RELIANCE BANCORP, INC. AND SUBSIDIARY                                           
FINANCIAL SECTION
-------------------------------------------------------------------

CONTENTS
-------------------------------------------------------------------


Selected Consolidated Financial and Other Data
  of the Company..................................................5

Management's Discussion and Analysis of
   Financial Condition and Results of Operations..................7

Consolidated Statements of Condition as of
   June 30, 1998 and 1997........................................22

Consolidated Statements of Income for
   the years ended June 30, 1998, 1997 and 1996..................23

Consolidated Statements of Changes in
   Stockholders' Equity for the years ended
   June 30, 1998, 1997 and 1996..................................24

Consolidated Statements of Cash Flows for
   the years ended June 30, 1998, 1997 and 1996..................25

Notes to Consolidated Financial Statements.......................27

Independent Auditors' Report.....................................52

Selected Consolidated Quarterly Financial Data...................53



                                                         4

<PAGE>

Reliance Bancorp, Inc. and Subsidiary
Selected Consolidated Financial and Other Data of the Company
-------------------------------------------------------------
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>

Set forth below are the selected  consolidated  financial  and other data of the
Company.  This  financial data is derived in part from, and it should be read in
conjunction  with the Company's  consolidated  financial  statements and related
notes.

                                                                                              At June 30,
                                                                    ------------------------------------------------------------
Selected Financial Data:                                             1998          1997          1996         1995         1994
-----------------------                                             -------      --------       --------    --------      ------
<S>                                                               <C>           <C>           <C>           <C>         <C>     
Total Assets..................................................... $2,485,729    $1,976,764    $1,782,550    $931,436    $830,501
Loans Receivable, Net............................................    969,797       909,321       817,746     332,080     330,720
Debt and Equity Securities Available-for-Sale....................    134,907        26,909        13,271      23,880      37,588
Debt and Equity Securities Held-to-Maturity......................     40,189        46,026        48,330      23,890      39,492
Mortgage-Backed Securities Available-for-Sale....................    940,347       721,819       591,740     104,453          --
Mortgage-Backed Securities Held-to-Maturity......................    249,259       159,356       184,492     413,762     394,199
Excess of Cost Over Fair Value of Net Assets Acquired............     58,936        45,463        49,429          --          --
Real Estate Owned, Net...........................................        755           450         1,564       1,558       2,911
Deposits.........................................................  1,628,298     1,436,037     1,345,626     670,317     587,221
Borrowed Funds...................................................    630,206       351,913       266,160      97,035      78,000
Total Stockholders' Equity.......................................    194,864       162,670       153,619     153,733     157,851

                                                                                         Year Ended June 30,
                                                                    -----------------------------------------------------------
Selected Operating Data:                                              1998         1997           1996        1995        1994
-----------------------                                             --------     --------       --------    --------     ------
<S>                                                                <C>            <C>           <C>         <C>         <C>     
Interest Income..................................................  $153,819       $133,289      $100,372    $ 61,260    $ 47,224
Interest Expense ................................................    86,828         71,653        52,985      28,361      20,024
                                                                     ------         ------        ------     -------     -------
     Net Interest Income.........................................    66,991         61,636        47,387      32,899      27,200
Less Provision for Loan Losses...................................     1,650            950           725         400         393
                                                                     ------        -------       -------     -------     -------
     Net Interest Income After Provision for Loan Losses.........    65,341         60,686        46,662      32,499      26,807

Non-Interest Income:
Loan Fees and Service Charges....................................     1,047            683           826         269         260
Other Operating Income...........................................     3,452          2,557         1,606         841         859
Income from Money Centers........................................     1,882             --            --          --          --
Condemnation Award on Joint Venture..............................     1,483             --            --          --          --
Net (Loss) Gain on Securities....................................        (5)           172           678         147          --
                                                                     -------       -------        ------      ------      ------
     Total Non-Interest Income...................................     7,859          3,412         3,110       1,257       1,119
                                                                     -------       -------        ------      ------      ------

Non-Interest Expense:
Compensation and Benefits........................................    20,297         16,509        13,395       9,562       7,068
Occupancy and Equipment..........................................     6,531          5,719         4,481       2,462       2,336
Federal Deposit Insurance Premiums...............................       921          1,813         2,399       1,376       1,374
Advertising......................................................     1,202          1,168         1,152       1,158         670
Other Operating Expenses.........................................     6,274          5,778         4,169       3,039       2,366
                                                                     ------        -------       -------     -------      ------
     Total General and Administrative Expenses...................    35,225         30,987        25,596      17,597      13,814
Real Estate Operations, Net......................................       218            383           579        (385)      1,080
Amortization of Excess of Cost Over Fair
  Value of Net Assets Acquired...................................     4,218          3,404         1,928          --          --
SAIF Recapitalization Charge.....................................        --          8,250            --          --          --
                                                                    -------        -------       -------     -------      ------
     Total Non-Interest Expense..................................    39,661         43,024        28,103      17,212      14,894
                                                                    -------        -------       -------     -------      ------

     Income Before Income Taxes and Cumulative
         Effect of Change in Accounting Principle................    33,539         21,074        21,669      16,544      13,032
Income Tax Expense...............................................    14,810         10,138         9,946       6,842       5,538
                                                                    -------        -------       -------     -------      ------
     Income Before Cumulative Effect of
         Change in Accounting Principle..........................    18,729         10,936        11,723       9,702       7,494
Cumulative Effect of Change in Accounting Principle (1)..........        --             --            --          --       1,200
                                                                    -------        -------       -------     -------      ------
     Net Income..................................................  $ 18,729       $ 10,936      $ 11,723     $ 9,702     $ 8,694
                                                                     ======         ======        ======       =====       =====
Earnings Per Share: (2)          Basic...........................    $ 2.11         $ 1.32        $ 1.36      $ 1.04      $ 0.22
                                 Diluted.........................    $ 1.99         $ 1.25        $ 1.32      $ 1.03      $ 0.22
(See footnotes on following page)

                                                                 5

<PAGE>


Reliance Bancorp, Inc. and Subsidiary
Selected Consolidated Financial and Other Data of the Company
-------------------------------------------------------------

                                                                                   At or for the Year Ended June 30,
                                                                     --------------------------------------------------------
                                                                     1998         1997         1996         1995         1994
                                                                     ----         ----         ----         ----         ----
Performance Ratios:
<S>                                                                 <C>          <C>          <C>          <C>         <C>  
Return on Average Assets (1)......................................   0.86%        0.58%        0.83%        1.08%       1.15%
Return on Average Stockholders' Equity (1)(3).....................  10.42         7.02         7.58         6.17        9.82
Return on Average Tangible Stockholders' Equity (1)(3)............  15.14        10.10         9.18         6.17        9.82
Average Stockholders' Equity to Average Assets....................   8.45         8.24        10.92        17.60       11.68
Stockholders' Equity to Total Assets..............................   7.84         8.23         8.62        16.51       19.01
Tangible Stockholders' Equity to Tangible Assets..................   5.60         6.07         6.01        16.51       19.01
Core Deposits to Total Deposits...................................  36.91        37.40        41.68        36.12       49.08
Net Interest Spread...............................................   2.98         3.22         3.17         3.11        3.36
Net Interest Margin (4)...........................................   3.28         3.47         3.52         3.77        3.69
General and Administrative Expenses to Average Assets.............   1.62         1.66         1.81         1.97        1.82
Operating Income to Average Assets (5)............................   0.29         0.17         0.16         0.14        0.15
Average Interest-Earning Assets to
  Average Interest-Bearing Liabilities............................  1.07X        1.06X        1.09X        1.20X        1.12X

Selected Financial Ratios, Excluding SAIF
Recapitalization Assessment
Return on Average Assets (1)......................................   0.86%        0.84%        0.83%        1.08%       1.15%
Return on Average Stockholders' Equity (1)(3).....................  10.42        10.12         7.58         6.17        9.82
Return on Average Tangible Stockholders' Equity (1)(3)............  15.14        14.56         9.18         6.17        9.82

Asset Quality Ratios:
Non-Performing Loans to Total Loans (6)...........................   0.95%        1.61%        1.58%        1.10%       1.08%
Non-Performing Loans to Total Assets..............................   0.37         0.75         0.73         0.39        0.43
Non-Performing Assets to Total Assets (7)........................    0.40         0.77         0.82         0.56        0.78
Allowance for Loan Losses to Total Loans..........................   0.91         0.57         0.55         0.52        0.43
Allowance for Loan Losses to Non-Performing Loans.................  96.12        35.18        34.63        47.10       39.38

Other Data:

Number of Deposit Accounts........................................ 169,071      164,121     164,368       68,617      63,416
Full-Service Banking Offices......................................      30           28          28           11          11
</TABLE>


(1) Reflects the  cumulative  effect of the  Company's  adoption of Statement of
Financial  Accounting  Standard No. 109,  "Accounting  for Income Taxes," in the
fiscal year ended June 30, 1994.
(2)  Earnings  per share for fiscal  year ended 1994 is based on net income from
March 31, 1994 to June 30, 1994.
(3) For purposes of these calculations, average stockholders' equity and average
stockholders'  tangible  equity  exclude the effect of changes in the unrealized
appreciation (depreciation) on securities available-for-sale, net of taxes.
(4)  Calculation  is based upon net interest  income  before  provision for loan
losses divided by average interest-earning assets.
(5) Operating income represents total  non-interest  income less (plus) net gain
(loss) on sale of securities and condemnation award on joint venture.
(6)  Non-performing  loans consist of all loans 90 days or more past due and any
other loans, or any portion thereof, that have been determined to be doubtful of
collection.
(7) Non-performing assets consist of non-performing loans and real estate owned.



                                                                 6

<PAGE>



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

General

Reliance Bancorp,  Inc. (the "Company") is a Delaware  corporation  organized on
November 16, 1993 and is the holding  company for Reliance  Federal Savings Bank
(the "Bank").  On March 31, 1994, the Company issued 10,750,820 shares of common
stock at $10.00 per share raising total net proceeds of $103.6  million of which
$51.8 million was retained by the Company with the remaining net proceeds  being
used by the Company to purchase all of the outstanding stock of the Bank.


The Company is  headquartered  in Garden City, New York and its primary business
currently consists of the operation of its wholly-owned subsidiary, the Bank. In
addition to directing,  planning and coordinating the business activities of the
Bank, the Company  currently invests  primarily in U.S.  Government  securities,
corporate debt securities and repurchase  agreements.  In addition,  the Company
completed the  acquisitions of the Bank of Westbury,  a Federal Savings Bank, in
August 1995,  Sunrise  Bancorp,  Inc., in January 1996 and  Continental  Bank, a
commercial bank, in October 1997, which were all merged into the Bank.

The Bank's  principal  business is attracting  retail  deposits from the general
public  and  investing  those  deposits,  together  with  funds  generated  from
operations,   principal  repayments  and  borrowings,   primarily  in  mortgage,
consumer,  multi-family,  commercial,  commercial real estate,  construction and
guaranteed  student  loans.  In connection  with the  acquisition of Continental
Bank,  the Bank now offers  both  secured and  unsecured  commercial  loans.  In
addition,  during  periods in which the  demand for loans  which meet the Bank's
underwriting  and interest  rate risk  standards  and policies is lower than the
amount of funds  available for investment,  the Bank invests in  mortgage-backed
securities,  securities  issued by the U.S.  Government and agencies thereof and
other  investments  permitted  by federal  laws and  regulations.  The Bank also
operates,  as a result of the Continental Bank  acquisition,  five check cashing
("Money Centers") operations which result in additional fee income to the Bank.

The Company's  results of operations are dependent  primarily on interest income
from its securities  investments and earnings of the Bank. The Bank's results of
operations  are  primarily  dependent on its net interest  income,  which is the
difference  between the interest  earned on its assets,  primarily  its loan and
securities  portfolios,  and its cost of funds,  which  consists of the interest
paid on its deposits and  borrowings.  The Bank's net income also is affected by
its  provision  for loan  losses as well as  non-interest  income,  general  and
administrative  expense,  other  non-interest  expense,  and income tax expense.
General and  administrative  expense  consists  primarily  of  compensation  and
benefits,  occupancy expenses,  federal deposit insurance premiums,  advertising
expense  and other  general  and  administrative  expenses.  Other  non-interest
expense consists of real estate operations,  net, amortization of excess of cost
over the fair  value of net  assets  acquired,  and in fiscal  1997,  a one-time
pre-tax SAIF  recapitalization  charge. The earnings of the Company and Bank are
also  significantly  affected by general  economic and  competitive  conditions,
particularly  changes in market interest rates,  government policies and actions
of regulatory authorities.

Completion of Acquisition of Continental Bank

On October 17, 1997, the Company  completed the acquisition of Continental  Bank
("Continental"), a commercial bank with two full service banking offices located
in Nassau and Suffolk  counties in Long Island,  New York, a commercial  lending
facility and five check cashing facilities in Manhattan.  Under the terms of the
merger,  Reliance  issued 1.10 shares of its common  stock for each  outstanding
common share of Continental. The cost of the acquisition was approximately $24.4
million.  The Company accounted for the transaction using the purchase method of
accounting  which  resulted  in excess of cost over the fair value of net assets
acquired  ("goodwill")  of $17.7 million which is being  amortized on a straight
line basis over 15 years.  As of the  completion  of the  acquisition  which was
effected by merging the net assets acquired into the Bank, the Bank continued to
exceed each of its regulatory capital requirements.

Financial Condition

As of June 30,  1998,  total  assets  were $2.5  billion,  an increase of $509.0
million,  or  25.7%,  from  $2.0  billion  at  June  30,  1997.  Mortgage-backed
securities  increased $308.4 million,  or 35.0%, from $881.2 million at June 30,
1997 to $1.2  billion  at June 30,  1998,  with the  increase  primarily  due to
securities  acquired from  Continental  Bank and increased  purchases of private
label   collateralized   mortgage   obligations   offset  by  amortization   and
prepayments. Investment securities increased

                                                             7

<PAGE>



$102.2 million, or 140.1%, from $72.9 million at June 30, 1997 to $175.1 million
at June 30, 1998, as the Company  deployed some of the proceeds from the capital
securities  issued in April 1998 into investment  securities.  Loans receivable,
net increased  $60.5 million,  or 6.7%,  from $909.3 million at June 30, 1997 to
$969.8  million at June 30, 1998 as a result of increased  multi-family  lending
and from commercial loans acquired from Continental Bank.

Funding for the purchases of mortgage-backed securities,  investments securities
and loans was obtained through a combination of new deposit growth,  borrowings,
proceeds from the trust preferred securities and cash flows.  Deposits increased
$192.3 million,  or 13.4% during the fiscal year ended June 30, 1998 as a result
of growth in new  certificate  of deposit  products and deposits  acquired  from
Continental Bank.  Borrowings  increased from $351.9 million at June 30, 1997 to
$630.2 million at June 30, 1998, an increase of $278.3  million,  or 79.1%.  The
increase in borrowings is attributable to additional leveraging of the statement
of condition and the proceeds from the trust preferred securities.  The Bank has
been using borrowings to leverage its capital and fund asset growth.

Treasury stock decreased from $27.5 million at June 30, 1997 to $24.0 million at
June 30, 1998 as a result of the issuance of  approximately  1 million shares to
purchase Continental Bank partially offset by additional purchases.

Non-performing assets

Non-performing  loans totalled $9.3 million, or 0.95% of total loans at June 30,
1998,  as compared to $14.7  million,  or 1.61% of total loans at June 30, 1997.
Non-performing  loans at June 30, 1998 were  comprised  of $6.4 million of loans
secured by one- to  four-family  residences,  $2.1  million of  commercial  real
estate loans,  $567,000 of commercial  loans and $208,000 of guaranteed  student
and  other  loans.  As a result of a  decrease  in  non-performing  loans and an
increased asset base, the  non-performing  assets to total assets ratio improved
to 0.40% at June 30, 1998 from 0.77% at June 30, 1997.

For the fiscal year ended June 30, 1998,  the Company's  loan loss provision was
$1.7  million as  compared to  $950,000  in the prior year  period.  The Company
increased  its  provision  for loan losses to continue to increase its loan loss
coverage  ratios,  particularly in light of increased  multi-family  lending and
commercial  loans acquired from  Continental  Bank. The Company's  allowance for
loan losses  totalled  $8.9 million at June 30, 1998 as compared to $5.2 million
at June 30,  1997  which  represents  a ratio of  allowance  for loan  losses to
non-performing  loans and to total  loans of 96.12%  and  0.91% and  35.18%  and
0.57%,  respectively.  The significant increase in the loan loss coverage ratios
is the result of $2.7 million of allowances  acquired from  Continental Bank and
the lower  level of  non-performing  loans.  For the fiscal  year ended June 30,
1998,  the Company  experienced  net  charge-offs  of  $636,000,  as compared to
$263,000 in the prior year period.  Management  believes the  allowance for loan
losses at June 30, 1998 is  adequate,  and  sufficient  reserves  are  presently
maintained to cover losses on non-performing loans.

