<PAGE>

Long Island Bancorp, Inc. and Subsidiary

FINANCIAL REVIEW

                                  partnerships
                                              profitability

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.............................. 29
                                                                         
Consolidated Statements of Operations....................................... 30
                                                                         
Consolidated Statements of                                               
Changes in Stockholders' Equity............................................. 31
                                                                         
Consolidated Statements of Cash Flows....................................... 32
                                                                         
Notes to Consolidated Financial Statements.................................. 33
                                                                         
Independent Auditors' Report................................................ 62
                                                                         
Market Price of Common Stock................................................ 63
                                                                         
Branch Locations............................................................ 64
                                                                         
Mortgage Origination Offices................................................ 65
                                                                         
Directors, Officers and Shareholder Information............................. 66
                                                                         


                                                                               9
<PAGE>

Long Island Bancorp, Inc. and Subsidiary


SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

                                                               At September 30,
-------------------------------------------------------------------------------------------------------

                                          1997           1996         1995         1994         1993
                                        ----------   ----------    ----------   ----------   ----------

                                                                (In thousands)
<S>                                     <C>          <C>           <C>          <C>          <C>       
SELECTED FINANCIAL DATA:
Total assets                            $5,930,784   $5,363,791    $4,901,622   $4,516,137   $3,990,731
Loans receivable held
   for investment, net                   3,484,094    3,040,837     1,994,741    1,630,820    1,760,455
Allowance for possible loan losses          33,881       33,912        34,358       35,713       33,951
Mortgage-backed securities, net(1)       1,830,694    1,740,202     2,276,750    2,060,793    1,386,115
Investment in debt and equity
   securities, net(2)                      138,578      180,650       289,247      433,840      351,415
Loans sold with recourse(3)                487,102      289,464       250,423      201,083      223,032
Loans held for sale, net                   157,617       57,969        49,372        7,956      148,393
Total non-performing loans(4)               47,074       53,166        55,676       54,036      145,316
Real estate owned, net                       6,643        8,155         8,893        7,187       25,812
Total non-performing assets(5)              53,717       61,321        64,569       61,223      171,128
Total loans delinquent 60-89 days           15,500       12,002        11,960       11,925       24,801
Mortgage servicing rights, net(6)           41,789       29,687        11,328          759          957
Excess of cost over fair value
   of net assets acquired                    5,069        5,265         2,789           --           --
Deposits                                 3,730,503    3,633,010     3,573,529    3,567,815    3,617,600
Borrowed funds, net                      1,501,456      978,023       633,675      325,022       44,500
Stockholders' equity-partially
   restricted(7)(8)(9)                     546,375      519,094       526,174      493,709      211,630
</TABLE>

(1)   Includes $1.8 billion, $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, 1997, 1996, 1995, 1994 and 1993,
      respectively.
(2)   Includes $138.6 million, $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, 1997, 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 and originated.
(7)   Includes $12.9 million, $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, 1997,
      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."
(8)   Prior to April 14, 1994, represented Retained income-partially restricted.
(9)   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.


                                                                              10
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

SELECTED FINANCIAL DATA
(Continued)

<TABLE>
<CAPTION>
                                                             For the Years Ended September 30,
----------------------------------------------------------------------------------------------------------
                                                    1997        1996      1995        1994        1993
                                                  ---------   --------  ---------   ---------   --------- 
                                                        (In thousands, except per share data)
<S>                                               <C>         <C>       <C>         <C>         <C>      
SELECTED OPERATING DATA:
Interest income                                   $ 399,049   $351,571  $ 321,215   $ 272,157   $ 340,629
Interest expense                                    239,488    197,176    167,896     130,104     177,193
                                                  ---------   --------  ---------   ---------   --------- 
Net interest income                                 159,561    154,395    153,319     142,053     163,436
Provision for possible loan losses                    6,000      6,200      6,470      11,955      47,288
                                                  ---------   --------  ---------   ---------   --------- 
Net interest income after provision for
   possible loan losses                             153,561    148,195    146,849     130,098     116,148
Non-interest income:
     Fees and other income                           27,520     28,343     25,992      21,688      18,471
     Net gains on sale activity                      11,399      8,333      1,638       1,920      57,734
     Net (loss) gain on investment in
       real estate and premises                      (1,205)     2,028       (323)     (4,790)    (12,419)
                                                  ---------   --------  ---------   ---------   --------- 
Total non-interest income                            37,714     38,704     27,307      18,818      63,786
                                                  ---------   --------  ---------   ---------   --------- 
Non-interest expense:
   General and administrative expense               108,084    111,553    100,532      99,972     108,750
   SAIF special assessment                               --     18,657         --          --          --
   Litigation expense--goodwill lawsuit               1,101        370         --          11         182
   Amortization of excess of cost over fair
     value of net assets acquired                       458        284        211          --      47,222
   Write-off of excess of cost over
     fair value of net assets acquired(1)                --         --         --          --      70,809
                                                  ---------   --------  ---------   ---------   --------- 
Total non-interest expense                          109,643    130,864    100,743      99,983     226,963
                                                  ---------   --------  ---------   ---------   --------- 
Income (loss) before income taxes and
   cumulative effect of accounting changes           81,632     56,035     73,413      48,933     (47,029)
Provision for income taxes                           32,212     23,760     29,897      18,046      11,504
                                                  ---------   --------  ---------   ---------   --------- 
Income (loss) before cumulative effect of
   accounting changes                                49,420     32,275     43,516      30,887     (58,533)
Cumulative effect of changes in accounting(1)(2)         --         --         --       8,648    (323,545)
                                                  ---------   --------  ---------   ---------   --------- 
Net income (loss)                                 $  49,420   $ 32,275  $  43,516   $  39,535   $(382,078)
                                                  =========   ========  =========   =========   ========= 
Primary earnings per common share(3)              $    2.09   $   1.33  $    1.73   $    0.70        N/A
                                                  =========   ========  =========   =========    
Fully diluted earnings per common share(3)        $    2.08   $   1.33  $    1.71   $    0.70        N/A
                                                  =========   ========  =========   =========  
</TABLE>

(1)   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 then existing excess of cost over fair value of net assets
      acquired of $70.8 million after fiscal 1993 amortization of $47.2 million.
(2)   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.
(3)   Primary and fully diluted earnings per common share ("EPS") for the years
      ended September 30, 1997, 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.


                                                                              11
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

SELECTED FINANCIAL DATA
(Continued)

<TABLE>
<CAPTION>
                                                                    At or For the Year Ended September 30,
----------------------------------------------------------------------------------------------------------------------
                                                           1997         1996         1995         1994         1993
                                                        ----------   ----------   ----------   ----------   ----------
                                                                            (Dollars in thousands)
<S>                                                     <C>          <C>          <C>          <C>          <C>       
SELECTED FINANCIAL RATIOS
AND OTHER DATA:

Performance Ratios:
Return on average assets(1)                                   0.86%        0.64%        0.93%        0.91%       (7.57)%
Return on average stockholders' equity(1)                     9.33         6.16         8.52        11.41      (147.93)
Average stockholders' equity to average assets(2)             9.22        10.43        10.90         7.93         5.11
Stockholders' equity to total assets(3)                       9.21         9.68        10.73        10.93         5.30
Tangible stockholders' equity to total assets(4)              8.94         9.57        10.67        10.93         5.30
Interest rate spread during period                            2.57         2.89         3.10         3.30         3.46
Net interest margin                                           2.91         3.24         3.44         3.47         3.47
Operating expenses to average assets(5)                       1.88         2.22         2.15         2.29         2.15
Efficiency ratio(6)                                          57.78        61.05        56.07        61.05        59.78
Average interest-earning assets to
   average interest-bearing liabilities                     107.73       108.60       109.25       105.36       100.22
Net interest income to operating expenses(7)                 1.48x        1.38x        1.52x        1.42x        1.50x

Asset Quality Ratios:
Non-performing loans to total gross loans(8)                  1.28%        1.70%        2.67%        3.20%        7.42%(9)
Non-performing assets to total assets(8)                      0.91         1.14         1.32         1.36         4.29(9)
Allowance for possible loan losses to
   non-performing loans                                      71.97        63.79        61.71        66.09        23.36

Other Data:
Loan originations and purchases                         $2,668,368   $2,464,963   $1,118,201   $  497,900   $  545,926
Loans serviced for others                               $4,548,162   $3,682,399   $2,563,866   $1,687,512   $1,669,787
Average deposits per branch                             $  106,503   $  100,917   $   99,265   $   96,427   $   95,200
Number of deposit accounts                                 385,336      396,986      391,217      381,606      402,238

Facilities:
Full-service customer service facilities                        35           36           36           37           38
Regional lending offices                                        22           25           16            5            5
</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)   Amount is determined by dividing total general and administrative expense
      by average assets.
(6)   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.
(7)   Amount is determined by dividing net interest income before provision for
      possible loan losses by total general and administrative expense.
(8)   Non-performing loans excludes loans which have been restructured and are
      accruing and performing in accordance with the restructured terms.
      Restructured accruing loans totalled $9.1 million, $11.8 million, $12.1
      million, $12.8 million and $8.9 million at September 30, 1997, 1996, 1995,
      1994 and 1993, respectively.
(9)   Includes the effect of $25.0 million and $5.0 million reduction in
      carrying value in September 1993 relating to a 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.


                                                                              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.

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.

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.


                                                                              13
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

GLOSSARY OF FINANCIAL TERMS
(Continued)

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.

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).


                                                                              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. ("the Holding Company") was
                        formed in December 1993 to serve as the holding company
                        for The Long Island Savings Bank, FSB ("the Bank"). The
                        Holding Company is headquartered in Melville, New York
                        and its primary business consists of the operations of
                        the Bank, its wholly-owned subsidiary. The Holding
                        Company had no operations prior to April 14, 1994, the
                        date on which the Bank completed its conversion from a
                        federally chartered mutual savings bank to a federally
                        chartered stock savings bank. The results of operations
                        prior to that date reflect only those of the Bank and
                        its subsidiaries.

                        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
                        residential multi-family, commercial and consumer loans
                        and other marketable securities. In addition, the Bank
                        and the Holding Company (collectively "the Company")
                        invest in U.S. government and federal agency securities,
                        investment grade preferred stock and Federal Funds.

--------------------------------------------------------------------------------
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 Savings Association Insurance Fund
                        ("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 relating to Syosset's
                        acquisition of Centereach 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 US 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 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 ("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. Thereafter, the stay applicable to the
                        Bank's case and other Winstar-related cases was lifted.

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

                        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 


                                                                              15
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

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

                        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.

--------------------------------------------------------------------------------
Financial Condition     At September 30, 1997 total assets were $5.9 billion, an
                        increase of $567.0 million since September 30, 1996. The
                        growth in assets is predominately attributable to an
                        increase of $542.9 million in total net loans receivable
                        held for investment and for sale. The growth in total
                        loans receivable reflects the Company's emphasis on
                        residential lending. Loan volume for the year ended
                        September 30, 1997 was $2.7 billion, an increase of
                        $203.4 million since September 30, 1996.

                        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 productivity of the loan representatives
                        in the Company's 22 regional lending centers while
                        leveraging the existing customer base at each of the
                        Company's consumer banking branches. The Company has
                        also expanded its telemarketing efforts to solicit loans
                        while utilizing the Company's technological capabilities
                        and the Internet as another origination channel.

                        Total liabilities increased by $539.7 million to $5.4
                        billion at September 30, 1997 from $4.8 billion at
                        September 30, 1996 principally reflecting additional
                        borrowed funds of $523.4 million and an increase in
                        deposits of $97.5 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 43.26% at September 30, 1997 from
                        46.08% at September 30, 1996. Management believes that
                        this decrease is attributable in part to a flattening of
                        the yield curve and a shift in customer preference
                        towards short-term certificate accounts. The Company
                        continues to emphasize quality customer service to
                        attract and retain core deposits as opposed to
                        soliciting time deposit accounts with higher yields.

                        Stockholders' equity totalled $546.4 million at
                        September 30, 1997, an increase of $27.3 million from
                        September 30, 1996. This increase primarily reflects
                        earnings of $49.4 million, an increase in unrealized
                        gains on securities classified as available-for-sale,
                        net of tax, of $6.3 million, and $6.6 million related to
                        the Company's stock benefit plans. These increases were
                        partially offset by the purchase of treasury stock, net
                        of shares issued for the exercise of stock options, of
                        $21.7 million and the declaration of $13.3 million in
                        dividends.

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

Liquidity, Regulatory   GENERAL. The Company's primary sources of funds are     
Capital and             deposits and proceeds from principal and interest       
Capital Resources       payments on loans, mortgage-backed securities ("MBS's") 
                        and other securities. 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. In addition, the Company    
                        often uses borrowings as an alternative and sometimes a 
                        less costly source of funds. The Company's primary      
                        sources of borrowings are through the sales of          
                        securities under agreements to repurchase               
                        ("reverse-repurchase agreements"), a funding note issued
                        in fiscal 1996 and a medium-term note issued in fiscal  
                        1997.                                                   

                        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 8.05%, 9.34% and
                        12.35% at September 30, 1997, 1996 and 1995,
                        respectively. Currently, the Bank maintains a liquidity
                        ratio substantially above the regulatory requirements.

                        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, 1997, cash and cash equivalents and
                        short-term and intermediate-term investments
                        available-for-sale totalled $65.5 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, 1997 and
                        1996, the Bank originated or purchased real estate loans
                        in the amounts of $2.6 billion and $2.4 billion,
                        respectively, and commercial and other loans in the
                        amounts of $102.3 million and $89.8 million,
                        respectively. 


                                                                              16
<PAGE>

                        Included in the 1997 real estate loan purchases is
                        $227.5 million, representing 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 $300.1 million and $152.3 million for the
                        years ended September 30, 1997 and 1996, respectively.
                        Other investing activities include investing in U.S.
                        government securities, federal agency obligations and
                        asset-backed securities.

                        During fiscal 1997, the Company purchased 732,500 shares
                        of treasury stock at a cost of $24.0 million. The costs
                        incurred in the purchase of treasury stock were
                        partially mitigated by the reissuance of 111,267 shares
                        and the related tax benefits stemming from the exercise
                        of stock options which totalled $2.6 million. As of
                        September 30, 1997, the Company owned 2,793,540 shares
                        of treasury stock which represents 3,230,034 shares
                        acquired at an aggregate cost of $83.9 million offset by
                        the cumulative reissuance of 436,494 shares and the
                        related tax benefits stemming from the exercise of stock
                        options which totalled $8.8 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, reverse-repurchase
                        agreements and additional borrowings of $700.0 million
                        under the Bank's medium-term note program. In addition,
                        the Bank may access funds, if necessary, through lines
                        of credit totaling $150.0 million at September 30, 1997
                        from an unrelated financial institution.

                        At September 30, 1997, the Bank had outstanding
                        commitments to originate or purchase loans of $482.6
                        million which includes commitments to extend credit and
                        $200.2 million outstanding commitments to purchase
                        investment securities. 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, 1997
                        totalled $1.4 billion. Management believes, based on
                        historical experience, that a significant portion of
                        such deposits will remain with the Bank.

                        REGULATORY CAPITAL POSITION. Under capital adequacy
                        guidelines and the regulatory framework for prompt
                        corrective action ("PCA"), the Bank must meet specific
                        capital guidelines that involve qualitative measures of
                        the Bank's assets, liabilities and certain off-balance
                        sheet items as calculated under regulatory accounting
                        practices.

