<PAGE>
 
                                  Exhibit 13

Selected Consolidated Financial and Other Data of the Company
 
The selected consolidated financial and other data of the Company set forth
below is derived in part from, and should be read in conjunction with, the
Consolidated Financial Statements of the Company and Notes thereto presented
elsewhere in this Annual Report.

<TABLE>
<CAPTION>
 
At December 31,                   1998          1997          1996         1995       1994
---------------------------------------------------------------------------------------------
                             (Dollars in thousands)                                                   
Selected Financial Condition                                                 
 Data:                                                                       
<S>                          <C>          <C>            <C>          <C>               <C>
Total assets                   $3,735,032    $3,601,079    $3,617,953  $1,598,270  $1,438,337
Money market investments           38,000             -     1,114,240      10,000      25,000
Debt securities, net (1):                                                           
  Held-to-maturity                    715         1,930         1,930       1,930     466,204
  Available-for-sale              163,279       208,841       318,034     260,553           -
Equity securities (1):                                                              
  Available-for-sale              449,981       285,352       168,862     118,778      89,787
Mortgage-backed and mortgage                                                        
 related                                                                            
 securities, net (1):                                                               
  Held-to-maturity                 68,071       200,193       276,632     347,213     411,341
  Available-for-sale            1,622,023     1,856,633     1,159,411     413,485      50,711
Loans held-for-sale, net           81,276        15,283        14,134      17,151           -
Loans receivable held for                                  
 investment, net (2)            1,190,977       954,291       488,890     365,265     342,091                     
Deposits                        2,070,831     1,942,245     1,955,535   1,328,945   1,219,481
Roslyn Bancorp, Inc.                                                                
 non-depository                                                                     
 stock subscriptions                    -             -     1,356,911           -           - 
Borrowed funds                    959,469       966,451         1,829       1,647           -
Stockholders' equity (3)          598,898       628,335       249,349     226,413     193,066
                                        
<CAPTION> 
                                     
For the Years Ended    
 December 31,                      1998          1997          1996      1995         1994
---------------------------------------------------------------------------------------------------------------------
                                         (Dollars in thousands, except per share amounts)
Selected Operating Data:
<S>                          <C>             <C>           <C>         <C>           <C>
Interest income                  $258,917      $224,964      $140,473    $109,737     $ 93,282
Interest expense                  157,335       126,414        78,759      59,298       40,353
---------------------------------------------------------------------------------------------------------------------
Net interest income before                                                           
 provision for                                                                        
 possible loan losses             101,582        98,550        61,714      50,439       52,929                        
Provision for possible
 loan losses                          750           600         2,000         600          600
---------------------------------------------------------------------------------------------------------------------
Net interest income after                                                            
 provision for                                                                        
 possible loan losses             100,832        97,950        59,714      49,839       52,329
Non-interest income (4)            19,322         9,248         5,192       5,903        3,283
Non-interest expense (4)(5)        44,721        57,735        34,834      28,514       26,172
---------------------------------------------------------------------------------------------------------------------
Income before provision
 for income taxes                  75,433        49,463        30,072      27,228       29,440
Provision for income taxes         23,029        16,073         9,438       8,510       10,018
---------------------------------------------------------------------------------------------------------------------
Net income                       $ 52,404      $ 33,390      $ 20,634    $ 18,718     $ 19,422
---------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings
 per share                       $   1.36      $   0.83          N/A         N/A          N/A                     
---------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                        (Continued on next page)

                                                                               1
<PAGE>
 
<TABLE>
<CAPTION>

Selected Consolidated Financial and Other Data of the Company 
(Continued)

At December 31,                                1998          1997        1996        1995         1994
----------------------------------------------------------------------------------------------------------------
Selected Financial Ratios and Other Data (6): 
<S>                                         <C>           <C>         <C>         <C>          <C> 
Performance Ratios (7):                                                                         
Return on average assets                       1.40%         1.29%       1.03%       1.21%        1.39%
Return on average stockholders' equity         8.75          6.57 (15)   8.97        8.82        10.27
Average stockholders' equity to average
 assets                                       16.04         19.22       11.45       13.69        13.56
Stockholders' equity to total assets at
 year end                                     16.03         17.45        6.89       14.17        13.42
Net interest rate spread (8)                   1.91          2.20        2.69        2.71         3.45
Net interest margin (9)                        2.78          3.20        3.19        3.37         3.93
Average interest-earning assets to average                                                      
 interest-bearing liabilities                120.29        124.39      112.29      116.55       116.11
Operating expenses to average assets (4)       1.18          1.41        1.71        1.82         1.87
Net interest income to operating
 expenses (4)                                229.56        221.19      179.58      178.56       203.18
Efficiency ratio (4) (10)                     39.15         42.33       50.30       51.23        46.52
                                                                                                
Cash Basis Performance Ratios (11):                                                             
Return on average assets                       1.65%         1.65%       1.05%       1.22%        1.40%
Return on average stockholders' equity        10.26          8.42 (16)   9.17        8.94        10.33
Operating expenses to average assets (4)       0.95          1.23        1.71        1.82         1.87
Net interest income to operating
 expense (4)                                 285.04        253.17      179.58      178.56       203.18
Efficiency ratio (4) (10)                     31.53         36.98       50.30       51.23        46.52
                                                                                                
Regulatory Capital Ratios (Bank only):                                                          
Leverage capital                              11.52%        12.32%       8.70%      13.19%       13.57%
Total risk-based capital                      24.38         27.60       19.75       29.79        27.01
                                                                                                
Asset Quality Ratios and Data:                                                                  
Total non-performing loans (12)           $   6,112   $     6,480   $   8,740   $  12,173   $   25,055
Real estate owned, net                          532           157       1,698       6,047        3,359
Total non-performing assets (13)              6,644         6,637      10,438      18,220       28,414
Non-performing loans as a percent of
 loans (12) (14)                               0.50%         0.66%       1.71%       3.13%        6.82%
Non-performing assets as a percent of
 total assets (13)                             0.18          0.18        0.29        1.14         1.98
Allowance for possible loan losses as a                                                         
 percent of loans (2) (14)                     2.04          2.46        4.55        6.01         6.84
Allowance for possible loan losses as a                                                         
 percent of total non-performing 
 loans (2) (12)                              405.42        370.82      266.82      191.82       100.28     
                                                                                                
Other Data:                                                                                     
Number of full service customer                                                                 
 facilities                                      10             8           8           6            6
Number of mortgage origination offices           14            11           8           6            -
</TABLE>
(footnotes on next page)

                                                                               2
<PAGE>
 
(1)  The Bank adopted Statement of Financial Accounting Standards (SFAS) No.
     115, "Accounting for Certain Investments in Debt and Equity Securities," as
     of January 1, 1994, and reclassified securities having a market value of
     $658.3 million from its held-to-maturity portfolio to its available-for-
     sale portfolio in November 1995 pursuant to a Financial Accounting
     Standards Board (FASB) interpretation of SFAS No. 115. Prior to the
     adoption of SFAS No. 115, securities were carried at amortized cost, as
     adjusted for amortization of premiums and accretion of discounts over the
     remaining terms of the securities from the dates of purchase.
(2)  All loans receivable held for investment are presented net of the Bank's
     allowance for possible loan losses which at December 31, 1998, 1997, 1996,
     1995, and 1994 were $24.8 million, $24.0 million, $23.3 million, $23.4
     million and $25.1 million, respectively.
(3)  The amounts prior to December 31, 1997 represent retained earnings only.
(4)  Certain reclassifications were made to the 1997, 1996, 1995 and 1994
     amounts to conform to the 1998 presentation.
(5)  Included in 1997 is a $12.7 million charitable contribution to The Roslyn
     Savings Foundation and a $4.6 million pre-tax charge for a settlement
     agreement, including professional fees related thereto, with the New York
     State Banking Department regarding certain loan and origination fee
     practices by the Bank's mortgage banking subsidiary.
(6)  Asset Quality and Regulatory Capital Ratios are end of year ratios. With
     the exception of end of year ratios, all ratios are based on average
     monthly balances during the indicated year.
(7)  All performance ratios for the year ended December 31, 1997 exclude the
     $7.4 million after-tax effect of the shares contributed to The Roslyn
     Savings Foundation concurrent with the conversion.
(8)  The net interest rate spread represents the difference between the weighted
     average yield on average interest-earning assets and the weighted average
     cost of average interest-bearing liabilities and includes the effect of the
     Bank's payment of a special interest payment which has generally ranged
     from 10% to 25% of the interest paid on savings and NOW accounts.
(9)  The net interest margin represents net interest income as a percent of
     average interest-earning assets and includes the effect of the Bank's
     payment of a special interest payment which has generally ranged from 10%
     to 25% of the interest paid on savings and NOW accounts.
(10) The efficiency ratio represents the ratio of operating expenses, excluding
     the amortization of goodwill, divided by the sum of net interest income and
     non-interest income, adjusted by securities gains or losses, net real
     estate operations activity and servicing impairment provisions.
(11) Excluding non-cash charges related to the establishment of The Roslyn
     Savings Foundation, goodwill amortization and amortization relating to
     certain employee stock benefit plans.
(12) Non-performing loans consist of all non-accrual loans and all other loans
     90 days or more past due.  It is the Bank's policy to generally cease
     accruing interest on all loans 90 days or more past due.
(13) Non-performing assets consist of non-performing loans and real estate
     owned, net.
(14) Loans include loans receivable held for investment, net, excluding the
     allowance for possible loan losses.
(15) The ratio shown assumes that the conversion was completed on January 1,
     1997. The actual return on average stockholders' equity based on the
     January 10, 1997 conversion date was 6.70%.
(16) The ratio shown assumes that the conversion was completed on January 1,
     1997. The actual cash basis return on average stockholders' equity based on
     the January 10, 1997 conversion date was 8.59%.

                                                                               3
<PAGE>
 
Management's Discussion and Analysis of Financial Condition and Results of
--------------------------------------------------------------------------
Operations
----------

General
 
Roslyn Bancorp, Inc. (the Company) was incorporated on July 26, 1996, and is the
holding company for The Roslyn Savings Bank and its subsidiaries (the Bank).  On
May 29, 1996, the then Board of Trustees of the Bank adopted a Plan of
Conversion, which was subsequently amended on July 30, 1996 and September 30,
1996, to convert the Bank from a New York State chartered mutual savings bank to
a New York State chartered stock savings bank with the concurrent formation of a
holding company (the Conversion).  The Conversion was completed on January 10,
1997, with the issuance by the Company of 42,371,359 shares of its common stock
in a public offering which resulted in $410.7 million of net proceeds, of which
$205.3 million was utilized to acquire all of the outstanding stock of the Bank.

Concurrent with the close of the stock offering, an additional 1,271,100 shares
of authorized but unissued shares of common stock were donated by the Company to
The Roslyn Savings Foundation (the Foundation), a private foundation dedicated
to charitable purposes within the Bank's local communities. The Company
recognized a one-time charge of $12.7 million, the full amount of the
contribution made to the Foundation, in the first quarter of 1997.  The
contribution to the Foundation is fully tax deductible, subject to an annual
limitation based upon the Company's annual taxable income.

Additionally, in connection with the Conversion, the Bank established an
Employee Stock Ownership Plan (the ESOP).  The ESOP purchased, primarily through
a $53.8 million loan from the Company and an initial $1.0 million contribution
from the Bank, approximately 8% of the outstanding shares of common stock, or
3,491,397 shares, on the open market.

On February 16, 1999, a merger between T R Financial Corp., a Delaware company,
and the Company was completed with the Company as the surviving corporation.
The transaction will be treated as a tax-free reorganization and accounted for
using the pooling-of-interests method of accounting.  As part of this merger, on
February 16, 1999, T R Financial Corp.'s wholly-owned subsidiary, Roosevelt
Savings Bank, a New York State chartered stock savings bank, was merged into the
Bank.  The combined bank retained the Roslyn name, and has $7.8 billion in
assets, more than $4.2 billion in deposits and 25 full-service banking locations
in Kings, Queens, Nassau and Suffolk Counties on Long Island, New York.

Pursuant to the merger agreement, each share of T R Financial Corp. common stock
was converted into the Company's stock at a fixed exchange ratio of 2.05.  As a
result, 17,347,768 shares of T R Financial Corp. common stock were exchanged for
35,528,785 shares of the Company's common stock and a total of 1,746,876 T R
Financial Options were converted into options to purchase a maximum of 3,581,096
shares of the Company's common stock at exercise prices ranging from $2.20 to
$17.32 depending on the exercise price of the underlying T R Financial Stock
Option.  Additionally under the agreement, five former officers and directors of
T R Financial Corp. have joined the Boards of Directors of the Company and the
Bank.  (See Note 2 to Consolidated Financial Statements).

The Company conducts business primarily through its ownership of the Bank and
its subsidiaries.  The Bank operates its 25 full service banking locations in
Kings, Queens, Nassau and Suffolk Counties on Long Island and fourteen mortgage
origination offices of Roslyn National Mortgage Corp. (RNMC), a wholly-owned
subsidiary of the Bank, in New York, New Jersey, Connecticut, Tennessee,
Delaware, Pennsylvania, Virginia and Maryland.  On August 1, 1995, the Bank
acquired through RNMC (formerly Residential First, Inc. (RFI)), certain assets
and liabilities, including the loan origination business and the loan servicing
portfolio of Residential Mortgage Banking, Inc., a mortgage banking company
which primarily operated in New York and New Jersey counties in and surrounding
the New York City metropolitan area and in Albany, New York.  The acquisition 
was accounted for under the purchase method of accounting. Accordingly, the
information contained in this section regarding
                                                                               4
<PAGE>
 
periods subsequent to July 31, 1995 reflects the consolidated operations of the
Bank and its subsidiaries, inclusive of its mortgage banking subsidiary.

The Company's results of operations are dependent primarily on net interest
income, which is the difference between the income earned on its loan and
security portfolios and its cost of funds, consisting of the interest paid on
deposits and borrowings.  Results of operations are also affected by the
Company's provision for possible loan losses, real estate operations expense,
security and loan sale activities and loan servicing activities.  The Company's
non-interest expense principally consists of compensation and benefits,
occupancy and equipment expense, federal deposit insurance premiums and other
expenses.  Results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in interest rates,
government policies and actions of regulatory authorities.

The Company had no operations prior to January 10, 1997 and, accordingly, the
results of operations prior to that date reflect only those of the Bank.

At the annual shareholder meeting on July 22, 1997, the shareholders approved
The Roslyn Bancorp, Inc. 1997 Stock-Based Incentive Plan (Incentive Plan or
SBIP). The Incentive Plan authorizes the granting of options to purchase common
stock, option-related awards and awards of common stock (collectively, Awards).
Subject to certain adjustments to prevent dilution of Awards to participants,
the maximum number of shares reserved for Awards denominated in common stock
under the Incentive Plan is 6,108,444 shares. The maximum number of shares
reserved for purchase pursuant to the exercise of options and option-related
Awards which may be granted under the Incentive Plan is 4,364,246 shares, and
will primarily vest over a five year period and which must be exercised no more
than ten years from the date of grant. The maximum number of the shares reserved
for the award of shares of common stock is 1,744,198 shares, and will primarily
vest over a five year period. All officers, other employees and outside
directors of the Company and its affiliates, including the Bank and its
subsidiaries, are eligible to receive Awards under the Incentive Plan. The
Incentive Plan is administered by a committee of non-employee directors of the
Company. Authorized but unissued shares, or shares previously issued and
reacquired by the Company, may be used to satisfy the Awards under the Incentive
Plan. See Note 14 of Notes to Consolidated Financial Statements for information
regarding awards made under the Incentive Plan.

On February 17, 1998, the Company announced a settlement with the New York State
Banking Department (NYSBD) regarding certain practices relating to origination
and loan fees (overage fees) paid by certain borrowers of RFI.  Under the terms
of the settlement agreement, the Company established a $3.0 million fund to
provide compensation to certain borrowers who allegedly paid an overage fee for
their RFI mortgage loans.  Any money remaining in the fund will go to further
the Company's community development initiatives.  The charge for the settlement,
and the costs related thereto, were fully accrued at December 31, 1997 by the
Company and totaled $4.7 million.  The expense is included in non-interest
expense in the Company's statement of income for the year ended December 31,
1997.  In the settlement agreement, the Company denies that RFI had engaged in
any unfair overage practices.  The Company agreed to accept the conditions of
the settlement because it believed that the cost of contesting the allegations
in the courts would have been in excess of the settlement amount.

Management Strategy

In recent years, the Bank's operating strategy concentrated on maintaining
profitability by primarily investing in mortgage loans and mortgage-backed and
mortgage related securities.  Since 1993, the Bank has decreased its emphasis on
investments in U.S. Government securities and increased its emphasis on building
its mortgage-backed and mortgage related securities and loan portfolios.  The
increase in the loan portfolio relates to the restructuring of the lending
department, hiring experienced commercial real estate loan personnel and
revising its underwriting policies and procedures.  More recently, the Bank has
increased its emphasis on mortgage banking activities and developed a resource
for generating one- to four-family loans for its own portfolio and for sale into
the secondary market.  The Company's current operating strategy consists
primarily of: (i) building its loan 

                                                                               5
<PAGE>
 
portfolio by retaining a portion of one- to four-family loans originated and
placing emphasis on the origination of high quality commercial real estate loans
to selected real estate developers operating in the Bank's primary market area;
(ii) investing funds not utilized for loan originations and purchases in 
shorter-term debt securities and mortgage-backed and mortgage related securities
and preferred stock of corporate issuers; (iii) increasing fee income and
building its loan servicing portfolio through its mortgage banking operations
which sells, generally on a servicing retained basis, most longer-term fixed-
rate and adjustable-rate one- to four-family mortgage loans originated; (iv)
attracting and retaining deposit accounts by paying competitive rates on its
deposit products and opening new branches; and (v) maintaining a lower expense
ratio by efficiently utilizing personnel and branch facilities to service its
customers.


Management of Interest Rate Risk

The principal objectives of the Company's interest rate risk management are to
evaluate the interest rate risk inherent in certain balance sheet accounts,
determine the level of risk appropriate given the Company's business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with the Board of Directors' approved
guidelines.  Through such management, the Company seeks to reduce the
vulnerability of its operations to changes in interest rates.  The Company's
Board of Directors reviews the Company's interest rate risk position on a
monthly basis.  The Company's Board of Directors has established an
Asset/Liability Committee comprised of the Company's senior management under the
direction of the Board of Directors.  Senior management is responsible for
reviewing with the Board of Directors its activities and strategies, the effect
of those strategies on the Company's net interest margin, the market value of
the portfolio of investments and loans and the effect that changes in interest
rates will have on the Company's portfolio and exposure limits.

In recent years, the Company has utilized the following strategies to manage
interest rate risk:  (1) emphasizing the origination and retention of fixed-rate
mortgage loans having terms to maturity of not more than fifteen years,
adjustable-rate loans and consumer loans consisting primarily of home equity
loans and second mortgage loans; (2) selling substantially all 30-year fixed-
rate mortgage loans to the secondary market without recourse and on a servicing
retained basis; and (3) investing in shorter-term and, to a lesser extent,
adjustable-rate securities which may generally bear lower yields as compared to
longer-term investments, but which better position the Company for increases in
market interest rates. In recent years, the Company has attempted to shorten the
maturities of its interest-earning assets by increasing its investment in
shorter-term investments to better match the maturities of its deposit accounts,
in particular its certificates of deposit that mature in one year or less,
which, at December 31, 1998, totaled $1.02 billion, or 34.21%, of total
interest-bearing liabilities.  These strategies may adversely impact net
interest income due to lower initial yields on these investments in comparison
to longer-term fixed-rate investments and whole loans.  However, management
believes that reducing its exposure to interest rate fluctuations will enhance
long-term profitability.

Gap Analysis

The matching of assets and liabilities may be analyzed by examining the extent
to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's  "interest rate sensitivity gap."  An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period.  The interest rate
sensitivity gap is defined as the difference between the amount of interest-
earning assets maturing or repricing within a specific time period and the
amount of interest-bearing liabilities maturing or repricing within that same
time period.  At December 31, 1998, the Company's one-year gap position was
negative 0.38%.  A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities.  A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets.  Accordingly,
during a period of rising interest rates, an institution with a negative gap
position would be in a worse position to invest in higher yielding assets 

                                                                               6
<PAGE>
 
which, consequently, may result in the cost of its interest-bearing liabilities
increasing at a rate faster than its yield on interest-earning assets than if it
had a positive gap. During a period of falling interest rates, an institution
with a negative gap would tend to have its interest-bearing liabilities
repricing downward at a faster rate than its interest-earning assets as compared
to an institution with a positive gap which, consequently, may tend to
positively affect the growth of its net interest income. Given the Company's
existing liquidity position and its ability to sell securities from its
available-for-sale portfolio, management of the Company believes that its
negative gap position will have no material adverse effect on its liquidity
position. If interest rates decrease, there will be a corresponding effect on
the Company's interest rate margin and corresponding operating results.

The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1998, which are
anticipated by the Company, based upon certain assumptions, to reprice or mature
in each of the future time periods shown (the Gap Table). Except as stated
below, the amount of assets and liabilities shown which reprice or mature during
a particular period were determined in accordance with the earlier of term to
repricing or the contractual maturity of the asset or liability. The table sets
forth an approximation of the projected repricing of assets and liabilities at
December 31, 1998, on the basis of contractual maturities, anticipated
prepayments, and scheduled rate adjustments within a one year period and
subsequent annual time intervals. Prepayment assumptions ranging from 8.28% to
50.22% per year were applied to the real estate loan portfolio, dependent upon
the loan type and coupon. Mortgage-backed and mortgage related securities were
assumed to prepay at rates between 9.42% and 50.52% annually. Savings accounts
were assumed to decay at 21.10%, 5.00%, 5.00%, 5.00%, 5.00% and 58.90%, Super
NOW and NOW accounts and money market accounts were assumed to decay at 20.00%,
5.00%, 5.00%, 5.00%, 5.00% and 60.00%, for the periods of up to one year, one to
two years, two to three years, three to four years, four to five years, and over
five years, respectively. Prepayment and deposit decay rates can have a
significant impact on the Company's estimated gap. While the Company believes
such assumptions to be reasonable, there can be no assurance that assumed
prepayment rates and decay rates will approximate actual future loan prepayment
and deposit withdrawal activity.

                                                                               7
<PAGE>
 
<TABLE>
<CAPTION>
                                                                   At December 31, 1998
                              ------------------------------------------------------------------------------------------
                                               One          Two         Three        Four         Over
                                 Up to        to Two      to Three     to Four      to Five       Five
                               One Year       Years        Years        Years        Years        Years        Total
                              ------------  -----------  -----------  ----------- ------------  -----------  -----------
                                                                 (Dollars in thousands)
<S>                          <C>           <C>          <C>          <C>          <C>          <C>          <C>
Interest-earning assets (1):
  Federal funds sold         $    38,000   $         -  $         -  $        -   $        -   $        -   $    38,000
  Debt and equity
    securities, net (2)          160,704        10,567       83,618      17,595            -      341,491       613,975
  Mortgage-backed and
    mortgage related
    securities, net (2)          908,823       283,018      144,540      97,620       58,521      197,572     1,690,094
  Real estate loans,
    net (3) (4)                  369,353       103,373      232,962     125,556      103,920      344,366     1,279,530
  Consumer and student
    loans (4)                      9,761           379          379         316           21          534        11,390
                              ------------  -----------  -----------  -----------  -----------  -----------  -----------
      Total interest-
       earning assets          1,486,641       397,337      461,499     241,087      162,462      883,963     3,632,989
                              ------------  -----------  -----------  -----------  -----------  -----------  -----------

Interest-bearing
 liabilities:
  Money market accounts           21,627         5,407        5,407       5,407        5,406       64,880       108,134
  Savings accounts               100,629        23,808       23,808      23,808       23,808      280,937       476,798
  Super NOW and NOW
    accounts                      17,595         4,399        4,399       4,399        4,399       52,784        87,975
  Certificates of deposit      1,017,750       155,361       76,595      44,159       21,438       26,683     1,341,986
  Borrowed funds                 343,169       175,000      230,000     121,300       90,000            -       959,469
                              ------------  -----------  -----------  -----------  -----------  -----------  -----------
      Total interest-
       bearing liabilities     1,500,770       363,975      340,209     199,073      145,051      425,284     2,974,362
                              ------------  -----------  -----------  -----------  -----------  -----------  -----------
  Interest sensitivity
    gap (5)                  $   (14,129)  $    33,362  $   121,290  $   42,014   $   17,411   $  458,679   $   658,627
                              ============  ===========  ===========  ===========  ===========  ===========  ===========
  Cumulative interest
    sensitivity gap          $   (14,129)  $    19,233  $   140,523  $  182,537   $  199,948   $  658,627
                              ============  ===========  ===========  ===========  ===========  ===========
  Cumulative interest
    sensitivity gap as a
    percentage of total      
    assets                         (0.38)%        0.51%        3.76%       4.89%        5.35%       17.63% 
  Cumulative net interest-
    earning assets as a
    percentage of cumulative                 
    interest-bearing
    liabilities                    99.06%       101.03%      106.37%     107.59%      107.84%      122.14%
</TABLE>


(1)   Interest-earning assets are included in the period in which the balances
      are expected to be re-deployed and/or repriced as a result of anticipated
      prepayments, scheduled rate adjustments, and contractual maturities.

