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

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

/X/  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
     FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

/ /  TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
     For the transaction period from -------- to ----------

                                     0-21386
                            (COMMISSION FILE NUMBER)

                               T R FINANCIAL CORP.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


             DELAWARE                                 11-3154382
     (STATE OR OTHER JURISDICTION OF     (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
      INCORPORATION OR ORGANIZATION)

         1122 FRANKLIN AVENUE,                          11530
        GARDEN CITY, NEW YORK                          (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                 (516) 742-9300
               (REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)


           Securities Registered Pursuant to Section 12(b) of the Act:
                                      NONE

           Securities Registered Pursuant to Section 12(g) of the Act:
                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                                (TITLE OF CLASS)

                         PREFERRED STOCK PURCHASE RIGHTS
                                (TITLE OF CLASS)

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file reports) and (2) has been subject to such
requirements for the past 90 days.
YES /X/    NO / /

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

         As of March 12, 1998, there were 17,529,929 shares of the Registrant's
common stock outstanding. The aggregate market value of the Registrant's common
stock (based on closing price quoted on March 12, 1998) held by non-affiliates
was approximately $446,826,673.

                       DOCUMENTS INCORPORATED BY REFERENCE

(1)  Portions of the Registrant's Annual Report to Stockholders for the year
     ended December 31, 1997 are incorporated by reference into Items 1, 5, 6,
     7, 7A and 8 of Part II hereof and Item 14 of Part IV hereof.
(2)  Portions of the definitive Proxy Statement for the Registrant's 1998 Annual
     Meeting of Stockholders are incorporated by reference into Items 10, 11, 12
     and 13 of Part III hereof.

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

<PAGE>




                                     PART I
                                     ------

ITEM 1.  BUSINESS

GENERAL
-------

         T R Financial Corp. (the "Registrant"), headquartered in Garden City,
New York, is a bank holding company incorporated on February 12, 1993 under the
laws of the State of Delaware and is registered under the Bank Holding Company
Act of 1956, as amended ("BHCA"). The Registrant was organized for the purpose
of owning all of the outstanding capital stock of Roosevelt Savings Bank (the
"Bank"). On June 29, 1993, the Bank completed its conversion from a New York
State chartered mutual savings bank to a stock form of ownership, and the
Registrant completed the sale of 22,724,000 shares of common stock at $4.50 per
share, as adjusted for a 100% stock dividend paid on May 14, 1997. The
Registrant's operations commenced on June 29, 1993 and consist principally of
the operations of the Bank.

         The Bank was organized in 1895 as a New York State chartered mutual
savings bank and became a New York State chartered stock savings bank on June
29, 1993. The Bank's deposits are insured by the Bank Insurance Fund ("BIF"), as
administered by the Federal Deposit Insurance Corporation ("FDIC"), up to the
maximum amounts permitted by law.

         The Bank is a community-oriented financial institution offering
traditional deposit and loan products. The Bank's loan products include one- to
four-family residential, commercial real estate, multi-family residential and
other loans. The Bank also invests in a variety of securities, which include
mortgage-backed securities, short- and intermediate-term investment grade debt
securities (including U.S. Government obligations and federal agency securities)
and other marketable debt and equity securities.

         The Bank services its customers from 15 full service banking facilities
located in the New York City Boroughs of Brooklyn and Queens and the State of
New York Counties of Nassau and Suffolk, including its principal office in
Garden City. These areas comprise the Bank's primary deposit gathering area. The
Bank's lending market covers the wider geographic area of the greater New York
metropolitan area and surrounding counties.

         The Bank, which represents the only direct subsidiary of the
Registrant, has 12 subsidiaries, of which Roosevelt Asset Funding Corp.
("RAFC"), a real estate investment trust, is the largest. RAFC was incorporated
in the State of Delaware on April 28, 1997 for the purpose of the investment and
reinvestment of its assets in real property, interests in real property,
mortgage loans secured by real property, interests in mortgage loans secured by
real property, leasehold interests in real property and mortgage-backed
securities, including collateralized mortgage obligations. None of the remaining
subsidiaries accounted for a significant portion of the Registrant's
consolidated assets, nor contributed significantly to the Registrant's
consolidated results of operations, at or for the year ended December 31, 1997.
The Registrant and its wholly-owned direct subsidiary, the Bank, and the Bank's
subsidiaries are collectively referred to herein as the "Company."

                                      -2-

<PAGE>

         At December 31, 1997, the Registrant had consolidated assets of $3.84
billion, deposits of $2.20 billion and stockholders' equity of $241.0 million.
The Registrant's consolidated revenues are derived principally from interest
from its loan and securities portfolios. Part II of this report contains a more
detailed discussion of the Registrant's financial condition and results of
operations.

MARKET AREA & COMPETITION

         The Bank has been, and intends to continue to be, a community oriented
financial institution offering a variety of financial services to meet the needs
of the communities it serves. The Bank maintains 15 full service banking
facilities which are located in and around the New York metropolitan area. Of
its 15 banking facilities, six are located in Nassau County, four are located in
the New York City Borough of Queens, three are located in Suffolk County and two
are located in the New York City Borough of Brooklyn.

         The greater New York metropolitan area has historically benefitted from
having a large number of corporate headquarters and a diversity of financial
service industries. The New York counties of Nassau and Suffolk have also
continued to benefit from a large developed suburban market, well educated
employment base and a diversity of industrial, service and high technology
businesses. After a prolonged period of decline, which was marked by layoffs in
the financial services and defense industries and corporate relocations and
downsizings, the economy in the greater New York metropolitan area performed
well during 1997.

         Durable goods, retail trade and the service sector are driving economic
growth in the suburbs, while securities and service industries are responsible
for growth in New York City. In addition, the pool of skilled labor, access to
international markets and the growing media industry in the area have kept the
region one of the most attractive in the country.1 The healthy economy has also
benefitted the greater New York metropolitan area office market where the
overall vacancy rate fell from 15.0% to 11.9% in one year and the class A office
vacancy rate fell to 9.6%. During 1996 and 1997, total available prime space in
this area declined by more than 40%.1 This decline in the vacancy rate in the
greater New York metropolitan area kept asking rents for all types of space on
the upswing. (1)

         The improved economic environment is also evident in the Long Island,
New York area, which is experiencing a rebound in its residential, commercial
and industrial real estate markets not seen in a number of years. The overall
vacancy rate decreased 1.5% from a year ago to 13.4%, the lowest level since
1988. During the first six months of 1997, the Long Island area had job gains of
15,100.(1)

         The real estate market in Brooklyn and Queens remained relatively
stable during 1997. Brooklyn saw a slight decline in available space from the
third to fourth quarters of 1997, from 11.6 million feet to 10.7 million feet,
while Queens saw a slight increase in space from 13.4 million feet to 13.5
million feet for the same period. Notwithstanding this slight increase, the

------------------
1    "Real Estate Forecast and Review, New York Area", Cushman & Wakefield,
     1997.

                                      -3-
<PAGE>

available square footage for both Queens and Brooklyn decreased at the end of
1997 as compared to the prior year. (2) The office building vacancy rate in
Brooklyn for 1997 was 10.5% due in part to the limited supply of space. Office
rental rates for "A" class buildings was $25.00 per square foot, while "B"
quality space was $18.38 per square foot. (1)

         The residential real estate market in the greater New York metropolitan
area was also favorably impacted during 1997 by increased demand for housing
during the period of low unemployment and generally low stable interest rates.
In much of New York City, the residential real estate market has been robust.
The sales price of homes sold in Queens County increased by 2.2% to $161,000
during 1997.(3)  In Nassau County, there were 7,835 closings in 1997 compared
with 7,139 in 1996. The same pattern held true for Suffolk County, with 10,470
closings in 1997 compared with 9,885 in 1996. In addition, median prices of
homes are also on the rise advancing over the year in Nassau County from
$175,000 to $180,000 and in Suffolk County from $137,300 to $145,000.(4)

         The Bank faces significant competition both in making loans and in
attracting deposits. The Bank's market area has a high density of financial
institutions, many of which are branches of significantly larger institutions
which have greater financial resources than the Bank, and all of which are
competitors of the Bank to varying degrees. The Bank's competition for loans
comes principally from commercial banks, savings banks, credit unions, savings
and loan associations and mortgage banking companies. Its most direct
competition for deposits has historically come from savings and loan
associations, savings banks, commercial banks and credit unions. The Bank faces
additional competition for deposits from short-term money market funds and other
corporate and government securities funds, as well as from other financial
institutions such as brokerage firms and insurance companies. Competition may
also increase as a result of the lifting of federal restrictions on the
interstate banking operations for financial institutions and the entrance of
non-depository financial institutions into the industry through the formation
and acquisition of thrift institutions.

LENDING ACTIVITIES

         LOAN PORTFOLIO COMPOSITION. The Bank's loan portfolio consists
primarily of conventional fixed rate mortgage loans and adjustable rate mortgage
("ARM") loans secured by one- to four-family residences and, to a lesser extent,
commercial real estate loans, multi-family residential loans and other loans. At
December 31, 1997, the Bank had total loans of $2.06 billion, of which $1.68
billion, or 81.73%, were one- to four-family residential mortgage loans,
including co-op loans. Of the one- to four-family residential mortgage loans,
including co-op loans, outstanding at that date, 33.9% were ARM loans and 66.1%
were fixed rate loans. At December 31, 1997, commercial real estate loans
totaled $216.7 million, or 10.54% of total loans, multi-family loans

--------------------
2   "Brooklyn, Queens Real Estate Report," Greiner, Maltz Co., Inc., Fourth
    Quarter 1997.

3   "Mortgage Press," June, 1997.

4   "In a Strong Market, Many Deals Close Quickly," New York Times, February 22,
    1998.

                                      -4-
<PAGE>

totaled $27.5 million, or 1.34% of total loans, construction and land
development loans totaled $18.5 million, or 0.90% of total loans, and the Bank's
other loans, primarily consisting of a variety of consumer loans and automobile
leases, totaled $112.8 million, or 5.49% of total loans.

         The types of loans that the Bank may originate are subject to various
federal and state laws and regulations. Interest rates charged by the Bank on
loans are affected principally by the demand for such loans, the supply of money
available for lending purposes and the rates offered by its competitors. These
factors are, in turn, affected by general economic conditions, monetary policies
of the federal government, including the Federal Reserve Board ("FRB"),
legislative and tax policies and governmental budgetary matters.

         The following table sets forth the composition of the Bank's loan
portfolio in dollar amounts and in percentages of the total loan portfolio at
the dates indicated.

<TABLE>
<CAPTION>
                                                                            At December 31,
                                  ----------------------------------------------------------------------------------------
                                            1997                       1996                              1995
                                  -------------------------  ------------------------   ----------------------------------
                                                Percent                     Percent                                Percent
                                                  of                          of                                     of
                                   Amount        Total        Amount         Total             Amount              Total
                                   ------       -------       ------        -------            ------              ------
                                                                                        (dollars in thousands)

<S>                             <C>             <C>         <C>              <C>             <C>                   <C>
Mortgage loans:
  One- to four-family.........  $1,424,689       69.30%     $1,156,944       67.26%           $ 973,086             68.22%
  Co-op (1)...................     255,583       12.43         200,462       11.65              137,972              9.67
  Multi-family................      27,519        1.34          24,324        1.41               23,745              1.66
  Commercial..................     216,663       10.54         208,689       12.13              214,208             15.02
  Construction & land
    development...............      18,511        0.90          12,309        0.72                5,147              0.36
                                 ---------       -----      ----------      ------            ---------            ------
  Total mortgage loans........   1,942,965       94.51       1,602,728       93.17            1,354,158             94.93
                                 ---------       -----      ----------      ------            ----------           ------
Other loans:
  Student loans...............       1,731        0.08           2,649        0.15                3,029              0.21
  Consumer loans (2)..........      40,963        1.99          23,909        1.39               18,342              1.29
  Automobile leases...........      65,887        3.21          86,527        5.03               46,285              3.25
  Loans on savings
    accounts..................       2,894        0.14           3,345        0.20                3,373              0.24
  Overdraft loans.............         775        0.04             696        0.04                  706              0.05
  Property improvement
    loans.....................         183        0.01             153        0.01                  107              0.01
  Business loans..............         338        0.02             222        0.01                  332              0.02
                                 ---------      ------       ---------      ------            ---------            ------
  Total other loans...........     112,771        5.49         117,501        6.83               72,174              5.07
                                 ---------      ------       ------- --     ------            ---------            ------
Total loans...................   2,055,736      100.00%      1,720,229      100.00%           1,426,332            100.00%
                                ==========      ======       =========      ======            =========           =======
Unearned discounts,
    premiums and deferred
    loan fees and costs,
    net.......................       7,160                      (4,047)                         (2,758)
  Allowance for possible
    loan losses...............     (14,917)                    (14,370)                        (13,267)
                                ----------                  -----------                     ----------
 Net loans....................  $2,047,979                  $1,701,812                      $1,410,307
                                ==========                  ===========                     ==========

<CAPTION>
                                           1994                             1993
                                -------------------------       -------------------------
                                                   Percent                       Percent
                                                     of                             of
                                  Amount            Total         Amount          Total
                                  ------           -------        ------          -------
                                                   (dollars in thousands)
<S>                             <C>              <C>           <C>              <C>
Mortgage loans:
  One- to four-family.........  $  819,502         68.29%       $ 693,303         64.54%
  Co-op (1)...................      71,307          5.94           76,925          7.16
  Multi-family................      25,390          2.12           26,392          2.46
  Commercial..................     236,305         19.69          238,605         22.21
  Construction & land
    development...............       1,000          0.08            1,671          0.16
                                ----------          ----        ---------        ------
  Total mortgage loans........   1,153,504         96.12        1,036,896         96.53
                                ----------         -----       ---------         ------
Other loans:
  Student loans...............       5,699          0.47            5,219          0.49
  Consumer loans (2)..........      14,757          1.23           14,648          1.36
  Automobile leases...........      21,845          1.82           13,138          1.22
  Loans on savings
    accounts..................       3,243          0.27            3,456          0.32
  Overdraft loans.............         680          0.06              727          0.07
  Property improvement
    loans.....................          66          0.01               26          0.00
  Business loans..............         256          0.02               64          0.01
                                 ---------          ----        ---------         -----
  Total other loans...........      46,546          3.88           37,278          3.47
                                 ---------        ------        ---------       -------
Total loans...................   1,200,050        100.00%       1,074,174        100.00%
                                 =========        ======       ==========        ======
Unearned discounts,
    premiums and deferred
    loan fees and costs,            (2,710)                        (1,590)
    net.......................
  Allowance for possible           (12,045)                       (13,760)
    loan losses...............     --------                      --------
                                $1,185,295                     $1,058,824
 Net loans....................  ==========                     ==========

</TABLE>

-------------------
(1)  Consists of loans secured by shares representing interests in individual
     co-op units that are generally owner-occupied.

(2)  Consists primarily of home equity loans and lines of credit.

         LOAN ORIGINATIONS, PURCHASES, SALES AND SERVICING. The Bank originates
and purchases both ARM and fixed rate loans, the amounts of which are dependent
upon customer demand and market rates of interest. During 1997, the Bank
originated or purchased a total of $574.3 million of real estate mortgage loans.
The Bank supplements its loan origination activities in its general lending area
through wholesale correspondent loan programs with area mortgage bankers for the

                                       -5-
<PAGE>

purchase of whole loans. The Bank also utilizes loan origination programs with
area mortgage brokers for originations of mortgage loans. To a lesser extent,
the Bank may also sell loans that it originates into the secondary market to the
Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC") and other secondary market purchasers. The amount of loans
retained by the Bank is based upon market conditions and the Bank's funding
requirements. The Bank may also sell one- to four-family residential mortgage
loans on a case-by-case basis. The Bank generally sells loans into the secondary
market without recourse and retains the servicing rights on such loans sold. As
of December 31, 1997, the Bank was servicing approximately $131.1 million of
loans for others. The Bank is generally paid a fee of 0.25% to 0.375% of the
outstanding principal balance for servicing loans sold. For the year ended
December 31, 1997, the Bank's loan servicing fee income, net of the amortization
of mortgage servicing rights, totaled $493,000.