                        Quantitative measures established by regulation to
                        ensure capital adequacy require the Bank to maintain
                        minimum amounts and ratios of tangible capital, core
                        capital and total risk-based capital. At September 30,
                        1997, the Bank had a tangible capital ratio of 7.72%, a
                        core capital ratio of 7.72%, and a total-risk based
                        capital ratio of 16.22%, as compared with the required
                        regulatory capital ratios of 1.50%, 3.00% and 8.00%,
                        respectively. At September 30, 1997, the Bank met the
                        criteria to be considered a "well-capitalized"
                        institution for certain regulatory purposes.

--------------------------------------------------------------------------------
Asset Quality           Asset quality continues to remain stable as
                        non-performing loans decreased to $47.1 million at
                        September 30, 1997 from $53.2 million at September 30,
                        1996, 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. The ratio of the
                        allowance for possible loan losses to non-performing
                        loans increased to 71.97% at September 30, 1997 from
                        63.79% at September 30, 1996. Additionally, the ratio of
                        non-performing loans to total gross loans improved by 42
                        basis points to 1.28% at September 30, 1997 from 1.70%
                        at September 30, 1996 and the ratio of non-performing
                        assets to total assets improved by 23 basis points to
                        0.91% at September 30, 1997 from 1.14% at September 30,
                        1996. 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 $6.0 million in fiscal 1997, the lowest level in the
                        past eight 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, 1997, however, approximately $472.8
                        million, or 14.86% of the Company's one-to-four family
                        residential loan and co-operative


                                                                              17
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

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

                        apartment loan portfolios consisted of loans originated
                        during the 1986 to 1989 period, down from $536.1
                        million, or 19.25%, at September 30, 1996. 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 Interest Rate 
Risk                    Interest rate risk is defined as the sensitivity of the
                        Company's current and future earnings to changes in the
                        level of market interest rates. It arises in the
                        ordinary course of the Company's business, as the
                        repricing characteristics of its mortgage loans do not
                        necessarily match those of its deposit and borrowed
                        funds liabilities. 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, 1997 represented 93.08% of the
                        Company's total gross loans excluding loans held for
                        sale. The Company also maintains MBS's and a
                        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, 1997, the
                        Company's portfolio of loans serviced for investors was
                        approximately $4.6 billion. During fiscal 1997 as
                        interest rates decreased, loan prepayments rose and
                        fixed loans have been in greater demand. However, this
                        trend may reverse if interest rates increase.

                        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 1997,
                        the Company entered into a five year interest rate swap
                        agreement, with a notional amount of $300.0 million. 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.

--------------------------------------------------------------------------------
Interest Rate           Interest rate sensitivity may be analyzed by examining
Sensitivity Analysis    the extent to which 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.

                        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, estimated maturities
                        shorter than five years, and has generally refrained
                        from investing in fixed rate assets with longer
                        estimated term maturities. As a result of this strategy,
                        at September 30, 1997, the Company's total
                        interest-bearing liabilities maturing or repricing
                        within one year exceeded its total interest-earning
                        assets maturing or repricing in the same time by $437.9
                        million, representing a one year cumulative negative gap
                        ratio of 7.38% ver-


                                                                              18
<PAGE>

                        sus a positive gap of $381.9 million and 7.12% at
                        September 30, 1996. The change in the cumulative one
                        year gap is attributable to higher borrowings repricing
                        within one year, as adjusted for the effects of the
                        interest rate swap, coupled with the net reduction in
                        real estate loans repricing within one year. The Company
                        closely monitors its interest rate risk as such risk
                        relates to its operational strategies. The Company's
                        strategy continues to be to maintain a positive gap
                        position; however, there can be no assurance that the
                        Company will be able to return to a positive gap
                        position or that its strategies will not continue to
                        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
                        negative gap position could be further 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.

                        Interest rate contracts such as interest rate swaps,
                        caps, floors and collars may be used to hedge interest
                        rates on certain assets and liabilities. The notional
                        amounts of these instruments are not reflected in the
                        Company's balance sheet, but are included in the
                        interest rate sensitivity table for purposes of
                        analyzing interest rate risk.

                        The Company uses earning simulations, duration, and 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, 1997, 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, 1997.


                                                                              19
<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, 1997
---------------------------------------------------------------------------------------------------------------------------
                                              More than     More than     More than     More than      More
                                 3 Months     3 Months      6 Months        1 Year       3 Years       than
                                  or Less    to 6 Months    to 1 Year     to 3 Years    to 5 Years    5 Years      Total
                                 ---------    ---------    -----------    -----------    ---------    --------   ----------
                                                                     (Dollars in thousands)
<S>                <C>           <C>          <C>          <C>            <C>            <C>          <C>        <C>       
Interest-earning assets(1):
  Real estate loans(2)           $ 232,194    $ 278,778    $   553,583    $ 1,251,832    $ 615,451    $514,026   $3,445,864
  Commercial loans(2)                  112          105            205          3,390          844       1,021        5,677
  Other loans(2)                    70,938        6,273         13,818         56,555       19,167      10,225      176,976
  Mortgage-backed
     securities(3)                 333,516      297,692        527,194        473,225      145,606      29,989    1,807,222
  Interest-earning cash
     equivalents                     9,735           --             --             --           --          --        9,735
  Debt and equity securities(3)      2,337        2,086         20,479          8,512          497     105,337      139,248
  Stock in FHLB-NY                      --           --             --             --           --      48,724       48,724
                                 ---------    ---------    -----------    -----------    ---------    --------   ----------

     Total interest-
       earning assets              648,832      584,934      1,115,279      1,793,514      781,565     709,322    5,633,446
Interest-bearing liabilities:
  Passbook accounts                114,019       90,314        107,399         98,747       94,632     103,507      608,618
  Statement savings accounts       118,228       94,165        111,978        102,936       98,647     107,914      633,868
  NOW accounts                      34,955        4,563          9,126         36,504       34,983       1,521      121,652
  Checking & demand
     deposit accounts                3,240        1,388          2,777             --           --          --        7,405
  Money market accounts             70,319       13,185         26,370             --           --          --      109,874
  Certificate accounts             405,455      412,458        543,509        596,591      148,051      10,755    2,116,819
  Borrowings                       235,456           --         88,000        703,000      475,000          --    1,501,456
                                 ---------    ---------    -----------    -----------    ---------    --------   ----------

     Total interest-
       bearing liabilities         981,672      616,073        889,159      1,537,778      851,313     223,697    5,099,692
                                 ---------    ---------    -----------    -----------    ---------    --------   ----------

Interest sensitivity gap
  per period                     $(332,840)   $ (31,139)   $   226,120    $   255,736    $ (69,748)   $485,625   $  533,754
Effect of interest rate swap       300,000           --             --             --     (300,000)         --
                                 ---------    ---------    -----------    -----------    ---------    --------   ----------

Adjusted interest sensitivity
  gap per period                 $(632,840)   $ (31,139)   $   226,120    $   255,736    $ 230,252    $485,625
                                 =========    =========    ===========    ===========    =========    ========

Cumulative interest
  sensitivity gap                $(632,840)   $(663,979)   $  (437,859)   $  (182,123)   $  48,129    $533,754
                                 =========    =========    ===========    ===========    =========    ========

Cumulative interest
  sensitivity gap as a
  percentage of total assets(4)    (10.67)%     (11.20)%        (7.38)%        (3.07)%       0.81%       9.00%
Cumulative net interest-earning
  assets as a percentage of net
  interest-bearing liabilities      66.09%       77.22%         94.46%        102.93%      100.99%     110.47%
</TABLE>

(1)   Excludes non-performing loans, net of unearned discounts and premiums,
      deferred loan fees, purchase accounting discounts and premiums.
(2)   For purposes of gap analysis, the allowance for possible loan losses is
      excluded.
(3)   MBS's and debt and equity securities are shown excluding the market value
      appreciation of $22.8 million, before tax, from SFAS 115.
(4)   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.


                                                                              20
<PAGE>

                        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.

                        The Bank's interest rate sensitivity is also monitored
                        by management through the use of a model which
                        internally generates estimates of the change in the net
                        portfolio value ("NPV") over a range of interest rate
                        change scenarios. NPV is the present value of expected
                        cash flows from assets, liabilities, and off-balance
                        sheet contracts. The NPV ratio, under any interest rate
                        scenario, is defined as the NPV in that scenario divided
                        by the market value of assets in the same scenario. The
                        OTS also produces a similar analysis using its own
                        model, based upon data submitted on the Bank's quarterly
                        Thrift Financial Reports, the results of which may vary
                        from the Bank's internal model primarily due to
                        differences in assumptions utilized between the Bank's
                        internal model and the OTS model, including estimated
                        loan prepayment rates, reinvestment rates and deposit
                        decay rates. For purposes of the NPV table, prepayment
                        speeds similar to those used in the Gap table were used,
                        reinvestment rates were those in effect for similar
                        products currently being offered, and rates on core
                        deposits were modified to reflect recent trends. The
                        following table sets forth the Bank's NPV as of
                        September 30, 1997, as calculated by the Bank.

<TABLE>
<CAPTION>
                                         Net Portfolio Value ("NPV")            Portfolio Value of Assets
  Rates in                         ---------------------------------------  ---------------------------------
Basis Points                           $              $              %              NPV            %
(Rate Shock)                        Amount         Change         Change           Ratio       Change(1)
--------------------------------------------------------------------------  ---------------------------------
                                                           (Dollars in thousands)
<S>                                <C>            <C>             <C>              <C>          <C>  
    +200                           398,635         159,360         28.56            7.28        13.74
    +100                           479,952          78,043         13.99            8.15        12.27
       0                           557,995                                          9.26
    -100                           639,317         (81,322)       (14.57)          10.37         9.64
    -200                           722,791        (164,796)       (29.53)          11.45         8.73
</TABLE>

(1) Based on the portfolio value of the Bank's assets assuming no change in
    interest rates.

                        As in the case with the Gap Table, certain shortcomings
                        are inherent in the methodology used in the above
                        interest rate risk measurements. Modeling changes in NPV
                        require the making of certain assumptions which may or
                        may not reflect the manner in which actual yields and
                        costs respond to changes in market interest rates. In
                        this regard, the NPV model presented assumes that the
                        composition of the Bank's interest sensitive assets and
                        liabilities existing at the beginning of a period
                        remains constant over the period being measured and also
                        assumes that a particular change in interest rates is
                        reflected uniformly across the yield curve regardless of
                        the duration to maturity or repricing of specific assets
                        and liabilities. Accordingly, although the NPV
                        measurements and net interest income models provide an
                        indication of the Bank's interest rate risk exposure at
                        a particular point in time, such measurements are not
                        intended to and do not provide a precise forecast of the
                        effect of changes in market interest rates on the Bank's
                        net interest income and will differ from actual results.

--------------------------------------------------------------------------------
Analysis of Net         Net interest income represents the difference between   
Interest Income         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,
                        1997, 1996 and 1995 and reflects the average yield on
                        assets and average cost of liabilities for the periods
                        indicated. Such yields and 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.


                                                                              21
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

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

<TABLE>
<CAPTION>
                                                                    For the Year Ended September 30,
------------------------------------------------------------------------------------------------------------------------------------
                                              1997                                 1996                             1995
                              -----------------------------------  ----------------------------------  -----------------------------
                                                         Average                             Average                         Average
                               Average                    Yield/    Average                   Yield/    Average               Yield/
                               Balance      Interest       Cost     Balance     Interest       Cost     Balance    Interest    Cost
                              ----------    --------       ----    ----------   --------       ----    ----------  --------    ---- 
                                                                          (Dollars in thousands)                              
<S>                           <C>           <C>            <C>     <C>          <C>            <C>     <C>         <C>         <C>  
Interest-earning assets:                                                                               
Interest-earning                                                                                       
   cash equivalents           $   72,131    $  3,963       5.49%   $   32,109   $ 1,708        5.32%   $  47,153   $  2,560    5.43%
Debt and equity                                                                                        
   securities and                                                                                      
   FHLB-NY stock, net(1)         203,100      11,712       5.77       268,344     15,008       5.59       391,556    22,390    5.72
Mortgage-backed                                                                                        
   securities, net(1)          1,725,781     117,110       6.79     1,952,217    134,064       6.87     2,176,416   140,173    6.44
Real estate loans, net(2)      3,339,541     249,843       7.48     2,380,633    185,241       7.78     1,724,834   140,268    8.13
Commercial and other                                                                                   
   loans, net(2)                 149,859      16,421      10.96       125,629     15,550      12.38       117,993    15,824   13.41
                              ----------    --------    -------    ----------   --------    -------    ----------  --------  ------ 
Total interest-                                                                                        
   earning assets              5,490,412     399,049       7.27     4,758,932    351,571       7.39     4,457,952   321,215    7.21
                                                        -------                             -------                          ------
Other non-interest-                                                                                    
   earning assets                251,584                              268,355                             228,981
                              ----------                           ----------                          ----------                   
Total assets                  $5,741,996    $399,049               $5,027,287   $351,571               $4,686,933  $321,215
                              ==========    ========               ==========   ========               ==========  ========
                                                                                                       
Interest-bearing liabilities:                                                                          
Deposits:                                                                                              
   Time deposits              $2,011,621    $114,602       5.70%   $1,895,594   $108,479       5.72%   $1,626,814  $ 87,849    5.40%
   Statement savings             647,862      20,956       3.23       639,318     20,755       3.25       684,340    20,946    3.06
   Passbooks                     643,520      17,557       2.73       711,993     19,264       2.71       820,526    22,336    2.72
   Checking and NOW(3)           303,348       3,357       1.11       268,406      3,419       1.27       255,744     3,488    1.36
   Money market                  121,260       3,335       2.75       142,192      3,913       2.75       182,147     5,022    2.76
                              ----------    --------    -------    ----------   --------    -------    ----------  --------  ------ 
     Total deposits            3,727,611     159,807       4.29     3,657,503    155,830       4.26     3,569,571   139,641    3.91
Borrowed funds                 1,368,982      79,681       5.82       724,448     41,346       5.71       510,987    28,255    5.53
                              ----------    --------    -------    ----------   --------    -------    ----------  --------  ------ 
Total interest-                                                                                        
   bearing liabilities         5,096,593     239,488       4.70     4,381,951    197,176       4.50     4,080,558   167,896    4.11
Non-interest-                                                                                          
   bearing liabilities           115,842                              120,982                              95,689
                              ----------                           ----------                          ----------                   
Total liabilities              5,212,435                            4,502,933                           4,176,247
Total stockholders' equity       529,561                              524,354                             510,686
                              ----------    --------    -------    ----------   --------    -------    ----------  --------  ------ 
Total liabilities and                                                                                  
   stockholders' equity       $5,741,996     239,488               $5,027,287    197,176               $4,686,933   167,896
                              ==========    ========               ==========   ========               ==========  ========         
Net interest income/                                                                                   
   spread(4)                                $159,561      2.57%                 $154,395      2.89%                $153,319    3.10%
                                            ========    ======                  ========    ======                 ========  ====== 
Net interest margin as % of                                                                            
   interest-earning assets(5)                             2.91%                               3.24%                            3.44%
                                                        ======                              ======                           ====== 
Ratio of interest-earning                                                                              
   assets to interest-                                                                                 
   bearing liabilities                                  107.73%                             108.60%                          109.25%
                                                        ======                              ======                           ====== 
</TABLE>

(1)   MBS's and debt and equity securities are shown including the average
      market value appreciation of $17.4 million, $12.7 million and $12.2
      million, before tax, from SFAS 115 for the years ended September 30, 1997,
      1996 and 1995 , 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.