(2)   Debt and equity and mortgage-backed and mortgage related securities are
      shown at their respective carrying values. Equity securities includes
      callable preferred stock, the maturities of which have been assumed to be
      the date on which they are initially callable.

(3)   For the purpose of the gap analysis, the allowance for possible loan
      losses and non-performing loans have been excluded.

(4)   Loans held-for-sale, net are included in the "Up to One Year" category.

(5)   Interest sensitivity gap represents the difference between net
      interest-earning assets and interest-bearing liabilities.

                                                                               8

<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 adjustable rate mortgage (ARM)
loans, have features which limit adjustments to 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 may deviate significantly
from those assumed in calculating the table.  Finally, the ability of borrowers
to service their ARM loans may decrease in the event of an interest rate
increase.  The table reflects the estimates of management as to periods to
repricing at particular points in time.  Among the factors considered,
management monitors both current trends and its historical repricing experience
with respect to particular or similar products.  For example, the Bank has a
number of deposit accounts, including passbook savings, Super NOW and NOW
accounts and money market accounts which, subject to certain regulatory
exceptions, may be withdrawn at any time.  The Bank, based upon its historical
experience, assumes that while all customers in these account categories could
withdraw their funds on any given day, they will not do so, even if market
interest rates were to change.  As a result, different assumptions may be used
at different points in time.

The Company's interest rate sensitivity is also monitored by management through
the use of a model which internally generates estimates of the change in 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.  For purposes of the NPV table, prepayment assumptions 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 Company's
NPV as of December 31, 1998, as calculated by the Company.
<TABLE>
<CAPTION>
                
                
  Change in                                           NVP as % of Portfolio
Interest Rates            Net Portfolio Value             Value of Assets
in Basis Points    -------------------------------   ------------------------
 (Rate Shock)      Amount     $ Change   % Change    NPV Ratio   % Change (1)
---------------    ------     --------   ---------   ---------   ------------
                          (Dollars in thousands)                
<S>             <C>        <C>           <C>           <C>        <C>
300             $  514,395  $ (228,954)    (30.80)%    15.15%        10.05%
200                607,319    (136,030)    (18.30)     17.18          6.35
100                694,723     (48,626)     (6.54)     18.92          2.71
Static             743,349           -          -      19.70             -
(100)              752,180       8,831       1.19      19.58         (1.78)
(200)              755,992      12,643       1.70      19.34         (3.56)
(300)              762,859      19,510       2.62      19.15         (5.55)
</TABLE>

(1)  Based on the portfolio value of the Company'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 Company'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 Company's interest rate
risk exposure at a particular point in
                                                                               9
<PAGE>
 
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 Company's net
interest income and will differ from actual results.

Analysis of Net Interest Income

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

       The following table sets forth certain information regarding the
Company's consolidated statements of financial condition and its consolidated
statements of income for the years indicated, and reflects the average yield on
interest-earning assets and average cost of interest-bearing liabilities for the
years indicated. Such yields and costs are derived by dividing income or
expense, by the average balance of interest-earning assets or interest-bearing
liabilities, respectively. Average balances are derived from daily balances and
include non-performing loans. The yields and costs include fees which are
considered adjustments to yields.

                                                                              10
<PAGE>
 

<TABLE>
<CAPTION>
                                                                          For the Years Ended December 31,
                                              --------------------------------------------------------------------------------------
                                                               1998                                           1997
                                              ----------------------------------------       ---------------------------------------
                                               Average                     Average            Average                      Average
                                               Balance       Interest      Yield/Cost         Balance      Interest       Yield/Cost
                                              ----------     ----------    -----------       ----------    ----------     ----------
                                                                             (Dollars in thousands)
<S>                                        <C>           <C>               <C>              <C>           <C>               <C>
Assets:
Interest-earning assets (1):
  Federal funds sold, repurchase
     agreements and short-term deposits    $    30,199     $    1,617         5.35%       $    75,718   $      4,190         5.53%
  Debt and equity securities, net              601,711         37,019         6.15            510,842         33,153         6.49
  Mortgage-backed and
     mortgage related securities, net        1,836,128        124,314         6.77          1,772,744        126,148         7.12
  Real estate loans, net (2)                 1,177,213         95,219         8.09            714,294         61,091         8.55
  Consumer and student loans                     8,034            748         9.31              4,229            382         9.03
                                           -----------     ----------                     -----------   ------------
     Total interest-earning assets           3,653,285        258,917         7.09          3,077,827        224,964         7.31
                                                           ----------                                   ------------
Non-interest-earning assets                     80,899                                         83,605
                                           -----------                                    -----------
     Total assets                          $ 3,734,184                                    $ 3,161,432                            
                                           ===========                                    ===========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
  Deposits:
     Money market accounts                 $    67,915          2,243         3.30        $    52,916          1,427         2.70   
     Savings accounts (3) (4)                  503,354         14,679         2.92            445,716         13,545         3.04
     Super NOW and NOW accounts (4) (5)         87,304          2,804         3.21             78,974          2,841         3.60
     Certificates of deposit                 1,344,776         76,602         5.70          1,213,478         69,982         5.77
                                           -----------     ----------                     -----------   ------------
       Total deposits                        2,003,349         96,328         4.81          1,791,084         87,795         4.90
  Borrowed funds                             1,033,810         61,007         5.90            630,352         37,278         5.91
  Non-depository stock subscriptions                 -              -            -             52,903          1,341         2.53
                                           -----------     ----------                     -----------   ------------
       Total interest-bearing liabilities    3,037,159        157,335         5.18          2,474,339        126,414         5.11
                                                           ----------                                   ------------
Non-interest-bearing liabilities                97,970                                         79,319
                                           -----------                                    -----------
       Total liabilities                     3,135,129                                      2,553,658
Stockholders' equity                           599,055                                        607,774
                                           -----------                                    -----------
       Total liabilities and stockholders' 
         equity                            $ 3,734,184                                    $ 3,161,432         
                                           ===========                                    ===========
Net interest income/interest 
 rate spread (6)                                           $  101,582         1.91%                     $     98,550         2.20%
                                                           ==========      =======                      ============     ========
Net interest margin (7)                                                       2.78%                                          3.20%
                                                                           =======                                       ========
Ratio of interest-earning assets to
  interest-bearing liabilities                                              120.29%                                        124.39%
                                                                           =======                                       ========
<CAPTION>
                                               For the Years Ended December 31,
                                          ------------------------------------------
                                                            1996
                                          ------------------------------------------
                                            Average                        Average
                                            Balance      Interest         Yield/Cost
                                          ----------    ----------        ----------
                                                     (Dollars in thousands)
<S>                                       <C>         <C>                  <C>
Assets:                                   
Interest-earning assets (1):              
  Federal funds sold, repurchase          
     agreements and short-term deposits   $  151,160  $     7,960            5.27%
  Debt and equity securities, net            453,051       31,087            6.86
  Mortgage-backed and                     
     mortgage related securities, net        901,575       62,432            6.92
  Real estate loans, net (2)                 424,356       38,644            9.11
  Consumer and student loans                   4,244          350            8.25
                                          ----------  -----------
     Total interest-earning assets         1,934,386      140,473            7.26
                                                      -----------
Non-interest-earning assets                   75,372
                                          ----------
     Total assets                         $2,009,758
                                          ==========
Liabilities and Stockholders' Equity:     
Interest-bearing liabilities:             
  Deposits:                               
     Money market accounts                $   64,046        1,854            2.89
     Savings accounts (3) (4)                480,171       14,812            3.08
     Super NOW and NOW accounts (4) (5)       45,990        1,361            2.96
     Certificates of deposit                 911,216       51,305            5.63
                                          ----------  -----------
       Total deposits                      1,501,423       69,332            4.62
  Borrowed funds                             102,408        5,794            5.66
  Non-depository stock subscriptions         118,884        3,633            3.06
                                          ----------  -----------
       Total interest-bearing liabilities  1,722,715       78,759            4.57
                                                      -----------
Non-interest-bearing liabilities              56,906
                                          ----------
       Total liabilities                   1,779,621
Stockholders' equity                         230,137
                                          ----------
       Total liabilities and stockholders'
         equity                           $2,009,758
                                          ==========
Net interest income/interest                          $    61,714            2.69%
 rate spread (6)                                      ===========      ==========
Net interest margin (7)                                                     3.19%
                                                                       ==========
Ratio of interest-earning assets to                                   
  interest-bearing liabilities                                             112.29%
                                                                       ==========  
</TABLE>

(1)   Includes related assets available-for-sale and unamortized discounts and
      premiums.

(2)   Amount is net of deferred loan fees, deferred mortgage interest,
      unamortized discounts, net and allowance for possible loan losses and
      includes loans held-for-sale, net and non-performing loans.

(3)   Savings accounts include mortgagors' escrow deposits.

(4)   The average cost of savings and Super NOW and NOW accounts above reflect
      the payment of a special interest payment of approximately 15% for the
      year ended December 31, 1998 and 25% for the years ended December 31, 1997
      and 1996, of interest paid on savings and NOW accounts. Such payments
      resulted in additional cost on savings accounts of 18 basis points, 48
      basis points and 59 basis points for the years ended December 31, 1998,
      1997 and 1996, respectively, and additional cost on NOW accounts of 8
      basis points, 18 basis points and 35 basis points for the years ended
      December 31, 1998, 1997 and 1996, respectively.

(5)   The Super NOW account product was originated during the year ended
      December 31, 1997. The amounts shown for the year ended December 31, 1996
      include NOW accounts only.

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

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

                                                                           11

<PAGE>
 
Rate/Volume Analysis

The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to: (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume); 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 December 31, 1998                    Year Ended December 31, 1997
                                                      Compared to                                      Compared to
                                              Year Ended December 31, 1997                    Year Ended December 31, 1996
                                          ---------------------------------------    ------------------------------------------
                                          Increase (Decrease) Due to                  Increase (Decrease) Due to
                                          --------------------------                 ---------------------------
                                            Volume       Rate            Net           Volume          Rate            Net
                                          -----------  -----------    -----------    -----------    ------------    -----------
                                                                                   (In thousands)
<S>                                        <C>         <C>            <C>            <C>            <C>             <C>
Interest-earning assets (1):                                                     
    Federal funds sold, repurchase                                               
       agreements and short-term           
       deposits                            $  (2,441)   $   (132)      $ (2,573)      $  (4,146)     $     376       $  (3,770)
    Debt and equity securities, net            5,464      (1,598)         3,866           3,808         (1,742)          2,066
    Mortgage-backed and mortgage                                                 
      related securities, net                  5,122      (6,956)        (1,834)         61,866          1,850          63,716
    Real estate loans, net                    37,247      (3,119)        34,128          24,954         (2,507)         22,447
    Consumer and student loans                   354          12            366              (1)            33              32
                                           -----------  -----------    ----------     -----------    ------------    -----------
       Total interest-earning assets          45,746     (11,793)        33,953          86,481         (1,990)         84,491
                                           -----------  -----------    ----------     -----------    ------------    -----------
Interest-bearing liabilities:                                                    
    Money market accounts                        455         361            816            (310)          (117)           (427)
    Savings accounts (2)                       1,649        (515)         1,134          (1,073)          (194)         (1,267)
    Super NOW and NOW accounts                 2,273      (2,310)           (37)          1,137            343           1,480
    Certificates of deposit                    7,467        (847)         6,620          17,374          1,303          18,677
    Non-depository stock subscriptions        (1,341)          -         (1,341)         (2,292)             -          (2,292)
    Borrowed funds                            23,809         (80)        23,729          31,217            267          31,484
                                           -----------  -----------    ----------     -----------    ------------    -----------
       Total interest-bearing                                                    
        liabilities                           34,312      (3,391)        30,921          46,053          1,602          47,655
                                           -----------  -----------    ----------     -----------    ------------    -----------
Net change in net interest income          $  11,434    $ (8,402)      $  3,032       $  40,428      $  (3,592)      $  36,836
                                           ===========  ===========    ==========     ===========    ============    ===========
</TABLE>


(1)   Includes assets available-for-sale.

(2)   Includes mortgagors' escrow deposits.

                                                                            12
<PAGE>
 
Comparison of Financial Condition For the Years Ended December 31, 1998 and
December 31, 1997

General

Total assets at December 31, 1998 were $3.74 billion, an increase of $134.0
million from $3.60 billion at December 31, 1997.  The increase in total assets
is primarily due to increases in debt and equity securities available-for-sale
and real estate loan portfolios, offset by decreases in the mortgage-backed and
mortgage related securities available-for-sale and held-to-maturity portfolios.

Mortgage-backed and mortgage related securities available-for-sale, net
decreased by $234.6 million, or 12.6%, from $1.86 billion at December 31, 1997
to $1.62 billion at December 31, 1998. Debt and equity securities available-for-
sale, net at December 31, 1998 totaled $613.3 million, an increase of $119.1
million, or 24.1%, compared to $494.2 million at December 31, 1997. Total
securities held-to-maturity, net decreased $133.3 million, or 66.0%, to $68.8
million at December 31, 1998 from $202.1 million at December 31, 1997. These
changes in the securities portfolios reflect the effects of securities
purchases, securities repayments and maturities, and in the case of the
available-for-sale securities portfolio, the effects of securities sales and
changes in the estimated fair values of the securities. At December 31, 1998,
the securities available-for-sale portfolio had net unrealized gains of $25.7
million as compared to $ 57.4 million at December 31, 1997.

Real estate loans held for investment, net at December 31, 1998 were $1.21
billion, an increase of $231.7 million, or 23.8%, from $973.6 million at
December 31, 1997, primarily due to the origination of $1.24 billion in
commercial real estate, construction and development, home equity and one- to
four-family residential real estate loans and from the purchase of $7.8 million
of one- to four-family residential real estate loans.

Real estate owned, net at December 31, 1998 was $532,000, an increase of
$375,000, from $157,000 at December 31, 1997.  The increase is due primarily to
management's assessment of the allowance for declines in the carrying values of
real estate owned properties.

Funding for the Company's asset growth was generated through a combination of
borrowings, cash flows and recent deposit growth.  Since December 31, 1997,
total deposits increased by $128.6 million, or 6.6%, to $2.07 billion at
December 31, 1998, primarily due to growth in core deposit products.  Borrowed
funds decreased $7.0 million to $959.5 million at December 31, 1998 as compared
to $966.5 million at December 31, 1997.  Management has consistently applied its
leveraging strategy to utilize borrowings, primarily in the form of reverse-
repurchase agreements, to fund and sustain asset growth.

Stockholders' equity decreased $29.4 million to $598.9 million at December 31,
1998 from $628.3 million at December 31, 1997.  This decrease was principally
due to the repurchase of 2,242,500 shares of the Company's common stock and
dividends declared of $14.4 million during the year ended December 31, 1998, and
a decrease of $18.5 million in net unrealized gains on securities available-for-
sale, net of taxes, to $14.4 million.  Offsetting these decreases are the
earnings of $52.4 million for the 1998 year, and the amortization of unallocated
and unearned shares of common stock held by the Company's stock-related benefit
plans of $9.2 million.  The Company's stock repurchase program was suspended, in
connection with the acquisition of T R Financial Corp., on May 26, 1998.

Comparison of Operating Results for the Years Ended December 31, 1998 and
December 31, 1997

General

The Company reported net income of $52.4 million for the year ended December 31,
1998, or $1.36 per share, as compared to net income of $33.4 million, or $0.83
per share, for the year ended December 31, 1997.  Net income for the year ended
December 31, 1997 included a $7.4 million, after-tax, non-recurring charge
relating to the 

                                                                              13
<PAGE>
 
funding of the Foundation and a $2.7 million after-tax charge for a settlement
agreement, including professional fees related thereto, with the NYSBD regarding
certain loan and origination fee practices by the Bank's mortgage banking
subsidiary. The Company's net income excluding such charges would have been
$43.4 million, or $1.08 per share, for the year ended December 31, 1997, which
when compared to the net income for the year ended December 31, 1998, increased
by $9.0 million, or 20.7%, from the prior year.

Interest Income

Interest income increased to $258.9 million for the year ended December 31,
1998, an increase of $33.9 million, or 15.1%, from $225.0 million for the prior
year. The increase was attributable to the growth in average interest-earning
assets to $3.65 billion for the year ended December 31, 1998, from $3.08 billion
for the prior year. The increase in average interest-earning assets was
principally attributable to growth of $63.4 million in average mortgage-backed
and mortgage related securities, $462.9 million growth in average real estate
loans, net and $90.9 million growth in average debt and equity securities. These
increases were principally the result of the Company's leveraging strategy.
Interest income on mortgage-backed and mortgage related securities decreased
$1.8 million, from $126.1 million for the year ended December 31, 1997 to $124.3
million for the same period in 1998 principally due to the run-off experienced
relating to the higher yielding securities. This contributed to the decrease in
the average yield on these securities of 35 basis points from 7.12% for the year
ended December 31, 1997 to 6.77% for the year ended December 31, 1998.

Interest income on real estate loans increased $34.1 million, or 55.9%, to $95.2
million for the year ended December 31, 1998, from $61.1 million for the same
period in 1997.  The increase was a result of the growth in the average balance
of loans outstanding primarily due to increased originations of one- to four-
family, construction and development, home equity and commercial real estate
loans.  Further contributing to the increase in interest income for the year
ended December 31, 1998 compared to the same period in 1997 was a 5.7% decrease
in non-performing loans, from $6.5 million at December 31, 1997 to $6.1 million
at December 31, 1998.  The increase was partially offset by a 46 basis point
decrease in the average yield on real estate loans, net from 8.55% for the year
ended December 31, 1997 to 8.09% for the current year, principally due to an
increased concentration of relatively lower yielding one- to four-family
residential real estate loans within the loan portfolio mix.

Interest Expense

Interest expense for the year ended December 31, 1998, was $157.3 million,
compared to $126.4 million for the year ended December 31, 1997, an increase of
$30.9 million, or 24.5%. The increase was related to a $562.8 million, or 22.7%,
increase in the average balance of interest-bearing liabilities from $2.47
billion in 1997 to $3.04 billion in 1998. This increase reflects a $212.3
million increase in the average balance of interest-bearing deposits, partially
offset by a 9 basis point decrease in the average rate paid on total interest-
bearing deposits for the year ended December 31, 1998 compared to the prior
year. The average balance of certificates of deposit increased $131.3 million
due to the offering of competitive rates. As of December 31, 1997, the Company
had $149.8 million of brokered deposits outstanding as compared to $129.7
million as of December 31, 1998. The effect of the higher average deposit
balance primarily resulted in an increase in interest expense on certificates of
deposit of $6.6 million, or 9.5%, from $70.0 million for the year ended December
31, 1997 to $76.6 million for the year ended December 31, 1998.

Interest expense on borrowed funds increased $23.7 million, from $37.3 million
for the year ended December 31, 1997 to $61.0  million for the year ended
December 31, 1998, primarily due to an increase of $403.5 million in the average
balance of borrowed funds, from $630.4 million for the 1997 period to $1.03
billion for the comparable period in 1998. Borrowed funds, principally reverse-
repurchase agreements, have been reinvested in investment securities, real
estate loans, a treasury share repurchase program and residential whole loans as
part of a strategy to leverage the Company's capital position and improve its
return on equity.

                                                                              14
<PAGE>
 
Net Interest Income

Net interest income before provision for possible loan losses was $101.6 million
for the year ended December 31, 1998, an increase of $3.0 million, or 3.1%, from
$98.6 million for the year ended December 31, 1997. The increase in net interest
income before provision for possible loan losses was attributable to the growth
in average interest-earning assets to $3.65 billion for the year ended December
31, 1998 from $3.08 billion for the year ended December 31, 1997. The growth in
interest-earning assets was principally the result of the deployment of the
January 10, 1997 conversion proceeds, deposit growth and the Company's
leveraging strategy which was utilized to increase both the investment
securities and real estate loan portfolios.  Interest-bearing liabilities
increased $562.8 million, or 22.7%, to $3.04 billion for the 1998 period from
$2.47 billion for the 1997 period. The substantial growth in average interest-
earning assets enabled the Company to significantly increase net interest income
and offset the negative impact of the flattening of the yield curve and the
inherent margin compression from leveraging.  For the year ended December 31,
1998, the Company's net interest margin decreased to 2.78% compared with 3.20%
for the comparable 1997 period, primarily due to a 29 basis point decline in the
net interest spread to 1.91% from 2.20% in 1997.  The decline in the net
interest spread was primarily a result of a 46 basis point decrease in the yield
on real estate loans, offset by a 9 basis point decline in total deposit yield.

Provision for Possible Loan Losses

The provision for possible loan losses totaled $750,000 for the year ended
December 31, 1998 as compared to $600,000 for the year ended December 31, 1997.
The provision for possible loan losses for the year ended December 31, 1998
reflects management's qualitative assessment of the loan portfolio, net charge-
offs and collection of delinquent loans. At December 31, 1998 and 1997, the
allowance for possible loan losses amounted to $24.8 million and $24.0 million,
respectively, and the ratio of such allowance to non-performing loans was
405.42% at December 31, 1998 as compared to 370.82% at December 31, 1997.
Management assesses the adequacy of the allowance for possible loan losses based
on evaluating known and inherent risks in the loan portfolio and upon
management's continuing analysis of the factors underlying the quality of the
loan portfolio.  While management believes that, based on information currently
available, the allowance for possible loan losses is sufficient to cover losses
inherent in its loan portfolio at this time, no assurance can be given that the
level of allowance for possible loan losses will be sufficient to cover future
possible loan losses incurred by the Company or that future adjustments to the
allowance for possible loan losses will not be necessary if economic and other
conditions differ substantially from the economic and other conditions used by
management to determine the current level of the allowance for possible loan
losses.  Management may in the future increase its level of allowance for
possible loan losses as a percentage of total loans and non-performing loans in
the event it increases the level of commercial real estate, multi-family,
construction and development or consumer lending as a percentage of its total
loan portfolio.  In addition, various regulatory agencies, as an integral part
of their examination process, periodically review the allowance for possible
loan losses.  Such agencies may require the Company to provide additions to the
allowance for possible loan losses based upon judgments different from
management.

Non-Interest Income

Non-interest income increased $10.1 million, or 108.9%, to $19.3 million for the
year ended December 31, 1998 as compared to $9.2 million for the prior year.
The increase was primarily the result of an increase of $4.6 million in mortgage
banking operations, a $4.4 million increase in net gains on sales of securities,
and a $1.0 million increase in real estate operations, net.  These increases
were offset by a $516,000 decrease in other non-interest income. The increases
are reflective of management's investment strategy of periodically recognizing
profits from its available-for-sale securities portfolio during favorable market
conditions, increased gains related to the increased sale of loans into the
secondary market and from the increase in the loan servicing portfolio and
related loan fees.

                                                                              15
<PAGE>
 
Non-Interest Expense

Non-interest expense totaled $44.7 million for the year ended December 31, 1998
as compared to $57.7 million for the year ended December 31, 1997, a decrease of
$13.0 million, or 22.5%. The 1997 expense includes the one-time $12.7 million
pre-tax charge associated with funding the Foundation and a $4.7 million charge
related to the settlement of asserted claims. Notwithstanding such one-time
charges, non-interest expense increased $4.4 million.

General and administrative expenses totaled $44.3 million for the year ended
December 31, 1998, as compared to $39.9 million for the comparable period in
1997, an increase of $4.4 million. The increase was primarily attributable to a
$5.5 million increase in compensation and employee benefits, primarily due to
the cost associated with a full year of the stock-based incentive plans, and
additional commissions and compensation costs associated with the increased loan
origination volume. The increase is also related to increases of $503,000 in
occupancy and equipment expenses and $39,000 in advertising and promotion
expenses due to retail and mortgage origination office expansion. Partially
offsetting these increases are a decrease of $574,000 in deposit insurance
premiums and a decrease of $1.1 million in other non-interest expenses,
principally relating to a reduction in professional fee expenses.

