
deferred tax account.

                                                                         Page 28
<PAGE>

Effective October 1,1993, the Bank adopted SFAS 106. SFAS 106 changes the common
practice of accounting for non-pension postretirement benefits on a cash basis
to the recognition, on an accrual basis, of the expected cost of providing such
benefits to the employee and related beneficiaries and covered dependents during
the years that the employee provides services to the employer. The adoption of
SFAS 106 resulted in a cumulative charge to earnings of $10.7 million.

------------------------------------------------------------------------------
Impact of Inflation and 
Changing Prices

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

------------------------------------------------------------------------------
Impact of New 
Accounting Standards

In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS 121 is effective for fiscal years beginning after December 15, 1995
and establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of. This statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the entity should estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows is less than the carrying amount of the asset, an
impairment loss should be recognized. This statement requires that long-lived
assets and certain identifiable intangibles to be disposed of be reported at the
lower of carrying amount or fair value less cost to sell, except for assets that
are covered by Accounting Principle Board Opinion No. 3, "Reporting the Results
of Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." The
Company does not currently expect SFAS 121 to have a significant effect on its
financial statements.

In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123 ("SFAS 123"), "Accounting for Stock-Based Compensation." SFAS 123 applies to
all transactions in which an entity acquires goods or services by issuing equity
instruments or by incurring liabilities where the payment amounts are based on
the entity's common stock price, except for employee stock ownership plans. SFAS
123 covers transactions with employees and non-employees and is applicable to
both public and non-public entities.

SFAS 123 establishes a new method of accounting for stock-based compensation
arrangements with employees. The new method is a fair value based method rather
than the intrinsic value based method that is contained in Accounting Principles
Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees."
SFAS 123 does not require an entity to adopt the new fair value based method for
purposes of preparing its basic financial statements. Entities are allowed (i)
to continue to use the APB 25 method or (ii) to adopt the SFAS 123 fair value
based method. SFAS 123 fair value based method is considered by the FASB to be
preferable to the APB 25 method, and thus, once the fair value based method is
adopted, an entity cannot change back to the APB 25 method. Also, the selected
method applies to all of an entity's compensation plans and transactions. For
entities not adopting the SFAS 123 fair value based method, SFAS 123 requires
the entity to display in the footnotes to the financial statements pro forma net
income and earnings per share information as if the fair value based method had
been adopted.

The accounting requirements of SFAS 123 are effective for transactions entered
into in fiscal years that begin after December 15, 1995, though they may be
adopted on issuance. The disclosure requirements are effective for financial
statements for fiscal years beginning after December 15, 1995, or for an earlier
fiscal year for which SFAS 123 is initially adopted for recognizing compensation
cost. Pro forma disclosures required for entities that elect to continue to
measure compensation cost using the APB 25 method must include the effects of
all awards granted in fiscal years that begin after December 15, 1994. Pro forma
disclosures for awards granted in the first fiscal year beginning after December
15, 1994, need not be included in financial statements for that fiscal year but
should be presented subsequently whenever financial statements for that fiscal
year are presented for comparative purposes with financial statements for a
later fiscal year. The Company does not currently expect SFAS 123 to have a
significant effect on its financial statements.

                                                                         Page 29
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

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

In June 1996, the FASB issued Statement of Financial Accounting No. 125 ("SFAS
125"), "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of a financial-components approach
that focuses on control. Under this approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes the financial assets when control
has been surrendered, and derecognizes liabilities when extinguished. This
statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings. This
statement supersedes Statement of Financial Accounting Standards No. 76,
"Extinguishment of Debt," and No. 77, "Reporting by Transferors for Transfers of
Receivable with Recourse," and SFAS 122 and amends SFAS 115 and Statement of
Financial Accounting Standards No. 65, "Accounting for Certain Mortgage Banking
Activities."

The provisions of SFAS 125 are effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996 and is to be applied prospectively. Earlier or retroactive application is
not permitted. The Company is currently in the process of reviewing the effects
of SFAS 125.

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

Recent Federal and 
New York State Bad 
Debt Deduction 
Legislation

Under Section 593 of the Internal Revenue Code of 1986 as amended ("Code"),
prior to January 1, 1996 thrift institutions such as the Bank which met certain
definitional tests primarily relating to their assets and the nature of their
business, were permitted to establish a tax reserve for bad debts. Such thrift
institutions were also permitted to make annual additions to the reserve to be
deducted in arriving at their taxable income within specified limitations. The
Bank's deduction was computed using an amount based on the Bank's actual loss
experience ("experience method"), or a percentage equal to 8% of the Bank's
taxable income ("PTI method"). Similar deductions for additions to the Bank's
bad debt reserve were also permitted under the New York State Bank Franchise Tax
and the New York City Banking Corporation Tax; however, for purposes of these
taxes, the effective allowable percentage under the PTI method was 32% rather
than 8%. See Note 17 of Notes to Consolidated Financial Statements.

Under the Small Business Job Protection Act of 1996 ("1996 Act"), signed into
law in August, 1996, Section 593 of the Code was amended. The Bank will be
unable to make additions to the tax bad debt reserves but will be permitted to
deduct bad debts as they occur. Additionally, the 1996 Act required institutions
to recapture (that is, include in taxable income) the excess of the balance of
its bad debt reserves as of December 31, 1995 over the balance of such reserves
as of December 31, 1987 ("base year"). The Bank's tax bad debt reserves at
December 31, 1995 exceeded its base year reserves by $2.7 million which will be
recaptured into taxable income ratably over a six year period. If certain
requirements are met the recapture may be deferred for up to two years. The base
year reserves will be subject to recapture, and the Bank could be required to
recognize a tax liability if (i) the Bank fails to qualify as a "bank" for
Federal income tax purposes; (ii) certain distributions are made with respect to
the stock of the Bank; (iii) the use by the Bank of bad debt reserves for any
purpose other than to absorb bad debt losses; and (iv) there is a change in
Federal tax law. Management is not aware of the occurrence of any such event.

In response to the Federal legislation, New York State tax law has been amended
to prevent the recapture of existing tax bad debt reserves and to allow for the
continued use of the PTI method to determine the bad debt deduction in computing
New York State tax liability. No such amendments have been made to date with
respect to New York City tax law. The Company cannot predict whether such
changes will be made or as to the form of the changes.

------------------------------------------------------------------------------
Private Securities 
Litigation Reform
Act Safe Harbor 
Statement

In addition to historical information, this Annual Report includes certain
forward looking statements based on current management expectations. The
Company's actual results could differ materially from those management
expectations. Factors that could cause future results to vary from current
management expectations include, but are not limited to, general economic
conditions, legislative and regulatory changes, monetary and fiscal policies of
the federal government, changes in tax policies, rates and regulations of
federal, state and local tax authorities, changes in interest rates, deposit
flows, the cost of funds, demand for loan products, demand for financial
services, competition, changes in the quality or composition of the Bank's loan
and investment portfolios, changes in accounting principles, policies or
guidelines, and other economic, competitive, governmental and technological
factors affecting the Company's operations, markets, products, services and
prices. Further description of the risks and uncertainties to the business are
included in detail in Item 1, "Business" of the Company's 1996 Form 10-K.

                                                                        Page 30

<PAGE>

Long Island Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)

                                                           September 30,
----------------------------------------------------------------------------
                                                        1996         1995
                                                      --------     --------
ASSETS
Cash and cash equivalents (including interest-earning 
  assets of $37,357 and $10,850, respectively)     $   76,348   $   67,410
Investment in debt and equity securities, net:
  Held-to-maturity, net (estimated fair value of
  $0 and $55,871, respectively)                            --       55,839
  Available-for-sale                                  180,650      233,408
Mortgage-backed securities, net:
  Held-to-maturity (estimated fair value of
  $21,120 and $1,339,014, respectively)                23,096    1,337,903
  Available-for-sale                                1,717,106      938,847
Stock in Federal Home Loan Bank of New York, at cost   40,754       35,132
Loans held for sale, net                               57,969       49,372
Loans receivable held for investment, net:
  Real estate loans, net                            2,921,285    1,900,204
  Commercial loans, net                                 7,810        8,706
  Other loans, net                                    145,654      120,189
                                                   ----------   ----------
  Loans, net                                        3,074,749    2,029,099
  Less allowance for possible loan losses             (33,912)     (34,358)
                                                   ----------   ----------
  Total loans receivable held for investment, net   3,040,837    1,994,741
Mortgage servicing rights, net                         29,687       11,328
Office properties and equipment, net                   89,279       86,239
Accrued interest receivable, net                       32,962       31,752
Real estate owned                                       8,155        8,893
Investment in real estate, net                          2,525       12,286
Prepaid expenses and other assets                      64,423       38,472
                                                   ----------   ----------
Total assets                                       $5,363,791   $4,901,622
                                                   ----------   ----------
                                                   ----------   ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Deposits                                         $3,633,010   $3,573,529
  Official checks outstanding                          49,860       42,812
  Borrowed funds                                      978,023      633,675
  Mortgagors' escrow liabilities                       64,232       71,400
  Accrued expenses and other liabilities              119,572       54,032
                                                   ----------   ----------
Total liabilities                                   4,844,697    4,375,448
Stockholders' equity:
  Preferred stock ($0.01 par value, 5,000,000 
  shares authorized; none issued)                          --           --
  Common stock ($0.01 par value, 45,000,000 
    shares authorized; 26,816,464 shares issued, 
    24,644,157 and 26,076,486 outstanding,
    respectively)                                         268          268
  Additional paid-in capital                          304,027      298,518
  Unallocated Employee Stock Ownership Plan           (19,230)     (21,443)
  Unearned Management Recognition & Retention Plan     (5,551)      (7,071)
  Unrealized gain on securities available-for-sale, 
  net of tax                                            6,633        6,947
  Retained income--partially restricted               285,311      264,105
  Treasury stock, at cost (2,172,307 and 
  739,978 shares, respectively)                       (52,364)     (15,150)
                                                   ----------   ----------
Total stockholders' equity                            519,094      526,174
                                                   ----------   ----------
Total liabilities and stockholders' equity         $5,363,791   $4,901,622
                                                   ----------   ----------
                                                   ----------   ----------

See accompanying notes to consolidated financial statements.


                                                                         Page 31
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

                                           For the Year Ended September 30,
------------------------------------------------------------------------------
                                               1996          1995        1994
                                             --------      --------    --------
Interest income:
  Real estate loans                         $185,241    $140,268     $125,069
  Commercial loans                               705         984        1,117
  Other loans                                 14,845      14,840       16,208
  Mortgage-backed securities                 134,064     140,173      101,868
  Debt and equity securities                  16,716      24,950       27,895
                                            --------    --------     --------
  Total interest income                      351,571     321,215      272,157
                                            --------    --------     --------
Interest expense:
  Deposits                                   155,830     139,641      120,293
  Borrowed funds                              41,346      28,255        9,811
                                            --------    --------     --------
  Total interest expense                     197,176     167,896      130,104
                                            --------    --------     --------
  Net interest income                        154,395     153,319      142,053
Provision for possible loan losses             6,200       6,470       11,955
                                            --------    --------     --------
  Net interest income after provision 
  for possible loan losses                   148,195     146,849      130,098
Non-interest income:
  Fees and other income:
  Loan fees and service charges                3,217       2,494        3,025
  Loan servicing fees                         13,863      12,873        8,725
  Income from insurance and securities 
  commissions                                  1,608         805        1,215
  Deposit service fees                         5,937       5,917        5,863
                                            --------    --------     --------
     Total fees income                        24,625      22,089       18,828
Other income                                   3,718       3,903        2,860
                                            --------    --------     --------
     Total fees and other income              28,343      25,992       21,688
                                            --------    --------     --------
  Net gains (losses) on sale activity:
  Net gains on loans and mortgage-backed 
  securities                                   7,993       3,562        2,623
  Net gains (losses) on investment in 
  debt and equity securities                     340      (1,924)        (703)
                                            --------    --------     --------
     Total net gains on sale activity          8,333       1,638        1,920
  Net gain (loss) on investment in 
  real estate and premises                     4,118       1,467         (738)
                                            --------    --------     --------
     Total non-interest income                40,794      29,097       22,870

Non-interest expense:
  General and administrative expense:
  Compensation, payroll taxes and fringe 
  benefits                                    57,969      51,443       52,117
  Advertising                                  5,940       4,691        3,552
  Office occupancy and equipment              20,631      18,547       17,922
  Federal insurance premiums                   9,055       8,961       10,120
  Other general and administrative 
  expense                                     18,612      17,101       16,272
                                            --------    --------     --------
      Total general and administrative 
      expense                                112,207     100,743       99,983
  SAIF special assessment                     18,657          --           --
  Net loss on real estate owned                2,090       1,790        4,052
                                            --------    --------     --------
      Total non-interest expense             132,954     102,533      104,035
                                            --------    --------     --------
Income before income taxes and cumulative
  effect of accounting changes                56,035      73,413       48,933
Provision for income taxes                    23,760      29,897       18,046
                                            --------    --------     --------
Income before cumulative effect of 
  accounting changes                          32,275      43,516       30,887
Cumulative effect of changes in 
  accounting                                      --          --        8,648
                                            --------    --------     --------
Net income                                  $ 32,275    $ 43,516     $ 39,535
                                            --------    --------     --------
                                            --------    --------     --------
Primary earnings per common share(1)        $   1.33    $   1.73     $   0.70
                                            --------    --------     --------
                                            --------    --------     --------
Fully diluted earnings per common 
  share(1)                                  $   1.33    $   1.71     $   0.70
                                            --------    --------     --------
                                            --------    --------     --------

(1)  For the year ended September 30, 1994, earnings per share was based upon
income earned during the period April 14, 1994 through September 30, 1994.

See accompanying notes to consolidated financial statements.

                                                                         Page 32

<PAGE>

Long Island Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended September 30, 1996, 1995 and 1994
(In thousands, except share data)


<TABLE>
<CAPTION>
                                                          Unallocated   Unearned    Unrealized  
                                                           Employee    Management    Gain(Loss)   Retained
                                               Additional   Stock     Recognition  on Securities  Income--
                                        Common  Paid-in   Ownership   & Retention    Available-   Partially   Treasury
                                        Stock   Capital     Plan         Plan        for-Sale     Restricted    Stock    Total
________________________________________________________________________________________________________________________________
<S>                                      <C>   <C>       <C>         <C>              <C>        <C>          <C>      <C>
Balance at 
  September 30, 1993                    $ --  $     --  $    --        $   --         $19,913   $191,717      $    --  $211,630
Net income                                                                                        39,535                 39,535
Net proceeds from common 
  stock issued in 
  stock conversion                       268   296,583                                                                  296,851
Acquisition of common stock
  by ESOP and MRP                                        (23,805)      (8,927)                                          (32,732)
Allocation/amortization of
  ESOP and MRP stock
  and related tax benefits                         258       712         421                                              1,391
Change in unrealized losses 
  on securities available-
  for-sale (net of tax of 
  $(17,600))                                                                          (22,966)                          (22,966)
                                        ----   -------   -------      -------         -------    -------      -------   -------
Balance at
  September 30, 1994                     268   296,841   (23,093)      (8,506)         (3,053)   231,252           --   493,709
Net income                                                                                        43,516                 43,516
Allocation/amortization of ESOP
  and MRP stock and related
  tax benefits                                   1,254     1,650       1,435                                              4,339
Change in unrealized gains on
  securities available-for-sale
   (net of tax of $7,600)                                                              10,000                            10,000
Dividends                                                                                         (9,693)                (9,693)
Repurchase of common stock
   (886,000 shares)                                                                                           (17,812)  (17,812)
Exercise of stock options
   (146,022 shares) and related
  tax benefits                                     423                                              (970)      2,662      2,115
                                        ----   -------   -------      -------         -------    -------      -------   -------
Balance at
  September 30, 1995                     268   298,518   (21,443)      (7,071)          6,947    264,105      (15,150)  526,174
Net income                                                                                        32,275                 32,275
Allocation/amortization of ESOP
  and MRP stock and related
  tax benefits                                   4,358     2,213        1,520                                             8,091
Change in unrealized gains on
  securities available-for-sale
   (net of tax of $5,300)                                                              (7,048)                           (7,048)
Dividends                                                                                         (9,171)                (9,171)
Repurchase of common stock
   (1,611,554 shares)                                                                                         (42,043)  (42,043)
Exercise of stock options
   (179,225 shares) and related
  tax benefits                                   1,151                                            (1,898)      4,829      4,082
Net unrealized gain on securities
  reclassified as available-for-sale 
   (net of tax of $5,103)                                                               6,734                             6,734
                                        ----  --------  --------      -------        --------   --------     --------  --------
Balance at
  September 30, 1996                    $268  $304,027  $(19,230)     $(5,551)       $  6,633   $285,311     $(52,364) $519,094
                                        ----  --------  --------      -------        --------   --------     --------  --------
                                        ----  --------  --------      -------        --------   --------     --------  --------
</TABLE>
See accompanying notes to consolidated financial statements.