                                                                              22
<PAGE>

--------------------------------------------------------------------------------
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, 1997   Year Ended September 30, 1996
                                                  Compared to                     Compared to
                                         Year Ended September 30, 1996   Year Ended September 30, 1995
                                              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)  $  2,197   $     58   $  2,255   $   (801)  $    (51)  $   (852)
  Debt and equity securities(2)(3)        (3,749)       453     (3,296)    (6,901)      (481)    (7,382)
  Mortgage-backed securities(3)          (15,383)    (1,571)   (16,954)   (15,022)     8,913     (6,109)
  Real estate loans(4)                    71,989     (7,387)    64,602     51,262     (6,289)    44,973
  Commercial loans and other loans(4)      2,784     (1,913)       871        988     (1,262)      (274)
                                        --------   --------   --------   --------   --------   --------
    Total                                 57,838    (10,360)    47,478     29,526        830     30,356
                                        --------   --------   --------   --------   --------   --------
Interest-bearing liabilities:
  Deposits                                 3,003        974      3,977      3,504     12,685     16,189
  Borrowed funds                          37,498        837     38,335     12,156        935     13,091
                                        --------   --------   --------   --------   --------   --------
    Total                                 40,501      1,811     42,312     15,660     13,620     29,280
                                        --------   --------   --------   --------   --------   --------
Net change in interest income           $ 17,337   $(12,171)  $  5,166   $ 13,866   $(12,790)  $  1,076
                                        ========   ========   ========   ========   ========   ========
</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 of $17.4 million, $12.7 million and $12.2 million, before
      tax, from SFAS 115 for the years ended September 30, 1997, 1996 and 1995,
      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 GENERAL. Net income increased by $17.1 million, or      
Results for the Fiscal  53.12%, to $49.4 million in fiscal 1997 from $32.3      
Years                   million in fiscal 1996. The increase was primarily      
Ended September 30,     attributable to a special one-time federal insurance    
1997 and 1996           assessment of $18.7 million that occurred in 1996,      
                        greater net interest income of $5.2 million in 1997 and 
                        lower G & A expenses in 1997 of $3.5 million. Partially 
                        offsetting these increases was greater income tax       
                        expense of $8.5 million.                                

                        INTEREST INCOME. Interest income increased by $47.5
                        million, or 13.50%, to $399.0 million in fiscal 1997
                        from $351.6 million in 1996. The improvement is due to
                        an increase of $731.5 million in average
                        interest-earning assets partially offset by a decline of
                        12 basis points in the average yield of interest-earning
                        assets.

                        Average real estate loans increased by $958.9 million,
                        or 40.28%, to $3.3 billion during the year ended
                        September 30, 1997 from $2.4 billion during the year
                        ended September 30, 1996. 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 helped to
                        mitigate a decrease 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. The yield on average real
                        estate loans declined to 7.48% in 1997 from 7.78% in
                        1996 principally reflecting the flattening of the yield
                        curve. 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 on real
                        estate loans of $64.6 million, or 34.87%, to $249.8
                        million in 1997 from $185.2 million in 1996.


                                                                              23

<PAGE>

Long Island Bancorp, Inc. and Subsidiary

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


                        Average MBS's declined by $226.4 million, or 11.60%, to
                        $1.7 billion in 1997 from $2.0 billion in 1996
                        reflecting the redeployment of funds previously
                        described and the average yield decreased by 8 basis
                        points to 6.79% in 1997 from 6.87% in 1996. The net
                        result of the lower average balances and lower yields
                        was a reduction in interest income from MBS's of $17.0
                        million, or 12.65%, to $117.1 million in 1997 from
                        $134.1 million in 1996.

                        Average debt and equity securities declined by $65.2
                        million, or 24.31%, to $203.1 million in 1997 from
                        $268.3 million in 1996 due to the redeployment of funds
                        previously described into real estate loans. The yield
                        on average debt and equity securities increased by 18
                        basis points to 5.77% in 1997 from 5.59% in 1996. The
                        net result of the lower average balances and higher
                        yields contributed to a reduction in interest income
                        from debt and equity securities of $3.3 million, or
                        21.96%, to $11.7 million in 1997 from $15.0 million in
                        1996.

                        INTEREST EXPENSE. Interest expense increased by $42.3
                        million, or 21.46%, to $239.5 million in 1997 from
                        $197.2 million in 1996. The increase is principally the
                        result of an increase in average borrowed funds of
                        $644.5 million, or 88.97%, to $1.4 billion in 1997 from
                        $724.4 million in 1996, coupled with an increase in the
                        cost of average borrowed funds of 11 basis points to
                        5.82% in 1997 from 5.71% in 1996. 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 in 1997 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
                        $38.3 million, or 92.72%, to $79.7 million in 1997 from
                        $41.3 million in 1996. During 1997 and 1996, interest
                        expense also includes the amortization of premiums paid
                        for interest rate cap agreements in the amount of $0.1
                        million and $0.3 million, respectively. Additionally,
                        during 1997 interest expense includes the effect of an
                        interest rate swap agreement which converted a $300.0
                        million fixed rate borrowing into an adjustable rate
                        borrowing which reduced the Company's interest cost by
                        $1.0 million. Further contributing to the increase in
                        interest expense was an increase in average deposit
                        liabilities of $70.1 million to $3.7 billion coupled
                        with an increase in the cost of average deposits of 3
                        basis points to 4.29% in 1997 from 4.26% in 1996. 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
                        $4.0 million, or 2.55%, to $159.8 million in 1997 from
                        $155.8 million in 1996. Interest expense on certificate
                        accounts increased by $6.1 million, or 5.64%, to $114.6
                        million in 1997 from $108.5 million in 1996 reflecting
                        increased average balances of $116.0 million partially
                        offset by a decrease in the average cost of certificate
                        accounts of 2 basis points. The effect of this increase
                        is partially mitigated by a decline in interest expense
                        on passbook accounts of $1.7 million, or 8.86%, to $17.6
                        million in 1997.

                        NET INTEREST INCOME. Net interest income was $159.6
                        million in 1997, an increase of $5.2 million, or 3.35%,
                        from $154.4 million in 1996. 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 33 basis points to
                        2.91% in 1997 from 3.24% in 1996 and the net interest
                        spread declined by 32 basis points to 2.57% in 1997 from
                        2.89% in 1996. Contributing to these declining ratios
                        were the flattening of the yield curve during 1997 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 $0.2 million, or
                        3.23%, to $6.0 million in 1997 from $6.2 million in
                        1996. The reduction reflects the stable level of
                        non-performing loans, which declined by $6.1 million, or
                        11.46%, to $47.1 million at September 30, 1997 from
                        $53.2 million at September 30, 1996. Additionally, the
                        ratio of non-performing loans to total gross loans
                        declined by 42 basis points to 1.28% at September
                        30,1997 from 1.70% at September 30, 1996 and net
                        charge-offs declined to an eight year low of $6.0
                        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 818
                        basis points to 71.97% at September 30, 1997 from 63.79%
                        at September 30, 1996 while the level of the allowance
                        for possible loan losses remained relatively stable at
                        $33.9 million.

                        NON-INTEREST INCOME. Non-interest income decreased by
                        $1.0 million, or 2.56%, to $37.7 million in 1997 from
                        $38.7 million in 1996. Contributing to the decline were
                        reductions in total fees and other income of $0.8
                        million and the net gain on investment in real estate
                        and premises of $3.2 million, partially offset by an
                        increase in net gains on sales activities of $3.1
                        million. Total fees and other income decreased by $0.8
                        million, or 2.90%, to $27.5 million in 1997 from $28.3
                        million in 1996 primarily due to reductions in loan
                        servicing fees and deposit service fees which were
                        partially offset by greater loan 


                                                                              24
<PAGE>

                        fees and service charges and income from insurance and
                        securities commissions. Loan servicing fees declined by
                        $1.8 million, or 13.21%, to $12.0 million in 1997 from
                        $13.9 million in 1996 primarily due to the run off of
                        higher yielding fees from previously securitized home
                        equity loans and the replacement with lower yielding
                        fees from one-to-four family loans serviced for others.
                        Despite this shift, the Company continues its strategy
                        of increasing its mortgage servicing portfolio which
                        grew to $4.6 billion at September 30, 1997 from $3.7
                        billion at September 30, 1996. Loan servicing fee income
                        is reported net of the amortization of mortgage
                        servicing rights of $7.4 million and $2.7 million in
                        1997 and 1996, respectively. Deposit service fees
                        declined by $0.4 million, or 6.37%, to $5.6 million in
                        1997 from $5.9 million in 1996. The Company anticipates
                        deposit service fee growth in the future as it expands
                        its Lifetime Banking strategic plan. Income from
                        insurance and securities commissions increased by $0.9
                        million, or 55.41%, to $2.5 million in 1997 from $1.6
                        million in 1996 reflecting the Company's expansion of
                        its delivery channels and products. Net gain on
                        investment in real estate and premises declined by $3.2
                        million to a loss of $1.2 million in 1997 from a gain of
                        $2.0 million in 1996 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. Net gains on sale
                        activity increased by $3.1 million to $11.4 million in
                        1997 from $8.3 million in 1996. 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 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.

                        NON-INTEREST EXPENSE. Non-interest expense decreased by
                        $21.2 million, or 16.22%, to $109.6 million in 1997 from
                        $130.9 million in 1996 primarily due to lower federal
                        insurance costs. Federal insurance costs (including the
                        one-time special assessment) declined by $23.5 million,
                        or 84.64%, to $4.2 million in 1997 from $27.7 million in
                        1996 reflecting Congressional action to resolve
                        disparities that had existed among the deposit insurance
                        funds. Advertising costs decreased by $0.9 million, or
                        15.37%, to $5.0 million in 1997 from $5.9 million in
                        1996 reflecting the Company's television advertising
                        campaign that had occurred in 1996. Compensation and
                        benefit costs decreased by $0.2 million, or 0.42%, to
                        $57.7 million in 1997 from $58.0 million in 1996. The
                        decline reflects the outsourcing of computer and check
                        processing operations and the January 1, 1997
                        modifications to the Company's stock based benefit
                        plans, which were partially offset by normal salary
                        growth, incremental commission costs and the expansion
                        of the mortgage business in the Mid-Atlantic states.

                        Office occupancy and equipment costs increased by $1.1
                        million, or 5.40%, to $21.7 million in 1997 from $20.6
                        million in 1996 primarily reflecting the Company's
                        continued technological investments to improve its
                        information and communication systems coupled with its
                        expanded mortgage business in the Mid-Atlantic states.

                        Other general and administrative costs increased by $1.3
                        million, or 7.62%, to $19.3 million in 1997 from $17.9
                        million in 1996. The increase principally reflects
                        greater costs stemming from increased loan volume, the
                        expansion of the Company's mortgage business in the
                        Mid-Atlantic states and fees paid to outsource computer
                        and check processing operations.

                        LITIGATION EXPENSE--GOODWILL LAWSUIT. Litigation
                        expenses related to the Bank's breach of contract suit
                        against the federal government increased by $0.7 million
                        to $1.1 million in 1997 from $0.4 million in 1996. The
                        Company expects these costs to increase in fiscal 1998
                        as the case continues to proceed.

                        PROVISION FOR INCOME TAXES. The provision for income tax
                        expense increased by $8.5 million, or 35.57% to $32.2
                        million in 1997 from $23.8 million in 1996. This is
                        principally due to a higher level of taxable income in
                        1997 partially offset by a reduction of 294 basis points
                        in the effective tax rate to 39.46% in 1997 from 42.40%
                        in 1996. The decline in the effective tax rate primarily
                        reflects changes made to the New York State and City tax
                        bad debt regulations.

Comparison of Operating GENERAL. Net income declined by $11.2 million, or       
Results for the Fiscal  25.83%, to $32.3 million in fiscal 1996 from $43.5      
Years                   million in fiscal 1995. The decrease was primarily      
Ended September 30,     attributable to a special one-time federal insurance    
1996 and 1995           assessment of $18.7 million and higher G&A costs of     
                        $11.0 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                          


                                                                              25
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

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

                        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 was 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 fiscal
                        1996 and 1995 that 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 43 basis point increase in the average
                        yield 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 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.


                                                                              26
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

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

                        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. 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. 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. 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 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 to
                        resolve disparities that had existed among the deposit
                        insurance funds. 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. 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 its 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 


                                                                              27
<PAGE>

                        Company's television advertising campaign.

                        Other general and administrative costs increased by $1.1
                        million, or 6.32%, to $17.9 million in 1996 from $16.9
                        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 Company's common stock.

--------------------------------------------------------------------------------
Impact of Inflation     The consolidated financial statements have been prepared
                        in accordance with GAAP, which requires the measurement
                        of and Changing Prices 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.

Year 2000 The Company has developed preliminary plans to address the possible
exposures related to the impact on its computer systems of the year 2000. Key
financial, information and operational systems are being assessed and plans are
being developed to address system modifications required by December 31, 1999.
The financial impact of making the required systems changes is not expected to
be material to the Company's consolidated financial position, results of
operations or cash flows.

Private Securities In addition to historical information, this Annual Report
includes certain forward looking statements based on current management
Litigation Reform Act expectations. The Company's actual results could differ
materially from those management expectations. Factors that could Safe Harbor
Statement 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 1997 Form 10-K.

--------------------------------------------------------------------------------
Impact of New           For discussion regarding the impact of new accounting 
Accounting Standards    standards, refer to Note 1 of Notes to Consolidated   
                        Financial Statements.                                 