Asset/Liability Management

One of the  Bank's  primary  long-term  financial  objectives  has been and will
continue  to be to monitor the  sensitivity  of its  earnings  to interest  rate
fluctuations  by  maintaining  an  appropriate  matching of the  maturities  and
interest  rate  repricing  characteristics  of its  assets  and  liabilities  in
relation to the current and anticipated interest rate environment.  In an effort
to realize this  objective  and minimize  the Bank's  exposure to interest  rate
risk, the Bank emphasizes the origination of  adjustable-rate  mortgage ("ARM"),
commercial and consumer loans,  shorter-term fixed rate multi-family,  mortgage,
commercial  and consumer loans and the purchase of  shorter-term  fixed rate and
adjustable-rate  mortgage-backed securities. However, there can be no assurances
that  the  Bank  will be able to  originate  adjustable-rate  loans  or  acquire
mortgage-backed securities with terms and characteristics which conform with the
Bank's  underwriting  standards,  investment  criteria  or  interest  rate  risk
policies.

The Company has  attempted to limit its  exposure to interest  rate risk through
the  origination  and purchase of  adjustable-rate  mortgage  loans ("ARMs") and
through  purchases  of  adjustable-rate   mortgage-backed  and  mortgage-related
securities and fixed rate mortgage-backed and  mortgage-related  securities with
short- and  medium-term  average lives. In the most recent fiscal year, the Bank
has not been able to  originate  a  significant  amount of ARM's due to customer
preference  for fixed rate loans.  The actual  duration  of  mortgage  loans and
mortgage-backed  securities can be significantly impacted by changes in mortgage
prepayment and market interest rates. Mortgage prepayment rates will vary due to
a number of  factors,  including  the  regional  economy  in the area  where the
underlying mortgages were originated,  seasonal factors,  demographic  variables
and  the  assumability  of  the  underlying  mortgages.   However,  the  largest
determinants of prepayment rates are prevailing interest rates

                                                             8

<PAGE>



and related mortgage  refinancing  opportunities.  Management  monitors interest
rate sensitivity so that adjustments in the asset and liability mix, when deemed
appropriate, can be made on a timely basis.

At June 30,  1998,  $841.3  million,  or 41.2%,  of the Bank's  interest-earning
assets consisted of adjustable-rate  loans and mortgage-backed  securities.  The
Bank's  mortgage  loan  portfolio  totalled  $791.0  million,  of which,  $425.3
million, or 53.8%, were adjustable-rate loans and $365.7 million, or 46.2%, were
fixed-rate  loans.  In addition,  at June 30,  1998,  the Bank's  consumer  loan
portfolio  totalled $137.9 million,  of which,  $110.4 million,  or 80.1%,  were
adjustable-rate  home equity lines of credit and  guaranteed  student  loans and
$27.5 million,  or 19.9%,  were fixed-rate home equity and other consumer loans.
At June 30, 1998, the Bank's commercial loan portfolio totalled $49.9 million of
which $42.8 million,  or 85.8% were adjustable  rate loans and $7.1 million,  or
14.2% were fixed rate loans.  At June 30, 1998, the  mortgage-backed  securities
portfolio  totalled  $1.2  billion of which  $940.3  million was  classified  as
available-for-sale and $249.3 million was classified as held-to-maturity. Of the
$940.3 million classified as available-for-sale, $187.0 million, or 15.7% of the
total  mortgage-backed  portfolio,  were  adjustable-rate  securities and $753.3
million, or 63.3%, were fixed-rate securities.  Of the $249.3 million classified
as  held-to-maturity,  $75.8  million,  or  6.4%  of the  total  mortgage-backed
portfolio,  were  adjustable-rate  securities and $173.5 million, or 14.6%, were
fixed-rate  securities.  The Bank  expects to continue to invest in shorter term
fixed-rate and adjustable-rate  mortgage-backed securities to reduce credit risk
as well as minimize exposure to volatile interest rates.  Recently, the Bank has
purchased longer term fixed-rate higher yielding  mortgage-backed  securities to
offset  the  prepayment  risk of  adjustable-rate  securities  during a  falling
interest rate  environment.  It should be noted that  adjustable-rate  loans and
mortgage-backed  securities backed by ARM loans initially bear rates of interest
below that of comparable fixed rate loans or  mortgage-backed  securities backed
by fixed rate loans.  Accordingly,  increased emphasis on adjustable-rate  loans
and  mortgage-backed  securities  may, under certain  interest rate  conditions,
result in the Bank's yield on interest-earning  assets being lower than it could
be if fixed rate loans were emphasized.

Market Risk and Interest Rate Sensitivity Analysis

The Company's primary component of market risk is interest rate volatility.  The
Company's  net interest  income,  the primary  component  of its net income,  is
subject  to  substantial  risk due to changes  in  interest  rates or changes in
market yield curves,  particularly  if there is a  substantial  variation in the
timing between the repricing of the Company's  assets and the liabilities  which
fund them. The Company seeks to manage this risk by monitoring  and  controlling
the variation in repricing  intervals  between its assets and liabilities.  To a
lesser  extent,  the Company  also  monitors its interest  rate  sensitivity  by
analyzing  the estimated  changes in market value of its assets and  liabilities
assuming various interest rate scenarios.  As previously discussed,  there are a
variety of factors  which  influence the  repricing  characteristics  and market
values  of  any  given  asset  or  liability.  The  matching  of  the  repricing
characteristics  of assets and  liabilities  may be  analyzed by  examining  the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring  an  institution's  interest  rate  sensitivity  "gap."  An  asset or
liability is said to be interest rate sensitive within a specific time period if
it will  mature or  reprice,  either by its  contractual  terms,  or based  upon
certain  assumptions made by management,  within that time period.  The interest
rate  sensitivity  gap is  defined  as the  difference  between  the  amount  of
interest-earning  assets anticipated to mature or reprice within a specific time
period and the amount of interest-bearing  liabilities  anticipated to mature or
reprice  within that same time period.  A gap is  considered  positive  when the
amount of interest rate sensitive assets maturing or repricing within a specific
time frame exceeds the amount of interest rate sensitive liabilities maturing or
repricing within that same time frame.  Conversely, a gap is considered negative
when the amount of interest  rate  sensitive  liabilities  maturing or repricing
within a specific  time frame  exceeds  the amount of  interest  rate  sensitive
assets  maturing or repricing  within that same time frame. In a rising interest
rate  environment,  an  institution  with a  negative  gap  would  generally  be
expected,  absent the effects of other factors, to experience a greater increase
in the costs of its liabilities  relative to the yields of its assets and thus a
decrease in the institution's net interest income, whereas an institution with a
positive gap would  generally be expected to  experience  the opposite  results.
Conversely, during a period of falling interest rates, a negative gap would tend
to result in an increase in net interest  income while a positive gap would tend
to adversely  affect net interest  income.  Management  monitors  interest  rate
sensitivity  so that  adjustments  in the asset and  liability  mix, when deemed
appropriate,  can be made on a timely  basis.  At June 30, 1998,  the  Company's
interest-bearing  liabilities maturing or repricing within one year exceeded net
interest-earning  assets  maturing or  repricing  within the same time period by
$213.7  million,  representing  a negative  cumulative  one-year gap of 8.60% of
total  assets.  This  compares  to  interest-bearing   liabilities  maturing  or
repricing  within one year  exceeding net  interest-earning  assets  maturing or
repricing within the same time period by $55.6 million,  representing a negative
cumulative one-year gap of 2.82% of total assets at June 30, 1997.


                                                            9

<PAGE>



The following table ("the Gap table") sets forth the amount of  interest-earning
assets and interest-bearing  liabilities  outstanding at June 30, 1998, that are
anticipated  by the Company using certain  assumptions  based on its  historical
experience  and other data  available to management to reprice or mature in each
of the future time periods shown.  Except as stated below,  the amount of assets
and  liabilities  shown which reprice or mature  during a particular  period was
determined  in  accordance  with the  earlier  of the term to  repricing  or the
contractual  terms of the asset or liability.  Prepayment  assumptions have been
applied  in  estimating  the  repricing  of the  Company's  mortgage  loans  and
mortgage-backed  securities. The estimated rates of prepayment assumed for loans
and mortgage-backed securities are based upon coupon rates. The Company utilized
deposit  withdrawal  assumptions  for  its  deposit  decay  rate.  For  passbook
accounts,  NOW accounts and money market accounts,  such assumed rates were 15%,
18% and 20%, respectively.  The assumptions used may not be indicative of future
withdrawals of deposits or prepayments of loans and mortgage-backed  securities.
The Gap table does not necessarily  indicate the impact of general interest rate
movements on the  Company's  net interest  income  because the actual  repricing
dates of various assets and liabilities  are subject to customer  discretion and
competitive  and other  pressures.  Callable  features  of  certain  assets  and
liabilities,  in addition to the foregoing,  may cause actual experience to vary
from that  indicated.  Included  in this  table are $135.4  million of  callable
investment  securities,  classified  according  to  their  call  dates.  Of such
securities,  $38.2  million,  $10.0  million,  $0, $5.0  million,  $0, and $82.2
million are callable in the "Up to One Year", "One to Two Years",  "Two to Three
Years",  "Three to Four  Years",  "Four to Five  Years",  and "Over Five  Years"
categories,  respectively.  Also  included  in this table are $324.0  million of
callable  borrowings,   classified  according  to  their  call  dates.  Of  such
borrowings, $135.0 million, $89.0 million, $20.0 million, $0, $ 30.0 million and
$50.0 million are callable in the "Up to One Year", "One to Two Years",  "Two to
Three Years", "Three to Four Years", "Four to Five Years", and "Over Five Years"
categories, respectively.

                                                            10

<PAGE>

<TABLE>
<CAPTION>
                                                                           June 30, 1998
                                             -----------------------------------------------------------------------------------
                                             Up to      One to    Two to      Three to    Four to    Over
                                              One         Two      Three       Four        Five      Five                  Fair
                                              Year      Years      Years      Years        Years     Years      Total      Value
                                              ----      -----      -----      -----        -----     -----      -----      -----
Interest-Earning Assets:                                                   (Dollars in thousands)
<S>                                        <C>        <C>        <C>         <C>        <C>        <C>       <C>         <C>     
Mortgage Loans(1)(2).....................  $ 342,781  $ 113,941  $ 114,359   $ 81,134   $ 56,989   $ 82,689  $ 791,893    $795,362
Commercial Loans(1)(2)...................     43,040      1,455      1,028        739        504      3,121     49,887      51,056
Other Loans(1)(2)........................    123,963      5,341      2,810      1,617        974      2,281    136,986     137,806
Mortgage-Backed Securities(2)(3).........    509,670    172,096    122,526     90,500     67,749    214,764  1,177,305   1,192,679
Money Market Investments.................      9,500         --         --         --         --         --      9,500       9,500
Debt and Equity Securities(2)(3).........    133,645        390         --         --      8,000     32,925    174,960     175,416
                                            --------    -------   --------   --------   --------   --------   --------    --------
    Total Interest-Earning Assets........  1,162,599    293,223    240,723    173,990    134,216    335,780  2,340,531   2,361,819

Interest-Bearing Liabilities:
Passbook Accounts........................     65,447     53,000     45,576    111,349     85,639     82,734    443,745     443,745
NOW Accounts.............................     17,408     14,520     12,114     25,347     18,614     16,952    104,955     104,955
Money Market Accounts....................     54,884     37,931         --         --         --         --     92,815      92,815
Certificate of Deposit Accounts(2).......    797,335     82,389     29,502     17,446      7,120         --    933,792     936,347
Borrowed Funds...........................    441,206     89,000     20,000         --     30,000     50,000    630,206     631,407
                                            --------    -------    -------   --------    -------    -------   --------     -------
    Total Interest-Bearing Liabilities...  1,376,280    276,840    107,192    154,142    141,373    149,686  2,205,513   2,209,269
                                           ---------    -------    -------    -------    -------    -------  ---------   ---------

Interest Rate Sensitivity Gap............ $ (213,681)  $ 16,383  $ 133,531   $ 19,848   $ (7,157)  $ 186,094 $ 135,018
                                            =========    ======    =======     ======     =======    =======   =======
Cumulative Interest Rate Sensitivity Gap. $ (213,681)$ (197,298) $ (63,767) $ (43,919) $ (51,076)  $ 135,018
                                            =========  =========   ========   ========   ========    =======
Cumulative Interest Rate Sensitivity Gap as
       a Percentage of Total Assets......     (8.60)%    (7.94)%    (2.57)%    (1.77)%    (2.06)%      5.43%
Cumulative Net Interest-Earning Assets as
       a Percentage of Cumulative Interest-
       Bearing Liabilities...............      84.47%     88.07%     96.38%     97.71%     97.52%    106.12%
</TABLE>

(1) For purposes of the GAP  analysis,  mortgage and other loans are not reduced
for the allowance for loan losses and non-performing  loans. (2) For purposes of
the GAP analysis, premiums, unearned discounts,  deferred loan fees and purchase
accounting  adjustments are excluded.  (3)  Mortgage-backed  and debt and equity
securities were shown excluding the market value appreciation of $7.4 million on
securities classified as available-for-sale.


Certain shortcomings are inherent in the method of analysis presented in the Gap
table.  For example,  although  certain assets and  liabilities may have similar
contractual maturities or periods to repricing, they may react in different ways
to  changes  in  market  interest  rates.  Further,  in the event of a change in
interest  rates,  prepayment  and early  withdrawal  levels would likely deviate
significantly from those assumed in calculating the table. Additionally, certain
assets,  such as ARMs,  have  contractual  features  which  restrict  changes in
interest  rates on a short-term  basis and over the life of the asset.  Finally,
the ability of borrowers  to service  their ARMs or other loan  obligations  may
decrease in the event of an interest rate  increase.  The Gap table reflects the
estimates of  management  as to periods to  repricing  at a particular  point in
time. Among the factors  considered are current trends and historical  repricing
experience  with respect to similar  products.  For  example,  the Company has a
number of deposit accounts,  including savings,  NOW accounts,  and money market
which,  subject to certain  regulatory  exceptions  not  relevant  here,  may be
withdrawn  at any time.  The  Company,  based  upon its  historical  experience,
assumes that while all  customers in these  account  categories  could  withdraw
their funds on any given day, they will not do so even if market  interest rates
change.  As a result,  different  assumptions may be used at different points in
time.

The Company's  interest rate sensitivity is also monitored by management through
analysis of the change in the net portfolio value ("NPV"). NPV is defined as the
net present  value of the expected  future cash flows of an entity's  assets and
liabilities  and,  therefore,  hypothetically  represents the market value of an
institution's  net worth.  Increases in the market value of assets will increase
the NPV  whereas  decreases  in market  value of assets will  decrease  the NPV.
Conversely,  increases  in the market  value of  liabilities  will  decrease NPV
whereas  decreases in the market value of liabilities will increase the NPV. The
changes in market  value of assets and  liabilities  due to changes in  interest
rates reflect the interest  sensitivity of those assets and liabilities as their
values are derived  from the  characteristics  of the asset or  liability  (i.e.
fixed  rate,  adjustable  rate,  caps,  floors)  relative to the  interest  rate
environment.  For example, in a rising interest rate environment the fair market
value of a fixed rate asset will  decline,  whereas the fair market  value of an
adjustable  rate asset,  depending  on its  repricing  characteristics,  may not
decline. The NPV ratio, under any interest rate scenario,  is defined as the NPV
in that scenario divided by the market value

                                                        11

<PAGE>



of assets in the same  scenario.  This  analysis,  referred to in the NPV table,
initially measures percentage changes from the value of projected NPV in a given
rate scenario,  and then measures interest rate sensitivity by the change in the
NPV ratio, over a range of interest rate change scenarios. The OTS also produces
a similar  analysis  using its own model based upon data submitted on the Bank's
quarterly  Thrift  Financial  Reports,  the  results  of which may vary from the
Company's  internal  model  primarily  because  of  differences  in  assumptions
utilized  between  the  Company's  internal  model and the OTS model,  including
estimated loan prepayment rates, reinvestment rates and deposit decay rates. For
purposes of the NPV table,  prepayment speeds and deposit decay rates similar to
those  used in the Gap table were  used.  The NPV table is based on  simulations
which utilize institution specific assumptions with regard to future cash flows,
including  customer options such as loan prepayments,  period and lifetime caps,
puts and calls, and deposit  withdrawal  estimates.  The NPV table uses discount
rates derived from various sources including, but not limited to, treasury yield
curves,  thrift  retail  certificate  of  deposit  curves,  national  and  local
secondary  mortgage  markets,  brokerage  security  pricing services and various
alternative funding sources.