Income Taxes

Total income tax expense increased $6.9 million, from $16.1 million recorded
during the year ended December 31, 1997 to $23.0 million during the year ended
December 31, 1998. The effective income tax rates were 30.53% for the 1998 year
as compared to 32.49% for the 1997 year (see Note 13 of Notes to Consolidated
Financial Statements).

The Company's contribution of common stock to the Foundation is tax deductible,
subject to a limitation based on 10% of the Company's annual taxable income.
The Company, however, is able to carry forward any unused portion of the
deduction for five years following the year in which the contribution was made.
Based on the Company's estimate of annual taxable income for the current year
and for the next successive four years (the carry forward period), the Company
recognized a tax benefit of $5.3 million in 1997 on the $12.7 million charitable
donation.

Comparison of Operating Results for the Years Ended December 31, 1997 and
December 31, 1996

General

The Company reported net income of $33.4 million for the year ended December 31,
1997, or $0.83 per share, as compared to net income of $20.6 million for the
year ended December 31, 1996.  Net income for the year ended December 31, 1997
includes a $7.4 million after-tax non-recurring charge relating to the funding
of the Foundation and a $2.7 million after-tax charge for a settlement
agreement, including professional fees related thereto, with the NYSBD regarding
certain loan and origination fee practices by the Bank's mortgage banking
subsidiary.  The Company's net income excluding such charges would have been
$43.4 million, or $1.08 per share, for the year ended December 31, 1997,
representing a $22.8 million, or 110.4%, increase in net income from the prior
year.

Interest Income

Interest income increased to $225.0 million for the year ended December 31,
1997, an increase of $84.5 million, or 60.1%, from $140.5 million for the prior
year. The increase was attributable to the growth in average interest-earning
assets to $3.08 billion for the year ended December 31, 1997, from $1.93 billion
for the prior year. The

                                                                              16
<PAGE>
 
increase in average interest-earning assets was principally attributable to
growth of $871.2 million in average mortgage-backed and mortgage related
securities, $289.9 million growth in average real estate loans, net and $57.8
million growth in average debt and equity securities. These increases were
principally the result of the deployment of the conversion proceeds and the
Company's leveraging strategy. Additionally, the growth was attributable to a
$289.7 million increase in average interest-bearing deposits over the comparable
1996 period. Interest income on mortgage-backed and mortgage related securities
increased $63.7 million, from $62.4 million for the year ended December 31, 1996
to $126.1 million for the same period in 1997 principally due to an increase of
96.6% in the average balance of these securities. Additionally contributing to
the increase was an increase in the average yield on these securities of 20
basis points from 6.92% for the year ended December 31, 1996 to 7.12% for the
year ended December 31, 1997. The yield increases were due to increases in
maturity terms for new purchases and the upward repricing of securities
purchased in prior periods.

Interest income on real estate loans increased $22.5 million, or 58.1%, to $61.1
million for the year ended December 31, 1997, from $38.6 million for the same
period in 1996. The increase was a result of the growth in the average balance
of loans outstanding primarily due to increased originations of one- to four-
family, construction and development, and commercial real estate loans and the
purchase of $303.4 million of one- to four-family residential real estate loans.
Further contributing to the increase in interest income for the year ended
December 31, 1997 compared to the same period in 1996 was a 25.9% decrease in
non-performing loans, from $8.7 million at December 31, 1996 to $6.5 million at
December 31, 1997. The increase was partially offset by a 56 basis point
decrease in the average yield on real estate loans, net from 9.11% for the year
ended December 31, 1996 to 8.55% for the current year, principally due to an
increased concentration of relatively lower yielding one- to four-family
residential real estate loans within the loan portfolio mix.

Interest Expense

Interest expense for the year ended December 31, 1997, was $126.4 million,
compared to $78.8 million for the year ended December 31, 1996, an increase of
$47.6 million, or 60.5%. The increase is related to a $751.6 million, or 43.6%,
increase in the average balance of interest-bearing liabilities from $1.72
billion in 1996 to $2.47 billion in 1997. This increase reflects a $289.7
million increase in the average balance of interest-bearing deposits and a 28
basis point increase in the average rate paid on total interest-bearing deposits
for the year ended December 31, 1997 compared to the prior year due to an
increase in the average balance of relatively higher costing certificates of
deposit. The average balance of certificates of deposit increased due to
management's strategy of funding asset growth by offering competitive rates, and
through the acquisition of $150.0 million of brokered deposits of which $50.0
million was purchased during the year ended December 31, 1997 and $100.0 million
was purchased during the year ended December 31, 1996. As of December 31, 1997,
$149.8 million of brokered deposits remain outstanding. The effect of the higher
average deposit balance primarily resulted in an increase in interest expense on
certificates of deposit of $18.7 million, or 36.4%, from $51.3 million for the
year ended December 31, 1996 to $70.0 million for the year ended December 31,
1997.

Interest expense on borrowed funds increased $31.5 million, from $5.8 million
for the year ended December 31, 1996 to $37.3 million for the year ended
December 31, 1997, primarily due to an increase of $528.0 million in the average
balance of borrowed funds, from $102.4 million for the 1996 period to $630.4
million for the comparable period in 1997.  Borrowed funds, principally reverse-
repurchase agreements, have been reinvested in investment securities, real
estate loans and residential whole loans as part of a strategy to leverage the
Company's capital position and improve its return on equity.

Net Interest Income

Net interest income before provision for possible loan losses was $98.6 million
for the year ended December 31, 1997, an increase of $36.9 million, or 59.7%,
from $61.7 million for the year ended December 31, 1996.  The increase in net
interest income before provision for possible loan losses was attributable to
the growth in average 

                                                                              17
<PAGE>
 
interest-earning assets to $3.08 billion for the year ended December 31, 1997
from $1.93 billion for the year ended December 31, 1996. The growth in interest-
earning assets was principally the result of the deployment of the January 10,
1997 conversion proceeds, deposit growth and the Company's leveraging strategy
which was utilized to increase both the investment securities and real estate
loan portfolios. Interest-bearing liabilities increased $751.6 million, or
43.6%, to $2.47 billion for the 1997 period from $1.72 billion for the 1996
period. The substantial growth in average interest-earning assets enabled the
Company to significantly increase net interest income and offset the negative
impact of the flattening of the yield curve and the inherent margin compression
from leveraging. For the year ended December 31, 1997, the Company's net
interest margin of 3.20% remained consistent with the comparable 1996 period of
3.19%, despite a 49 basis point decline in the net interest spread to 2.20% from
2.69% in 1996. The decline in the net interest spread was primarily a result of
a 56 basis point decrease in real estate loan yields, a 28 basis point increase
in total deposit costs and the Company's increased leverage position.

Provision for Possible Loan Losses

The provision for possible loan losses totaled $600,000 for the year ended
December 31, 1997 as compared to $2.0 million for the year ended December 31,
1996.  The provision for possible loan losses for the year ended December 31,
1997 reflects management's qualitative assessment of the loan portfolio, net
charge-offs and collection of deliquent loans.  The decrease resulted from
management's assessment of the loan portfolio, the level of the Company's
allowance for possible loan losses and its assessment of the local economy and
market conditions.  At December 31, 1997 and 1996, the allowance for possible
loan losses amounted to $24.0 million and $23.3 million, respectively, and the
ratio of such allowance to non-performing loans was 370.82% at December 31, 1997
as compared to 266.82% at December 31, 1996.

Non-Interest Income

Non-interest income increased $4.1 million, or 78.1%, to $9.2 million for the
year ended December 31, 1997 as compared to $5.2 million for the prior year.
The increase was primarily the result of an increase of $3.6 million in gains on
securities, a $417,000 increase in real estate operations, net and a $360,000
increase in fees and service charges, partially offset by a $772,000 decrease in
mortgage banking operations.  The increases are reflective of management's
investment strategy of periodically recognizing profits from its available-for-
sale securities portfolio during favorable market conditions.  The decrease in
mortgage banking operations includes a decrease in net gains on sales of loans
which was primarily attributable to unfavorable market conditions in the
secondary market during the first nine months of 1997.

Non-Interest Expense

Non-interest expense totaled $57.7 million for the year ended December 31, 1997
as compared to $34.8 million for the year ended December 31, 1996, an increase
of $22.9 million, or 65.7%.  Non-interest expense for the 1997 period
principally increased due to an increase in general and administrative expense,
the one-time $12.7 million pre-tax charge associated with funding the
Foundation, and a $4.7 million of pre-tax charges for a settlement agreement
including professional fees related thereto with the NYSBD regarding certain
loan and origination fee practices by the Bank's mortgage banking subsidiary.

General and administrative expense totaled $39.9 million for the year ended
December 31, 1997, as compared to $34.4 million for the comparable period in
1996, an increase of $5.5 million, or 16.0%.  The increase was primarily
attributable to an increase in compensation and employee benefits, from $18.4
million for the year ended December 31, 1996 to $24.5 million for the year ended
December 31, 1997.  Increases in the current year's compensation and employee
benefits expense, due to the Company's stock-related benefit plans, were offset
in part by actuarial cost reductions relating to the retirement plan and a one-
time return of reserves from a former health insurance trust.  The Company does
not anticipate these cost savings to recur in 1998.  Additionally, 

                                                                              18
<PAGE>
 
general and administrative expenses increased due to an increase in deposit
insurance premiums of $272,000. These increases were offset by decreases in
occupancy and equipment, advertising and promotion and other non-interest
expenses totaling $840,000. To a lesser extent, the increase was also related to
the establishment of additional branch and mortgage origination offices.

Income Taxes

Total income tax expense increased $6.7 million, from $9.4 million recorded
during the year ended December 31, 1996 to $16.1 million during the year ended
December 31, 1997.  The effective income tax rates were 32.49% for the 1997 year
as compared to 31.38% for the 1996 year (see Note 13 of Notes to Consolidated
Financial Statements).

The Company's contribution for common stock to the Foundation is tax deductible,
subject to a limitation based on 10% of the Company's annual taxable income.
The Company, however, is able to carry forward any unused portion of the
deduction for five years following the year in which the contribution was made.
Based on the Company's estimate of annual taxable income for the current year
and for the next successive five years (the carry forward period), the Company
recognized a tax benefit of $5.3 million on the $12.7 million charitable
donation.

Liquidity and Capital Resources

The Company's primary sources of funds are deposits, proceeds from the principal
and interest payments on loans, mortgage-backed and mortgage related and debt
and equity securities, borrowed funds, and to a lesser extent, proceeds from the
sale of residential mortgage loans in the secondary market.  While maturities
and scheduled amortization of loans and securities are predictable sources of
funds, deposit outflows, mortgage prepayments and mortgage loan sales are
greatly influenced by general interest rates, economic conditions and
competition.

The primary investing activities of the Company are the origination of both one-
to four-family and commercial real estate loans and the purchase of mortgage-
backed and mortgage related and debt and equity securities.  During the years
ended December 31, 1998 and 1997, the Bank originated and purchased mortgage
loans in the amount of $1.25 billion and $802.0 million, respectively.
Purchases of mortgage-backed and mortgage related and debt and equity securities
available-for-sale totaled $1.93 billion and $1.53 billion during the years
ended December 31, 1998 and 1997, respectively.  These activities were funded
primarily by principal repayments on loans and mortgage-backed and mortgage
related securities, deposit growth and by the Company's increased borrowed funds
position during the year ended December 31, 1997.  Loan sales provided
additional liquidity to the Company, totaling $679.2 million and $212.2 million
for the years ended December 31, 1998 and 1997, respectively.

The Company closely monitors its liquidity position on a daily basis.  Excess
short-term liquidity is invested in overnight federal funds sold.  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
reverse-repurchase agreements.  At December 31, 1998, the Company had $959.3
million in reverse-repurchase agreements outstanding, as compared to $965.1
million at December 31, 1997.  The aforementioned is primarily attributable to
management's decision to utilize borrowings, primarily in the form of reverse-
repurchase agreements, to fund a significant portion of its asset growth.

At December 31, 1998, the Company had outstanding loan commitments to advance
approximately $325.5 million for mortgage loans, primarily all of which were
fixed-rate commercial and residential real estate loans.  Management of the
Company anticipates that it will have sufficient funds available to meet its
current loan commitments.  Certificates of deposit that are scheduled to mature
in one year or less from December 31, 1998 

                                                                              19
<PAGE>
 
totaled $1.02 billion. Based upon prior experience and the Company's current
pricing strategy, management believes that a significant portion of such
deposits will remain with the Company.

The Company's most liquid assets are cash and cash equivalents, short-term
securities, securities available-for-sale and securities held-to-maturity due
within one year.  The levels of these assets are dependent on the Company's
operating, financing, lending, and investment activities during any given
period. At December 31, 1998, the Bank had $76.3 million in cash and cash
equivalents and no short-term repurchase agreements outstanding whereas, at
December 31, 1997 the Bank had $22.4 million in cash and cash equivalents and no
short-term repurchase agreements outstanding.

Tangible stockholders' equity (stockholders' equity less the excess of cost over
fair value of net assets acquired (goodwill)), totaled $596.4 million at
December 31, 1998 as compared to $625.4 million at December 31, 1997. This
decrease reflects the change in the Company's stockholders' equity noted in the
Comparison of Financial Condition section of Management's Discussion and
Analysis of Financial Condition and Results of Operations, and the reduction in
the balance of goodwill. Tangible equity is a critical measure of a company's
ability to repurchase stock, pay dividends and support greater asset and
franchise growth. The Company is subject to various capital requirements which
affect its classification for safety and soundness purposes, as well as for
deposit insurance purposes. These requirements utilize tangible equity as a base
component, not equity, as defined by generally accepted accounting principles
(GAAP). Although reported earnings and return on equity are traditional measures
of a company's performance, management believes that the growth in tangible
equity, or "cash earnings," is also a significant measure of a company's
performance. Cash earnings represent the amount by which tangible equity changes
each period due to operating results. Cash earnings include reported earnings
plus the non-cash charges related to the establishment of the Foundation,
amortization for the allocation of ESOP and SBIP stock as well as the
amortization of goodwill. These items have either been previously charged to
equity, as in the case of ESOP and SBIP charges through contra-equity accounts,
or do not affect tangible equity, such as the market appreciation of allocated
ESOP shares, for which the operating charge is offset by a credit to additional
paid-in-capital, and goodwill amortization for which the related intangible
asset has already been deducted in the calculation of tangible equity.

Management believes that cash earnings and cash returns on average stockholders'
equity reflects the Company's ability to generate tangible capital that can be
leveraged for future growth. For the year ended December 31, 1998, cash earnings
totaled $61.5 million, or $9.1 million more than reported earnings, representing
a cash return on average stockholders' equity of 10.26%. Management also
believes that since cash earnings represent the Company's tangible capital
growth, various other performance measures should also be analyzed utilizing
cash earnings. Additionally, the cash operating expense to average assets and
cash efficiency ratios decreased to 0.95% and 31.53%, respectively, for the year
ended December 31, 1998 from 1.23% and 36.98% for the year ended December 31,
1997.


Impact of Inflation and Changing Prices

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

                                                                              20
<PAGE>
 
Year 2000 Compliance

The "Year 2000 Problem", as it is generally referred to, concerns the inability
of certain computer hardware and software systems and associated applications to
correctly recognize and process dates beyond December 31, 1999.  Many computer
programs were developed using only six digits to define the date field in their
programs.  Computer programs used by the Company, its suppliers or outside
service providers that have date-sensitive software may recognize "00" as the
year 1900, rather than the year 2000.  Due to the nature of financial
information, calculations that rely on the integrity of the date field for the
correct processing of information could be significantly misstated, if
corrective action is not timely taken.

State of Readiness

The Company has implemented a detailed Year 2000 Plan, according to the
guidelines of the Federal Financial Institutions Examination Council, to
evaluate the Year 2000 compliance of its computer systems and the equipment
which supports the operation of the Company.  As a New York State chartered
savings institution, the Bank is subject to review by both the NYSBD and the
Federal Deposit Insurance Corporation (FDIC).  The FDIC has completed two tier
II Year 2000 examinations of the Bank's remediation progress.

Beginning in 1997, the Company initiated formal communications with all of its
service providers, vendors, major fund providers, major borrowers and companies
with which it has material investments, to determine the extent to which it may
be vulnerable to the inability of those parties to remediate their own Year 2000
issues.  The Company's vendor relationships cover a wide range of services which
may or may not be subject to a contractual agreement.  Where a contractual
relationship exists between the Company and a provider of services, and the
Company suffers harm to its operations due to a failure on the part of the
vendor to provide the service, whether due to Year 2000 or some other issue, the
vendor would be subject to a breach of contract suit.  In order to minimize the
risk of material loss or disruption of the Company's business due to an issue
involving date sensitive processing, the Company has not only required of all of
these vendors their written assurances that they are proactively addressing Year
2000 issues within their operations, but the Company is also requesting and
taking advantage of opportunities to test and verify these claims.

Like many financial institutions, the Company relies upon computers for the
daily conduct of its business and for data processing generally. The Company
utilizes a combination of in-house and service bureau applications, with the
bulk of customer account processing being handled by leading national vendors of
data processing services for financial institutions. The Company has received
written assurances that these service providers have completed their internal
remediation of programs, and have substantially completed the remediation of
issues related to interdependencies with other parties. The Company will
participate both directly and indirectly in the testing of these servicers and
other third party dependencies which commenced in November 1998, and will
continue through the end of the second quarter of 1999.

The Company does not anticipate that there will be any significant or material
condition which will impact these service providers in their ability to deliver
accurate data processing services before, during and after the transition to the
new millennium, therefore no formal contingency plans exist at this time.
However, results of system tests conducted by the Company and by other users of
this service providers will be carefully monitored to ensure that all issues
have been identified and successfully remediated.

In addition to its outsourced systems, the Company relies on in-house, computer
based financial accounting and mortgage origination systems.  The Company has
recently installed a new general ledger and financial accounting system, and
anticipates upgrading the mortgage origination system by mid 1999.  The new
systems have been certified by their respective vendors to be Year 2000
compliant. Language to that effect was included in the service contracts
executed with the system vendors.  Both of these revisions were planned around
the business 

                                                                              21
<PAGE>
 
needs of the Company, not the ability or inability of the installed software to
accommodate Year 2000 processing. Nevertheless, these mission critical system
replacements are Year 2000 compliant.

The balance of the Company's internal processing is supported by PC based
systems, using industry standard software to run non-mission critical
applications. Any software program or application which was not supported by the
vendor, or which required an update to achieve Year 2000 capability, has been
identified for replacement or upgrade. Equipment which contains embedded chips
or microprocessors has also been tested and scheduled for upgrade or replacement
where necessary. All such system enhancements are expected to be completed by
the end of the first quarter of 1999. The cost to remediate these systems is
immaterial, and is being expensed in the period in which it occurs.

The Company believes it has developed an effective plan to address the Year 2000
problem and that, based on the available information, its Year 2000 transition
will not have a material effect on its business, operations or financial
results.  However, the Company has no control over the progress of third parties
in addressing their own Year 2000 issues.  If the necessary changes are not
effected or are not completed in a timely manner, or if unanticipated problems
arise, there may be a material impact on the Company's financial condition and
results of operations.

Cost to Address the Company's Year 2000 Issues

The Company's costs to achieve Year 2000 compliance are not expected to have a
material financial impact on the Company. The Company's expenses related to Year
2000 issues for 1998 were $60,000 and anticipates the expenses for 1999 to be
approximately $80,000. The Company intends to fund such costs from its current
operations. However, as stated above, there can be no assurance that all such
costs have been identified, or that there may not be some unforeseen cost which
may have a material adverse effect on the Company's financial condition and
results of operations.

Risks of Year 2000 Issues

To date, the Company has not identified any system which presents a material
risk of failing to be Year 2000 compliant in a timely manner, or for which a
suitable alternative cannot be implemented. However, as the Company progresses
with its Year 2000 transition, systems or equipment may be identified which
present a material risk of business interruption. Such disruption may include
the inability to process customer account transactions, including deposits,
withdrawals, loan payments and disbursements; the inability to reconcile and
record daily activity; the inability to process loan applications or to track
delinquencies; the inability to generate checks or to clear funds. In addition,
if any of the Company's major borrowers should fail to achieve Year 2000
compliance, and should they experience a disruption of their own businesses,
their ability to meet their obligations to the Company may be seriously
impaired. To mitigate credit risk in the case of large borrowers, the Company
currently includes a clause relating to the borrower's Year 2000 awareness and
preparedness in its loan commitment documents. In addition, 100% of all
borrowers whose loans exceed $500,000 have been contacted to survey their Year
2000 readiness in order to anticipate any potential exposure. The dollar value
of loans for which borrowers were surveyed equates to 70% of the permanent and
construction loan portfolio.

To the extent that the risks posed by the Year 2000 problem are pervasive in
data processing and telecommunication services worldwide, or to the extent that
disruption of a power utility prevents the Company from gaining access to its
systems, the Company cannot predict with certainty that it will remain
materially unaffected by issues related to the Year 2000 problem, which are
beyond the Company's control.

                                                                              22
<PAGE>
 

 
Contingency Plans

The Company is in the process of developing two types of contingency plans.  The
Remediation Plans will identify components of mission critical applications
which are judged, at some point prior to December 31, 1999, to be at risk of
failure to achieve complete renovation, validation and implementation.  Business
Interruption Plans will  ensure that the Company has sufficiently planned for
unanticipated system failures at critical production dates before, on and after
January 1, 2000.

Remediation Plan:  The Company expects to complete its Year 2000 transition and
----------------                                                               
to have thoroughly tested its systems prior to any date of potential disruption.
However, the Company is developing Year 2000 remediation plans for mission
critical systems which are not already identified as compliant.  If the results
of testing of the Company's systems are not satisfactory, contingency plans will
be invoked within sufficient time to assure successful implementation of a
compliant alternative.

Business Interruption Plans:  These plans would be invoked if unanticipated Year
----------------------------                                                    
2000 problems disrupt production, similar to Disaster Recovery Plans.
Essentially, they require that resources are planned for deployment to ensure
that such an interruption does not threaten the viability of the Company.  The
Company will modify its current Business Resumption Plan to specifically address
the special circumstances of a disruption due to a Year 2000 related component
failure.

The discussion above contains certain forward-looking statements.  Actual
results may differ materially from the Company's expectations due to the nature
and uncertainty of circumstances surrounding the Year 2000 problem.  The Company
may fail to identify systems that are not Year 2000 compliant, or the Company or
other parties may fail to meet the dates and goals set above.  If so, the extent
and nature of efforts to then address those contingencies, to repair or replace
the affected systems, the Company's ability to obtain qualified personnel,
consultants or other resources and the success of those efforts cannot be stated
with any degree of certainty.

Private Securities Litigation Reform Act Safe Harbor Statement

In addition to historical information, this Annual Report includes certain
forward looking statements based on current management expectations.  The
Company's actual results could differ materially from those management
expectations.  Factors that could cause future results to vary from current
management expectations include, but are not limited to, general economic
conditions, legislative and regulatory changes, monetary and fiscal policies of
the federal government, changes in tax policies, rates and regulations of
federal, state and local tax authorities, changes in interest rates, deposit
flows, the cost of funds, demand for loan products, demand for financial
services, competition, changes in the quality or composition of the Company'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.

Impact of New Accounting Standards

For discussion regarding the impact of new accounting standards, refer to Note 1
of Notes to Consolidated Financial Statements.