                                                                              28
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

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

<TABLE>
<CAPTION>
                                                                                      September 30,
---------------------------------------------------------------------------------------------------------

                                                                                   1997          1996
                                                                                -----------   -----------
<S>                                                                             <C>           <C>        
ASSETS
Cash and cash equivalents (including interest-earning
   assets of $9,735 and $37,357, respectively)                                  $    43,705   $    76,348
Investment in debt and equity securities, net:
   Available-for-sale                                                               138,578       180,650
Mortgage-backed securities, net:
   Held-to-maturity (estimated fair value of
     $20,188 and $21,120, respectively)                                              22,223        23,096
   Available-for-sale                                                             1,808,471     1,717,106
Stock in Federal Home Loan Bank of New York, at cost                                 48,724        40,754
Loans held for sale                                                                 157,617        57,969
Loans receivable held for investment, net:
   Real estate loans, net                                                         3,333,185     2,921,285
   Commercial loans, net                                                              6,465         7,810
   Other loans, net                                                                 178,325       145,654
   Loans, net                                                                     3,517,975     3,074,749
                                                                                -----------   -----------
   Less allowance for possible loan losses                                          (33,881)      (33,912)
                                                                                -----------   -----------
   Total loans receivable held for investment, net                                3,484,094     3,040,837
Mortgage servicing rights, net                                                       41,789        29,687
Office properties and equipment, net                                                 88,466        89,279
Accrued interest receivable, net                                                     35,334        32,962
Investment in real estate and premises, net                                           9,103        10,680
Deferred taxes                                                                       16,547        31,207
Excess of cost over fair value of net assets acquired                                 5,069         5,265
Prepaid expenses and other assets                                                    31,064        27,951
                                                                                -----------   -----------
Total assets                                                                    $ 5,930,784   $ 5,363,791
                                                                                ===========   ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Deposits                                                                     $ 3,730,503   $ 3,633,010
   Official checks outstanding                                                       26,840        49,860
   Borrowed funds, net                                                            1,501,456       978,023
   Mortgagors' escrow payments                                                       69,353        64,232
   Accrued expenses and other liabilities                                            56,257       119,572
                                                                                -----------   -----------
Total liabilities                                                                 5,384,409     4,844,697
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 issued, 24,022,924 and 24,644,157 outstanding,
     respectively)                                                                      268           268
   Additional paid-in capital                                                       309,372       304,027
   Unallocated Employee Stock Ownership Plan                                        (18,079)      (19,230)
   Unearned Management Recognition & Retention Plan                                  (3,816)       (5,551)
   Unrealized gain on securities available-for-sale, net of tax                      12,947         6,633
   Retained income--partially restricted                                            319,756       285,311
   Treasury stock, at cost (2,793,540 and 2,172,307 shares, respectively)           (74,073)      (52,364)
                                                                                -----------   -----------
Total stockholders' equity                                                          546,375       519,094
                                                                                -----------   -----------
Total liabilities and stockholders' equity                                      $ 5,930,784   $ 5,363,791
                                                                                ===========   ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                                                              29
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

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

<TABLE>
<CAPTION>
                                                                         For the Years Ended September 30,
 --------------------------------------------------------------------------------------------------------

                                                                            1997       1996       1995
                                                                          ---------   --------  ---------
<S>                                                                       <C>         <C>       <C>      
Interest income:
   Real estate loans                                                      $ 249,843   $185,241  $ 140,268
   Commercial loans                                                             604        705        984
   Other loans                                                               15,817     14,845     14,840
   Mortgage-backed securities                                               117,110    134,064    140,173
   Debt and equity securities                                                15,675     16,716     24,950
                                                                          ---------   --------  ---------
       Total interest income                                                399,049    351,571    321,215
                                                                          ---------   --------  ---------

Interest expense:
   Deposits                                                                 159,807    155,830    139,641
   Borrowed funds                                                            79,681     41,346     28,255
                                                                          ---------   --------  ---------
       Total interest expense                                               239,488    197,176    167,896
                                                                          ---------   --------  ---------
       Net interest income                                                  159,561    154,395    153,319
Provision for possible loan losses                                            6,000      6,200      6,470
                                                                          ---------   --------  ---------
       Net interest income after provision for possible loan losses         153,561    148,195    146,849
Non-interest income:
   Fees and other income:
     Loan fees and service charges                                            3,721      3,217      2,494
     Loan servicing fees                                                     12,031     13,863     12,873
     Income from insurance and securities commissions                         2,499      1,608        805
     Deposit service fees                                                     5,559      5,937      5,917
                                                                          ---------   --------  ---------
       Total fee income                                                      23,810     24,625     22,089
     Other income                                                             3,710      3,718      3,903
                                                                          ---------   --------  ---------
       Total fees and other income                                           27,520     28,343     25,992
                                                                          ---------   --------  ---------

   Net gains (losses) on sale activity:
     Net gains on loans and mortgage-backed securities                       11,064      7,993      3,562
     Net gains (losses) on investment in debt and equity securities             335        340     (1,924)
       Total net gains on sale activity                                      11,399      8,333      1,638
   Net (loss) gain on investment in real estate and premises                 (1,205)     2,028       (323)
                                                                          ---------   --------  ---------
       Total non-interest income                                             37,714     38,704     27,307
Non-interest expense:
   General and administrative expense
     Compensation, payroll taxes and fringe benefits                         57,728     57,969     51,443
     Advertising                                                              5,027      5,940      4,691
     Office occupancy and equipment                                          21,746     20,631     18,547
     Federal insurance premiums                                               4,256      9,055      8,961
     Other general and administrative expense                                19,327     17,958     16,890
                                                                          ---------   --------  ---------
       Total general and administrative expense                             108,084    111,553    100,532
   SAIF special assessment                                                       --     18,657         --
   Litigation expense--goodwill lawsuit                                       1,101        370         --
   Amortization of excess of cost over fair value of net assets acquired        458        284        211
                                                                          ---------   --------  ---------

       Total non-interest expense                                           109,643    130,864    100,743
                                                                          ---------   --------  ---------

Income before income taxes                                                   81,632     56,035     73,413
Provision for income taxes                                                   32,212     23,760     29,897
                                                                          ---------   --------  ---------
Net income                                                                $  49,420   $ 32,275  $  43,516
                                                                          =========   ========  =========
Primary earnings per common share                                         $    2.09   $   1.33  $    1.73
                                                                          =========   ========  =========
Fully diluted earnings per common share                                   $    2.08   $   1.33  $    1.71
                                                                          =========   ========  =========
</TABLE>

See accompanying notes to consolidated financial statements.


                                                                              30
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Years ended September
30, 1997, 1996 and 1995 (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, 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
Net income                                                                                        49,420                   49,420
Allocation/amortization of ESOP                                                                                         
     and MRP stock and related                                                                                          
     tax benefits                               3,447       1,151      1,735                                                6,333
Change in unrealized gains on                                                                                           
     securities available-for-sale                                                                                      
     (net of tax of $10,124)                                                         6,314                                  6,314
Dividends                                                                                        (13,378)                 (13,378)
Repurchase of common stock                                                                                              
     (732,500 shares)                                                                                         (24,017)    (24,017)
Exercise of stock options                                                                                               
     (111,267 shares) and related                                                                                       
     tax benefits                               1,898                                             (1,597)       2,308       2,609
                                    ----     --------    --------    -------       -------      --------     --------    --------
Balance at                                                                                                              
     September 30, 1997             $268     $309,372    $(18,079)   $(3,816)      $12,947      $319,756     $(74,073)   $546,375
                                    ====     ========    ========    =======       =======      ========     ========    ========
</TABLE>

See accompanying notes to consolidated financial statements.


                                                                              31

<PAGE>

Long Island Bancorp, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
                                                                                         For the Years Ended September 30,
---------------------------------------------------------------------------------------------------------------------------
                                                                                         1997          1996          1995
                                                                                         ----          ----          ----
<S>                                                                                   <C>           <C>           <C>      
Operating activities:
  Net income                                                                          $    49,420   $    32,275   $  43,516
  Adjustments to reconcile net income to net cash provided by operating activities:
  Provision for possible loan losses                                                        6,000         6,200       6,470
  Write-off of real estate owned and investment in real estate                                466           490         581
  Gains on sale of real estate owned and investment in real estate, net                      (296)         (334)       (484)
  Depreciation and amortization                                                            16,756        10,988       8,352
  Amortization of premiums, net of discount accretion-debt,
    equity and mortgage-backed securities                                                    (291)        1,909        (972)
  Accretion of discounts, net of amortization of premiums-purchase
    accounting & goodwill amortization                                                        652           227      (1,550)
  Employee Stock Ownership Plan/Management Recognition & Retention Plan expense             5,726         7,331       4,130
  Gains on sales of loans and mortgage-backed securities, net                             (11,064)       (7,993)     (3,562)
  Originations of loans held-for-sale, net of proceeds from sales                        (105,071)       (2,448)    (40,054)
  (Gains) losses on sales of debt and equity securities, net                                 (335)         (340)      1,924
  Increase in accrued interest receivable                                                  (2,372)       (1,210)     (4,206)
  (Decrease) increase in accrued and other liabilities                                    (64,454)       65,540      10,510
  (Decrease) increase in official checks outstanding                                      (23,020)        7,048      17,932
  Increase (decrease) in prepaid expenses, deferred taxes and other assets                 11,547       (19,874)     (4,733)
  Net decrease in unearned income                                                          (9,919)       (7,927)     (1,669)
                                                                                      -----------   -----------   ---------
    Net cash (used) provided by operating activities                                     (126,255)       91,882      36,185
                                                                                      -----------   -----------   ---------

Investing activities:
  Proceeds from sales of debt and equity securities, available-for-sale                    26,144       139,099      48,836
  Proceeds from sales of mortgage-backed securities, available-for-sale                   567,718       485,195     286,674
  Proceeds from maturities of and principal payments on debt and equity securities        175,852       411,319     972,775
  Principal payments on mortgage-backed securities                                        339,549       566,421     360,416
  Purchases of debt and equity securities, available-for-sale                            (156,856)     (441,359)   (861,877)
  Purchases of debt and equity securities, held-to-maturity                                    --            --      (7,128)
  Purchases of Federal Home Loan Bank stock                                                (7,970)       (5,622)     (4,372)
  Purchases of mortgage-backed securities, available-for-sale                            (302,571)     (154,185)   (341,831)
  Purchases of mortgage-backed securities, held-to-maturity                                    --            --    (365,103)
  Originations and purchases of loans held-for-investment, net of principal payments   (1,137,051)   (1,413,321)   (521,512)
  Proceeds from sale of real estate owned, office properties and equipment                 11,022        12,964      10,439
  Purchases of office properties and equipment                                             (8,569)      (15,023)    (12,562)
  Purchase of mortgage servicing rights                                                    (4,066)      (15,159)    (10,071)
                                                                                      -----------   -----------   ---------
    Net cash used by investing activities                                                (496,798)     (429,671)   (445,316)
                                                                                      -----------   -----------   ---------

Financing activities:
  Net decrease in demand deposits, NOW accounts and savings accounts                      (60,535)      (58,718)   (444,864)
  Net increase (decrease) in mortgagors' escrow accounts                                    5,121        (7,168)     10,211
  Net increase in certificates of deposit                                                 158,028       118,199     450,578
  Costs to repurchase common stock                                                        (24,017)      (42,043)    (17,812)
  Proceeds from the exercise of stock options                                               1,590         2,070       1,677
  Cash dividends paid on common stock                                                     (13,210)       (9,961)     (7,892)
  Net decrease in short-term borrowings                                                  (242,480)     (277,461)    (60,022)
  Net increase in long-term borrowings                                                    765,913       621,809     368,675
                                                                                      -----------   -----------   ---------
    Net cash provided by financing activities                                             590,410       346,727     300,551
                                                                                      -----------   -----------   ---------

    (Decrease) increase in cash and cash equivalents                                      (32,643)        8,938    (108,580)
  Cash and cash equivalents at the beginning of the year                                   76,348        67,410     175,990
                                                                                      -----------   -----------   ---------
  Cash and cash equivalents at the end of the year                                    $    43,705   $    76,348   $  67,410
                                                                                      ===========   ===========   =========
Supplemental disclosures of cash flow information:
  Cash paid during the years for:
    Interest on deposits and borrowed funds                                           $   235,617   $   195,089   $ 164,239
                                                                                      ===========   ===========   =========
    Income taxes                                                                      $    31,567   $    27,465   $  20,245
                                                                                      ===========   ===========   =========
  Non-cash investing activities:
    Additions to real estate owned, net                                               $     9,599   $    10,001   $  10,312
                                                                                      ===========   ===========   =========
    Securitization of loans                                                           $   680,889   $   358,786   $ 143,679
                                                                                      ===========   ===========   =========
    SFAS 115 Transfer                                                                 $        --   $ 1,307,472   $      --
                                                                                      ===========   ===========   =========
</TABLE>

See accompanying notes to consolidated financial statements.


                                                                              32
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995

--------------------------------------------------------------------------------
(1)                     The accounting and reporting policies of Long Island    
Basis of Presentation   Bancorp, Inc. and subsidiary ("the Company") conform to 
and Summary of          generally accepted accounting principles ("GAAP"). The  
Significant             following are the significant accounting and reporting  
Accounting Policies     policies that the Company follows in preparing its      
                        consolidated financial statements.                      

                        BASIS OF PRESENTATION. The consolidated financial
                        statements include the accounts of Long Island Bancorp,
                        Inc. ("Holding Company") and its direct wholly-owned
                        subsidiary The Long Island Savings Bank, FSB ("Bank"),
                        after eliminating intercompany balances and
                        transactions. When necessary, certain reclassifications
                        have been made to prior year amounts to conform to the
                        current year presentation.

                        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.

                        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. Securities
                        that may be sold in response to or in anticipation of
                        changes in interest rates and resulting prepayment risk,
                        or other factors, are classified as available-for-sale
                        and are carried at fair value. Unrealized gains and
                        losses on these securities are reported, net of
                        applicable taxes, as a separate component of
                        stockholders' equity. Securities that the Company has
                        the positive intent and ability to hold to maturity are
                        classified as held-to-maturity and are carried at
                        amortized cost.

                        Securities that are held for current resale, if any, are
                        classified as trading securities and reported at fair
                        value, with unrealized gains and losses included in
                        earnings.

                        Amortization of premiums and accretion of discounts are
                        reported in interest income, using a method which
                        results in a level yield over the projected holding
                        period of the security. Gains and losses on the sale of
                        securities are recognized on realization.

                        REAL ESTATE AND OTHER LOANS. Loans held for investment
                        are generally reported at the principal amount
                        outstanding, net of the allowance for loan losses,
                        unearned income and net deferred loan fees, if any.
                        Loans held for sale are carried at the aggregate lower
                        of cost or market value. 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.

                        Loan fees and certain direct loan origination costs are
                        deferred. Net deferred fees and costs are amortized into
                        interest income over the life of the loan using the
                        level-yield method.

                        Interest income on loans receivable is recognized on an
                        accrual basis except when a loan has been placed on
                        nonaccrual status. Loans are placed on nonaccrual status
                        when principal or interest is past due 90 days or more
                        or when, in the opinion of management, principal and
                        interest is not likely to be paid in accordance with the
                        terms of the loan agreement. Thereafter, interest income
                        on nonaccrual loans is recorded only when cash is
                        received.

                        On October 1, 1995, the Company adopted Statement of
                        Financial Accounting Standards No. 114 ("SFAS 114"),
                        "Accounting by Creditors for Impairment of a Loan" and
                        Statement of Financial Accounting Standards No. 118
                        ("SFAS 118"), "Accounting by Creditors for Impairment of
                        a Loan--Income Recognition and Disclosures." Under SFAS
                        114 and SFAS 118 ("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


                                                                              33

<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)

                        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.

                        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 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.

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

                        INVESTMENT IN REAL ESTATE AND PREMISES. Investment in
                        real estate and premises consists of real estate owned
                        ("REO") and direct investments in real estate.

                        REO consists of real estate acquired through foreclosure
                        or deed in lieu of foreclosure. REO is recorded at the
                        lower of cost or estimated fair value less estimated
                        selling costs at the time of foreclosure. Subsequent
                        declines in estimated fair value, net operating results,
                        and gains or losses resulting from the disposition of
                        properties are recognized in the current period's
                        operations.

                        Direct investment in real estate consists of real estate
                        the Company has acquired through acquisitions or
                        purchases. Direct investment in real estate is recorded
                        at the lower of cost or net realizable value.

                        DERIVATIVE FINANCIAL INSTRUMENTS. The Company has
                        limited involvement in derivative financial instruments,
                        using interest rate swaps and interest rate cap
                        agreements to manage interest rate exposure. The
                        Company's interest-rate swap and cap agreements are
                        considered derivative financial instruments held for
                        purposes other than trading and are accounted for under
                        the accrual method. Interest income (expense) resulting
                        from the derivatives are accrued and reported as an
                        adjustment to interest income (expense) of the related
                        asset or liability.

                        Realized gains and losses from the settlement or
                        termination of derivative contracts are deferred on the
                        statement of financial condition and are amortized to
                        interest income or interest expense over the life of the
                        hedged item. Amortization commences when the contract is
                        settled or terminated. If the related assets or
                        liabilities are sold or otherwise disposed, then the
                        deferred gains or losses on the derivative contract are
                        recognized as an adjustment to the gain or loss on
                        disposition of the related asset or liability.