Specifically,  for mortgage loans receivable, the discount rates used were based
on market  rates for new  loans of  similar  type and  purpose,  adjusted,  when
necessary,  for  factors  such as  servicing  cost,  credit  risk and term.  The
discount rates used for  certificates  of deposit and  borrowings  were based on
rates  which  approximate  the rates  offered by the Company  for  deposits  and
borrowings of similar  remaining  maturities.  The table calculates the NPV at a
flat rate  scenario by  computing  the  present  value of cash flows of interest
earning assets less the present value of interest bearing  liabilities.  Certain
assets, including fixed assets and real estate held for development, are assumed
to remain at book value (net of valuation allowance) regardless of interest rate
scenario. Other non-interest earning assets and non-interest bearing liabilities
such as deferred fees,  unamortized premiums,  goodwill and accrued expenses and
other  liabilities  are excluded from the NPV  calculation.  The following table
sets forth the Bank's NPV as of June 30, 1998, as  calculated  by the Bank,  for
instantaneous  and sustained changes in interest rates relative to the NPV in an
unchanging interest rate environment.


 Changes in Interest                                        Portfolio
 Rates in Basis             Net Portfolio Value          Value of Assets
    Points             ----------------------------    ------------------
 (Rate Shock)               $         $          %      NPV         %
                        Amount     Change     Change   Ratio    Change
                            Dollar in Thousands)
 200.................  111,367   (58,160)    (34.3)     4.68      32.0
 100.................  144,566   (24,961)    (14.7)     5.96      13.4
 0...................  169,527        --        --      6.88        --
 (100)...............  181,460    11,933       7.0      7.29      (5.9)
 (200)...............  182,282    12,755       7.5      7.28      (5.7)
 
As with the Gap table, certain shortcomings are inherent in the methodology used
in the above  interest  rate  risk  measurements.  Modeling  of  changes  in NPV
requires  the making of certain  assumptions  which may or may not  reflect  the
manner in which actual  yields and costs  respond to changes in market  interest
rates.  In this  regard,  the NPV  model  assumes  that the  composition  of the
Company's interest sensitive assets and liabilities existing at the beginning of
a period remains constant over the period being measured and also assumes that a
particular  change in interest  rates is immediate  and is  reflected  uniformly
across the yield curve  regardless  of the  duration to maturity or repricing of
specific assets and  liabilities.  In addition,  prepayment  estimates and other
assumptions  within the model are  subjective in nature,  involve  uncertainties
and, therefore, cannot be determined with precision.  Accordingly,  although the
NPV measurements in theory,  may provide an indication of the Company's interest
rate risk  exposure at a particular  point in time,  such  measurements  are not
intended to and do not  provide for a precise  forecast of the effect of changes
in market  interest  rates on the Company's net portfolio  value and will differ
from actual results.

Analysis of Net Interest Income

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


                                                        12

<PAGE>
The  following  table sets forth certain  information  relating to the Company's
consolidated  statements of condition and the consolidated  statements of income
for the years  ended June 30,  1998,  1997,  and 1996 and  reflects  the average
yields on assets and average cost of liabilities for the periods indicated. Such
yields and costs are  derived  by  dividing  income or  expense  by the  average
balance of assets or  liabilities,  respectively,  for the fiscal  years  shown.
Average  balances are derived from daily balances.  The average balance of loans
receivable includes loans on which the Bank has discontinued  accruing interest.
The yields and costs include fees,  premiums and discounts  which are considered
adjustments to yields.
<TABLE>
<CAPTION>

                                                                               Year Ended June 30,
                                          -----------------------------------------------------------------------------------------
                                                        1998                          1997                          1996
                                          -----------------------------  -----------------------------   --------------------------
                                                               Average                         Average                      Average
                                           Average              Yield/   Average                Yield/   Average             Yield/
                                          Balance     Interest   Cost    Balance     Interest   Cost     Balance   Interest   Cost
Assets:                                                                      (Dollars in thousands)
<S>                                       <C>         <C>       <C>     <C>         <C>        <C>        <C>      <C>       <C>
  Interest-Earning Assets:
     Mortgage Loans, Net...............    $785,119   $63,573    8.10%   $709,471   $ 56,948    8.03%    $473,427  $ 39,073   8.25%
     Commercial Loans, Net.............      33,087     3,916   11.84          --         --      --           --        --     --
     Consumer and Other Loans, Net.....     140,479    12,130    8.63     133,965     11,525    8.60      121,565    10,942   9.00
     Mortgage-Backed Securities (1)....     986,567    67,185    6.81     850,094     59,392    6.99      685,348    46,084   6.72
     Money Market Investments..........      11,126       615    5.53      11,590        618    5.33       17,349       991   5.71
     Debt and Equity Securities (1)....      87,791     6,400    7.29      68,824      4,806    6.98       49,203     3,282   6.67
                                            -------   -------           ---------   --------              -------  --------
      Total Interest-Earning Assets....   2,044,169   153,819    7.52   1,773,944    133,289    7.51    1,346,892   100,372   7.45
                                            -------                     ---------                       ---------
  Non-Interest Earning Assets..........     134,093                        96,082                          63,883
                                          ---------                     ---------                       ---------
          Total Assets.................  $2,178,262                    $1,870,026                      $1,410,775
                                          =========                     =========                       =========
Liabilities and Stockholders' Equity:
  Interest-Bearing Liabilities:
     Passbook Accounts................     $435,844    10,439    2.40    $441,922     10,937    2.47     $353,617     8,942   2.53
     NOW Accounts.....................       95,663     1,257    1.31      80,121      1,041    1.30       58,576     1,161   1.98
     Money Market Accounts............       93,715     2,249    2.40      99,536      2,493    2.50       97,975     2,515   2.57
     Certificate of Deposit Accounts..      882,775    49,487    5.60     737,018     39,668    5.38      547,562    29,807   5.44
     Borrowed Funds...................      403,414    23,396    5.80     311,363     17,514    5.62      180,055    10,560   5.87
                                           --------   -------            --------    -------              -------   -------
          Total Interest-Bearing 
            Liabilities...............    1,911,411    86,828    4.54   1,669,960     71,653    4.29    1,237,785    52,985   4.28
                                          ---------                     ---------                       ---------
  Non-Interest Bearing Liabilities....       82,853                        46,036                          18,919
                                          ---------                     ---------                       ---------
          Total Liabilities...........    1,994,264                     1,715,996                       1,256,704

  Stockholders' Equity................      183,998                       154,030                         154,071
                                          ---------                     ---------                         -------
          Total Liabilities and
            Stockholders' Equity......   $2,178,262                    $1,870,026                      $1,410,775
                                          =========                     =========                       =========

  Net Interest Income/Interest
    Rate Spread (2)...................               $ 66,991   2.98%               $ 61,636    3.22%               $ 47,387  3.17%
                                                       ======   ====                  ======    ====                  ======  ====

  Net Interest-Earning Assets/
    Net Interest Margin (3)...........     $132,758              3.28%   $103,984               3.47%    $ 109,107            3.52%
                                            =======              ----     =======               ====       =======            ====

  Ratio of Interest-Earning Assets to
   Interest-Bearing Liabilities.......                          1.07X                           1.06X                         1.09X

(1) Includes securities available-for-sale.
(2) Net interest rate spread represents the difference between the average yield
on   average   interest-earning   assets  and  the   average   cost  of  average
interest-bearing liabilities.
(3) Net  interest  margin  represents  net  interest  income  divided by average
interest-earning assets.


Rate/Volume Analysis

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

                                                        13

<PAGE>

                                                 Year Ended June 30, 1998                Year Ended June 30, 1997
                                                       Compared to                             Compared to
                                                 Year Ended June 30, 1997                Year Ended June 30, 1996
                                             ---------------------------------     ------------------------------------
                                                   Increase (Decrease)                      Increase (Decrease)
                                                   in Net Interest Income                   in Net Interest Income
                                                   Due to                                   Due to
                                             --------------------                  ---------------------
                                              Volume         Rate          Net      Volume         Rate         Net
                                              ------         ----          ---      ------         ----         ---
                                                                         (In Thousands)
Interest-Earning Assets:
<S>                                           <C>          <C>         <C>         <C>          <C>           <C>     
     Mortgage Loans, Net..................    $6,124         $501      $6,625      $18,945      $(1,070)      $17,875
     Commercial Loans, Net................     3,916           --       3,916           --           --            --
     Consumer and Other Loans, Net........       565           40         605        1,083         (500)          583
     Mortgage-Backed Securities...........     9,353       (1,560)      7,793       11,402        1,906        13,308
     Money Market Investments.............       (25)          22          (3)        (309)         (64)         (373)
     Debt and Equity Securities...........     1,373          221       1,594        1,365          159         1,524
                                              ------       ------      ------       ------         ----        ------
          Total...........................    21,306         (776)     20,530       32,486          431        32,917
                                              ------       -------     ------       ------         ----        ------

Interest-Bearing Liabilities:
     Passbook Accounts....................      (163)        (335)      (498)        2,210         (215)        1,995
     NOW Accounts.........................       208            8        216           350         (470)         (120)
     Money Market Accounts................      (145)         (99)      (244)           43          (65)          (22)
     Certificate of Deposits Accounts.....     8,137        1,682      9,819        10,193         (332)        9,861
     Borrowed Funds.......................     5,307          575      5,882         7,421         (467)        6,954
                                              ------        -----     ------        -------      -------       ------
          Total...........................    13,344        1,831     15,175        20,217       (1,549)       18,668
                                              ------        -----     ------        ------        ------       ------   
Net Change in Net Interest Income.........    $7,962      $(2,607)    $5,355       $12,269       $1,980       $14,249
                                               =====       ======      =====        ======        =====        ======
</TABLE>


Comparison of Operating Results for the Years Ended June 30, 1998 and 1997

General.  Net income  for fiscal  1998 was $18.7  million as  compared  to $10.9
million for fiscal 1997.  Net income for fiscal 1997 reflects a one time pre-tax
charge to income of $8.25 million for the Company's share of recapitalizing  the
Savings Association  Insurance Fund ("SAIF").  The following discussion reflects
the results of operations exclusive of the SAIF recapitalization charge.

General  Comparison  Exclusive of the SAIF  Recapitalization  Charge. Net income
increased  $3.0  million,  or 18.8% from $15.7  million for fiscal 1997 to $18.7
million for fiscal 1998. Return on average equity increased to 10.42% for fiscal
1998 from 10.12% for fiscal 1997 and return on average tangible equity increased
to 15.14% for fiscal  1998 from 14.56% for fiscal  1997.  Diluted  earnings  per
share rose to $1.99 for fiscal 1998 as compared to diluted earnings per share of
$1.81 for fiscal 1997.

Interest Income.  Interest income increased $20.5 million, or 15.4%, from $133.3
million for fiscal 1997 to $153.8 million for fiscal 1998. The increase resulted
primarily from a $270.2 million increase in average interest-earning assets from
$1.8  billion for fiscal 1997 to $2.0  billion for fiscal 1998 and from a slight
increase in the average  yield of  interest-earning  assets from 7.51% in fiscal
1997 to 7.52% in fiscal  1998.  The  increase  in the  average  interest-earning
assets was primarily due to assets acquired in the Continental Bank acquisition,
increased purchases of mortgage-backed  securities and increased originations of
multi-family loans. Interest income on mortgage-backed securities increased $7.8
million,  or 13.1%,  from $59.4  million  for fiscal  1997 to $67.2  million for
fiscal 1998,  primarily due to an increase of $136.5  million,  or 16.1%, in the
average balance of these securities, offset by an 18 basis point decrease in the
average yield on these securities from 6.99% for fiscal 1997 to 6.81% for fiscal
1998.  Interest income on mortgage loans  increased $6.6 million,  or 11.6% from
$56.9 million in fiscal 1997 to $63.5  million in fiscal 1998,  primarily due to
an increase of $75.6  million in the average  balance of mortgage  loans,  and a
slight 7 basis point  increase in the average yield on mortgage loans from 8.03%
for fiscal 1997 to 8.10% for fiscal 1998. The increase in the average balance of
mortgage  loans was  primarily  due to loans  acquired in the  Continental  Bank
acquisition and increased originations of multi-family loans.




                                                        14

<PAGE>



Interest  Expense.  Interest  expense  for  fiscal  1998 was $86.8  million,  an
increase of $15.2  million,  or 21.2%,  from $71.6  million in fiscal 1997.  The
increase is primarily the result of a $241.5 million, or 14.5%,  increase in the
average  balance of  interest-bearing  liabilities  from $1.7 billion for fiscal
1997 to $1.9  billion for fiscal 1998 and from a 25 basis point  increase in the
cost of  interest-bearing  liabilities  from 4.29% for fiscal  1997 to 4.54% for
fiscal 1998. The increase in the average balance of interest-bearing liabilities
was primarily due to deposits acquired in the Continental Bank acquisition,  new
certificate  deposits  and  additional  borrowings.  Interest  expense  on total
deposits increased $9.3 million, or 17.2%, from $54.1 million for fiscal 1997 to
$63.4  million for fiscal 1998,  primarily as a result of a $149.4  million,  or
11.0%  increase in the average  balance of deposits  from $1.4 billion in fiscal
1997 to $1.5 billion in fiscal 1998 and a 23 basis point increase in the average
cost of such  deposits  from 3.98% in fiscal 1997 to 4.21% in fiscal  1998.  The
average balance of certificate accounts increased $145.8 million, or 19.8%, from
$737.0 million for fiscal 1997 to $882.8 million for fiscal 1998. In addition to
the increase in the average balance of certificate accounts, the average balance
of  interest-bearing  core deposits also increased $9.5 million,  or 1.8%,  from
$522.0  million for fiscal 1997 to $531.5  million for fiscal 1998. The increase
in average core deposits  relates to deposits  acquired from  Continental  Bank.
Interest expense on borrowed funds increased $5.9 million,  or 33.6%, from $17.5
million for fiscal 1997 to $23.4 million for fiscal 1998. The average balance of
borrowed funds  increased  $92.0 million,  or 29.6% to $403.4 million for fiscal
1998 as compared to $311.4  million for fiscal 1997.  The increase in borrowings
is attributable  to additional  leveraging of the balance sheet and the proceeds
from the trust  preferred  securities.  The Bank had been  using  borrowings  to
leverage its capital and fund asset growth.

Net Interest Income. Net interest income for fiscal 1998 increased $5.4 million,
or 8.7%,  from $61.6  million for fiscal 1997 to $67.0  million for fiscal 1998.
The increase in net interest income primarily relates to the significant  growth
in the average balances of  interest-earning  assets offset by a decrease in the
net interest spread. Average  interest-earning  assets increased $270.2 million,
or 15.2%,  from $1.8 billion in fiscal 1997 to $2.0 billion in fiscal 1998 while
average  interest-bearing  liabilities  increased $241.5 million, or 14.5%, from
$1.7  billion in fiscal 1997 to $1.9  billion in fiscal  1998.  The net interest
rate spread  declined by 24 basis points from 3.22% for fiscal 1997 to 2.98% for
fiscal 1998 as a result of increased costs of interest bearing liabilities. As a
result of further  leveraging  of the Bank's  capital,  the net interest  margin
decreased  from 3.47% in fiscal 1997 to 3.28% in fiscal 1998. As a result of the
Continental  acquisition,  the  ratio  of  average  interest-earning  assets  to
interest-bearing  liabilities  increased  slightly  from 1.06X in fiscal 1997 to
1.07X in fiscal 1998.

Provision  for Loan Losses.  The  provision  for loan losses for fiscal 1998 was
$1.65 million, an increase of $700,000, or 73.7%, from $950,000 for fiscal 1997.
When  determining  the provision for loan losses,  management  assesses the risk
inherent in its loan portfolio  based on information  available to management at
such time relating to trends in the national and local economies,  trends in the
real estate market and trends in the Company's  level of  non-performing  loans,
assets and net charge-offs. Non-performing loans decreased from $14.7 million at
the end of  fiscal  1997 to $9.3  million  at the  end of  fiscal  1998  and net
charge-offs increased from $263,000 for fiscal 1997 to $636,000 for fiscal 1998.
Management increased the provision for loan losses during fiscal 1998 due to its
assessment  of the  loan  portfolio  and  to  increase  loan  loss  coverage  on
non-performing  loans.  Additionally,  during fiscal 1998, the Company increased
its  origination  of  multi-family  loans  and as a  result  of the  Continental
acquisition, the Company began to originate commercial loans. Multi-family loans
and commercial  loans may possess a greater credit risk than one- to four-family
loans and require greater general reserve levels. Management believes that based
upon information currently available,  its allowance for loan losses is adequate
to cover future loan losses.  However,  if general economic  conditions and real
estate  values  within the Bank's  primary  lending area  decline,  the level of
non-performing loans may increase resulting in larger provisions for loan losses
which, in turn, would adversely affect net income.