         LOAN MATURITY AND REPRICING. The following table shows the maturity
schedule for principal or period of repricing of the Bank's loan portfolio at
December 31, 1997. Loans that have fixed rates of interest are shown below based
upon the contractual due dates. Loans that have adjustable rates are shown as
being due in the period during which the interest rates are next subject to
change.
<TABLE>
<CAPTION>

                                                                     At December 31, 1997
                                        -----------------------------------------------------------------------------------------
                                                       Mortgage Loans on Real Estate
                                        ------------------------------------------------------------
                                         One- to
                                          Four-                                      Construction and     Other           Total
                                        Family(2)       Multi-Family   Commercial    Land Development     Loans(3)        Loans
                                        --------        ------------   ----------    ----------------     --------        -----
                                                                 (in thousands)
<S>                                    <C>               <C>           <C>             <C>             <C>            <C>
Amounts due(1):
  Within one year..................     $  196,368        $ 3,220       $ 41,285        $18,511         $ 54,149      $  313,533
                                        ----------         ------        -------         ------          -------       ---------
  After 1 year:
    1 to 2 years...................        147,697            975         36,976             --           26,889         212,537
    2 to 3 years...................        228,347          1,936         23,285             --           16,241         269,809
    3 to 5 years...................        266,429          5,568         63,233             --            6,322         341,552
    5 to 10 years..................        434,814          6,850         18,265             --            4,014         463,943
    Over 10 years..................        400,586          8,970         27,456             --              586         437,598
                                        ----------        -------       --------        -------         --------       ---------
     Total due after
       1 year......................      1,477,873         24,299        169,215            --            54,052       1,725,439
                                        ----------        -------       --------        -------         --------       ---------
     Total amounts due.............     $1,674,241        $27,519       $210,500        $18,511         $108,201       2,038,972
                                        ==========        =======       ========        =======         ========
Non-accrual loans..................                                                                                       12,450
Deferred loan fees and costs, net                                                                                         11,474
Less:
  Allowance for possible
    loan losses....................                                                                                      (14,917)
                                                                                                                      ----------
      Total loans, net.............                                                                                   $2,047,979
                                                                                                                      ==========
</TABLE>
-------------------
(1)  Does not include non-accrual loans.
(2)  Includes co-op loans.
(3)  Net of unearned discount.


                                      -6-
<PAGE>

         The following table sets forth, at December 31, 1997, the dollar amount
of all fixed rate loans contractually due after December 31, 1998, and all
adjustable rate loans repricing after December 31, 1998.

                                          Due after December 31, 1998
                               ------------------------------------------------
                               Fixed Rate       Adjustable Rate        Total
                               ----------       ---------------        -----
                                                (in thousands)
Mortgage loans (1):
  One- to four-family(2)      $1,040,212            $437,661       $1,477,873
  Multi-family                    18,245               6,054           24,299
  Commercial real estate          60,252             108,963          169,215
Other loans(1)(3)                 54,052                  --           54,052
                              ----------            --------       ----------
Total loans                   $1,172,761            $552,678       $1,725,439
                              ==========            ========       ==========

--------------------
(1)  Does not include non-accrual loans.
(2)  Includes co-op loans
(3)  Net of unearned discount

         ONE- TO FOUR-FAMILY MORTGAGE LOANS. The Bank offers first mortgage
loans secured by one- to four-family residences, including townhouses,
condominium and co-op units, located in its general lending area. The Bank
offers such loans as fixed rate mortgage loans and ARM loans with maturities of
10 to 30 years. Loan originations are generally obtained through the Bank's
correspondent mortgage banker and broker programs as well as from existing or
past customers and members of the local communities located in the Bank's
general lending area. Except as to loan amount, one- to four-family residential
mortgage loans are generally underwritten according to FNMA and other agency
guidelines. At December 31, 1997, 81.7% of the Bank's loans consisted of one- to
four-family mortgage loans, including co-op loans. At such date, one- to
four-family mortgage loans, including co-op loans, comprised $7.2 million, or
52.3%, of non-performing loans.

         The Bank originates one- to four-family residential mortgage loans
without employer verification of the borrower's level of income if the
borrower's stated income is considered reasonable for the position held. These
loans involve a higher degree of risk as compared to the Bank's other fully
underwritten one- to four-family residential mortgage loans as there is a
greater opportunity for borrowers to falsify or overstate their level of income
and ability to service the indebtedness. Additionally, these loans are not
readily saleable in the secondary market either as whole loans or when pooled or
securitized. As a result, the Bank may not be able to sell such loans in the
future through established programs in the secondary market. Management,
however, does not believe that such inability will have a material adverse
impact on the liquidity needs of the Bank, as the Bank may obtain funds, if
necessary, from competitive deposit products, Federal Home Loan Bank of New York
("FHLB") advances, FHLB overnight and one month line of credit facilities or
from sales of securities under agreements to repurchase ("security repurchase
agreements"), as well as from internally generated sources. See "Sources of
Funds" for additional information regarding the Bank's primary sources of funds.
With respect to such limited income check loans, the Bank has heightened its
review and verification of the borrower's assets, limited the maximum
loan-to-value ratio on such loans to no more than 75% and charged higher

                                      -7-
<PAGE>

origination fees. During 1997, the Bank originated $50.5 million of limited
income check loans, or 9.8% of total one- to four-family mortgage loan
originations.

         The Bank currently offers ARM loans secured by one- to four-family
residential properties, including townhouses, condominium and co-op units, that
adjust as follows: loans adjusting every one, three or five years, loans
adjusting in the seventh year and then converting to three-year ARM loans and
loans adjusting in the tenth year and converting to five-year ARM loans. The
Bank offers these products with a conversion feature on the one- and three-year
products which allows the borrower to convert after the first year to a fixed
rate of interest for the remaining term of the loan. The maximum loan amount for
which this feature is offered is $500,000. ARM loans that the Bank originates
for retention are currently offered with terms of up to 30 years with 95%
loan-to-value financing up to $300,000. The Bank also offers ARM loans in excess
of $300,000 up to $1,000,000 and up to 80% of the lower of the appraised value
or sales price of the property. The Bank also may consider loans that are
greater than $1,000,000. Such loans require approval by the Loan and Investment
Committee or Executive Committee of the Bank's Board of Directors. Currently,
the repricing rates on ARM loans fluctuate based upon a 275 basis-point spread
above the average yield on United States treasury securities, after the initial
rate is adjusted to a constant maturity which corresponds to the adjustment
period of the loan (the "U.S. Treasury constant maturity index") published
weekly by the FRB. The repricing rates are generally subject to limitations on
interest rate increases of a 2% adjustment per period and an aggregate
adjustment of 6% over the life of the loan. For the year ended December 31,
1997, the Bank originated or acquired $130.9 million of one- to four-family
residential ARM loans. At December 31, 1997, 33.9% of the Bank's one- to
four-family residential mortgage loans, including co-op loans, consisted of ARM
loans.

         The volume and types of ARM loans originated by the Bank have been
affected by such market factors as the level of interest rates, competition and
consumer preferences. During 1997, the demand for fixed rate loans remained
strong as market interest rates remained stable during the year. Cyclical
decreases in market interest rates, however, would decrease the demand for ARM
loans in favor of fixed rate loans. Although the Bank will continue to offer ARM
loans, there can be no assurance that in the future the Bank will be able to
originate a sufficient volume of ARM loans to increase or maintain the
proportion that these loans bear to total loans.

         The retention of ARM loans, as compared to fixed rate residential
mortgage loans, in the Bank's loan portfolio helps reduce the Bank's exposure to
increases in interest rates. However, ARM loans generally pose credit risks
different from the risks inherent in fixed rate loans, primarily because as
interest rates rise, the underlying payment of the borrower will rise, thereby
increasing the potential for default. In order to minimize risks, borrowers of
one-year ARM loans are qualified at the higher of the maximum adjusted rate at
the first adjustment or the FNMA minimum qualifying rate. The Bank has not in
the past, nor does it currently, originate ARM loans which provide for negative
amortization.

         The Bank currently offers monthly and bi-weekly fixed rate mortgage
loans with terms of 10 to 30 years secured by one- to four-family residences,
including townhouses, condominium and co-op units. Interest rates charged on
fixed and adjustable rate mortgage loans are competitively priced based upon
market conditions. The Bank originates fixed rate loans for retention in its

                                      -8-
<PAGE>

portfolio with loan-to-value ratios of up to 97% of the lower of the appraised
value or sales price of the secured property for one-family primary residences
up to FNMA loan limits of $227,150 on purchase transactions only. Also, on
two-family primary residence purchase transactions, the maximum loan-to-value
ratio is 95%, up to FNMA loan limits of $290,650. On one- and two-family
purchases and non-cashout refinances, the Bank offers 90% financing up to
$300,000 and up to 80% financing to $1,000,000 on 10-year and 15-year terms with
monthly and bi-weekly payments and 20-year terms with bi-weekly payments. On
three- and four-family purchases and non-cashout refinances, the Bank offers 80%
financing up to FNMA and FHLMC limits for fixed rate terms from 20 to 30 years.
On shorter term fixed rate loans (10 year, 15 year monthly/bi-weekly and 20 year
bi-weekly), the Bank offers up to 80% financing to $1,000,000. The maximum
financing on cashout refinance transactions on fixed rate terms from 20 to 30
years up to $300,000 is 75% for one- and two-family residences and up to FNMA
limits for three- and four-family residences. Additionally, cashout refinances
are available on 10-year, 15-year monthly/bi-weekly and 20-year bi-weekly loan
products, with the maximum financing being 75% to $1,000,000. On co-op purchase
transactions, the maximum financing is 80% on 10-year and 15-year
monthly/bi-weekly fixed rates and 20-year bi-weekly loan products. On refinance
transactions, the maximum term on a fixed rate loan is 20 years. The Bank also
may consider loans that are greater than $1,000,000. Such loans require approval
by the Loan and Investment Committee or Executive Committee of the Bank's Board
of Directors. Fixed rate loans that the Bank originates for sale are made under
specific investor guidelines. For the year ended December 31, 1997, the Bank
originated $383.9 million of fixed rate one- to four-family residential mortgage
loans. During the fourth quarter of 1996, the Bank approved a program to
originate "B" quality mortgage loans. "B" quality loans pose additional credit
risk compared to the Bank's "A" loans, and the Bank charges higher rates or
origination fees on these loans, requires larger equity or downpayments compared
to "A" paper program loans and limits the origination to owner-occupied property
only. The Bank commenced originations under this program in 1997 and, during
1997, originated $2.9 million of "B" quality loans, or 0.6% of total one- to
four-family mortgage loan originations.

         During 1997 and 1996, the Bank purchased through its correspondent
banker program one- and two-family Federal Housing Administration ("FHA")
government insured loans. These loans carried a maximum loan-to-value ratio of
97.75%, exclusive of the up-front mortgage insurance premiums. The current
maximum loan amounts on one- and two-family transactions are $170,362 and
$217,987, respectively. Total purchases for 1997 and 1996 were $70.6 million and
$1.9 million, respectively.

         The Bank generally requires private mortgage insurance on all one- to
four-family, condominium or co-op mortgage loans with a loan-to-value ratio
greater than 80%. An origination fee is generally not charged on one- to
four-family primary residence full income verification mortgage loans. Mortgage
loans in the Bank's portfolio generally include due-on-sale clauses, which
provide the Bank with the contractual right to deem the loan immediately due and
payable in the event that the borrower transfers ownership of the property
without the Bank's consent. It is the Bank's policy to enforce due-on-sale
provisions within the applicable regulations and guidelines imposed by New York
State law and secondary market purchasers.

                                      -9-

<PAGE>

         The Bank also originates second mortgage loans secured by one- to
four-family and condominium owner-occupied residences. The underwriting
standards and procedures applicable to these loans are the same as for the
Bank's one- to four-family first mortgage loans. As of December 31, 1997, second
mortgage loans totaled $5.3 million, or 0.3% of total mortgage loans on real
estate.

         MULTI-FAMILY LENDING. The Bank originates fixed rate and adjustable
rate multi-family loans secured by apartment buildings and mixed use (commercial
and residential) properties generally located in the greater New York
metropolitan area and surrounding counties. The Bank, however, in the past,
originated loans secured by multi-family properties located outside its general
geographic lending area. These "out-of-area" multi-family loans generally are
insured by the FHA. At December 31, 1997, the Bank had 34 multi-family loans
outstanding totalling $27.5 million, or 1.3% of total loans.

         Multi-family loans are currently made with adjustable terms of five
years to maturity or provide for an interest rate adjustment at least every five
years, and fixed rate loans with maturities not exceeding 30 years. These loans
are generally made in amounts up to 75% of the appraised value of the secured
property, based on an appraisal performed by Bank personnel or an outside
independent appraiser, and are limited generally to a minimum amount of $300,000
and a maximum of $5.0 million. Larger loans, however, may be made from time to
time and community development loans may have loan-to-value ratios up to 80% or
90% with insurance. In making multi-family loans, the Bank bases its
underwriting decision primarily on the net operating income generated by the
real estate and its ability to support the debt service. Currently, the Bank
requires the net cash flow generated by the property to provide for the Bank's
debt service plus an additional 25%. Affordable multi-family loans generally
have higher loan-to-value ratios and lower debt service coverage ratios. The
Bank also considers the financial resources and income level of the borrower,
the borrower's experience in owning or managing similar property, the
marketability of the property and the Bank's lending experience with the
borrower. At December 31, 1997, the Bank's three largest multi-family loans were
a $3.7 million loan originated in 1997 secured by 396 unsold co-op units located
in Queens, New York, a $2.4 million loan originated in 1979 secured by eleven
three-story garden apartments covering 187 units located in Virginia Beach,
Virginia and a $2.1 million mortgage loan originated in 1979 secured by a 144
unit garden apartment building located in Wayne, Michigan. As of December 31,
1997, these loans were performing in accordance with their terms.

         COMMERCIAL REAL ESTATE LENDING. The Bank originates loans secured by
commercial real estate properties generally located in the greater New York
metropolitan area and surrounding counties. The properties securing such loans
generally consist of office buildings, shopping centers, light industrial
buildings and other properties used solely for business purposes. Commercial
real estate loans generally carry adjustable interest rates with terms up to 15
years, with the initial rate based upon market conditions and adjustments based
on a spread of 2% to 3% above the FHLB borrowing rate for corresponding terms or
short-term fixed rates generally not exceeding five years. The Bank generally
originates commercial real estate loans as balloon repayment loans with
maturities or interest rate adjustments of three or five years and amortization
schedules of 15 to 30 years. These loans are made in accordance with the same
terms and underwriting standards that apply to the Bank's multi-family loans.
The average loan size for the

                                      -10-
<PAGE>

Bank's commercial real estate loans outstanding at December 31, 1997 was
approximately $628,000.

         The Bank's three largest commercial real estate loans as of December
31, 1997 consisted of a $6.9 million first mortgage loan secured by a new office
building located in Staten Island, New York, originated in 1997, a $5.0 million
loan originated in 1997 secured by an office building located in Suffolk County,
New York and a $4.1 million loan originated in 1997 secured by a strip shopping
center located in Nassau County, New York. As of December 31, 1997, these three
loans were performing in accordance with their terms.

         The Bank's largest concentration of loans-to-one-borrower at December
31, 1997 consisted of nine loans secured by nine commercial real estate
properties located in the New York City Boroughs of Brooklyn and Queens and in
Nassau County. As of December 31, 1997, the outstanding balance of these loans
totaled $9.1 million and, as of such date, these nine loans were performing in
accordance with their terms. At December 31, 1997, the Bank's concentration of
such loans did not exceed its internal $34.5 million loans-to-one-borrower
limitation, which is the lesser of 1% of Bank assets or 15% of Bank capital.

         Loans secured by commercial real estate properties generally involve a
greater degree of risk than residential mortgage loans. Because payments on
loans secured by commercial real estate properties are often dependent upon the
successful operation or management of the properties, repayment of such loans
may be subject, to a greater extent, to adverse conditions in the real estate
market or economy. Additionally, market declines in real estate values have been
more pronounced with respect to commercial real estate. The Bank reduces these
risks by originating such loans on a selective basis, although the Bank plans to
increase commercial real estate originations going forward.