                        Premiums paid for interest rate cap agreements are
                        amortized as additional interest expense over the term
                        of the contract. Amounts receivable under interest rate
                        cap agreements are reflected as a reduction to interest
                        expense.

                        INCOME TAXES. The Holding Company and its subsidiary
                        file consolidated tax returns with the Federal taxing
                        authorities and a combined return with New York State.
                        In addition, the Bank files tax returns in those states
                        and localities in which 


                                                                              34
<PAGE>

                        it maintains operations.

                        The Company recognizes both the current and deferred tax
                        consequences of all transactions that have been
                        recognized in the financial statements. Calculations are
                        based on the provisions of enacted tax laws and the tax
                        rates in effect for current and future years. Deferred
                        tax assets and liabilities are recognized for the future
                        tax consequences attributable to the differences between
                        the financial statement carrying amounts of existing
                        assets and liabilities and their respective tax bases
                        (temporary differences). The deferred tax liability
                        (asset) is determined based on enacted tax rates which
                        will be in effect when the underlying items of income
                        and expense are expected to be reported to the taxing
                        authorities. Net deferred tax assets, whose realization
                        is dependent on taxable earnings of future years, are
                        recognized when a more-likely-than-not criterion is met.
                        Annual deferred tax expense (benefit) is equal to the
                        change in the deferred tax liability (asset) account
                        from the beginning to the end of the year. A current tax
                        liability (asset) is recognized for the estimated taxes
                        payable or refundable for the current year.

                        STOCK-BASED COMPENSATION PLANS. In accordance with
                        Statement of Financial Accounting Standards No.123
                        ("SFAS 123"), "Accounting for Stock-Based Compensation,"
                        the Company continues to apply APB Opinion No. 25,
                        "Accounting for Stock Issued to Employees" ("APB 25") in
                        accounting for its stock-based compensation plans and
                        discloses in the footnotes to the financial statements
                        pro forma net income and EPS information as if the fair
                        value based method had been adopted.

                        Deferred compensation for stock award plans is recorded
                        as a reduction of stockholders' equity and is calculated
                        as the cost of the shares purchased by the Bank and
                        contributed to the plan. Compensation expense is
                        recognized over the vesting period of actual stock
                        awards based upon the fair value of the shares at the
                        award date.

                        Compensation expense for the Employee Stock Ownership
                        Plan ("ESOP") is recorded at an amount equal to the
                        shares allocated by the ESOP multiplied by the average
                        fair market value of the shares during the period. The
                        Company recognizes compensation expense ratably over the
                        year for the ESOP shares to be allocated each December
                        31st, 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, the difference between the
                        average fair market value and the cost of the shares
                        allocated by the ESOP is treated as an adjustment to
                        additional paid-in capital.

                        EARNINGS PER SHARE OF COMMON STOCK. Primary earnings per
                        share ("EPS") is calculated by dividing net income by
                        the sum of the outstanding weighted average number of
                        shares of common stock of the Holding Company ("Common
                        Stock") 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 net income by the
                        sum of the outstanding weighted average number of shares
                        of Common Stock 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, 1997, 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 23,595,529, 24,220,480 and 25,088,089
                        and for the fully diluted EPS calculations were
                        23,755,249, 24,277,013 and 25,446,558, respectively.

                        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, and commitments to buy and sell loans and
                        securities. Such financial instruments are recorded in
                        the financial statements when they are funded or related
                        fees are incurred or received.

                        IMPACT OF NEW ACCOUNTING STANDARDS. Effective January 1,
                        1997, the Company adopted SFAS 125, "Accounting for
                        Transfers and Servicing of Financial Assets and
                        Extinguishments of Liabilities," except for those
                        transactions that are governed by SFAS 127, "Deferral of
                        the Effective Date of Certain Provisions of FASB
                        Statement No. 125." SFAS 127 was issued in December 1996
                        to extend the effective date of the provisions of SFAS
                        125 as they relate to secured borrowings, collateral and
                        repurchase agreements, dollar rolls, securities lending
                        and similar transactions for one year. SFAS 125 provides
                        accounting and reporting standards for transfers and
                        servicing of financial assets and extinguish ments of
                        liabilities occurring after December 31, 1996 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 SFAS 76,
                        "Extinguishment of Debt," and SFAS 77, "Reporting


                                                                              35

<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)

                        by Transferors for Transfers of Receivable with
                        Recourse," and SFAS 122, "Accounting for Mortgage
                        Servicing Rights," and amends SFAS 115, "Accounting for
                        Certain Investments in Debt and Equity Securities," and
                        SFAS 65, "Accounting for Certain Mortgage Banking
                        Activities." The Company does not expect SFAS 125, as
                        amended by SFAS 127, to have a material effect on the
                        financial statements.

                        In February 1997, the Financial Accounting Standards
                        Board ("FASB") issued Statement of Financial Accounting
                        Standards No. 128 ("SFAS 128"), "Earnings Per Share."
                        SFAS 128 is effective for periods ending after December
                        15, 1997 and establishes standards for computing and
                        presenting EPS for entities with publicly held common
                        stock and common stock equivalents. The statement
                        simplifies the computations of EPS that were previously
                        found in APB Opinion No. 15 "Earnings Per Share" and
                        replaces primary EPS with basic EPS and fully diluted
                        EPS with diluted EPS. Basic EPS is computed by dividing
                        income available to common stockholders by the weighted
                        average number of common shares outstanding for the
                        period. Diluted EPS reflects the potential dilution that
                        could occur if all common stock equivalents were
                        converted. This statement requires a reconciliation of
                        the numerator and denominator of the two EPS
                        calculations and the restatement of all prior period EPS
                        data presented after adoption. The Company has not yet
                        determined the impact of SFAS 128 on its financial
                        statements.

                        In February 1997, the FASB issued Statement of Financial
                        Accounting Standards No. 129 ("SFAS 129"), "Disclosure
                        of Information about Capital Structure." SFAS 129 is
                        effective for periods ending after December 15, 1997.
                        The statement consolidates the disclosure requirements
                        related to an entity's capital structure that were
                        previously contained in APB Opinions No. 10, "Omnibus
                        Opinion-1996," and No. 15 "Earnings Per Share," and
                        Statement of Financial Accounting Standards No. 47,
                        "Disclosure of Long Term Obligations." There is no
                        change in disclosure requirements for entities, such as
                        the Company, that were previously subject to these
                        pronouncements.

                        In June 1997, the FASB issued Statement of Financial
                        Accounting Standards No. 130 ("SFAS 130"), "Reporting
                        Comprehensive Income." SFAS 130 is effective for years
                        beginning after December 15, 1997 and requires
                        reclassification of financial statements for earlier
                        periods provided for comparative purposes. The statement
                        establishes standards for reporting and display of
                        comprehensive income and its components. This statement
                        requires that all items that are required to be
                        recognized as components of comprehensive income be
                        reported in a financial statement that is displayed with
                        the same prominence as other financial statements.
                        Comprehensive income is defined as all changes in equity
                        during a period except those resulting from investments
                        by owners and distributions to owners. The Company has
                        not yet determined the impact of SFAS 130 on its
                        financial statements.

                        In June 1997, the FASB issued Statement of Financial
                        Accounting Standards No. 131 ("SFAS 131"), "Disclosures
                        about Segments of an Enterprise and Related
                        Information." SFAS 131 is effective for financial
                        statements for periods beginning after December 15,
                        1997. In the initial year of application, comparative
                        information for earlier years is to be restated. The
                        statement requires that a public business enterprise
                        report financial and descriptive information about its
                        reportable operating segments. The Company has not yet
                        determined the impact of SFAS 131 on its financial
                        statements.

--------------------------------------------------------------------------------
(2)                     On April 14, 1994, the Holding Company completed the    
Conversion to           issuance and sale of 26,816,464 shares of Common Stock, 
Stock Form of           at a price of $11.50 per share, through an Initial      
Ownership               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. The Holding Company recorded
                        $296.9 million of net proceeds from this offering and   
                        utilized $32.7 million to purchase 2,070,000 and 776,250
                        shares, respectively, for the ESOP and Management       
                        Recognition and Retention Plans ("MRP").                

                        In accordance with the requirements of the Office of
                        Thrift Supervision ("OTS") the Bank established a
                        liquidation account in the amount equal to its capital
                        as of the date of the latest consolidated statement of
                        condition appearing in the final IPO prospectus. The
                        liquidation account is maintained for the benefit of
                        eligible pre-conversion depositors who continue to
                        maintain their account at the Bank after the conversion.
                        The liquidation account is reduced annually to the
                        extent that eligible account holders reduce their
                        qualifying deposits. The balance of the liquidation
                        account at September 30, 1997 was $63.6 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.


                                                                              36
<PAGE>

                        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.

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

(3)                     During fiscal 1996, the Company acquired First Home     
Business                Mortgage of Virginia, Inc. ("First Home") and two       
Combinations            mortgage origination offices located in Pennsylvania and
                        North Carolina from Fleet Mortgage Company. 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  
                        of approximately $2.8 million which is being amortized  
                        on a straight line basis over 15 years from the date of 
                        acquisition.                                            

                        During fiscal 1995, 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
                        the recorded investment in mortgage servicing rights
                        ("MSR's") stemming from these acquisitions approximated
                        $7.5 million at September 30, 1995. 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, 1995 of approximately $2.8
                        million, which is being amortized on a straight line
                        basis over 15 years from the date of acquisition.

                        During 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. During
                        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 1983 and 1986 acquisitions were accounted for using
                        the purchase method of accounting, resulting in goodwill
                        of $625.4 million and $31.4 million, respectively, which
                        was amortized in accordance with GAAP and subsequently
                        written-off as described below.

                        On September 3, 1993, with the approval of 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 approximate
                        $1.0 billion reduction in asset size from the sale of
                        ten branches with approximately $836.3 million in
                        deposit liabilities and certain assets. 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, and 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.

--------------------------------------------------------------------------------
(4)                     The Financial Institutions Reform, Recovery and         
Regulatory Matters--    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           


                                                                              37

<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)

The Bank                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 the 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 the
                        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. 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. Thereafter, the stay applicable to the Bank's
                        case and other Winstar-related cases was lifted.

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

                        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 OTS. 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
                        capital guidelines that involve qualitative mea-


                                                                              38
<PAGE>

                        sures 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. The Bank
                        meets all capital adequacy requirements to which it is
                        subject as of September 30, 1997.

                        As of September 30, 1997 the most recent notification
                        from the 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 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,

                                           1997                    1996
--------------------------------------------------------------------------------
                                              Percent of              Percent of
                                   Amount      Assets(1)     Amount    Assets(1)
                                  ------------------------------------------- 
                                             (Dollars in thousands)
GAAP capital                      $472,525       8.00%      $430,546     8.13%
                                  =========================================== 
Tangible capital:
  Capital level(2)                $453,516       7.72%      $416,802     7.84%
  Requirement                       88,169       1.50         79,710     1.50
                                  ------------------------------------------- 
  Excess                          $365,347       6.22%      $337,092     6.34%
                                  =========================================== 
Core capital:
  Capital level(2)                $453,516       7.72%      $416,802     7.84%
  Requirement                      176,338       3.00        159,419     3.00
                                  ------------------------------------------- 
  Excess                          $277,178       4.72%      $257,383     4.84%
                                  =========================================== 
Risk-based capital:
  Capital level(3)                $487,397      16.22%      $450,714    16.48%
  Requirement                      240,393       8.00        218,808     8.00
                                  ------------------------------------------- 
  Excess                          $247,004       8.22%      $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 loan valuation allowance.

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

(5)                     
Investment in Debt and  At September 30, 1997 and 1996, all of the Company's  
Equity Securities       investments in debt and equity securities were        
                        classified available-for-sale. The amortized cost and 
                        estimated fair values of debt and equity securities   
                        available-for-sale at September 30, are summarized    
                        below:                                                

<TABLE>
<CAPTION>
                                                                                      1997
--------------------------------------------------------------------------------------------------------------
                                                                  Amortized  Unrealized  Unrealized  Estimated
                                                                     Cost       Gain        Loss    Fair Value
                                                                  --------------------------------------------
                                                                                 (In thousands)    
<S>                                                               <C>           <C>        <C>        <C>     
Available-for-sale:                                                                                
Debt securities:                                                                                   
  U.S. government and agency obligations                          $ 14,007      $ 9        $ --       $ 14,016
  U.S. government and agency obligations pledged as collateral      82,686       --         623         82,063
  Commercial Paper                                                     700       --          --            700
  Asset-backed securities (automobile loans and leases)             11,797       33          77         11,753
                                                                  --------------------------------------------
Total debt securities available-for-sale                           109,190       42         700        108,532
                                                                  --------------------------------------------
Equity securities:                                                                                 
  Preferred and common stock                                        30,058        1          13         30,046
                                                                  --------------------------------------------
</TABLE>


                                                                              39
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)

<TABLE>
<S>                                                               <C>           <C>        <C>        <C>     
Total equity securities available-for-sale                          30,058        1          13         30,046
                                                                  --------------------------------------------
Total securities available-for-sale                               $139,248      $43        $713       $138,578
                                                                  ============================================
</TABLE>


                                                                              40
<PAGE>

<TABLE>
<CAPTION>
                                                                                      1996
--------------------------------------------------------------------------------------------------------------
                                                                  Amortized  Unrealized  Unrealized  Estimated
                                                                     Cost       Gain        Loss    Fair Value
                                                                  --------------------------------------------
                                                                                 (In thousands)
<S>                                                               <C>           <C>        <C>        <C>     
Available-for-sale:                                                                                 
Debt securities:                                                                                    
  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>

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

                                            1997           1996           1995
-------------------------------------------------------------------------------
                                                      (In thousands)
Proceeds from sales                        $26,144       $139,099       $48,836
Gross gains                                     --            380           480
Gross losses                                    37             89           526

                        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 1997 and 1996, the
                        Company recovered $372,000 and $49,000, respectively on
                        its investment in Nationar.