Non-Interest Income. Non-interest income for fiscal 1998 increased $4.4 million,
or 130.3%,  from $3.4  million for fiscal 1997 to $7.8  million for fiscal 1998,
due to a gain from a condemnation award received from an inactive joint venture,
fee income generated from the check cashing operations acquired from Continental
Bank and increased deposit fee income.

Non-Interest  Expense.  Non-interest  expense  totalled $39.7 million for fiscal
1998 as compared to $43.0  million for fiscal 1997, a decrease of $3.3  million,
or 7.8%.  Included in  non-interest  expense for fiscal 1997 is the special SAIF
pre-tax charge of $8.25 million. Excluding the SAIF charge, non-interest expense
increased  $4.9 million,  or 14.1%.The  increase is mainly the result of banking
office personnel,  goodwill  amortization and other expenses associated with the
Continental Bank acquisition offset by a decrease in deposit insurance premiums.
Due to the

                                                        15

<PAGE>



increased  asset  base  and  the  operational  efficiencies  realized  from  the
acquisition,  the general and  administrative  expenses to average  assets ratio
improved  from 1.66% for the fiscal year ended June 30, 1997 to 1.62% for fiscal
1998.  For fiscal 1998,  compensation  and benefits  expense  increased to $20.3
million,  an increase of $3.8 million,  or 23.0%,  from $16.5 million for fiscal
1997. The increase in compensation  and benefits  expense is due to the addition
of banking  office  personnel  from the  Continental  Bank  acquisition,  higher
benefit  expenses and normal salary  adjustments.  For fiscal 1998, ESOP and RRP
expense  was $3.7  million as compared  to $2.5  million in the prior  year,  an
increase of $1.2 million,  or 46.9%.  Occupancy and equipment  expense increased
$812,000, or 14.2%, from $5.7 million for fiscal 1997 to $6.5 million for fiscal
1998 due to costs  associated  with the operation of two new banking offices and
five  check  cashing  facilities.  Federal  deposit  premium  expense  decreased
$892,000,  or 49.2%,  from $1.8  million for fiscal 1997 to $921,000  for fiscal
1998 due to the reduction in SAIF. Other operating expenses increased  $496,000,
or 8.6%,  from $5.8 million  during  fiscal 1997 to $6.3 million for fiscal 1998
primarily  as a result of general  expenses  related to the  addition of two new
banking offices and five check cashing facilities.

For fiscal 1998, expenses related to real estate operations, net was $218,000, a
decrease of $165,000,  or 43.1%,  from  $383,000 in the prior year  period.  The
decrease  is the result of a lower  provision  for REO losses  during the fiscal
year ended June 30, 1998.  During fiscal 1998, the Bank  established a provision
for REO losses of $93,000 as compared to $200,000 in the prior year period.

During fiscal 1998, the Bank recognized amortization of excess of cost over fair
value of net assets  acquired of $4.2  million as  compared  to $3.4  million in
fiscal 1997.  The  amortization  of cost over fair value of net assets  acquired
relates to the Company  accounting  for the  acquisitions  of Bank of  Westbury,
Sunrise  Bancorp,  Inc.  and  Continental  Bank  using  the  purchase  method of
accounting.

Income Tax Expense.  Income tax expense  increased $4.7 million,  or 46.1%, from
$10.1  million for fiscal 1997 to $14.8  million for fiscal 1998.  The effective
income tax rate was 44.2% for fiscal 1998 as compared to 48.1% for fiscal  1997.
The decrease in the effective tax rate primarily relates to certain tax benefits
associated  with the  operations  of a  subsidiary  of the  Bank,  offset  by an
increase  in  amortization  of  excess of cost  over  fair  value of net  assets
acquired, which provides no tax benefit.

Comparison of Operating Results for the Years Ended June 30, 1997 and 1996.

General.  Net income  for fiscal  1997 was $10.9  million as  compared  to $11.7
million for fiscal  1996.  The decrease in net income was the result of the SAIF
recapitalization assessment of $4.8 million, net of taxes, recorded in the first
quarter of fiscal 1997.  Although net income  decreased from the prior year, net
income,  excluding the SAIF recapitalization  assessment,  would have been $15.7
million  for the year ended June 30, 1997 which  represents  an increase of $4.1
million,  or 34.5%, over net income for the year ended June 30, 1996.  Excluding
the SAIF  assessment,  the return on average equity increased to 10.12% for year
ended June 30,  1997 from  7.58% for year ended June 30,  1996 and the return on
tangible equity  increased to 14.56% for year ended June 30, 1997 from 9.18% for
year ended June 30, 1996.

Interest Income.  Interest income increased $32.9 million, or 32.8%, from $100.4
million for fiscal 1996 to $133.3 million for fiscal 1997. The increase resulted
primarily from a $427.1 million increase in average interest-earning assets from
$1.3  billion for fiscal 1996 to $1.8  billion for fiscal 1997 and from a slight
increase in the average  yield of  interest-earning  assets from 7.45% in fiscal
1996 to 7.51% in fiscal  1997.  The  increase  in the  average  interest-earning
assets  was  primarily  due to assets  acquired  in the  Sunrise  Bancorp,  Inc.
acquisition,  increased  purchases of  mortgage-backed  securities and increased
originations  of  multi-family   loans.   Interest  income  on   mortgage-backed
securities increased $13.3 million, or 28.9%, from $46.1 million for fiscal 1996
to $59.4  million  for  fiscal  1997,  primarily  due to an  increase  of $164.7
million,  or 24.0%, in the average balance of these securities,  and an increase
in the  average  yield on these  securities  of 27 basis  points  from 6.72% for
fiscal  1996 to 6.99%  for  fiscal  1997 due to  increased  purchases  of higher
yielding  fixed-rate  mortgage-backed  securities  and agency and private  label
REMICs.  Interest  income from mortgage  loans  increased by $17.9  million,  or
45.7%,  due to a $236.0  million,  or 49.9%,  increase in the average balance of
mortgage  loans  offset by a 22 basis point  decrease  in the  average  yield on
mortgage loans from 8.25% for fiscal 1996 to 8.03% for fiscal 1997. The increase
in average  mortgage  loans was primarily  due to loans  acquired in the Sunrise
Bancorp, Inc. acquisition and increased originations of multi-family loans. The

                                                        16

<PAGE>



decrease in the average yield resulted  primarily from the downward repricing of
the Company's adjustable-rate loans and originations of lower yielding loans due
to the lower interest rate environment.

Interest  Expense.  Interest  expense  for  fiscal  1997 was $71.7  million,  an
increase of $18.7  million,  or 35.2%,  from $53.0  million in fiscal 1996.  The
increase is primarily the result of a $432.2 million, or 34.9%,  increase in the
average  balance of  interest-bearing  liabilities  from $1.2 billion for fiscal
1996 to $1.7  billion for fiscal 1997 and from a slight  increase in the cost of
interest-bearing  liabilities  from  4.28% for  fiscal  1996 to 4.29% for fiscal
1997. The increase in the average  balance of  interest-bearing  liabilities was
primarily due to deposits acquired in the Sunrise Bancorp, Inc. acquisition, new
certificate  deposits  and  additional  borrowings.  Interest  expense  on total
deposits  increased $11.7 million,  or 27.6%, from $42.4 million for fiscal 1996
to $54.1 million for fiscal 1997,  primarily as a result of a $300.9 million, or
28.4%  increase in the average  balance of deposits  from $1.1 billion in fiscal
1996 to $1.4  billion in fiscal 1997 offset by a slight  decrease in the average
cost of such  deposits  from 4.01% in fiscal 1996 to 3.98% in fiscal  1997.  The
decrease  in the  average  cost of  deposits  resulted  primarily  from the Bank
lowering  rates on its core deposit  accounts  offset by the Bank  competitively
raising  interest  rates on  certificate  of deposit  accounts  to  attract  new
deposits.  The average balance of certificate accounts increased $189.5 million,
or 34.6%, from $547.6 million for fiscal 1996 to $737.0 million for fiscal 1997.
In addition to the increase in the average balance of certificates accounts, the
average balance of core deposits also increased $109.9 million,  or 26.7%,  from
$412.2  million for fiscal 1996 to $522.0  million for fiscal 1997. The increase
relates to core  deposits  acquired in the Sunrise  Bancorp,  Inc.  acquisition,
however, the core deposit ratio decreased from 41.68% at June 30, 1996 to 37.40%
at June 30, 1997.  Interest expense on borrowed funds increased $6.9 million, or
65.9%,  from $10.6  million  for fiscal 1996 to $17.5  million for fiscal  1997.
Borrowings  averaged  $311.4  million  for fiscal  1997,  an  increase of $131.3
million, or 72.9%, from $180.1 million for fiscal 1996. The Company continues to
utilize borrowed funds to grow,  leveraging the Bank's capital and improving the
return on equity  and  tangible  equity.  Borrowed  funds,  principally  reverse
repurchase  agreements and FHLB-NY  advances,  have been invested by the Company
primarily in mortgage-backed securities and multi-family loans.

Net  Interest  Income.  Net  interest  income for fiscal  1997  increased  $14.2
million,  or 30.1%,  from $47.4  million  for fiscal  1996 to $61.6  million for
fiscal  1997.  The  increase in net  interest  income  primarily  relates to the
significant  growth in the average  balances of  interest-earning  assets and an
increase in the net interest spread. Average  interest-earning  assets increased
$427.1  million,  or 31.7%,  from $1.3 billion in fiscal 1996 to $1.8 billion in
fiscal 1997 while average interest-bearing liabilities increased $432.2 million,
or 34.9%,  from $1.2 billion in fiscal 1996 to $1.7 billion in fiscal 1997.  The
net  interest  rate  spread  increased  from 3.17% for fiscal  1996 to 3.22% for
fiscal  1997 as a result of higher  yielding  loans  acquired  from the  Sunrise
Bancorp, Inc. acquisition and increased yields on the mortgage-backed securities
portfolio.  As a result  of  leveraging  the  Bank's  capital  with the  Sunrise
Bancorp,  Inc.  acquisition,  the net interest  margin  decreased  from 3.52% in
fiscal  1996 to 3.47% in fiscal  1997 and the ratio of average  interest-earning
assets to  interest-bearing  liabilities  declined  from 1.09X in fiscal 1996 to
1.06X in fiscal 1997.

Provision  for Loan Losses.  The  provision  for loan losses for fiscal 1997 was
$950,000,  and increase of $225,000,  or 31.0%,  from  $725,000 for fiscal 1996.
When  determining  the provision for loan losses,  management  assesses the risk
inherent in its loan portfolio  based on information  available to management at
such time relating to trends in the national and local economies,  trends in the
real estate market and trends in the Company's level of non-performing loans and
assets and net charge-offs. Non-performing loans increased from $13.0 million at
the end of  fiscal  1996 to  $14.7  million  at the end of  fiscal  1997 and net
charge-offs increased from $176,000 for fiscal 1996 to $263,000 for fiscal 1997.
Management increased the provision for loan losses during fiscal 1997 due to its
assessment  of the  loan  portfolio  and  to  increase  loan  loss  coverage  on
non-performing loans. In addition,  the Company has increased its origination of
multi-family  loans  which  may  possess  a  greater  credit  risk  than one- to
four-family  loans and  requires  greater  general  reserve  levels.  Management
believes that based upon information  currently available its allowance for loan
losses is adequate to cover future loan  losses.  However,  if general  economic
conditions  and real  estate  values  within the  Bank's  primary  lending  area
decline,  the level of  non-performing  loans may  increase  resulting in larger
provisions for loan losses which, in turn, would adversely affect net income.

Non-Interest Income.  Non-interest income for fiscal 1997 increased $302,000, or
9.7%,  from $3.1 million for fiscal 1996 to $3.4  million for fiscal  1997.  The
increase in non-interest income is due to increased deposit fee income offset by
lower net gains on securities.


                                                        17

<PAGE>



Non-Interest Expense. Non-interest expense totalled $43.0 million for the fiscal
year ended June 30, 1997 as compared to $28.1  million for the fiscal year ended
June 30, 1996, an increase of $14.9 million, or 53.1%.  Included in non-interest
expense for the fiscal  year ended June 30,  1997 is the special  SAIF charge of
$8.25 million.  Excluding the SAIF charge,  non-interest  expense increased $6.7
million,  or  23.7%.  The  increase  is mainly  the  result  of  banking  office
personnel,  goodwill  amortization and other occupancy costs associated with the
Sunrise  Bancorp,  Inc.  acquisition.  Due to the  increased  asset base and the
operational  efficiencies  realized  from  the  acquisition,   the  general  and
administrative  expenses to average  assets  ratio  improved  from 1.81% for the
fiscal  year  ended June 30,  1996 to 1.66% for the  fiscal  year ended June 30,
1997. For the fiscal year ended June 30, 1997, compensation and benefits expense
increased to $16.5 million,  an increase of $3.1 million,  or 23.2%,  from $13.4
million for the fiscal year ended June 30, 1996.  The  increase in  compensation
and benefits expense is due to the addition of banking office personnel from the
Sunrise  Bancorp,  Inc.  acquisition,  higher benefit expenses and normal salary
adjustments.  For the fiscal year ended June 30, 1997,  ESOP and RRP expense was
$2.5  million as  compared  to $2.0  million in the prior  year,  an increase of
$485,000,  or 23.8%.  Occupancy and equipment expense increased $1.2 million, or
27.6%, from $4.5 million for the fiscal year ended June 30, 1996 to $5.7 million
for the  fiscal  year  ended  June 30,  1997 due to  costs  associated  with the
operation  of the  eleven new  banking  offices  as well as  miscellaneous  data
processing costs. Federal deposit premium expense decreased $586,000,  or 24.4%,
from $2.4  million for fiscal  year ended June 30, 1996 to $1.8  million for the
fiscal  year ended June 30,  1997 due to the  reduction  in SAIF  premiums  as a
result of the  recapitalization  of the insurance fund. Other operating expenses
increased $1.6 million, or 38.6%, from $4.2 million during the fiscal year ended
June 30, 1996 to $5.8 million for the fiscal year ended June 30, 1997  primarily
as a result of general  expenses  related to the  addition of eleven new banking
offices.

For the  fiscal  year ended June 30,  1997,  real  estate  owned  expenses  were
$383,000,  a decrease of  $196,000,  or 33.9%,  from  $579,000 in the prior year
period.  The decrease in real estate owned expenses primarily relates to a lower
provision  established  during the fiscal year ended June 30,  1997.  During the
fiscal year ended June 30, 1997, the Bank established a provision for REO losses
of $200,000 as compared to $375,000 in the prior year period.

During fiscal year 1997, the Bank recognized amortization of excess of cost over
fair value of net assets acquired of $3.4 million as compared to $1.9 million in
fiscal 1996.  The  amortization  of cost over fair value of net assets  acquired
relates to the Company  accounting for the  acquisitions of Bank of Westbury and
Sunrise Bancorp, Inc. using the purchase method of accounting.

Income Tax Expense.  Income tax expense increased  $192,000,  or 1.9%, from $9.9
million for fiscal 1996 to $10.1 million for fiscal 1997.  The effective  income
tax rate was 48.1% for fiscal  1997 as compared  to 45.9% for fiscal  1996.  The
increase in the effective tax rate primarily  relates to no tax benefit received
for the amortization of excess of cost over fair value of net assets acquired.

Liquidity and Capital Resources

The  Company's  current  primary  sources of funds are  principal  and  interest
payments, sales of securities available-for- sale, borrowings and dividends from
the Bank.  Dividend  payments  to the  Company  from the Bank are subject to the
profitability of the Bank and to applicable laws and regulations.  During fiscal
1998 and  1997,  the Bank  made  dividend  payments  of $14.0  million  and $6.7
million, respectively, to the Company. During fiscal year 1996, the Bank did not
make any dividend payments to the Company.

On April 29,  1998,  the Company  completed a $50 million  private  placement of
8.17%  capital  securities  (the  "Capital  Securities")  due May 1,  2028.  The
securities were issued by the Company's  recently formed unit,  Reliance Capital
Trust I. The securities  were sold in an offering under Rule 144A and Regulation
D of the Securities Act of 1933. Proceeds of the issue were invested by Reliance
Capital Trust I in junior  subordinated  debentures  issued by the Company.  The
Capital Securities are guaranteed by the Company.  Net proceeds from the sale of
the debentures were used for general corporate purposes.