                                                                              23
<PAGE>
 
                             ROSLYN BANCORP, INC.
                Consolidated Statements of Financial Condition
                          December 31, 1998 and 1997
                     (In thousands, except share amounts)

<TABLE>
<CAPTION>
 
                 Assets                       1998           1997
                 ------                   ------------   ------------
Cash and cash equivalents:
<S>                                       <C>            <C>   
       Cash and cash items                 $     3,159    $     2,516
       Due from banks                           35,161         19,850
       Money market investments                 38,000              -
                                          ------------   ------------
                                                76,320         22,366
Debt and equity securities, net:

       Held-to-maturity (estimated fair
        value of $755 and $2,026, 
        respectively)                              715          1,930
       Available-for-sale                      613,260        494,193
Mortgage-backed and mortgage related
 securities, net:
       Held-to-maturity (estimated fair
        value of $68,416 and $200,445, 
        respectively)                           68,071        200,193
       Available-for-sale                    1,622,023      1,856,633
                                          ------------   ------------
                                             2,304,069      2,552,949
 
Loans held-for-sale, net                        81,276         15,283
Loans receivable held for investment,
 net:
       Real estate loans, net                1,205,354        973,634
       Consumer loans                           10,402          4,686
                                          ------------   ------------
                                             1,215,756        978,320
       Less allowance for possible loan       
        losses                                 (24,779)       (24,029)
                                          ------------   ------------
                                             1,190,977        954,291
 
Banking house and equipment, net                20,237         17,033
Accrued interest receivable                     22,352         21,225
Mortgage servicing rights, net                  13,537          9,155
Excess of cost over fair value of net           
 assets acquired                                 2,449          2,906
Real estate owned, net                             532            157
Deferred tax asset, net                          4,499              -
Other assets                                    18,784          5,714
                                          ------------   ------------
              Total assets                 $ 3,735,032    $ 3,601,079
                                          ============   ============
</TABLE>

                                                        (continued on next page)

                                                                              24
<PAGE>
 
                             ROSLYN BANCORP, INC.
           Consolidated Statements of Financial Condition, Continued
                          December 31, 1998 and 1997
                     (In thousands, except share amounts)

<TABLE>
<CAPTION>

  Liabilities and Stockholders' Equity        1998           1997
  ------------------------------------    ------------   ------------
<S>                                       <C>            <C>   
Liabilities:
 Deposits:
  Savings accounts                         $   476,798    $   468,928
  Certificates of deposit                    1,341,986      1,303,272
  Money market accounts                        108,134         49,344
  Demand deposit accounts                      143,913        120,701
                                          ------------   ------------ 
   Total deposits                            2,070,831      1,942,245
                                          ------------   ------------
  Official checks outstanding                   11,053          1,199
  Borrowed funds:                     
  Reverse-repurchase agreements                959,319        965,119
  Other borrowings                                 150          1,332
  Accrued dividends and interest               
   on deposits                                  13,219         10,375
  Mortgagors' escrow and security                                   
   deposits                                     47,115         20,222
  Accrued taxes payable                         14,822          9,478
  Deferred tax liability, net                        -          1,742
  Accrued expenses and other                   
   liabilities                                  19,625         21,032
                                          ------------   ------------ 
   Total liabilities                         3,136,134      2,972,744
                                          ------------   ------------
Commitments and contingencies                        -              -
Stockholders' equity:
 Preferred stock, $0.01 par              
  value, 10,000,000 shares
  authorized; none issued                      -              - 
 Common stock, $0.01 par value,
  100,000,000 shares authorized;         
  43,642,459 shares issued; 
  41,399,959 and 43,642,459 
  shares outstanding, respectively           436            436 
 Additional paid-in-capital              424,150        423,411
 Retained earnings -                
  substantially restricted               299,041        261,120 
 Accumulated other comprehensive
  income:
   Net unrealized gain on           
    securities available-           
    for-sale, net of tax                  14,426         32,891
 Unallocated common stock held by                             
  Employee Stock Ownership Plan                                
  (ESOP)                                 (50,218)       (52,012)
 Unearned common stock held by                                
  Stock-Based Incentive Plan                                   
  (SBIP)                                 (30,766)       (37,511)
 
 Treasury stock, at cost                
  (2,242,500 shares)                     (58,171)             - 
                                    ------------   ------------ 
   Total stockholders'                                   
    equity                               598,898        628,335 
                                    ------------   ------------ 
   Total liabilities and       
    stockholders' equity             $ 3,735,032    $ 3,601,079 
                                    ============   ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                                                              25
<PAGE>
 
                             ROSLYN BANCORP, INC. 
                      Consolidated Statements of Income 
                 Years Ended December 31, 1998, 1997 and 1996 
                   (In thousands, except per share amounts)
<TABLE>
<CAPTION>
                                        1998         1997         1996
                                     ----------   ----------   ----------
<S>                                       <C>          <C>          <C>   
Interest income:
 Federal funds sold and              
  short-term deposits                $   1,617   $    4,190   $    7,960
 Debt and equity securities             37,019       33,153       31,087
 Mortgage-backed and mortgage         
  related securities                   124,314      126,148       62,432
 Real estate loans                      95,219       61,091       38,644
 Consumer and student loans                748          382          350
                                    ----------   ----------   ----------
    Total interest income              258,917      224,964      140,473
                                    ----------   ----------   ---------- 
Interest expense:
 Deposits                               96,328       89,136       72,965
 Borrowed funds                         61,007       37,278        5,794
                                    ----------   ----------   ----------
    Total interest expense             157,335      126,414       78,759
                                    ----------   ----------   ---------- 
Net interest income before provision         
 for possible loan losses              101,582       98,550       61,714
Provision for possible loan losses         750          600        2,000
                                    ----------   ----------   ---------- 
Net interest income after provision
 for possible loan losses              100,832       97,950       59,714
                                    ----------   ----------   ---------- 
Non-interest income:
 Fees and service charges                2,799        2,286        1,926
 Mortgage banking operations             8,126        3,508        4,280
 Net gains (losses) on securities        7,175        2,757         (804)
 Real estate operations, net               869         (172)        (589)
 Other non-interest income                 353          869          379
                                    ----------   ----------   ----------
    Total non-interest income           19,322        9,248        5,192
                                    ----------   ----------   ---------- 
Non-interest expense:
 General and administrative
  expenses:
     Compensation and employee           
      benefits                           30,014       24,496       18,418
     Occupancy and equipment              4,292        3,789        4,378
     Deposit insurance premiums            (300)         274            2
     Advertising and promotion            2,402        2,363        2,508
     Other non-interest expenses          7,842        8,953        9,059
                                     ----------   ----------   ----------
       Total general and                
        administrative expenses          44,250       39,875       34,365
 Amortization of excess of cost                                          
   over fair value of net                                                
    assets acquired                         471          469          469 
 Settlement of asserted claims                -        4,680            -
 Charitable contribution to The              
     Roslyn Savings Foundation                -       12,711            - 
                                     ----------   ----------   ----------
         Total non-interest expense      44,721       57,735       34,834
                                     ----------   ----------   ----------
 Income before income taxes              75,433       49,463       30,072
 Provision for income taxes              23,029       16,073        9,438
                                     ----------   ----------   ---------- 
  Net income                          $  52,404   $   33,390   $   20,634
                                     ==========   ==========   ==========
  Basic and diluted earnings per     
   share                              $    1.36   $     0.83      N/A 
                                     ==========   ==========   ==========
  Dividends per common share          $   0.375   $    0.180      N/A
                                     ==========   ==========   ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                                                              26
<PAGE>
 
                             ROSLYN BANCORP, INC.
          Consolidated Statements of Changes in Stockholders' Equity
                 Years Ended December 31, 1998, 1997 and 1996
                     (In thousands, except share amounts)

<TABLE> 
<CAPTION>                                                                                                               Unearned
                                                                              Retained     Accumulated    Unallocated   Common   
                                                                Additional   Earnings-        Other          Common     Stock     
                                                      Common     Paid-in-   Substantially Comprehensive    Stock Held   Held by   
                                                      Stock      Capital     Restricted       Income        by ESOP      SBIP     
                                                     --------  -----------  ------------  --------------  ------------  ----------
<S>                                                 <C>       <C>          <C>           <C>             <C>           <C>         
Balance at December 31, 1995                        $    -    $         -  $    214,520  $     11,893    $        -    $       -  

Comprehensive income:
  Net income                                             -              -        20,634             -             -            -  
  Other comprehensive income, net of tax:
     Net unrealized gain on certain securities,
         net of reclassification adjustment (1)          -              -             -         2,302             -            -  
                                                                                                                                  
Comprehensive income                                     -              -             -             -             -            -  
                                                     --------  -----------  ------------  --------------  ------------  ----------
Balance at December 31, 1996                             -              -       235,154        14,195             -            -  
                                                     --------  -----------  ------------  --------------  ------------  ----------

Comprehensive income:
  Net income                                             -              -        33,390             -             -            -  
  Other comprehensive income, net of tax:
     Net unrealized gain on certain securities,
       net of reclassification adjustment (1)            -              -             -        18,696             -            -  
                                                                                                                                  
Comprehensive income                                                                                                              
                                                                                                                                  
Issuance of  42,371,359  shares of common stock in
 the initial public offering                           423        410,227             -             -             -            -  
Issuance of  1,271,100  shares of common  stock to
The Roslyn Savings Foundation                           13         12,699             -             -             -            -  
Open market purchases of common stock                    -              -             -             -       (54,805)     (41,374) 
Allocation from shares purchased with 1996      
 contribution                                            -              -             -             -         1,000            -  
Allocation from shares purchased with loan to ESOP       -            485             -             -         1,793            -  
Amortization of SBIP stock awards                        -              -          (186)            -             -        3,863  
Cash dividends declared on common stock                  -              -        (7,238)            -             -            -  
                                                     --------  -----------  ------------  --------------  ------------  ----------
Balance at December 31, 1997                           436        423,411       261,120        32,891       (52,012)     (37,511) 
                                                     --------  -----------  ------------  --------------  ------------  ----------

Comprehensive income:
  Net income                                             -              -        52,404             -             -            -  
  Other comprehensive income, net of tax:
     Net unrealized loss on certain securities,
     net of reclassification adjustment (1)              -              -             -       (18,465)            -            -  
                                                                                                                                  
Comprehensive income                                                                                                              
                                                                                                                                  
Allocation of ESOP stock                                 -            635             -             -         1,794            -  
Amortization of SBIP stock awards                        -            104           (67)            -             -        6,745  
Cash dividends declared on common stock                  -              -       (14,416)            -             -            -  
Common stock acquired, at cost                           -              -             -             -             -            -  
                                                     --------  -----------  ------------  --------------  ------------  ----------
Balance at December 31, 1998                        $  436    $   424,150  $    299,041  $     14,426    $  (50,218)   $ (30,766) 
                                                     ========  ===========  ============  ==============  ============  ==========

<CAPTION>

                                                      Treasury              
                                                       Stock,               
                                                      at cost      Total    
                                                     ----------  ---------- 
<S>                                                  <C>         <C>        
Balance at December 31, 1995                         $      -    $226,413   
                                                                            
Comprehensive income:                                                       
  Net income                                                -      20,634   
  Other comprehensive income, net of tax:                                   
     Net unrealized gain on certain securities,                             
         net of reclassification adjustment (1)             -       2,302   
                                                                  ----------
Comprehensive income                                        -      22,936   
                                                      ----------  ----------
Balance at December 31, 1996                                -     249,349   
                                                      ----------  ----------
                                                                            
Comprehensive income:                                                       
  Net income                                                -      33,390   
  Other comprehensive income, net of tax:                                   
     Net unrealized gain on certain securities,                             
       net of reclassification adjustment (1)               -      18,696   
                                                                  ----------
Comprehensive income                                               52,086   
                                                                  ----------
Issuance of  42,371,359  shares of common stock in                          
 the initial public offering                                -     410,650   
Issuance of  1,271,100  shares of common  stock to                          
 The Roslyn Savings Foundation                              -      12,712   
Open market purchases of common stock                       -     (96,179)  
Allocation from shares purchased with 1996                                  
 contribution                                               -       1,000   
Allocation from shares purchased with loan to ESOP          -       2,278   
Amortization of SBIP stock awards                           -       3,677   
Cash dividends declared on common stock                     -      (7,238)  
                                                      ----------  ----------
Balance at December 31, 1997                                -     628,335   
                                                      ----------  ----------
                                                                            
Comprehensive income:                                                       
  Net income                                                -      52,404   
  Other comprehensive income, net of tax:                                   
     Net unrealized loss on certain securities,                             
      net of reclassification adjustment (1)                -     (18,465)  
                                                                  ----------
Comprehensive income                                               33,939   
                                                                  ----------
Allocation of ESOP stock                                    -       2,429   
Amortization of SBIP stock awards                           -       6,782   
Cash dividends declared on common stock                     -     (14,416)  
Common stock acquired, at cost                        (58,171)    (58,171)  
                                                      ==========  ==========
Balance at December 31, 1998                        $ (58,171)   $598,898   
                                                      ==========  ==========

<CAPTION>
                                                                                        1998            1997            1996
                                                                                     -----------     -----------     -----------
                                                                                                   (In thousands)
<S>                                                                                <C>            <C>             <C>           
(1)  Disclosure of reclassification amount, net of tax for the years ended:
       Net unrealized (depreciation) appreciation arising during the year          $    (14,434)  $     20,245    $      1,850
       Less: Reclassification adjustment for net gains (losses) included in net         
        income                                                                            4,031          1,549            (452)
                                                                                      -----------     -----------     -----------
       Net unrealized (loss) gain on certain securities                            $    (18,465)  $     18,696    $      2,302
                                                                                      ===========     ===========     ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      27
<PAGE>
 
                              ROSLYN BANCORP, INC.
                     Consolidated Statements of Cash Flows
                  Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
                                               1998        1997       1996
                                             ---------   ---------  ---------
                                                      (In thousands)
<S>                                       <C>           <C>          <C>
Cash flows from operating    
 activities:                 
   Net income                              $   52,404   $ 33,390   $  20,634
   Adjustments to reconcile net                                      
    income to net cash                                               
    provided by (used in)                                            
    operating activities:                                            
     Charitable                                                      
      contribution of                                                
      Roslyn Bancorp,  Inc.                                          
      common stock to The                                            
      Roslyn Savings                                                 
      Foundation                                    -     12,711           -
     Provision for                                                   
      possible loan losses                        750        600       2,000
     (Recovery of)                                                   
      provision for                                                  
      possible losses on                                             
      real estate owned                          (830)         -         350
     Originated mortgage                                             
      servicing rights,                                              
      net of amortization and                                        
      valuation adjustment                     (4,382)      (460)       (398)
     Amortization of                                                 
      excess of cost over                                            
      fair value of net                                              
      assets acquired                             471        469         469   
     Depreciation and                                                
      amortization                              1,752      1,533       1,904
     Accretion of discounts,                                         
      net of amortization of                                         
      premiums                                (13,453)    (5,343)     (1,242)
     Amortization of premium on                                      
      callable and trust                                             
      preferred stock                             786        805         705
     ESOP expense                               2,204      2,035       1,000
     SBIP expense                               6,334      3,594           -
     Proceeds from sales                                             
      of loans held-for-sale,                                        
      net of originations and                                        
      purchases                               (56,631)     2,674       6,544
     Gains on sales of loans                   (4,400)    (2,489)     (3,858)
     Net (gains) losses on                                           
      securities                               (7,175)    (2,757)        804
     Net gains on sales of                                           
      real estate owned                          (186)      (155)       (121)
     Deferred income taxes                      7,036     (7,178)        627
     Changes in assets and                                           
      liabilities:                                                   
       Increase in accrued                     (1,127)    (2,560)     (7,102)
        interest receivable                                          
       (Increase) decrease                                           
        in other assets                       (13,070)     3,346      (5,978)
       Increase in official                                          
        checks outstanding                      9,854      1,199           -    
       Increase in accrued                                           
        dividends and                                                
        interest on deposits                    2,844      3,739       5,635
       Increase (decrease)                                           
        in accrued taxes payable                5,344     (2,707)      3,918
       (Decrease) increase                                           
        in accrued expenses                                          
        and other liabilities                    (801)     3,603         842
       Net (decrease) increase                                       
        in unearned income                     (4,134)     5,925         227    
       Other, net                                 569        323           -
                                           ----------   --------   ---------
        Net cash (used in)     
         provided by operating                                        
         activities                           (15,841)    52,297      26,960
                                           ----------   --------   ---------
                                                                     
Cash flows from investing                                          
 activities:                                                       
   Proceeds from repayments of                                       
    mortgage-backed and mortgage                                     
    related securities                                               
    held-to-maturity                          132,466     76,895      71,368
   Proceeds from sales and                                           
    repayments of debt, equity,                                      
    mortgage-backed and                                              
    mortgage related securities                                      
    available-for-sale                      2,036,427    863,732     355,873
</TABLE>

                                                                              28
<PAGE>
 
                             ROSLYN BANCORP, INC.
               Consolidated Statements of Cash Flows, Continued
                 Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
                                                1998            1997            1996
                                          -------------   -------------   -------------   
                                                           (In thousands)
<S>                                       <C>             <C>             <C>
Cash flows from investing activities:
 Purchases of debt, equity,           
  mortgage-backed and mortgage            
  related securities                  
  available-for-sale                      $  (1,931,913)  $  (1,528,784)  $  (1,206,397)
 Loan originations and purchases,     
  net of principal                             
  repayments                                   (312,070)       (473,659)       (126,518)
 Proceeds from sales of loans held               
  for investment                                 73,154               -               -
 Purchases of banking house and                  
  equipment, net                                 (4,957)         (1,331)         (6,716) 
 Proceeds from sales of real estate                 
  owned                                             778           1,755           5,139
                                          -------------   -------------   -------------
         Net cash used in investing              
          activities                             (6,115)     (1,061,392)       (907,251)
                                          -------------   -------------   -------------
Cash flows from financing activities:
  Increase (decrease) in demand              
   deposit, money market,                        
   and savings accounts                          89,872        (188,509)        248,312 
  Increase in certificates of deposit            38,714         175,219         378,278
  (Decrease) increase in borrowed                
   funds                                         (6,982)        964,622             182
  Increase in mortgagors' escrow and             
   security deposits                             26,893           2,497           1,647
  Net proceeds of common stock                        
   issuance                                           -         410,650               -
  Loan to ESOP for open market                        
   purchase of common stock                           -         (53,805)              -
  Open market purchase of common                      
   stock for SBIP                                     -         (41,374)              -
  Cash dividends paid on common stock           (14,416)         (7,238)              -
  Cost to repurchase common stock               (58,171)              -               -

  (Decrease) increase in                              
   non-depository stock subscriptions                 -      (1,356,911)      1,356,911
                                          -------------   -------------   -------------
          Net cash provided by            
           (used in) financing activities        75,910         (94,849)      1,985,330
                                          -------------   -------------   -------------
 
Net increase (decrease) in cash and              
 cash equivalents                                53,954      (1,103,944)      1,105,039
Cash and cash equivalents at beginning           
 of year                                         22,366       1,126,310          21,271
                                          -------------   -------------   -------------
Cash and cash equivalents at end of year  $      76,320   $      22,366   $   1,126,310
                                          =============   =============   =============

Supplemental disclosures of cash flow
 information:
     Cash paid during the year for:
      Interest on deposits and            
       borrowed funds                     $     154,491   $     122,675   $      73,124
                                          =============   =============   =============
      Income taxes                        $      10,564   $      25,431   $       4,848
                                          =============   =============   =============
     Non-cash investing activities:
      Additions to real estate          
       owned, net                         $         137   $          82   $         997
                                          =============   =============   =============
</TABLE>

See accompanying notes to consolidated financial statements.

                                                                              29
<PAGE>
 
                              ROSLYN BANCORP, INC.
                   Notes to Consolidated Financial Statements
                        December 31, 1998, 1997 and 1996
                                        
(1) Summary of Significant Accounting Policies and Related Matters
    --------------------------------------------------------------

Roslyn Bancorp, Inc. was organized under Delaware law as the savings and loan
holding company for The Roslyn Savings Bank and its subsidiaries (the Bank) in
connection with the Bank's conversion from a New York State chartered mutual
savings bank to a New York State chartered stock savings bank on January 10,
1997.  See Note 3 for a further discussion of the conversion.  The following is
a summary of significant accounting policies of Roslyn Bancorp, Inc. and its
wholly-owned subsidiary (collectively, the Company).

The Company's business consists primarily of the business activities of the
Bank, which activities include attracting deposits from the general public and
originating residential property loans (one- to four-family home mortgage,
cooperative apartment and multi-family property loans).  The Bank also makes
commercial real estate loans and consumer loans.  Deposits at the Bank are
insured up to applicable limits by the Bank Insurance Fund (BIF) of the Federal
Deposit Insurance Corporation (FDIC).  The Bank is subject to comprehensive
regulation, examination and supervision by the New York State Banking
Department (NYSBD) and the FDIC.

(a) Principles of Consolidation and Basis of Financial Statement Presentation
    -------------------------------------------------------------------------

The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles (GAAP) and include the accounts of the
Company and its wholly-owned subsidiary.  All significant intercompany balances
and transactions have been eliminated in consolidation.  When necessary,
certain reclassifications have been made to prior year amounts to conform to
the current year presentation.

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 the consolidated financial statements and results
of operations for the periods then ended.  Actual results could differ from
those estimates.  Material estimates that are particularly susceptible to
change in the near term relate to the determination of the allowance for
possible loan losses.

Management believes that the allowance for possible loan losses is adequate.
In connection with the determination of the allowance for possible loan losses,
management obtains independent appraisals for significant properties.  While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on unanticipated changes in
economic conditions, particularly in the New York Metropolitan area.  In
addition, the NYSBD and the FDIC, as an integral part of their examination
process, periodically review the Bank's allowance for possible loan losses.
Such agencies may require the Bank to recognize additions to the allowance
based on their judgments about information available to them at the time of
their examination.

(b) Cash and Cash Equivalents
    -------------------------

For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and money market investments, which are generally
sold for one to three day periods.

                                                                              30
<PAGE>
 
(c) Debt, Equity, Mortgage-Backed and Mortgage Related Securities
    -------------------------------------------------------------

In accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities,"  the
Company is required to report debt, readily-marketable equity, mortgage-backed
and mortgage related securities in one of the following categories: (i) "held-
to-maturity" (management has a positive intent and ability to hold to maturity)
which are to be reported at amortized cost adjusted, in the case of debt
securities, for the amortization of premiums and accretion of discounts; (ii)
"trading" (held for current resale) which are to be reported at fair value,
with unrealized gains and losses included in earnings; and (iii) "available-
for-sale" (all other debt, equity, mortgage-backed and mortgage related
securities) which are to be reported at fair value, with unrealized gains and
losses reported net of tax as accumulated other comprehensive income, a
separate component of stockholders' equity.  The Company determines the
appropriate classification of each security, as either "trading," "held-to-
maturity" or "available-for-sale," at the time of purchase.

Premiums and discounts on debt, mortgage-backed and mortgage related securities
are amortized to expense and accreted to income over the estimated life of the
respective security using the interest method.  Premiums paid on certain
callable preferred stock are amortized against income over the period to the
call date.  Gains and losses on the sales of securities are recognized on
realization.

(d) Loans Held-for-Sale and Loans Receivable
    ----------------------------------------

Loans receivable are stated at unpaid principal balances, including negative
escrow, less unearned discounts, deferred mortgage interest and net deferred
loan origination fees.

Purchased loans are recorded at cost.  Related premiums or discounts on
mortgage and other loans purchased are amortized to expense or accreted to
income using the interest method over the estimated life of the loans.

Loans held-for-sale are carried at the aggregate lower of cost or market value
as determined by outstanding commitments from investors or current investor
yield requirements calculated on an aggregate loan basis.

The Company places loans, including impaired loans, on non-accrual status when
they become past due 90 days.  All interest previously accrued and not
collected is reversed against interest income, and income is subsequently
recognized only to the extent cash is received until, in management's judgment,
a return to accrual status is warranted.  Loans are generally returned to
accrual status when principal and interest payments are current, full
collectibility of principal and interest is reasonably assured and a consistent
record of performance, generally six months, has been demonstrated.

In accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," and the amendment thereof, SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures," the Company
considers a loan impaired when, based upon current information and events, it
is probable that it will be unable to collect all amounts due, both principal
and interest, according to the contractual terms of the loan agreement.  Loans
individually reviewed for impairment by the Company within the scope of SFAS
No. 114 are limited to loans modified in a troubled debt restructuring (TDR)
and commercial and multi-family first mortgage loans. SFAS No. 114 generally
does not apply to those smaller-balance homogeneous loans that are collectively
evaluated for impairment, which for the Company, include one- to four-family
first mortgage loans, student loans and consumer loans, other than those
modified in a TDR.  The measurement value of the Company's impaired loans is
based on the fair value of the underlying collateral.  The Company identifies
and measures impaired loans in conjunction with its review of the adequacy of
its allowance for possible loan losses.  Specific factors utilized in the
identification of impaired loans include, but are not limited to, delinquency
status, loan-to-value ratio, the condition of the underlying collateral, credit
history and debt coverage.

                                                                              31
<PAGE>
 
Cash receipts on non-accrual loans, including impaired loans, are generally
applied to principal and interest in accordance with the contractual terms of
the loan.  If full payment of principal is not expected, the Company will
either defer the recognition of interest until the loan performs according to
its original terms or apply all of the principal and interest payments received
as a reduction of the carrying value of the loan.