                                                                     Page 33

<PAGE>
 

Long Island Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>

                                                          For the Year Ended September 30,
___________________________________________________________________________________________


                                                    1996           1995            1994  
                                                 ----------     ---------      ----------
<S>                                                     <C>           <C>             <C>
Operating activities:
  Net income                                    $    32,275     $  43,516      $   39,535
  Adjustments to reconcile net income to net 
  cash provided by operating activities:
  Provision for possible loan losses                  6,200         6,470          11,955
Write-off of real estate owned and investment
in real estate                                          490           581           2,633
  Gains on sale of real estate owned, net              (334)         (484)           (584)
  Depreciation and amortization                      10,988         8,352           6,487
  Capitalized mortgage servicing rights, net         (5,900)       (1,969)             --
  Amortization of premiums, net of accretion of 
     discounts-debt, equity and mortgage-backed 
     securities                                       1,909          (972)         (1,147)
  Amortization of premiums, net of accretion of
     discounts-purchase accounting                      227        (1,550)         (1,822)
  Employee Stock Ownership Plan/Management 
  Recognition & Retention Plan expense                7,331         4,130           1,391
  Cumulative effect of changes in accounting             --            --          (8,648)
  Gains on sales of loans and mortgage-backed 
     securities, net                                 (7,993)       (3,562)         (2,623)
  Originations of loans held-for-sale, net of 
     proceeds from sales                             (2,448)      (40,054)        143,082
  (Gains) losses on sales of debt and equity 
     securities, net                                   (291)           46             703
  Provision for (gain) loss on investment in debt 
     and equity securities                              (49)        1,878              --
  Increase in accrued interest receivable            (1,210)       (4,206)         (1,254)
  Increase in accrued and other liabilities          65,540        10,510          11,766
  Increase in official checks outstanding             7,048        17,932             151
  Increase in prepaids and other assets             (13,974)       (2,764)        (11,984)
  Net (decrease) increase in unearned income         (7,927)       (1,669)          2,051
                                                 ----------     ---------      ----------
     Net cash provided by operating activities       91,882       36,185          191,692
                                                 ----------     ---------      ----------
Investing activities:
  Proceeds from sales of debt and equity 
     securities, available-for-sale                 139,099        48,836         117,414
  Proceeds from sales of mortgage-backed 
     securities, available-for-sale                 485,195       286,674         696,830
  Proceeds from maturities of and principal 
     payments on debt and equity securities         411,319       972,775       1,828,066
  Proceeds from redemption of Federal Home Loan 
     Bank stock                                          --            --          11,697
  Principal payments on mortgage-backed securities  566,421       360,416         404,860
  Purchases of debt and equity securities, 
     available-for-sale                            (441,359)     (861,877)     (1,951,159)
  Purchases of debt and equity securities, 
     held-to-maturity                                    --        (7,128)        (78,288)
  Purchases of Federal Home Loan Bank stock          (5,622)       (4,372)             --
  Purchases of mortgage-backed securities, 
     available-for-sale                            (154,185)     (341,831)       (865,353)
  Purchases of mortgage-backed securities, 
     held-to-maturity                                    --      (365,103)       (939,600)
  Originations and purchases of loans held-for-
     investment, net of principal payments       (1,413,321)     (521,512)        101,959
  Proceeds from sale of real estate owned, 
     office properties and equipment                 12,964        10,439          32,038
  Purchases of office properties and equipment      (15,023)      (12,562)         (5,534)
  Purchase of mortgage servicing rights             (15,159)      (10,071)           (444)
                                                 ----------     ---------      ----------
     Net cash used by investing activities         (429,671)     (445,316)       (647,514)
                                                 ----------     ---------      ----------
Financing activities:
  Net decrease in demand deposits, NOW 
     accounts and savings accounts                  (58,718)     (444,864)       (158,968)
  Net (decrease) increase in mortgagors' escrow 
     accounts                                        (7,168)       10,211             673
  Net increase in certificates of deposit           118,199       450,578         109,175
  Costs to repurchase common stock                  (42,043)      (17,812)             --
  Proceeds from the exercise of stock options         2,070         1,677              --
  Cash dividends paid on common stock                (9,961)       (7,892)             --
  Net (decrease) increase in short-term 
     borrowings                                    (277,461)      (60,022)        130,522
  Net increase in long-term borrowings              621,809       368,675         150,000
  Net funds received for subscription of Long 
     Island Bancorp Inc. common stock                    --            --         264,220
                                                 ----------     ---------      ----------
     Net cash provided by financing activities      346,727      300,551          495,622
                                                 ----------     ---------      ----------
     Increase (decrease) in cash and cash
     equivalents                                      8,938      (108,580)         39,800
  Cash and cash equivalents at the beginning 
     of the year                                     67,410       175,990         136,190
                                                 ----------     ---------      ----------
  Cash and cash equivalents at the end of the 
     year                                        $   76,348     $  67,410      $  175,990
                                                 ----------     ---------      ----------
                                                 ----------     ---------      ----------
Supplemental disclosures of cash flow information:
  Cash paid during the years for:
     Interest on deposits and borrowed funds     $  195,089   $  164,239       $  127,772
                                                 ----------     ---------      ----------
                                                 ----------     ---------      ----------
     Income taxes                                $   27,465    $  20,245       $   10,150
                                                 ----------     ---------      ----------
                                                 ----------     ---------      ----------
  Non-cash investing activities:
     Additions to real estate owned, net         $   10,001    $  10,312      $    12,699
                                                 ----------     ---------      ----------
                                                 ----------     ---------      ----------
     Securitization of loans                     $  358,786   $  143,679       $       --
                                                 ----------     ---------      ----------
                                                 ----------     ---------      ----------
     SFAS 115 Transfer                           $1,307,472     $     --       $       --
                                                 ----------     ---------      ----------
                                                 ----------     ---------      ----------
</TABLE>

See accompanying notes to consolidated financial statements.

                                                                         Page 34
<PAGE>
 

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994



(1)
BASIS OF 
PRESENTATION AND 
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES


BASIS OF PRESENTATION.  The consolidated financial statements have been prepared
in conformity with generally accepted accounting principles ("GAAP") and include
the accounts of Long Island Bancorp, Inc. ("Holding Company") and its direct
wholly-owned subsidiary The Long Island Savings Bank, FSB ("Bank"). While the
following footnotes include the collective results of the Holding Company and
the Bank (collectively "Company"), these footnotes primarily reflect the Bank's
activities. All significant intercompany accounts and transactions have been
eliminated. 

As more fully described in Note 2, the Bank converted from a federally chartered
mutual savings bank to a federally chartered stock savings bank ("Conversion")
during the fiscal year ended September 30, 1994. The Holding Company was
organized for the purpose of acquiring all of the capital stock of the Bank
pursuant to the Conversion, and is subject to the financial reporting
requirements of the Securities Exchange Act of 1934, as amended.

In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of each consolidated statement of financial condition
and the related consolidated statement of operations for the year then ended.
Actual results could differ from those estimates. 

Certain reclassifications have been made to prior year amounts to conform to the
current year presentation.

CASH AND CASH EQUIVALENTS.  For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks and short-term loans to
commercial banks with original terms to maturity of less than three months. 

DEBT, EQUITY AND MORTGAGE-BACKED SECURITIES.  In accordance with Statement of
Financial Accounting Standards No. 115 ("SFAS 115") "Accounting for Certain
Investments in Debt and Equity Securities", the Company is required to classify
and report debt, readily-marketable equity, and mortgage-backed securities
("MBS's") in one of the following categories: (i) "held-to-maturity" (management
has a positive intent and ability to hold to maturity) which are to be reported
at amortized cost, adjusted in the case of debt securities for the amortization
of premiums and accretions of discounts; (ii) "trading" (held for current
resale) which are to be reported at fair value, with unrealized gains and losses
included in earnings; and (iii) "available-for-sale" (all other debt and equity
securities and MBS's) which are to be reported at fair value, with unrealized
gains and losses excluded from earnings and reported net of tax as a separate
component of stockholders' equity.

Effective November 1995, the Financial Accounting Standards Board ("FASB")
issued a Special Report on SFAS 115 providing a one-time reassessment that
allowed entities, concurrent with the initial adoption of the implementation
guidance but no later than December 31, 1995, to reassess the appropriateness of
the classifications of all securities held at that time. The reassessment of the
Company's portfolio resulted in MBS's and debt securities in the amounts of $1.2
billion and $78.6 million, respectively, previously classified as
held-to-maturity, to be classified as available-for-sale, and resulted in an
increase of $6.7 million, net of tax, to stockholders' equity.


Premiums and discounts on debt securities and MBS's are amortized to expense and
accreted to income over the estimated life of the respective security using the
level-yield method. Gains and losses on the sales of securities are recognized
on realization. 

REAL ESTATE AND OTHER LOANS.  Purchased loans are recorded at cost. Related
premiums or discounts are amortized to expense or accreted to income primarily
using the level-yield method over the estimated life of the loans. 
Discounts on other loans are accreted to income over the term of the loans
primarily using the simple-interest method of accounting which calculates
interest income based upon the outstanding loan balance. 

Accrual of interest on potential problem loans is excluded from income primarily
after a delinquency of 90 days or when, in the opinion of management, such
suspension is warranted. 

Loans held for sale are carried at the aggregate lower of cost or market value. 

In May 1993, Statement of Financial Accounting Standards No. 114 ("SFAS 114"),
"Accounting by Creditors for Impairment of a Loan" was issued. The statement is
effective for financial statements for fiscal years beginning after December 15,
1994. According to SFAS 114, impairment is measured based upon the present value
of expected future cash flows or fair value of the loan's collateral. In October
1994, Statement of Financial Accounting Standards No. 118 ("SFAS 118"),
"Accounting by Creditors for Impairment of a Loan--Income Recognition and
Disclosures" was issued. SFAS 118 is also effective for fiscal years beginning
after December 15, 1994 and amends SFAS 114 to allow a creditor to use existing
methods for recognizing interest income on an impaired loan. This statement also
amends the disclosure requirements of SFAS 114 to require information about the
recorded investment in certain impaired loans and about how a creditor
recognizes interest income related to those impaired loans. The Company's
adoption of SFAS 114 and SFAS 118 on October 1, 1995 did not have a material
impact on its financial condition or results of operations because consumer
residential mortgages and installment loans are generally excluded from the
scope of the statements.

                                                                         Page 35

<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
(Continued)

In May 1995, Statement of Financial Accounting Standards No. 122 ("SFAS 122"),
"Accounting for Mortgage Servicing Rights" was issued. SFAS 122 is effective for
fiscal years beginning after December 15, 1995. The statement amends Statement
of Financial Accounting Standards No. 65 ("SFAS 65"), "Accounting for Certain
Mortgage Banking Activities," to require that a mortgage banking enterprise
recognize as separate assets rights to service mortgage loans for others,
however acquired. For mortgage servicing rights ("MSR's") that are created
through the origination of mortgage loans, and where the loans are subsequently
sold or securitized with servicing rights retained, the statement requires that
the total cost of the mortgage loans should be allocated to the MSR's and the
loans based on their relative fair values. The statement also requires the
assessment of capitalized MSR's for impairment to be based on the current fair
value of those rights and recognized through a valuation allowance. The
Company's adoption of SFAS 122 on July 1, 1995 did not have a material impact on
its financial condition or results of operations.

ALLOWANCE FOR POSSIBLE LOAN LOSSES.  The allowance for possible loan losses is
based on a periodic analysis of the loan portfolio and reflects an amount which,
in management's judgment, is adequate to provide for possible loan losses in the
existing portfolio. In evaluating the portfolio, management takes into
consideration numerous factors such as the Company's loan growth, prior loss
experience, present and potential risks of the loan portfolio and current
economic conditions. Provisions for possible losses on loans are charged to
operations. Loans are charged-off against the allowance for possible loan losses
when the collectability of loan principal is unlikely. Recoveries of loans
previously charged-off are credited to the allowance. 

COMMITMENT AND LOAN ORIGINATION FEES.  Non-refundable commitment fees and other
loan origination fees received for commitments to make or purchase loans are
netted against the costs of originating such loans and the net fee is deferred.
The deferred amount is accreted into income over the life of the loan using the
level-yield method. The direct origination costs subject to deferral are
captured in the form of a standard cost on successful loan originations and
recorded as reductions to the applicable expense categories. These procedures
are in compliance with Statement of Financial Accounting Standards No. 91 ("SFAS
91"), "Accounting for Nonrefundable Fees and Costs Associated with Originating
or Acquiring Loans and Initial Direct Costs of Leases." 

OFFICE PROPERTIES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS.  Office properties and
equipment are stated at cost less accumulated depreciation. Depreciation is
computed on a straight-line method over the estimated useful lives of the
assets. Estimated lives vary from 20 to 50 years on buildings and 3 to 25 years
on furniture and fixtures. Leasehold improvements are stated at cost less
accumulated amortization. Amortization is computed on the straight-line method
over the term of the respective lease or the life of the improvement, whichever
is shorter. 

REAL ESTATE OWNED.  Real estate owned ("REO") represents real estate acquired
through foreclosure or deed in lieu of foreclosure and is recorded at the lower
of cost or market, based on estimated fair value at the time of foreclosure.
Thereafter REO is carried at the lower of the new cost basis or fair value less
estimated costs to sell in accordance with American Institute of Certified
Public Accountants ("AICPA") Statement of Position 92-3 ("SOP 92-3"),
"Accounting for Foreclosed Assets." Cost represents the unpaid loan balance at
the acquisition date plus expenses, when appropriate, incurred to bring the
property to a saleable condition. Subsequent declines in estimated fair value,
certain costs relating to holding the properties, and gains or losses resulting
from the disposition of properties are recognized in the current period's
operations. 

IMPACT OF CHANGES IN ACCOUNTING STANDARDS.  In June 1996, Statement of Financial
Accounting No. 125 ("SFAS 125"), "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" was issued. The Statement
is effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996 and is to be applied
prospectively. Earlier or retroactive application is not permitted. SFAS 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial-components approach that focuses on control. Under
this approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has incurred,
derecognizes financial assets when control has been surrendered and derecognizes
liabilities when extinguished. This statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. This statement supersedes Statement of Financial
Accounting Standards No. 76, "Extinguishment of Debt," and No. 77, "Reporting by
Transferors for Transfers of Receivables with Recourse," and SFAS 122 and amends
SFAS 115 and SFAS 65. The Company is currently in the process of reviewing SFAS
125.

FEDERAL INCOME TAXES.  The Holding Company files a consolidated Federal income
tax return with its subsidiary. The Holding Company also files a combined New
York State and New York City tax return with its subsidiary and an annual report
with the State of Delaware. In addition, the Bank files tax returns in those
states that it maintains lending operations.


                                                                         Page 36

<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
(Continued)

The Company adopted Statement of Financial Accounting Standards No. 109 ("SFAS
109"), "Accounting for Income Taxes" effective October 1, 1993. SFAS 109
requires the use of the liability method in accounting for income taxes whereby,
among other effects, deferred taxes are provided for all temporary differences
between financial statement carrying amounts and the tax basis of assets and
liabilities, and the effect of tax rate changes are included in income in the
period of enactment. This statement changed the Company's method of accounting
for income tax expense, since it provided significantly less restrictive
criteria for the recognition of deferred tax assets. Deferred tax assets are to
be recognized for temporary differences that will result in deductible amounts
in future years and for tax loss carryforwards, if, in the opinion of
management, it is "more likely than not" that the deferred tax assets will be
realized. SFAS 109 requires companies to set up a valuation allowance for that
component of net deferred tax assets which does not meet the "more likely than
not" criterion for realization.

EMPLOYEE BENEFITS. Effective April 14, 1994, the date of Conversion, the Company
adopted the provisions of AICPA Statement of Position 93-6 ("SOP 93-6"),
"Employers' Accounting for Employee Stock Ownership Plans." In accordance with
SOP 93-6, compensation expense is recorded at an amount equal to the shares
allocated by an Employee Stock Ownership Plan ("ESOP") multiplied by the average
fair value of the allocated shares during the period. For the years ended
September 30, 1996 and 1995, compensation expense attributable to the ESOP was 
$5.0 million and $2.5 million, respectively. For the period April 14, 1994 to
September 30, 1994, compensation expense attributable to the ESOP was $1.0
million.

For earnings per share ("EPS") and other per-share disclosure, ESOP shares that
have been committed to be released are considered to be outstanding. ESOP shares
that have not been committed to be released are excluded from outstanding shares
with respect to calculations of EPS. The Company recognizes compensation expense
ratably over the year for the ESOP shares to be allocated each December 31st. 
The Company accrues the associated employee compensation expense for the ESOP
shares on a monthly basis based upon the Company's current estimate of the
number of shares expected to be allocated by the ESOP during each calendar year.
Additionally, as the ESOP shares are accrued for, they are reported at the
average fair value of the shares during the month. The difference between the
fair value and the cost of the shares allocated by the ESOP is treated as an
adjustment to additional paid-in capital.

The Company adopted Statement of Financial Accounting Standards No. 106 ("SFAS
106"), "Employers' Accounting for Postretirement Benefits Other Than Pensions"
effective October 1, 1993. The principal effect of SFAS 106 was to require
accruals during the years employees render service to earn postretirement
benefits such as health care and life insurance for themselves, their
beneficiaries, and covered dependents instead of recognizing an expense when
benefits are paid. Upon adopting SFAS 106, the Company recognized its transition
obligation as a one-time charge against income in the amount of $10.7 million
which is reflected in the fiscal 1994 Consolidated Statements of Operations as a
cumulative effect of a change in accounting principle.

In October 1995, Statement of Financial Accounting Standards No. 123 ("SFAS
123"), "Accounting for Stock-Based Compensation" was issued. SFAS 123 applies to
all transactions in which an entity acquires goods or services by issuing equity
instruments or by incurring liabilities where the payment amounts are based on
the entity's common stock price, except for employee stock ownership plans. SFAS
123 covers transactions with employees and non-employees and is applicable to
both public and non-public entities.