The Company's liquidity is also available to, among other things, support future
expansion of operations or diversification  into other banking related business,
pay  dividends or  repurchase  its common  stock.  In this  regard,  the Company
declared cash dividends of $6.0 million,  $4.9 million,  and $3.9 million during
fiscal years 1998, 1997 and 1996, respectively.

                                                        18

<PAGE>



On  February  9,  1998,  the  Company  completed  its fifth five  percent  stock
repurchase  plan  repurchasing  440,973  shares  at an  aggregate  cost of $13.4
million.  On January 12, 1998, the Company  announced its sixth stock repurchase
plan to repurchase up to 500,000 of the Company's outstanding shares. As of June
30, 1998,  100,000  shares under this program were  repurchased  at an aggregate
cost of $3.7  million.  During  fiscal  years 1998,  1997 and 1996,  the Company
repurchased total shares of 460,973,  442,182 and 260,776,  respectively,  at an
aggregate cost of $15.3 million, $8.1 million and $3.8 million, respectively.

The  Bank's  primary  sources  of funds are  deposits,  principal  and  interest
payments on loans,  mortgage-backed  securities and debt and equity  securities,
advances from the FHLB-NY and borrowings under reverse repurchase agreements and
loan   sales.   While   maturities   and   scheduled   amortization   of  loans,
mortgage-backed securities and debt securities are predictable sources of funds,
deposit  flows and mortgage  prepayments  are strongly  influenced by changes in
general interest rates, economic conditions and competition.

The Bank is required to maintain an average  daily balance of liquid assets as a
percentage of net withdrawable  deposit  accounts plus short-term  borrowings as
defined by OTS regulations.  The minimum  required  liquidity is currently 4.0%.
The Bank's liquidity ratio averaged 8.0% for the year ended June 30, 1998.

The Bank's most liquid assets are cash and short-term investments. The levels of
the Bank's  liquid  assets are  dependent  on the Bank's  operating,  financing,
lending and  investing  activities  during any given  period.  At June 30, 1998,
assets qualifying for liquidity,  including cash, US government  obligations and
other eligible securities, totalled $171.7 million.

The primary  investment  activity of the Bank is the  origination  of  mortgage,
commercial  and  consumer  and loans,  and the  purchase of  mortgage  loans and
mortgage-backed securities. During the fiscal year ended June 30, 1998, the Bank
originated and purchased  mortgage  loans,  commercial and consumer loans in the
amount of $106.4 million, $140.6 million and $46.7 million, respectively. During
the fiscal  year ended  June 30,  1998,  the Bank  purchased  $770.9  million of
mortgage-backed   securities  of  which  $623.7  million  and  $147.2   million,
respectively,  were classified as  available-for-sale  and  held-to-maturity and
purchased as part of the Bank's growth  strategy.  These  activities were funded
primarily  by  deposits,  principal  repayments  on  loans  and  mortgage-backed
securities and borrowings from the FHLB-NY,  reverse  repurchase  agreements and
proceeds from Capital Securities.  At June 30, 1998, borrowings from the FHLB-NY
and reverse  repurchase  agreements  totalled $182.1 million and $398.1 million,
respectively.

At June 30, 1998, the Bank had outstanding loan commitments of $40.4 million and
commercial and consumer open lines of credit of $22.6 million and $53.4 million,
respectively.  The Bank anticipates that it will have sufficient funds available
to meet its current loan origination commitments.  Certificates of deposit which
are scheduled to mature in one year or less from June 30, 1998  totalled  $797.9
million.  Management  believes that a significant  portion of such deposits will
remain with the Bank.

At June 30, 1998,  the Bank exceeded each of the OTS capital  requirements.  The
Bank's  tangible,  core,  and risked-  based  ratios were 6.1%,  6.1% and 15.3%,
respectively.  The  Bank  qualifies  as  "well  capitalized"  under  the  prompt
corrective  action  provisions  of the  Federal  Deposit  Insurance  Corporation
Improvements Act of 1991.

Impact of Inflation and Changing Prices

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




                                                        19

<PAGE>



Impact of New Accounting Standards

In  June  1997,  the  Financial  Accounting  Standards  Board (  "FASB")  issued
Statement  of  Financial  Accounting  Standards  ("SFAS")  No.  130,  "Reporting
Comprehensive  Income". SFAS No. 130 requires that all items that are components
of "comprehensive income" be reported in a financial statement that is displayed
with the same prominence as other financial statements.  Comprehensive income is
defined as the "change in equity [net assets] of a business  enterprise during a
period  from  transactions  and other  events and  circumstances  from  nonowner
sources.  It  includes  all  changes  in  equity  during a period  except  those
resulting from  investments by owners and  distributions  to owners".  Companies
will be required to (a) classify  items of other  comprehensive  income by their
nature in a financial statement and (b) display the accumulated balance of other
comprehensive  income separately from retained  earnings and additional  paid-in
capital in the equity section of a statement of financial position. SFAS No. 130
is effective  for fiscal years  beginning  after  December 15, 1997 and requires
reclassification of prior periods presented. As the requirements of SFAS No. 130
are disclosure-related,  its implementation will have no impact on the Company's
financial condition or results of operations.

In June 1997,  the FASB issued SFAS No. 131,  "Disclosure  about  Segments of an
Enterprise  and Related  Information".  SFAS No. 131 requires  that  enterprises
report certain financial and descriptive information about operating segments in
complete sets of financial  statements of the Company and in condensed financial
statements of interim  periods issued to  shareholders.  It also requires that a
Company report certain information about their products and services, geographic
areas in which they operate and their major  customers.  As the  requirements of
SFAS No. 131 are  disclosure-related,  its implementation will have no impact on
the  Company's  financial  condition or results of  operations.  SFAS No. 131 is
effective  for fiscal  years  beginning  after  December  15, 1997 and  requires
interim periods to be presented in the second year of application.

In February 1998, the FASB issued SFAS No. 132,  "Employer's  Disclosures  about
Pensions and Other Postretirement  Benefits" an amendment of FASB Statements No.
87, "Employer's  Accounting for Pensions",  No. 88,  "Employer's  Accounting for
Settlements   and   Curtailments  of  Defined  Benefit  Pension  Plans  and  for
Termination  Benefits",  and No. 106, "Employer's  Accounting for Postretirement
Benefits Other Than Pensions". SFAS No. 132 revises employer's disclosures about
pension  and  other  postretirement  benefit  plans.  It  does  not  change  the
measurement  or  recognition  of  those  plans.   Rather,  it  standardizes  the
disclosure  requirements for pensions and other  postretirement  benefits to the
extent practicable,  requires  additional  information on changes in the benefit
obligations  and fair  values  of plan  assets  that will  facilitate  financial
analysis,  and eliminates  certain  disclosures  that are no longer as useful as
they were when FASB  Statements  No. 87, No. 88, and No. 106,  were issued.  The
statement suggests combined formats for presentation and restatement for earlier
periods  of  pension  and  other  postretirement  benefit  disclosures.  As  the
requirements of SFAS No. 132 are  disclosure-related,  its  implementation  will
have no impact on the Company's  financial  condition or results of  operations.
SFAS No. 132 is effective for fiscal years beginning after December 15, 1997.

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities,"  which is effective  prospectively for the
Company on July 1, 1999. SFAS No. 133 standardizes the accounting for derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts.  Under the  Statement,  entities are required to carry all derivative
instruments in the statement of financial position at fair value. The accounting
for changes in the fair value (i.e., gains or losses) of a derivative instrument
depends on whether it has been  designated  and  qualifies  as part of a hedging
relationship and, if so, on the reason for holding it. If certain conditions are
met,  entities  may elect to  designate a  derivative  instrument  as a hedge of
exposures to changes in fair values,  cash flows or foreign  currencies.  If the
hedge  exposure  is a fair value  exposure,  the gain or loss on the  derivative
instrument is  recognized in earnings in the period of change  together with the
offsetting loss or gain on the hedge item attributable to the risk being hedged.
If the hedged  exposure is a cash flow  exposure,  the effective  portion of the
gain or loss on the derivative  instrument is reported  initially as a component
of other comprehensive  income (outside earnings) and subsequently  reclassified
into earnings when the  forecasted  transaction  affects  earnings.  Any amounts
excluded from the assessment of hedge  effectiveness  as well as the ineffective
portion of the gain or loss is reported in earnings immediately.  Accounting for
foreign  currency  hedges is similar to the  accounting  for fair value and cash
flow hedges. If the derivative instrument is not designated as a hedge, the gain
or loss is recognized in

                                                        20

<PAGE>



earnings in the period of change. The Company has not determined the impact that
SFAS No. 133 will have on its financial statements.

Impact of the Year 2000 Issue

The Year 2000 Issue  centers on the  inability of computer  systems to recognize
the year 2000.  Many  existing  computer  programs and systems  were  originally
programmed  with six digit dates that  provided  only two digits to identify the
calendar year in the date field,  without considering the upcoming change in the
century.  With the  impending  millennium,  these  programs and  computers  will
recognize  "00" as the year 1900 rather than the year 2000.  Like most financial
service providers,  the Company and its operations may be significantly affected
by the Year 2000 Issue due to the  nature of  financial  information.  Software,
hardware, and equipment both within and outside the Company's direct control and
with whom the Company  electronically  or  operationally  interfaces (e.g. third
party  vendors  providing  data  processing,   information   system  management,
maintenance of computer systems, and credit bureau information) are likely to be
affected.  Furthermore,  if  computer  systems  are not  adequately  changed  to
identify  the  Year  2000,  many  computer  applications  could  fail or  create
erroneous results.  As a result,  many calculations which rely on the date field
information,  such  as  interest,  payment  or due  dates  and  other  operating
functions, will generate results which could be significantly misstated, and the
company could  experience a temporary  inability to process  transactions,  send
invoices or engage in similar normal  business  activities.  In addition,  under
certain  circumstances,  failure to adequately address the Year 2000 Issue could
adversely affect the viability of the Company's  suppliers and creditors and the
creditworthiness of its borrowers.  Thus, if not adequately addressed,  the Year
2000  Issue  could  result in a  significant  adverse  impact  on the  Company's
products, services and competitive condition.

The Company has  initiated  formal  communications  with all of its  significant
suppliers to determine  the extent to which the Company is  vulnerable  to those
third  parties'  failure to  remediate  their own Year 2000  Issue.  The Company
presently  believes that with modifications to existing software and conversions
to new  software,  the Year  2000  Issue  will be  mitigated  without  causing a
material  adverse  impact on the  operations  of the Company.  However,  if such
modifications  and  conversions are not made, or are not completed  timely,  the
Year 2000 Issue could have an impact on the  operations of the Company.  At this
time,  management  does not believe that the impact and any resulting costs will
be material.

Monitoring  and managing the Year 2000 project will result in additional  direct
and indirect  costs to the Company.  Direct costs include  potential  charges by
third party software vendors for product enhancements, costs involved in testing
software  products  for  year  2000  compliance,  and any  resulting  costs  for
developing and implementing  contingency  plans for critical  software  products
which are not  enhanced.Indirect  costs  will  principally  consist  of the time
devoted by existing  employees in monitoring  software vendor progress,  testing
enhanced software products and implementing any necessary contingency plans. The
Company does not believe that such costs will have a material  effect on results
of operations.  Both direct and indirect costs of addressing the Year 2000 Issue
will be charged to earnings as  incurred.  Such costs have not been  material to
date, however the Company expects to incur  approximately  $200,000 in Year 2000
related expenses.

Presently, the Company does not have a formal contingency plan in the event that
its computer  software and hardware  vendors are not Year 2000 compliant.  Based
upon our discussions with our computer software and hardware vendors,  they have
indicated  that they are  performing  testing  and will be Year 2000  compliant.
However,  the Company will monitor the progress of its vendors to determine if a
formal contingency plan is necessary and take all steps necessary to become Year
2000 compliant with all computer software programs and hardware.

Private Securities Litigation Reform Act Safe Harbor Statement

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

                                                        21

<PAGE>

 Reliance Bancorp, Inc. and Subsidiary
 Consolidated Statements of Condition
 ------------------------------------                                 
(Dollars in thousands, except share amounts)

<TABLE>
<CAPTION>

                                                                                                June 30,
                                                                                        -----------------------
                                                                                          1998           1997
                                                                                          ----           ----
Assets
<S>                                                                                    <C>          <C>        
Cash and Due from Banks.............................................................     $37,596        $29,565
Money Market Investments............................................................       9,500          1,100
Debt and Equity Securities Available-for-Sale.......................................     134,907         26,909
Debt and Equity Securities Held-to-Maturity (with estimated
   market values of $40,509 and $46,152, respectively)..............................      40,189         46,026
Mortgage-Backed Securities Available-for-Sale.......................................     940,347        721,819
Mortgage-Backed Securities Held-to-Maturity (with estimated
   market values of $252,332 and $163,108, respectively)............................     249,259        159,356
Loans receivable:
     Mortgage Loans.................................................................     790,951        775,612
     Commercial Loans...............................................................      49,887             --
     Consumer and Other Loans.......................................................     137,900        138,891
       Less Allowance for Loan Losses...............................................      (8,941)        (5,182)
                                                                                         --------       --------
             Loans Receivable, Net..................................................     969,797        909,321

Accrued Interest Receivable, Net....................................................      14,958         12,040
Office Properties and Equipment, Net................................................      15,436         14,089
Prepaid Expenses and Other Assets...................................................      11,732          7,580
Mortgage Servicing Rights...........................................................       2,317          3,046
Excess of Cost Over Fair Value of Net Assets Acquired...............................      58,936         45,463
Real Estate Owned, Net..............................................................         755            450
                                                                                       ---------      ---------
             Total Assets...........................................................  $2,485,729     $1,976,764
                                                                                       =========      =========

Liabilities and Stockholders' Equity
Deposits............................................................................  $1,628,298     $1,436,037
Borrowed Funds......................................................................     630,206        351,913
Advance Payments by Borrowers for Taxes and Insurance...............................       9,806          9,017
Accrued Expenses and Other Liabilities..............................................      22,555         17,127
                                                                                       ---------      ---------
             Total Liabilities......................................................   2,290,865      1,814,094
                                                                                       ---------      ---------

Commitments
Stockholders' Equity
Preferred Stock, $.01 Par Value, 4,000,000 Shares
 Authorized; None Issued............................................................          --             --
Common Stock, $.01 Par Value, 20,000,000 Shares
 Authorized; 10,750,820 Shares Issued; 9,564,988 and 8,776,337
   Outstanding, Respectively........................................................         108            108
Additional Paid-in Capital..........................................................     117,909        105,871
Retained Earnings, Substantially Restricted.........................................     102,305         89,660
Net Unrealized Appreciation on Securities
   Available-for-Sale, Net of Taxes.................................................       4,212          1,705
Less:
Unallocated Common Stock Held by ESOP...............................................      (4,554)        (5,382)
Unearned Common Stock Held by Recognition and Retention Plans (RRPs)................        (713)        (1,567)
Common Stock Held by SERP, at Cost (15,454 and 11,021 shares, respectively).........        (373)          (209)
Treasury Stock, at Cost (1,185,832 and 1,974,483 shares, respectively)..............     (24,030)       (27,516)
                                                                                        ---------      ---------
     Total Stockholders' Equity.....................................................     194,864        162,670
                                                                                        --------       --------
            Total Liabilities and Stockholders' Equity..............................   $2,485,729    $1,976,764
                                                                                        =========     =========
                           See accompanying notes to consolidated financial statements.