The Company adopted SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," effective January 1,
1997.  This statement provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial component approach that focuses on
control.  It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. The statement requires that a mortgage
banking enterprise recognize as separate assets the rights to service mortgage
loans for others, however acquired.  For mortgage servicing rights (MSRs) that
are created through the origination of mortgage loans, and where the loans are
subsequently sold or securitized with servicing rights retained, the statement
requires that the total cost of the mortgage loans should be allocated to the
mortgage servicing rights and the loans based on their relative fair values.
The statement also requires the assessment of capitalized mortgage servicing
rights for impairment to be based on the current fair value of those rights and
recognized through a valuation allowance.

Fees earned for servicing loans are reported as income when the related
mortgage loan payments are collected.  MSRs are amortized as a reduction to
loan servicing fee income using the interest method over the estimated
remaining life of the underlying mortgage loans.  MSRs are carried at fair
value and impairment, if any, is recognized through a valuation allowance.

Income from mortgage banking operations is comprised of the gains or losses
generated from the sale of mortgage loans into the secondary market, including
all fees and mortgage servicing rights related thereto, and servicing fee
income and the amortization of servicing rights relating to servicing loans for
others.

A substantial portion of the Company's loans are secured by real estate in the
New York Metropolitan area.  Accordingly, the ultimate collectibility of such a
loan portfolio is susceptible to changes in market conditions in the New York
Metropolitan area.

(e) Allowance for Possible Loan Losses
    ----------------------------------

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

(f) Commitment and Loan Origination Fees
    ------------------------------------

The Company defers certain loan origination and commitment fees, net of certain
origination costs, and amortizes them as an adjustment of the loan's yield over
the term of the related loan using the interest method.  When a loan is sold,
the remaining net unamortized fee is taken into income.

                                                                              32
<PAGE>
 
(g) Banking House and Equipment
    ---------------------------

Land is carried at cost and banking houses are carried at cost, less an
allowance for depreciation computed on the straight-line method over a twenty-
five to fifty year period.  Leasehold improvements are stated at cost, less
accumulated amortization.  Amortization is computed on the straight-line method
over the terms of the respective lease or the life of the improvement,
whichever is shorter.  Furniture, fixtures and equipment are stated at cost,
less accumulated depreciation.  Depreciation is computed on the straight-line
method on the estimated service lives over a three to ten year period.

(h) Real Estate Owned
    -----------------

Real estate acquired through foreclosure or deed-in-lieu of foreclosure are
reported at the lower of cost or fair value at the acquisition date, and
subsequently at the lower of its new cost or fair value less estimated selling
costs.  Cost represents the unpaid loan balance at the acquisition date plus
expenses, when appropriate, incurred to bring the property to a salable
condition.  The Company maintains an allowance for subsequent declines in a
property's carrying value.  Certain costs relating to holding the properties,
and gains or losses resulting from the disposition of properties are recognized
in current period operations.

(i) Income Taxes
    ------------

Under the asset and liability method of SFAS No. 109, "Accounting for Income
Taxes," deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.  To the extent that current available evidence about the future raises
doubt about the realization of a deferred tax asset, a valuation allowance must
be established.  Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.  The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

(j) Summary of Retirement Benefits Accounting
    -----------------------------------------

The Company's retirement plan is non-contributory and covers substantially all
eligible employees.  The plan conforms to the provisions of the Employee
Retirement Income Security Act of 1974, as amended.  The Company's policy is to
accrue for all pension costs and to fund the maximum amount allowable for tax
purposes.  Actuarial gains and losses that arise from changes in assumptions
concerning future events used in estimating pension costs are amortized over a
period that reflects the long-range nature of pension expense.  The Company
accounts for post-retirement benefits pursuant to SFAS No. 106, "Employers'
Accounting for Post-Retirement Benefits Other Than Pensions," whereby the cost
of providing those benefits to an employee, and the employee's beneficiaries
and covered dependents, are accrued during the years that the employee renders
the necessary service.

(k) Stock-Based Compensation
    ------------------------

In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company adheres to Accounting Principles Board 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 earnings per share (EPS) information as if the fair
value based method had been adopted.

Deferred compensation for the Stock-Based Incentive Plan (SBIP) awards is
recorded as a reduction of stockholders' equity and is calculated as the cost
of the shares purchased by the Company and contributed to the plan.
Compensation expense is recognized over the vesting period of actual stock
awards based

                                                                              33
<PAGE>
 
upon the fair value of the shares at the award date.  The excess of the cost
of the shares over the fair value at the award date is treated as an
adjustment of stockholders' equity.

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 year.  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.  The difference between the average fair market value and the cost of
the shares allocated by the ESOP is recorded as an adjustment to additional
paid-in-capital.

(l) Earnings Per Share
    ------------------

Pursuant to SFAS No. 128, "Earnings Per Share," 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 securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.  This
statement requires a reconciliation of the numerator and denominator of the two
EPS calculations (see Note 17).  The Company has not presented EPS for the
periods prior to 1997 as shares of common stock had not yet been issued.

(m) Treasury Stock
    --------------

Common stock shares repurchased are recorded as treasury stock at cost.

(n) Comprehensive Income
    --------------------

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which established standards for reporting and displaying of comprehensive
income and its components in a full set of general-purpose financial
statements.  The Company adopted the provisions of SFAS No. 130 during the
quarter ended March 31, 1998 to give effect to this pronouncement.  Under
existing accounting standards, other comprehensive income is separately
classified into foreign currency items, minimum pension liability adjustments
and unrealized gains and losses on available-for-sale securities. Only the last
of these items, however, is currently applicable to the Company.  Comprehensive
income is reported by the Company in the Consolidated Statements of Changes in
Stockholders' Equity.

(o) Operating Segments
    ------------------

The FASB also issued in June 1997, SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which established standards for the way
public business enterprises, selected information about operating segments in
interim reporting.  This statement also established standards for related
disclosures about products, services, geographic areas and major customers.
SFAS No. 131 is effective for annual reporting periods beginning after December
15, 1997 and requires interim periods to be presented in the second year of
application.  In adopting SFAS No. 131, the Company has determined that, using
the definitions contained in the statement, all of its activities constitute
only one reportable operating segment.

(p)  Recently Issued Accounting Pronouncements
     -----------------------------------------

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities."  This statement requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value.  The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and its specific designation as
follows:

                                                                              34
<PAGE>
 
a.  For a derivative designated as hedging the exposure to changes in the fair
value of a recognized asset or liability or a firm commitment (referred to as a
fair value hedge), the gain or loss is recognized in earnings in the period of
change together with the offsetting loss or gain on the hedged item
attributable to the risk being hedged.

b.  For a derivative designated as hedging the exposure to variable cash flows
of a forecasted transaction (referred to as a cash flow hedge), the effective
portion of the derivative's gain or loss is initially reported as a component
of other comprehensive income and subsequently reclassified into earnings when
the forecasted transaction affects earnings.

c.  For a derivative designated as hedging the foreign currency exposure of a
net investment in a foreign operation, the gain or loss is reported in other
comprehensive income as part of the cumulative translation adjustment.  The
accounting for a fair value hedge described above applies to a derivative
designated as a hedge of the foreign currency exposure of an unrecognized firm
commitment or an available-for-sale security.

d.  For a derivative not designated as a hedging instrument, the gain or loss
is recognized in earnings in the period of change.

This Statement amends SFAS No. 52, "Foreign Currency Translation," to permit
special accounting for a hedge of a foreign currency forecasted transaction
with a derivative.  It supersedes SFAS No. 80, "Accounting for Futures
Contracts," SFAS No. 105, "Disclosure of Information about Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk," and SFAS No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments."  It amends SFAS
No. 107, "Disclosures about Fair Value of Financial Instruments," to include in
SFAS No. 107 the disclosure provisions about concentrations of credit risk from
SFAS No. 105.

SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999.  Initial application of this statement should be as of the
beginning of an entity's fiscal quarter; on that date, hedging relationships
must be designated anew and documented pursuant to the provisions of this
statement. The Company has not yet determined the impact of SFAS No. 133 on its
financial statements.

(2) Acquisition of T R Financial Corp.
    ----------------------------------

On May 25, 1998, the Company entered into an agreement and plan of merger
with T R Financial Corp., the parent company of Roosevelt Savings Bank
(Roosevelt) whereby it would acquire T R Financial Corp. in a stock-for-stock
exchange (Merger).  Under the terms of the agreement, each share of T R
Financial Corp. common stock will be converted into the Company's common stock
at a fixed exchange ratio of 2.05.  The transaction will be treated as a tax-
free reorganization and accounted for using the pooling-of-interests method of
accounting. At December 31, 1998, included in other assets was $4.1 million of
merger-related expenses incurred which will be expensed upon consummation of
the Merger.  Following the receipt of all required regulatory approvals and
certain other customary closing conditions, the transaction closed on February
16, 1999, with the issuance of 35,528,785 shares of the Company common stock.
T R Financial Corp. had (unaudited) total assets of $4.09 billion, deposits of
$2.15 billion, and stockholders' equity of $274.0 million at December 31,
1998.  Roosevelt operated 15 branch offices throughout Kings, Queens, Nassau,
and Suffolk counties of New York.

The following table sets forth certain selected condensed financial
information for the Company and T R Financial Corp. on an unaudited pro forma
combined basis as if the Merger had been effective for the years indicated,
and accounted for using the pooling-of-interests method of accounting.  The
unaudited pro forma condensed combined selected financial information is
presented for informational purposes

                                                                              35
<PAGE>
 
only and is not necessarily indicative of the combined results of operations
that would have occurred if the Merger had been consummated for these years.

<TABLE>
<CAPTION>
                               For the Years Ended December 31,
                               --------------------------------
                                1998        1997        1996
                            -----------  ----------   --------       
                        (Dollars in thousands, except share amounts)
                                         (Unaudited)
 
<S>                          <C>         <C>         <C>
Interest income              $  546,744  $  480,376  $ 358,877
Interest expense                344,183     290,180    215,929
                             ----------  ----------  ---------
Net interest income             202,561     190,196    142,948
Provision for possible            
 loan losses                      1,500       1,400      3,400
                             ----------  ----------  ---------
Net interest income after
 provision for possible
 loan losses                    201,061     188,796    139,548
                             ----------  ----------  ---------
Non-interest income              36,425      22,183     21,111
Non-interest expense             90,541     103,548     77,897
                             ----------  ----------  ---------
Income before provision         
 for income taxes               146,945     107,431     82,762
Provision for income taxes       51,402      39,313     31,613
                             ----------  ----------  ---------
Net income                   $   95,543  $   68,118  $  51,149
                             ==========  ==========  =========
Basic earnings per common    
 share                       $     1.32  $     0.92        N/A
                             ==========  ==========  =========
Diluted earnings per         
 common share                $     1.29  $     0.89        N/A
                             ==========  ==========  =========
</TABLE>

The Company suspended its stock repurchase program on May 26, 1998 in connection
with the acquisition of T R Financial Corp.  Prior to that date, the Company had
repurchased 2,242,500 shares in 1998.

(3) Conversion to Stock Form of Ownership
    -------------------------------------

On May 29, 1996, the then Board of Trustees of the Bank adopted a Plan of
Conversion, which was subsequently amended on July 30, 1996 and September
30, 1996, to convert the Bank from a state chartered mutual savings bank to
a state chartered capital stock savings bank with the concurrent formation
of a holding company, Roslyn Bancorp, Inc., subject to approval by
regulatory authorities and depositors of the Bank.

On January 10, 1997, the Bank completed the conversion and the Company
completed the issuance and sale of 42,371,359 shares of its common stock
(the Conversion), at a price of $10.00 per share, through an initial public
offering (IPO), with the Bank's eligible depositors receiving all of the
shares.  The Company also contributed 1,271,100 shares of its common stock,
from authorized but unissued shares, to The Roslyn Savings Foundation (the
Foundation) immediately following the Conversion.  The Company received
gross proceeds from the Conversion of $423.7 million, before the reduction
of $13.1 million for estimated IPO related expenses.  On the date of the
Conversion, $145.3 million of deposits and $278.4 million of non-depository
stock subscriptions funds were transferred to stockholders' equity, and
$1.08 billion of non-depository stock subscriptions funds were subsequently
returned to subscribers; also subsequent to the Conversion, the ESOP
purchased, through a $53.8 million loan from the Company and the initial
$1.0 million contribution from the Bank, 3,491,397 shares of common stock
on the open market.

The Bank established a liquidation account, as of the date of Conversion,
in the amount of $222.2 million, equal to its retained earnings as of the
date of the latest consolidated statement of financial condition appearing
in the final prospectus.  The liquidation account is maintained for the
benefit of eligible pre-Conversion account holders who continue to maintain
their accounts at the Bank after the date of Conversion.  The liquidation
account will be reduced annually to the extent that eligible account
holders have reduced their qualifying deposits as of each anniversary date.
Subsequent increases will not restore an eligible account holder's interest
in the liquidation account.  As of December 31, 1998, the balance in the

                                                                              36
<PAGE>
 
liquidation account was approximately $79.7 million.  In the event of a
complete liquidation, each eligible account holder will be entitled, under
New York State Law, to receive a distribution from the liquidation account
in an amount equal to their current adjusted account balances for all such
depositors then holding qualifying deposits in the Bank.

Subsequent to the Conversion, the Bank may not declare or pay cash
dividends on or repurchase any of its shares of common stock if the effect
thereof would cause stockholder's equity to be reduced below applicable
regulatory capital maintenance requirements or if such declaration and
payment would otherwise violate regulatory requirements or would reduce the
Bank's capital level below the then aggregate balance required for the
liquidation account.  The Company, unlike the Bank, is not subject to the
same restrictions regarding the declaration or payment of dividends to its
shareholders, although the source of the Company's dividends may depend
upon the Bank's ability to pay dividends.  The Company is subject to the
requirements of Delaware law, which generally limit dividends to an amount
equal to the excess of its net assets over its stated capital or, if there
is no such excess, to its net profits for the current and/or immediately
preceding fiscal year.

The Company established the Foundation in connection with the Conversion.
The amount of shares the Company contributed to the Foundation was equal to
3.0% of the total amount of its common stock issued in the Conversion.  The
Foundation was formed as a complement to the Bank's existing community
activities and is dedicated to community activities and the promotion of
charitable causes.

The Foundation has received approval from the Internal Revenue Service to
be recognized as a tax-exempt organization and is classified as a private
foundation.  The contribution of common stock to the Foundation by the
Company will be tax deductible, subject to an annual limitation based on
10% of the Company's annual taxable income.  The Company, however, will be
able to carry forward any unused portion of the deduction for a five year
period following the contribution.  The Company recognized a $12.7 million
expense for the full amount of the contribution to the Foundation, offset
in part by the $5.3 million corresponding tax benefit, during the first
quarter of 1997.

(4) Debt and Equity Securities
    --------------------------

Investments in debt and equity securities, net at December 31, 1998 and
1997 are summarized as follows:

<TABLE>
<CAPTION>
                                                                        December 31, 1998
                                                    ---------------------------------------------------------
                                                                       Gross           Gross        Estimated
                                                    Amortized        Unrealized     Unrealized        Fair
                                                      Cost              Gain           Loss           Value
                                                    ---------        ----------     ----------      ---------
                                                                            (In thousands)
<S>                                                 <C>              <C>            <C>             <C>
Held-to-maturity:
     Debt securities:
       State, county and municipal                    $    715         $    40       $      -       $    755
                                                      ========         =======       ========       ========
Available-for-sale:
     Debt securities:
       United States Government -                     
        direct  and guaranteed                        $ 45,333         $ 2,549       $      -       $ 47,882 
       United States Government agencies               114,849             548              -        115,397
                                                      --------         -------       --------       --------  
     Total debt securities                             
      available-for-sale                               160,182           3,097              -        163,279
                                                      --------         -------       --------       --------  
     Equity securities:
       Preferred and common stock                      270,325          30,360        (11,610)       289,075
       Trust preferreds                                147,131             868         (3,272)       144,727
       Other                                            14,883           1,351            (55)        16,179
                                                      --------         -------       --------       --------  
     Total equity securities available-                
      for-sale                                         432,339          32,579        (14,937)       449,981
                                                      --------         -------       --------       --------  
      Total debt and equity securities    
       available-for-sale                             $592,521         $35,676       $(14,937)      $613,260 
                                                      ========         =======       ========       ========
</TABLE>

                                                                              37
<PAGE>
 
<TABLE>
<CAPTION>
 
                                                                       December 31, 1997
                                                    ---------------------------------------------------------
                                                                       Gross           Gross        Estimated
                                                    Amortized        Unrealized     Unrealized        Fair
                                                      Cost              Gain           Loss           Value
                                                    ---------        ----------     ----------      ---------
                                                                            (In thousands)
<S>                                                 <C>              <C>            <C>             <C>
Held-to-maturity:
 Debt securities:
  State, county and municipal                         $  1,930         $    96          $   -       $  2,026
                                                      ========         =======          =====       ========
Available-for-sale:
 Debt securities:
  United States Government - direct
    and guaranteed                                    $ 75,499         $ 2,476          $   -       $ 77,975
 United State Government agencies                      125,097             384              -        125,481
 Other                                                   5,365              20              -          5,385
                                                      --------         -------          -----       -------- 
 Total debt securities                                 
  available-for-sale                                   205,961           2,880              -        208,841
                                                      --------         -------          -----       -------- 
 Equity securities:
   Preferred and common stock                          243,864          30,560           (171)       274,253
   Other                                                 9,720           1,409            (30)        11,099
                                                      --------         -------          -----       -------- 
 Total equity securities available-
    for-sale                                           253,584          31,969           (201)       285,352
                                                      --------         -------          -----       -------- 
 Total debt and equity securities
    available-for-sale                                $459,545         $34,849          $(201)      $494,193 
                                                      ========         =======          =====       ========
</TABLE>

                                                                              38
<PAGE>
 
 Sales of investments in debt and equity securities are summarized as follows:

<TABLE>
<CAPTION>
                                   Years Ended December 31,
                             ----------------------------------
                                 1998        1997        1996
                             ----------  ----------  ----------
                                      (In thousands)
 <S>                         <C>         <C>         <C>
 Proceeds from sales:
  Equity securities          $  202,499  $   58,312  $  35,758
  Debt securities               166,663     233,759          -
 
 Gross gains:
  Equity securities               6,435       1,752         92
  Debt securities                   426         264          -
 
 Gross losses:
  Equity securities                 312          43         23
  Debt securities                    19           -          -
</TABLE>

During the years ended December 31, 1998, 1997 and 1996, sales of investments
in debt securities were from both the "held-to-maturity" and "available-for-
sale" portfolios and the sales of investments in equity securities were from
the "available-for-sale" portfolio.  Investments in debt securities referred
to as being "sold" from the "held-to-maturity" portfolio were either called
or sold within 90 days of the maturity date.

Interest income on debt and equity securities also includes the amortized
premiums relating to the Company's investments in certain callable preferred
stocks in the amounts of $559,000, $1.2 million and $705,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.

The maturities of the investments in debt securities at December 31, 1998 and
1997 are as follows:

<TABLE>
<CAPTION>
                                                 At December 31, 1998
                                   ------------------------------------------------
                                      Available-for-Sale        Held-to-Maturity
                                   ------------------------------------------------
                                   Amortized    Estimated     Amortized  Estimated
                                      Cost      Fair Value       Cost    Fair Value
                                   ---------    ----------    ---------  ----------
                                                     (In thousands)
<S>                               <C>          <C>               <C>        <C>
Within 1 year                     $  4,992     $  5,030          $415       $428
After 1 year through 5 years        40,341       42,852           300        327
Over 10 years                      114,849      115,397             -          -
                                  --------     --------          ----       ----
                                  $160,182     $163,279          $715       $755
                                  ========     ========          ====       ====
</TABLE>

                                                                              39
<PAGE>
 
<TABLE>
<CAPTION>
                                                 At December 31, 1997
                                   ------------------------------------------------
                                      Available-for-Sale        Held-to-Maturity
                                   ------------------------------------------------
                                   Amortized    Estimated     Amortized  Estimated
                                      Cost      Fair Value       Cost    Fair Value
                                   ---------    ----------    ---------  ----------
                                                     (In thousands)
<S>                               <C>          <C>               <C>        <C>
Within 1 year                     $ 34,781     $ 35,094          $  735     $  751
After 1 year through 5 years        60,893       63,085           1,195      1,275
After 5 years through 10 years      10,640       10,644               -          -
Over 10 years                       99,647      100,018               -          -
                                  --------     --------          ------     ------
                                  $205,961     $208,841          $1,930     $2,026
                                  ========     ========          ======     ======
</TABLE>

Included in available-for-sale debt securities at December 31, 1997 are
callable step-up notes which were issued by U.S. Government agencies. The
amortized cost, which approximates fair value, of these notes aggregated $35.0
million at December 31, 1997.  These notes represent general U.S. Government
agency obligations that provide for annual fixed rate step-ups of interest and
are callable at par after one year and in six month intervals thereafter.  The
weighted average rate of these notes was 6.86% at December 31, 1997.  At
December 31, 1998, there were no step-up notes.

(5) Mortgage-Backed and Mortgage Related Securities
    -----------------------------------------------

Mortgage-backed and mortgage related securities at December 31, 1998 and 1997
are summarized as follows:

<TABLE>
<CAPTION>
                                                                       December 31, 1998
                                                    ---------------------------------------------------------
                                                                       Gross           Gross        Estimated
                                                    Amortized        Unrealized     Unrealized        Fair
                                                      Cost              Gain           Loss           Value
                                                    ---------        ----------     ----------      ---------
                                                                            (In thousands)
<S>                                                 <C>              <C>            <C>             <C>
Held-to-maturity:
     Whole loan private collateralized
       mortgage obligations, net                    $   68,071       $  430         $   (85)        $   68,416
                                                    ==========       ======         =======         ========== 
Available-for-sale:
     GNMA pass-through securities, net              $   34,191       $1,036         $  (120)        $   35,107
     FNMA pass-through securities, net                   2,004            -              (3)             2,001
     GNMA adjustable rate mortgage
        pass-through securities, net                   352,245        4,405               -            356,650
     Whole loan private collateralized
        mortgage obligations, net                      674,727        1,508            (576)           675,659
     Agency collateralized mortgage
       obligations, net                                553,917          850          (2,161)           552,606
                                                    ----------      -------         -------         ----------
     Mortgage-backed and mortgage related
       securities available-for-sale, net           $1,617,084       $7,799         $(2,860)        $1,622,023
                                                    ==========       ======         =======         ========== 
</TABLE>

                                                                              40
<PAGE>
 
<TABLE>
<CAPTION>
                                                                       December 31, 1997
                                                    ---------------------------------------------------------
                                                                       Gross           Gross        Estimated
                                                    Amortized        Unrealized     Unrealized        Fair
                                                      Cost              Gain           Loss           Value
                                                    ---------        ----------     ----------      ---------
                                                                            (In thousands)
<S>                                                 <C>              <C>            <C>             <C>
Held-to-maturity:
 Whole loan private collateralized
  mortgage obligations, net                         $  200,193       $   990        $  (738)        $  200,445
                                                    ==========       =======        =======         ==========      
Available-for-sale:
 GNMA pass-through securities, net                  $   14,291       $ 1,420        $     -         $   15,711
 FHLMC pass-through securities, net                    250,206         2,947              -            253,153
 GNMA adjustable rate mortgage pass-
  through securities, net                              442,037         7,223              -            449,260
 Whole loan private collateralized
  mortgage obligations, net                            640,467         5,019           (170)           645,316
 Agency collateralized mortgage
  obligations, net                                     486,860         6,452           (119)           493,193
                                                    ----------       -------        -------         ----------
 Mortgage-backed and mortgage related
  securities available-for-sale, net                $1,833,861       $23,061        $  (289)        $1,856,633
                                                    ==========       =======        =======         ==========   
</TABLE>

Included in the Company's "available-for-sale" and "held-to-maturity"
securities portfolios are mortgage-backed and mortgage related securities
which, except for collateralized mortgage obligations (CMOs), represent
participating interests in pools of first mortgage loans.

Sales of investments in mortgage-backed and mortgage related securities are
summarized as follows:

<TABLE>
<CAPTION>
                            Years Ended December 31,
                       ----------------------------------
                          1998        1997        1996
                       ----------  ----------  ----------      
                                 (In thousands)
<S>                    <C>         <C>         <C>
Proceeds from sales    $  641,020  $  295,123  $89,400
Gross gains                   645         853       50
Gross losses                    -          69      923
</TABLE>

During the years ended December 31, 1998, 1997 and 1996, sales of mortgage-
backed and mortgage related securities were from the "available-for-sale"
portfolio.