SFAS 123 establishes a new method of accounting for stock-based compensation
arrangements with employees. The new method is a fair value based method rather
than the intrinsic value based method that is contained in Accounting Principles
Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees." 
SFAS 123 does not require an entity to adopt the new fair value based method for
purposes of preparing its basic financial statements. Entities are allowed (i)
to continue to use the APB 25 method or (ii) to adopt the SFAS 123 fair value
based method. SFAS 123 fair value based method is considered by the FASB to be
preferable to the APB 25 method, and thus, once the fair value based method is
adopted, an entity cannot change back to the APB 25 method. Also, the selected
method applies to all of an entity's compensation plans and transactions. For
entities not adopting the SFAS 123 fair value based method, SFAS 123 requires
the entity to display in the footnotes to the financial statements pro forma net
income and EPS information as if the fair value based method had been adopted.

The accounting requirements of SFAS 123 are effective for transactions entered
into in fiscal years that begin after December 15, 1995, though they may be
adopted on issuance. The disclosure requirements are effective for financial
statements for fiscal years beginning after December 15, 1995, or for an earlier
fiscal year for which SFAS 123 is initially adopted for recognizing compensation
cost. Pro forma disclosures required for entities that elect to continue to
measure compensation cost using the APB 25 method must include the effects of
all awards granted in fiscal years 

                                                                         Page 37

<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
(Continued)

that begin after December 15, 1994. Pro forma disclosures for awards granted in
the first fiscal year beginning after December 15, 1994 need not be included in
financial statements for that fiscal year but should be presented subsequently
whenever financial statements for that fiscal year are presented for comparative
purposes with financial statements for a later fiscal year. The Company does not
currently expect SFAS 123 to have a significant effect on its financial
condition and results of operations.

EARNINGS PER SHARE OF COMMON STOCK.  Primary EPS is calculated by dividing
income by the sum of the weighted average number of shares of Common Stock of
the Holding Company ("Common Stock") outstanding and the average number of
shares issuable under the Company's stock benefit plans that have a dilutive
effect measured under the treasury stock method. Fully diluted EPS is calculated
by dividing income by the sum of the weighted average number of shares of Common
Stock outstanding and the maximum dilutive effect of shares issuable under the
Company's stock benefit plans. The maximum dilutive effect is computed using the
period end fair market value of the Company's stock, if it is higher than the
average market price during the period used in calculating primary EPS. For the
years ended September 30, 1996 and 1995, the total weighted average number of
shares of Common Stock outstanding and the weighted average number of shares
issuable under the Company's stock benefit plans for the primary EPS
calculations were 24,220,480 and 25,088,089 and for the fully diluted EPS
calculations were 24,277,013 and 25,446,588, respectively. EPS is not presented
for periods prior to the completion of the Conversion (which periods included
the cumulative effect of changes in accounting). For the period April 14 through
September 30, 1994 the weighted average number of shares of Common Stock
considered to be outstanding was 24,390,480 and net income was approximately
$17.1 million. The average number of shares issuable under the Company's stock
benefit plans was not included in the calculation due to its immaterial dilution
of EPS.

INTEREST RATE CAP AGREEMENTS.  Premiums paid for interest rate cap agreements
are amortized as additional interest expense over the term of the contract.
Unamortized premiums are included in Prepaid expenses and other assets in the
Consolidated Statements of Financial Condition. Amounts receivable under
interest rate cap agreements are reflected as a reduction to interest expense
(see Note 15).

OTHER OFF-BALANCE SHEET INSTRUMENTS.  In the ordinary course of business the
Bank has entered into off-balance sheet financial instruments consisting of
commitments to extend credit, standby letters of credit, and 
commitments to buy and sell loans. Such financial instruments are recorded in
the financial statements when they are funded or related fees are incurred or
received.

_______________________________________________________________________________
(2)
CONVERSION TO 
STOCK FORM OF 
OWNERSHIP

On April 14, 1994, the Holding Company completed the issuance and sale of
26,816,464 shares of Common Stock, at a price of $11.50 per share, through an
Initial Public Offering ("IPO") to the Bank's depositors and the Bank's stock
benefit plans. Approximately $164.0 million was contributed by the Holding
Company to the Bank in exchange for 100% of the shares issued and outstanding of
the Bank's common stock. Of the 26,816,464 shares issued, the Bank's ESOP and
Management Recognition and Retention Plans ("MRP") purchased 2,070,000 and
776,250 shares, respectively, at $11.50 per share. The Holding Company recorded
$296.9 million of net proceeds from this offering and utilized $32.7 million to
purchase shares for the ESOP and MRP. The financial position and results of
operations of the Holding Company only, as of and for the years ended September
30, 1996 and 1995 and the period from the Conversion through September 30, 1994
are presented in Note 25.

The Conversion was accomplished through amendment of the Bank's Federal charter
and the sale of Common Stock in an amount equal to the consolidated pro forma
market value of the Holding Company and the Bank after giving effect to the
Conversion. A subscription offering of the shares of Common Stock was offered
initially to employee benefit plans of the Bank, depositors and to certain other
eligible subscribers.

At the time of Conversion, the Bank was required by the Office of Thrift
Supervision ("OTS") to establish a liquidation account which will be reduced to
the extent that eligible account holders reduce their qualifying deposits. The
balance of the liquidation account at September 30, 1996 and 1995 was $77.8
million and $93.5 million, respectively. In the unlikely event of a complete
liquidation of the Bank, each eligible account holder will be entitled to
receive a distribution from the liquidation account. The Bank is not permitted
to declare or pay a dividend on or to repurchase any of its capital stock if the
effect would be to cause the Bank's regulatory capital to be reduced below the
amount required for the liquidation account. Unlike the Bank, the Holding
Company is not subject to OTS regulatory restrictions on the declaration or
payment of dividends to its stockholders, although the source of such dividends
could depend upon dividend payments from the Bank. The Holding Company is
subject, however, to the requirements of Delaware law, which generally limit
dividends to an amount equal to the excess of its net assets (the amount by
which total assets exceed total liabilities) over its stated capital or, if
there is no such excess, to its net profits for the current and/or immediately
preceding fiscal year.

                                                                         Page 38

<PAGE>


(3)
BUSINESS
COMBINATIONS


FISCAL 1996.  In June 1996, the Company acquired two mortgage origination
offices located in Pennsylvania and North Carolina from Fleet Mortgage Company,
and in August 1996 the Company acquired First Home Mortgage of Virginia, Inc.
("First Home"). The acquisitions were completed to continue the expansion of the
Company's mortgage origination activities. The acquisition of First Home, which
did not involve significant tangible assets, was accounted for using the
purchase method of accounting and resulted in goodwill at September 30, 1996 of
$2.7 million which is being amortized on a straight line basis over 15 years
from the date of acquisition. The goodwill is reported as a component of Prepaid
expenses and other assets in the Consolidated Statements of Financial Condition
and the amortization is reported as a component of Other general and
administrative ("G&A") expense in the Consolidated Statements of Operations.

PRIOR TO FISCAL 1996.  In November 1994, the Company acquired the $630.0 million
conventional servicing portfolio and eleven lending offices of Entrust Financial
Corporation ("Entrust") and the retail lending office of Developer's Mortgage
Corporation ("Developer's"). The operations of Entrust and Developer's were
merged into the Bank and, at September 30, 1996, the recorded investment in
MSR's stemming from these acquisitions was $6.3 million. The acquisitions were
designed to expand the Company's mortgage production capabilities by extending
its lending area to include Pennsylvania, Delaware, Maryland, Virginia and
Georgia. The acquisitions, which did not involve significant tangible assets,
were accounted for using the purchase method of accounting and resulted in
goodwill at September 30, 1996 and 1995 of $2.6 million and $2.8 million,
respectively, which is being amortized on a straight line basis over 15 years
from the date of acquisition. The goodwill is reported as a component of Prepaid
expenses and other assets in the Consolidated Statements of Financial Condition
and the amortization is reported as a component of Other G&A expense in the
Consolidated Statements of Operations.

On April 29, 1986, with the assistance of the Federal Savings and Loan Insurance
Corporation ("FSLIC"), The Long Island Savings Bank, FSB ("Syosset") acquired
Flushing Federal Savings and Loan Association ("Flushing Federal"). Flushing
Federal operated eight branches located in Queens, Nassau and Suffolk Counties.

On August 17, 1983, Syosset acquired all the outstanding stock of The Long
Island Savings Bank of Centereach FSB ("Centereach"), formerly Suffolk County
Federal Savings and Loan Association pursuant to an assistance agreement with
the FSLIC ("Assistance Agreement"). Centereach operated thirty-six branches
located primarily in Nassau and Suffolk Counties.

The aforementioned acquisitions were accounted for as purchases. Under the
purchase method of accounting, all assets and liabilities acquired were adjusted
to their estimated fair value as of the date of acquisition and the resultant
discounts or premiums were being accreted or amortized to income over the
expected economic life of the related asset or liability, using the level-yield
method. The excess of cost over the fair value of net assets acquired for the
transactions totalled approximately $625.4 million and $31.4 million for
Centereach and Flushing Federal, respectively. These amounts were being
amortized in accordance with GAAP over 40 and 25 years, respectively. In
connection with the 1993 merger discussed below the Company reviewed its
accounting policies and procedures. Based on this review and in light of
government action (see Note 4), the Company decided to revise its past
accounting practices relating to the amortization of goodwill to match the
amortization period of Centereach's goodwill with the average life of the
interest-earning assets acquired, 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 adopting SFAS 72
effective October 1, 1992 was to reallocate the amortization of Centereach's
goodwill so that a greater portion of such goodwill cost was amortized in
earlier years.

On September 3, 1993, with the approval of its primary regulator, the OTS,
Syosset was merged into Centereach and its name was simultaneously changed to
The Long Island Savings Bank, FSB. This voluntary merger was the result of the
need to achieve compliance with current regulatory capital standards which, as
construed by OTS, do not permit the inclusion of goodwill in calculating
capital. The merger of Syosset and Centereach also involved an approximately
$1.0 billion reduction in asset size from the sale of ten branches ("Deposit
Sale Transaction") with approximately $836.3 million in deposit liabilities and
certain assets. The Deposit Sale Transaction, which closed on September 3, 1993,
resulted in a net gain of approximately $6.6 million. As a result of the
significant restructuring activities which occurred during fiscal 1993,
principally the downsizing of the Company through branch deposit and asset
sales, which included branch deposits and assets acquired in previous business
combinations, the merger of Syosset and Centereach, as well as prior year sales
of branch deposits and assets acquired in the previous business combinations,
management determined that the value of the remaining goodwill was substantially
diminished. Accordingly, in the fourth quarter of fiscal 1993, the remaining
goodwill balance was written-off. The elimination of goodwill from the Company's
financial statements is without prejudice to the Company's lawsuit against the
government (see Note 4).


                                                                         Page 39

<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
(Continued)

_______________________________________________________________________________

(4)
REGULATORY 
MATTERS--
THE BANK

The Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA") of
1989 imposed more stringent capital requirements upon the Bank than those
previously in effect. These capital regulations contain provisions for capital
standards that require the Bank to have minimum regulatory tangible capital
equal to 1.5% of total assets and a minimum 3% leverage capital ratio. The
ability to include qualifying supervisory goodwill for purposes of the leverage
capital ratio requirement was phased out on January 1, 1995. Additionally, the
Bank is required to meet a risk-based capital requirement. The risk-based
capital rule requires that core capital plus supplementary capital equal 8%. The
capital standards are also required to be no less stringent than standards
applicable to national banks. In that regard, the Federal regulatory agencies
and the OTS periodically propose modifications to applicable capital standards
which, if adopted, could impact the Bank's capital requirements.

At September 30, 1992 the Bank reported to OTS as two separate entities. On a
stand-alone basis, Syosset exceeded the capital requirements of FIRREA at
September 30, 1992. However, Centereach, then a wholly-owned subsidiary of
Syosset, did not meet any of the three required FIRREA capital ratios, as
interpreted by OTS, and had negative tangible capital, as defined in the
regulations, of approximately $109.2 million at September 30, 1992 (unaudited).
Centereach submitted a Capital Plan ("Capital Plan") to the OTS, which the
agency approved, that outlined steps Centereach could take to attain the levels
of regulatory capital required by the government and not withstanding government
action described below. Failure to meet the capital requirements of FIRREA and
the interim capital targets included in its Capital Plan exposed Centereach to
possible regulatory sanctions. In response to the need to comply with capital
standards and to avoid possible regulatory sanctions, the Bank completed the
merger discussed in Note 3. A merger or similar transaction by Centereach was
required by the timetable of, and specifically contemplated in, the Capital
Plan. At September 30, 1993 the newly merged The Long Island Savings Bank, FSB
exceeded the three required FIRREA capital ratios and the OTS terminated the
Capital Plan. There is no supervisory goodwill remaining on the Bank's books.

The mandated exclusion from regulatory capital of supervisory goodwill on the
books of Centereach was the reason for its inability to meet the FIRREA capital
standards. The inclusion of goodwill as an asset to be amortized over forty
years for regulatory purposes was specified in the Assistance Agreement related
to the acquisition. On August 15, 1989, the Bank 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 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.

On September 18, 1996 Judge Smith issued an Omnibus Management Order ("Case
Management Order") applicable to all Winstar-related cases. The Case Management
Order addresses certain timing and procedural matters with respect to the
administration of the Winstar-related cases, including organization of the
parties, initial discovery, initial determinations regarding liability and the
resolution of certain common issues. The Case Management Order provides that the
parties will attempt to agree upon a Master Litigation Plan, which may be in
phases, to govern all further proceedings, including the resolution of common
issues (other than common issues covered by the Case Management Order),
dispositive motions, trials, discovery schedules, protocols for depositions,
document production, expert witnesses, and other matters.

Subsequent to September 30, 1996 the Bank filed a motion for summary judgment on
liability. Pursuant to the schedule set forth in the Case Management Order,
within sixty days of the filing of the motion, the government must file a
response with respect to whether a contract exists and whether the government
acted inconsistently with the contract. Within 120 days of filing of the motion,
the government must set forth any defenses it knows or has reason to know that
relate to these two issues.

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 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.

The Bank is subject to various regulatory capital requirements administered by
the banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory--and possible additional discretionary--actions by regulators
that, if undertaken, could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action ("PCA"), the Bank must meet specific 

                                                                         Page 40

<PAGE>

capital guidelines that involve qualitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classifications are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital
to average assets. Management believes that the Bank meets all capital adequacy
requirements to which it is subject as of September 30, 1996.

As of September 30, 1996 the most recent notification from OTS categorized the
Bank as "well-capitalized" under the regulatory framework for PCA. An
institution is deemed "well-capitalized" if (a) its risk-based capital is 10% or
greater, (b) its Tier 1 risk-based capital ratio is 6% or greater, and (c) its
leverage ratio is 5% or greater. There are no conditions or events since the
notification that management believes have changed the institution's category.
Set forth below is a summary of the Bank's compliance with the OTS capital
standards as of September 30, 1996.

                                                                Percent of
                                                     Amount      Assets(1)
____________________________________________________________________________
                                                   (Dollars in thousands)
GAAP capital                                       $430,546         8.13%
                                                   --------         -----
                                                   --------         -----
Tangible capital:
  Capital level(2)                                 $416,802         7.84%
  Requirement                                        79,710          1.50
                                                   --------         -----
  Excess                                           $337,092         6.34%
                                                   --------         -----
                                                   --------         -----
Core capital:
  Capital level(2)                                 $416,802         7.84%
  Requirement                                       159,419          3.00
                                                   --------         -----
  Excess                                           $257,383         4.84%
                                                   --------         -----
                                                   --------         -----
Risk-based capital:
  Capital level(3)                                 $450,714        16.48%
  Requirement                                       218,808          8.00
                                                   --------         -----
  Excess                                           $231,906         8.48%
                                                   --------         -----
                                                   --------         -----

(1)  Capital levels are shown as a percentage of the Bank's total adjusted
     assets, as computed under GAAP. Tangible and core capital levels are shown
     as a percentage of the Bank's total adjusted assets, as computed based on
     regulatory guidelines. Risk-based capital levels are shown as a percentage
     of risk-weighted assets.
(2)  Represents GAAP capital excluding the effect of SFAS 115, goodwill and
     MSR's limitations.
(3)  The difference between GAAP capital and regulatory risk-based capital
     level represents the exclusion of the effect of SFAS 115 and goodwill and
     an addition for a portion of the general valuation allowance.

_______________________________________________________________________________
(5)
INVESTMENT IN
DEBT AND EQUITY
SECURITIES

     Investment in debt and equity securities available-for-sale at September
     30, are as follows:

<TABLE>
<CAPTION>

                                                           1996
_____________________________________________________________________________________
                                           Amortized Unrealized Unrealized Estimated
                                             Cost        Gain      Loss    Fair Value
                                           --------- ---------- ---------- ----------
                                                         (In thousands)
Available-for-sale:
Debt securities:
<S>                                          <C>      <C>       <C>        <C>
  U.S. government and agency 
     obligations                            $ 13,385      $ -       $ 3     $13,382
  U.S. government and agency 
     obligations pledged as collateral        88,021       17     1,933      86,105
  Asset-backed securities (automobile 
     loans and leases)                        40,561      140       332      40,369
                                            --------     ----    ------    --------
Total debt securities available-for-sale     141,967      157     2,268     139,856
                                            --------     ----    ------    --------
Equity securities:
  Preferred and common stock                  40,038       --        --      40,038
  Investment in mutual funds                     779       --        23         756
                                            --------     ----    ------    --------
Total equity securities 
  available-for-sale                          40,817       --        23      40,794
                                            --------     ----    ------    --------
Total securities available-for-sale         $182,784     $157    $2,291    $180,650
                                            --------     ----    ------    --------
                                            --------     ----    ------    --------
</TABLE>

Pursuant to the Special Report on SFAS 115, the Company reassessed the
classification of all its securities in December 1995. As a result, the
entire debt and equity security portfolio which was previously classified
as held-to-maturity was reclassified as available-for-sale.