                                                        22

<PAGE>

Reliance Bancorp, Inc. and Subsidiary
Consolidated Statements of Income
---------------------------------
(Dollars in thousands, except per share amounts)

                                                                              Year Ended June 30,
                                                                       -----------------------------------
                                                                         1998          1997          1996
                                                                       --------      --------      -------
Interest Income:
<S>                                                                   <C>            <C>            <C>    
    First Mortgage Loans...........................................   $  63,573      $ 56,948       $39,073
    Commercial Loans...............................................       3,916            --            --
    Consumer and Other Loans.......................................      12,130        11,525        10,942
    Mortgage-Backed Securities.....................................      67,185        59,392        46,084
    Money Market Investments.......................................         615           618           991
    Debt and Equity Securities.....................................       6,400         4,806         3,282
                                                                        -------       -------       -------
          Total Interest Income....................................     153,819       133,289       100,372
                                                                        -------       -------       -------

Interest Expense:
    Deposits.......................................................      63,432        54,139        42,425
    Borrowed Funds.................................................      23,396        17,514        10,560
                                                                         ------        ------        ------
          Total Interest Expense...................................      86,828        71,653        52,985
                                                                         ------        ------        ------
    Net Interest Income Before Provision for Loan Losses...........      66,991        61,636        47,387
Provision for Loan Losses..........................................       1,650           950           725
                                                                         ------        ------        ------
    Net Interest Income After Provision for Loan Losses............      65,341        60,686        46,662
                                                                         ------        ------        ------

Non-Interest Income:
    Loan Fees and Service Charges..................................       1,047           683           826
    Other Operating Income.........................................       3,452         2,557         1,606
    Income from Money Centers......................................       1,882            --            --
    Condemnation Award on Joint Venture............................       1,483            --            --
    Net (Loss) Gain on Securities..................................          (5)          172           678
                                                                         -------        -----         -----
          Total Non-Interest Income................................       7,859         3,412         3,110
                                                                         ------         -----         -----

Non-Interest Expense:
    Compensation and Benefits......................................      20,297        16,509        13,395
    Occupancy and Equipment........................................       6,531         5,719         4,481
    Federal Deposit Insurance Premiums.............................         921         1,813         2,399
    Advertising....................................................       1,202         1,168         1,152
    Other Operating Expenses.......................................       6,274         5,778         4,169
                                                                         ------        ------        ------
          Total General and Administrative Expenses................      35,225        30,987        25,596
    Real Estate Operations, Net....................................         218           383           579
    Amortization of Excess of Cost Over Fair Value
      of Net Assets Acquired.......................................       4,218         3,404         1,928
    SAIF Recapitalization Charge...................................          --         8,250            --
                                                                         ------       -------        ------
          Total Non-Interest Expense...............................      39,661        43,024        28,103
                                                                         ------       -------        ------
Income Before Income Taxes.........................................      33,539        21,074        21,669
Income Tax Expense ................................................      14,810        10,138         9,946
                                                                         ------       -------       -------
Net Income ........................................................     $18,729       $10,936       $11,723
                                                                         ======        ======        ======

Net Income per Common Share:
             Basic.................................................   $     2.11     $   1.32      $   1.36
             Diluted...............................................   $     1.99     $   1.25      $   1.32


                       See accompanying notes to consolidated financial statements.


                                                            23

<PAGE>
Reliance Bancorp, Inc. and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
----------------------------------------------------------
(Dollars in thousands, except share amounts)

                                                                                Year Ended June 30,
                                                                     ---------------------------------------
                                                                        1998           1997          1996
                                                                        ----           ----          ----
Common Stock (Par Value: $.01):                           
<S>                                                                      <C>            <C>            <C> 
  Balance at Beginning and End of Year...........................        $108           $108           $108
                                                                          ---            ---            ---
Additional Paid in Capital:
  Balance at Beginning of Year...................................     105,871        104,041        103,655
  Net Gain from Reissuance of treasury stock principally for
      Continental Bank acquisition...............................       7,903             --             --
  Allocation of ESOP Stock and Earned Portion of RRPs............       2,023            868            386
  Common Stock Acquired by SERP..................................         164            209             --
  Tax Benefits on Stock Plans....................................       1,948            753             --
                                                                      -------        -------        -------
  Balance at End of Year.........................................     117,909        105,871        104,041
                                                                      -------        -------        -------

Retained Earnings, Substantially Restricted:
  Balance at Beginning of Year...................................      89,660         83,966         76,167
  Net Income.....................................................      18,729         10,936         11,723
  Dividends Declared.............................................      (6,044)        (4,930)        (3,924)
  Loss on Reissuance of Treasury Stock...........................         (40)          (312)            --
                                                                      --------        -------        ------
  Balance at End of Year.........................................     102,305         89,660         83,966
                                                                      -------         ------         ------

Net Unrealized Appreciation (Depreciation) on
 Securities Available-for-Sale, Net of Tax:
  Balance at Beginning of Year...................................       1,705         (5,281)           839
  Unrealized Appreciation on Securities Transferred from
     Held-to-Maturity to Available-for-Sale......................          --             --          1,144
  Change in Net Unrealized Appreciation
    (Depreciation), Net of Tax...................................       2,507          6,986         (7,264)
                                                                        -----          -----          ------
  Balance at End of Year.........................................       4,212          1,705         (5,281)
                                                                        -----          -----         -------

Unallocated Common Stock Held by ESOP:
  Balance at Beginning of Year...................................      (5,382)        (6,210)        (7,038)
  Allocation of ESOP Stock.......................................         828            828            828
                                                                       -------        -------        -------
  Balance at End of Year.........................................      (4,554)        (5,382)        (6,210)
                                                                       -------        -------        -------

Unearned Common Stock Held by RRPs:
  Balance at Beginning of Year...................................      (1,567)        (2,392)        (3,214)
  Earned Portion of RRPs.........................................         854            825            822
                                                                         -----        -------        -------
  Balance at End of Year.........................................        (713)        (1,567)        (2,392)
                                                                         -----        -------        -------

Common Stock Held by Supplemental Executive Retirement Plan:
   Balance at Beginning of Year..................................        (209)            --             --
   Common Stock Acquired by SERP (4,433 and 11,021 shares).......        (164)          (209)            --
                                                                         -----          -----         -----
   Balance at End of Year........................................        (373)          (209)            --
                                                                         -----          -----         -----

Treasury Stock:
   Balance at Beginning of Year..................................     (27,516)       (20,613)       (16,784)
   Reissuance of stock for Continental Bank acquisition
         (1,013,909 shares)......................................      14,711             --             --
   Common Stock Purchased, at Cost (460,973, 442,182 and
    260,776 shares)..............................................     (15,269)        (8,113)        (3,829)
   Exercise of Stock Options.....................................       4,044          1,210             --
                                                                      --------       -------         -------
   Balance at End of Year........................................     (24,030)       (27,516)       (20,613)
                                                                      --------       --------       --------

  Total Stockholders' Equity.....................................    $194,864       $162,670       $153,619
                                                                      =======        =======        =======
                               See accompanying notes to consolidated financial statements.

                                                            24

<PAGE>
Reliance Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
-------------------------------------
(Dollars in thousands)
                                                                                            Year Ended June 30,
                                                                                   ------------------------------------
                                                                                    1998           1997            1996
                                                                                    ----           ----            ----
Cash Flows From Operating Activities:
<S>                                                                              <C>             <C>            <C>     
 Net Income..................................................................    $ 18,729        $ 10,936       $ 11,723
 Adjustments to Reconcile Net Income to Net Cash
  Provided by Operating Activities:
   Provision for Loan Losses.................................................       1,650             950            725
   Provision for Losses on Real Estate Owned ................................          93             200            375
   Amortization of Premiums (Accretion of Discounts), Net....................       2,755           1,448           (567)
   Net Loss (Gain) on Securities.............................................           5            (172)          (678)
   Expense Charge Relating to Allocation and Earned
       Portions of Stock Plans...............................................       3,705           2,521          2,036
   Amortization of Excess of Cost Over Fair Value of
        Net Assets Acquired .................................................       4,218           3,404          1,928
   Amortization of Mortgage Servicing Rights.................................         729             859            240
   Acquisition Related Tax Benefits not Previously Recognized................          --             562             --
   Depreciation and Amortization.............................................       1,635           1,417          1,027
   Net Gain on Loans Sold....................................................         (44)            (28)           (30)
   Proceeds from Loans Sold..................................................       8,473           7,303          5,860
   Net Gain on Sale of Real Estate Owned.....................................        (146)            (56)           (19)
   (Increase) Decrease in Accrued Interest  Receivable, Net..................      (1,837)           (728)           738
   (Increase) Decrease in Prepaid Expenses and Other Assets..................      (1,345)          3,174          3,037
   Increase (Decrease) in Accrued Expenses and
     Other Liabilities.......................................................       2,670           7,164         (6,413)
                                                                                   ------          ------         -------
       Net Cash Provided by Operating  Activities............................      41,290          38,954         19,982
                                                                                   ------          ------         ------

Cash Flows From Investing Activities:
 Principal Payments Net of (Originations and Purchased Loans)................       5,417        (101,583)       (44,258)
 Purchases of Mortgage-Backed Securities Held-to-Maturity....................    (147,163)             --        (16,472)
 Purchases of Mortgage-Backed Securities Available-for-Sale..................    (623,759)       (277,483)      (382,645)
 Proceeds from Sales of Mortgage-Backed Securities Available-for-Sale........     190,245          59,810        180,590
 Principal Repayments from Mortgage-Backed Securities........................     351,591         123,823        148,059
 Proceeds from Call of Debt Securities.......................................      12,500           7,313         21,800
 Proceeds from Sales of Debt and Equity Securities Available-for-Sale........       4,870           5,028         29,245
 Purchases of Debt Securities Available-for-Sale.............................    (115,500)        (19,715)            --
 Purchases of Debt and Equity Securities Held-to-Maturity....................          --          (5,007)       (20,000)
 Proceeds from Maturities of Debt Securities.................................       1,205           1,350         28,100
 Purchases of Premises and Equipment.........................................      (1,623)         (1,734)        (2,595)
 Proceeds from Sale of Real Estate Owned ....................................       3,402           1,899          1,715
 Cash and Cash Equivalents Acquired from Continental Bank Acquisition........       9,106              --            --
 Cash Paid for Bank of Westbury Net of Cash and Cash
   Equivalents Acquired......................................................          --              --           (165)
 Cash Paid for Sunrise Bancorp, Inc. Net of Cash and
   Cash Equivalents Acquired.................................................          --              --        (94,259)
                                                                                  -------         -------        --------
       Net Cash Used in Investing Activities.................................    (309,709)       (206,299)      (150,885)
                                                                                  --------        --------       --------








                                                            25

<PAGE>
Reliance Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows, Continued
------------------------------------------------
(Dollars in thousands)
                                                                                          Year Ended June 30,
                                                                                  ------------------------------------
                                                                                   1998            1997           1996
                                                                                   ----            ----           ----
Cash Flows from Financing Activities:
<S>                                                                               <C>             <C>            <C>    
 Increase in Deposits........................................................     $55,717         $91,009        $44,558
 Increase (Decrease) in Advance Payments by Borrowers
    for Taxes and Insurance..................................................         789             171         (9,210)
 Proceeds from FHLB Advances.................................................     143,336          60,000             --
 Repayment of FHLB Advances..................................................     (22,025)        (23,000)       (87,000)
 Proceeds from Reverse Repurchase Agreements.................................   1,077,963       1,177,298        824,727
 Repayment of Reverse Repurchase Agreements..................................  (1,002,606)     (1,128,545)      (618,602)
 Proceeds from Capital Securities............................................      50,000              --            --
 Purchases of Treasury Stock.................................................     (15,269)         (8,113)        (3,829)
 Net Proceeds from Issuance of Common Stock Upon
    Exercise of Stock Options................................................       2,670             898             --
 Dividends Paid..............................................................      (5,725)         (4,578)        (3,808)
                                                                                  -------         -------        -------
       Net Cash Provided by Financing Activities.............................     284,850         165,140        146,836
                                                                                  -------         -------        -------

Net  Increase (Decrease) in Cash and Cash Equivalents........................      16,431          (2,205)        15,933
Cash and Cash Equivalents at Beginning of Year...............................      30,665          32,870         16,937
                                                                                   ------          ------         ------

Cash and Cash Equivalents at End of Year.....................................    $ 47,096        $ 30,665       $ 32,870
                                                                                   =======         ======         ======


Supplemental Disclosures of Cash Flow Information

Cash Paid During the Year for:
  Interest...................................................................     $ 85,449       $ 71,005       $ 50,847
                                                                                    ======         ======         ======
  Income Taxes ..............................................................     $ 11,077        $ 4,745        $ 8,384
                                                                                    ======          =====          =====

Non-cash Investing Activities:
 Transfers from Loans to Real Estate Owned...................................      $ 3,654          $ 929        $ 1,311
                                                                                     =====            ===          =====
 Transfers of Mortgage-Backed Securities From Held-to-Maturity
   to Available-for-Sale.....................................................         $ --           $ --      $ 283,245
                                                                                      ====           ====        =======

Supplemental Information to the Consolidated Statements of Cash Flows Relating
to Continental Bank, Bank of Westbury and Sunrise Bancorp, Inc. Acquisitions
-------------------------------------------------------------------------

Non-cash investing and financing  transactions  relating to the Continental Bank
acquisition  for the year  ended  June 30,  1998  and the Bank of  Westbury  and
Sunrise  Bancorp,  Inc.  acquisitions  for the  year  ended  June  30,  1996 not
reflected in the Consolidated Statement of Cash Flows are listed below:

                                                                                     1998                          1996
                                                                                     ----                          ----
<S>                                                                             <C>                            <C>      
Fair Value of Assets Acquired, Excluding Cash and Cash
   Equivalents Acquired......................................................   $ 168,240                      $ 745,341
Liabilities Assumed..........................................................    (171,083)                      (702,273)
Excess of Cost Over Fair Value of Net Assets Acquired........................      17,691                         51,356
Stock Consideration..........................................................     (23,954)                            --
                                                                                  --------                       -------
Cash Paid for Acquisitions, Net of (Cash and Cash
    Equivalents Acquired)....................................................    $ (9,106)                      $ 94,424
                                                                                   =======                        ======

                               See accompanying notes to consolidated  financial statements.
</TABLE>


                                                            26

<PAGE>



                      Reliance Bancorp, Inc. and Subsidiary

                   Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

The accounting and reporting policies of Reliance Bancorp,  Inc. (the "Company")
and  subsidiary  conform to  generally  accepted  accounting  principles  and to
general practice within the financial institution  industry.  The following is a
description  of the more  significant  policies  which the  Company  follows  in
preparing and presenting its consolidated financial statements.

(a)  Basis of Presentation
The accompanying  consolidated  financial statements include the accounts of the
Company and its  wholly-owned  subsidiary  Reliance  Federal  Savings  Bank (the
"Bank"). All significant  intercompany  transactions and balances are eliminated
in consolidation.

As  more  fully  discussed  in  Note  2,  Reliance   Bancorp  Inc.,  a  Delaware
corporation,  was  organized by the Bank for the purpose of acquiring all of the
capital  stock  of the  Bank  pursuant  to the  conversion  of the  Bank  from a
federally  chartered mutual savings bank to a federally  chartered stock savings
bank.  The Company is subject to the  financial  reporting  requirements  of the
Securities and Exchange Act of 1934, as amended.

In preparing the consolidated  financial  statements,  management is required to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  as of the date of the  consolidated  statements  of  condition  and
income and expense for the years  presented.  Estimates that are  susceptible to
change include primarily the determination of the allowances for losses on loans
and the valuation of real estate acquired in connection with foreclosures.

(b)  Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks,  federal funds sold and repurchase  agreements  with an original
term to maturity of less than three months.

(c)  Securities Available-for-Sale
The Company follows Statement of Financial Accounting Standards ("SFAS") No.115,
"Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115
requires  securities,  including debt,  equity and  mortgage-backed  securities,
classified  as  available-for-sale  to be recorded at estimated  fair value with
changes  in  unrealized  gains  or  losses  reported  net of  tax as a  separate
component in stockholders' equity.

In accordance  with an  implementation  guide for SFAS No. 115,  released by the
Financial  Accounting  Standards  Board  ("FASB") on November 15, 1995, the Bank
realigned  its  mortgage-backed   securities   portfolio  in  December  1995  by
transferring  approximately  $283.2  million  from the  held-to-maturity  to the
available-for-sale  category. The Bank realigned its mortgage-backed  securities
portfolio in order to be more  flexible and better  positioned  for managing the
portfolio under changing interest rates and other market conditions.

Debt securities are classified as available-for-sale  when management intends to
hold the securities for indefinite periods of time or when the securities may be
utilized for tactical  asset/liability  management strategy and may be sold from
time to  time  to  effectively  manage  interest  rate  exposure  and  resultant
prepayment  risk and  liquidity  needs.  Premiums and discounts are amortized or
accreted,  respectively, using the level-yield method. Readily marketable equity
securities  are also  classified as  available-for-sale.  Gains or losses on the
sales  of  the  securities   are   recognized   when  sold  using  the  specific
identification method.

(d)  Debt and Equity Securities Held-to-Maturity
Debt and equity securities  classified as  held-to-maturity  are carried at cost
unless there is a permanent  impairment of value,  at which time they are valued
at the  lower of cost or  market  value  resulting  in a new cost  basis for the
security.  The debt  securities  are adjusted for  amortization  of premiums and
accretion of discounts over the term of the security

                                                        27

<PAGE>



using the level-yield  method.  The Company currently has the ability and intent
to hold  the  debt  securities  until  maturity.  Equity  securities  classified
held-to-maturity are not readily marketable.