         CONSTRUCTION AND LAND DEVELOPMENT LOANS. The Bank originates
construction and land development loans generally for the construction of
commercial and light industrial buildings, apartment buildings, one- to
four-family residential properties and condominium developments located in the
Bank's general lending area. These loans may generally be made in amounts up to
$5.0 million. At December 31, 1997, advances on construction and land
development loans totaled $18.5 million, or 0.90% of total loans. In addition,
construction and land development loans had unadvanced amounts of $28.5 million.
At December 31, 1997, the three largest construction loans, including unadvanced
amounts, were a $11.7 million loan to finance the construction of 98 affordable
housing units in New York City; an $8.5 million loan to finance the construction
of a 216-unit senior citizen garden apartment project located in Suffolk County,
New York and an $8.2 million loan to finance the construction of a 58-unit
affordable housing project located in Brooklyn, New York. The Bank generally
requires firm end-loan commitments and personal guarantees on all construction
and land development loans. Advances are made to borrowers as phases of
construction of the property are completed. Construction loans in projects to be
sold as individual units generally require a presale requirement. Construction
and land development loans involve a greater degree of risk than other real
estate loans due to the fact that the underwriting of such loans is based on an
estimated value of the developed property, which can be difficult to ascertain
in light of uncertainties inherent in such estimations.

                                      -11-
<PAGE>

         CONSUMER AND OTHER LENDING. The Bank originates other loans for
business, personal, family or household purposes, which generally consist of
home-equity loans, student loans, overdraft loans, auto loans, commercial lines
of credit and personal lines of credit. These loans may generally be made in
amounts up to $100,000 with terms up to 15 years for secured loans, and in
amounts up to $10,000 with terms up to four years for unsecured loans. The Bank
also originates loans and purchases leases, originated by an unrelated third
party, which are secured by automobiles and are reviewed by the Bank's
underwriting personnel. As of April 1, 1997, however, this leasing company, in
connection with its acquisition by a commercial bank, discontinued its sales of
leases to the Bank. In February 1998, however, the Bank commenced a new program
to purchase automobile leases from another unrelated third party. To date, the
volume of such purchases has been minimal. As of December 31, 1997, consumer and
other loans, net of unearned discounts, totaled $109.0 million, or 5.3% of total
loans. The Bank offers credit cards to its customers through a third party
financial institution and receives an origination fee and transactional fees for
processing such accounts, but does not underwrite or finance any portion of the
credit card receivables.

         LOAN UNDERWRITING. For all loans originated by the Bank, upon receipt
of a completed loan application from a prospective borrower, a credit report is
ordered, certain other information is verified and, if necessary, additional
financial information is requested. An appraisal of the real estate intended to
secure the proposed loan is required and is currently performed by staff
appraisers or independent appraisers who are approved by the Bank's Board of
Directors. The Bank requires title insurance on all mortgage loans, except for
certain consumer loans, secured by real estate. For first mortgage loans,
borrowers must obtain hazard insurance. Borrowers may also be required to obtain
flood insurance prior to closing. In the case of first mortgage loans, borrowers
generally are required to advance funds on a monthly basis together with each
payment of principal and interest to a mortgage escrow account from which the
Bank makes disbursements for items such as real estate taxes and private
mortgage insurance premiums, if required.

ENVIRONMENTAL ISSUES

         The Bank encounters certain environmental risks in its lending
activities. Under federal and state environmental laws, lenders may become
liable for costs of cleaning up hazardous materials found on property serving as
security for bank loans. In addition, the existence of hazardous materials may
make it unfeasible for a lender to foreclose on such property. Although
environmental risks are usually associated with loans secured by commercial real
estate, risks also may be substantial for loans secured by residential real
estate if environmental contamination makes such property unsuitable for use.
This could also have a negative effect on property values. The Bank attempts to
control its risk by training its appraisers, inspectors and underwriters to be
cognizant of signs indicative of environmental hazards. In addition, since 1991
the Bank has generally required a Phase I Environmental Report, conducted by a
qualified environmental engineer, for all newly originated and renewed
commercial real estate loans. It is the Bank's policy not to make loans secured
by properties on which a potential environmental hazard is indicated in the
Phase I Environmental Report. In the future, however, the Bank may consider
using trained in-house personnel in lieu of outside environmental engineers and
Phase I reports to determine the existence of environmental hazards that may be
present at properties securing new or renewed loans. With respect to residential
loans, FNMA guidelines require that appraisals for

                                      -12-
<PAGE>

single family residences on which the Bank lends include comments on
environmental influences. No assurance can be given, however, that the values of
properties securing loans in the Bank's portfolio will not be adversely affected
by unforeseen environmental risks, although the Bank is unaware of any
environmental issues which would subject it to any material liability at this
time.

DELINQUENT LOANS AND FORECLOSED ASSETS

         As part of the Bank's collection procedures applicable to one- to
four-family mortgage loans, the Bank sends a late notice when a payment is over
15 days past due. A default letter is sent at the time the payment becomes 30
days past due. Telephone contact is initiated and continued at this time. A
third letter is sent after the 45th day of delinquency if no favorable response
is received. If payment remains uncollected, a demand for satisfaction is sent
by the 60th day. If contact is made with the borrower at any time prior to
foreclosure, the Bank attempts to obtain full payment or work out a repayment
schedule with the borrower to avoid foreclosure. Most loan delinquencies are
cured within 90 days and no legal action is taken. Foreclosure notices generally
are sent when a loan is 90 days delinquent.

         The Bank's collection procedures applicable to commercial real estate
and multi-family loans are generally similar to those discussed above; however,
if an agreeable resolution of the delinquency is not reached, a notice of intent
to foreclose is generally sent after the 45th day of delinquency, and the matter
is generally referred to the Bank's attorneys after the 60th day of delinquency.

         With respect to delinquent payments regarding other loans, delinquency
letters are sent to borrowers at the end of 15 and 30 days and monthly
thereafter, as needed. Any overdraft account over 60 days delinquent is frozen.
In the event such loans become delinquent 120 days or more, the account is
generally charged off and legal action is pursued.

         The Bank generally continues accruing interest on all delinquent
secured loans until either foreclosure proceedings have been commenced or the
loan is 120 days past due and continues to accrue interest on all delinquent
unsecured loans until the loan is 90 days past due. The Bank reverses any
accrued interest upon foreclosure when the outstanding loan balance exceeds 90%
of the appraised value of the property.

         The following table sets forth information regarding all non-accrual
loans, loans which are 90 days or more delinquent but on which the Bank is
accruing interest and foreclosed real estate at the dates indicated. If all
non-accrual loans had been performing in accordance with their original terms
and had been outstanding from the earlier of the beginning of the year or
origination, the Bank would have recorded interest income of $1.1 million, $1.2
million and $1.1 million for 1997, 1996 and 1995, respectively, as opposed to
$486,000, $584,000 and $88,000, which was included in interest income for such
years, respectively.

                                      -13-

<PAGE>


<TABLE>
<CAPTION>
                                                                             At December 31,
                                                   ---------------------------------------------------------------------
                                                       1997          1996           1995          1994         1993
                                                       ----          ----           ----          ----         ----
                                                                          (dollars in thousands)

<S>                                                   <C>          <C>            <C>          <C>           <C>
Non-accrual mortgage loans                            $12,194      $11,964        $17,067      $35,534       $34,234
Non-accrual other loans                                   256          156            164          116           232
                                                      -------      -------        -------      -------       -------
   Total non-accrual loans and restructured
     loans                                             12,450       12,120         17,231       35,650        34,466
                                                      -------      -------        -------      -------       -------
Mortgage loans 90 days or more
  delinquent and still accruing                         1,158          446          1,425          289         2,936
Other loans 90 days or more
  delinquent and still accruing                           137           63             46           59            72
                                                      -------      -------        -------      -------       -------
   Total non-performing loans(2)                       13,745       12,629         18,702       35,998        37,474
                                                      -------      -------        -------      -------       -------
Non-performing securities(1)                               --           --             --          350           350
Other real estate owned(1)                              1,040        3,264          6,547        6,535         7,077
                                                      -------      -------        -------      -------       -------
   Total non-performing assets                        $14,785      $15,893        $25,249      $42,883       $44,901
                                                      =======      =======        =======      =======       =======

Non-performing loans to total loans(2)                  0.67%        0.74%          1.31%        3.01%         3.49%
Non-performing assets to total assets(2)                0.38%        0.49%          0.87%        1.67%         2.24%
</TABLE>

-----------------------
(1)  Net of related allowance for possible losses.

(2)  Non-performing loans excludes loans which have been restructured and are
     accruing and performing in accordance with the restructured terms.
     Restructured, accruing loans totaled $5,132,000, $5,297,000, $6,391,000,
     $6,251,000 and $4,813,000 at December 31, 1997, 1996, 1995, 1994 and 1993,
     respectively.

         At December 31, 1997, all restructured loans were performing in
accordance with their terms.

         At December 31, 1997, other real estate owned totaled $1.0 million.
Other real estate owned at December 31, 1997 consisted of one- to four-family
residential properties, including co-op units, with an aggregate carrying value
of $118,000 and commercial properties with an aggregate carrying value of
$922,000 . The Bank generally conducts appraisals on all properties securing
loans in foreclosure and foreclosed real estate annually and, if necessary based
upon the carrying amount of the property, charges-off any declines in value at
such times.

         It is the Bank's general policy to dispose of properties acquired
through foreclosure or deeds in lieu thereof as quickly and as prudently as
possible. The exceptions, however, are properties held by the Bank's subsidiary,
BSR, Inc. ("BSR"), which generally are rented and offered for sale upon lease
termination, and property held by the Bank's subsidiary, Roosevelt Land Corp.
("RLC"), which was in the process of obtaining subdivision zoning approval on
two vacant parcels of land that were sold by RLC on May 31, 1997. At December
31, 1997, there were no properties in BSR or RLC.

         Potential problem loans, as of December 31, 1997, not reflected in the
balance of non-accrual loans, loans 90 days past due and accruing interest or
restructured loans consisted of four commercial real estate loans aggregating
approximately $1.4 million. These loans are experiencing late payments due
generally to vacancies or cash flow problems of the borrower.

                                      -14-
<PAGE>

 ALLOWANCE FOR POSSIBLE LOAN LOSSES

         The allowance for possible loan losses is maintained through provisions
for possible loan losses based on management's evaluation of the risks inherent
in its loan portfolio and delinquency trends in its loan portfolio and the
national and regional economies. The Bank's policy sets forth the procedures for
reviewing the adequacy of the allowance for possible loan losses and maintaining
the allowance at an appropriate level given the risk characteristics of the
Bank's loan portfolio. The Bank relies principally on the ongoing, comprehensive
analysis of the Bank's loan portfolio in determining the adequacy of the
allowance for possible loan losses. The evaluation also includes a system of
ranges and percentages as a supplemental measure for reviewing the adequacy of
the allowance for possible loan losses.

         The following table sets forth the Bank's allowance for possible loan
losses and activity therein for the dates indicated.

<TABLE>
<CAPTION>
                                                                 For the year ended December 31,
                                             ------------------------------------------------------------------------
                                                  1997          1996             1995           1994           1993
                                                  ----          ----             ----           ----           ----
                                                                     (dollars in thousands)

<S>                                              <C>           <C>             <C>           <C>             <C>
Balance at beginning of year................     $14,370       $13,267         $12,045       $13,760         $11,145
Provisions for possible loan losses.........         800         1,400           3,050         2,250           6,100
Loans charged off:
  One- to four-family.......................          45           243             684           712             484
  Co-op.....................................         144           148             113           175             155
  Multi-family..............................          --            --              --            98              11
  Commercial................................         244            57           2,095         3,178           2,651
  Construction and land development.........          --            --              --            --             158
  Other.....................................         159            90             127           184             408
                                                 -------       -------         -------       -------         -------
    Total loans charged off.................         592           538           3,019         4,347           3,867
Recoveries:
  Mortgage loans............................         274           199           1,128           271             230
  Other.....................................          65            42              63           111             152
                                                 -------       -------         -------       -------         -------
    Total recoveries........................         339           241           1,191           382             382
                                                 -------       -------         -------       -------         -------
Balance at end of year......................     $14,917       $14,370         $13,267       $12,045         $13,760
                                                 =======       =======         =======       =======         =======
Ratio of net charge-offs during the
  year to average gross loans
  outstanding during the year...............       0.01%         0.02%           0.14%         0.34%           0.35%
Ratio of allowance for possible loan
  losses to total gross loans
  outstanding at the end of the year........        0.72          0.84            0.93          1.01            1.28
Ratio of allowance for possible loan
  losses to non-performing loans at the
  end of the year...........................      108.53        113.79           70.94         33.46           36.72
</TABLE>

                                      -15-
<PAGE>

         The balances set forth in the table below represent general loan loss
reserves and are not allocable to specific loans in the Bank's portfolio. The
allowance for possible loan losses at December 31, 1997, 1996, 1995, 1994 and
1993 is allocated as follows:

<TABLE>
<CAPTION>
                                                                           At December 31,
                                      -----------------------------------------------------------------------------------
                                               1997                    1996                              1995
                                      ------------------------   -----------------------       --------------------------
                                                  Percent of                 Percent of                     Percent of
                                                  Loans in                    Loans in                       Loans in
                                                  Category                    Category                       Category
                                                  To Total                    To Total                       To Total
                                      Amount        Loans           Amount     Loans           Amount         Loans
                                      ------      -----------       ------   ----------        ------       ----------
                                                                 (dollars in thousands)
<S>                                   <C>            <C>          <C>           <C>         <C>             <C>
Loan Category
Mortgage loans:
  One- to four-family..............    $8,134         69.30%      $ 6,167        67.26%      $ 3,006         68.22%
  Co-op............................     1,397         12.43         1,002        11.65           496          9.67
  Multi-family.....................       175          1.34           159         1.41           --           1.66
  Commercial.......................     4,336         10.54         6,434        12.13         9,211         15.02
  Construction and land
    development....................       217          0.90            62         0.72           --           0.36
Other loans........................       658          5.49           546         6.83           554          5.07
                                      -------        ------       -------       ------       -------        ------
  Total............................   $14,917        100.00%      $14,370       100.00%      $13,267        100.00%
                                      =======        ======       =======       ======       =======        ======


</TABLE>


                                                   At December 31,
                             ---------------------------------------------------
                                      1994                    1994
                             ------------------------   -----------------------
                                         Percent of                 Percent of
                                         Loans in                    Loans in
                                         Category                    Category
                                         To Total                    To Total
                             Amount        Loans           Amount     Loans
                             ------      -----------       ------   ----------
                                       (dollars in thousands)


LOAN CATEGORY
Mortgage loans:
  One- to four-family.....   $ 2,163         68.29%      $ 3,700        64.54%
  Co-op...................       532          5.94         1,140         7.16
  Multi-family............       298          2.12           170         2.46
  Commercial..............     8,831         19.69         7,900        22.21
  Construction and land
    development...........        --          0.08            60         0.16
  Other loans.............       221          3.88           790         3.47
                             -------        ------       -------       ------
     Total................   $12,045        100.00%      $13,760       100.00%
                             =======        ======       =======       ======


SECURITIES ACTIVITIES

         The policies of the Registrant and the Bank with respect to investments
in securities are set by their respective Boards of Directors. These policies
dictate that investment decisions will be made based on the safety of the
investment, liquidity requirements and potential return on investments.
Authority is delegated to certain officers to carry out the investment policies.

                                      -16-
<PAGE>

         The current policies permit investments in various types of securities
including U.S. Treasury obligations, securities of various federal agencies,
mortgage-backed securities, banker's acceptances of other Board approved
financial institutions, investment grade corporate debt securities, commercial
paper, federal funds and equities. The Bank previously purchased public utility
debt securities and Canadian debt securities, but during the past five years has
not purchased such securities; however, the Bank and/or Registrant may in the
future purchase such securities. The Registrant and the Bank currently do not
participate in hedging programs or interest rate swaps and do not invest in
non-investment grade bonds or high risk mortgage derivatives. Furthermore, the
Registrant and the Bank do not engage in any material derivative instrument
transactions falling under the scope of Statement of Financial Accounting
Standards ("SFAS") No. 119, "Disclosure about Derivative Financial Instruments
and Fair Value of Financial Instruments."

         The Company adopted SFAS No. 115, "Accounting for Investments in
Certain Debt and Equity Securities," as of December 31, 1993. SFAS No. 115
requires securities classified as available for sale to be recorded at estimated
fair value, with changes in the net unrealized gains or losses of available for
sale securities reported, net of tax, as a separate component in stockholders'
equity. The adoption of SFAS No. 115 had no impact on 1993 net income. On March
31, 1995, the Company transferred certain mortgage-backed securities from
available for sale to held to maturity. On December 15, 1995, in connection with
a one-time opportunity permitted by the Financial Accounting Standards Board and
regulatory agencies, the Company transferred certain securities from held to
maturity to available for sale. Additional information regarding these
securities transfers appears on page 35 of the Registrant's 1997 Annual Report
to Stockholders in Note (3) of Notes to Consolidated Financial Statements and is
incorporated by reference herein.