                                                                        Page 41

<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
(Continued)

<TABLE>
<CAPTION>

                                                              1995
------------------------------------------------------------------------------------------
 
                                           Amortized  Unrealized   Unrealized   Estimated
                                             Cost         Gain        Loss      Fair Value
                                          ----------  ----------   ----------   ----------
                                                         (In thousands)
Held-to-maturity:
Debt securities:
<S>                                        <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        31           26         7,398
  Asset-backed securities (automobile 
     loans and leases)                        45,853       134          107        45,880
                                            --------      ----       ------      --------
Total debt securities held-to-maturity      $ 55,839      $165       $  133      $ 55,871
                                            --------      ----       ------      --------
                                            --------      ----       ------      --------
Available-for-sale:
Debt securities:
  U.S. government and agency 
     obligations                            $ 63,852      $  5       $  192      $ 63,665
  Asset-backed securities (automobile 
     loans and leases)                       129,391       638        1,040       128,989
                                            --------      ----       ------      --------
Total debt securities available-for-sale     193,243       643        1,232       192,654
                                            --------      ----       ------      --------
Equity securities:
  Preferred and common stock                  40,038        --           --        40,038
  Investment in mutual funds                     729        --           13           716
                                            --------      ----       ------      --------
Total equity securities available-for-sale    40,767        --           13        40,754
                                            --------      ----       ------      --------
Total securities available-for-sale         $234,010      $643       $1,245      $233,408
                                            --------      ----       ------      --------
                                            --------      ----       ------      --------
</TABLE>

Sales of debt and equity securities from the available-for-sale portfolio during
the years ended September 30, are summarized as follows: 

<TABLE>
<CAPTION>

                                     1996           1995            1994
--------------------------------------------------------------------------
                                               (In thousands)

Proceeds from sales
<S>                                <C>             <C>           <C>      
  Equity securities                 $ 20,000        $15,245       $     --
  Debt securities                    119,099         33,591        117,414

Gross gains
  Equity securities                       --            230             --
  Debt securities                        380            250            114

Gross losses
  Equity securities                       --             --             --
  Debt securities                         89            526            817
</TABLE>

 
During fiscal 1995, the Company wrote-off its investment in Nationar,
a failed bank service institution, in the amount of $1.8 million. In
fiscal 1996, the Company recovered $49,000 on its investment in
Nationar.

Proceeds from the redemption of FHLB stock amounted to $11.7 million
for the fiscal year ended September 30, 1994 and there was no gain or
loss recognized on the redemption.

The maturities of the investments in debt securities at September 30,
are as follows:

<TABLE>
<CAPTION>

                                                 1996
----------------------------------------------------------------
                                          Available-for-sale
                                        -------------------------
                                                       Estimated
                                         Amortized        Fair
                                          Cost           Value
                                       ----------       ---------
                                            (In thousands)
<S>                                     <C>            <C>       
Within 1 year                            $ 26,584      $ 26,596
After 1 year through 5 years             35,543         35,457
After 5 years through 10 years           74,822         72,891
After 10 years                             5,018         4,912
                                        --------        --------
                                        $141,967        $139,856
                                        --------        --------
                                        --------        --------
</TABLE>

                                                                        Page 42

<PAGE>

<TABLE>
<CAPTION>

                                                                 1995
------------------------------------------------------------------------------------------
                                             Available-for-sale       Held-to-maturity
                                          ------------------------ -----------------------
                                                       Estimated                 Estimated
                                            Amortized     Fair       Amortized    Fair
                                             Cost        Value        Cost         Value
                                            ---------   --------     ---------  ----------
                                                            (In thousands)
<S>                                        <C>         <C>          <C>        <C>
Within 1 year                               $ 34,020    $ 34,025     $    --    $    --
After 1 year through 5 years                 139,721     139,255      55,839     55,871
After 5 years through 10 years                12,876      12,923          --         --
After 10 years                                 6,626       6,451          --         --
                                            --------    --------     -------    -------
                                            $193,243    $192,654     $55,839    $55,871
                                            --------    --------     -------    -------
                                            --------    --------     -------    -------
------------------------------------------------------------------------------------------
</TABLE>

(6)
MORTGAGE-BACKED
SECURITIES

MBS's at September 30, are as follows:

<TABLE>
<CAPTION>

                                                                       1996
------------------------------------------------------------------------------------------
                                            Amortized  Unrealized   Unrealized  Estimated
                                             Cost         Gain        Loss      Fair Value
                                            ---------  ----------   ----------  ----------
                                                            (In thousands)
Held-to-maturity:
<S>                                         <C>         <C>          <C>       <C>     
   Real estate mortgage investment 
     conduit                                $  17,017    $    --      $1,976    $   15,041
  Other pass-through certificates               6,079         --          --         6,079
                                            ---------    -------      ------    ----------
Mortgage-backed securities 
     held-to-maturity                       $  23,096    $    --      $1,976    $   21,120
                                            ---------    -------      ------    ----------
                                            ---------    -------      ------    ----------

Available-for-sale:
  GNMA pass-through certificates            $   3,582    $    50      $   --    $    3,632
  FHLMC pass-through certificates             367,480      3,651       1,794       369,337
  FNMA pass-through certificates              483,480      4,238       2,022       485,696
  Other pass-through certificates              78,101         92         309        77,884
  GNMA, FHLMC and FNMA securities 
     pledged as collateral                    767,263     14,357       1,063       780,557
                                            ---------    -------      ------    ----------
  Gross mortgage-backed securities 
     available-for-sale                     1,699,906     22,388       5,188     1,717,106
  Unamortized premium, net                      3,270     (3,270)         --            --
                                            ---------    -------      ------    ----------
Mortgage-backed securities 
     available-for-sale, net               $1,703,176    $19,118      $5,188    $1,717,106
                                            ---------    -------      ------    ----------
                                            ---------    -------      ------    ----------
<CAPTION>

                                                                 1995
------------------------------------------------------------------------------------------
                                           Amortized  Unrealized   Unrealized   Estimated
                                             Cost        Gain         Loss      Fair Value
                                          ----------  ----------   ----------   ----------
                                                            (In thousands)
Held-to-maturity:
<S>                                      <C>            <C>          <C>       <C>        
  FHLMC pass-through certificates         $  362,646     $ 2,102      $2,511    $  362,237
  FNMA pass-through certificates             353,324       4,417       1,035       356,706
  Real estate mortgage investment conduit     17,693          --          --        17,693
  Other pass-through certificates             62,082          --         153        61,929
  GNMA, FHLMC and FNMA securities 
     pledged as collateral                   540,354       3,215       3,120       540,449
                                          ----------     -------      ------    ----------
  Gross mortgage-backed securities 
     held-to-maturity                      1,336,099       9,734       6,819     1,339,014
  Unamortized premium, net                     1,804      (1,804)         --            --
                                          ----------     -------      ------    ----------
Mortgage-backed securities 
  held-to-maturity, net                   $1,337,903     $ 7,930      $6,819    $1,339,014
                                          ----------     -------      ------    ----------
                                          ----------     -------      ------    ----------
Available-for-sale:
  FHLMC pass-through certificates         $  497,438     $ 9,394      $  461    $  506,371
  FNMA pass-through certificates             274,501       5,360          85       279,776
  Other pass-through certificates              9,892          --         272         9,620
  FHLMC and FNMA securities 
     pledged as collateral                   140,072       3,828         820       143,080
                                          ----------     -------      ------    ----------
  Gross mortgage-backed securities 
     available-for-sale                      921,903      18,582       1,638       938,847
  Unamortized premium, net                     4,120      (4,120)         --            --
                                          ----------     -------      ------    ----------
Mortgage-backed securities 
     available-for-sale, net              $  926,023     $14,462      $1,638    $  938,847
                                          ----------     -------      ------    ----------
                                          ----------     -------      ------    ----------
</TABLE>


                                                                        Page 43


<PAGE>


Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
(Continued)

Sales of MBS's from the available-for-sale portfolio during the years ended 
September 30, are summarized as follows: 

<TABLE>
<CAPTION>

                                                     1996           1995        1994
----------------------------------------------------------------------------------------
                                                              (In thousands)
<S>                                             <C>            <C>         <C>      
Proceeds from sales                              $485,195       $286,674    $696,830
Gross gains                                         6,931          2,343       4,012
Gross losses                                        1,232             35       2,101

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

</TABLE>

(7)
LOANS HELD FOR 
SALE AND LOANS RECEIVABLE HELD 
FOR INVESTMENT

Loans held for sale as of September 30, are summarized as follows:

<TABLE>
<CAPTION>

                                                     1996           1995
--------------------------------------------------------------------------
                                                       (In thousands)
Real estate loans:
<S>                                              <C>            <C>     
  One-to-four family loans                        $57,812        $47,831
  Co-operative apartment loans                         49          1,511
                                                  -------        -------
                                                   57,861         49,342
Student loans                                         108             30
                                                  -------        -------
  Total loans held for sale                       $57,969        $49,372
                                                  -------        -------
                                                  -------        -------
</TABLE>

 
The Bank originates most fixed rate loans for immediate sale to FNMA,
FHLMC or other investors. Generally, the sale of such loans is
arranged at the time the loan application is received through best
effort commitments (see Note 15). In addition, student loans are sold
to the Student Loan Mortgage Association generally before repayment
begins during the grace period of the loan.

Loans receivable held for investment as of September 30, are
summarized as follows:

<TABLE>
<CAPTION>

 
                                                               1996          1995
----------------------------------------------------------------------------------------
                                                                 (In thousands)
Real estate loans held for investment, net
<S>                                                               <C>            <C>
  One-to-four family loans                                 $2,670,387     $1,640,121
  Co-operative apartment loans                                114,560        126,912
  Home equity loans                                            18,564         18,115
  Second mortgage loans                                         5,154          6,563
  Multi-family loans                                           34,883         35,708
  Commercial real estate loans                                 69,625         72,393
  Construction loans                                            4,509          3,070
  Land loans                                                    3,221          4,804
                                                           ----------     ----------
                                                            2,920,903      1,907,686
  Deferred loan costs (fees)                                    3,159         (3,253)
  Purchase accounting discount                                 (2,777)        (4,229)
                                                           ----------     ----------
                                                            2,921,285      1,900,204
  Allowance for possible loan losses                          (20,226)       (20,554)
                                                           ----------     ----------
  Real estate loans held for investment, net                2,901,059      1,879,650
                                                           ----------     ----------
Commercial loans receivable, net
  Commercial loans                                              8,206          9,330
  Unearned discount                                              (396)          (624)
                                                           ----------     ----------
                                                                7,810          8,706
  Allowance for possible loan losses                           (3,631)        (3,874)
                                                           ----------     ----------
  Commercial loans receivable, net                              4,179          4,832
                                                           ----------     ----------
Other loans receivable, net
  Property improvement                                          9,028         11,131
  Student                                                       6,976          3,294
  Loans on deposit accounts                                     2,475          2,649
  Consumer                                                     69,575         42,284
  Consumer line of credit                                      55,292         59,746
                                                           ----------     ----------
                                                              143,346        119,104
  Purchase accounting premium                                      50             78
  Deferred costs                                                2,258          1,007
                                                           ----------     ----------
                                                              145,654        120,189
  Allowance for possible loan losses                          (10,055)        (9,930)
                                                           ----------     ----------
  Other loans receivable, net                                 135,599        110,259
                                                           ----------     ----------
Total loans receivable held for investment, net            $3,040,837     $1,994,741
                                                           ----------     ----------
                                                           ----------     ----------
</TABLE>


                                                                        Page 44


<PAGE>
 


Real estate loans included approximately $2.5 billion and $1.7 billion of
adjustable rate mortgage loans at September 30, 1996 and 1995, respectively. 

On October 1, 1995, the Company adopted SFAS 114, and SFAS 118, ("Statements").
Under these Statements, a loan is considered impaired when it is probable that
the Company, based on current information, will not collect all amounts due,
including principal and interest, according to the contractual terms of the loan
agreement. Loans exempt from the provisions of these Statements include large
groups of smaller-balance homogenous loans that are collectively evaluated for
impairment such as one-to-four family real estate loans and consumer loans. Such
loans that are modified in a troubled debt restructuring ("TDR"), however, are
subject to the provisions of these Statements. A loan is considered a TDR when
modifications are made to the original contractual terms of the loan due to the
borrower's financial difficulties. Loans that fall within the scope of these
Statements must be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or at the loan's
observable market price or, if the loan is collateral dependent, at the fair
value of the collateral.

The principal amount of non-performing real estate loans excluding restructured
loans aggregated approximately $38.8 million, $38.5 million and $34.7 million at
September 30, 1996, 1995 and 1994, respectively. Interest income that would have
been recorded if the loans had been performing in accordance with their original
terms aggregated $2.9 million, $2.7 million and $3.7 million for the fiscal
years ended September 30, 1996, 1995 and 1994, respectively. No interest income
was recorded for these loans during the fiscal years ended September 30, 1996,
1995 and 1994. The principal amount of non-performing commercial loans excluding
restructured loans aggregated $0.8 million, $0.8 million and $1.5 million at
September 30, 1996, 1995 and 1994, 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 $11.4 million, $14.8 million and
$15.8 million at September 30, 1996, 1995 and 1994, respectively. Interest
income that would have been recorded if the loans had been performing in
accordance with their original terms aggregated $0.3 million, $0.3 million and
$0.4 million for the fiscal years ended September 30, 1996, 1995 and 1994,
respectively. Interest income recorded for these loans amounted to $0.1 million,
$0.1 million and $0.2 million for the fiscal years ended September 30, 1996,
1995 and 1994, respectively. Restructured loans that have complied with the
terms of their restructure agreement for a satisfactory period (generally six
months) and have therefore been returned to performing status aggregated $11.8
million, $12.1 million and $12.8 million as of September 30, 1996, 1995 and
1994, respectively. 

The principal amount of restructured commercial loans aggregated $0.5 million,
$0.9 million and $1.8 million at September 30, 1996, 1995 and 1994,
respectively. Interest income that would have been recorded if the loans had
been performing in accordance with their original terms aggregated $43,000,
$49,000 and $125,000 for fiscal years ended September 30, 1996, 1995 and 1994,
respectively. Interest income recorded for these loans amounted to $29,000,
$40,000 and $100,000 for the fiscal years ended September 30, 1996, 1995 and
1994, respectively.

LOAN SERVICING.  The Company has entered into various agreements to service
loans for others. At September 30, 1996 and 1995, 47,146 loans and 37,848 loans
with a total balance of $3.7 billion and $2.6 billion, respectively, were being
serviced for others. Of this total balance, the Company has retained
participation in loans equal to $10.3 million and $10.2 million at September 30,
1996 and 1995, respectively. 

The right to service loans for others is generally obtained by either the sale
of loans with servicing retained, the open market purchase of MSR's or the
creation of MSR's pursuant to SFAS 122.


During the fiscal years ended September 30, 1996, 1995 and 1994, the Company
sold approximately $186.8 million, $100.4 million and $257.6 million,
respectively, of whole loans and MBS's with servicing retained. In addition, the
Company sold $303.9 million of home equity loans with servicing retained during
fiscal 1993.

Effective July 1, 1995, the Company adopted SFAS 122. SFAS 122 standardized the
treatment of the capitalization of MSR's by eliminating the difference between
purchased MSR's and originated MSR's. Prior to SFAS 122, entities were only
allowed to capitalize MSR's that were purchased and were precluded from
capitalizing MSR's that were originated. SFAS 122 provides for the
capitalization of MSR's when mortgage loans are originated and subsequently sold
or securitized where the right to service the loans is retained.

                                                                        Page 45

<PAGE>
 

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
(Continued)

MSR activity for the years ended September 30, is summarized as follows:

<TABLE>
<CAPTION>

                                    1996           1995           1994
----------------------------------------------------------------------------
                                                         (In thousands)
<S>                                  <C>              <C>               <C>
Beginning balance                $11,328         $    759              $957
  Purchased MSR's                 15,159           10,071               444
  Capitalized MSR's                5,982            1,969                --
  Less:
     Amortization of MSR's         2,700            1,471               642
     Allowance for MSR's              82               --                --
                                 -------         --------              ----
Ending balance                   $29,687          $11,328              $759
                                 -------         --------              ----
                                 -------         --------              ----
</TABLE>

Purchased mortgage servicing rights include servicing rights related to the
November 1994 acquisitions of the operations of Entrust and Developer's,
which at September 30, 1996 and 1995 totalled $6.3 million and $7.5
million, respectively.

Fees earned for servicing loans are reported as income when the related
mortgage loan payments are collected. MSR's are amortized as a reduction to
loan service fee income on a level-yield basis over the estimated remaining
life of the underlying mortgage loans. MSR's are carried at fair value and
impairment, if any, is recognized through a valuation allowance. At
September 30, 1996 the valuation allowance amounted to $0.1 million. No
valuation allowance was required for 1995 and 1994, respectively. See Note
16 for risk characteristics and assumptions used to estimate fair value.