                                                                              41
<PAGE>
 
The contractual maturities of the investments in mortgage-backed and mortgage
related securities, net at December 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                 At December 31, 1998
                                   ------------------------------------------------
                                      Available-for-Sale        Held-to-Maturity
                                   ------------------------------------------------
                                   Amortized    Estimated     Amortized  Estimated
                                      Cost      Fair Value       Cost    Fair Value
                                   ---------    ----------    ---------  ----------
                                                     (In thousands)
<S>                               <C>          <C>               <C>        <C>
Within 1 year                     $      674   $      674        $     -    $     -
After 1 year through 5 years           2,945        3,001            117        117
After 5 years through 10 years        13,750       13,948          6,209      6,229
Over 10 years                      1,599,715    1,604,400         61,745     62,070
                                  ----------   ----------        -------    -------
                                  $1,617,084   $1,622,023        $68,071    $68,416
                                  ==========   ==========        =======    =======
<CAPTION>
                                                 At December 31, 1997
                                   ------------------------------------------------
                                      Available-for-Sale        Held-to-Maturity
                                   ------------------------------------------------
                                   Amortized    Estimated     Amortized  Estimated
                                      Cost      Fair Value       Cost    Fair Value
                                   ---------    ----------    ---------  ----------
                                                     (In thousands)
<S>                               <C>          <C>               <C>        <C>
Within 1 year                     $   62,089   $   62,960      $      -   $      -
After 1 year through 5 years           1,207        1,242         6,744      6,709
After 5 years through 10 years        18,051       18,515         2,992      2,999
Over 10 years                      1,752,514    1,773,916       190,457    190,737
                                  ----------   ----------      --------   --------
                                  $1,833,861   $1,856,633      $200,193   $200,445
                                  ==========   ==========      ========   ========
</TABLE>

Expected maturities differ from contractual obligations since borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.  Generally, the aging of mortgage-backed and mortgage
related securities is based on their weighted average maturities.

(6) Loans Held-for-Sale, Net and Loans Receivable Held for Investment, Net
    ----------------------------------------------------------------------

Loans held-for-sale, net at December 31, 1998 and 1997 are summarized as
follows:

<TABLE>
<CAPTION>
                                          1998       1997
                                       ---------  ---------
                                           (In thousands)
<S>                                    <C>        <C> 
One- to four-family loans, net         $  79,991  $  13,987
Student loans                              1,285      1,296
                                       ---------  ---------
     Total loans held-for-sale, net    $  81,276  $  15,283
                                       =========  ========= 
</TABLE>

The Company originates most fixed rate and adjustable rate loans for immediate
sale to the Federal National Mortgage Association (FNMA) or other investors.
Generally, the sale of such loans is arranged at the time the loan application
is received through investor commitments.

In addition, student loans are sold to the Student Loan Marketing Association
generally during the grace period of the loan, before principal repayment
begins.  During the years ended December 31, 1998, 1997 and 1996, the Company
sold approximately $2.5 million, $2.8 million and $3.7 million, respectively,
of student loans, recording aggregate net gains of  $41,000,  $30,000 and
$38,000, respectively.

                                                                              42
<PAGE>
 
Loans receivable held for investment, net at December 31, 1998 and 1997 are
summarized as follows:

<TABLE>
<CAPTION>
                                              1998           1997
                                          ------------   ------------
                                                 (In thousands)
<S>                                       <C>            <C> 
Real estate loans, net:
     One- to four-family                  $    755,373   $    619,970
     Multi-family                               49,576         44,006
     Home equity and second mortgage            47,832         16,974
     Commercial real estate                    273,017        248,607
     Construction and development               83,433         52,269
                                          ------------   ------------   
       Total real estate loans               1,209,231        981,826
 
     Less:
       Net unamortized discount and             
        deferred income                         (4,596)        (6,670)
       Net deferred loan origination               
        costs (fees)                               719         (1,522)
                                          ------------   ------------   
          Total real estate loans, net       1,205,354        973,634
 
Other loans:
     Consumer                                   10,402          4,686
Less allowance for possible loan          
 losses                                        (24,779)       (24,029)
                                          ------------   ------------   
          Loans receivable held for       
           investment, net                $  1,190,977   $    954,291
                                          ============   ============
</TABLE>

The principal balance of non-accrual loans approximated $5.8 million, $6.5
million and $8.7 million at December 31, 1998, 1997 and 1996, respectively.
Interest income that would have been recorded if the loans had been performing
in accordance with their original terms aggregated approximately $577,000,
$630,000 and $720,000 during the years ended December 31, 1998, 1997 and 1996,
respectively.

The principal balance of restructured loans, which are included in nonaccrual
loans, that have not complied with the terms of their restructuring agreement
for a satisfactory period of time (normally six months) was $909,000, $280,000
and $1.6 million at December 31, 1998, 1997 and 1996, respectively. Interest
income that would have been recorded if the loans had been performing in
accordance with their original terms aggregated approximately $76,000, $30,000
and $172,000 during the years ended December 31, 1998, 1997 and 1996,
respectively. Interest income recorded for restructured loans amounted to
$433,000, $235,000 and $118,000 for the years ended December 31, 1998, 1997 and
1996, respectively. Additionally, restructured loans totaling $4.1 million, $1.4
million and $2.3 million have complied with the terms of the restructuring
agreement for a satisfactory period and were returned to the performing loan
portfolio during the years ended December 31, 1998, 1997 and 1996, respectively.

                                                                              43
<PAGE>
 
Loans in arrears three months or more were as follows at:

<TABLE>
<CAPTION>
                                  Amount     % of loans
                                  ------     ----------
                               (Dollars in thousands)
<S>                               <C>           <C>
          December 31, 1998       $4,687        0.39%
                                  ======        ====
          December 31, 1997       $4,519        0.46%
                                  ======        ====
          December 31, 1996       $6,467        1.26%
                                  ======        ====
</TABLE>

The Company has entered into various agreements to service loans for others.
At December 31, 1998 and 1997, 8,011 loans and 7,444 loans, respectively, with
a total balance of $1.03 billion and $866.3 million, respectively, were being
serviced for others.  The Company has not retained a participation in these
loans.

The right to service loans for others is 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 pursuant to SFAS No. 125
(collectively referred to as mortgage servicing rights).

During the years ended December 31, 1998, 1997 and 1996, the Company sold
without recourse approximately $343.2 million, $134.9 million and $152.0
million, respectively, of whole loans with servicing retained.  Service fee
income of $3.0 million, $2.5 million and $2.2 million is included, net, in
mortgage banking operation in the accompanying consolidated statements of
income for the years ended December 31, 1998, 1997 and 1996, respectively.

In connection with the 1995 acquisition of certain assets and liabilities of
Residential Mortgage Banking, Inc. (RMBI) (see Note 10), the Company recorded
MSRs with a fair value of $8.1 million.  No servicing rights were purchased
prior thereto.  In addition, the Company capitalized MSRs in the amount of $6.6
million, $2.3 million and $1.8 million, respectively, during the years ended
December 31, 1998, 1997 and 1996.

Fees earned for servicing loans are reported as income when the related
mortgage loan payments are collected.  Mortgage servicing rights are amortized
as a reduction to service fee income on the interest method over the estimated
remaining life of the underlying mortgage loans.  MSRs are carried at fair
value and impairment, if any, is recognized through a valuation allowance.  For
the years ended December 31, 1998 and 1997, the valuation allowance for
impairment totaled $117,000 and $13,000, respectively.  For the year ended
December 31, 1996, no impairment existed in the MSRs and, as a result, no
valuation allowance was required.  See Note 16 for risk characteristics and
assumptions used to estimate fair value.

MSR activity for the years ended December 31, 1998, 1997 and 1996 is summarized
as follows:

<TABLE>
<CAPTION>
                                           1998       1997         1996
                                        ---------   ---------   ---------
                                                  (In thousands)
<S>                                     <C>         <C>         <C>
Balance at beginning of year            $   9,155   $   8,695   $   8,297
Originated mortgage servicing rights        6,613       2,289       1,821
Less:
     Amortization                          (2,114)     (1,816)     (1,423)
     Reserve for impairment                  (117)        (13)          -
                                        ---------   ---------   ---------
Balance at end of year                  $  13,537   $   9,155   $   8,695
                                        =========   =========   =========
</TABLE>

                                                                              44
<PAGE>
 
(7)  Allowance for Possible Loan Losses
     ----------------------------------

Impaired loans and related allowances for possible loan losses have been
identified and calculated in accordance with the provisions of SFAS No. 114.
The total allowance for possible loan losses has been determined in accordance
with the provisions of SFAS No. 5.  As such, the Company has provided amounts
for anticipated losses that exceed the immediately identified losses associated
with loans that have been deemed impaired.  Provisions have been made and
established accordingly, based upon experience and expectations, for losses
associated with the general population of loans, specific industry and loan
types, including residential and consumer loans which are not generally subject
to the provisions of SFAS No. 114.

The Company's recorded investment in impaired loans at December 31, 1998 and
1997 was $1.2 million and $2.8 million, respectively.  The Company did not
maintain a related allowance for these loans.  The Company's average recorded
investment in impaired loans for the years ended December 31, 1998, 1997 and
1996 was $1.6 million, $5.3 million and $5.0 million, respectively.  Interest
income recognized on impaired loans, which was not materially different from
cash-basis interest income, amounted to $289,000, $568,000 and $206,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.

The following is a summary of the activity in the allowance for possible loan
losses account:

<TABLE>
<CAPTION>
                                     Years Ended December 31,
                                --------------------------------
                                  1998        1997        1996
                                ---------  ---------   ---------
                                         (In thousands)
<S>                             <C>        <C>         <C>
Balance at beginning of year    $  24,029  $  23,320   $  23,350
Provisions for loan losses            750        600       2,000
Charge-offs                             -        (91)     (2,127)
Recoveries                              -        200          97
                                ---------  ---------   ---------
Balance at end of year          $  24,779  $  24,029   $  23,320
                                =========  =========   =========
</TABLE>

(8)  Banking House and Equipment
     ---------------------------

A summary of banking house and equipment at cost, net of accumulated
depreciation and amortization, and land at cost at December 31, 1998 and 1997 is
as follows:

<TABLE>
<CAPTION>
                                             1998        1997
                                          ---------   ---------
                                              (In thousands)
<S>                                       <C>         <C>
Land                                      $   3,327   $   3,008
Banking house                                14,342      13,545
Furniture, fixtures and equipment            10,038       6,402
                                          ---------   ---------
                                             27,707      22,955
Accumulated depreciation and                 
 amortization                                (7,470)     (5,922)
                                          ---------   ---------
                                          $  20,237   $  17,033
                                          =========   =========
</TABLE>

Depreciation and amortization of banking house and equipment of approximately
$1.8 million, $1.5 million and $1.9 million was included in occupancy and
equipment expense for the years ended December 31, 1998, 1997 and 1996,
respectively.

                                                                              45
<PAGE>
 
(9)   Accrued Interest Receivable
      ---------------------------

Accrued interest receivable at December 31, 1998 and 1997 is summarized as
follows:

<TABLE>
<CAPTION>

                                                             1998                   1997
                                                      --------------------  ---------------------
                                                                     (In thousands)
  <S>                                                <C>                   <C>
  Loans                                               $         9,710       $       6,765
  Mortgage-backed and mortgage related securities               9,374              11,867
  Debt and equity securities                                    3,268               2,593
                                                      --------------------  ---------------------
                                                      $        22,352       $      21,225
                                                      ====================  =====================
</TABLE>

(10)  Excess of Cost Over Fair Value of Net Assets Acquired
      -----------------------------------------------------

The Bank acquired in 1995, through a wholly-owned subsidiary now known as
Roslyn National Mortgage Corp. (RNMC), certain assets and liabilities,
including the loan origination business and the $623.0 million loan
servicing portfolio (the acquisition), of RMBI, a mortgage banking firm
which operated in New York and New Jersey.

The acquisition was funded by the Bank, and was accounted for under the
purchase method of accounting. Accordingly, the purchase price was
allocated to the assets and liabilities acquired based on their estimated
fair values as of August 1, 1995, including $8.1 million relating to the
value of the loan servicing portfolio acquired. The consideration paid
exceeded the estimated fair value of the net assets acquired (goodwill) by
$3.5 million. This amount was recorded as goodwill and is being amortized
over 10 years. The Company will assess the recoverability of this
intangible asset by determining whether the amortization of the goodwill
over its remaining life can be recovered through future operating cash
flows of RNMC. The unamortized balance of goodwill relating to the RMBI
acquisition was $2.3 million and $2.6 million as of December 31, 1998 and
1997, respectively.

Previously, the Company purchased certain assets and assumed the deposit
liabilities of a bank branch. The acquisition was accounted for under the
purchase method of accounting and, accordingly, all of the acquired assets
and assumed liabilities were adjusted to and recorded at their fair market
value. The goodwill generated from the acquisition amounted to $855,000
and is being amortized on a straight-line basis over seven years. The
unamortized balance of the goodwill as of December 31, 1998 and 1997 was
$153,000 and $275,000, respectively.

In April 1998, RNMC purchased certain assets of a mortgage origination
office. The acquisition was accounted for under the purchase method of
accounting. The goodwill generated from the acquisition amounted to
$15,000 and is being amortized on a straight-line basis over five years.
The unamortized balance of the goodwill as of December 31, 1998 was
$13,000.

(11)  Deposits
      --------

Savings and time deposit account balances (excluding demand deposit accounts)
are summarized as follows:

                                                                              46
<PAGE>
 
<TABLE>
<CAPTION>
                                           At December 31, 1998              At December 31, 1997
                                    -------------------------------- ------------------------------
                                      Weighted                         Weighted
                                    Average Rate         Amount      Average Rate        Amount
                                   --------------    -------------- --------------  ---------------
                                                        (Dollars in thousands)
    <S>                             <C>               <C>            <C>           <C>
    Type of account:
         Savings accounts                 2.54%       $   476,798       2.93%      $    468,928
         Certificates of deposit          5.35          1,341,986       5.88          1,303,272
         Money market accounts            3.69            108,134       2.63             49,344
                                                      --------------               --------------
                                                      $ 1,926,918                  $  1,821,544
                                                      ==============               ==============
</TABLE>


Scheduled maturities of certificates of deposit are as follows:

<TABLE>
<CAPTION>
                                                                  At December 31, 1998
                                           ------------------------------------------------------------
                                                Weighted
                                              Average Rate          Amount                  Percent
                                           ----------------    ------------------     -----------------
                                                                   (Dollars in thousands)
    <S>                                     <C>                <C>                    <C>
    1 year or less                                5.20%        $    1,017,750                    75.84%
    Greater than 1 year through 2 years           5.67                155,361                    11.58
    Greater than 2 years through 3 years          6.10                 76,595                     5.71
    Greater than 3 years through 4 years          6.15                 44,159                     3.29
    Greater than 4 years through 5 years          5.65                 21,438                     1.60
    Over 5 years                                  6.36                 26,683                     1.98
                                                               -------------------    -----------------
                                                               $    1,341,986                   100.00%
                                                               ===================    =================
<CAPTION>
                                                                      At December 31, 1997
                                           ------------------------------------------------------------
                                              Weighted
                                            Average Rate            Amount                Percent
                                           ---------------     -------------------    -----------------
                                                                  (Dollars in thousands)
    <S>                                        <C>                <C>                     <C>
    1 year or less                                5.62%        $      892,391                    68.47%
    Greater than 1 year through 2 years           6.14                215,437                    16.53
    Greater than 2 years through 3 years          6.54                 68,465                     5.26
    Greater than 3 years through 4 years          6.37                 61,556                     4.72
    Greater than 4 years through 5 years          6.33                 43,140                     3.31
    Over 5 years                                  6.58                 22,283                     1.71
                                                               -------------------    ------------------
                                                               $    1,303,272                   100.00%
                                                               ===================    ==================
</TABLE>


Certificates of deposit in excess of $100,000 were approximately $229.1
million and $191.8 million at December 31, 1998 and 1997, respectively.
Additionally, included in certificates of deposit at December 31, 1998 and
1997 were brokered deposits totaling $129.7 million and $149.8 million,
respectively.








Demand deposits are summarized as follows:

<TABLE>
<CAPTION>
                                     December 31, 1998               December 31, 1997
                                ---------------------------    -----------------------------
                                 Weighted                         Weighted
                                  Average                          Average
                                   Rate            Amount           Rate           Amount
                                ------------    ------------    ------------    ------------
                                                   (Dollars in thousands)
    <S>                         <C>             <C>             <C>             <C>
    Type of account:
         Personal                       -       $   55,938              -       $    33,980
         Super NOW and NOW           2.59%          87,975          3.54%            86,721
                                                ------------                    ------------
                                                $  143,913                      $   120,701
                                                ============                    ============
</TABLE>

                                                                              47
<PAGE>
 
      The FDIC insures deposits of account holders up to $100,000 per insured
      depositor. To provide for this insurance, the Company must pay a
      risk-based annual assessment which considers the financial soundness of
      the institution and capitalization level (see Note 19). At December 31,
      1998 and 1997, the Company was assessed at the FDIC's lowest assessment
      level, as a well capitalized institution. For the years ended December 31,
      1998 and 1997, the Company was refunded $300,000 and paid $274,000,
      respectively, in FDIC insurance premiums.

      Interest expense on deposit balances for the years ended December 31,
      1998, 1997 and 1996 is summarized as follows:

<TABLE>
<CAPTION>
                                        1998             1997              1996
                                   ---------------  ----------------  ----------------
                                                 (Dollars in thousands)
<S>                                <C>              <C>               <C>
    Savings accounts               $      14,679    $     14,886      $     18,445
    Money market accounts                  2,243           1,427             1,854
    Super NOW and NOW                      2,804           2,841             1,361
    Certificates of deposit               76,602          69,982            51,305
                                   ---------------  ----------------  ----------------
                                   $      96,328    $     89,136      $     72,965
                                   ===============  ================  ================
</TABLE>

      Included in interest expense on savings accounts for the years ended
      December 31, 1997 and 1996 is $1.3 million and $3.6 million, respectively,
      of interest expense on non-depository stock subscriptions.

   (12)  Borrowed Funds
         --------------

      Borrowed funds at December 31, 1998 and 1997 are summarized as follows:

<TABLE>
<CAPTION>
                                              1998                           1997
                                    -------------------------      ------------------------
                                                    Weighted                     Weighted
                                                    Average                      Average
                                       Balance        Rate           Balance       Rate
                                    ------------  -----------      ----------- ------------
                                                      (Dollars in thousands)
    <S>                             <C>            <C>             <C>           <C>
    Reverse-repurchase agreements   $  959,319           5.62%     $  965,119          6.05%
    FNMA warehouse line of credit          150           6.05           1,332          6.70
                                    ------------                   ------------
                                    $  959,469                     $  966,451
                                    ============                   ============
</TABLE>

From time to time, the Company enters into sales of securities under
agreements to repurchase (reverse-repurchase agreements). Fixed-coupon
reverse-repurchase agreements are treated as financing transactions and
the obligations to repurchase are reflected as a liability in the
consolidated financial statements. The dollar amount of securities
underlying the agreements remains in the asset account. The securities
underlying the agreements are delivered to the dealer with whom each
transaction is executed. The dealers, who may sell, loan or otherwise
dispose of such securities to other parties in the normal course of their
business, agree to resell to the Company the same securities at the
maturities of the agreements. The Company retains the right of
substitution of collateral throughout the terms of the agreements.

At December 31, 1998 and 1997, all outstanding reverse-repurchase
agreements had original contractual maturities ranging from 7 days to 5
years. The securities underlying the reverse-repurchase agreements were
secured by available-for-sale U.S. Treasury notes, Government agency notes
and mortgage-backed securities, except as noted below. The following is a
summary of information relating to these reverse-repurchase agreements:

                                                                              48
<PAGE>
 
<TABLE>
<CAPTION>
                                                             At or For the Years Ended December 31,
                                                             --------------------------------------
                                                                 1998        1997         1996
                                                             -----------  ----------  -----------
                                                                     (Dollars in thousands)
   <S>                                                      <C>           <C>          <C>
   Book value of collateral (including accrued interest):
       U.S. Treasury notes                                  $      5,048  $   5,030    $       -
       Government agency notes                                    86,325     15,559            -
       Mortgage-backed securities:
          Available-for-sale                                     918,992    984,644            -
          Held-to-maturity                                         2,461     15,584            -

   Estimated fair value of collateral (including accrued 
    interest):
       U.S. Treasury notes                                         5,085      5,111            -
       Government agency notes                                    86,584     15,600            -
       Mortgage-backed securities:
          Available-for-sale                                     920,837    995,999            -
          Held-to-maturity                                         2,461     15,669            -

   Average balance of outstanding agreements
     during the year                                        $  1,031,254  $ 629,224    $ 100,159
                                                            ============  =========    =========
   Maximum balance of outstanding agreements
     at any month end during the year                       $  1,141,847  $ 995,861   $  212,296
                                                            ============  =========   ==========
   Average interest rate for the year                               5.90%      5.90%        5.58%
                                                            ============  =========   ==========
</TABLE>

The contractual maturities of the outstanding reverse-repurchase agreements at
December 31, 1998 were as follows:

<TABLE>
<CAPTION>
                                           Balance
                                     --------------------
                                        (In thousands)
            <S>                       <C>
                  1999                $     343,019
                  2000                      175,000
                  2001                      230,000
                  2002                      121,300
                  2003                       90,000
                                     --------------------
                                      $     959,319
                                     ====================
</TABLE>

Included in the 1999 maturity category above is $46.6 million, $65.0 million and
$94.3 million of reverse-repurchase agreements with contractual maturities of 26
days, 57 days and 84 days, respectively, which are collateralized by available-
for-sale mortgage-backed securities with a book value (including accrued
interest) of $50.2 million, $69.6 million and $100.5 million, respectively, and
an estimated fair value (including accrued interest) of $50.2 million, $69.6
million and $99.4 million, respectively. All remaining reverse-repurchase
agreements have contractual maturities in excess of 90 days, which are
collateralized by U.S. Treasury notes, government agency notes and mortgage-
backed securities available-for-sale and mortgage-backed securities held-to-
maturity with book values (including accrued interest receivable) of $5.0
million, $86.3 million, $698.7 million and $2.5 million, respectively, and
estimated fair values (including accrued interest receivable) of $5.1 million,
$86.6 million, $701.6 million and $2.5 million, respectively.

At December 31, 1998 and 1997, the Company had $150,000 and $1.3 million,
respectively, of outstanding secured notes payable to FNMA under a warehouse
line of credit. The line of credit is secured by $150,000 and $1.3 million of
mortgage loans held-for-sale as of December 31, 1998 and 1997, respectively. The
outstanding
      

                                                                              49
<PAGE>
 
notes had an interest rate of 6.05% and 6.70%, at December 31, 1998 and 1997,
respectively. The notes are repaid as the related mortgage loans are sold or
collected.

Interest expense on borrowings for the years ended December 31, 1998, 1997 and
1996 is summarized as follows:

<TABLE>
<CAPTION>
                                          1998                 1997                1996
                                      -------------     ----------------    ----------------
                                                        (In thousands)
    <S>                              <C>             <C>                 <C>
    Reverse-repurchase agreements     $   60,864        $         37,133    $         5,586
    FNMA warehouse line of credit            143                     145                208
                                      -------------     ----------------    ----------------
                                      $   61,007        $         37,278    $         5,794
                                      =============     ================    ================
</TABLE>

   (13)  Income Taxes
         ------------
 
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1998 and
1997 are presented below:

<TABLE>
<CAPTION>
                                                                         1998         1997
                                                                    -------------  ----------
                                                                          (In thousands)
    <S>                                                             <C>           <C>
    Deferred tax assets:
        Mortgages and other loans receivable, primarily due to
           allowance for loan losses and deferred loan fees         $   10,369     $  10,209
        Real estate owned, primarily due to allowance for losses           243           526
        Post-retirement benefits                                         1,593         1,467
        Non-accrual loan interest                                          602         1,142
        Employee bonus and fringe benefits                               1,900         2,774
        ESOP and SBIP                                                    3,090         1,998
        Charitable contributions                                           623         2,989
        Loss carryforward                                                    -           380
        Correspondent reserve                                              349           522
        Callable preferred stock                                           198           832
        Amortization of purchased mortgage servicing rights                 50           551
        Depreciation of fixed assets                                       601           271
        Mark to market on mortgage loans held-for-sale                     271           179
        Other                                                                -           378
                                                                    -------------  ----------
             Total gross deferred tax assets                            19,889        24,218
                                                                    -------------  ----------

    Deferred tax liabilities:
        Net unrealized gain on available-for-sale securities           (11,253)      (24,530)
        Originated mortgage servicing rights                            (3,573)       (1,430)
        Other                                                             (564)            -
                                                                    -------------  ----------
             Total gross deferred tax liabilities                      (15,390)      (25,960)
                                                                    -------------  ----------

             Net deferred tax asset (liability)                     $    4,499     $  (1,742)
                                                                    =============  ==========
</TABLE>


Management believes that it is more likely than not that the consolidated
results of future operations of the Company will generate sufficient taxable
income to realize the deferred tax assets of the Company. Therefore, a valuation
allowance against the gross deferred tax assets is not considered necessary.