         Securities classified as held to maturity are stated at amortized cost
(unpaid principal in the case of mortgage-backed securities), adjusted for
amortization of premiums and accretion of discounts, as the Company has the
intent and ability to hold these securities until maturity. Premiums and
discounts on these securities are recognized in interest income using the
level-yield method over the period to maturity, adjusted in the case of
mortgage-backed securities for anticipated prepayments. Marketable equity
securities, bonds and other debt and mortgage-backed securities to be held for
indefinite periods of time, including securities that management intends to use
as part of its asset/liability strategy, or that may be sold in response to
changes in interest rates, changes in prepayment risk or other similar factors,
are classified as available for sale and recorded at estimated fair value.

         The Company follows a policy of reserving for specific securities when,
in the opinion of the Company's management, the securities may have experienced
a decline in value that is other than temporary. Since the Company's adoption of
SFAS No. 115, both the available for sale and the held to maturity securities
portfolios that appear on page 35 of the Registrant's 1997 Annual Report to
Stockholders have experienced substantial volatility in estimated fair values,
which has been directly attributable to changes in market interest rates. As of
December 31, 1997, any gross unrealized losses in the held to maturity and
available for sale portfolios are considered by management of the Company to be
temporary.

                                      -17-
<PAGE>


         The Bank's policies permit purchases of U.S. Treasury and federal
agency securities with maturities of five years or less for trading, up to a
limit of 2% of its assets and, in the past, the Bank has purchased such
securities for trading. As of December 31, 1997, the Bank did not have any open
positions in its trading portfolio.

         The following table sets forth certain information regarding the
amortized cost and estimated fair values of the Company's securities held to
maturity, net and FHLB capital stock:

<TABLE>
<CAPTION>

                                                                            At December 31,
                                           ---------------------------------------------------------------------------
                                                     1997                      1996                     1995
                                           ----------------------    -----------------------   -----------------------
                                                        Estimated                  Estimated                 Estimated
                                           Amortized      Fair       Amortized       Fair       Amortized      Fair
                                              Cost        Value        Cost          Value        Cost         Value
                                           ---------    ---------    ---------     ---------    ---------    ---------
                                                                        (in thousands)
<S>                                  <C>             <C>         <C>           <C>          <C>            <C>
Held to Maturity, net:
Bonds:
  Federal agency obligations .......   $    6,000   $    5,997   $    6,000     $    5,926   $   14,424   $   14,432
  Public utility bonds .............          901          872        1,001            947        1,050        1,021
  Municipal bonds ..................        6,318        6,518        6,921          7,102        7,962        8,208
  Industrial and financial
   corporation bonds ...............       28,873       28,796       39,710         39,690       75,131       75,048
  Canadian bonds ...................           --           --           --             --          225          243
                                        ---------    ---------     --------     ----------    ---------    ---------
    Total bonds ....................       42,092       42,183       53,632         53,665       98,792       98,952
Mortgage-backed securities:
  FNMA, net(1) .....................       85,777       86,058       98,178         96,258      109,281      109,210
  GNMA, net ........................    1,002,553    1,025,316      755,479        764,530      533,301      553,292
  FHLMC, net(1) ....................       85,969       89,137       98,737        100,211      111,347      115,630
  CMO, net(1) ......................        2,909        3,041        2,906          3,038        2,902        3,113
                                       ----------   ----------   ----------     ----------   ----------   ----------
    Total mortgage-backed securities    1,177,208    1,203,552      955,300        964,037      756,831      781,245
                                       ----------   ----------   ----------     ----------   ----------   ----------
      Total held to maturity, net ..   $1,219,300   $1,245,735   $1,008,932     $1,017,702   $  855,623   $  880,197
                                       ==========   ==========   ==========     ==========   ==========   ==========

  FHLB capital stock(2) ............   $   33,390   $   33,390   $   33,390     $   33,390   $   33,603   $   33,603
                                       ==========   ==========   ==========     ==========   ==========   ==========

</TABLE>
--------------------

(1)  Amounts at December 31, 1997, 1996 and 1995 include certain securities
     which were transferred between securities portfolios during 1995.
     Additional information regarding the recorded amounts of these securities
     appears on page 35 of the 1997 Annual Report to Stockholders in Note (3) of
     Notes to Consolidated Financial Statements and is incorporated by reference
     herein.

(2)  FHLB capital stock is non-marketable and redeemable at par. Accordingly,
     amortized cost and estimated fair value of such stock is at par value.

                                      -18-
<PAGE>

         The table below sets forth certain information regarding the amortized
cost, weighted average yields and contractual maturities of the Company's debt
securities held to maturity, net at December 31, 1997. No amortization payments
are considered with respect to the mortgage-backed securities. No prepayments
have been considered in the calculation of the weighted average years to
maturity.

<TABLE>
<CAPTION>

                                                                              At December 31, 1997
                                             --------------------------------------------------------------------------------------
                                                                                 After One Year                After Five Years
                                                  One Year or Less             Through Five Years             Through Ten Years
                                             -----------------------   --------------------------------    ------------------------
                                                            Weighted                          Weighted                   Weighted
                                             Amortized      Average        Amortized          Average      Amortized     Average
                                                Cost         Yield           Cost              Yield           Cost       Yield
                                             ---------      -------        ---------          --------     ---------    ---------
                                                                      (dollars in thousands)

<S>                                          <C>           <C>            <C>                 <C>          <C>            <C>
Held to Maturity, net:
Bonds:
  Federal agency obligations..............        --            --         $ 6,000             4.32%            --           --
  Public utility bonds....................   $   100          7.00%            451             5.30         $  350         5.66%
  Municipal bonds.........................       570          5.45           3,195             5.54            875         5.94
  Industrial and financial corporation
    bonds.................................    25,228          6.42           3,000             7.32            645         3.19
                                             -------                       -------                          ------
    Total bonds...........................    25,898          6.40          12,646             5.38          1,870         4.94
Mortgage-backed securities................        --            --           5,152             5.36          5,244         6.43
                                             -------                       -------                          ------
    Total.................................   $25,898          6.40         $17,798             5.37         $7,114         6.04
                                             =======                       =======                          ======
</TABLE>


<TABLE>
<CAPTION>
                                                                        At December 31, 1997
                                          -----------------------------------------------------------------------------------
                                               After 10 Years                  Total Held to Maturity Securities, net
                                          -----------------------      ------------------------------------------------------
                                                                        Average
                                                         Weighted      Remaining                     Estimated       Weighted
                                          Amortized       Average        Years to      Amortized       Fair          Average
                                             Cost          Yield        Maturity         Cost          Value          Yield
                                          ---------      --------      ---------       ---------     ---------       --------
                                                                       (dollars in thousands)
<S>                                      <C>                <C>           <C>        <C>            <C>               <C>
Held to Maturity, net:
Bonds:
  Federal agency obligations.......              --           --           1.07      $    6,000      $    5,997        4.32%
  Public utility bonds.............              --           --           5.41             901             872        5.63
  Municipal bonds..................      $    1,678         5.47%          5.96           6,318           6,518        5.57
  Industrial and financial
    corporation bonds..............
                                                 --           --           1.12          28,873          28,796        6.45
                                         ----------                                  ----------      ----------
    Total bonds....................           1,678         5.47           1.93          42,092          42,183        5.99
Mortgage-backed securities.........       1,166,812         7.65          25.46       1,177,208       1,203,552        7.63
                                         ----------                                  ----------      ----------
    Total..........................      $1,168,490         7.64          24.64      $1,219,300      $1,245,735        7.57
                                         ==========                                  ==========      ==========
</TABLE>

                                      -19-

<PAGE>

         The  following  table  sets forth  certain  information  regarding  the
amortized  cost and estimated  fair values of the  Company's  available for sale
securities:

<TABLE>
<CAPTION>
                                                                         At December 31,
                                          ------------------------------------------------------------------------------
                                                  1997                        1996                        1995
                                          -----------------------     ------------------------   -----------------------
                                                        Estimated                    Estimated                 Estimated
                                          Amortized       Fair        Amortized        Fair       Amortized       Fair
                                            Cost          Value         Cost           Value        Cost          Value
                                          ---------     ---------     ---------      ---------    ---------     --------
                                                                          (in thousands)
<S>                                        <C>         <C>           <C>            <C>          <C>         <C>
Available for Sale:
Bonds and equities:
  U.S. government obligations .........    $200,348     $201,964     $214,989       $214,585     $178,699     $182,584
  Federal agency obligations ..........      75,057       74,841       98,057         97,074       82,318       83,139
  Public utility bonds ................          --           --           --             --          804          795
  Industrial, financial corporation
    and other bonds ...................       2,032        2,065        4,059          4,126       26,420       27,289
  Common and preferred stocks .........      21,791       29,699       19,448         21,661        9,067       10,347
                                           --------     --------     --------       --------     --------     --------
  Total bonds and equities ............     299,228      308,569      336,553        337,446      297,308      304,154
                                           --------     --------     --------        -------     --------     --------
Mortgage-backed securities:
  FNMA, net(1) ........................       6,758        6,912       17,393         17,453       48,717       50,379
  GNMA, net ...........................     155,103      156,683       60,259         60,552      125,056      128,569
  FHLMC, net(1) .......................       4,496        4,501       25,717         26,396       37,546       39,343
  CMO, net(1) .........................          --           --           --             --        8,235        8,551
                                           --------     --------     --------       --------     --------     --------
    Total mortgage-backed securities...     166,357      168,096      103,369        104,401      219,554      226,842
                                           --------     --------     --------       --------     --------     --------
      Total available for sale ........    $465,585     $476,665     $439,922       $441,847     $516,862     $530,996
                                           ========     ========     ========       ========     ========     ========
</TABLE>

----------------
(1)  Amounts at December 31, 1996 and 1995 include certain securities which were
     transferred from held to maturity to available for sale. Additional
     information regarding the recorded amounts of these securities appears on
     page 35 of the 1997 Annual Report to Stockholders in Note (3) of Notes to
     Consolidated Financial Statements and is incorporated by reference herein.

         The table below sets forth certain information regarding the amortized
cost, weighted average yields and contractual maturities of the Company's debt
securities classified available for sale at December 31, 1997. No amortization
payments are considered with respect to the mortgage-backed securities. No
prepayments have been considered in the calculation of the weighted average
years to maturity.

<TABLE>
<CAPTION>
                                                                   At December 31, 1997
                                           -----------------------------------------------------------------------------
                                                                       After One Year                After Five Years
                                             One Year Or Less         Through Five Years            Through Ten Years
                                           ----------------------    ----------------------        ---------------------
                                                         Weighted                  Weighted                      Weighted
                                           Amortized      Average      Amortized    Average         Amortized    Average
                                             Cost          Yield         Cost        Yield            Cost        Yield
                                           ---------     --------      ---------   --------         ---------   --------
                                                                      (dollars in thousands)
<S>                                       <C>              <C>        <C>            <C>           <C>           <C>
Available for Sale:
Bonds:
 U.S. government obligations...........    $17,939         5.48%      $174,562        5.99%        $ 7,847        6.69%
 Federal agency obligations............         --           --         75,057        6.12              --          --
 Industrial, financial
  corporation and other bonds..........      1,005         8.50          1,027        7.50              --          --
                                           -------                    --------                     -------
    Total bonds.......................
                                            18,944         5.64        250,646        6.03           7,847        6.69
Mortgage-backed securities............          --           --             --          --              --          --
                                           -------                    --------                      ------
    Total.............................     $18,944         5.64       $250,646        6.03          $7,847        6.69
                                           =======                    ========                      ======
</TABLE>

                                      -20-
<PAGE>

<TABLE>
<CAPTION>
                                                                 At December 31, 1997
                                         -----------------------------------------------------------------------------------
                                             After 10 Years               Total Available for Sale Securities
                                         ----------------------      -------------------------------------------------------
                                                                      Average
                                                       Weighted      Remaining                      Estimated     Weighted
                                         Amortized      Average       Years to        Amortized         Fair       Average
                                           Cost         Yield         Maturity          Cost           Value        Yield
                                         ---------     --------      ---------        ---------     ---------     ---------
                                                                       (dollars in thousands)
<S>                                    <C>              <C>            <C>           <C>            <C>            <C>
Available for Sale:
Bonds:
  U.S. government obligations........         --           --           2.13          $200,348      $201,964        5.97%
  Federal agency obligations.........         --           --           3.13            75,057        74,841        6.12
  Industrial, financial
    corporation and other
    bonds............................         --           --           1.03             2,032         2,065        7.99
                                        --------                                      --------      --------
     Total bonds.....................         --           --           2.39           277,437       278,870        6.02
Mortgage-backed securities...........   $166,357         7.57%         27.64           166,357       168,096        7.57
                                        --------                                      --------      --------
     Total...........................   $166,357         7.57          11.86          $443,794      $446,966        6.60
                                        ========                                      ========      ========
</TABLE>

         MORTGAGE-BACKED SECURITIES ACTIVITIES. The Bank has historically
invested in mortgage-backed securities as an alternative investment to loan
origination. At December 31, 1997, mortgage-backed securities had a total
amortized cost of $1.34 billion and a total estimated fair value of $1.37
billion. As a percentage of the Company's held to maturity and available for
sale securities portfolios, the amortized cost of mortgage-backed securities at
December 31, 1997 represented 96.5% and 35.7%, respectively.

         The Bank's policies permit investment in mortgage-backed securities
that are insured or guaranteed by the FHLMC, FNMA or the Government National
Mortgage Association ("GNMA") and do not allow investments in riskier mortgage
derivative products, such as stripped mortgage-backed securities or residuals.

SOURCE OF FUNDS

         GENERAL. Deposits, borrowings, including security repurchase
agreements, loans and mortgage-backed securities repayments and maturities and
redemptions of held to maturity securities and the available for sale securities
portfolio are the primary sources of the Bank's funds for lending, investing and
other general purposes. The Registrant's primary sources of funds are its
available for sale securities portfolio and its dividend sources from the Bank
to the extent such payments are permitted by law or regulation.

         DEPOSITS. The Bank offers a variety of deposit accounts having a range
of interest rates and terms. The Bank's deposits consist of passbook savings,
NOW, demand deposits, money market and certificate of deposit accounts. The flow
of deposits is influenced significantly by general economic conditions, changes
in prevailing interest rates and competition. The Bank's deposits are obtained
primarily from the areas in which its banking offices are located. Management
determines the Bank's deposit rates based upon market conditions and local
competition. The Bank has not used brokers to obtain deposits, and relies
primarily on customer service, offering new deposit products, competitive
pricing, marketing and long-standing relationships with customers to attract and
retain these deposits. Certificate of deposit accounts in excess of $100,000 are
not actively solicited by the Bank. Additionally, the Bank currently

                                      -21-
<PAGE>

does not pay a rate of interest on certificate of deposit accounts in excess of
$100,000 that is higher than the rate paid on any other dollar denomination of
certificate of deposit accounts and currently does not offer a negotiated rate
on certificate of deposit accounts.