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

                                         1997                     1996
--------------------------------------------------------------------------------
                                  Available-for-sale       Available-for sale
                                 -----------------------------------------------
                                             Estimated                Estimated
                                 Amortized     Fair       Amortized     Fair
                                   Cost        Value        Cost        Value
                                 -----------------------------------------------
                                                (In thousands)
Within 1 year                    $ 19,039    $ 19,048     $ 26,584    $ 26,596
After 1 year through 5 years       11,513      11,512       35,543      35,457
After 5 years through 10 years     74,872      74,250       74,822      72,891
After 10 years                      3,766       3,722        5,018       4,912
                                 -----------------------------------------------
                                 $109,190    $108,532     $141,967    $139,856
                                 -----------------------------------------------


                                                                              41
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)

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

(6)                     The amortized cost and estimated fair values of       
Mortgage-Backed         Mortgage-Backed Securities (" MBS's") at September 30,
Securities              are summarized below:                                 

<TABLE>
<CAPTION>
                                                                                      1997
--------------------------------------------------------------------------------------------------------------
                                                                  Amortized  Unrealized  Unrealized  Estimated
                                                                     Cost       Gain        Loss    Fair Value
                                                                  --------------------------------------------
                                                                                 (In thousands)
<S>                                                               <C>           <C>        <C>      <C>       
Held-to-maturity:
  Real estate mortgage investment conduit                         $   16,144    $    --   $2,035    $   14,109
  Other pass-through certificates                                      6,079         --       --         6,079
                                                                  --------------------------------------------
Mortgage-backed securities held-to-maturity                       $   22,223    $    --   $2,035    $   20,188
                                                                  ============================================
Available-for-sale:                                                                                 
  GNMA pass-through certificates                                  $  251,362    $ 2,215   $   --    $  253,577
  FHLMC pass-through certificates                                    189,565      1,213      331       190,447
  FNMA pass-through certificates                                     297,087      4,397      177       301,307
  Other pass-through certificates                                     49,736         58      286        49,508
  GNMA, FHLMC and FNMA securities pledged as collateral              994,012     19,994      374     1,013,632
                                                                  --------------------------------------------
  Gross mortgage-backed securities available-for-sale              1,781,762     27,877    1,168     1,808,471
  Unamortized premium, net                                             3,238     (3,238)      --            --
                                                                  --------------------------------------------
Mortgage-backed securities available-for-sale, net                $1,785,000    $24,639   $1,168    $1,808,471
                                                                  ============================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                      1996
--------------------------------------------------------------------------------------------------------------
                                                                  Amortized  Unrealized  Unrealized  Estimated
                                                                     Cost       Gain        Loss    Fair Value
                                                                  --------------------------------------------
                                                                                 (In thousands)
<S>                                                               <C>           <C>        <C>      <C>       
Held-to-maturity:                                                                                   
  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
                                                                  ============================================
</TABLE>

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

                                             1997          1996           1995
--------------------------------------------------------------------------------
                                                       (In thousands)
Proceeds from sales                        $567,718      $485,195       $286,674
Gross gains                                  10,352         6,931          2,343
Gross losses                                     80         1,232             35


                                                                              42
<PAGE>

--------------------------------------------------------------------------------
(7)                     Loans held-for-sale as of September 30, are summarized 
Loans Held for Sale     as follows:
and Loans Receivable 
Held for Investment

                                                         1997           1996
--------------------------------------------------------------------------------
                                                            (In thousands)
Real estate loans:
  One-to-four family                                 $   157,203    $    57,812
  Co-operative apartment                                     162             49
                                                     --------------------------
                                                         157,365         57,861
Student loans                                                252            108
                                                     --------------------------
  Total loans held-for-sale                          $   157,617    $    57,969
                                                     ==========================

                        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.
                        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:

                                                         1997           1996
-------------------------------------------------------------------------------
                                                            (In thousands)
Real estate loans held-for-investment
  One-to-four family                                 $ 3,075,653    $ 2,670,387
  Co-operative apartment                                 105,437        114,560
  Home equity                                             20,171         18,564
  Second mortgage                                          3,986          5,154
  Multi-family                                            45,324         34,883
  Commercial real estate                                  66,266         69,625
  Construction and Land                                   11,370          7,730
                                                     --------------------------
                                                       3,328,207      2,920,903
  Deferred loan costs                                      6,849          3,159
  Purchase accounting discount                            (1,871)        (2,777)
                                                     --------------------------
                                                       3,333,185      2,921,285
  Allowance for possible loan losses                     (20,510)       (20,226)
                                                     --------------------------
    Real estate loans held-for-investment, net         3,312,675      2,901,059
                                                     --------------------------
Commercial loans receivable
  Commercial                                               6,850          8,206
  Unearned discount                                         (385)          (396)
                                                     --------------------------
                                                           6,465          7,810
  Allowance for possible loan losses                      (3,894)        (3,631)
                                                     --------------------------
    Commercial loans receivable, net                       2,571          4,179
                                                     --------------------------
Other loans receivable
  Consumer                                               100,882         69,575
  Consumer line of credit                                 57,350         55,292
  Property improvement                                     7,087          9,028
  Student                                                  8,231          6,976
  Loans on deposit accounts                                2,251          2,475
                                                     --------------------------
                                                         175,801        143,346
  Purchase accounting premium                                 29             50
  Deferred loan costs                                      2,495          2,258
                                                     --------------------------


                                                                              43
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)

                                                         178,325        145,654
  Allowance for possible loan losses                      (9,477)       (10,055)
                                                     --------------------------
    Other loans receivable, net                          168,848        135,599
                                                     --------------------------
Total loans receivable held-for-investment, net      $ 3,484,094    $ 3,040,837
                                                     ==========================


                                                                              44
<PAGE>

                        SIGNIFICANT CREDIT RISK CONCENTRATIONS. 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 minimize this risk, the Bank began
                        to originate or acquire loans on a nationwide basis in
                        fiscal 1995. At September 30, 1997, 48.16% of the Bank's
                        real estate loans (excluding home equity loans) were
                        derived from outside of New York, New Jersey and
                        Connecticut.

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

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

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

                        IMPAIRED LOANS. As of September 30, 1997 and 1996, $6.4
                        million and $7.7 million, respectively, in loans were
                        considered impaired within the scope of SFAS 114, of
                        which $4.6 million and $5.6 million, respectively, were
                        on nonaccrual status. The application of SFAS 114
                        measurement indicated that approximately $0.9 million
                        and $0.7 million, respectively, of these loans required
                        valuation allowances, totaling $0.3 million, which are
                        included within the overall allowance for possible loan
                        losses at each of September 30, 1997 and 1996. SFAS 114
                        does not apply to periods prior to fiscal 1996.

                        Interest income recognized on impaired loans during the
                        year ended September 30, 1997 and 1996 amounted to
                        approximately $0.5 million and $0.4 million,
                        respectively, which is approximately equal to the actual
                        interest payments received. The average recorded
                        investment in impaired loans during the year ended
                        September 30, 1997 and 1996 was $7.3 million and $8.9
                        million, respectively. The allowance for possible loan
                        losses contains additional amounts for impaired loans,
                        as deemed necessary, to maintain reserves at levels
                        considered adequate by management.

                        LOAN SERVICING. The Company has entered into various
                        agreements to service loans for others. At September 30,
                        1997 and 1996, 53,574 loans and 47,146 loans with a
                        total balance of $4.5 billion and $3.7 billion,
                        respectively, were being serviced for others. Of this
                        total balance, the Company has retained participation in
                        loans equal to $9.9 million and $10.3 million at
                        September 30, 1997 and 1996, respectively.

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

                        During the fiscal years ended September 30, 1997, 1996
                        and 1995, the Company sold approximately $834.6 million,
                        $186.8 million and $100.4 million, respectively, of
                        whole loans and MBS's with servicing retained.

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

                                             1997          1996          1995
--------------------------------------------------------------------------------
                                                      (In thousands)


                                                                              45
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)

Beginning balance                          $ 29,769      $ 11,328      $    759
  Purchased MSR's                             4,066        15,159        10,071
  Capitalized MSR's                          15,385         5,982         1,969
  Amortization                               (7,381)       (2,700)       (1,471)
                                           ------------------------------------
                                             41,839        29,769        11,328
  Less: Allowance for MSR's                      50            82            --
                                           ------------------------------------
Ending balance                             $ 41,789      $ 29,687      $ 11,328
                                           ====================================

                        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, 1997 and 1996 the valuation allowance amounted to
                        $50,000 and $82,000, respectively. No valuation
                        allowance was required for 1995.

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

                                                   1997       1996       1995
--------------------------------------------------------------------------------
                                                         (In thousands)
Servicing fees                                   $ 19,380   $ 16,645   $ 14,344
Amortization of MSR's                              (7,381)    (2,700)    (1,471)
Recovery of allowance (provision) for MSR's            32        (82)        --
                                                 ------------------------------
Total servicing income                           $ 12,031   $ 13,863   $ 12,873
                                                 ==============================

--------------------------------------------------------------------------------
(8)                                         Real
Allowance for                              Estate  Commercial  Other
Possible Loan Losses                        Loans    Loans     Loans     Total
--------------------------------------------------------------------------------
                                                      (In thousands)
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
Add:
  Provision for possible loan losses        3,000        --     3,000      6,000
  Recoveries of previous charge-offs          161       263       461        885
                                          --------------------------------------
                                           23,387     3,894    13,516     40,797
Less charge-offs                            2,877        --     4,039      6,916
                                          --------------------------------------
Balance at September 30, 1997             $20,510   $ 3,894   $ 9,477    $33,881
                                          ======================================

--------------------------------------------------------------------------------
(9)                     The following is a summary of investment in real estate
                        and premises owned by the Company at September 30:


                                                                              46
<PAGE>

Investment in Real Estate     
and Premises

                                                              1997         1996
--------------------------------------------------------------------------------
                                                                (In thousands)
REO:
One-to-four family                                           $4,294      $ 5,835
Condo/co-op                                                   1,955        1,990
Commercial                                                      394          330
                                                             -------------------
                                                              6,643        8,155
Direct Investment:
Land                                                          2,460        2,525
                                                             -------------------
  Investment in real estate and premises                     $9,103      $10,680
                                                             ===================

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

                                                 1997       1996          1995
--------------------------------------------------------------------------------
                                                       (In thousands)
Income
Rental income                                  $    82     $1,994       $ 3,051
Gains on sales                                     540      1,978(1)        628
Net profits, equity in joint venture             1,209      1,243         1,109
Other income                                        68        527            18
                                               --------------------------------
  Total income                                   1,899      5,742         4,806
                                               --------------------------------
Expenses
Acquisition expenses                               777        799           766
Operating expenses                               1,407      1,888         3,134
Losses on sales                                    244        225           139
Depreciation                                        --        312           509
Write-downs                                        676        490           581
                                               --------------------------------
  Total expenses                                 3,104      3,714         5,129
                                               --------------------------------
Net (loss) gain on investment in real
  estate and premises                          $(1,205)    $2,028       $  (323)
                                               ================================

(1)   Includes net profit of $1.4 million from the sale of eight rental office
      buildings previously held as direct investments and two other properties
      previously utilized for Company operations.

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

(10)                    Certificate accounts and other deposit accounts at 
Deposits                September 30, are summarized as follows:

                                                            1997          1996
--------------------------------------------------------------------------------
                                                              (In thousands)
Account type:                                         
Passbook                                                  $608,618      $669,241
Demand and NOW                                             261,324       227,747
Money market                                               109,874       130,442
                                                

                                                                              47
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)

Statement savings                                          633,868       646,789
Certificate accounts                                     2,116,819     1,958,791
                                                        ------------------------
  Total deposits                                        $3,730,503    $3,633,010
                                                        ========================
Contractual maturity of certificates:
  Within twelve months                                  $1,361,427    $1,360,835
  Over one to three years                                  596,603       314,327
  Over three years                                         158,789       283,629
                                                        ------------------------
                                                        $2,116,819    $1,958,791
                                                        ========================
Certificate accounts in excess of $100,000              $  197,747    $  160,654
                                                        ========================

                        Included in Demand and NOW accounts at September 30,
                        1997 and 1996, were approximately $132.3 million and
                        $98.7 million, respectively, of non-interest-bearing
                        deposits.

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

                                                  1997        1996        1995
--------------------------------------------------------------------------------
                                                          (In thousands)
Account type:
Passbook                                        $ 17,557    $ 19,264    $ 22,336
NOW                                                3,109       3,105       3,181
Money market                                       3,335       3,913       5,022
Statement savings                                 20,956      20,755      20,946
Certificate accounts                             114,603     108,479      87,849
Escrow accounts                                      247         314         307
                                                --------------------------------
  Total interest expense on deposits            $159,807    $155,830    $139,641
                                                ================================

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

(11)                    Borrowed funds at September 30, are summarized as 
Borrowed Funds          follows:

<TABLE>
<CAPTION>
                                                          1997               1996    
------------------------------------------------------------------------------------------

                                                            Weighted              Weighted
                                                             Average               Average
                                                  Balance     Rate     Balance      Rate
                                                ------------------------------------------
                                                           (Dollars in thousands)
<S>                                             <C>           <C>    <C>            <C>  
Securities sold under agreements to repurchase  $ 1,013,400   5.73%  $  800,000     5.69%
Advance--Federal Home Loan Bank                                                    
  of New York ("FHLB")                               33,120   6.63           --       --
Funding Note                                        155,540   6.00      178,023     6.11
Medium-term note                                    300,000   7.00           --       --
                                                ------------------------------------------
                                                  1,502,060             978,023    
Unamortized Discount on Medium-term note               (604)                 --
                                                ------------------------------------------
  Borrowed Funds, net                           $ 1,501,456          $  978,023
                                                ==========================================
</TABLE>

                        At September 30, 1997, securities sold under agreements
                        to repurchase (reverse-repurchase agreements) were
                        collateralized by MBS's having an estimated fair value
                        of $1.1 billion. The maximum amount of agreements
                        outstanding at a month end during fiscal 1997 and 1996
                        were $1.1 billion and $805.9 million, respectively. The
                        average amounts of these agreements outstanding during
                        fiscal 1997 and 1996 were $1.0 billion and $675.1
                        million, respectively. All outstanding agreements at
                        September 30, 1997 mature within 54 months from that
                        date.


                                                                              48
<PAGE>

                        FHLB advances are secured under assignment arrangements
                        of eligible collateral, primarily mortgage loans in an
                        amount equal to 110% of outstanding advances. The Bank
                        maintains various lines of credit from the FHLB totaling
                        $150.0 million at September 30, 1997. At September 30,
                        1997, the Bank had available and unused lines of credit
                        aggregating $116.9 million. In addition, the Bank has
                        the ability to obtain additional funds in the form of
                        FHLB advances in an amount based upon its stock
                        ownership in the FHLB of New York.

                        The Funding note was issued during fiscal 1996 in the
                        amount of $181.4 million which is collateralized by a
                        pool of adjustable rate residential mortgage 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 $269.9 million, 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, 1997 and 1996, the
                        outstanding principal balance of the Funding note
                        collateral pool was $240.9 million and $265.6 million,
                        respectively.

                        During fiscal 1997, the Bank issued a five year
                        medium-term note in the amount of $300.0 million. The
                        medium-term note is part of a $1.0 billion medium-term
                        note program the Bank established in 1997 in which the
                        medium-term notes can be issued bearing interest at
                        either a fixed or floating rate and have maturities
                        ranging from nine months to 30 years from their
                        respective issue dates. At September 30, 1997, the Bank
                        has available $700.0 million under this borrowing
                        program.

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

<TABLE>
<CAPTION>
                                                             1997     1996     1995
-------------------------------------------------------------------------------------
                                                                  (In thousands)
<S>                                                         <C>      <C>      <C>    
Reverse-repurchase agreements                               $58,706  $37,998  $27,870
Funding note                                                 10,371    2,877       --
Advance--FHLB of NY                                           5,051      141       55
Medium-term note                                              5,464       --       --
Amortization of interest rate cap agreements (See Note 12)       89      330      330
                                                            -------------------------
  Total interest expense on borrowed funds                  $79,681  $41,346  $28,255
                                                            =========================
</TABLE>

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

(12)                    The Bank has entered into transactions as of September  
Financial Instruments   30, 1997, that involve financial instruments with       
with Off-Balance        off-balance sheet risks, in the normal course of        
Sheet Risk              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, recourse liability on loans  
                        sold and derivative financial instruments. 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.