                                                                              50
<PAGE>
 
Provisions for income taxes are comprised of the following amounts:

<TABLE>
<CAPTION>
                                         Years Ended December 31,
                                  ------------------------------------
                                      1998        1997        1996
                                  -----------  -----------  ----------
                                              (In thousands)
    <S>                           <C>          <C>          <C>
    Current:
             Federal              $  14,556    $  19,168    $  6,053
             State and local          1,437        4,083       2,758
                                  -----------  -----------  ----------
                                     15,993       23,251       8,811
                                  -----------  -----------  ----------

    Deferred:
             Federal                  5,286       (5,486)        458
             State and local          1,750       (1,692)        169
                                  -----------  -----------  ----------
                                      7,036       (7,178)        627
                                  -----------  -----------  ----------
                                  $  23,029    $  16,073    $  9,438
                                  ===========  ===========  ==========
</TABLE>

Total provision for income taxes differed from the amounts computed by applying
the U.S. Federal income tax rate of 35% to income before income tax expense as a
result of the following:

<TABLE>
<CAPTION>
                                                                     Years Ended December 31,
                                                                   ----------------------------
                                                                     1998      1997      1996
                                                                   --------  --------  --------
                                                                          (In thousands)
    <S>                                                           <C>       <C>       <C>
    Expected income tax expense at statutory Federal tax rate     $ 26,402  $ 17,312  $ 10,525
    State and local taxes, net of Federal income tax benefit         2,072     1,554     2,049
    Dividend received deduction                                     (3,998)   (2,956)   (2,513)
    Tax adjustment for prior year                                   (1,200)        -         -
    Other, net                                                        (247)      163      (623)
                                                                  --------- --------- ---------
                                                                  $ 23,029  $ 16,073  $  9,438
                                                                  ========= ========= =========
</TABLE>

The Company's stockholders' equity includes approximately $10.3 million at
December 31, 1998 and 1997, which has been segregated for Federal income tax
purposes as a bad debt reserve. The use of this amount for purposes other than
to absorb losses on loans may result in taxable income for Federal income taxes
at the then current tax rate. Under section 593 of the Internal Revenue Code
(the Code), 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 and to make annual additions
thereto, which additions were, within specified limitations, deducted in
arriving at their taxable income. The Bank's deduction with respect to
"qualifying loans," which are generally loans secured by certain interests in
real property, was, prior to January 1, 1996, computed using an amount based on
the Bank's actual loss experience (the Experience Method), or the percentage
equal to 8% of the Bank's taxable income (the PTI Method), computed without
regard to this deduction and with additional modifications and reduced by the
amount of any permitted additions to the non-qualifying reserve. Similar
deductions for additions to the Bank's bad debt reserve were permitted under the
New York State Bank Franchise Tax, however, for purposes of these taxes, the
effective allowable percentage under the PTI Method was 32% rather than 8%.

Under the Small Business Job Protection Act of 1996 (the 1996 Act), which was
enacted in August 1996, section 593 of the Code was amended and the Bank, as a
"large bank" (one with assets having an adjusted basis of more than $500
million), is no longer permitted to make additions to its tax bad debt reserve,
is permitted to deduct bad debts only as they occur and is required to recapture
(that is, take into taxable income) over a multi-year period, beginning with the
Bank's taxable year beginning on January 1, 1996, the excess of the balance of
its bad debt reserves (other than the supplemental reserve) as of December 31,
1995 over the balance of such reserves as of December 31, 1987. At December 31,
1995 the balance of the Bank's federal bad debt reserves equaled the balance of
such amount at December 31, 1987. The New York State tax law has been amended to
prevent a

                                                                              51
<PAGE>
 
similar recapture of the Bank's bad debt reserve, and to permit the continued
future use of the bad debt reserve methods, for purposes of determining the
Bank's New York State tax liability, in either case, so long as the Bank
continues to satisfy the New York State definitional test related to its assets
and nature of business, which are similar to the former federal income tax test
described above.

(14)  Employee Benefit Plans
      ----------------------

Pension Plan - The Bank's noncontributory pension plan with the RSI Retirement
Trust covers substantially all full-time employees. In February 1998, the FASB
issued SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." SFAS No. 132, which is effective for fiscal years
beginning after December 15, 1997, standardizes the disclosure requirements for
pensions and other post-retirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis, and eliminates certain
disclosures no longer deemed useful. The disclosures which follow have been
prepared in accordance with SFAS No. 132. As required by SFAS No. 132,
disclosures for prior years have been restated. The following table depicts the
components of the net pension expense for the years ended December 31, 1998,
1997 and 1996:

<TABLE>
<CAPTION>
                                                                    1998     1997      1996
                                                                  --------  -------  ---------
                                                                          (In thousands)
    <S>                                                          <C>       <C>      <C>
    Service cost                                                 $    896  $   589  $     463
    Interest cost                                                   1,062      875        845
    Actual return on assets                                        (1,332)    (997)    (1,667)
    Amortization of unrecognized transition asset                       -      (50)      (115)
    Amortization of unrecognized loss                                   -        -         11
    Amortization of unrecognized past service liability                 5        5          5
    Deferred investment gain                                            -        -        790
                                                                 --------  -------  ---------
                                                                 $    631  $   422  $     332
                                                                 ========  =======  =========
</TABLE>

The assumptions used by the Company relating to the plan for the years ended
December 31, 1998 and 1997 were as follows:

<TABLE>
<CAPTION>
                                               1998       1997
                                             --------  ---------
    <S>                                      <C>       <C>
    Assumed rate of return on assets             8.50%      8.00%
                                             ========  =========

    Assumed rate of compensation increase        4.50%      5.00%
                                             ========  =========

    Assumed discount rate                        6.50%      7.25%
                                             ========  =========
</TABLE>

The following table provides details of the changes in the actuarial present
value of the benefit obligation and fair value of plan assets for the above plan
for each of the years shown and a reconciliation, at the end of each year shown,
of the funded status of the plan with the net amount recognized in the
consolidated statement of financial condition.

                                                                              52
<PAGE>
 
<TABLE>
<CAPTION>
                                                                     1998      1997
                                                                   --------  --------
                                                                      (In thousands)
      <S>                                                         <C>       <C>
      Change in benefit obligation during the year:
           Benefit obligation at beginning of the year            $ 14,948  $ 11,801
           Service cost                                                896       588
           Interest cost                                             1,062       874
           Actuarial loss                                            1,411     2,470
           Annuity payments                                           (555)     (550)
           Settlements                                                 (29)     (235)
                                                                  --------  --------
               Benefit obligation at end of year                    17,733    14,948
                                                                  --------  --------
      Change in fair value of plan assets during the year:
           Fair value of plan assets at beginning of the year       15,617    13,389
           Actual return on plan assets                               (369)    2,938
           Employer contributions                                      585        75
           Annuity payments                                           (555)     (550)
           Settlements                                                 (29)     (235)
                                                                  --------  --------
               Fair value of plan assets at the end of the year     15,249    15,617
                                                                  --------  --------
      Funded status at the end of the year                          (2,484)      669
      Unrecognized actuarial loss (gain)                             3,061       (49)
      Contribution                                                      92        25
      Unrecognized past service liability                               21        25
                                                                  --------  --------
      Net prepaid pension expense at the end of the year          $    690  $    670
                                                                  ========  ========
</TABLE>

Supplemental Plan - The former chief executive officer is covered by a
supplemental executive retirement plan with the RSI Retirement Trust. The
actuarial present value of the accumulated benefit obligation at December 31,
1998 and 1997 was $626,000 and $627,000, respectively. Included in the employee
benefit expense for the years ended December 31, 1998, 1997 and 1996 was
$42,000, $47,000 and $45,000, respectively, related to this obligation.

Benefit Restoration Plan - The Benefit Restoration Plan provides benefits for
any highly compensated employee whose benefits are restricted under the Bank's
defined benefit and defined contribution plans. The actuarial present value of
the accumulated benefit obligation at December 31, 1998 and 1997 was $1.3
million and $800,000, respectively. Included in employee benefit expense for the
years ended December 31, 1998, 1997 and 1996 was $280,000, $166,000 and
$160,000, respectively, related to this obligation.

401(k) Plan - The Bank has a defined contribution and thrift savings plan under
Section 401(k) of the Internal Revenue Code. All regular, full-time employees
are eligible for voluntary participation after one or more years of continuous
service. The plan is effectuated through a trust established by the Bank. The
Bank makes matching contributions of 6% of the participant's eligible
compensation in the form of cash. Commencing on January 10, 1997, eligible
participants in the ESOP were no longer eligible for the 401(k) matching
contribution. The Bank made cash contributions of $80,000, $51,000 and $322,000
for the years ended December 31, 1998, 1997 and 1996, respectively.

Employee Stock Ownership Plan - In connection with the Conversion, the Bank
established an ESOP. The ESOP is a tax qualified retirement plan designed to
invest primarily in the Company's common stock. All full-time employees of the
Bank who have completed one year of service with the Bank are eligible to
participate in the ESOP. The ESOP utilized funds borrowed from the Company
totaling $53.8 million, and a $1.0 million contribution from the Bank made in
1996, to purchase approximately 8%, or 3,491,397 shares, of the Company's common
stock issued in the Conversion. The loan to the ESOP will be primarily repaid
with contributions from the Bank to the ESOP over a period not to exceed 30
years. Under the terms of the ESOP, the Bank makes contributions to the ESOP
sufficient to cover all payments of principal and interest as they become due.
For the years ended December 31, 1998 and 1997, the Bank made contributions of
$3.8 million

                                                                              53
<PAGE>
 
and $4.3 million, respectively, to the ESOP. The ESOP utilized the
contributions, along with the dividends received on the unallocated ESOP shares,
which totaled $1.2 million and $617,000, to repay $470,000 and $454,000 of
principal and $4.5 million and $4.4 million of interest on the loan in 1998 and
1997, respectively. At December 31, 1998 and 1997, the loan had an outstanding
balance of $52.9 million and $53.4 million and an interest rate of 7.75% and
8.25%, respectively.

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. The number of shares released to participants is determined based upon
the percentage of principal and interest payments made during the year divided
by the total remaining principal and interest payments including the current
year's payment. 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. For the years ended December 31, 1998 and 1997, approximately
292,218 shares and 177,961 shares have been allocated to participants and
3,199,179 shares and 3,313,436 shares remained unallocated, respectively.
Included in the shares allocated to participants during the years ended December
31, 1998 and 1997, were approximately 21,000 shares and 19,934 shares,
respectively, allocated utilizing the matching contribution formula under the
401(k) plan. The Company recognizes compensation expense attributable to the
ESOP ratably over the year based upon the estimated number of ESOP shares to be
allocated each December 31st. For the years ended December 31, 1998, 1997 and
1996, the Company recognized $2.2 million, $2.0 million and $1.0 million,
respectively, as compensation expense.

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).

Management Supplemental Executive Retirement Plan - The Management Supplemental
Executive Retirement Plan (MSERP) provides benefits to certain officers and
highly compensated employees whose benefits are limited under the ESOP
allocation procedure if they retire prior to the complete repayment of the ESOP
loan. Benefits under the MSERP vest in 20% annual increments over a five year
period commencing as of the date of a participant's participation in the MSERP.
The actuarial present value of the accumulated benefit obligation at December
31, 1998 and 1997 was $1.6 million and $685,000, respectively. The Company
recorded an expense of $148,000 relating to the MSERP for the year ended
December 31, 1998. No expense related to the MSERP was recorded for the year
ended December 31, 1997.

Stock-Based Incentive Plan - At the annual shareholder meeting on July 22, 1997
the shareholders approved The Roslyn Bancorp, Inc. 1997 Stock-Based Incentive
Plan (Incentive Plan). The Incentive Plan authorizes the granting of options to
purchase the Company's common stock, option-related awards and awards of the
Company's common stock (collectively, Awards). Subject to certain adjustments to
prevent dilution of Awards to participants, the maximum number of shares
reserved for Awards denominated in common stock under the Incentive Plan is
6,108,444 shares. The maximum number of shares reserved for purchase pursuant to
the exercise of options and option-related Awards which may be granted under the
Incentive Plan is 4,364,246 shares, and will primarily vest over a five year
period and which must be exercised no more than ten years from the date of
grant. The maximum number of the shares reserved for the award of shares of the
Company's common stock is 1,744,198 shares, and will primarily vest over a five
year period. All officers, other employees and outside directors of the Company
and its affiliates, including the Bank and its subsidiaries, are eligible to
receive Awards under the Incentive Plan. The Incentive Plan is administered by a
committee of non-employee directors of the Company (the Committee). Authorized
but unissued shares, or shares previously issued and reacquired by the Company,
may be used to satisfy the Awards under the Incentive Plan. Each option may
become fully exercisable and each award may become fully vested upon the
occurrence of a change in control of the Company, or upon death, disability or
retirement of the optionee.

                                                                              54
<PAGE>
 
The Company contributed $41.4 million, during the third quarter of 1997, to the
Incentive Plan to enable the Incentive Plan to purchase 1,744,198 shares of the
Company's common stock to be awarded. 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
awards. The Committee established September 2, 1997 as the Incentive Plan's
effective grant date and 1,512,507 shares were awarded at a price of $22.50 per
share to outside directors, officers and employees of the Bank. During the year
ended December 31, 1998, the Company granted additional stock awards of 91,409
shares, with prices ranging from $21.69 to $27.75 per share, and 24,673 shares
were forfeited. During the year ended December 31, 1998, plan participants
vested in 328,377 shares. The total outstanding unvested stock awards amounted
to 1,250,866 shares at December 31, 1998. Upon the achievement of certain
defined performance targets, 99,255 of the aforementioned shares will vest. For
the years ended December 31, 1998 and 1997, compensation expense attributable to
stock awards under the Incentive Plan was approximately $6.4 million and $3.6
million, respectively.

Options granted under this plan are either non-statutory stock options or
incentive stock options. Each option entitles the holder to purchase one share
of the Company's common stock at an exercise price equal to the fair market
value on the date of grant. There was no compensation expense attributable to
these options as the Company used the intrinsic value based method of accounting
as the exercise price equaled the common stock price at the grant date. All
options expire no later than ten years following the date of grant. Option
transactions for the years ended December 31, 1998 and 1997 are shown below:

<TABLE>
<CAPTION>
                                                                    Weighted
                                                   Number           Average
                                                  of Shares      Exercise Price
                                               ----------------  --------------
   <S>                                         <C>               <C>
   Options outstanding at December 31, 1996               -          -
   Granted                                        3,883,388     $   22.50
   Forfeited                                         (3,882)        22.50
                                               ----------------
   Options outstanding at December 31, 1997       3,879,506         22.50
   Granted                                          496,000         21.93
   Forfeited                                       (190,113)        22.44
                                               ----------------
   Options outstanding at December 31, 1998       4,185,393         22.44
                                               ================
</TABLE>

The following table summarizes information about stock options outstanding at
December 31, 1998:


<TABLE>
<CAPTION>
                                 Options Outstanding
                        ---------------------------------
                                             Weighted
                           Number of          Average          Options
    Exercise Price          Shares             Life          Exercisable
  --------------------  ----------------   --------------   ---------------
<S>                     <C>                <C>              <C>

 $      15.250                 10,000           9.79                    -
        18.125                 25,000           9.98                    -
        21.688                 80,000           9.19                    -
        22.000                300,000           9.14                    -
        22.500              3,722,893           8.68              741,979
        22.625                 23,500           9.43                    -
        23.000                  1,500           9.24                    -
        27.875                 22,500           9.33                    -
                        ----------------                    ---------------
                            4,185,393           8.74              741,979
                        ================                    ===============
</TABLE>

                                                                              55
<PAGE>
 
In accordance with SFAS No. 123, the Company used the Black-Scholes option
pricing model with the following weighted average assumptions to value the
options granted as follows:

<TABLE>
<CAPTION>
                                             At December 31,
                                      -------------------------------
                                           1998             1997
                                      -------------     -------------
            <S>                       <C>               <C>
            Dividend  yield                    2.10%             1.74%
            Expected volatility               22.50%            22.50%
            Risk-free interest rate            4.54%             5.61%
            Expected option lives        3.60 years           4 years
</TABLE>

On a pro forma basis, had compensation expense for the Company's stock-based
compensation plan been determined based on the fair value at the grant date for
awards made under the plan, consistent with SFAS No. 123, the Company's net
income and earnings per share for the years ended December 31, 1998 and 1997
would have been reduced as follows:

<TABLE>
<CAPTION>
                                            1998      1997
                                          --------  --------
                                (In thousands, except per share data)
       <S>                               <C>       <C>
       Net income:
                As reported              $ 52,404  $ 33,390
                Pro forma                  47,434    31,906

       Basic earnings per share:
                As reported              $   1.36  $   0.83
                Pro forma                    1.23      0.79

       Diluted earnings per share:
                As reported              $   1.36  $   0.83
                Pro forma                    1.23      0.79
</TABLE>

The effects of applying SFAS No. 123, for either recognizing or disclosing
compensation cost under such pronouncement, may not be representative of the
effect on reported net income for future periods.

(15)  Post-retirement Health Care and Life Insurance Benefits
      -------------------------------------------------------

The Bank currently provides health care and life insurance benefits for retirees
and their eligible dependents. The coverage provided depends upon the date they
retired. The cost of the Bank's post-retirement health care and life insurance
benefits is recognized in the consolidated financial statements during the
employee's active working career. The disclosures which follow have been
prepared in accordance with SFAS No. 132. As required by SFAS No. 132,
disclosures for prior years have been restated. Net periodic post-retirement
benefit cost included in compensation and employee benefits in the accompanying
consolidated statements of income for the years ended December 31, 1998, 1997
and 1996 is comprised of the following components:

<TABLE>
<CAPTION>
                                                                       1998    1997    1996
                                                                     -------  ------  -------
                                                                          (In thousands)
   <S>                                                              <C>      <C>     <C>
   Service cost-benefits earned during the year                     $   123  $  106  $    86
   Interest cost on accumulated post-retirement benefit obligation      230     232      271
   Amortization of unrecognized gain                                    (36)    (34)       -
   Amortization of unrecognized past service liability                   50      50       50
                                                                    -------  ------  -------
                                                                    $   367  $  354  $   407
                                                                    =======  ======  =======
</TABLE>

The assumptions used by the Company relating to the plan for the years ended
December 31, 1998 and 1997 were as follows:

                                                                              56
<PAGE>
 
<TABLE>
<CAPTION>
                                                1998       1997
                                              --------   --------
    <S>                                       <C>        <C>
    Assumed ultimate medical trend                5.00%      5.00%
                                              ========   ========

    Assumed current medical trend                 6.50%      7.00%
                                              ========   ========

    Assumed salary scale for life insurance       4.50%      5.00%
                                              ========   ========

    Assumed discount rate                         6.50%      7.25%
                                              ========   ========
</TABLE>

For measurement purposes, the annual rate of increase in the per capita cost of
covered benefits (health care cost trend rates) will have a significant effect
on the estimate of the accumulated post-retirement benefit obligation and the
aggregate service and interest cost components of the net periodic post-
retirement benefit cost. Increasing the annual health care trend rates by 1.0%
in each year would increase both the accumulated post-retirement benefit
obligation by $144,000 and the aggregated related service and interest cost by
$13,000 at December 31, 1998. A 1.0% decrease in the assumed health care trend
rates would decrease both the accumulated post-retirement benefit obligation by
$177,000 and the aggregate related service and interest cost by $15,000 at
December 31, 1998.

The following table provides details of the changes in the benefit obligation
and fair value of plan assets for the above plans for each of the years shown
and a reconciliation, at the end of each year shown, of the funded status of the
plans with the net amount recognized in the consolidated statement of financial
condition.

<TABLE>
<CAPTION>
                                                                       1998           1997
                                                                   -------------  ------------
                                                                          (In thousands)
    <S>                                                           <C>            <C>
    Change in benefit obligation during the year:
         Benefit obligation at beginning of the year               $    3,485     $    3,693
         Service cost                                                     123            106
         Interest cost                                                    230            232
         Actuarial gain                                                  (209)          (430)
         Premiums/claims paid                                            (105)          (116)
         Termination benefits                                             306              -
                                                                   -------------  ------------
             Benefit obligation at end of year                          3,830          3,485
                                                                   -------------  ------------
    Change in fair value of plan assets during the year:
         Fair value of plan assets at beginning of the year                 -              -
         Employer contributions                                           105            116
         Premiums/claims paid                                            (105)          (116)
                                                                   -------------  ------------
             Fair value of plan assets at the end of the year               -              -
                                                                   -------------  ------------
    Funded status at the end of the year                               (3,830)         3,485
    Unrecognized actuarial gain                                          (774)           601
    Unrecognized past service liability                                   489            539
                                                                   -------------  ------------
    Accrued post-retirement benefit cost at the end of the year    $   (4,115)    $   (3,547)
                                                                   =============  ============
</TABLE>

(16)  Disclosures About Fair Value of Financial Instruments
      -----------------------------------------------------

SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
the Company to disclose the fair value of its on- and off-balance sheet
financial instruments. A financial instrument is defined in SFAS No. 107 as
cash, evidence of an ownership interest in an entity or a contract that creates
a contractual obligation or right to deliver or receive cash or another
financial instrument from a second entity on potentially favorable or
unfavorable terms. SFAS No. 107 defines the fair value of a financial instrument
as the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.

                                                                              57
<PAGE>
 
The following table represents the carrying amounts and fair values of the
Company's financial instruments:


<TABLE>
<CAPTION>
                                                                      At December 31, 1998
                                                                  ---------------------------
                                                                   Carrying       Estimated
                                                                    Amount        Fair Value
                                                                  -----------  --------------
                                                                         (In thousands)
    <S>                                                          <C>          <C>
    Financial assets:
        Cash and cash equivalents                                $    76,320  $      76,320
        Debt and equity securities, net:
           Held-to-maturity                                              715            755
           Available-for-sale                                        613,260        613,260

        Mortgage-backed and mortgage related securities, net:
           Held-to-maturity                                           68,071         68,416
           Available-for-sale                                      1,622,023      1,622,023
        Loans held-for-sale, net                                      81,276         81,873
        Loans receivable held for investment, net                  1,190,977      1,226,766
        Accrued interest receivable                                   22,352         22,352
        Mortgage servicing rights, net                                13,537         13,537
    Financial liabilities:
        Deposit liabilities:
           Certificates of deposit                                 1,341,986      1,351,888
           Deposits, excluding certificates of deposit               728,845        728,845
        Borrowed funds                                               959,469        967,762
        Accrued dividends and interest on deposits                    13,219         13,219

<CAPTION>
                                                                     At December 31, 1997
                                                                  --------------------------
                                                                    Carrying     Estimated
                                                                     Amount      Fair Value
                                                                  -----------  -------------
                                                                        (In thousands)
    <S>                                                         <C>          <C>
    Financial assets:
        Cash and cash equivalents                              $      22,366  $      22,366
        Debt and equity securities, net:
           Held-to-maturity                                            1,930          2,026
           Available-for-sale                                        494,193        494,193

        Mortgage-backed and mortgage related securities, net:
           Held-to-maturity                                          200,193        200,445
           Available-for-sale                                      1,856,633      1,856,633
        Loans held-for-sale, net                                      15,283         15,498
        Loans receivable held for investment, net                    954,291        984,117
        Accrued interest receivable                                   21,225         21,225
        Mortgage servicing rights, net                                 9,155         12,641
    Financial liabilities:
        Deposit liabilities:
           Certificates of deposit                                 1,303,272      1,312,899
           Deposits, excluding certificates of deposit               638,973        638,973
        Borrowed funds                                               966,451        966,029
        Accrued dividends and interest on deposits                    10,375         10,375
</TABLE>

                                                                              58
<PAGE>
 
The carrying amounts in the table are included in the consolidated statements of
condition under the indicated captions. The following summarizes the major
methods and assumptions used in estimating the fair values of the financial
instruments:

Cash and cash equivalents - The carrying amounts for cash and cash equivalents
-------------------------
approximate fair value as they mature in 30 days or less and do not present
unanticipated credit concerns.