         At December 31, 1997, the Bank had outstanding $153.9 million in
certificate of deposit accounts in amounts of $100,000 or more, maturing as
follows:


                                                          Weighted Average
                                       Amount               Interest Rate
                                   -------------          ----------------
                                   (in thousands)
Maturity Period
3 months or less ..............       $ 56,635                  5.52%
Over 3 through 6 months........         30,634                  5.49
Over 6 through 12 months.......         23,458                  5.65
Over 12 months ................         43,188                  6.31
                                      --------
   Total ......................       $153,915                  5.76
                                      =========

         The following table sets forth the distribution of the Bank's deposit
accounts at the dates indicated and the weighted average nominal interest rates
on each category of deposits presented. Information with respect to the average
balances and average rates paid on the various categories of deposits appears on
page 16 of the Registrant's 1997 Annual Report to Stockholders in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and is
incorporated by reference herein.
<TABLE>
<CAPTION>
                                          1997                               1996                                1995
                              ------------------------------     -------------------------------    -------------------------------
                                                    Weighted                            Weighted                           Weighted
                                         Percent    Average                 Percent     Average                 Percent    Average
                                         of Total   Nominal                 of Total    Nominal                of Total    Nominal
                              Amount     Deposits     Rate       Amount     Deposits      Rate      Amount     Deposits      Rate
                              ------     --------   --------     ------     ---------   --------    ------     --------    --------
                                                                    (dollars in thousands)
<S>                       <C>            <C>         <C>     <C>            <C>         <C>     <C>            <C>         <C>
Passbook accounts.......  $  600,910     27.29%      2.76%   $  581,074     24.80%      2.92%   $ 501,467      24.60%      2.74%
NOW accounts............      13,618       0.62       2.73        8,292       0.35       2.97      64,409        3.16       3.13
Demand accounts.........      65,219       2.96         --       62,116       2.65         --      58,641        2.88         --
                          ----------                         ----------                         ---------
Total...................     679,747      30.87       2.49      651,482      27.80       2.63     624,517       30.64       2.52
                          ----------                         ----------                         ---------
Money market accounts...      80,890       3.67       2.21       77,229       3.29       2.21      67,163        3.29       3.19
Certificate of
   deposit accounts:
$100,000 or more........     153,915       6.99       5.76      160,019       6.83       5.81     119,422        5.86       6.00
  CD's original
    maturity of:
    6 months and less...     332,139      15.08       5.10      333,907      14.25       5.35     226,392       11.11       5.20
    6 to 12 months......     144,021       6.54       5.52      181,539       7.75       5.48     105,561        5.18       5.59
    12 to 30 months.....     479,070      21.75       5.71      603,375      25.75       5.64     602,662       29.57       5.79
    30 to 48 months.....     134,986       6.13       6.11       94,023       4.01       6.04      32,153        1.58       5.48
    48 to 72 months.....     126,786       5.76       6.15      162,300       6.92       6.29     173,552        8.51       6.48
    72 to 96 months.....      13,602       0.62       6.71       16,752       0.71       7.41      23,289        1.14       7.01
    96 months or more...      26,714       1.21       7.29       27,773       1.19       7.28      31,259        1.53       7.27
    IRA & Keogh less
      than 3 years......      30,483       1.38       6.19       35,114       1.50       6.26      32,371        1.59       5.84
                          ----------                         ----------                        ----------
    Total...............   1,441,716      65.46       5.67    1,614,802      68.91       5.72   1,346,661       66.07       5.83
                          ----------                         ----------                        ----------
Total deposits..........  $2,202,353    100.00%       4.57   $2,343,513    100.00%       4.73  $2,038,341     100.00%       4.73
                          ==========                         ==========                        ==========
</TABLE>

                                      -22-
<PAGE>

         BORROWINGS AND SECURITY REPURCHASE AGREEMENTS. Although deposits are
the Bank's primary source of funds, the Bank also utilizes borrowings from the
FHLB and security repurchase agreements as alternative cost effective funding
sources. The Bank's security repurchase agreements are transacted with Board of
Director approved, nationally recognized investment banking firms. Security
repurchase agreements are accounted for as collateralized borrowings by the
Bank. At December 31, 1997 and 1996, $807.0 million and $55.0 million,
respectively, of such agreements were outstanding.

         The Bank also utilizes borrowings from the FHLB. Such borrowings are
made pursuant to several different credit programs, each of which has its own
interest rate and range of maturities. Management believes that, should FHLB
borrowings not be available in the future, it has other potential available
sources of funds. Additional information regarding the Bank's liquidity appears
on pages 22 through 24 of the Registrant's 1997 Annual Report to Stockholders in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and is incorporated by reference herein. At December 31, 1997, the
Bank had $491.6 million of FHLB borrowings.

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

<TABLE>
<CAPTION>
                                                               For the year ended December 31,
                                                          ---------------------------------------
                                                              1997           1996          1995
                                                          ------------  ------------   ----------
                                                                   (dollars in thousands)
<S>                                                       <C>          <C>           <C>
FHLB borrowings:
  Average balance outstanding ..........................  $  502,288    $  599,843    $  600,560
  Maximum amount outstanding at any month
    end during the year ................................     577,900       652,550       652,563
  Balance outstanding at end of year ...................     491,578       582,835       594,563
  Weighted average interest rate during the year .......        5.78%         5.75%         5.71%
  Weighted average interest rate at end of year ........        5.91          5.89          5.74

Securities sold under agreements to repurchase:
  Average balance outstanding ..........................  $  401,572    $    7,392           --
  Maximum amount outstanding at any month
    end during the year ................................     807,000        55,000           --
  Balance outstanding at end of year ...................     807,000        55,000           --
  Weighted average interest rate during the year .......        5.90%         5.56%          --
  Weighted average interest rate at end of the year.....        5.71          5.63           --

Total borrowed funds:
  Average balance outstanding ..........................  $  903,860    $  607,235    $  600,560
  Maximum amount outstanding at any month
    end during the year ................................   1,298,578       652,550       652,563
  Balance outstanding at end of year ...................   1,298,578       637,835       594,563
  Weighted average interest rate during the year .......        5.83%         5.75%         5.71%
  Weighted average interest rate at end of year ........        5.78          5.86          5.74
</TABLE>

                                      -23-

<PAGE>

PERSONNEL

         As of December 31, 1997, the Company had 357 full-time employees and
142 part-time employees. The employees are not represented by a collective
bargaining unit, and the Company considers its relationship with its employees
to be good.

SUBSIDIARY AND JOINT VENTURE ACTIVITIES

         Pursuant to its "leeway investment" authority under the New York
Banking Law, the Bank formed a number of wholly-owned subsidiary corporations
for the purposes of (i) taking "equity interests" in the construction and
development of residential properties on which the Bank was making loans, (ii)
acting as a custodian for documents pertaining to certain mortgage loans sold to
FNMA, and (iii) holding and maintaining properties acquired by the Bank as a
result of foreclosure proceedings or deeds in lieu thereof. As of December 31,
1997, the Bank had twelve such subsidiaries, eight of which were inactive during
1997.

         ROOSEVELT ASSET FUNDING CORP. The largest of the Bank's wholly-owned
subsidiaries, Roosevelt Asset Funding Corp. ("RAFC"), is a real estate
investment trust which was incorporated in the State of Delaware on April 28,
1997 for the purpose of investment and reinvestment of its assets in real
property, interests in real property, mortgage loans secured by real property,
interests in mortgage loans secured by real property, leasehold interests in
real property and mortgage-backed securities, including collateralized mortgage
obligations.

         ANACONDA ENTERPRISES, INC. Anaconda Enterprises, Inc. ("Anaconda") is a
wholly-owned subsidiary of the Bank that had been inactive prior to 1994. In
1994, however, this subsidiary was reactivated for the purpose of taking title,
in a foreclosure sale, to a multi-family building located in Wichita, Kansas.
The Bank was a participant in a syndicated loan and the lead lender for the
syndicate. In November 1994, the foreclosed property was sold and distributions
were made to the participants. At December 31, 1997, Anaconda had assets of
$23,000 representing cash balances held in escrow for the participants.

         BELLINGHAM CORP. Bellingham Corp. is a wholly-owned subsidiary of the
Bank formed in 1992 to enter into a joint venture to acquire a warehouse
facility located in Suffolk County, New York. The joint venture was formed as a
result of the restructuring of a previously restructured $2.5 million loan
originally made by the Bank in 1986 to a partnership for the development of the
property, which became delinquent in 1992. In August 1994, the Bank withdrew its
equity interest pursuant to a restructuring agreement whereby the Bank increased
the loan to $5.2 million at December 31, 1994 and increased its security
position with other commercial properties having an aggregated estimated fair
value of $6.9 million based on 1994 external appraisals. The restructured loan
was satisfied during 1997. This corporation is now inactive.

         BSR, INC. BSR, Inc. ("BSR") is a wholly-owned subsidiary of the Bank
formed to hold, operate and maintain real estate acquired by the Bank as a
result of foreclosure or deed in lieu thereof. As of December 31, 1997, all
properties held by BSR had been sold and BSR had assets of $500 representing
cash balances.
                                      -24-
<PAGE>

         ROOSEVELT ABSTRACT CORP. Roosevelt Abstract Corp. ("Roosevelt
Abstract") is a wholly-owned subsidiary of the Bank that was formed in 1988.
Roosevelt Abstract was activated in February 1993 to hold two foreclosed parcels
of vacant land located in Suffolk County, New York, which were sold in January
1994. This corporation is now inactive but retains cash balances of $400.

         ROOSEVELT LAND CORP. Roosevelt Land Corp. ("RLC") is a wholly-owned
subsidiary of the Bank formed in 1993 to hold title to a previously foreclosed
parcel of vacant land located in Suffolk County, New York. RLC Land was engaged
in activities to develop and sell this land and as of December 31, 1996 had
entered into two separate contracts for sale of the land ($1.0 million each),
covering its entire interest. The closing of the sale occurred on May 31, 1997.
As of December 31, 1997, RLC had assets of $10,800 representing cash balances.
This corporation is now inactive

         ROOSEVELT SERVICE CORPORATION. Roosevelt Service Corporation is a
wholly-owned subsidiary of the Bank that serves as a custodian for loan
documents relating to certain mortgage loans sold to FNMA. As of December 31,
1997, Roosevelt Service Corporation had assets of $200 representing cash
balances.

         155 EAST 33RD STREET CORP. 155 East 33rd Street Corp. is a wholly-owned
subsidiary of the Bank formed in 1993 to acquire title to a specific foreclosed
mixed use commercial real estate property owned by the Bank. During 1996, the
property was sold for $300,000. The corporation is now inactive.

         The Bank also has additional wholly-owned subsidiaries, Rokings Holding
Corporation, VBF Holding Corporation, Oyster Bay Holding Corporation and Rosouth
Holding Corporation, all of which are currently inactive and through which the
Bank currently has no plans to conduct operations.

SAVINGS BANK LIFE INSURANCE

         As an issuing bank, the Bank offered Savings Bank Life Insurance
("SBLI") to its customers up to the legal maximum of $50,000 per insured
individual and, as a trustee bank, offers an additional $500,000 in group
coverage per insured under SBLI's Financial Institution Group Life Insurance
policy. The SBLI department's activities were separate from the Bank's with the
SBLI department paying its own expenses and reimbursing the Bank for any
expenses incurred on its behalf. Effective March 1, 1998, the Bank discontinued
the SBLI activity and transferred the SBLI department's assets and liabilities
to another issuing bank. The SBLI department's operations have not had a
material affect on the Bank's earnings and its discontinuation will also not
materially affect the Bank's earnings.

                                      -25-
<PAGE>

                           FEDERAL AND STATE TAXATION

FEDERAL TAXATION

         GENERAL. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Bank or the Registrant. For federal income tax purposes, the
Registrant and the Bank file consolidated income tax returns and report their
income on a calendar year basis using the accrual method of accounting and are
subject to federal income taxation in the same manner as other corporations with
some exceptions.

         RECENT TAX LEGISLATION REGARDING TAX BAD DEBT RESERVES. Prior to the
enactment, on August 20, 1996, of the Small Business Job Protection Act of 1996
(the "Small Business Act"), for federal income tax purposes, 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 tax
reserves for bad debts and to make annual additions thereto, which additions
could, within specified limitations, be 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, could be computed
using an amount based on a six-year moving average of the Bank's actual loss
experience (the "Experience Method"), or a percentage equal to 8.0% 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 addition 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 and New York City banking corporations tax; however, for
purposes of these taxes, the effective allowable percentage under the PTI Method
is 32% rather than 8% (See "State and Local Taxation").

         Under the Small Business Act, the PTI Method was repealed and the Bank
is considered to be a "large bank," that is, one with assets having an adjusted
basis of more than $500 million. As a large bank, for federal income tax
purposes, the Bank is no longer permitted to make additions to its tax bad debt
reserve. The Bank is permitted to deduct bad debts only as they occur and is
required to recapture (that is, take into income) over a six-year period,
beginning with the Bank's taxable year beginning January 1, 1996, the excess of
the balance of its bad debt reserves (other than the supplemental reserve) as of
December 31, 1995, over its "base year reserve," that is, the balance of its bad
debt reserves as of December 31, 1987 (or over a lesser amount if the Bank's
loan portfolio decreased since December 31, 1987). However, under the Small
Business Act, such recapture requirements are suspended for each of the two
successive taxable years beginning January 1, 1996, in which the Bank originates
a minimum amount of certain residential loans during such years that is not less
than the average of the principal amounts of such loans made by the Bank during
its six taxable years preceding January 1, 1996.

         DISTRIBUTIONS. To the extent that the Bank makes "non-dividend
distributions" to the Registrant, such distributions are considered to have been
made from the Bank's base year reserve to the extent thereof and then from its
supplemental reserve for losses on loans, and an amount based on the amount
distributed is included in the Bank's taxable income. Non-dividend

                                      -26-
<PAGE>

distributions include distributions in excess of the Bank's current and
accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete
liquidation. However, dividends paid out of the Bank's current or accumulated
earnings and profits do not constitute non-dividend distributions and,
therefore, are not so included in the Bank's income.

         The amount of additional taxable income created from a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if the Bank makes a
non-dividend distribution, approximately one and one-half times the amount so
used would be includable in gross income for federal income tax purposes,
assuming a 35% federal corporate income tax rate. (See "REGULATION AND
SUPERVISION" for limits on the payment of dividends by the Bank). The Bank does
not intend to pay dividends that would result in a recapture of any portion of
its tax bad debt reserves.

         CORPORATE ALTERNATIVE MINIMUM TAX. The Code imposes a tax ("AMT") on
alternative minimum taxable income ("AMTI") at a rate of 20%. Only 90% of AMTI
can be offset by net operating loss carryovers of which the Company currently
has none. AMTI is also adjusted by determining the tax treatment of certain
items in a manner that negates the deferral of income resulting from the regular
tax treatment of those items. Thus, the Company's AMTI is increased by an amount
equal to 75% of the amount by which the Company's adjusted current earnings
exceeds its AMTI (determined without regard to this adjustment and prior to
reduction for net operating losses). The Company does not expect to be subject
to the AMT.

         ELIMINATION OF DIVIDENDS; DIVIDENDS RECEIVED DEDUCTION. The Registrant
may exclude from its income 100% of dividends received from the Bank as a member
of the same affiliated group of corporations. A 70% dividends received deduction
generally applies with respect to dividends received from corporations that are
not members of such affiliated group, except that an 80% dividends received
deduction applies if the Registrant and the Bank own more than 20% of the stock
of a corporation paying a dividend.

STATE AND LOCAL TAXATION

         STATE AND CITY OF NEW YORK. The Bank and the Registrant are subject to
New York State franchise tax on net income or one of several alternative bases,
whichever results in the highest tax. "Net income" means federal taxable income
with certain adjustments. The Bank and the Registrant file combined returns. The
New York State tax rate for the 1997 calendar year is 10.053% (including the
Metropolitan Commuter Transportation District surcharge) of net income. In
general, the Registrant will not be required to pay New York State tax on
dividends and interest received from the Bank or on gains realized on the sale
of Bank stock. The Bank and the Registrant are also subject to a similarly
calculated New York City banking corporation tax of 9% on income allocated to
New York City.

         New York State passed legislation in August 1996 that incorporated into
New York State tax law provisions for the continued use of bad debt reserves in
a manner substantially similar to the provisions that applied under federal law
prior to the enactment of the Small Business Act

                                      -27-
<PAGE>

discussed above (see "Recent Tax Legislation Regarding Tax Bad Debt Reserves").
This legislation enabled the Bank to avoid the recapture of the New York State
tax bad debt reserves that otherwise would have occurred as a result of the
changes in federal law and to continue to utilize the reserve method for
computing its bad debt deduction. Similar legislation regarding the use and
treatment of tax bad debt reserves for purposes of the New York City banking
corporation tax was enacted in March 1997.

         STATE OF DELAWARE. As a Delaware holding company not earning income in
Delaware, the Registrant is exempted from Delaware corporate income tax but is
required to file an annual report with, and pay an annual franchise tax to the
State of Delaware. This franchise tax approximated $74,000 for 1997.