(e)  Mortgage-Backed Securities Held-to-Maturity
Mortgage-backed   securities  represent  participating  interests  in  pools  of
long-term  first  mortgage  loans  originated and serviced by the issuers of the
securities.  Mortgage-backed securities  held-to-maturity are carried at current
unpaid  principal  balances,  adjusted for  unamortized  premiums and unaccreted
discounts.  Premiums are amortized and discounts are accreted to income over the
estimated life of the respective  securities using the level-yield  method.  The
Company  currently  has the  ability  and  intent to hold the  securities  until
maturity.

(f)  Loans
Loans are stated at the principal amount  outstanding,  less unearned  discounts
and net deferred  loan  origination  fees, if  applicable.  Interest on loans is
credited to income based on the principal amount  outstanding during the period.
Gains  and  losses  on the sale of  loans  are  determined  using  the  specific
identification method.

Interest  on loans is  recognized  on the  accrual  basis.  Loans are  placed on
nonaccrual  status when  principal or interest  becomes 90 days or more past due
for mortgage loans and  commercial  loans and 120 days past due for other loans,
unless the  obligation  is both well  secured and in the process of  collection.
Accrued  interest  receivable  previously  recognized is reserved when a loan is
placed on nonaccrual  status.  Loans remain on nonaccrual status until principal
and interest  payments are current or the  obligation  is  considered  both well
secured and in the process of  collection.  A loan is considered a troubled debt
restructuring  when changes,  such as reduction in interest rates or deferral of
interest  or  principal  payments,  are  made  to  contractual  terms  due  to a
borrower's weakened financial condition.

The Company defers loan  origination  fees on multi-family  loans,  less certain
direct costs,  and  subsequently  recognizes them as an adjustment of the loan's
yield over the contractual life of the loan using the level-yield  method or, in
the case of loans  with  below-market  introductory  rates,  generally  over the
applicable introductory period, using the interest method.

The Company  follows SFAS No. 114,  "Accounting by Creditors for Impairment of a
Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition  and  Disclosures".  Under SFAS No. 114 and SFAS No.  118, a loan is
considered  impaired  when,  based upon current  information  and events,  it is
probable  that a creditor  will be unable to collect all  amounts due  including
principal  and  interest,  according  to  the  contractual  terms  of  the  loan
agreement.  These  statements  require that impaired loans that are within their
scope be  measured  based on the  present  value of  expected  future cash flows
discounted at the loan's effective interest rate or as a practical expedient, at
the loan's current  observable market price, or the fair value of the collateral
if the loan is collateral dependent. The amount by which the recorded investment
of an impaired  loan exceeds the  measurement  value is recognized by creating a
valuation allowance through a charge to the provision for loan losses.  Interest
income received on impaired loans is recognized on a cash basis.

(g)  Allowance for Loan Losses
A provision  for loan losses  charged to income is reflected as an addition to a
valuation  allowance  which is netted  against  loans  receivable.  Management's
periodic  evaluation  of the adequacy of the valuation  allowance  considers the
Bank's past loan loss  experience,  known and inherent  risks in the  portfolio,
adverse situations which may affect the borrower's  ability to repay,  estimated
value of the  underlying  collateral  and the current  real  estate  markets and
economic  condition  in the  Bank's  lending  areas.  In  addition,  the  Bank's
regulators,  as an  integral  part of their  examination  process,  periodically
review the Bank's  allowance  for losses on loans and real estate.  Accordingly,
the Bank may be required to take certain  charge-offs and recognize additions to
the  allowance  based  on  the  regulators'  judgments  concerning   information
available to them during their examination.

(h)  Office Properties and Equipment
Land is  carried  at cost.  Buildings,  leasehold  improvements,  furniture  and
fixtures and equipment are carried at cost, less  accumulated  depreciation  and
amortization.  Depreciation  and  amortization  are provided on a  straight-line
method over the  estimated  useful  lives of the assets.  The cost of  leasehold
improvements is being amortized using the straight-line  method over the shorter
of the term of the related leases or the estimated useful lives.


                                                        28

<PAGE>



(i) Excess of Cost Over Fair Value of Net Assets Acquired
The  excess  of  cost  over  the  fair  value  of  net  assets  acquired  in the
acquisitions of the Bank of Westbury, Sunrise Bancorp, Inc. and Continental Bank
is amortized  using the straight line method over fifteen  years.  The excess of
cost over the fair value of net assets acquired is evaluated periodically by the
Company for impairment in response to changes in circumstances or events.

(j)  Real Estate Owned
Real  estate  acquired  through  foreclosure  is  recorded  at the lower of cost
(unpaid loan balance plus foreclosure costs) or fair market value at the time of
acquisition.  The  carrying  value  of  individual  properties  is  subsequently
adjusted  to the extent it exceeds  estimated  fair  market  value less costs to
sell.  Operating  expenses of holding real estate,  net of related  income,  are
charged against income as incurred. Gains on sales of real estate are recognized
when down  payment  and other  requirements  are met;  otherwise  such gains are
deferred and recognized on the installment  method of accounting.  Losses on the
disposition of real estate,  including  expenses incurred in connection with the
disposition,  are charged to income. A valuation allowance is maintained through
provisions for real estate losses charged to income for any decrease in the fair
value of property less costs to sell, which is netted against real estate owned.

(k)  Taxes on Income
The Company files a  calendar-year  Federal  income tax return on a consolidated
basis with its subsidiary.

The Company  follows SFAS No. 109,  "Accounting for Income Taxes" which requires
the asset and liability  method of accounting for income taxes.  Under the asset
and  liability  method,  deferred  income  taxes  are  recognized  for  the  tax
consequences of "temporary  differences" by applying enacted statutory tax rates
applicable  to future  years to  differences  between  the  financial  statement
carrying  amounts and tax bases of existing assets and  liabilities.  Under SFAS
No. 109, the effect on deferred  taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.

(l) Employee Benefits
The  Bank's  pension  plan is  non-contributory  and  covers  substantially  all
eligible  employees.  The  plan  conforms  to the  provisions  of  the  Employee
Retirement  Income  Security Act of 1974,  as amended.  The Bank's  policy is to
accrue for all pension  costs and to fund the maximum  amount  allowable for tax
purposes.  In the interest of maintaining a  comprehensive  benefit  package for
employees,  the  Bank  periodically  evaluates  the  overall  effectiveness  and
economic  value of the pension plan.  Based on an evaluation of the pension plan
in fiscal 1998, the Bank  concluded that future benefit  accruals under the plan
would cease, or "freeze" on May 31, 1998. In its stead, Reliance Federal Savings
Bank 401(k)  Retirement  Savings Plan (the "401(k) Plan") was formed.  Effective
June 1, 1998,  all Reliance  Federal  Savings Bank employees who are at least 21
years of age and have  completed one year of service are eligible to participate
in the 401(k) Plan.

Actuarial  gains and losses that arise from  changes in  assumptions  concerning
future  events,  used in estimating  pension  costs,  have been amortized over a
period that  reflects the long range nature of pension  expense.  However,  as a
result of the freezing of the plan,  the Bank  recognized a curtailment  gain in
fiscal 1998. (See Note 16).

The Company follows AICPA Statement of Position 93-6, "Employers' Accounting for
Employee  Stock  Ownership  Plans" ("SOP  93-6") to account for the  established
Employee  Stock  Ownership Plan  ("ESOP").  SOP 93-6 requires that  compensation
expense be recognized for shares committed to be released to directly compensate
employees equal to the fair value of the shares committed. In addition, SOP 93-6
requires that leveraged ESOP debt and related  interest  expense be reflected in
the  employer's  financial  statements.  The  application of SOP 93-6 results in
fluctuations in compensation expense as a result of changes in the fair value of
the Company's common stock;  however,  such  compensation  expense  fluctuations
result  in an  offsetting  adjustment  to  paid  in  capital.  Therefore,  total
stockholders' equity is not affected.

The Bank follows SFAS No. 123, "Accounting for Stock-Based  Compensation".  SFAS
No.  123  applies  to all  transactions  in which an  entity  acquires  goods or
services by issuing  equity  instruments or by incurring  liabilities  where the
payment  amounts  are based on the  entity's  common  stock  price,  except  for
employee stock  ownership  plans.  SFAS No. 123  established a fair  value-based
method of accounting for stock-based  compensation  arrangements with employees,
rather than the  intrinsic  value-based  method that is contained in  Accounting
Principles Board Opinion No.

                                                        29

<PAGE>



25, "Accounting for Stock Issued to Employees" ("APB No. 25"). SFAS No. 123 does
not require an entity to adopt the new fair  value-based  method for purposes of
preparing its basic  financial  statements;  an entity is allowed to continue to
use the APB No. 25 method for  preparing  its basic  financial  statements.  The
Company has chosen to continue to use the APB No. 25 method,  however,  SFAS No.
123  requires  presentation  of pro  forma net  income  and  earnings  per share
information,  in  the  notes  to  the  financial  statements,  as  if  the  fair
value-based method had been adopted.

(m)   Treasury Stock
Repurchases of common stock are recorded as treasury stock at cost.

(n)  Earnings Per Share
In February  1997,  the FASB issued SFAS No.  128,  "Earnings  per Share".  SFAS
No.128 specifies the computation,  presentation and disclosure  requirements for
earnings  per share  ("EPS") for  entities  with  publicly  held common stock or
potential common stock. This statement simplifies the standard for computing EPS
previously  found in Accounting  Principles Board Opinion No. 15 ("APB No. 15").
It replaces the presentation of primary EPS with a presentation of basic EPS and
the  presentation of fully diluted EPS with a presentation of diluted EPS. Basic
EPS is computed by dividing net income by the weighted  average number of common
shares  outstanding  for the period,  adjusted  for the  unallocated  portion of
shares held by the ESOP in  accordance  with SOP 93-6.  Diluted EPS reflects the
potential  dilution that could occur if  securities or other  contracts to issue
common stock were  exercised  or converted  into common stock or resulted in the
issuance  of common  stock  that  then  shared in the  earnings  of the  entity.
Potential  common stock due to the dilutive  effect of stock options is computed
using the  treasury  stock  method.  SFAS No. 128 was  effective  for  financial
statements  issued for periods  ending after  December 15, 1997 and requires the
restatement of all prior-period EPS data presented. The Company adopted SFAS No.
128 effective December 31, 1997.

2.  Stock Form of Ownership

On  September  16,  1993,  the Board of  Directors of the Bank adopted a Plan of
Conversion  to convert  from a  federally  chartered  mutual  savings  bank to a
federally  chartered  stock  savings  bank with the  concurrent  formation  of a
holding company.  As part of the conversion,  the Company was incorporated under
Delaware law on November  16, 1993.  The Company  completed  its initial  public
offering  on March  31,  1994 and  issued  10,750,820  shares  of  common  stock
resulting in net proceeds of approximately  $103.6 million. The Company retained
$51.8  million  of the net  proceeds  and used the  remaining  net  proceeds  to
purchase all of the  outstanding  stock of the Bank. The financial  position and
results of operations of the Company as of and for the year ended June 30, 1998,
1997 and 1996 are presented in Note 20.

On  February  9,  1998,  the  Company  completed  its fifth five  percent  stock
repurchase  plan  repurchasing  440,973  shares  at an  aggregate  cost of $13.4
million.  On January 12, 1998, the Company  announced its sixth stock repurchase
plan to repurchase up to 500,000 of the Company's outstanding shares. As of June
30, 1998,  100,000  shares under this program were  repurchased  at an aggregate
cost of $3.7  million.  During  fiscal  years 1998,  1997 and 1996,  the Company
repurchased total shares of 460,973,  442,182 and 260,776,  respectively,  at an
aggregate cost of $15.3 million, $8.1 million and $3.8 million, respectively.

At the time of the conversion, the Bank established a liquidation account with a
balance equal to its retained earnings  reflected in its statement of condition.
The  balance  in  the  liquidation  account  at  June  30,  1998  and  1997  was
approximately  $21.4 million and $25.3 million,  respectively.  The  liquidation
account  will be  maintained  for the  benefit of eligible  account  holders who
continue  to  maintain  their  accounts  at the Bank after the  conversion.  The
liquidation account will be reduced annually to the extent that eligible account
holders have reduced  their  qualifying  deposits as of each  anniversary  date.
Subsequent  increases will not restore an eligible account holder's  interest in
the liquidation account. In the event of a complete  liquidation,  each eligible
account holder will be entitled to receive a distribution  from the  liquidation
account in an amount  proportionate to the current adjusted  qualifying balances
for accounts then held.

The Company may not declare or pay cash  dividends on or  repurchase  any of its
shares of common stock if the effect thereof would cause stockholders' equity to
be reduced below applicable regulatory capital maintenance requirements,

                                                        30

<PAGE>



the amount  required for the  liquidation  account,  or if such  declaration and
payment would otherwise violate regulatory requirements. During fiscal 1998, the
Company declared cash dividends totalling $6.0 million.

3.  Acquisitions

Acquisition of Bank of Westbury

At the  close of  business  on  August  11,  1995,  the  Company  completed  its
acquisition of the Bank of Westbury,  a Federal  Savings Bank,  with six banking
offices located in Nassau County,  Long Island,  New York in a transaction which
was accounted for as a purchase. Assets acquired in the transaction, principally
loans and mortgage-backed securities, aggregated $166.2 million, and liabilities
assumed,  substantially all deposits, aggregated $156.6 million. The cost of the
acquisition was approximately $16.7 million in cash. The excess of cost over the
fair value of net assets  acquired in the  transaction was $7.8 million which is
being amortized on a straight line basis over 15 years.

Acquisition of Sunrise Bancorp, Inc.

On January 11, 1996, the Company  completed the acquisition of Sunrise  Bancorp,
Inc.,  with 11 banking  offices  located in the  counties of Nassau and Suffolk,
Long Island,  New York, in a transaction  which was accounted for as a purchase.
The cost of  acquisition  was  approximately  $106.3  million  in  cash.  Assets
acquired in the transaction,  principally loans and mortgage-backed  securities,
aggregated  $609.3 million and liabilities  assumed,  substantially all deposits
and borrowings, aggregated $545.7 million. The excess of cost over fair value of
net  assets  acquired  in the  transaction  was  $43.6  million,  which is being
amortized on a straight line basis over 15 years.

Acquisition of Continental Bank

On October 17, 1997, the Company  completed the acquisition of Continental  Bank
("Continental"), a commercial bank with two full service banking offices located
in Nassau and Suffolk  counties in Long Island,  New York, a commercial  lending
facility and five check cashing facilities  ("Money Centers") in Manhattan.  The
transaction  was  accounted  for as a  purchase.  Under the terms of the merger,
Reliance  issued 1.10  shares  (1,013,909  shares) of its common  stock for each
outstanding  common  share  of  Continental.  The  cost of the  acquisition  was
approximately  $24.4 million.  Assets acquired in the  transaction,  principally
loans and mortgage-backed  securities  aggregated $177.8 million and liabilities
assumed,  substantially all deposits and borrowings,  aggregated $171.1 million.
The excess of cost over fair value of net assets acquired in the transaction was
$17.7 million, which is being amortized on a straight line basis over 15 years.

The following  summarizes  the actual and unaudited  projected  amortization  of
discounts  and premiums  relating to the fair market value  adjustments  and the
excess of cost over fair value of net assets acquired:
<TABLE>
<CAPTION>

                             Excess of Cost                                                               Total
                            Over Fair Value   Net Discount   Net Discount       Net          Net       Net Decrease
                             of Net Assets     (Premium)     (Premium)       Premium       Premium       In Income
                               Acquired        Securities      Loans       Other Assets  Liabilities   Before Taxes
                               --------        ----------      -----       ------------  -----------   ------------
                                                                  (In thousands)
Amortization:
<S>                            <C>                <C>           <C>          <C>            <C>        <C>      
1996 Actual..................  $ (1,928)          $ 89          $ 45         $ (116)        $  454     $ (1,456)
1997 Actual..................    (3,404)           (90)         (277)          (314)           598       (3,487)
1998 Actual..................    (4,218)          (199)         (146)          (274)           467       (4,370)
1999 Projected...............    (4,563)          (282)         (112)          (297)           457       (4,797)
2000 Projected...............    (4,563)          (148)          (92)          (240)           300       (4,743)
2001 Projected...............    (4,563)           (49)          (71)          (190)             9       (4,864)
Thereafter Projected.........   (45,247)             53          (77)        (1,356)            --      (46,627)
                                --------          -----         -----        -------         ------     --------
                              $ (68,486)         $ (626)      $ (730)      $ (2,787)       $ 2,285    $ (70,344)
                                 =======           =====        =====        =======         =====      ========




                                                        31

<PAGE>



4.  Money Market Investments

Money market investments  generally have original  maturities of three months or
less, and at June 30, 1998 and 1997 consist solely of securities purchased under
agreements  to  resell  (repurchase  agreements).   These  agreements  represent
short-term loans and are reflected as an asset in the consolidated statements of
condition.  The same  securities  are to be resold at maturity of the repurchase
agreements.