In connection with the home equity loan sale consummated in 1993, the
Company receives a normal servicing fee to service the loans, which were
sold without recourse to an unaffiliated trust and are being used to
collateralize asset-backed certificates. Excess cash flow in the trust, if
any, after required payments to the certificate holders and insurer, is to
be applied to overissuance and overcollateralization amounts and to absorb
a specified level of losses; remaining excess cash flow, if any, will
ultimately revert to the Company. In connection therewith, the Company
recorded service fee income in the amount of $0.5 million and $2.5 million
resulting from the overcollateralization during fiscal 1996 and 1995,
respectively.

Loan servicing income for the years ended September 30, is summarized as
follows: 

<TABLE>
<CAPTION>

                                    1996           1995           1994
-----------------------------------------------------------------------
                           (In thousands)
<S>                                  <C>            <C>            <C>
Servicing fees                   $16,645        $14,344         $9,367
Amortization of MSR's             (2,700)        (1,471)          (642)
Provision for MSR's                  (82)            --             --
                                                -------        -------
                                  ------
Total servicing income           $13,863        $12,873         $8,725
                                                -------        -------
                                  ------
</TABLE>
-----------------------------------------------------------------------

(8)
ALLOWANCE
FOR POSSIBLE
LOAN LOSSES

 
<TABLE>
<CAPTION>

                                              Real
                                             Estate     Commercial    Other
                                              Loans       Loans       Loans        Total
------------------------------------------------------------------------------------------
                                                            (In thousands)
<S>                                        <C>          <C>          <C>          <C>
Balance at September 30, 1993               $24,951       $3,874      $ 5,126      $33,951
Add:
   Provision for possible loan losses         3,300        1,350        7,305       11,955
   Recoveries of previous charge-offs           482          577          459        1,518
                                            -------       ------      -------      -------
                                             28,733        5,801       12,890       47,424
Less charge-offs                              5,852        1,551        4,308       11,711
                                            -------       ------      -------      -------
Balance at September 30, 1994                22,881        4,250        8,582       35,713
Add:
    Provision for possible loan losses        1,275          400        4,795        6,470
    Recoveries of previous charge-offs        1,006          141          651        1,798
                                            -------       ------      -------      -------
                                             25,162        4,791       14,028       43,981
Less charge-offs                              4,608          917        4,098        9,623
                                            -------       ------      -------      -------
Balance at September 30, 1995                20,554        3,874        9,930       34,358
Add:
    Provision for possible loan losses        2,850           --        3,350        6,200
    Recoveries of previous charge-offs          691          319          543        1,553
                                            -------       ------      -------      -------
                                             24,095        4,193       13,823       42,111
Less charge-offs                              3,869          562        3,768        8,199
                                            -------       ------      -------      -------
Balance at September 30, 1996               $20,226       $3,631      $10,055      $33,912
                                            -------       ------      -------      -------
                                            -------       ------      -------      -------
</TABLE>

                                                                        Page 46

<PAGE>

 
As of September 30, 1996, $7.7 million in loans were considered impaired within
the scope of SFAS 114, of which $5.6 million were on nonaccrual status. The
application of SFAS 114 measurement principles indicated that approximately $0.7
million of these loans required valuation allowances, totaling $0.3 million,
which are included within the overall allowance for possible loan losses at
September 30, 1996. SFAS 114 does not apply prior to fiscal 1996.

Interest income recognized on impaired loans during the year ended September 30,
1996 amounted to approximately $0.4 million, which is approximately equal to the
actual interest payments received. The average recorded investment in impaired
loans during the current year was $8.9 million. The allowance for possible loan
losses contains additional amounts for impaired loans, as deemed necessary, to
maintain reserves at levels considered adequate by management.
-------------------------------------------------------------------------------

(9)
REAL ESTATE
OWNED

A summary of REO at September 30, is as follows:
<TABLE>
<CAPTION>

                                                          1996        1995
----------------------------------------------------------------------------
                                                           (In thousands)
<S>                                                      <C>         <C>
One-to-four family                                        $5,835      $5,068
Condo/co-op                                                1,990       2,464
Multi-family                                                 --          673
Commercial                                                  330          347
Land                                                         --          341
                                                          ------      ------
    Real estate owned                                     $8,155      $8,893
                                                          ------      ------
                                                          ------      ------
</TABLE>

During fiscal 1996, 1995 and 1994, the Company acquired properties
with a net book value of $10.0 million, $10.3 million and $12.7
million, respectively. Declines in market values resulted in
write-downs of $0.5 million, $0.6 million and $0.8 million during
fiscal 1996, 1995 and 1994, respectively, which were charged to other
REO expense. The book value of REO properties sold in fiscal 1996,
1995 and 1994 totalled $10.2 million, $8.1 million and $30.6 million,
respectively. 

REO operating results for the years ended September 30, were as
follows:

<TABLE>
<CAPTION>

 
                                                          1996        1995         1994
-----------------------------------------------------------------------------------------
                                                                   (In thousands)
<S>                                                   <C>         <C>          <C>
Income
Rental income                                          $    77     $    65      $   135
Gains on sales                                             559         628          764
Other income                                                24          17           76
                                                       -------     -------      -------
    Total income                                           660         710          975
                                                       -------     -------      -------

Expenses
Acquisition expenses                                       799         766        1,513
Operating expenses                                       1,236       1,073        2,543
Losses on sales                                            225         107          180
Write-downs                                                490         554          791
                                                       -------     -------      -------
    Total expenses                                       2,750       2,500        5,027
                                                       -------     -------      -------
Net loss on real estate owned                          $(2,090)    $(1,790)     $(4,052)
                                                       -------     -------      -------
                                                       -------     -------      -------
---------------------------------------------------------------------------------------
</TABLE>

(10)
INVESTMENT IN 
REAL ESTATE


 
At September 30, 1996, and 1995 Investment in real estate consists of two
parcels of vacant land located in Suffolk County, New York which had a carrying
value of $2.5 million at both dates. These parcels are recorded at the lower of
cost or net realizable value. In addition, at September 30, 1995, Investment in
real estate also included eight rental office buildings with a carrying value of
$9.8 million of which $1.5 million represented purchase accounting premiums.
During fiscal 1996, the eight rental office buildings were sold. In addition,
two other properties previously utilized for Company operations and reflected in
Office properties and equipment in the Consolidated Statements of Financial
Condition were sold during 1996. The net profit from the sale of these ten
properties was $1.4 million which is reflected in Net gain (loss) on investment
in real estate and premises.

                                                                        Page 47

<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
(Continued)

Investment in real estate and premises operating results for the years
ended September 30, were as follows:

<TABLE>
<CAPTION>

                                                          1996        1995         1994
-----------------------------------------------------------------------------------------
                                                                 (In thousands)
<S>                                                    <C>         <C>         <C>
Income
Rental income                                           $1,917      $2,986      $ 3,121
Net profits on sales of real estate and premises         1,419          --           20
Net profits, equity in joint venture                     1,243       1,109          675
Miscellaneous income                                       503           1           11
                                                        ------      ------      -------
    Total income                                         5,082       4,096        3,827
                                                        ------      ------      -------
Expenses
Depreciation                                               312         509          528
Operating expenses                                         652       2,061        2,195
Net losses on sales                                         --          32           --
Write-downs                                                 --          27        1,842
                                                        ------      ------      -------
    Total expenses                                         964       2,629        4,565
                                                        ------      ------      -------
Net gain (loss) on investment in real estate 
  and premises                                          $4,118      $1,467      $  (738)
                                                        ------      ------      -------
                                                        ------      ------      -------
-----------------------------------------------------------------------------------------
</TABLE>

(11)
OFFICE PROPERTIES
AND EQUIPMENT

A summary of office properties and equipment at cost, net of accumulated 
depreciation and amortization, and land at cost at September 30, is as follows:

<TABLE>
<CAPTION>

                                                                      1996        1995
-----------------------------------------------------------------------------------------
                                                                      (In thousands)
<S>                                                               <C>          <C>
Land, office buildings and improvements                            $53,265      $58,073
Leasehold improvements                                               1,922        2,259
Furniture, fixtures and equipment                                   30,193       21,851
Purchase accounting premium                                          3,899        4,056
                                                                   -------      -------
    Total office properties and equipment, net                     $89,279      $86,239
                                                                   -------      -------
                                                                   -------       ------
</TABLE>

During 1996, two office buildings were sold with a carrying value of $2.0 
million at the time of sale. The net profit on the sale of these buildings 
amounted to $1.9 million and is reflected in Net gain (loss) on investment in 
real estate and premises in the Consolidated Statements of Operations.

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

(12)
ACCRUED INTEREST
RECEIVABLE, NET

As of September 30, accrued interest receivable, net of the reserve for 
uncollected interest, consisted of the following:

<TABLE>
<CAPTION>

                                                                 1996            1995
----------------------------------------------------------------------------------------
                                                                   (In thousands)
<S>                                                               <C>            <C>
Debt and equity securities                                    $ 1,225        $ 1,558
Mortgage-backed securities                                     12,965         16,599
Real estate loans, net                                         17,595         12,543
Commercial loans, net                                              79             60
Other loans, net                                                1,098            992
                                                              -------        -------
    Total accrued interest receivable, net                    $32,962        $31,752
                                                              -------        -------
                                                              -------        -------
</TABLE>

                                                                        Page 48

<PAGE>

(13)
DEPOSITS

Certificate accounts and other deposit accounts at September 30, are 
summarized as follows:

<TABLE>
<CAPTION>

                                                1996
                                               Stated
                                                Rate             1996           1995
---------------------------------------------------------------------------------------
                                                          (In thousands)
<S>                                       <C>                  <C>          <C>
Passbook accounts                                    2.76%      $  669,241   $  730,060
Demand and NOW accounts                              2.18          227,747      223,232
Money market accounts                      2.18  --  2.76          130,442      154,938
Statement savings accounts                 2.86  --  3.44          646,789      624,707
                                                                 ---------    ---------
                                                                 1,674,219    1,732,937
                                                                 ---------    ---------
Certificate accounts (balance 
  by interest rate)                        4.99  or less           292,547      160,797
                                           5.00  --  5.99        1,160,668      897,341
                                           6.00  --  6.99          393,757      650,183
                                           7.00  --  7.99          111,739      131,214
                                           8.00  or greater             80        1,057
                                                                 1,958,791    1,840,592
                                                                 ---------    ---------
  Total deposits                                                $3,633,010   $3,573,529
                                                                 ---------    ---------
                                                                 ---------    ---------
Contractual maturity of certificates:
  Within twelve months                                          $1,360,835   $1,162,423
  Over one to three years                                          314,327      423,644
  Over three years                                                 283,629      254,525
                                                                 ---------    ---------
                                                                $1,958,791   $1,840,592
                                                                 ---------    ---------
                                                                 ---------    ---------
Certificate accounts in excess of $100,000                      $  160,654   $  135,234
                                                                 ---------    ---------
                                                                 ---------    ---------
</TABLE>


Included in demand and NOW accounts, at September 30, 1996 and 1995, were 
approximately $98.7 million and $86.6 million, respectively, of 
non-interest-bearing deposits. 

Interest expense by deposit category for the years ended September 30, is 
summarized as follows: 

<TABLE>
<CAPTION>

                                                          1996        1995        1994
----------------------------------------------------------------------------------------
                                                                 (In thousands)
<S>                                                  <C>         <C>          <C>
Passbook accounts                                     $ 19,264    $ 22,336     $ 27,706
NOW accounts                                             3,105       3,181        2,881
Money market accounts                                    3,913       5,022        6,189
Statement savings accounts                              20,755      20,946       26,202
Certificate accounts                                   108,479      87,849       56,986
Escrow accounts                                            314         307          329
                                                      --------    --------     --------
  Total interest expense on deposits                  $155,830    $139,641     $120,293
                                                      --------    --------     --------
                                                      --------    --------     --------
</TABLE>


The deposits of the Bank are insured up to $100,000 per depositor (as defined 
by law and regulation) by the Savings Association Insurance Fund ("SAIF") 
which is administered by the FDIC. Certain other financial institutions are 
insured by the Bank Insurance Fund ("BIF"). On September 30, 1996, as part of 
the omnibus appropriations bill, Congress passed and President Clinton signed 
the Deposit Insurance Funds Act of 1996 ("Act"). The Act should significantly 
reduce and eventually end the premium disparity that has existed between 
banks insured by BIF and thrifts insured by the SAIF. The Act requires 
SAIF-insured institutions to pay a special one-time assessment and 
BIF-insured institutions to include a portion of the interest due on Finance 
Corporation ("FICO") bonds in their deposit premiums beginning January 1, 
1997. Beginning on January 1, 2000 or the date at which no savings 
institution continues to exist, BIF-insured institutions are required to pay 
their full pro rata share of FICO payments. The one-time assessment charged 
to SAIF-insured institutions will enable the SAIF fund to reach predetermined 
capitalization levels and therefore will result in a reduction in future 
premiums paid by SAIF-insured institutions. Pursuant to these provisions of 
the Act, the Bank's special one-time insurance assessment amounted to $18.7 
million which was accrued at September 30, 1996 and paid in November 1996.

                                                                        Page 49

<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
(Continued)
--------------------------------------------------------------------------------
(14)
BORROWED
FUNDS

At September 30, the Company was obligated for borrowings as follows:

<TABLE>
<CAPTION>

                                                  1996                       1995
-----------------------------------------------------------------------------------------
                                         Range of                   Range of
                                         Interest     Balance        Interest    Balance
                                          Rates                        Rates
                                        ---------    ---------     ----------    --------
                                                        (Dollars in thousands)
Securities sold under agreements to 
<S>                                 <C>              <C>         <C>            <C>
  repurchase                          4.43 - 6.53%    $800,000    4.43 - 5.69%   $623,675
Advance--Federal Home Loan 
  Bank of New York                             --           --           6.63%     10,000
Funding note                          6.00 - 6.11%     178,023             --          --
                                                      --------                   --------
                                                      $978,023                   $633,675
                                                      --------                   --------
                                                      --------                   --------
</TABLE>

The Company enters into sales of securities under agreements to repurchase 
(reverse-repurchase agreements). These are fixed coupon agreements which are 
treated as financing transactions, and the obligations to repurchase are 
reflected as a liability in the Consolidated Statements of Financial 
Condition. The dollar amount of securities underlying the agreements remains 
in the asset account. During the period, the securities were delivered to 
either a third-party, or directly to the broker, who holds the collateral 
until maturity of the agreement. Outstanding reverse-repurchase agreements 
were secured by MBS's as of September 30, 1996 and 1995 (see Note 6). The 
outstanding agreements had weighted average interest rates of 5.52% and 5.69% 
at September 30, 1996 and 1995, respectively. All the outstanding agreements 
at September 30, 1996 mature within 35 months from that date. At September 
30, 1996, $265.0 million of the agreements outstanding were concentrated with 
one party. A summary of other information relating to these agreements 
follows:

<TABLE>
<CAPTION>

                                                       At or for the Year Ended
                                                             September 30,
--------------------------------------------------------------------------------
                                                         1996           1995
                                                        ------        ------
                                                            (In thousands)
Reverse-repurchase agreements:
    Amortized cost of collateral 
<S>                                                  <C>            <C>
     (including accrued interest)                     $824,278       $649,233
                                                      --------       --------
                                                      --------       --------

    Estimated market value of collateral              $832,599       $645,955
                                                      --------       --------
                                                      --------       --------

    Average amount of outstanding agreements 
     during fiscal year                               $675,104       $510,111
                                                      --------       --------
                                                      --------       --------
    Maximum amount of outstanding agreements 
     at a month end during fiscal year                $805,942       $743,952
                                                      --------       --------
                                                      --------       --------
</TABLE>

In addition, on June 27, 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 (collateral pool) initially totalling $269.9 
million ("Funding note"). Payments of principal and interest on the Funding 
note shall be paid monthly based on the scheduled payments due on the 
underlying loans. 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"), subject to a maximum rate of 11% through June 2001. 
Thereafter, the interest on the Funding note is subject to further 
adjustments. The Bank has the option to redeem the Funding note in whole on 
or after June 2001 or when the principal balance of the collateral pool is 
less than 5% of the principal balance of the collateral pool at the time the 
Funding note was issued. The Funding note was issued to a special purpose 
financing entity of an investment banking firm for the purpose of 
securitizing mortgage pass-through certificates. At September 30, 1996, the 
outstanding principal balance of the Funding note collateral pool was $265.6 
million.

Interest expense on borrowed funds for the years ended September 30, is 
summarized as follows: 

                                                     1996         1995     1994
-------------------------------------------------------------------------------
  (In thousands)
Reverse-repurchase agreements                     $37,998      $27,870   $9,811
Advance--Federal Home Loan Bank of New York           141           55       --
Funding note                                        2,877           --       --
Amortization of interest rate cap agreements          330          330       --
                                                  -------      -------   ------
    Total interest expense on borrowed funds      $41,346      $28,255   $9,811
                                                  -------      -------   ------
                                                  -------      -------   ------

At September 30, 1996, the Bank had available and unused lines of credit 
aggregating $75.0 million. In addition, the Bank has the ability to obtain 
additional funds in the form of FHLB advances, in an amount which is based 
upon its stock ownership in the Federal Home Loan Bank of New York. 

                                                                        Page 50

<PAGE>
 

-------------------------------------------------------------------------------
(15)
FINANCIAL INSTRUMENTS 
WITH OFF-BALANCE SHEET RISK

SFAS 105 requires disclosures about financial instruments with off-balance sheet
risk and credit risk concentrations (See Note 24). Credit risk, as defined by
SFAS 105, is the possibility that loss may occur from the failure of
counterparties to perform according to the terms of the contract.