                                                                              49
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)

                        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. 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:

                                                             1997         1996
--------------------------------------------------------------------------------
                                                              (In thousands)
Commitments to originate or purchase:
  Real estate loans                                        $338,106     $311,967
  Home equity loans--unused lines of credit                  15,160        9,554
  Commercial loans--unused lines of credit                    2.477        2,576
  Consumer loans--unused lines of credit                    126,878      115,126
Commitments to sell loans                                   231,277       75,413
Commitments to purchase investment securities               200,180           --
                                                           ---------------------
  Total commitments                                        $914,078     $514,636
                                                           =====================

                        Real estate loan commitments included approximately
                        $147.3 million and $104.8 million relating to adjustable
                        rate loans at September 30, 1997 and 1996, respectively.
                        In addition, the Bank has entered into adjustable rate
                        standby letters of credit related to commercial loan
                        transactions amounting to $3.5 million and $0.3 million
                        at September 30, 1997 and 1996, respectively.

                        DERIVATIVES. 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. During fiscal 1997, the Company
                        entered into a five year interest rate swap agreement,
                        with a notional amount of $300.0 million. The swap
                        agreement converted the medium-term note issued in 1997
                        from a fixed rate obligation of 7.0% into a variable
                        rate of LIBOR minus 3 basis points. As of September 30,
                        1997, LIBOR minus 3 basis points was 5.69% and the
                        interest rate swap had a gross positive market value of
                        $1.7 million.

                        During fiscal 1996, the Company was party to $90.0
                        million notional amount of interest rate cap agreements.
                        The agreements entitled 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. There were no contracts in
                        effect at September 30, 1997.

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

(13)                    The Company discloses fair value information about     
Fair Value of           financial instruments for which it is practicable to   
Financial Instruments   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.

                        The fair value disclosures 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.

                        FINANCIAL ASSETS

                        Mortgage-backed and Debt and Equity Securities. Fair
                        values are determined by published market prices or
                        securities dealers' estimated prices.


                                                                              50
<PAGE>

                        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 1997 and 1996 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.

                        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. Deposit liabilities with no stated maturity
                        (i.e., demand, savings and certain money market
                        deposits) are 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 swap
                        agreements and interest rate cap agreements are based on
                        securities dealers' estimated market values. The fair
                        value of interest rate swaps reflects the estimated
                        amounts the Company would receive or pay to terminate
                        the contract at the reporting date, thereby taking into
                        account the current unrealized gains and losses of open
                        contracts.

                        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, 1997 and 1996 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, 1997 and 1996, respectively.
                        Accordingly, the estimated fair value of such
                        commitments is deemed to be equivalent to their stated
                        aggregate issuance value as of September 30, 1997 and
                        1996, respectively. The fair value of commitments to
                        purchase investment securities is based on securities
                        dealers' estimated market values. The fair value of
                        commitments to sell loans and unused lines of credit is
                        valued at par as of September 30, 1997 and 1996,
                        respectively.

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

<TABLE>
<CAPTION>

                                                                     At September 30,
------------------------------------------------------------------------------------------------------------
                                                            1997                         1996
------------------------------------------------------------------------------------------------------------

                                               Carrying Amount  Fair Value  Carrying Amount  Fair Value
------------------------------------------------------------------------------------------------------------
                                                                       (In thousands)
<S>                                              <C>            <C>           <C>            <C>       
Financial Assets:
  Debt and equity securities:
    Available-for-sale                           $  138,578     $  138,578    $  180,650     $  180,650
  Mortgage-backed securities:
    Held-to-maturity                                 22,223         20,188        23,096         21,120
</TABLE>


                                                                              51
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)

<TABLE>
<S>                                              <C>            <C>           <C>            <C>       
    Available-for-sale                            1,808,471      1,808,471     1,717,106      1,717,106
  Loans receivable held-for-investment:
    Real estate loans                             3,312,675      3,566,012     2,901,059      2,926,757
    Other loans                                     168,848        174,974       135,599        142,307
    Commercial loans                                  2,571          6,315         4,179          8,122
  Loans held-for-sale                               157,617        158,336        57,969         58,029
  Mortgage servicing rights                          41,789         45,673        29,687         29,687

Financial liabilities:
  Deposits                                        3,730,503      3,727,170     3,633,010      3,619,110
  Borrowings, net                                 1,501,456      1,509,919       978,023        969,680

Off-balance sheet:
  Commitments to originate or purchase loans        338,106        338,106       311,967        311,967
  Commitments to sell loans                         231,277        231,277        75,413         75,413
  Commitments to purchase investment securities     200,180        200,180            --             --
  Fund unused lines of credit                       144,515        144,515       127,256        127,256
  Interest rate swap                                     --          1,741            --             --
  Interest rate cap                                      --             --            89             --
</TABLE>

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

(14)                    Income tax expense for the years ended September 30, is 
Income Taxes            summarized as follows:

                                             1997          1996          1995
--------------------------------------------------------------------------------
                                                      (In thousands)
Current:
  Federal                                  $ 10,348      $ 24,316      $ 23,691
  State and local                             2,926         9,875         9,273
                                           ------------------------------------
                                             13,274        34,191        32,964
                                           ------------------------------------
Deferred:
  Federal                                    15,225        (7,700)       (2,333)
  State and local                             3,713        (2,731)         (734)
                                           ------------------------------------
                                             18,938       (10,431)       (3,067)
                                           ------------------------------------
    Total income tax expense               $ 32,212      $ 23,760      $ 29,897
                                           ====================================


                                                                              52
<PAGE>

                        The following schedule illustrates the components of the
                        net deferred tax asset at September 30:

                                                                1997       1996
--------------------------------------------------------------------------------
                                                                (In thousands)
Deferred tax assets:
  Financial statement loan loss reserve                       $14,500    $14,619
  BIF-SAIF Assessment                                              --      8,043
  Accrual for post-employment benefits                          4,777      4,859
  Basis difference in investment in real estate                   673        707
  Mark-to-market recognition on securities under
    Internal Revenue Code Section 475                           4,663      7,442
  Deferred pension expense                                      2,876      3,626
  Deferred origination fees                                       408        605
  Non-accrual interest                                            802        615
  Other                                                            82      1,677
                                                              ------------------
    Total deferred tax assets                                  28,781     42,193
                                                              ------------------
Deferred tax liabilities:
  Tax reserve in excess of base year reserve                    1,182        437
  Basis difference in properties and equipment                  3,332      4,527
  Deferred origination costs                                    4,922      1,291
  Recognition of taxes payable under Internal Revenue
    Code Section 481 for unrealized gains                         234      1,840
  Basis difference in home equity investment                    1,592      1,674
  Other                                                           972      1,217
                                                              ------------------
    Total deferred tax liabilities                             12,234     10,986
                                                              ------------------
Net deferred tax asset                                        $16,547    $31,207
                                                              ==================

                        The effective tax rates differ from the statutory
                        Federal income tax rate of 35 percent. The reasons for
                        the differences as applied to income before income taxes
                        are as follows:

<TABLE>
<CAPTION>
                                                      For the Years Ended September 30,
----------------------------------------------------------------------------------------------------
                                              1997                 1996                 1995
                                       -------------------------------------------------------------
                                                   % 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                         $ 28,571    35.0%    $ 19,612    35.0%    $ 25,695    35.0%
State and local income taxes, net of
  Federal income tax benefit              4,315     5.3        4,644     8.3        5,550     7.6
Tax adjustment for prior year              (458)   (0.5)         370     0.7         (814)   (1.1)
Reversal of deferred tax valuation
  allowance                                  --      --       (2,328)   (4.2)        (532)   (0.7)
Other                                      (216)   (0.3)       1,462     2.6           (2)   (0.1)
                                       -------------------------------------------------------------
  Income tax expense                   $ 32,212    39.5%    $ 23,760    42.4%    $ 29,897    40.7%
                                       =============================================================
</TABLE>


                                                                              53
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)

                        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.
                        Effective January 1, 1996 under the Small Business Job
                        Protection Act of 1996 ("1996 Act"), the Bank is unable
                        to make additions to the tax bad debt reserves but is
                        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. For
                        calendar 1996, recapture was deferred and if certain
                        requirements are met for calendar 1997, the recapture
                        may be deferred again. The base year reserves, which
                        amounted to approximately $60.1 million at September 30,
                        1997 and 1996, 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 "thrift" 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; or (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 and New York City tax law has been amended to
                        prevent the recapture of existing tax bad debt reserves
                        and to allow for the continued use of a percentage equal
                        to 32% of the Bank's taxable income ("PTI method") to
                        determine the bad debt deduction in computing New York
                        State and New York City tax liability.

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

(15)                    The Bank currently provides health care and life        
Postretirement Health   insurance benefits for retirees and their eligible      
Care and Life           dependents. The coverage provided depends upon the date 
Insurance Benefits      they retired as well as the bank from which they        
                        retired. The Bank accrues the cost of postretirement    
                        benefits during the years employees render service.     

                        The following table sets forth the accumulated
                        postretirement benefit obligation ("APBO") for the years
                        ended September 30:

                                                                 1997      1996
--------------------------------------------------------------------------------
                                                                (In thousands)
Retirees                                                       $ 4,226   $ 3,727
Active eligible                                                    389       270
Other active                                                     1,762     1,259
                                                               -----------------
Total                                                          $ 6,377   $ 5,256
                                                               =================

                        The following is a reconciliation of the accrued benefit
                        cost at September 30:

                                                                 1997      1996
--------------------------------------------------------------------------------
                                                                (In thousands)
APBO                                                           $ 6,377   $ 5,256
Unrecognized prior service cost                                    133       130
Unrecognized net actuarial gain                                  4,769     5,886
                                                               -----------------
Accrued postretirement benefit cost                            $11,279   $11,272
                                                               =================

                        The assumed medical cost trend used in computing the
                        accumulated postretirement benefit obligation was 8.50%
                        in 1997 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, 1997 by
                        $0.5 million and $0.1 million, respectively.

                        The weighted average discount rate used in determining
                        the APBO was 7.75% at September 30, 1997 and 1996.


                                                                              54
<PAGE>

                        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:

                                                       1997      1996      1995
--------------------------------------------------------------------------------
                                                            (In thousands)
Service cost                                          $ 174     $ 161     $ 127
Interest cost                                           388       398       503
Net amortization of prior service cost                  (85)      (85)      (85)
Net amortization of unrecognized gain                  (239)     (236)     (177)
                                                      -------------------------
  Net periodic postretirement benefit cost            $ 238     $ 238     $ 368
                                                      =========================

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

(16)                    DEFINED BENEFIT PENSION PLAN. The Bank sponsors a       
Pension Plans           non-contributory defined benefit pension plan           
                        ("Retirement Plan") covering substantially all employees
                        twenty-one years of age or older. Prior to January 1,   
                        1996, the benefit multiplier to determine the normal    
                        annual retirement benefit was 2% of the pensioner's     
                        final average salary multiplied by the number of service
                        years credited. 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 funding of the         
                        Retirement Plan is actuarially determined on an annual  
                        basis.                                                  

                        The following table depicts the components of pension
                        expense for the years ended September 30:

<TABLE>
<CAPTION>
                                                      1997      1996     1995
--------------------------------------------------------------------------------
                                                            (In thousands)
<S>                                                 <C>        <C>      <C>    
Service cost                                        $  1,090   $ 1,199  $ 1,417
Interest cost                                          3,316     3,240    3,572
Actual return on assets                              (11,443)   (7,581)  (9,714)
Amortization of unrecognized transition asset           (326)     (429)    (430)
Amortization of unrecognized past service liability     (794)     (794)    (165)
Net amortization and deferral                          6,480     3,329    6,006
                                                    ---------------------------
Pension (benefit) expense                           $ (1,677)  $(1,036) $   686
                                                    ===========================
</TABLE>

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

<TABLE>
<CAPTION>
                                                                           1997        1996
---------------------------------------------------------------------------------------------
                                                                            (In thousands)
<S>                                                                      <C>         <C>     
Actuarial present value of accumulated plan benefits:
  Vested                                                                 $ 45,179    $ 42,915
  Non-vested                                                                1,191       1,893
                                                                         --------------------
Total accumulated plan benefits                                          $ 46,370    $ 44,808
                                                                         ====================
Fair value of plan net assets                                            $ 67,626    $ 59,276
Project benefit obligations                                                47,119      44,911
                                                                         --------------------
Fair value of plan net assets in excess of projected benefit obligation    20,507      14,365
Unrecognized gain                                                         (14,679)     (9,094)
Unrecognized past service liability                                        (5,361)     (6,155)
Unrecognized transition asset                                                  --        (326)
                                                                         --------------------
Prepaid (accrued) pension expense                                        $    467    $ (1,210)
                                                                         ====================
Assumed rate of return on assets                                             8.00%       8.00%
                                                                         ====================
Assumed rate of compensation increase                                        5.50%       5.50%
                                                                         ====================
Assumed discount rate                                                        7.75%       7.75%
                                                                         ====================
</TABLE>


                                                                              55
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)

                        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 1997, 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% for fiscal years ended September
                        30, 1997 and 1996, and an assumed rate of increase in
                        director fees of 6.0% in both years, each compounded
                        annually.

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

(17)                    The Bank sponsors a Savings Incentive Plan ("SIP")      
Savings Incentive Plan  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 calendar 1997, the Bank will continue to   
                        further decrease its matching contribution to 15% of the
                        first 6% of the participant's base salary. For calendar 
                        1998 and thereafter, the Bank will no longer make       
                        matching contributions. SIP expense was $0.4 million,   
                        $0.4 million and $0.5 million for the years ended       
                        September 30, 1997, 1996 and 1995, respectively.        

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

(18)                    EMPLOYEE STOCK OWNERSHIP PLAN. In connection with the   
Stock Benefit Plans     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, 1997 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, 1996, approximately 417,000 shares have
                        been allocated to participants. At September 30, 1997,
                        the Bank has accrued for the release of approximately
                        65,000 additional shares which represents the 1997
                        allocations earned from January 1, 1997 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").


                                                                              56
<PAGE>

                        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").

                        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,
                        unless otherwise authorized, 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, 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
Granted                                                      135,295      28.65
Forfeited                                                     49,800      16.51
Exercised                                                    101,267      14.56
                                                           --------------------
Options outstanding at September 30, 1997                  1,202,005      15.04
                                                           ====================
Options exercisable at September 30, 1997                    631,965     $13.27
                                                           ====================

                        The range of exercise prices on options outstanding for
                        the years ending September 30, 1997, 1996 and 1995 were
                        $11.50 to $34.80, $11.50 to $27.38 and $11.50 to $18.75,
                        respectively. The weighted average remaining contractual
                        life for options outstanding at September 30, 1997 is
                        7.01 years.


                                                                              57
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)

                        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, 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
Granted                                                       5,180       34.80
Forfeited                                                    30,741       11.85
Exercised                                                    10,000       11.50
                                                            -------------------
Options outstanding at September 30, 1997                   546,916      $11.93
                                                            ===================
Options exercisable at September 30, 1997                   294,760      $11.60
                                                            ===================

                        The range of exercise prices on options outstanding for
                        the years ending September 30, 1997, 1996 and 1995 were
                        $11.50 to $34.80, $11.50 to $27.38 and $11.50 to $17.90,
                        respectively. The weighted average remaining contractual
                        life for options outstanding at September 30, 1997 is
                        6.56 years.