Securities - The fair values of securities are estimated based on bid quotations
----------
received from security dealers or from prices obtained from firms specializing
in providing security pricing services.

Loans held-for-sale, net - 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, net - Fair values are estimated for
-----------------------------------------
portfolios of loans with similar financial characteristics. Loans are segregated
by type, such as commercial real estate and residential mortgage. Each loan
category is further segmented into fixed and adjustable rate interest terms and
by performing and non-performing categories. For performing residential mortgage
loans, fair values are estimated by discounting contractual cash flows through
the estimated maturity using discount rates and prepayment estimates based on
secondary market sources adjusted to reflect differences in servicing and credit
costs. The estimated fair value of remaining performing loans is calculated by
discounting scheduled cash flows using estimated market discount rates that
reflect the credit and interest rate risks inherent in the loan. Fair values for
non-performing real estate loans are based on recent appraisals.

Accrued interest receivable - The fair value of the accrued interest receivable
---------------------------
is estimated to be the book value since it is currently due.

Mortgage servicing rights, net - Mortgage servicing rights 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 rate, loan type and the frequency of
value of interest rate adjustments in the case of adjustable rate mortgage
loans. Each strata is then discounted to reflect the present value of the future
cash flows utilizing current market assumptions regarding discount rates,
prepayment speeds, delinquency rates, and other factors.

Deposit liabilities - All deposits, except certificates of deposit, are subject
-------------------
to rate changes at any time, and therefore are considered to be carried at
estimated fair value. The fair value of certificates of deposit are estimated by
computing the present value of contractual future cash flows for each
certificate. The present value rate utilized is the rate offered by the Company
at each date presented on certificates with an initial maturity equal to the
remaining term to maturity of the existing certificates.

Borrowed funds - The estimated fair value of borrowed funds is based on the
--------------
discounted value of contractual cash flows using interest rates currently in
effect for borrowings with similar maturities and collateral requirements.

Accrued dividends and interest on deposits - The fair values of the accrued
------------------------------------------
dividends and interest on deposit balances are estimated to be their book value
since they are currently payable.

Limitations - SFAS No. 107 requires disclosures of the estimated fair value of
-----------
financial instruments. Fair value estimates are made at a specific point in
time, based on relevant market information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
a one-time sale of the Company's entire holdings of a particular financial
instrument nor the resultant tax ramifications or transaction costs. Since no
market exists for a significant portion of the Company's financial instruments,
fair value estimates are based on judgments regarding current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature

                                                                              59
<PAGE>
 
and involve uncertainties and matters of significant judgment and therefore
cannot be determined with precision. Changes in assumptions could significantly
affect the estimates.

Fair value estimates are based on existing on- and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. For example, the Company conducts a mortgage servicing
activity that contributes fee income annually. The mortgage servicing activity
is not considered a financial instrument and as such its value has not been
incorporated into the fair value estimates. Other significant assets of the
Company that are not considered financial assets include banking house and
equipment and deferred tax assets. In addition, the tax ramifications related to
the unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered.

Commitments - The fair value of commitments is estimated using the fees
-----------
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed rate loan commitments and commitments to sell loans at
specified prices, fair value also considers the difference between current
levels of interest rates and the committed rates. The fair value of commitments
did not result in an unrealized gain or loss at December 31, 1998 and 1997.

(17)  Earnings Per Share Reconciliation
      ---------------------------------

The following table is the reconciliation of basic and diluted EPS as required
under SFAS No. 128 for the years ended December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                      1998
                                                  ------------------------------------------
                                                    Income          Shares       Per Share
                                                  (Numerator)    (Denominator)    Amounts
                                                  ------------   -------------  ------------
                                             (In thousands, except share and per share amounts)
  <S>                                             <C>             <C>           <C>
  Net income                                      $   52,404
                                                  ============
  Basic EPS:
      Income available to common stockholders     $   52,404       38,436,760   $  1.36
  Effect of dilutive securities:
      Options                                              -            6,178      -
                                                  ------------   -------------  ------------
  Diluted EPS:
      Income available to common stockholders     $   52,404       38,442,938   $  1.36
                                                  ============   =============  ============
<CAPTION>
                                                                      1997
                                                 ---------------------------------------------
                                                   Income            Shares        Per Share
                                                 (Numerator)      (Denominator)     Amounts
                                                 ------------    --------------  -------------
                                               (In thousands, except share and per share amounts)
 <S>                                             <C>             <C>             <C>
 Net income                                      $  33,390
                                                 ============
 Basic EPS:
     Income available to common stockholders     $  33,390         40,159,931    $  0.83
 Effect of dilutive securities:
     Options                                             -                  -       -
                                                 ------------    --------------  -------------
 Diluted EPS:
     Income available to common stockholders     $  33,390         40,159,931    $  0.83
                                                 ============    ==============  =============
</TABLE>

                                                                              60
<PAGE>
 
(18) Commitments and Contingencies
     -----------------------------

In the normal course of the Company's business, there are outstanding various
commitments and contingent liabilities that have not been reflected in the
consolidated statements of financial condition. In the opinion of management,
the financial position of the Company will not be affected materially as a
result of such commitments and contingent liabilities.

In the normal course of business, there are various outstanding legal
proceedings. In the opinion of management, after consultation with legal
counsel, the financial position, results of operations and liquidity of the
Company will not be affected materially by the outcome of such legal
proceedings.

On February 17, 1998, the Company announced a settlement with the NYSBD
regarding certain practices relating to origination and loan fees (overage fees)
paid by certain borrowers of its mortgage banking subsidiary. Under terms of the
settlement agreement, the Company established a $3.0 million fund to provide
compensation to certain borrowers who allegedly paid an overage fee for their
mortgage loans obtained from its mortgage banking subsidiary. Any money
remaining in the fund will go to further the Company's community development
initiatives. The charge for the settlement, and the costs related thereto, was
fully accrued at December 31, 1997 by the Company and totaled $4.7 million.

At December 31, 1998 and 1997, respectively, there were outstanding loan
commitments by the Company to advance approximately $325.5 million and $231.5
million for mortgage loans, primarily all of which were fixed rate commercial
and residential real estate loans.

At December 31, 1998 and 1997, the Company had no available lines of credit with
banks or any other institutions, except as noted in Note 12.

In the normal course of its mortgage banking activities, the Company enters into
both optional and mandatory commitments to sell packages of mortgage loans that
it originates. The Company commits to sell the loans at specified prices in a
future period, generally ranging from 30 to 120 days from the date of
commitment, directly to FNMA and other agencies or via pass-through certificates
guaranteed by these agencies. Market risk is associated with these financial
instruments which results from movements in interest rates and is reflected by
gains or losses on the sale of the mortgage loan packages determined by the
difference between the price of the packaged loans and the price guaranteed in
the commitment.

The Company has unfilled mandatory delivery commitments with investors totaling
approximately $112.3 million and $23.5 million at December 31, 1998 and 1997,
respectively.

The Company's future minimum rental payments required under non-cancelable
operating leases for office space and equipment as of December 31, 1998 are as
follows:

<TABLE>
<CAPTION>

              Years Ending December 31,               Amounts
         ----------------------------------     --------------------
                                                  (In thousands)
         <S>                                <C>
                    1999                       $        1,714
                    2000                                1,799
                    2001                                1,768
                    2002                                1,791
                    2003                                1,691
                    Thereafter                          8,069
                                               --------------------
                                               $       16,832
                                               ====================
</TABLE>

Total rent expense for the years ended December 31, 1998, 1997 and 1996 was
$788,000, $512,000 and $492,000, respectively.

                                                                              61
<PAGE>
 
(19) Regulatory Capital
     ------------------

The Company and Bank are subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possible additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the institutions' financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action
(PCA), the institution must meet specific capital guidelines that involve
quantitative measures of the institution's assets, liabilities, and certain off-
balance sheet items as calculated under regulatory accounting practices. The
institution's capital amount and classification 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 institution to maintain minimum amounts and ratios (set forth in the
table) of total and Tier I (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier I capital (as defined) to average assets (as
defined). Management believes, at December 31, 1998, that the Company and Bank
meet all capital adequacy requirements to which they are subject.

As of December 31, 1998, the most recent notification from the FDIC categorized
the Bank as "well capitalized" under the regulatory framework for PCA. To be
categorized as "well capitalized" the Bank must maintain minimum total risk-
based, Tier I risk-based and Tier I leverage ratios of 10%, 6% and 5%,
respectively. There are no conditions or events since that notification that
management believes have changed the Bank's category.

The actual capital amounts and ratios are presented in the following table for
the years ended:

<TABLE>
<CAPTION>
                                                                        December 31, 1998
                                                       --------------------------------------------------
                                                                  Bank                     Company
                                                       ----------------------      ----------------------
                                                                     Percent                   Percent of
                                                          Amount    of Assets        Amount      Assets
                                                       ----------   ---------      ----------  ----------
                                                                       (Dollars in thousands)
     <S>                                               <C>          <C>           <C>            <C>
     GAAP capital (to total assets)                    $  437,511       12.06%    $ 598,898       16.03%
                                                       ==========   =========     =========      ======
     Leverage capital (to adjusted average assets):
         Actual level                                  $  416,164       11.52%    $ 582,148       15.66%
                                                       ==========   =========     =========      ======

         Capital adequacy requirement                  $  108,397        3.00%    $ 111,537        3.00%
                                                       ==========   =========     =========      ======

         Requirement to be well capitalized under
           PCA provisions                              $  180,662        5.00%          N/A         N/A
                                                       ==========   =========     =========      ======

     Tier I capital (to risk-weighted assets):
         Actual level                                  $  416,164       23.13%    $ 582,148       30.47%
                                                       ==========   =========     =========      ======

         Capital adequacy requirement                  $   71,960        4.00%    $  76,410        4.00%
                                                       ==========   =========     =========      ======

         Requirement to be well capitalized under
           PCA provisions                              $  107,940        6.00%          N/A         N/A
                                                       ==========   =========     =========      ======

     Total capital (to risk-weighted assets):
         Actual level                                  $  438,680       24.38%    $ 606,037       31.73%
                                                       ==========   =========     =========      ======

         Capital adequacy requirement                  $  143,919        8.00%    $ 152,820        8.00%
                                                       ==========   =========     =========      ======

         Requirement to be well capitalized under
           PCA provision                               $  179,899       10.00%          N/A         N/A
                                                       ==========   =========     =========      ======
</TABLE>

                                                                              62
<PAGE>
 
<TABLE>
<CAPTION>
                                                                                     December 31, 1997
                                                         -------------------------------------------------------------------
                                                                    Bank                                  Company
                                                         ---------------------------            ----------------------------
                                                                             Percent                                Percent
                                                                               of                                     of
                                                              Amount         Assets                 Amount          Assets
                                                         ------------      ----------            ------------    ------------
                                                                                     (Dollars in thousands)
  <S>                                                    <C>                  <C>               <C>                 <C>
  GAAP capital (to total assets)                         $     407,372          11.31%          $   628,335             17.45%
                                                         =============     ==========           ===========      ============

  Leverage capital (to adjusted average assets):
       Actual Level                                      $     375,901          12.32%          $   592,538             18.87%
                                                         =============     ==========           ===========      ============

       Capital adequacy requirement                      $      91,558           3.00%          $    94,192              3.00%
                                                         =============     ==========           ===========      ============

       Requirement to be well capitalized under PCA
         provisions                                      $     152,596           5.00%                  N/A               N/A
                                                         =============     ==========           ===========      ============

  Tier I capital (to risk-weighted assets):
       Actual level                                      $     375,901          26.34%          $   592,538             37.55%
                                                         =============     ==========           ===========      ============

       Capital adequacy requirement                      $      57,078           4.00%          $    63,121              4.00%
                                                         =============     ==========           ===========      ============

       Requirement to be well capitalized under PCA
         provisions                                      $      85,617           6.00%                  N/A               N/A
                                                         =============     ==========           ===========      ============

  Total capital (to risk-weighted assets):                                                                                      
       Actual level                                      $     393,814          27.60%          $   612,317             38.80%
                                                         =============     ==========           ===========      ============

       Capital adequacy requirement                      $     114,157           8.00%          $   126,243              8.00%
                                                         =============     ==========           ===========      ============

       Requirement to be well capitalized under PCA
         provisions                                      $     142,696          10.00%                  N/A               N/A
                                                         =============     ==========           ===========      ============
</TABLE>

(20) Parent-Only Financial Information
     ---------------------------------

The earnings of the Bank are recognized by Roslyn Bancorp, Inc. (the Holding
Company) using the equity method of accounting. Accordingly, undistributed
earnings of the Bank are recorded as increases in the Holding Company's
investment in the Bank. The following are the condensed financial statements of
the Holding Company as of and for the years ended December 31, 1998 and 1997
(although the Holding Company did not commence operations until the Conversion
on January 10, 1997, the full year results have been presented).

                                                                              63
<PAGE>
 
Condensed Statements of Financial Condition
-------------------------------------------

<TABLE>
<CAPTION>
                                                                              1998                    1997
                                                                     -----------------       ----------------
                                                                                      (In thousands)
     <S>                                                             <C>                     <C>      
     Assets
     ------
     Cash and cash equivalents                                       $             773       $            220
     Investment in equity securities, net:
         Available-for-sale                                                    353,173                153,492
     Investment in subsidiary                                                  437,511                407,372
     ESOP loan receivable                                                       52,882                 53,352
     Receivable from subsidiary                                                 33,380                 28,237
     Deferred tax asset, net                                                     5,318                    709
     Accrued interest receivable                                                 2,211                      -
     Other assets                                                                1,691                      -
                                                                     -----------------       ----------------
            Total assets                                             $         886,939       $        643,382
                                                                     =================       ================

     Liabilities and Stockholders' Equity
     ------------------------------------
     Accrued interest payable                                        $           3,763       $              -
     Payable to subsidiary                                                     251,456                      -
     Accrued taxes payable                                                      32,822                 15,005
     Other liabilities                                                               -                     42
     Total stockholders' equity                                                598,898                628,335
                                                                     -----------------       ----------------
            Total liabilities and stockholders' equity               $         886,939       $        643,382
                                                                     =================       ================
</TABLE>

Condensed Statements of Income
------------------------------

The condensed statements of income for the years ended December 31, 1998 and
1997 are as follows:

<TABLE>
<CAPTION>
                                                                                     1998                    1997
                                                                             ----------------       ----------------
                                                                                            (In thousands)
     <S>                                                                     <C>                    <C>
     Dividends received from subsidiary                                      $        14,416        $          7,856
     Interest income - securities                                                     16,890                   4,175
     Interest income - ESOP loan receivable                                            4,535                   4,439
     Gain on sale of securities                                                        3,136                       -
     Other income                                                                         24                       -
                                                                             ---------------        ----------------
                                                                                      39,001                  16,470
     Interest expense - borrowings from subsidiary                                   (15,230)                      -
     Charitable donation                                                                   -                 (12,711)
     Other operating expenses                                                           (603)                   (228)
                                                                             ---------------        ----------------
     Income before income taxes and equity in undistributed
        earnings of subsidiary                                                        23,168                   3,531
     Income tax (expense) benefit                                                     (1,263)                  2,922
                                                                             ---------------        ----------------
     Income  before equity in undistributed earnings of subsidiary                    21,905                   6,453
     Equity in undistributed earnings of subsidiary                                   30,499                  26,937
                                                                             ---------------        ----------------
     Net income                                                              $        52,404        $         33,390
                                                                             ===============        ================
</TABLE>

                                                                              64
<PAGE>
 
Condensed Statements of Cash Flows
----------------------------------

The condensed statements of cash flows for the years ended December 31, 1998 and
1997 are as follows:

<TABLE>
<CAPTION>
                                                                                        1998                 1997
                                                                                   ----------------    ----------------
   <S>                                                                           <C>                  <C>
   Operating activities:                                                                       (In thousands)
        Net income                                                               $         52,404     $         33,390
        Adjustments to reconcile net income to net cash provided (used) by
          operating activities:
            Equity in the undistributed earnings of subsidiary                            (30,499)             (26,937)
            Amortization of premiums and discounts, net                                      (737)                 303
            Charitable contribution of common stock                                             -               12,711
            Increase in receivable from subsidiary                                         (5,143)             (28,237)
            Deferred taxes                                                                  3,177                 (709)
            Increase in other assets                                                       (1,691)                   -
            Increase in accrued interest receivable                                        (2,211)                   -
            Net gains on sale of securities                                                (3,136)                   -
            Increase in accrued interest payable                                            3,763                    -
            Increase in accrued taxes payable                                              17,817               15,005
            Decrease in other liabilities                                                     (42)              (3,315)
                                                                                 ----------------     ----------------
                Net cash provided by operating activities                                  33,702                2,211
                                                                                 ----------------     ----------------

   Investing activities:
        Purchases of equity securities                                                   (367,821)            (152,445)
        Proceeds from sales and calls of securities available-for-sale                    155,333                6,201
        Investment in subsidiary                                                                -             (205,807)
        Funding of ESOP loan receivable                                                         -              (53,806)
        Principal payment on ESOP loan receivable                                             470                  454
                                                                                 ----------------     ----------------
                Net cash used in investing activities                                    (212,018)            (405,403)
                                                                                 ----------------     ----------------

   Financing activities:
        Purchase of treasury stock                                                        (58,171)                   -
        Net proceeds of common stock issuance                                                   -              410,650
        Increase in payable to subsidiary                                                 251,456                    -
        Cash dividends paid on common stock                                               (14,416)              (7,238)
                                                                                 ----------------     ----------------
                Net cash provided by financing activities                                 178,869              403,412
                                                                                 ----------------     ----------------
        Net increase in cash and cash equivalents                                             553                  220
        Cash and cash equivalents at beginning of year                                        220                    -
                                                                                 ----------------     ----------------
        Cash and cash equivalents at end of year                                 $            773     $            220
                                                                                 ================     ================
</TABLE>

(21)  Subsequent Events (Unaudited)
      -----------------------------

In January 1999, the Company announced a restructuring program that will reduce
compensation related expenses company-wide under an Enhanced Retirement Program
(the Program). Under the Program, approximately ten percent of the Bank's full-
time employees opted for early retirement. Separations under the Program became
effective on January 29, 1999, and were unrelated to the transaction with T R
Financial Corp. A restructuring charge of approximately $5.9 million will be
taken in the first quarter of 1999, to provide for compensation related benefits
granted in connection with the Program. Annual cost savings from the
restructuring, are expected to be approximately $1.6 million, and will commence
immediately with the Program's effective separation date.

                                                                              65
<PAGE>
 
(22)  Selected Quarterly Financial Data (Unaudited)
      ---------------------------------------------

The following table is a summary of operations by quarter for the years ended
December 31, 1998 and 1997.

<TABLE>
<CAPTION>
                               12/31/98     9/30/98     6/30/98     3/31/98    12/31/97     9/30/97    6/30/97     3/31/97
                              ----------  ----------  ----------  ----------  ----------  ----------  ---------  ----------
                                                        (In thousands, except per share data)
<S>                          <C>         <C>         <C>         <C>         <C>         <C>         <C>        <C>
Interest income              $  64,587   $  65,436   $  64,816   $  64,078   $  62,378   $  59,333   $  53,203  $  50,050
Interest expense                38,398      41,167      40,243      37,527      37,795      34,336      28,868     25,415
                             ----------  ----------  ----------  ----------  ----------  ----------  ---------  ----------
Net interest income before
  provision for possible
  loan losses                   26,189      24,269      24,573      26,551      24,583      24,997      24,335     24,635
Provision for possible loan
  losses                             -         150         300         300         150         150         150        150
                             ----------  ----------  ----------  ----------  ----------  ----------  ---------  ----------

Net interest income after
  provision for possible
  loan losses                   26,189      24,119      24,273      26,251      24,433      24,847      24,185     24,485
                             ----------  ----------  ----------  ----------  ----------  ----------  ---------  ----------

Non-interest income:
  Fees and service charges         786         871         581         561         469         539         751        527
  Mortgage banking
    operations                   2,121       2,988       1,702       1,315         998         868         748        894
  Net gains (losses) on
    securities                   1,231       2,192       1,087       2,665       1,491         923          (6)       349
  Real estate operations,    
    net                            103         216         269         281        (118)        (17)        (93)        56
  Other non-interest income         23          24          55         251         233          36          92        508
                             ----------  ----------  ----------  ----------  ----------  ----------  ---------  ----------
       Total non-interest
         income                  4,264       6,291       3,694       5,073       3,073       2,349       1,492      2,334
                             ----------  ----------  ----------  ----------  ----------  ----------  ---------  ----------

Non-interest expense:
  General and administrative
    expenses                    11,862      11,061      10,175      11,152       9,378       9,749       9,753     10,995
  Amortization of excess of
    cost over fair value of        
    net assets acquired            118         118         118         117         117         117         117        118
  Settlement of asserted
     claims                          -           -           -           -       4,000         680           -          -
  Charitable contribution
    to The Roslyn Savings
    Foundation                       -           -           -           -           -           -           -     12,711
                             ----------  ----------  ----------  ----------  ----------  ----------  ---------  ----------

       Total non-interest
         expense                11,980      11,179      10,293      11,269      13,495      10,546       9,870     23,824
                             ----------  ----------  ----------  ----------  ----------  ----------  ---------  ----------

Income before provision for
  income taxes                  18,473      19,231      17,674      20,055      14,011      16,650      15,807      2,995
Provision for income taxes       5,032       5,897       5,371       6,729       4,586       5,616       5,340        531
                             ----------  ----------  ----------  ----------  ----------  ----------  ---------  ----------
Net income                   $  13,441   $  13,334   $  12,303   $  13,326   $   9,425   $  11,034   $  10,467  $   2,464
                             ==========  ==========  ==========  ==========  ==========  ==========  =========  ==========
Basic and diluted earnings
  per share                  $    0.35   $    0.35   $    0.32   $   0.34    $   0.24    $     0.28  $    0.26  $    0.06
                             ==========  ==========  ==========  ==========  ==========  ==========  =========  =========
</TABLE>

                                                                              66
<PAGE>
 
Independent Auditors' Report



The Board of Directors
Roslyn Bancorp, Inc.

We have audited the accompanying consolidated statements of financial condition
of Roslyn Bancorp, Inc. and subsidiary (the Company) as of December 31, 1998 and
1997, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998. 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 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 as of
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1998 in
conformity with generally accepted accounting principles.



/s/ KPMG L.L.P.
Melville, New York
January 26, 1999, except for Note 2
   which is as of February 16, 1999.

                                                                              67
<PAGE>
 
Market Price of Common Stock

Roslyn Bancorp, Inc. common stock is traded on the NASDAQ national market under
the symbol "RSLN." The following table shows the reported high, low and closing
sales price of the Company's common stock during the periods indicated in 1998
and 1997. The Company's common stock began trading on January 10, 1997.

<TABLE>
<CAPTION>
                                          1998                                            1997
                        ------------------------------------------     -------------------------------------------
                           High            Low          Closing           High            Low           Closing
                        -----------    ------------    -----------     -----------     -----------     -----------
<S>                 <C>             <C>             <C>            <C>             <C>             <C>
1st Quarter         $     24.5000   $   20.1562     $   23.5000    $    18.6250    $    15.0000    $     16.3125
2nd Quarter               30.5000       20.8750         22.3125         22.8750         15.8750          22.8750
3rd Quarter               22.6250       13.7500         16.1250         24.3125         21.4375          22.2500
4th Quarter               21.5000       13.3125         21.5000         24.2500         20.9375          23.2500
</TABLE>

As of February 5, 1999, the Company had approximately 9,384 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 41,399,959 shares
of common stock outstanding at December 31, 1998.

The following schedule summarizes the cash dividends paid per common share for
1998.

<TABLE>
<CAPTION>

         Record                    Dividend                Dividend Paid
          Date                   Payment Date                Per Share
--------------------------  ------------------------  ------------------------
<S>                         <C>                       <C>
March 2, 1998               March 12, 1998                   $  0.080
June 2, 1998                June 12, 1998                       0.085
September 1, 1998           September 14, 1998                  0.100
December 2, 1998            December 14, 1998                   0.110
</TABLE>

                                                                              68