The Bank has entered into transactions as of September 30, 1996, that involve
financial instruments with off-balance sheet risks, in the normal course of
business in order to meet the financing and servicing needs of its customers and
to reduce the Bank's exposure to fluctuations in interest rates. The instruments
include commitments to extend credit, letters of credit, commitments to sell
loans and recourse liability on loans sold. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the Consolidated Statements of Financial Condition. The
contract amounts of these instruments reflect the extent of involvement the Bank
has in particular classes of financial instruments. 

The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit, commitments
to sell loans and standby letters of credit is generally represented by the
contractual amount of those instruments. The Bank uses the same credit policies
in making commitments and conditional obligations as it does for on-balance
sheet instruments. Unless otherwise noted, the Bank does not require collateral
or other security to support financial instruments with credit risk. 

COMMITMENTS TO EXTEND CREDIT AND FINANCIAL GUARANTEES.  Commitments to extend
credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
Since some of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a 
case-by-case basis. 

Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. 

COMMITMENTS TO SELL LOANS.  Commitments to sell loans are contracts for delayed
delivery of loans in which the Bank agrees to make delivery at a specified
future date of a specified instrument, at a specific price or yield. Generally,
risks arise from the possible inability to meet the terms of the contracts and
from movements in interest rates, however, since the Bank's commitments are
substantially made on a "best-efforts" basis, the Bank does not expect any
adverse financial impact.

The notional amount of the Company's financial instruments with off-balance
sheet risk at September 30, are summarized as follows:

                                                             1996        1995
-------------------------------------------------------------------------------
                                                            (In thousands)
Commitments to originate or purchase:
    Real estate loans                                   $311,967     $101,000
    Home equity loans--unused lines of credit              9,554        5,710
    Commercial loans--unused lines of credit               2,576        2,393
    Consumer loans--unused lines of credit               115,126       98,054
Commitments to sell loans                                 75,413       44,422
                                                        --------     --------
    Total commitments                                   $514,636     $251,579
                                                        --------     --------
                                                        --------     --------

Real estate loan commitments included approximately $104.8 million and $27.6
million relating to adjustable rate loans at September 30,1996 and 1995
respectively. In addition, the Bank has entered into adjustable rate stand-by
letters of credit related to commercial loan transactions amounting to $0.3
million per year at September 30, 1996 
and 1995, respectively. 

DERIVATIVES.  SFAS 119 requires disclosures about derivative contracts--swap,
forward, futures, option-related contracts and other financial instruments with
similar characteristics--distinguished between derivative contracts held for
trading and those used for purposes other than trading (i.e. asset/liability
management).

The Company has only limited involvement with derivative financial instruments
and does not use them for trading purposes. They are used to manage interest
rate risk.

                                                                        Page 51

<PAGE>


Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
(Continued)

INTEREST RATE CAP AGREEMENTS. Interest rate cap agreements are used to manage
interest rate exposure by hedging against certain assets and liabilities.
Normally interest rate caps do not represent exposure to credit loss. Purchased
caps involve the risk of dealing with counterparties and their ability to meet
the terms of the contracts forward commitments. The premium paid for the cap
represents the loss the Bank would incur if the counterparty to the contract
failed completely to perform according to the terms of the contract. No payments
were received from counterparties during the years ended September 30, 1996 and
1995 and there were no contracts in effect during fiscal 1994. For the years
ended September 30, 1996 and 1995, premiums paid for interest rate cap
agreements were amortized into interest expense in the amount of $0.3 million
per year and are included in interest expense on borrowed funds in the
Consolidated Statements of Operations.

At September 30, 1996, the Company was party to the interest rate cap agreements
presented below. The agreements entitle the Company to receive from
counterparties the amounts, if any, by which the Company's interest payments on
its floating-rate reverse-repurchase agreements exceed the cap rate specified in
the agreement.

Original Cap Cost   Notional Amount   Original Term   Cap Rate     Maturity Date
-------------------------------------------------------------------------------
    $288,000        $40,000,000         24 months      7.50%      10/15/96
     345,000         50,000,000         24 months      7.40        3/17/97
    --------        -----------
    $633,000        $90,000,000
    --------        -----------
    --------        -----------
-------------------------------------------------------------------------------

(16)
FAIR VALUE
OF FINANCIAL INSTRUMENTS


SFAS 107 requires the Company to disclose fair value information about financial
instruments for which it is practicable to estimate the value, whether or not
such financial instruments are recognized on the balance sheet. Fair value is
the amount at which a financial instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or liquidation,
and is best evidenced by a quoted market price, if one exists.

Quoted market prices are not available for a significant portion of the
Company's financial instruments. As a result, the fair values presented are
estimates derived using present value or other valuation techniques and may not
be indicative of the net realizable or liquidation value. In addition, the
calculation of estimated fair value is based on market conditions at a specific
point in time and may not be reflective of current or future fair values.

Certain financial instruments and all non-financial instruments are excluded
from the scope of SFAS 107. Accordingly, the fair value disclosures required by
SFAS 107 provide only a partial estimate of the fair value of the Company; for
example, the values associated with the Company's long-term relationships with
its customers through its deposit base and the value of a portion of its
portfolio of MSR's are excluded. In the aggregate, these items add value to the
Company but their fair value is not disclosed in this Note.

The following summary presents the methodologies and assumptions used to
estimate the fair value of the Company's financial instruments required to be
valued pursuant to SFAS 107.

FINANCIAL ASSETS

MORTGAGE-BACKED AND DEBT AND EQUITY SECURITIES. Fair values are determined by
published market prices or securities dealers' estimated prices.

LOANS HELD FOR SALE. Fair value is estimated based on current prices established
in the secondary market or, 
for those loans committed to be sold, based upon the price established in the
commitment.

LOANS RECEIVABLE HELD FOR INVESTMENT.  Fair values are estimated for portfolios
of loans with similar financial characteristics. Loans are segregated by type,
such as one-to-four family residential, multi-family residential, commercial
real estate, various consumer loans and commercial loans. Each loan category is
further segmented into fixed and adjustable rate, and by performing and
non-performing categories. The pricing methodology for fiscal 1996 and 1995
assumes FNMA or FHLMC securitization of mortgage loans with conforming loan
balances and secondary market whole loan standards for co-op residential loans
and larger balance mortgage loans. 

OTHER LOANS.  Due to the small number, student loans and loans on deposits are
valued at approximately par. The remaining consumer loans are priced at a spread
off of securitized consumer debt.

COMMERCIAL LOANS.  Commercial loans were valued at a discount or premium based
upon the origination of new commercial loans in the current market.

                                                                        Page 52

<PAGE>
 

MORTGAGE SERVICING RIGHTS.  MSR's are valued based upon the Company's
stratification of the mortgage servicing portfolio. Stratification is based
upon the predominate risk characteristics of the underlying loans,
including but not limited to, interest rates, loan type, the frequency of
interest rate adjustments in the case of adjustable rate mortgage loans,
etc. Each strata is then discounted to reflect the present value of the
expected future cash flows utilizing current market assumptions regarding
discount rates, prepayment speeds, delinquency rates, etc.


FINANCIAL LIABILITIES

DEPOSITS.  SFAS 107 requires that the fair value disclosed for deposit
liabilities with no stated maturity (i.e., demand, savings and certain
money market deposits) be equal to their carrying value. The fair value of
certificate accounts is estimated by discounting the future cash flows
using the Treasury yield curve plus additional basis points as the discount
rate.

BORROWED FUNDS. The fair value of borrowed funds is estimated by
discounting the future cash flows using the Treasury yield curve plus
additional basis points as the discount rate.

DERIVATIVES. The fair value of interest rate cap agreements is based on
securities dealers' estimated market values.

COMMITMENTS. The fair value of commitments to originate or purchase loans
is estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the present creditworthiness of the counterparties. For fixed rate loan
commitments, fair value also considers the difference between current
levels of interest rates and the committed rates. The commitments existing
at September 30, 1996 and 1995 would be offered at substantially the same
rates and terms had they been issued using the same criteria as used for
commitments issued on September 30, 1996 and 1995, respectively.
Accordingly, the estimated fair value of such commitments is deemed to be
equivalent to their stated aggregate issuance value as of September 30,
1996 and 1995, respectively. The fair value of commitments to sell loans
and unused lines of credit is valued at par as of September 30, 1996 and
1995, respectively.

The estimated fair value of the Company's financial instruments were as
follows:

<TABLE>
<CAPTION>

                                                   At September 30,
---------------------------------------------------------------------------------------
                                          1996                          1995
                                 -------------------------  ---------------------------
                               Carrying Amount Fair Value   Carrying Amount  Fair Value
                               --------------- ----------   ---------------  ----------
                                                    (In thousands)
Financial Assets:
    Debt & equity securities:
<S>                             <C>            <C>           <C>            <C>
        Held-to-maturity         $      --      $      --     $   55,839     $   55,871
    Available-for-sale             180,650        180,650        233,408        233,408
  Mortgage-backed securities:
    Held-to-maturity                23,096         21,120      1,337,903      1,339,014
    Available-for-sale           1,717,106      1,717,106        938,847        938,847
  Loans receivable held for 
        investment:
    Real estate loans            2,901,059      2,926,757      1,879,650      1,933,840
    Other loans                    135,599        142,307        110,259        118,302
    Commercial loans                 4,179          8,122          4,832          9,046
  Loans held-for-sale               57,969         58,029         49,372         49,943
  Mortgage servicing rights         29,687         29,687         11,328         11,384
Financial liabilities:
  Deposits                       3,633,010      3,619,110      3,573,529      3,572,435
  Borrowings                       978,023        969,680        633,675        632,864
    Related derivative assets 
        (liabilities)                   89             --            421             21
  Commitments to:
    Originate or purchase:
      Loans                        311,967        311,967        101,000        101,000
    Sell loans                      75,413         75,413         44,422         44,422
    Fund unused lines of credit    127,256        127,256        106,157        106,157
</TABLE>
                                                                        Page 53

<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
(Continued)


------------------------------------------------------------------------------
(17)
INCOME TAXES

Income tax expense for the years ended September 30, is summarized as follows:

                                                    1996      1995     1994
------------------------------------------------------------------------------
                                                       (In thousands)
Current:                                                  
  Federal                                       $  24,316   $23,691   $ 1,465
  State and local                                   9,875     9,273       377
                                                ---------   -------   -------
                                                   34,191    32,964     1,842
                                                ---------   -------   -------
Deferred:                                                            
  Federal                                          (7,700)   (2,333)   11,767
  State and local                                  (2,731)     (734)    4,437
                                                ---------   -------   -------
                                                 $(10,431)   (3,067)   16,204
                                                ---------   -------   -------
    Total income tax expense                    $  23,760   $29,897   $18,046
                                                ---------   -------   -------
                                                ---------   -------   -------
                                                                      
The following schedule illustrates the components of the net deferred tax
asset which is included in Prepaid expenses and other assets in the
Consolidated Statements of Financial Condition at September 30: 

<TABLE>
<CAPTION>

                                                           1996     1995
----------------------------------------------------------------------------
                                                          (In thousands)
Deferred tax assets:
<S>                                                     <C>      <C>
  Financial statement loan loss reserve                  $14,619  $14,812
  BIF-SAIF Assessment                                      8,043       --
  Accrual for post-employment benefits                     4,859    4,788
  Basis difference in investment in real estate              707      470
  Mark-to-market recognition on securities under 
    Internal Revenue Code Section 475                      7,442       --
  Deferred pension expense                                 3,626    4,185
  Deferred origination fees                                  605      796
  Non-accrual interest                                       615      641
  Other                                                    1,677      485
  Deferred income tax valuation allowance                     --   (2,328)
                                                         -------  -------
    Total deferred tax assets                             42,193   23,849
                                                         -------  -------

Deferred tax liabilities:
  Tax reserve in excess of base year reserve                 437      404
  Basis difference in properties and equipment             4,527    6,244
  Deferred origination costs                               1,291       --
  Mark-to-market recognition on securities under 
    Internal Revenue Code Section 475                         --    4,625
  Recognition of taxes payable under Internal Revenue 
    Code Section 481 for unrealized gains                  1,840    1,582
  Basis difference in home equity investment               1,674    1,511
  Other                                                    1,217      684
                                                         -------  -------
    Total deferred tax liabilities                        10,986   15,050
                                                         -------  -------
Net deferred tax asset                                   $31,207  $ 8,799
                                                         -------  -------
                                                         -------  -------
</TABLE>

The cumulative effect of the change in accounting upon the October 1, 1993
adoption of SFAS 109 was a credit to income of $19.4 million. Management,
in accordance with SFAS 109 "more likely than not" criteria, set up a
valuation allowance at the implementation date. The valuation allowance has
been reduced to zero during fiscal 1996 due to the Company's current and
projected earnings trend.

                                                                       Page 54

<PAGE>
 

The effective tax rates differ from the statutory
Federal income tax rate of 35 percent. The reasons for
the differences as applied to income (loss) before
income taxes and the cumulative effect of accounting
changes are as follows: 

<TABLE>
<CAPTION>

                                                                  For the Years Ended September 30,
--------------------------------------------------------------------------------------------------------
                                               1996                    1995                 1994
                                         -------------------   ------------------     ------------------
                                                     % of                  % of                   % of
                                                   Pre-tax               Pre-tax                Pre-tax
                                         Amount    Earnings     Amount   Earnings     Amount    Earnings
                                         -------   --------    -------   --------     -------   --------
                                                                      (Dollars in thousands)
<S>                                     <C>         <C>       <C>         <C>        <C>        <C>
Statutory rate                           $19,612     35.0%     $25,695     35.0%      $17,127     35.0%
State and local income taxes, net of
  Federal income tax benefit               4,644      8.3        5,550      7.6        3,129       7.8
Tax adjustment for prior year                370      0.7         (814)    (1.1)        (315)     (1.8)
Reversal of deferred tax valuation 
  allowance                               (2,328)    (4.2)        (532)    (0.7)      (2,140)     (4.3)
Other                                      1,462      2.6           (2)    (0.1)         245       0.1
                                         -------     ----      -------     ----      -------     -----
  Income tax expense                     $23,760     42.4%     $29,897     40.7%     $18,046      36.8%
                                         -------     ----      -------     ----      -------     -----
                                         -------     ----      -------     ----      -------     -----
</TABLE>

Under Section 593 of the Internal Revenue Code of 1986 as amended ("Code"), 
prior to January 1, 1996 thrift institutions such as the Bank which met 
certain definitional tests primarily relating to their assets and the nature 
of their business, were permitted to establish a tax reserve for bad debts. 
Such thrift institutions were also permitted to make annual additions to the 
reserve, to be deducted in arriving at their taxable income within specified 
limitations. The Bank's deduction was computed using an amount based on the 
Bank's actual loss experience ("experience method"), or a percentage equal to 
8% of the Bank's taxable income ("PTI method"). Similar deductions for 
additions to the Bank's bad debt reserve were also permitted under the New 
York State Bank Franchise Tax and the New York City Banking Corporation Tax; 
however, for purposes of these taxes, the effective allowable percentage 
under the PTI method was 32% rather than 8%.

Under the Small Business Job Protection Act of 1996 ("1996 Act"), signed into 
law in August 1996, Section 593 of the Code was amended. The Bank will be 
unable to make additions to the tax bad debt reserves but will be permitted 
to deduct bad debts as they occur. Additionally, the 1996 Act required 
institutions to recapture (that is, include in taxable income) the excess of 
the balance of its bad debt reserves as of December 31, 1995 over the balance 
of such reserves as of December 31, 1987 ("base year"). The Bank's tax bad 
debt reserves at December 31, 1995 exceeded its base year reserves by $2.7 
million which will be recaptured into taxable income ratably over a six year 
period. If certain requirements are met the recapture may be deferred for up 
to two years. The base year reserves will be subject to recapture, and the 
Bank could be required to recognize a tax liability if (i) the Bank fails to 
qualify as a "bank" for Federal income tax purposes; (ii) certain 
distributions are made with respect to the stock of the Bank; (iii) the Bank 
uses the bad debt reserves for any purpose other than to absorb bad debt 
losses; and (iv) there is a change in Federal tax law. Management is not 
aware of the occurrence of any such event.

In response to the Federal legislation, the New York State tax law has been 
amended to prevent the recapture of existing tax bad debt reserves and to 
allow for the continued use of the PTI method to determine the bad debt 
deduction in computing New York State tax liability. No such amendments have 
been made to date with respect to the New York City tax law. The Company 
cannot predict whether such changes will be made or as to the form of the 
changes.

--------------------------------------------------------------------------------
(18) 
RETAINED INCOME--
PARTIALLY RESTRICTED

Retained income at September 30, 1996 and 1995 includes approximately $60.1 
million, each year, for which no provision for Federal income tax has been 
made. This amount represents allocations of income to bad debt deductions for 
tax purposes only, as discussed above. 
--------------------------------------------------------------------------------

(19) 
POSTRETIREMENT 
HEALTH CARE AND 
LIFE INSURANCE 
BENEFITS

The Bank currently provides health care and life insurance benefits for 
retirees and their eligible dependents. The coverage provided depends upon 
the date they retired as well as the bank from which they retired.