                           REGULATION AND SUPERVISION

GENERAL

         The Bank is a New York chartered savings bank, and its deposit accounts
are insured up to applicable limits by the FDIC under the BIF. The Bank is
subject to extensive regulation by the New York State Banking Department
("Banking Department"), as its chartering agency, and by the FDIC as the deposit
insurer. The Bank must file reports with the Banking Department and the FDIC
concerning its activities and financial condition, in addition to obtaining
regulatory approvals prior to entering into certain transactions, such as
mergers with, or acquisitions of, other depository institutions and opening or
acquiring branch offices. The Banking Department and the FDIC conduct periodic
examinations to assess the Bank's compliance with various regulatory
requirements. This regulation and supervision establishes a comprehensive
framework of activities in which a savings bank can engage and is intended
primarily for the protection of the deposit insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulation, whether by the Banking Department, the FDIC or
through legislation, could have a material adverse impact on the Registrant and
the Bank and their operations and stockholders. The Registrant is also required
to file certain reports with, and otherwise comply with the rules and
regulations of, the FRB and the Banking Department and of the Securities and
Exchange Commission ("SEC") under the federal securities laws. Certain of the
regulatory requirements applicable to the Bank and to the Registrant are
referred to below or elsewhere herein.

NEW YORK LAW

         The Bank derives its lending, investment and other activity powers
primarily from the applicable provisions of New York Banking Law ("Banking Law")
and the regulations adopted thereunder. Under these laws and regulations,
savings banks, including the Bank, may invest in real estate mortgages, consumer
and commercial loans, certain types of debt securities, including certain
corporate debt securities and obligations of federal, state and local
governments and

                                      -28-

<PAGE>

agencies, certain types of corporate equity securities and certain other assets.
A savings bank may also exercise trust powers upon approval of the Banking
Department. The exercise of these lending, investment and other activity powers
are limited by federal law and the regulations thereunder. See "Federal Deposit
Insurance Corporation Improvement Act of 1991 -- Restrictions Upon
State-Chartered Banks."

         Under the Banking Law, the Superintendent of Banks of the State of New
York (the "Superintendent") may issue an order to a New York-chartered banking
institution to appear and explain an apparent violation of law, to discontinue
unauthorized or unsafe practices and to keep prescribed books and accounts. Upon
a finding by the New York Banking Board that any director, trustee or officer of
any banking organization has violated any law, or has continued unauthorized or
unsafe practices in conducting the business of the banking organization after
having been notified by the Superintendent to discontinue such practices, such
director, trustee or officer may be removed from office after notice and an
opportunity to be heard. The Bank does not know of any past or current practice,
condition or violation that might lead to any proceeding by the Superintendent
or the New York Banking Board against the Bank or any of its directors or
officers.

FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991

         The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") imposed a number of new mandatory supervisory measures on commercial
banks, savings banks and savings associations. FDICIA also addressed additional
sources of funding for the BIF, which insures the deposits of commercial banks
and savings banks.

         SAFETY AND SOUNDNESS STANDARDS. Pursuant to FDICIA, as amended by the
Riegle Community Development and Regulatory Improvement Act of 1994, the FDIC,
together with the other federal bank regulatory agencies, have adopted safety
and soundness guidelines for insured depository institutions. The guidelines
establish general standards relating to internal controls, information systems
and internal audit systems, loan documentation, credit underwriting, interest
rate exposure, asset growth, asset quality, earnings and employee compensation.
In general, the guidelines require, among other things, appropriate systems and
practices to identify and manage the risks and exposures specified in the
guidelines. The guidelines prohibit excessive compensation as an unsafe and
unsound practice and describe compensation as excessive when the amounts paid
are unreasonable or disproportionate to the services performed by an executive
officer, employee, director, or principal shareholder. In addition, regulations
were adopted to require a bank that is given notice by the FDIC that it is not
satisfying any of such safety and soundness standards to submit a compliance
plan to the FDIC. If, after being so notified, a bank fails to submit an
acceptable compliance plan or fails in any material respect to implement an
accepted compliance plan, the FDIC may issue an order directing corrective and
other actions of the types to which a significantly undercapitalized institution
is subject under the "prompt corrective action" provisions of FDICIA. If a bank
fails to comply with such an order, the FDIC may seek to enforce such order in
judicial proceedings and to impose civil monetary penalties.

                                      -29-
<PAGE>

         RESTRICTIONS UPON STATE-CHARTERED BANKS. Section 24 to the Federal
Deposit Insurance Act, as amended ("FDIA"), which was added by FDICIA, generally
limits the activities and investments of state-chartered FDIC insured banks and
their subsidiaries to those permissible for federally chartered national banks
and their subsidiaries, unless such activities and investments are specifically
exempted by Section 24 or approved by the FDIC.

         Section 24 provides an exception for investments by a bank in common
and preferred stocks listed on a national securities exchange or the shares of
registered investment companies if (1) the bank held such types of investments
during the 14-month period from September 30, 1990 through November 26, 1991,
(2) the state in which the bank is chartered permitted such investments as of
September 30, 1991, and (3) the bank notifies the FDIC and obtains approval from
the FDIC to make or retain such investments. Upon receiving such FDIC approval,
an institution's investment in such equity securities will be subject to an
aggregate limit up to its Tier 1 capital. In March 1993, the Bank received
approval from the FDIC to retain and acquire such equity investments subject to
a maximum permissible investment equal to the lesser of 100% of the Bank's Tier
1 capital or the maximum permissible amount specified by the Banking Law.
Section 24 also contains an exception for certain majority owned subsidiaries,
but the activities of such subsidiaries are limited to those permissible for a
national bank or under Section 24 of the FDIA and the FDIC regulations issued
pursuant thereto, or as approved by the FDIC.

         The FDIC has also adopted regulations relating to the activity
restrictions of Section 24. Pursuant to such regulations, insured banks
intending to engage in activities not permissible for a national bank must apply
for approval from the FDIC to do so. The FDIC will not approve the activity
unless such bank meets its minimum capital requirements and the FDIC determines
that the activity does not present a significant risk to the FDIC insurance
funds.

         PROMPT CORRECTIVE ACTION. FDICIA also established a system of prompt
corrective actions to resolve the problems of undercapitalized institutions. The
FDIC, FRB, Office of the Comptroller of the Currency ("OCC") and Office of
Thrift Supervision ("OTS") each adopted final rules to require that certain
supervisory actions be taken against undercapitalized institutions, the severity
of which depends upon the institution's degree of capitalization. The rules
create five categories, consisting of "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." Regulatory action taken will depend on the level
of capitalization of the institution and may range from restrictions on
dividends and other capital distributions to seizure of the institution.
Generally, subject to a narrow exception, FDICIA requires the banking regulator
to appoint a receiver or conservator for an institution that is critically
undercapitalized within 90 days after the institution becomes critically
undercapitalized. FDICIA authorizes the banking regulators to specify the ratio
of tangible capital to assets at which an institution becomes critically
undercapitalized and requires that ratio be no less than 2% of assets. FDICIA
also allows the regulator to downgrade an institution if the institution is
determined to be in an unsafe or unsound condition or to be engaging in unsafe
or unsound practices. Such a downgrading may result in an otherwise "adequately
capitalized" institution with other problems being subject to supervisory
actions as if it were classified as "undercapitalized."

                                      -30-
<PAGE>

         The FDIC's final rule implementing the prompt corrective action section
of FDICIA defines the five capital categories as follows: Generally, an
institution will be treated as "well capitalized" if its ratio of total capital
to risk-weighted assets is at least 10.0%, its ratio of Tier 1 capital to
risk-weighted assets is at least 6.0%, its ratio of Tier 1 capital to total
assets is at least 5.0%, and it is not subject to any order or directive by the
FDIC to meet a specific capital level. An institution will be treated as
"adequately capitalized" if its ratio of total capital to risk-weighted assets
is at least 8.0%, its ratio of Tier 1 capital to risk-weighted assets is at
least 4.0%, and its ratio of Tier 1 capital to total assets is at least 4.0%
(3.0% if the bank receives the highest rating under the Uniform Financial
Institutions Rating System). An institution that has total risk-based capital of
less than 8.0%, Tier 1 risk-based capital of less than 4.0% or a leverage ratio
that is less than 4.0% (or less than 3% if the institution is rated a composite
"1" under the Uniform Financial Institutions Rating System) would be considered
to be "undercapitalized." An institution that has total risk-based capital of
less than 6.0%, a Tier 1 risk-based capital ratio of less than 3.0% or a
leverage ratio that is less than 3.0% would be considered to be "significantly
undercapitalized," and an institution that has a tangible capital to assets
ratio equal to or less than 2.0% would be deemed to be "critically
undercapitalized." Generally, under the rule, an institution that is
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized" becomes immediately subject to certain regulatory
restrictions, including, but not limited to, restrictions on growth, investment
activities, capital distributions and affiliate transactions. The filing of a
capital restoration plan, which must be guaranteed by any parent holding
company, is also required. In addition, a "critically undercapitalized" bank
must receive prior written approval from the FDIC to engage in any material
transaction other than one in the normal course of business.

         UNIFORM REAL ESTATE LENDING STANDARDS. Pursuant to FDICIA, the federal
banking agencies adopted joint regulations that require all financial
institutions to adopt and maintain written policies that establish appropriate
limits and standards for extensions of credit that are secured by liens or
interests in real estate or are made for the purpose of financing permanent
improvements to real estate. These policies must establish loan portfolio
diversification standards, prudent underwriting standards (including
loan-to-value limits) that are clear and measurable, loan administration
procedures, and documentation, approval and reporting requirements. The real
estate lending policies must reflect consideration of the interagency Guidelines
for Real Estate Lending Policies that have been adopted by the federal bank
regulators.

         ANNUAL INDEPENDENT AUDIT AND REPORTING REQUIREMENTS. Pursuant to
Section 36 of the FDIA, as added by FDICIA, the FDIC adopted regulations and
related guidelines imposing certain requirements with respect to external audits
and audit committee and management reporting requirements. Each insured
depository institution with $500 million or more in total assets as of the
beginning of each fiscal year must have an audit of its annual financial
statements by an independent accountant in accordance with generally accepted
accounting principles and must file an annual report with the FDIC, its primary
federal regulator and any appropriate state banking agency. For an insured
depository institution that is a subsidiary of a holding company that meets
certain criteria, the independent audited financial statements requirement of
the rule may be satisfied by audited financial statements of the consolidated
holding company. The required annual report must contain: financial statements
audited by an independent public accountant; a statement of management's
responsibilities for preparing the annual financial statements, for establishing
and

                                      -31-
<PAGE>

maintaining adequate internal controls and procedures for financial reporting,
and for complying with laws and regulations relating to safety and soundness
that are designated by the FDIC and the appropriate federal banking agency; a
separate assessment by management of the effectiveness of the internal controls
and procedures and the institution's compliance with the designated safety and
soundness laws and regulations; and the independent public accountant's report
on management's assertions concerning the internal controls and procedures. In
addition, an insured depository institution is required to establish an audit
committee comprised entirely of independent outside directors to review the
annual audit findings and reports with management and the independent public
accountant.

INSURANCE OF DEPOSIT ACCOUNTS

         Pursuant to FDICIA, the FDIC established a system for setting deposit
insurance premiums based upon the risks a particular bank or savings association
posed to its deposit insurance funds. Under the risk-based deposit insurance
assessment system, the FDIC assigns an institution to one of three capital
categories based on the institution's financial information, as of the reporting
period ending six months before the assessment period, consisting of (1) "well
capitalized," (2) "adequately capitalized" or (3) "undercapitalized," and one of
three supervisory sub-categories within each capital group. With respect to the
capital ratios, institutions are classified as "well capitalized" or "adequately
capitalized" using ratios that are substantially similar to the prompt
corrective action capital ratios discussed above. Any institution that does not
meet these two definitions is deemed to be undercapitalized for this purpose.
The supervisory sub-group to which an institution is assigned is based on a
supervisory evaluation provided to the FDIC by the institution's primary federal
regulator and information which the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's assessment rate depends on the
capital category and supervisory category to which it is assigned. Under the
final risk-based assessment system, there are nine assessment risk
classifications (i.e., combinations of capital groups and supervisory
sub-groups) to which different assessment rates are applied. Assessment rates
currently range from 0.0% of deposits for an institution in the highest category
(I.E., well-capitalized and financially sound, with no more than a few minor
weaknesses) to 0.27% of deposits for an institution in the lowest category
(I.E., undercapitalized and substantial supervisory concern). The FDIC is
authorized to raise the assessment rates as necessary to maintain the reserve
ratio of 1.25% required by the FDIA. As a result of the Deposit Insurance Funds
Act of 1996 (the "Funds Act"), both the BIF and the SAIF currently satisfy the
1.5% reserve ratio requirement. If the FDIC determines that assessment rates
should be increased, institutions in all risk categories could be affected. The
FDIC has exercised this authority several times in the past and could raise
insurance assessment rates in the future. Any increase in insurance assessments
could have an adverse effect on the earnings of the Bank.

         The Funds Act also amended the FDIA to expand the assessment base for
the payments on the bonds ("FICO bonds") issued in the late 1980s by the
Financing Corporation to recapitalize the now defunct Federal Savings and Loan
Insurance Corporation. The Funds Act expanded the assessment base for the
payments on the FICO bonds to include, beginning January 1, 1997, the deposits
of both BIF- and SAIF-insured institutions. Until December 31, 1999, or such
earlier

                                      -32-
<PAGE>

date on which the last savings association ceases to exist, the rate of
assessment for BIF-assessable deposits shall be one-fifth of the rate imposed on
SAIF-assessable deposits. The annual rate of assessments for the payments on the
FICO bonds for the semi-annual period beginning on January 1, 1997 was 0.0130%
for BIF-assessable deposits and 0.0648% for SAIF-assessable deposits. For the
semi-annual period beginning on July 1, 1997, the rates of assessment for the
FICO bonds was 0.0126% for BIF-assessable deposits and 0.0630% for
SAIF-assessable deposits.

         As a result of the forgoing, the Bank's BIF deposit insurance
assessments and its FICO assessments for the year ended December 31, 1997
totaled $304,000, as compared to BIF deposit insurance assessments of $2,000 for
the year ended December 31, 1996.

         The Funds Act provides that the FDIC cannot assess regular insurance
assessments for an insurance fund unless required to maintain or to achieve the
designated reserve ratio of 1.25%, except on those of its member institutions
that are not classified as "well capitalized" or that have been found to have
"moderately severe" or "unsatisfactory" financial, operational or compliance
weaknesses. The Bank has not been so classified by the FDIC. Accordingly,
assuming that the designated reserve ratio is maintained by the BIF and the Bank
maintains its regulatory status, the Bank will pay substantially lower regular
assessments on its deposits compared to those paid in the years prior to 1996.
The Funds Act also provides for the merger of the BIF and SAIF on January 1,
1999, with such merger being conditioned upon the prior elimination of the
thrift charter. Proposed legislation agreed to in March 1998 by the House
Committee on Banking and Financial Services and the House Committee on Commerce
provides for the retention of the thrift charter and for the merger of the BIF
and the SAIF on January 1, 2000.

         Under the FDIA, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC. The
management of the Bank does not know of any practice, condition or violation
that might lead to termination of deposit insurance. At December 31, 1997, the
Bank's capital exceeded the capital requirements imposed by the FDIC.

CAPITAL MAINTENANCE

         The FDIC has issued regulations that require BIF-insured banks, such as
the Bank, to maintain minimum levels of capital. The regulations establish a
minimum leverage capital requirement of not less than 3% Tier 1 capital to total
assets for banks in the strongest financial and managerial condition, with a
rating of 1 under the Uniform Financial Institutions Rating System (the highest
examination rating of the FDIC for banks). For all other banks, the minimum
leverage capital requirement is 3% plus an additional cushion of at least 100 to
200 basis points. The FDIC and the federal banking regulators have proposed
amendments to their minimum capital regulations to provide that the minimum
leverage capital ratio for a depository institution that has been assigned the
highest composite rating of 1 under the Uniform Financial Institutions System
will be 3% and that the minimum leverage capital ratio for any other depository
institution will be 4%, unless a higher leverage capital ratio is warranted by
the particular circumstances or risk profile of the depository institution. Tier
1 capital is comprised of the sum of common

                                      -33-

<PAGE>

stockholders' equity (excluding the net unrealized appreciation or depreciation,
net of tax, from available for sale debt securities), non-cumulative perpetual
preferred stock (including any related surplus) and minority interests in
consolidated subsidiaries, minus all intangible assets (other than qualifying
servicing rights) and any net unrealized loss on marketable equity securities.
At December 31, 1997, the Bank's ratio of Tier 1 capital to total assets was
5.98%, which exceeded the minimum leverage requirement.