                        In accordance with SFAS No. 123, the Company used the
                        Black-Scholes option-pricing model with the following
                        weighted-average assumptions to value options granted:

                                                        1997          1996
--------------------------------------------------------------------------------
Dividend yield                                          1.35%         1.35%
Expected volatility                                    24.07%        24.07%
Risk-free interest rate                                 6.04%         6.03%
Expected option lives                                   6.90 years    8.60 years


                                                                              58
<PAGE>

                        On a pro forma basis, had compensation expense for the
                        Company's stock-based compensation plans been determined
                        based on the fair value at the grant dates for awards
                        made under those plans, consistent with the method of
                        SFAS No.123, the Company's net income and earnings per
                        share for the years ended September 30 would have been
                        reduced as follows:

                                                                1997       1996
--------------------------------------------------------------------------------
                                                           (In thousands, except
                                                              per share amounts)
Net Income                           As reported               $49,420   $32,275
                                     Pro forma                  49,148    32,258
Primary Earnings per share           As reported                  2.09      1.33
                                     Pro forma                    2.07      1.33
Fully Diluted Earnings per share     As reported                  2.08      1.33
                                     Pro forma                    2.07      1.33

                        The effects of applying SFAS No. 123 for providing pro
                        forma disclosures are not indicative of the effects on
                        reported net income for future years because SFAS No.
                        123 has not been applied to all outstanding, non-vested
                        awards (does not apply to awards prior to October 1,
                        1995).

                        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, 1997, 1996 and 1995, 21,800, 106,545 and
                        156,931 shares, respectively, were granted. These awards
                        vest ratably over five years, unless otherwise
                        authorized, measured from the date of grant, except for
                        the 1996 grants that were awarded to employees based
                        upon their length of service with the Bank and their
                        officer status. The employee awards vest over one year
                        and the officer awards vest ratably over two years. At
                        September 30, 1997, 120,205 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, 1997,
                        1996, and 1995, compensation expense relating to the
                        awards under this plan totalled $2.5 million, $1.8
                        million and $1.4 million, respectively.

                        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, 1997, 1996
                        and 1995. At September 30, 1997, 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,
                        1997, 1996 and 1995, compensation expense relating to
                        the awards under this plan, totalled $0.4 million, $0.5
                        million and $0.7 million, respectively.


                                                                              59
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
(Continued)

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

(19)                    LEASES. The Bank is obligated under several             
Commitments and         non-cancelable operating lease agreements as of         
Contingencies           September 30, 1997. The future minimum rental payments  
                        required under these operating leases are as follows:   

Year ending September 30,                                             Amount
--------------------------------------------------------------------------------
                                                                  (In thousands)
1998                                                                 $ 3,261
1999                                                                   2,809
2000                                                                   2,036
2001                                                                   1,526
2002                                                                     844
Thereafter                                                             5,551
                                                                     -------
                                                                     $16,027
                                                                     =======

                        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
                        $487.1 million at September 30, 1997. At this time, the
                        maximum exposure under the Bank's recourse obligations
                        is $134.1 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,
                        1997 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.


                                                                              60
<PAGE>

                        SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

                        The following table is a summary of operations by
                        quarter for the years ended September 30, 1997 and 1996:

<TABLE>
<CAPTION>
                                                                       For the Quarter Ended
--------------------------------------------------------------------------------------------------------------------------
                                         9/30/97     6/30/97   3/31/97   12/31/96    9/30/96   6/30/96   3/31/96  12/31/95
                                        ---------   --------  --------   --------   --------   -------  --------   -------
                                                                (In thousands, except per share data)
<S>                                     <C>         <C>       <C>        <C>        <C>        <C>      <C>        <C>    
Interest income                         $ 103,396   $100,416  $ 99,267   $ 95,970   $ 91,420   $87,862  $ 85,562   $86,727
Interest expense                           64,270     60,367    59,137     55,714     52,694    48,723    47,443    48,316
                                        ---------   --------  --------   --------   --------   -------  --------   -------
Net interest income                        39,126     40,049    40,130     40,256     38,726    39,139    38,119    38,411
Provision for possible loan losses          1,500      1,500     1,500      1,500      1,500     1,600     1,500     1,600
                                        ---------   --------  --------   --------   --------   -------  --------   -------
Net interest income after provision
  for possible loan losses                 37,626     38,549    38,630     38,756     37,226    37,539    36,619    36,811
Non-interest income:
  Fee income:
    Loan fees and service charges           1,061        764       890      1,006        944       837       736       700
    Loan servicing fees                     3,124      2,417     3,108      3,382      4,648     3,058     3,100     3,057
    Income from insurance and
      securities commissions                  747        655       590        507        368       442       471       327
    Deposit service fees                    1,343      1,275     1,413      1,528      1,518     1,463     1,496     1,460
                                        ---------   --------  --------   --------   --------   -------  --------   -------
      Total fee income                      6,275      5,111     6,001      6,423      7,478     5,800     5,803     5,544
    Other income                            1,153        699       997        861      1,050       968     1,039       661
                                        ---------   --------  --------   --------   --------   -------  --------   -------
      Total fee and other income            7,428      5,810     6,998      7,284      8,528     6,768     6,842     6,205
  Net gains (losses) on sale activity:
    Net gains on loans and
      mortgage-backed securities            3,739      3,087     2,263      1,975      2,676     2,195     2,497       625
    Net gains (losses) on
      investment in debt
      and equity securities                    --        236        --         99        (88)      169        --       259
                                        ---------   --------  --------   --------   --------   -------  --------   -------
      Total net gains (losses)
        on sale activity                    3,739      3,323     2,263      2,074      2,588     2,364     2,497       884
  Net (loss) gain on
    investment in real
    estate and premises                      (913)       765      (542)      (515)      (835)    1,098      (403)    2,168
                                        ---------   --------  --------   --------   --------   -------  --------   -------
Total non-interest income                  10,254      9,898     8,719      8,843     10,281    10,230     8,936     9,257
Non-interest expense:
  General and administrative expense:
    Compensation, payroll taxes
      and fringe benefits                  13,741     15,000    14,859     14,128     16,812    14,255    13,625    13,277
    Advertising                             1,465      1,218     1,089      1,255      1,673     1,836     1,216     1,215
    Office occupancy
      and equipment                         5,021      5,761     5,567      5,397      5,679     5,223     4,795     4,934
    Federal insurance premiums                783        792       778      1,903      2,287     2,292     2,259     2,217
    Other general and
      administrative expense                5,733      4,817     4,512      4,265      5,083     4,719     4,060     4,096
                                        ---------   --------  --------   --------   --------   -------  --------   -------
      Total general and
        administrative expense             26,743     27,588    26,805     26,948     31,534    28,325    25,955    25,739
Litigation expense--
  goodwill lawsuit                            139        444       159        359        150       169         4        47
SAIF special assessment                        --         --        --         --     18,657        --        --        --
Amortization of excess of cost
  over fair value of assets acquired          114        125       109        110         94        63        63        64
                                        ---------   --------  --------   --------   --------   -------  --------   -------
Total non-interest expense                 26,996     28,157    27,073     27,417     50,435    28,557    26,022    25,850
                                        ---------   --------  --------   --------   --------   -------  --------   -------
Income (loss) before income taxes          20,884     20,290    20,276     20,182     (2,928)   19,212    19,533    20,218
Provision for income tax
  expense (benefit)                         7,941      7,864     8,159      8,248     (1,026)    7,918     8,271     8,597
                                        ---------   --------  --------   --------   --------   -------  --------   -------
Net income (loss)                       $  12,943   $ 12,426  $ 12,117   $ 11,934   $ (1,902)  $11,294  $ 11,262   $11,621
                                        =========   ========  ========   ========   ========   =======  ========   =======
Primary earnings (loss)
  per common share                      $    0.55   $   0.53  $   0.51   $   0.50   $  (0.08)  $  0.47  $   0.46   $  0.47
                                        =========   ========  ========   ========   ========   =======  ========   =======
Fully diluted earnings (loss)
  per common share                      $    0.55   $   0.53  $   0.51   $   0.50   $  (0.08)  $  0.47  $   0.46   $  0.47
                                        ==================================================================================
</TABLE>


                                                                              61
<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, 1997 and 1996
                        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, 1997. 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, 1997 and 1996 and the results of their
                        operations and their cash flows for each of the years in
                        the three year period ended September 30, 1997 in
                        conformity with generally accepted accounting
                        principles.

                        /s/ KPMG Peat Marwick LLP

                        Jericho, New York
                        October 21, 1997


                                                                              62
<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.

                        1996                High           Low          Closing
                        --------------------------------------------------------
                        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

                        1997
                        ----
                        First Quarter      $35.125       $33.750        $35.000
                        Second Quarter      39.750        32.875         33.062
                        Third Quarter       36.875        32.875         36.312
                        Fourth Quarter      48.750        34.875         47.000

                        As of September 30, 1997, the Company had approximately
                        3,180 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 24,022,924 shares of Common Stock shares
                        outstanding at September 30, 1997. Dividends of fifteen
                        cents per Common Share have been paid to shareholders as
                        follows:

                        Declaration Date     Record Date       Payment Date
                        --------------------------------------------------------

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


                                                                              63
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

BRANCH LOCATIONS

                        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            
                                                     
                        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  
                                                 
                        1149 Wantagh 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.-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


                                                                              64
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

MORTGAGE ORIGINATION OFFICES

                        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                 
                                                             
                        750 Broad Street                     
                        Shrewsbury, NJ 07702                 
                                                             
                        111 Gibraltar Road                   
                        Horsham, PA 19044                    
                                                             
                        10005 Old Columbia Road              
                        Ste. L260                            
                        Columbia, MD 21046                   
                                                             
                        6 Montgomery Village Ave., Ste. 220  
                        Gaithersburg, MD 20879               
                                                             
                        658 Kenilworth Drive, Ste. 205
                        Townson, MD 21204

                        5301 Buckeystown Pike, Ste. 200  
                        Frederick, MD 21704              
                                                         
                        7825 Tuckerman Lane, Ste. 210    
                        Potomac, MD 20854                
                                                         
                        8321 Old Courthouse Road         
                        Ste. 110                         
                        Vienna, VA 22182                 
                                                         
                        220 Middle Street                
                        Franklin, VA 23851               
                                                         
                        206 Temple Ave., Ste. C          
                        Colonial Heights, VA 23834       
                                                         
                        5041 Corporate Woods Drive       
                        Ste. 100                         
                        Virginia Beach, VA 23462         
                                                         
                        7231 Forest Ave., Ste. 303       
                        Richmond, VA 23226               
                        
                        1001 Boulders Parkway, Ste. 110    
                        Richmond, VA 23225                 
                                                           
                        6845 Fairview Road, Ste. 100       
                        Charlotte, NC 28210                
                                                           
                        4325 Lake Boone Trail, Ste. 102    
                        Raleigh, NC 27607                  
                                                           
                        222 West Coleman Blvd., Ste. 104   
                        Mount Pleasant, SC 29464           
                                                           
                        410 Commerce Drive                 
                        Peachtree City, GA 30269           
                                                           
                        2000 RiverEdge Pky., Ste. 880      
                        Atlanta, GA 30328                  
                                                           
                        255 Corporate Center Drive, Ste. C 
                        Stockbridge, GA 30281


                                                                              65
<PAGE>

Long Island Bancorp, Inc. and Subsidiary

DIRECTORS, OFFICERS AND SHAREHOLDER INFORMATION

                        BOARD OF DIRECTORS

                        John J. Conefry, Jr.,
                        Chairman

                        Bruce M. Barnet
                        Clarence M. Buxton
                        Edwin M. Canuso
                        Richard F. Chapdelaine
                        Brian J. Conway
                        Robert J. Conway
                        Frederick DeMatteis
                        George R. Irvin
                        Herbert J. McCooey
                        Lawrence W. Peters
                        Robert S. Swanson, Jr.
                        Dr. James B. Tormey
                        Leo J. Waters
                        Donald D. Wenk
                        Troy J. Baydala
                          (Director Emeritus)

                        EXECUTIVE OFFICERS
                        
                        John J. Conefry, Jr.,
                        Chairman of the Board and
                        Chief Executive Officer
                        
                        Lawrence W. Peters,
                        President and
                        Chief Operating Officer
                        
                        Bruce M. Barnet,
                        Executive Vice President
                        and Director of Real Estate
                        and Development
                        
                        Karen M. Cullen,
                        Executive Vice President
                        and General Counsel
                        
                        Mark Fuster,
                        Executive Vice President
                        and Chief Financial Officer
                        
                        W. Douglas Singer,
                        Executive Vice President
                        and Treasurer
                        
                        Robert T. Volk,
                        Executive Vice President and Director of Consumer 
                        Banking
                        
                        SENIOR VICE PRESIDENTS OF THE LONG ISLAND SAVINGS
                        BANK, FSB
                        
                        Roberta E. Cashwell
                        Louis A. Iannaccone
                        Dena L. Kwaschyn
                        James A. Lacchini
                        Arthur D. McDermott
                        Anthony J. Morris
                        John B. Pettit
                        William A. Purschke
                        John Talotta
                        Roger Teurfs
                        
                        CORPORATE OFFICE
                        
                        Long Island Bancorp, Inc.
                        201 Old Country Road
                        Melville, NY 11747
                        
                        ANNUAL MEETING
                        
                        The Annual Meeting of shareholders will be held Tuesday,
                        February 17, 1998 at 9:30 AM at the Huntington Hilton
                        located on Route 110 at 598 Broadhollow Road, Melville,
                        NY. Notice of the meeting, a proxy statement and proxy
                        form are included with this mailing to shareholders of
                        record as of December 22, 1997.

                        INDEPENDENT AUDITORS
                        
                        KPMG Peat Marwick LLP
                        Jericho, New York
                        
                        SHAREHOLDER INQUIRIES
                        
                        Shareholders, analysts and others interested in
                        additional information may contact: Mary M. Feder Vice
                        President, Investor Relations (516) 547-2607.

                        STOCK TRANSFER AGENT
                        AND REGISTRAR
                        
                        Inquiries regarding stock transfer, lost certificates,
                        or changes in name and/or address should be directed to
                        the stock transfer agent and registrar:
                        
                        ChaseMellon Shareholder
                        Services, L.L.C.
                        Customer Service Department
                        P.O. Box 590
                        Ridgefield Park, NJ 07660
                        (800) 465-7038
                        
                        STOCK LISTING
                        
                        Long Island Bancorp Inc.'s common stock is traded on the
                        Nasdaq National Market under the symbol "LISB". Stock
                        quotes are included in the Nasdaq National Market stock
                        tables published in leading dailies and other business
                        publications. In The Wall Street Journal we are listed
                        as "LI Bncp". In The New York Times we are listed as "LI
                        Bcp". In Newsday we are listed as "LI Bancrp".

                        ANNUAL REPORT ON
                        FORM 10-K
                        
                        A copy of the Company's 1997 annual report on Form 10-K
                        (without exhibits), which has been filed with the
                        Securities and Exchange Commission and the annual report
                        pursuant to Section 112 of the FDIC Improvement Act of
                        1991 will be furnished to shareholders without charge,
                        upon written request to:
                        
                        Investor Relations Department
                        Long Island Bancorp, Inc.
                        201 Old Country Road
                        Melville, NY 11747
                        
                        WORLD WIDE WEB SITES:
                        
                        www.lisb.com
                        www.entrustmortgage.com
                        
                        SALES AND
                        CUSTOMER SERVICE:
                        
                        1-800-THE-LISB
                        
                        BANK BY PHONE:
                        
                        694-9010
                        From the 516, 212, 718 and
                        914 area codes
                        
                        Available 8:00 AM - 8:00 PM 
                        Monday-Friday and
                        8:00 AM - 3:00 PM Saturday


                                                                              66