For employees who retired prior to June 1, 1984, major medical and life 
insurance coverage is provided. Major medical insurance continues until the 
retiree reaches age 65. Upon attainment of age 65, senior care is provided as 
a supplement to Medicare and continues for the lifetime of the retirees and 
their spouses. Life insurance coverage is provided in the amount in force at 
the employee's date of retirement. This amount is reduced to 50% (but not to 
less than $5,000) at age 70. For retirees of the former Suffolk County 
Federal Savings and Loan Association, life insurance coverage is provided at 
50% of the amount in effect at retirement and is reduced by 10% each year 
(but not to less than $5,000) thereafter.

                                                                       Page 55

<PAGE>
 

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
(Continued)

Employees who retire subsequent to June 1, 1984 are not entitled to any medical
benefits unless they qualify under the special early retirement Rule of 85. The
Rule of 85 became effective as of January 1, 1986, and entitles employees who
are at least age 55 at retirement, with a combination of age plus service
greater than or equal to 85, to medical coverage for themselves and their
eligible dependents until the retiree reaches the age of 65. At age 65, the
retiree is eligible for Medicare. Medical coverage includes major medical and
dental for both retirees and their eligible dependents; vision coverage is
provided to retirees only. Life insurance of $2,500 will be provided for the
lifetime of the retired employee who retires on or after age 65 and for
employees who retire under the Rule of 85. 

For employees who retired from Flushing Federal prior to April 29, 1986, major
medical insurance continues until age 65. Retirees age 65 and over are provided
with senior care as a supplement to Medicare for the lifetime of the retirees
and their eligible spouses. Life insurance coverage is equal to the amount in
force at retirement, reduced to 50% at age 70. 

Effective October 1, 1993, the Bank adopted the provisions of SFAS 106. This
statement requires employers to accrue the cost of postretirement benefits, such
as health care and life insurance, during the years employees render service. In
prior years, these costs were expensed as paid. The Bank recorded the discounted
value of expected future benefits (accumulated postretirement benefit obligation
("APBO")) as a cumulative effect of a change in accounting principle in the
amount of $10.7 million ($6.0 million net of taxes) at October 1, 1993.

The following table sets forth the APBO for the years ended September 30:

                                                     1996        1995
-----------------------------------------------------------------------------
                                                       (In thousands)
Retirees                                           $3,727      $3,810
Active eligible                                       270          19
Other active                                        1,259       1,710
                                                   ------      ------
Total                                              $5,256      $5,539
                                                   ------      ------
                                                   ------      ------

The following is a reconciliation of the funded status and the accrued benefit
cost at September 30:
                                                     1996        1995
-----------------------------------------------------------------------------
                                                       (In thousands)
APBO                                              $ 5,256     $ 5,539
Unrecognized prior service cost                       130       1,223
Unrecognized net actuarial gain                     5,886       4,345
                                                  -------     -------
Accrued postretirement benefit cost               $11,272     $11,107
                                                  -------     -------
                                                  -------     -------

The assumed medical cost trend used in computing the accumulated postretirement
benefit obligation was 8.5% in 1996 and was assumed to decrease gradually to
4.5% in 2009 and to remain at that level thereafter. Increasing the assumed
medical care cost trend rates by 1% point in each year would increase the APBO
and the net periodic postretirement benefit cost as of October 1, 1996 by $0.4
million and $0.1 million, respectively.

The weighted average discount rate used in determining the APBO was 7.75%.

The net periodic postretirement benefit cost included in compensation, payroll
taxes and fringe benefits in the accompanying Consolidated Statements of
Operations for the years ended September 30, is comprised of the following
components:
                                                     1996        1995
--------------------------------------------------------------------------
                                                      (In thousands)
Service cost                                       $  161      $  127
Interest cost                                         398         503
Net amortization of prior service cost                (85)        (85)
Net amortization of unrecognized gain                (236)       (177)
                                                   ------      ------
  Net periodic postretirement benefit cost         $  238      $  368
                                                   ------      ------
                                                   ------      ------

                                                                        Page 56

<PAGE>

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

(20)
PENSION PLANS

DEFINED BENEFIT PENSION PLAN. The Bank sponsors a non-contributory defined
benefit pension plan ("Retirement Plan") covering substantially all employees
twenty-one years of age or older. The Retirement Plan is administered by the
Retirement System Group Inc. ("RSG"). Prior to January 1, 1996, the benefit
multiplier to determine the normal annual retirement benefit was 2% of the
pensioner's final average salary. Final average salary was 
the average annual salary attributable to the highest 36 consecutive calendar
months of base compensation that fell within the last 10 years of credited
service. Effective January 1, 1996, the benefit multiplier was reduced to 1.5%
of the pensioner's final average salary and the base compensation factor was
increased to the highest sixty consecutive calendar months.

The following table depicts the components of pension expense for the years
ended September 30, projected by RSG in accordance with Statement of Financial
Accounting Standards No. 87 (SFAS 87), Employers' Accounting for Pensions: 

                                             1996         1995          1994
-------------------------------------------------------------------------------
                                                    (In thousands)
Service cost                             $  1,199       $  1,417     $  1,838
Interest cost                               3,240          3,572        3,267
Expected return on assets                  (7,581)        (9,714)         (20)
Amortization of unrecognized transition 
  asset                                      (429)          (430)        (429)
Amortization of unrecognized past 
  service liability                          (794)          (165)        (152)
Deferred investment gain (loss)             3,329          6,006       (3,904)
                                         --------       --------     --------
Pension (benefit) expense                $ (1,036)      $    686     $    600
                                         --------       --------     --------
                                         --------       --------     --------

The following table sets forth the Retirement Plan's funded status as projected
by RSG and amounts recognized in the Bank's consolidated statements of financial
condition at September 30: 

                                                            1996        1995
-------------------------------------------------------------------------------
                                                            (In thousands)
Actuarial present value of accumulated plan benefits:
  Vested                                                 $42,915      $41,771
  Non-vested                                               1,893        2,118
                                                         -------      -------
Total accumulated plan benefits                          $44,808      $43,889
                                                         -------      -------
Fair value of plan net assets                            $59,276      $54,609
Project benefit obligations                               44,911       43,942
                                                         -------      -------
Fair value of plan net assets in excess of 
  projected benefit obligation                            14,365       10,667
Unrecognized gain                                         (9,094)      (4,785)
Unrecognized past service liability                       (6,155)      (7,373)
Unrecognized transition asset                               (326)        (755)
                                                         -------      -------
Accrued pension expense                                  $(1,210)     $(2,246)
                                                         -------      -------
                                                         -------      -------
Assumed rate of return on assets                           8.00%        8.00%
                                                         -------      -------
                                                         -------      -------
Assumed rate of compensation increase                      5.50%        5.50%
                                                         -------      -------
                                                         -------      -------
Assumed discount rate                                      7.75%        7.50%
                                                         -------      -------
                                                         -------      -------

NON-EMPLOYEE DIRECTOR RETIREMENT BENEFIT PLAN. In fiscal 1994, the Company
adopted a non-qualified retirement benefit plan for directors who are not
employees of the Bank or the Holding Company. Upon retirement from the Board of
Directors at age 65 or older, with a minimum of 15 years of service, the
retirement benefits provide continuation of the annual retainers and Board
meeting fees received by such directors from the Bank and the Holding Company at
the then current rate for a period of ten years following retirement.

Accordingly, the Company recorded a charge to earnings in fiscal 1994
representing the discounted value of accumulated plan benefits in the amount of
$2.4 million. Additional accumulated plan benefits resulted in a charge 
to earnings in fiscal 1996 and 1995 of $0.2 million per year. The retirement
benefit plan is an unfunded plan and is estimated based upon an assumed discount
rate of 7.75% and 7.5% for fiscal years ended September 30, 1996 and 1995,
respectively, and an assumed rate of increase in director fees of 6.0% in both
years, each compounded annually.

                                                                        Page 57

<PAGE>


Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
(Continued)

-------------------------------------------------------------------------------
(21)
SAVINGS
INCENTIVE
PLAN

The Bank sponsors a Savings Incentive Plan ("SIP") available to all full-time
employees after completion of one year of employment. Prior to April 18, 1994,
the Bank matched 50% of every dollar contributed by employees to a maximum of 6%
of an employee's salary for the first three years of participation; the Bank
matched 100% thereafter to a maximum of 6% of an employee's salary. Effective
April 18, 1994 through December 31, 1995, the Bank reduced its matching
contribution from 100% to 50% of the first 6% of the participant's base salary
contributed to the plan regardless of length of participation. As of January 1,
1996, the Bank began to phase out this matching contribution to 30% of the first
6% of the participant's base salary contributed to the plan. During 1997, it
will further decrease its matching contribution to 15% of the first 6% of the
participant's base salary. For 1998 and thereafter, the Bank will no longer make
matching contributions. SIP expense was $0.4 million, $0.5 million and $0.8
million for the years ended September 30, 1996, 1995 and 1994, respectively. 
-------------------------------------------------------------------------------

(22)
STOCK
BENEFIT
PLANS

EMPLOYEE STOCK OWNERSHIP PLAN. In connection with the Conversion, the Bank
established an ESOP for eligible employees. The ESOP borrowed $23.8 million from
the Holding Company and used the funds to purchase 2,070,000 shares of Common
Stock issued in the Conversion. The loan to the ESOP will be repaid primarily
from the Bank's contributions to the ESOP over a period not to exceed 15 years.
At September 30, 1996 the loan had an outstanding balance of $19.8 million and
an interest rate of 6.15%.

Shares purchased with the loan proceeds are held in a suspense account by the
trustee of the plan for future allocation among participants as the loan is
repaid. Contributions to the ESOP and shares released from the suspense account
are allocated among participants on the basis of compensation as described in
the plan. Effective April 18, 1994 through December 31, 1996, the number of
shares released to participants was determined based upon the cost of the Common
Stock to the ESOP trustee. As of January 1, 1997, the number of shares released
to participants will be determined based upon the average of the closing price
of the Common Stock for all the trading days in the plan year. Participants will
vest in the shares allocated to their respective accounts over a period not to
exceed 5 years. Any forfeited shares are allocated to the then remaining
participants in the same proportion as contributions. At December 31, 1995,
approximately 243,000 shares have been allocated to participants. At September
30, 1996, the Bank has accrued for the release of approximately 142,000
additional shares which represents the 1996 allocations earned from January 1,
1996 through the end of the fiscal year.

The trustee for the ESOP must vote all allocated shares held in the ESOP trust
in accordance with the instructions of the participants. Unallocated shares held
by the ESOP trust are voted by the trustee in a manner calculated to most
accurately reflect the results of the allocated ESOP shares voted, subject to
the requirements of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").

STOCK OPTION PLANS. In connection with the Conversion and the initial public
offering, the Company adopted, and its shareholders later ratified, two stock
option plans: the Long Island Bancorp, Inc. 1994 Stock Incentive Plan ("Stock
Option Plan") and the Long Island Bancorp, Inc. 1994 Non-Employee Directors
Stock Option Program ("Directors Stock Option Plan").

                                                                        Page 58

<PAGE>

THE STOCK OPTION PLAN. Under the Stock Option Plan, 1,811,250 stock options have
been reserved for executive officers, employees and consultants. Options under
this plan are either non-statutory stock options or incentive stock options.
Each option entitles the holder to purchase one share of the Common Stock at an
exercise price equal to the fair market value on the date of grant. Options are
exercisable ratably over five years measured from the date of grant. Each
option, however, will become 100% exercisable upon the occurrence of a change in
control of the Holding Company or the Bank, or upon death, disability or
retirement of the optionee. All options expire no later than ten years following
the date of grant. Option transactions for the years ended September 30 are
shown below:

                                                                       Weighted
                                                                       Average
                                                        Number of      Exercise
                                                        Shares           Price
-------------------------------------------------------------------------------
Options outstanding at September 30, 1993                     --       $   --
Granted                                                1,353,780        11.50
Forfeited                                                 32,130        11.50
                                                       ---------       ------
Options outstanding at September 30, 1994              1,321,650        11.50
Granted                                                  184,279        17.35
Forfeited                                                 17,964        11.50
Exercised                                                 78,540        11.50
                                                       ---------       ------
Options outstanding at September 30, 1995              1,409,425        12.23
Granted                                                    1,554        27.38
Forfeited                                                 69,899        11.77
Exercised                                                123,303        11.57
                                                       ---------       ------
Options outstanding at September 30, 1996              1,217,777       $12.34
                                                       ---------       ------
                                                       ---------       ------
Options exercisable at September 30, 1996                432,603       $11.94
                                                       ---------       ------
                                                       ---------       ------


DIRECTORS STOCK OPTION PLAN. Under the Directors Stock Option Plan, 776,250
stock options have been reserved for non-employee directors. Options granted
under this plan are non-statutory options. Each option entitles the holder to
purchase one share of the Common Stock at an exercise price equal to the fair
market value on the date of grant. Options are exercisable ratably over five
years measured from the date of grant. Each option, however, will become 100%
exercisable upon the occurrence of a change in control of the Holding Company or
the Bank, or upon death, disability or retirement of the optionee. All options
expire no later than ten years following the date of grant. Option transactions
for the years ended September 30 are shown below:

                                                                      Weighted
                                                                        Average
                                                           Number of  Exercise
                                                           Shares       Price
-------------------------------------------------------------------------------
Options outstanding at September 30, 1993                     --       $   --
Granted                                                  694,485        11.50
Forfeited                                                     --           --
                                                        --------       ------
Options outstanding at September 30, 1994                694,485        11.50
Granted                                                    5,698        17.38
Forfeited                                                     --           --
Exercised                                                 67,482        11.50
                                                        --------       ------
Options outstanding at September 30, 1995                632,701        11.56
Granted                                                    5,698        27.38
Forfeited                                                     --           --
Exercised                                                 55,922        11.50
                                                        --------       ------
Options outstanding at September 30, 1996                582,477       $11.72
                                                        --------       ------
                                                        --------       ------
Options exercisable at September 30, 1996                182,847       $11.54
                                                        --------       ------
                                                        --------       ------

                                                                        Page 59

<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
(Continued)

MANAGEMENT RECOGNITION AND RETENTION PLANS. In connection with the Conversion
and the IPO, the Company adopted, and its shareholders later ratified, two
recognition and retention plans: The Long Island Savings Bank Management
Recognition and Retention Plan for Executive Officers ("Officers MRP Plan") and
The Long Island Savings Bank Management Recognition and Retention Plan for
Non-Employee Directors ("Directors MRP Plan"). The purpose of these plans
(collectively the "MRPs") is to provide officers and non-employee directors of
the Bank with a proprietary interest in the Holding Company in a manner designed
to encourage their retention with the Bank. Upon completion of the IPO, the Bank
contributed $8.9 million to the MRPs to enable the MRPs to purchase an aggregate
of 776,250 shares of Common Stock at $11.50 per share. This contribution
represents deferred compensation which is initially recorded as a reduction to
stockholders' equity and ratably charged to compensation expense over the
vesting period of the stock awards granted.

OFFICERS MRP PLAN. Under the Officers MRP Plan, 543,375 shares were purchased
for the benefit of executive officers and consultants. During the years ended
September 30, 1995 and 1994, 156,931 and 185,522 shares, respectively, were
granted. These awards vest ratably over five years measured from the date of
grant. During the year ended September 30, 1996, 106,545 additional grants were
awarded to employees based upon their length of service with the Bank and their
officer status. The length of service awards vest over one year and the officer
awards vest ratably over two years. At September 30, 1996, 128,167 shares are
available for future grants. Immediate vesting of awards is deemed to occur upon
change in control of the Holding Company or Bank, or upon death, disability or
retirement of the participant. For the years ended September 30, 1996, 1995, and
1994 compensation expense in the accompanying Consolidated Statements of
Operations includes $1.8 million, $1.4 million and $0.2 million, respectively,
of expense relating to the awards under this plan.

DIRECTORS MRP PLAN. Under the Directors MRP Plan, 232,875 shares were purchased
for the benefit of non-employee directors and 214,956 shares were granted at the
date of Conversion. No additional shares were granted during the years ended
September 30, 1996 and 1995. At September 30, 1996, 35,832 shares are available
for future grants. Awards vest ratably over the life of the grant, however,
immediate vesting is deemed to occur upon change in control of the Holding
Company or Bank, or upon death, disability or retirement of the participant. For
the years ended September 30, 1996, 1995 and 1994, compensation expense in the
accompanying Consolidated Statements of Operations includes $0.5 million, $0.7
million and $0.2 million, respectively, of expense relating to the awards under
this plan.
-------------------------------------------------------------------------------

(23)
COMMITMENTS AND
CONTINGENCIES


LEASES. The Bank is obligated under several non-cancelable operating lease
agreements as of September 30, 1996. The future minimum rental payments required
under these operating leases are as follows: 

Year Ending September 30,                                             Amount

-------------------------------------------------------------------------------
                                                                 (In thousands)
1997                                                               $ 2,719
1998                                                                 2,478
1999                                                                 1,951
2000                                                                 1,307
2001                                                                   932
Thereafter                                                           5,085
                                                                   -------
                                                                   $14,472
                                                                   -------
                                                                   -------

PENDING LITIGATION. The Company is involved in various legal actions arising in
the ordinary course of business, in addition to a class action lawsuit involving
certain mortgage borrowers, which, in the aggregate, are believed by 
management to be immaterial to the financial position of the Company.

LOANS SOLD WITH RECOURSE. The Bank has sold loans with recourse obligations and
has retained servicing on these loans which have outstanding principal balances
of $289.5 million at September 30, 1996. At this time, the maximum exposure
under the Bank's recourse obligations is $130.1 million. In general, recourse
means that the Bank 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 REO yields that amount. Although the Bank
does not believe that its recourse obligations subject it to risk of material
loss in the future, the Bank has established recourse reserves which at
September 30, 1996 aggregated approximately $0.6 million. In addition, various
securities have been pledged as collateral in order to secure performance of the
Bank's obligations under certain mortgage pool purchase contracts. 