         The FDIC also requires that banks meet a risk-based capital standard.
The risk-based capital standard requires the maintenance of total capital (which
is defined as Tier 1 capital and Tier 2 capital) to risk-weighted assets of 8%
and Tier 1 capital to risk-weighted assets of 4%. In determining the amount of
risk-weighted assets, all assets, plus certain off balance sheet items, are
multiplied by a risk-weight of 0% to 100%, based on the risks the FDIC believes
are inherent in the type of asset or item. The components of Tier 1 capital are
equivalent to those discussed above under the 3% leverage requirement. The
components of Tier 2 capital currently include cumulative perpetual preferred
stock, long-term preferred stock, mandatory convertible securities, subordinated
debt, intermediate preferred stock and allowance for possible loan and lease
losses. Allowance for possible loan and lease losses includable in Tier 2
capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, the
amount of Tier 2 capital that may be included in total capital cannot exceed
100% of Tier 1 capital. At December 31, 1997, the Bank's total capital and Tier
1 capital to risk-weighted assets was 17.80% and 16.70%, respectively, which
exceeded the FDIC risk-based capital requirements.

         FDICIA requires the federal banking agencies to revise their risk-based
capital guidelines to, among other things, take adequate account of interest
rate risk. The federal banking agencies, including the FDIC, have adopted a rule
to require an assessment of an institution's exposure to declines in the
economic value of the bank's capital due to changes in interest rates when
assessing the bank's capital adequacy. The federal banking agencies did not
codify a measurement framework for such assessment, nor did they establish any
explicit criteria to define whether a bank has an above "normal" level of
interest rate risk. The new regulations adopted a "risk assessment" approach
under which examiners will evaluate a bank's capital for interest rate risk on a
case-by-case basis, with consideration of both quantitative and qualitative
factors. The federal banking agencies also adopted a joint policy statement that
sets forth guidelines that each insured bank is to follow in developing its own
interest rate risk management program.

LOANS-TO-ONE-BORROWER LIMITATIONS

         With certain limited exceptions, a New York chartered savings bank may
not make loans or extend credit for commercial, corporate or business purposes
(including lease financing) to a single borrower and to certain entities related
to the borrower, the aggregate amount of which would exceed 15% of the Bank's
net worth, plus an additional 10% of the bank's net worth if secured by the
requisite collateral. The Bank currently complies with all applicable
loans-to-one-borrower limitations.

                                      -34-
<PAGE>

COMMUNITY REINVESTMENT ACT

         FEDERAL REGULATION. Under the Community Reinvestment Act, as amended
("CRA"), as implemented by FDIC and FRB regulations, a bank has a continuing and
affirmative obligation, consistent with its safe and sound operation, to help
meet the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs, nor does it limit a bank's discretion to develop the types of products
and services that it believes are best suited to its particular community. The
CRA requires the FDIC, in connection with its examination of a bank, to assess
the bank's record of meeting the credit needs of its community and to take such
record into account in its evaluation of certain applications by such
institution. The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") amended the CRA to require public disclosure of a bank's CRA
rating and requires the FDIC to provide a written evaluation of a bank's CRA
performance utilizing a four-tiered descriptive rating system. The Bank's latest
CRA rating, received from the FDIC by letter dated September 16, 1996, was a
rating of "satisfactory."

         The FDIC and the other federal banking agencies amended their CRA
regulations, generally effective July 1995. Among other things, the amended CRA
regulations substitute for the prior process-based assessment factors a new
evaluation system that rates a bank based on its actual performance in meeting
community needs. In particular, the proposed system would focus on three tests:
(a) a lending test, to evaluate the bank's record of making loans in its
assessment area; (b) an investment test, to evaluate the bank's record of
investing in community development projects, affordable housing, and programs
benefitting low or moderate income individuals and businesses; and (c) a service
test, to evaluate the bank's delivery of services through its branches, ATMs and
other offices. Small banks are assessed pursuant to a streamlined approach
focusing on a lesser range of information and performance standards. The amended
CRA regulations also clarify how a bank's CRA performance is considered in the
application process.

         On April 18, 1997, the FDIC formally approved the Bank's CRA Strategic
Plan, which was submitted in accordance with Section 345.27 of the Rules and
Regulations of the FDIC. The CRA Strategic Plan, which became effective as of
January 1, 1997, specifies measurable goals for meeting the lending, investment
and services tests through December 31, 1998.

         NEW YORK REGULATION. The Bank is also subject to provisions of the
Banking Law that impose continuing and affirmative obligations upon a banking
institution organized in the State of New York to serve the credit needs of its
local community ("NYCRA"). The obligations of the NYCRA are substantially
similar to those imposed by the CRA. Pursuant to the NYCRA, a bank must file
copies of all federal CRA reports with the Banking Department. The NYCRA also
requires the Superintendent to consider a bank's NYCRA rating when reviewing a
bank's application to engage in certain transactions, including mergers, asset
purchases and the establishment of branch offices or automated teller machines,
and provides that such assessment may serve as a basis for the denial of any
such application. The Banking Department has adopted, effective December 3,
1997, new regulations to implement the NYCRA. The Banking Department replaced
its prior process-focused regulations with performance-focused regulations that
were intended to parallel the current CRA regulations of the federal banking
agencies and to promote

                                      -35-
<PAGE>

consistency in CRA evaluations by considering more objective criteria. The new
regulations require a biennial assessment of a bank's compliance with the NYCRA,
utilizing a four-tiered rating system, and require the Banking Department to
make available to the public such rating and a written summary of the assessment
results. The Bank's latest NYCRA rating, received by letter dated September 16,
1996 from the Banking Department, was a rating of "satisfactory."

FEDERAL RESERVE SYSTEM

         Under FRB regulations, the Bank is required to maintain
non-interest-earning reserves against its transaction accounts (primarily NOW
and regular checking accounts). The FRB regulations generally require that
reserves of 3% must be maintained against aggregate transaction accounts of
$47.8 million or less (subject to adjustment by the FRB), plus 10% (subject to
adjustment by the FRB between 8% and 14%) against that portion of total
transaction accounts in excess of $47.8 million. The first $4.7 million of
otherwise reservable balances (subject to adjustments by the FRB) are exempted
from the reserve requirements. The Bank is in compliance with the foregoing
requirements. Because required reserves must be maintained in the form of either
vault cash, a non-interest-bearing account at a Federal Reserve Bank or a
pass-through account as defined by the FRB, the effect of this reserve
requirement is to reduce the Bank's interest-earning assets.

HOLDING COMPANY REGULATION

         FEDERAL REGULATION. The Registrant is subject to examination,
regulation and periodic reporting under the BHCA, as administered by the FRB.
The FRB has adopted capital adequacy guidelines for bank holding companies on a
consolidated basis substantially similar to those of the FDIC for the Bank. The
Registrant's total and Tier 1 capital are well in excess of these requirements.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Regulatory Capital Position"
included in the Registrant's 1997 Annual Report to Stockholders on page 24,
which is incorporated by reference herein.

         The Registrant is required to obtain the prior approval of the FRB to
acquire all, or substantially all, of the assets of any bank or bank holding
company. Prior FRB approval is required for the Registrant to acquire direct or
indirect ownership or control of any voting securities of any bank or bank
holding company if, after giving effect to such acquisition, it would, directly
or indirectly, own or control more than 5% of any class of voting shares of such
bank or bank holding company.

         A bank holding company is required to give the FRB prior written notice
of any purchase or redemption of its outstanding equity securities if the gross
consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of the Registrant's consolidated net worth. The
FRB may disapprove such a purchase or redemption if it determines that the
proposal would constitute an unsafe and unsound practice, or would violate any
law, regulation, FRB order or directive, or any condition imposed by, or written
agreement with, the FRB. Such notice and

                                      -36-
<PAGE>

approval is not required for a bank holding company that would be treated as
"well capitalized" under applicable regulations of the FRB, that has received a
composite "1" or "2" rating at its most recent bank holding company inspection
by the FRB, and that is not the subject of any unresolved supervisory issues.

         The status of the Registrant as a registered bank holding company under
the BHCA does not exempt it from certain federal and state laws and regulations
applicable to corporations generally, including, without limitation, certain
provisions of the federal securities laws.

         In addition, a bank holding company is generally prohibited from
engaging in, or acquiring 5% or more of any class of voting securities of any
company engaged in, non-banking activities. One of the principal exceptions to
this prohibition is for activities found by the FRB to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Some of the principal activities that the FRB has determined by regulation to be
so closely related to banking as to be a proper incident thereto are: (i) making
or servicing loans; (ii) performing certain data processing services; (iii)
providing discount brokerage services; (iv) acting as fiduciary, investment or
financial advisor; (v) leasing personal or real property; (vi) making
investments in corporations or projects designed primarily to promote community
welfare; and (vii) acquiring a savings and loan association.

         Under FIRREA, depository institutions are liable to the FDIC for losses
suffered or anticipated by the FDIC in connection with the default of a commonly
controlled depository institution or any assistance provided by the FDIC to such
an institution in danger of default. This law would have potential applicability
if the Registrant ever acquired as a separate subsidiary a depository
institution in addition to the Bank. There are no current plans for such an
acquisition.

         Subsidiary banks of a bank holding company are subject to certain
quantitative and qualitative restrictions imposed by the Federal Reserve Act on
any extension of credit to, or purchase of assets from, or letter of credit
issued on behalf of, the bank holding company or its subsidiaries, and on the
investment in or acceptance of stocks or securities of such holding company or
its subsidiaries as collateral for loans. In addition, provisions of the Federal
Reserve Act and FRB regulations limit the amounts of, and establish required
procedures and credit standards with respect to, loans and other extensions of
credit to officers, directors and principal shareholders of the Bank, the
Registrant, any subsidiary of the Registrant and related interests of such
persons. Moreover, subsidiaries of bank holding companies are prohibited from
engaging in certain tie-in arrangements (with the holding company or any of its
subsidiaries) in connection with any extension of credit, lease or sale of
property or furnishing of services.

         NEW YORK REGULATION. In addition to the federal bank holding company
regulations, a bank holding company organized or doing business in the State of
New York may be also subject to regulation under the Banking Law. The term "bank
holding company" for the purposes of the Banking Law, is defined generally to
include any person, company or trust that directly or indirectly either controls
the election of a majority of the directors or owns, controls or holds with
power to vote more than 10% of the voting stock of a bank holding company or, if
the company is a banking institution, another banking institution, or 10% or
more of the voting stock of each

                                      -37-
<PAGE>

of two or more banking institutions. In general, a bank holding company
controlling, directly or indirectly, only one banking institution will not be
deemed to be a bank holding company for the purposes of the Banking Law. Under
the Banking Law, the prior approval of the Banking Department is required
before: (1) any action is taken that causes any company to become a bank holding
company; (2) any action is taken that causes any banking institution to become
or to be merged or consolidated with a subsidiary of a bank holding company; (3)
any bank holding company acquires direct or indirect ownership or control of
more than 5% of the voting stock of a banking institution; (4) any bank holding
company or subsidiary thereof acquires all or substantially all of the assets of
a banking institution; or (5) any action is taken that causes any bank holding
company to merge or consolidate with another bank holding company. For these
purposes, the term "banking institution" refers to banking institutions located
in the State of New York. Additionally, certain restrictions apply to New York
bank holding companies regarding the acquisition of banking institutions that
have been chartered five years or less and are located in smaller communities.
Officers, directors and employees of New York bank holding companies are subject
to limitations regarding their affiliation with securities underwriting or
brokerage firms and other bank holding companies and limitations regarding loans
obtained from its subsidiaries. Although the Registrant is not currently a bank
holding company for purposes of New York law, any future acquisition of
ownership, control, or the power to vote 10% or more of the voting stock of
another bank or bank holding company located in the State of New York would
cause it to become such.

INTERSTATE BANKING AND BRANCHING

         In the past, interstate banking has been limited under the BHCA and
various state laws to those states that permitted interstate banking by statute.
New York was one of a number of states that permitted, subject to the
reciprocity conditions of the Banking Law, out-of-state bank holding companies
to acquire New York banks. By 1995, many states had adopted statutes permitting
multi-state bank holding companies. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("Interstate Banking Act") amended the BHCA,
effective on September 29, 1995, to permit approval under the BHCA of the
acquisition by a bank holding company that is adequately capitalized and
adequately managed of a bank outside of the holding company's home state
regardless of whether the acquisition was permitted under the law of the state
of the acquired bank. The FRB may not approve an acquisition under the BHCA that
would result in the acquiring holding company controlling more than 10% of the
deposits in the United States or more than 30% of the deposits in any particular
state.

         In the past, branching across state lines was not generally available
to a state bank, such as the Bank. Out-of-state branches are authorized under
the Banking Law, but similar authority did not exist generally under the laws of
many other states. The Interstate Banking Act now permits the responsible
banking agencies to approve merger transactions between banks located in
different states, regardless of whether the merger would be prohibited under
state law. Accordingly, the Interstate Banking Act permits a bank to have
branches in more than one state.

         Before any bank acquisition can be completed, prior approval thereof
may also be required to be obtained from other agencies having supervisory
jurisdiction over the bank to be acquired,

                                      -38-
<PAGE>

including the respective state's banking department. See "Acquisition of the
Holding Company."

         The Interstate Banking Act will facilitate the consolidation of the
banking industry that has taken place over recent years and will allow the
creation of larger, presumably more efficient, banking networks. The effect of
the Interstate Banking Act on the Bank, if any, is likely to occur as banking
institutions, state legislators, and bank regulators respond to the new federal
regulatory structure.

ACQUISITION OF THE HOLDING COMPANY

         FEDERAL RESTRICTIONS. Under the Federal Change in Bank Control Act
("CBCA"), a notice must be submitted to the FRB if any person (including a
company), or group acting in concert, seeks to acquire 10% or more of the
Registrant's shares of Common Stock outstanding, unless the FRB has found that
the acquisition will not result in a change in control of the Registrant. Under
the CBCA, the FRB has 60 days within which to act on such notices, taking into
consideration certain factors, including the financial and managerial resources
of the acquiror, the convenience and needs of the communities served by the
Registrant and the Bank, and the anti-trust effects of the acquisition. Under
the BHCA, any company would be required to obtain prior approval from the FRB
before it may obtain "control" of the Registrant within the meaning of the BHCA.
Control generally is defined to mean the ownership or power to vote 25 percent
or more of any class of voting securities of the Registrant or the ability to
control in any manner the election of a majority of the Registrant's directors.
See "Holding Company Regulation."

         NEW YORK CHANGE IN CONTROL RESTRICTIONS. In addition to the CBCA, the
Banking Law generally requires prior approval of the New York Banking Board
before any action is taken that causes any company to acquire direct or indirect
control of a banking institution that is organized in the State of New York. The
acquisition of 10% or more of the common stock of the Registrant would be
presumed to be an acquisition of control of the Registrant and, indirectly, the
Bank, unless the Superintendent determines that such acquisition did not result
in an acquisition of control.

                                      -39-
<PAGE>

                EXECUTIVE OFFICERS OF THE REGISTRANT AND THE BANK

         The name, age, position, term of office as officer and period during
which he has served as an officer is provided below for each executive officer
of the Registrant and the Bank. All executive officers of the Registrant are
also executive officers of the Bank.

         John M. Tsimbinos, Chairman of the Board and Chief Executive Officer
and a Director, joined the Bank in February 1982, became President and Chief
Executive Officer of the Bank in April 1983, and became Chairman and Chief
Executive Officer of the Bank in December 1992. Mr. Tsimbinos has been a
Director since July 1982 and he is 60 years of age.

         A. Gordon Nutt, President and Chief Administrative Officer and a
Director, joined the Bank in 1983 as a Senior Vice President and Chief
Administrative Officer, became a Director in May 1991 and was elected President
and Chief Administrative Officer in December 1992. Mr. Nutt is 63 years of age.

         Dennis E. Henchy, Executive Vice President, joined the Bank in 1975 and
serves as Executive Vice President and Chief Financial Officer. Mr. Henchy is 44
years of age.

         William R. Kuhn, Executive Vice President, joined the Bank in 1974 and
serves as Executive Vice President and Chief Real Estate Lending Officer. Mr.
Kuhn is 51 years of age.

         Ira H. Kramer, Senior Vice President, joined the Bank in 1983 and
serves as Senior Vice President and Corporate Secretary. Mr. Kramer is 47 years
of age.

         John J. DeRusso, Senior Vice President, joined the Bank in 1994 and
serves as Senior Vice President and Officer for Strategic Planning/Special
Projects/Training & Development and MIS. Mr. DeRusso is 56 years of age.


ITEM 2.  PROPERTIES

         The Registrant's principal corporate offices are in a 52,800 square
foot facility located at 1122 Franklin Avenue, Garden City, New York. This
facility is owned and principally utilized for the operations of the Bank. The
Bank conducts its business through 15 full service banking offices as follows:

                                      -40-
<PAGE>

                                                     Date            Lease
Location                         Leased/Owned   Eased/Acquired   Expiration Date
                                 ------------   --------------   ---------------

Principal Banking Office/
Administrative Headquarters
1122 Franklin Avenue
Garden City, NY  11530.............    Owned         1/1/76               N/A
1024 Gates Avenue
Brooklyn, NY  11221................    Owned         8/1/20               N/A
2925 Avenue U
Brooklyn, NY  11229................    Owned         1/1/55               N/A
4848 Merrick Road
Massapequa Park, NY  11762.........    Owned         1/1/61               N/A
156-02 Cross Bay Blvd.(1)
Howard Beach, NY  11414............    Owned         1/1/65               N/A
224-04 Union Turnpike
Bayside, NY  11364.................    Owned         1/1/69               N/A
254-09 Horace Harding Expwy.
Little Neck, NY 11362..............    Leased        9/1/71             5/31/17
1114 Jericho Turnpike
New Hyde Park, NY 11040............    Owned         1/1/75                N/A
247-53 Jamaica Avenue
Bellerose, NY 11426................    Owned         1/1/75                N/A
1280 Broadway
Hewlett, NY 11557..................    Owned         9/25/96               N/A
2790 Sunrise Highway
Bellmore, NY 11710.................    Leased        7/1/80             6/30/10
1501 Deer Park Avenue
North Babylon, NY 11703............    Owned         5/9/91                N/A
1520 Deer Park Avenue
North Babylon, NY 11703............    Owned         5/1/94                N/A
108 Seventh Street
Garden City, NY 11530..............    Leased        2/1/95            01/31/25
699 Old Country Road
Dix Hills, NY 11746................    Leased        9/7/95             9/06/02

------------------
(1)  Includes a leased accommodation facility adjacent to this branch office.
     The lease on such facility expires December 2011.

The premises occupied by the Registrant and the Bank are considered to be well
located and suitably equipped to serve as banking facilities.

                                      -41-
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

         On February 6, 1995, the Superintendent took possession of Nationar, a
check-clearing and trust company freezing all of its assets. The Bank used
Nationar for certain depository and collection services and maintained deposit
balances with Nationar in connection therewith. The Company also had certain
stock investments and subordinated capital debentures in Nationar. The Bank
filed claims to recover losses associated with the deposit balances, stocks and
subordinated debentures. As of December 31, 1997 the Bank has either fully
collected or charged-off its remaining Nationar claims. Additional information
regarding the Nationar claims appears on pages 49 and 50 of the 1997 Annual
Report to Stockholders on Note (19) of Notes to Consolidated Financial
Statements and is incorporated by reference herein.

         The Company is not involved in any other pending legal proceedings
other than routine legal proceedings occurring in the ordinary course of
business, which in the aggregate involve amounts which management believes to be
immaterial to the financial condition and results of operations of the Company.

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

None.


                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS'
        MATTERS

         The information required by this item appears under the caption "Market
for Common Stock" on page 25 of the Registrant's Annual Report to Stockholders
for the year ended December 31, 1997 and is incorporated herein by reference.

ITEM 6.  SELECTED FINANCIAL DATA

         The information required by this item appears on pages 6 through 7,
inclusive, of the Registrant's Annual Report to Stockholders for the year ended
December 31, 1997 and is incorporated herein by reference.

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

         The information required by this item appears on pages 10 through 25,
inclusive, of the Registrant's Annual Report to Stockholders for the year ended
December 31, 1997 and is incorporated herein by reference.

                                  -42-

<PAGE>


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The information required by this item appears on pages 12 through 15,
inclusive, of the Registrant's Annual Report to Stockholders for the year ended
December 31, 1997 and is incorporated herein by reference.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The information required by this item appears on pages 26 through 53,
inclusive, of the Registrant's Annual Report to Stockholders for the year ended
December 31, 1997 and is incorporated herein by reference.

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

None.

                                    PART III

ITEM 10.  DIRECTORS AND OFFICERS OF THE REGISTRANT

         The information required by this item appears under the caption
"Executive Officers of the Registrant and the Bank" in Part I of this Form 10-K
and under the caption "Election of Directors" on pages 7 through 10, inclusive,
and under the caption "Compliance with Section 16(a) of the Exchange Act" on
page 24 of the Registrant's Proxy Statement for its 1998 Annual Meeting of
Stockholders to be held on April 27, 1998, and is incorporated herein by
reference.

ITEM 11.  EXECUTIVE COMPENSATION

         The information required by this item appears on pages 10 through 23,
inclusive, of the Registrant's Proxy Statement for its 1998 Annual Meeting of
Stockholders to be held on April 27, 1998, and is incorporated herein by
reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this item appears under the captions "Stock
Ownership of Certain Beneficial Owners" on pages 3 and 4, inclusive, and "Stock
Ownership of Management" on pages 5 and 6, inclusive, of the Registrant's Proxy
Statement for its 1998 Annual Meeting of Stockholders to be held on April 27,
1998, and is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this item appears under the caption
"Certain Relationships and Related Transactions" on page 25 of the Registrant's
Proxy Statement for its 1998 Annual Meeting of Stockholders to be held on April
27, 1998, and is incorporated herein by reference.

                                      -43-
<PAGE>

                                     PART IV

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

(a)  The following documents are filed as a part of this report:

     1.   The following consolidated financial statements of the Registrant and
          its subsidiaries, and the independent auditors' report thereon,
          included on pages 26 through 53, inclusive, of the Registrant's Annual
          Report to Stockholders for the year ended December 31, 1997, are
          incorporated herein by reference:

               Consolidated Statements of Financial Condition -- December 31,
               1997 and 1996;

               Consolidated Statements of Income -- For the years ended December
               31, 1997, 1996 and 1995;

               Consolidated Statements of Changes in Stockholders' Equity -- For
               the years ended December 31, 1997, 1996 and 1995;

               Consolidated Statements of Cash Flows-- For the years ended
               December 31, 1997, 1996 and 1995;

               Notes to Consolidated Financial Statements

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

     2.   All schedules are omitted because they are not required or applicable,
          or the required information is shown in the consolidated financial
          statements or the notes thereto.

     3.   Exhibits

     (a)  The following exhibits are filed as part of this report, except as
          otherwise indicated.

          3.1    Certificate of Incorporation of T R Financial Corp. (1)

          3.2    Bylaws of T R Financial Corp., as amended(2)

          4.1    Certificate of Incorporation of T R Financial Corp. (See
                 Exhibit 3.1 hereto)

          4.2    Bylaws of T R Financial Corp. (See Exhibit 3.2 hereto)

                                      -44-
<PAGE>

          4.3    Restated Organization Certificate of Roosevelt Savings Bank (1)

          4.4    Bylaws of Roosevelt Savings Bank, as amended (2)

          4.5    Amendments to Bylaws of Roosevelt Savings Bank (3)

          4.6    Stock Certificate of T R Financial Corp. (1)

          4.7    Rights Agreement between T R Financial Corp. and Chemical Bank,
                 dated as of July 19, 1994 (4)

          4.8    Certificate of Designations, Preferences and Rights of Series A
                 Junior Participating Preferred Stock of T R Financial Corp.
                 (included as Exhibit A to the Rights Agreement set forth at
                 Exhibit 4.7)

          10.1   Employment Agreement by and between Roosevelt Savings Bank and
                 John M. Tsimbinos, amended and restated as of January 23, 1997
                 (5)

          10.2   Employment Agreement by and between Roosevelt Savings Bank and
                 A. Gordon Nutt, amended and restated as of January 23, 1997 (5)

          10.3   Employment Agreement by and between Roosevelt Savings Bank and
                 William R. Kuhn, amended and restated as of January 23, 1997
                 (5)

          10.4   Employment Agreement by and between Roosevelt Savings Bank and
                 Dennis E. Henchy, amended and restated as of January 23, 1997
                 (5)

          10.5   Employment Agreement by and between Roosevelt Savings Bank and
                 John J. DeRusso, amended and restated as of January 23, 1997
                 (5)

          10.6   Employment Agreement by and between Roosevelt Savings Bank and
                 Ira H. Kramer, amended and restated as of January 23, 1997 (5)

          10.7   Employment Agreement by and between T R Financial Corp. and
                 John M. Tsimbinos, amended and restated as of January 23, 1997
                 (5)

          10.8   Employment Agreement by and between T R Financial Corp. and A.
                 Gordon Nutt, amended and restated as of January 23, 1997 (5)

          10.9   Employment Agreement by and between T R Financial Corp. and
                 William R. Kuhn, amended and restated as of January 23, 1997
                 (5)

          10.10  Employment Agreement by and between T R Financial Corp. and
                 Dennis E. Henchy, amended and restated as of January 23, 1997
                 (5)

                                      -45-
<PAGE>

          10.11  Employment Agreement by and between T R Financial Corp. and
                 John J. DeRusso, amended and restated as of January 23, 1997
                 (5)

          10.12  Employment Agreement by and between T R Financial Corp. and Ira
                 H. Kramer, amended and restated as of January 23, 1997 (5)

          10.13  Roosevelt Savings Bank Severance Plan (3)

          10.14  Indemnification Agreements (between Roosevelt Savings Bank and
                 Maureen E. Clancy, John M. Tsimbinos, A. Gordon Nutt, Peter A.
                 Baum, Robert J. Berkin, Kenneth P. Billhardt, Robert F. Eisen,
                 Michael P. Galgano, Edward J. Kowatch, James E. Orr, Jr.,
                 William R. Punt, William Singer, Ernest L. Loser, Spiros J.
                 Voutsinas, John C. Mesloh, Leonard Genovese, William R. Kuhn,
                 Dennis E. Henchy, Ira H. Kramer and William F. Shea, effective
                 as of May 18, 1993) (6)

          10.15  Roosevelt Savings Bank Recognition and Retention Plan
                 for Outside Directors (terminated effective as of January 23,
                 1997) (7)

          10.16  Roosevelt Savings Bank Recognition and Retention Plan for
                 Officers (7)

          10.17  Roosevelt Savings Bank Performance Compensation Plan (8)

          10.18  T R Financial Corp. 1993 Incentive Stock Option Plan, amended
                 and restated as of January 23, 1997 (8)

          10.19  T R Financial Corp. 1993 Stock Option Plan for Outside
                 Directors, amended and restated effective as of January 23,
                 1997 (5)

          10.20  T R Financial Corp. Employee Stock Ownership Plan, as amended
                 and restated (3)

          10.21  First and Second Amendments to the T R Financial Corp. Employee
                 Stock Ownership Plan (3)

          10.22  T R Financial Corp. Employee Stock Ownership Trust Loan and
                 Security Agreement, Promissory Note and Security Agreement Re
                 Instruments of Negotiable Documents to be Deposited (7)

          10.23  Trust Agreement for the T R Financial Corp. Employee Stock
                 Ownership Plan (7)

          10.24  Successor Trustee Agreement between State Street Bank & Trust
                 Company and T R Financial Corp. for the T R Financial Corp.
                 Employee Stock Ownership Plan (2)

                                      -46-
<PAGE>

          10.25  Supplemental Executive Retirement Plan of Roosevelt Savings
                 Bank, as amended and restated as of March 16, 1993 (7)

          10.26  First Amendment to the Supplemental Executive Retirement Plan
                 of Roosevelt Savings Bank, as amended and restated (3)

          10.27  Roosevelt Savings Bank Salary Reduction Plan in RSI Retirement
                 Trust, as amended and restated effective January 1, 1987,
                 including Amendments Number One, Two, Three and Four (9)

          10.28  Trust Agreement between Roosevelt Savings Bank and Marine
                 Midland Bank, N.A. (for the Roosevelt Savings Bank Salary
                 Reduction Plan in RSI Retirement Trust) (7)

          11.1   Statement re: Computation of per share earnings (10)

          13.1   1997 Annual Report to Stockholders

          21.1   Subsidiaries of the Registrant

          23.1   Consent of KPMG Peat Marwick LLP

          27.1   Financial Data Schedule (EDGAR filing only)

          27.2   Restated Financial Data Schedule (EDGAR Filing only)

          99.1   Proxy Statement for the 1998 Annual Meeting of Stockholders

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

(1)  Incorporated herein by reference to the Exhibits to the Registrant's
     Registration Statement on Form S-1, filed on March 5, 1993, Registration
     No. 33-59174.

(2)  Incorporated herein by reference to the Exhibits to the Registrant's Annual
     Report on Form 10-K for fiscal year 1994.

(3)  Incorporated herein by reference to the Exhibits to the Registrant's Annual
     Report on Form 10-K for fiscal year 1995.

(4)  Incorporated herein by reference to Exhibit 2 to the Registrant's
     Registration Statement on Form 8-A, filed on July 19, 1994, Registration
     No. 0-21386.

(5)  Incorporated herein by reference to the Exhibits to the Registrant's Annual
     Report on Form 10-K for fiscal year 1996.

(6)  Incorporated herein by reference to the Exhibits to the Registrant's
     Registration Statement on Form S-1, filed on March 5, 1993, Registration
     No. 33-59174, except for Maureen E. Clancy, which is incorporated herein by
     reference to the Exhibits to the Registrant's Annual Report on Form 10-K
     for fiscal year 1993.

(7)  Incorporated herein by reference to the Exhibits to the Registrant's Annual
     Report on Form 10-K for fiscal year 1993.

(8)  Incorporated herein by reference to the Registrant's definitive Proxy
     Statement for its 1997 Annual Meeting of Stockholders.

(9)  Incorporated herein by reference to the Exhibits to the Registrant's Annual
     Report on Form 10-K for fiscal year 1993, except for Amendment Number Four,
     which is incorporated herein by reference to the Exhibits to the
     Registrant's Annual Report on Form 10-K for fiscal year 1994

(10) The computation of per share earnings appears on pages 27 and 34 of the
     Registrant's Annual Report to Stockholders for the year ended December 31,
     1997.

(b) No reports on Form 8-K have been filed during the last quarter of the period
covered by this report.

                                      -47-
<PAGE>

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


                                         T R FINANCIAL CORP.



Dated: March 30, 1998                    BY:/s/ John M. Tsimbinos
                                            ----------------------------------
                                                John M. Tsimbinos,
                                                Chairman of the Board,
                                                Chief Executive Officer
                                                and Director




                                         BY:/s/ Dennis E. Henchy
                                            ----------------------------------
                                                Dennis E. Henchy,
                                                Executive Vice President
                                                and Chief Financial Officer

                                      -48-
<PAGE>

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

Signature                         Title                          Date

/s/ John M. Tsimbinos             Chairman of the Board,         March 30, 1998
---------------------------       Chief Executive Officer
John M. Tsimbinos                 and Director

/s/ A. Gordon Nutt                President, Chief               March 30, 1998
---------------------------       Administrative
A. Gordon Nutt                    Officer and Director           March 30, 1998

/s/ Maureen E. Clancy             Director                       March 30, 1998
---------------------------
Maureen E. Clancy

/s/ Robert F. Eisen, Sr.          Director                       March 30, 1998
---------------------------
Robert F. Eisen, Sr.

/s/ Michael P. Galgano            Director                       March 30, 1998
---------------------------
Michael P. Galgano

/s/ Leonard Genovese              Director                       March 30, 1998
---------------------------
Leonard Genovese

/s/ Edward J. Kowatch             Director                       March 30, 1998
---------------------------
Edward J. Kowatch

/s/ Ernest L. Loser               Director                       March 30, 1998
---------------------------
Ernest L. Loser

/s/ John C. Mesloh                Director                       March 30, 1998
---------------------------
John C. Mesloh

/s/ James E. Orr, Jr.             Director                       March 30, 1998
---------------------------
James E. Orr, Jr.

/s/ Spiros J. Voutsinas           Director                       March 30, 1998
---------------------------
Spiros J. Voutsinas

                                      -49-