                                                                        Page 60

<PAGE>

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

(24)
SIGNIFICANT
CREDIT RISK
CONCENTRATION

The Bank may be exposed to a concentration of credit risk from a regional
economic standpoint since prior to fiscal 1995 loans were made primarily in the
Metropolitan New York area. In an effort to help minimize this risk, the Bank
began to originate or acquire loans on a nationwide basis in fiscal 1995. At
September 30, 1996, approximately 43.46% of the Bank's real estate loans
(excluding home equity loans) were derived from outside of New York, New Jersey 
and Connecticut.
-------------------------------------------------------------------------------

(25)
PARENT-ONLY
FINANCIAL
INFORMATION

Long Island Bancorp, Inc. operates a wholly-owned subsidiary, The Long Island
Savings Bank, FSB. The earnings of the Bank are recognized by the Holding
Company using the equity method of accounting. Accordingly, undistributed
earnings of the Bank are recorded as increases in the Holding Company's
investment in the Bank. The following are the condensed financial statements of
Long Island Bancorp, Inc. (parent company only) as of September 30. The Holding
Company had no results of operations prior to the Conversion on April 14, 1994.



CONDENSED STATEMENTS OF FINANCIAL CONDITION
                                                          September 30,
--------------------------------------------------------------------------
                                                        1996        1995
                                                      --------    --------
                                                            (In thousands)
Assets
Cash and cash equivalents (including interest-earning 
  assets of $3,073 and $8,623, respectively)          $  3,871    $  8,628
Investment in debt securities, net:
  Held-to-maturity, net (estimated market value 
  of $0 and $6,844)                                         --       6,858
  Available-for-sale                                    52,811      73,890
Investment in mortgage-backed securities, net:
  Held-to-maturity, net (estimated market value 
  of $0 and $6,892)                                         --       6,873
  Available-for-sale                                    12,997       9,238
Accrued interest receivable, net                           232         204
Investment in subsidiary                               430,546     403,424
ESOP loan receivable                                    19,789      21,422
Receivable from subsidiary                                 140          --
Other assets                                             2,468         399
                                                      --------    --------
Total assets                                          $522,854    $530,936
                                                      --------    --------
                                                      --------    --------

Liabilities and Stockholders' Equity
Liabilities, net                                      $  3,760    $  4,762
Total stockholders' equity                             519,094     526,174
                                                      --------    --------
Total liabilities and stockholders' equity            $522,854    $530,936
                                                      --------    --------
                                                      --------    --------

CONDENSED STATEMENTS OF OPERATIONS

The condensed statements of operations for the years ended September 30, 1996
and 1995 and the period April 14, 1994 (date of Conversion) to September 30,
1994 are as follows: 
                                          1996           1995          1994
------------------------------------------------------------------------------
                                                    (In thousands)
Interest income--securities             $ 4,239        $ 6,377     $ 2,266
Interest income--ESOP loan receivable     1,284          1,380         674
Dividends received from subsidiary       10,500         10,800          --
Expenses                                  (793)           (734)     (1,066)
                                        -------        -------     -------
Income before income taxes and equity 
  in undistributed earnings of 
  subsidiary                             15,230         17,823       1,874
Provision for income taxes              (1,553)         (2,738)       (889)
                                        -------        -------     -------
Income before equity in undistributed 
  earnings of subsidiary                 13,677         15,085         985
Equity in undistributed earnings of 
  subsidiary                             18,598         28,431      16,129
                                        -------        -------     -------
Net income                              $32,275        $43,516     $17,114
                                        -------        -------     -------
                                        -------        -------     -------


                                                                        Page 61


<PAGE>


Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996, 1995 and 1994
(Continued)

CONDENSED STATEMENTS OF CASH FLOWS

The condensed statements of cash flows for the years ended September 30, 1996
and 1995 and the period April 14, 1994 (date of Conversion) to September 30,
1994 is as follows:

                                        1996           1995         1994
-----------------------------------------------------------------------------
                                                  (In thousands)
Operating activities:
  Net income                          $  32,275      $  43,516   $  17,114
  Adjustments to reconcile net 
    income to net cash 
    provided (used) by operating 
    activities:
  Equity in the undistributed 
    earnings of subsidiary              (18,598)       (28,431)    (16,129)
  Increase in other assets               (2,069)           (71)       (328)
  Accretion of discounts net of 
    amortization of premium on 
    debt securities and 
    mortgage-backed securities           (1,023)        (3,155)     (1,515)
  Increase in accrued interest receivable   (28)           (81)       (123)
   (Decrease)/increase in other 
    liabilities                          (1,002)         3,668       1,094
                                       --------      ---------    --------
    Net cash provided by operating 
    activities                            9,555         15,446         113
                                       --------      ---------    --------
Investing activities:
  Purchases of debt securities         (265,351)      (704,074)   (388,812)
  Proceeds from maturities of and 
    principal payments on debt 
    securities                          279,602        682,897     311,702
  Proceeds from sale of debt 
    securities                           15,485         19,989          --
  Purchases of mortgage-backed 
    securities                               --             --     (19,122)
  Principal payments on 
    mortgage-backed securities            2,956          2,286         720
  Advances/investment (to) 
    from subsidiary                        (140)         9,760    (173,759)
  Principal payment on ESOP 
    loan receivable                       1,633          1,650         712
                                       --------      ---------    --------
    Net cash provided (used) by 
    investing activities                 34,185         12,508    (268,559)
                                       --------      ---------    --------
Financing activities:
  Net proceeds from the issuance 
    of common stock                          --             --     273,147
  Cost to repurchase common stock       (42,043)       (17,812)         --
  Cash dividends paid on common stock    (8,524)        (7,892)         --
  Proceeds from the exercise of 
    stock options                         2,070          1,677          --
                                       --------      ---------    --------
    Net cash (used) provided by 
    financing activities                (48,497)       (24,027)    273,147
                                       --------      ---------    --------
(Decrease)/increase in cash 
    and cash equivalents                 (4,757)         3,927       4,701
Cash and cash equivalents at 
    beginning of period                   8,628          4,701          --
                                       --------      ---------    --------
Cash and cash equivalents at 
    end of period                      $  3,871      $   8,628    $  4,701
                                       --------      ---------    --------
                                       --------      ---------    --------

                                                                        Page 62

<PAGE>

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

(26)
SELECTED QUARTERLY
FINANCIAL DATA
(UNAUDITED)

The following table is a summary of operations by quarter for the years ended 
September 30, 1996 and 1995:
 

<TABLE>
<CAPTION>

                                                                 For the Quarter Ended
------------------------------------------------------------------------------------------------------------------
                                     9/30/96   6/30/96   3/31/96  12/31/95   9/30/95   6/30/95   3/31/95  12/31/94
                                     -------   -------   -------  --------   -------   -------   -------  --------
                                                          (In thousands, except per share data)

<S>                                 <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Interest income                      $91,420   $87,862   $85,562   $86,727   $86,762   $82,709   $77,781   $73,963
Interest expense                      52,694    48,723    47,443    48,316    48,614    44,049    38,886    36,347
                                     -------   -------   -------   -------   -------   -------   -------   -------
Net interest income                   38,726    39,139    38,119    38,411    38,148    38,660    38,895    37,616
Provision for possible loan losses     1,500     1,600     1,500     1,600     1,500     1,500     1,355     2,115
                                     -------   -------   -------   -------   -------   -------   -------   -------
Net interest income after provision 
  for possible loan losses            37,226    37,539    36,619    36,811    36,648    37,160    37,540    35,501
Non-interest income:
  Fee income:
    Loan fees and service charges        944       837       736       700       748       635       532       579
    Loan servicing fees                4,648     3,058     3,100     3,057     3,989     3,303     3,125     2,456
    Income from insurance and
    securities commissions               368       442       471       327       215       253       152       185
    Deposit service fees               1,518     1,463     1,496     1,460     1,446     1,449     1,520     1,502
                                     -------   -------   -------   -------   -------   -------   -------   -------
    Total fee income                   7,478     5,800     5,803     5,544     6,398     5,640     5,329     4,722
    Other income                       1,050       968     1,039       661     1,623       849       683       748
                                     -------   -------   -------   -------   -------   -------   -------   -------
    Total fee and other income         8,528     6,768     6,842     6,205     8,021     6,489     6,012     5,470
  Net gains (losses) on sale activity:
    Net gains on loans and
    mortgage-backed securities         2,676     2,195     2,497       625       616       924       993     1,029
    Net (losses)gains on investment
    in debt and equity securities        (88)      169        --       259         1      (349)   (1,050)     (526)
                                     -------   -------   -------   -------   -------   -------   -------   -------
    Total net gains (losses) on 
      sale activity                    2,588     2,364     2,497       884       617       575       (57)      503
    Net (loss) gain on investment 
    in real estate and premises         (276)    1,735       (14)    2,673       (95)    1,081       105       376
                                     -------   -------   -------   -------   -------   -------   -------   -------
Total non-interest income             10,840    10,867     9,325     9,762     8,543     8,145     6,060     6,349
Non-interest expense:
  General and administrative expense:
    Compensation, payroll taxes and 
    fringe benefits                   16,812    14,255    13,625    13,277    11,544    13,632    14,175    12,092
    Advertising                        1,673     1,836     1,216     1,215     2,313       801       590       987
    Office occupancy and equipment     5,679     5,223     4,795     4,934     5,250     4,558     4,651     4,088
    Federal insurance premiums         2,287     2,292     2,259     2,217     2,206     2,226     2,227     2,302
    Other general and administrative 
    expense                            5,327     4,951     4,127     4,207     4,562     4,411     4,756     3,372
                                     -------   -------   -------   -------   -------   -------   -------   -------
    Total general and 
      administrative expense          31,778    28,557    26,022    25,850    25,875    25,628    26,399    22,841
  SAIF special assessment             18,657        --        --        --        --        --        --        --
  Net loss on real estate owned          559       637       389       505       522       533       288       447
                                     -------   -------   -------   -------   -------   -------   -------   -------
Total non-interest expense            50,994    29,194    26,411    26,355    26,397    26,161    26,687    23,288
                                     -------   -------   -------   -------   -------   -------   -------   -------
(Loss) income before income taxes     (2,928)   19,212    19,533    20,218    18,794    19,144    16,913    18,562
Provision for income tax
   (benefit) expense                  (1,026)    7,918     8,271     8,597     6,868     8,134     6,878     8,017
                                     -------   -------   -------   -------   -------   -------   -------   -------
Net (loss) income                    $(1,902)  $11,294   $11,262   $11,621   $11,926   $11,010   $10,035   $10,545
                                     -------   -------   -------   -------   -------   -------   -------   -------
                                     -------   -------   -------   -------   -------   -------   -------   -------
Primary (loss) earnings 
  per common share                   $ (0.08)  $  0.47   $  0.46   $  0.47   $  0.47   $  0.45   $  0.41   $  0.43
                                     -------   -------   -------   -------   -------   -------   -------   -------
                                     -------   -------   -------   -------   -------   -------   -------   -------
Fully diluted (loss) earnings 
  per common share                   $ (0.08)  $  0.47   $  0.46   $  0.47   $  0.47   $  0.45   $  0.41   $  0.43
                                     -------   -------   -------   -------   -------   -------   -------   -------
                                     -------   -------   -------   -------   -------   -------   -------   -------

</TABLE>
                                                                        Page 63

<PAGE>
 

Long Island Bancorp, Inc. and Subsidiary

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Long Island Bancorp, Inc.

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

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company at
September 30, 1996 and 1995 and the results of their operations and their cash
flows for each of the years in the three year period ended September 30, 1996 in
conformity with generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of Statements of Financial Accounting Standards (SFAS)
Nos. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" and 109, "Accounting for Income Taxes," effective October 1, 1993.



    /s/KPMG PEAT MARWICK LLP


Jericho, New York
October 22, 1996

                                                                        Page 64

<PAGE>

Long Island Bancorp, Inc. and Subsidiary

MARKET PRICE OF COMMON STOCK

Long Island Bancorp, Inc. common stock is traded on the NASDAQ national market
under the symbol "LISB". The following table shows the high, low and closing
sales price of the Common Stock during the periods indicated. The Common Stock
began trading April 14, 1994.

1995                                      High             Low          Closing
------------------------------------------------------------------------------
First Quarter                            $15.875         $12.125        $14.625
Second Quarter                           17.500          14.000         17.500
Third Quarter                             20.250        17.125         19.000
Fourth Quarter                           28.625          18.625         24.500

1996
----
First Quarter                            $26.750         $22.375        $26.375
Second Quarter                           29.625          24.375         28.125
Third Quarter                             31.000        26.875         30.563
Fourth Quarter                           33.250          27.500         28.875

As of September 30, 1996, the Company had approximately 3,981 shareholders of
record, not including the number of persons or entities holding stock in nominee
or street name through various brokers and banks. There were 24,644,157 shares
of Common Stock shares outstanding at September 30, 1996. Dividends of ten cents
per Common Share have been paid to shareholders as follows:

Declaration Date                 Record Date              Payment Date
-------------------------------------------------------------------------------
December 21, 1995              January 16, 1996          February 14, 1996
March 26, 1996                   April 15, 1996               May 15, 1996
June 25, 1996                     July 17, 1996            August 16, 1996
September 24, 1996             October 16, 1996          November 15, 1996

                                                                        Page 65
 

<PAGE>

<TABLE>
<CAPTION>

Long Island Bancorp, Inc. and Subsidiary

SHAREHOLDER INFORMATION

<S>                          <C>                               <C>
BOARD OF DIRECTORS            CORPORATE OFFICES                 STOCK LISTING

John J. Conefry, Jr.,         Long Island Bancorp, Inc.         Long Island Bancorp Inc.'s
Chairman                      201 Old Country Road              common stock is traded on the
                              Melville, NY 11747                Nasdaq National Market under
                                                                the symbol "LISB". Stock
Bruce M. Barnet                                                 Quotes are included in
Clarence M. Buxton                                              the Nasdaq National Market
Edwin M. Canuso               ANNUAL MEETING                    stock tables published in
Richard F. Chapdelaine                                          leading dailies and other
Brian J. Conway               The Annual Meeting of             business publications. 
Robert J. Conway              Shareholders                      In The Wall Street Journal
Frederick DeMatteis           will be held Tuesday,             we are listed as "LI Bncp".
George R. Irvin               February 18, 1997 at              In The New York Times
Herbert J. McCooey            9:30 AM at the Huntington         we are listed as "LI Bcp".
Lawrence W. Peters            Hilton located on Route 110 at    In Newsday we are listed
Robert S. Swanson, Jr.        598 Broadhollow Road,             as "LI Bancrp".
Dr. James B. Tormey           Melville, NY. Notice of the       
Leo J. Waters                 meeting, a proxy statement and    ANNUAL REPORT ON 
Donald D. Wenk                proxy form are included with      FORM 10-K
Troy J. Baydala               this mailing to shareholders
  (Director Emeritus)         of record as of December          A copy of the Company's 1996 annual
                              23, 1996.                         report on Form 10-K (without
                                                                exhibits), which has been filed
                                                                with the Securities and Exchange
EXECUTIVE OFFICERS                                              Commission and the annual report
John J. Conefry, Jr.,         INDEPENDENT AUDITORS              pursuant to Section 112 of the
Chairman, President and                                         FDIC Improvement Act of 1991 will
Chief Executive Officer       KPMG Peat Marwick LLP             be furnished to shareholders
                              Jericho, New York                 without charge, upon written
Bruce M. Barnet,                                                request to: 
Executive Vice President      SHAREHOLDER AND                   
Department                                                      Investor Relations
and Director of Real Estate   GENERAL INQUIRIES                 Long Island Bancorp, Inc.
and Development                                                 201 Old Country Road
                                                                Melville, NY  11747
                                                                
Joseph P. Bryant,             Shareholders, analysts and others
Executive Vice President      interested in additional          WORLD WIDE WEB SITE:
and Chief Mortgage Officer    information may contact           
                              Mary M. Feder,                    http://www.lisb.com
Mark Fuster,                  Vice President,
Executive Vice President      Investor Relations                CUSTOMER SERVICE:
and Chief Financial Officer   at (516) 547-2607.
                                                                1-800-THE-LISB
W. Douglas Singer,            STOCK TRANSFER AGENT 
Executive Vice President      AND REGISTRAR                     BANK BY PHONE:
and Treasurer
                              Inquiries regarding stock         694-9010
Robert T. Volk,               transfer, lost certificates,      From the 516, 212, 718 and
                                                                914 area codes
Executive Vice President and  or changes in                     
Director of Consumer Banking  name and/or address should be
                              directed to the stock transfer    Available 8:00 AM - 8:00
                                                                PM Monday-Friday and
SENIOR VICE PRESIDENTS OF     agent and registrar:              8:00 AM - 3:00 PM Saturday
THE LONG ISLAND SAVINGS                                         
Saturday
BANK, FSB                     ChaseMellon Shareholder
                              Services, L.L.C.
Roberta E. Cashwell           Customer Service Department
Karen M. Cullen               P.O. Box 590
Louis A. Iannaccone           Ridgefield Park, NJ 07660
Arthur D. McDermott           (800) 465-7038
Anthony J. Morris
John B. Pettit
William A. Purschke
John Talotta
Roger Teurfs

</TABLE>

Page 66