Securities  purchased under repurchase  agreements averaged $4.5 million for the
year ended June 30, 1998 and $3.0 million for the year ended June 30, 1997.  The
maximum amount of such agreements outstanding at any month-end during the fiscal
year  ended  June  30,  1998  and  1997 was  $23.0  million  and  $8.5  million,
respectively.

5. Debt and Equity Securities

A summary of the amortized  cost and estimated  market values of debt and equity
securities are as follows:


                                                                                       June 30, 1998
                                                                   -------------------------------------------------
                                                                                  Gross        Gross       Estimated
                                                                   Amortized    unrealized    unrealized     market
                                                                     cost          gain         loss         value
                                                                     ----          ----         ----         -----
Held-to-Maturity:                                                                      (In thousands)
<S>                                                                <C>             <C>          <C>        <C>     
U.S. Government Agency Obligations..............................   $ 22,493        $ 293        $ --       $ 22,786
Obligation of New York State....................................        390           27          --            417
FHLB Stock......................................................     17,306           --          --         17,306
                                                                     ------          ---         ---         ------
                                                                   $ 40,189        $ 320        $ --       $ 40,509
                                                                     ======          ===         ===         ======

Available-for-Sale:
U.S. Government Agency Obligations..............................   $ 29,031        $ 260        $ (1)      $ 29,290
Corporate Obligations...........................................    103,070          343        (246)       103,167
Marketable Equity Securities....................................      2,419           31          --          2,450
                                                                      -----          ----        ----        ------
                                                                   $ 134,520       $ 634      $ (247)     $ 134,907
                                                                     =======         ===         ====       =======


                                                                                       June 30, 1997
                                                                   -------------------------------------------------   
                                                                                  Gross        Gross       Estimated
                                                                   Amortized    unrealized    unrealized     market
                                                                     cost          gain         loss         value
                                                                     ----          ----         ----         -----
Held-to-Maturity:                                                                      (In thousands)
<S>                                                                <C>             <C>        <C>          <C>     
U.S. Government Agency Obligations..............................   $ 29,952        $  90      $   --       $ 30,042
Obligation of New York State....................................        391           36          --            427
FHLB Stock......................................................     15,683           --          --         15,683
                                                                     ------          ---         ---         ------ 
                                                                   $ 46,026        $ 126        $ --       $ 46,152
                                                                     =======         ===         ====       =======
Available-for-Sale:
U.S. Government Agency Obligations..............................   $ 22,036        $  59       $ (15)      $ 22,080
United States Treasury Bills....................................      4,785           27          --          4,812
Marketable Equity Securities....................................          8            9          --             17
                                                                      -----         ----         ----        ------
                                                                   $ 26,829         $ 95        $ (15)     $ 26,909
                                                                     =======         ===         ====       =======







                                                        32

<PAGE>



The amortized cost and estimated  market value of debt and equity  securities at
June 30, 1998 and 1997, by contractual maturity, are shown below:

                                             June 30, 1998                                 June 30, 1997
                               ----------------------------------------      ----------------------------------------
                               Held-to-maturity      Available-for-sale      Held-to-maturity      Available-for-sale
                               ----------------      ------------------      ----------------      ------------------
                                         Estimated              Estimated              Estimated              Estimated
                              Amortized   market    Amortized     market    Amortized    market    Amortized    market
                                cost       value       cost       value       cost       value       cost        value
                                ----       -----       ----       -----       ----       -----       ----        -----
                                                                       (In thousands)
<S>                             <C>       <C>         <C>        <C>          <C>        <C>      <C>        <C>     
Due in One Year or Less....    $  2,493  $ 2,499    $ 5,892    $ 5,902          $ --       $ --    $ 10,955   $ 10,981
Due After One Year
  Through Five Years.......        390       417      18,466     18,493       10,343     10,369       5,866      5,845
Due After Five Years
  Through Ten Years........     20,000    20,287      13,144     13,378       20,000     20,100      10,000     10,066
Due After Ten Years........         --        --      94,599     94,684           --         --          --         --
Equity Securities..........     17,306    17,306       2,419      2,450       15,683     15,683           8         17
                                ------    ------      ------      -----       ------     ------       -----      -----
                              $ 40,189  $ 40,509   $ 134,520  $ 134,907     $ 46,026   $ 46,152    $ 26,829   $ 26,909
                                ======    ======     =======    =======       ======     ======      ======     ======

In fiscal  1998,1997  and 1996 gross  proceeds  from the sale of debt and equity
securities  available-for-sale  totalled  $4.9  million,  $5.0 million and $29.2
million,  respectively.  For fiscal  1998,  1997 and 1996 gross  realized  gains
totalled $11,000, $17,000 and $20,000,  respectively,  and gross realized losses
totalled $0, $16,000 and $15,000, respectively.



                                                        33

<PAGE>



6.  Mortgage-Backed Securities

The amortized cost and estimated market values of mortgage-backed securities are
summarized as follows:

                                                                                      June 30, 1998
                                                                   --------------------------------------------------
                                                                                  Gross         Gross       Estimated
                                                                   Amortized    unrealized    unrealized      market
                                                                     cost         gain           loss         value
                                                                     ----         ----           ----         -----
Held- to-Maturity:                                                                    (In thousands)
Pass-through Certificates Guaranteed by:
<S>                                                               <C>            <C>         <C>          <C>      
      GNMA....................................................    $  78,106      $ 2,126     $    --      $  80,232
      FHLMC...................................................       10,304          267          --         10,571
      FNMA....................................................       33,949          959          --         34,908
      REMICs:
             Agency Issuance..................................       53,021           85        (307)        52,799
             Private Issuance.................................       73,879          353        (410)        73,822
                                                                     ------          ---        ----         ------
                                                                  $ 249,259      $ 3,790      $ (717)     $ 252,332
                                                                    =======        =====        =====       =======
Available-for-Sale:
Pass-through Certificates Guaranteed by:
      GNMA....................................................    $ 187,562      $ 2,732      $  (47)       190,247
      FHLMC...................................................      118,982        1,702          (7)       120,677
      FNMA....................................................      140,597        1,618         (32)       142,183
      REMICs:
            Agency Issuance...................................      128,113          198         (39)       128,272
            Private Issuance..................................      358,033        1,404        (469)       358,968
                                                                    -------        -----        ----        -------
                                                                  $ 933,287      $ 7,654      $ (594)     $ 940,347
                                                                    =======        =====        ====        =======

                                                                                                                       
                                                                                     June 30, 1997
                                                                   --------------------------------------------------
                                                                                  Gross         Gross       Estimated
                                                                   Amortized    unrealized    unrealized      market
                                                                     cost         gain           loss         value
                                                                     ----         ----           ----         -----
Held- to-Maturity:                                                                   (In thousands)
Pass-through Certificates Guaranteed by:
<S>                                                               <C>            <C>            <C>       <C>      
      GNMA....................................................    $ 106,900      $ 3,078        $ --      $ 109,978
      FHLMC...................................................       12,963          176          --         13,139
      FNMA....................................................       39,493          498          --         39,991
                                                                     ------          ---         ---         ------
                                                                  $ 159,356      $ 3,752        $ --      $ 163,108
                                                                    =======        =====         ===        =======
                                                                   
Available-for-Sale:
Pass-through Certificates Guaranteed by:
      GNMA....................................................    $ 233,572      $ 4,182     $    --      $ 237,754
      FHLMC...................................................      222,961        1,378      (2,583)       221,756
      FNMA....................................................      131,066        1,326      (1,307)       131,085
      REMICs:
            Agency Issuance...................................       20,806           --        (254)        20,552
            Private Issuance..................................      110,481          191          --        110,672
                                                                    -------          ---         ---        -------
                                                                  $ 718,886      $ 7,077    $ (4,144)     $ 721,819
                                                                    =======        =====      =======       =======
</TABLE>

In fiscal 1998,  1997 and 1996 gross  proceeds from the sale of  mortgage-backed
securities  available-for-sale totalled $190.2 million, $59.8 million and $180.6
million,  respectively.  For fiscal  1998,  1997 and 1996 gross  realized  gains
totalled  $540,000,  $466,000 and $1,881,000,  respectively,  and gross realized
losses totalled $556,000, $295,000 and $1,208,000, respectively.





                                                        34

<PAGE>



7.  Loans Receivable

Loans receivable, net are summarized as follows:

                                                             June 30,
                                                  --------------------------
                                                    1998              1997
                                                    ----              ----
 Mortgage Loans:                                        (In thousands)
     One- to four-family........................ $ 492,804         $ 552,577
     Multi-family...............................   243,070           190,293
     Commercial Real Estate.....................    43,624            23,445
     Co-op......................................     7,516             8,647
     Construction...............................     4,879             1,440
                                                    ------            ------
                                                   791,893           776,402
Less:
     Unearned Discount, Premiums and
     Deferred Loan Origination Fees, Net........      (942)             (790)
                                                   -------           -------
          Total Mortgage Loans..................   790,951           775,612
                                                   -------           -------

Commercial Loans:
     Asset Based Loans..........................    21,339                --
     Other Commercial Loans.....................    28,548                --
                                                    ------             -----
          Total Commercial Loans................    49,887                --
                                                    ------             -----

Consumer and Other Loans:
     Home Equity Lines of Credit................    93,862            91,782
     Guaranteed Student Loans...................    15,262            17,006
     Home Equity Loans..........................    19,050            19,505
     Loans on Deposit Accounts..................     5,416             5,514
     Other Loans................................     3,622             4,308
                                                     -----             -----
                                                   137,212           138,115
    Deferred Loan Origination Costs, Net........       688               776
                                                     -----            ------
          Total Consumer and Other Loans........   137,900           138,891
                                                   -------           -------
Less:
     Allowance for Loan Losses..................    (8,941)           (5,182)
                                                   -------           -------
                                                 $ 969,797         $ 909,321
                                                   =======           =======

                                                           June 30,
                                                   --------------------------
                                                      1998             1997
                                                      ----             ----
   Commitments Outstanding:                               (In thousands)
     Mortgage Loans.............................   $ 33,386          $ 26,214
                                                     ======            ======
     Consumer and Other Commercial Loans........   $  7,056           $   509
                                                     ======             =====
     Unused Consumer Lines of Credit............   $ 53,361          $ 53,399
                                                     ======            ======
     Unused Commercial Lines of Credit..........   $ 22,622           $    --
                                                     ======             =====

At June 30, 1998 and 1997,  the Company  had  commitments  to sell loans of $3.7
million  and  $525,000,  respectively.  At June 30,  1998,  the  Company  had no
commitments to purchase  loans. At June 30, 1997, the Company had commitments to
purchase loans of $1.5 million.










                                                        35

<PAGE>



The principal balance of loans in arrears three months or more:

                                                  June 30,
                                     -------------------------------------
                                          1998                1997
                                     ---------------     -----------------
                                     No. of              No. of
                                     loans    Amount      loans     Amount
                                     -----    ------      -----     ------
                                               (Dollars in thousands)
One- to four-family Mortgages......   70    $ 6,256       120    $ 10,959
Consumer and Other Loans...........   62        517        71         465
Commercial Real Estate.............    7      1,962         9       3,303
Commercial.........................    9        567        --          --
                                    ----      -----       ----     ------
                                     148     $ 9,302       200   $ 14,727
                                     ===       =====       ===     ======

Interest  income that would have been recorded under the original terms of loans
classified  as  non-accrual  and  interest  income  actually  recognized  are as
follows:
                                                        Year Ended June 30,
                                                        -------------------
                                                      1998     1997    1996
                                                      ----     ----    ----
                                                          (In thousands)
Interest Income that would have been Recorded..... $ 1,159    $ 838    $ 622
Interest Income Recognized........................    (360)    (265)     (68)
                                                      ----     ----      ---
Interest Income Foregone..........................   $ 799    $ 573    $ 554
                                                       ===      ===      ===

In accordance  with SFAS No. 114, the Company deems certain loans impaired when,
based upon current  information and events, it is probable that the Company will
be unable to collect all amounts due, both principal and interest,  according to
the  contractual  terms of the loan  agreement.  SFAS No. 114 generally does not
apply to large groups of smaller-balance homogeneous loans that are collectively
evaluated  for  impairment,  such as  one- to  four-family  mortgage  loans  and
consumer loans.  Loans  individually  reviewed for impairment by the Company are
limited to multi-family  loans,  commercial loans,  construction and land loans,
loans  modified in a troubled  debt  restructuring  and  selected  large one- to
four-family loans.  Examples of measurement  techniques  utilized by the Company
include present value of expected future cash flows,  the loan's market price if
one exists, and the estimated fair value of the collateral.

At June 30, 1998 and 1997, the Company had four impaired  commercial real estate
loans  totalling  $1.9 million and $2.9 million,  respectively,  with no related
allowance.  The Company had ten impaired  commercial loans totalling $567,000 at
June 30, 1998 and no impaired  commercial  loans at June 30, 1997 and 1996, with
no related  allowances.  The Company's  average recorded  investment in impaired
loans for the years ended June 30, 1998,  1997 and 1996 was $2.5  million,  $1.9
million and $493,000,  respectively.  The Company did not recognize any interest
income on impaired loans for the years ended June 30, 1998, 1997 and 1996.

The Bank generally  originates fixed rate loans with terms greater than 15 years
for sale to FHLMC,  FNMA or other secondary market  investors.  At June 30, 1998
and 1997, there were no fixed rate loans classified as held for sale.

Included  in  mortgage  loans at June 30,  1998 and 1997 are $425.2  million and
$416.2 million, respectively, of adjustable rate mortgage loans.

Proceeds from the sale of first mortgage  loans were $8.5 million,  $7.3 million
and $5.9 million  during the fiscal  years ended June 30,  1998,  1997 and 1996,
respectively.  Gross  realized  gains and  losses  resulting  from sale of first
mortgage loans were as follows:
                                            Year Ended June 30,
                                      ----------------------------
                                      1998        1997        1996
                                      ----        ----        ----
                                               (In thousands)
Gross Realized Gains.............     $ 44        $ 31        $ 34
Gross Realized Losses............       --          (3)         (4)
                                       ---         ---         ---
                                      $ 44        $ 28        $ 30
                                        ==          ==          ==


                                                        36

<PAGE>



The Bank services  mortgage  loans for  investors  which are not included in the
accompanying  consolidated  statements of condition.  A summary of the principal
balances,  custodial  escrow,  servicing income and number of loans serviced for
others by the Bank are as follows:
                                                    Year Ended June 30,
                                                  ---------------------------
                                                  1998        1997       1996
                                                  ----        ----       ----
                                                    (Dollars in thousands)
Principal Balances............................ $ 355,149  $ 410,229  $ 455,626
                                                 =======    =======    =======
Custodial Escrow..............................   $ 4,290    $ 4,493    $ 6,980
                                                   =====      =====      =====
Servicing Income (Excludes MSR Amortization)..   $ 1,183    $ 1,399      $ 861
                                                   =====      =====        ===
Number of Loans...............................     6,085      6,842      7,497
                                                   =====      =====      =====

Fees earned for servicing loans are reported as income when the related mortgage
payments are collected.  Mortgage  Servicing  Rights ("MSRs") are amortized as a
reduction  to  loan  service  fee  income  on a  method  that  approximates  the
level-yield basis over the estimated  remaining life of the underlying  mortgage
loans.  MSRs are carried at fair value and  impairment,  if any,  is  recognized
through a valuation  allowance.  For the year ended June 30,  1998 and 1997,  no
impairment  existed  in the MSRs and as a result,  no  valuation  allowance  was
required.

MSR activity is summarized as follows:
                                                     Year Ended June 30,
                                                ------------------------------
                                                  1998         1997       1996
                                                  ----         ----       ----
                                                         (In thousands)
Balance at Beginning of the Year............... $ 3,046    $ 3,905       $ --
MSRs Acquired in Acquisitions of
 Bank of Westbury and Sunrise Bancorp, Inc.....      --         --      4,145
Amortization...................................    (729)      (859)      (240)
                                                   ----       ----       ----
Balance at End of the Year..................... $ 2,317    $ 3,046    $ 3,905
                                                  =====      =====      =====

8.  Allowance for Loan Losses

Activity in the allowance for loan losses is summarized as follows:

                                                    Year Ended June 30,
                                               ------------------------------
                                               1998        1997          1996
                                               ----        ----          ----
                                                      (In thousands)
Balance at Beginning of the Year............ $ 5,182     $ 4,495       $ 1,729
Provision for Loan Losses...................   1,650         950           725
Allowances of Acquired Institutions.........   2,745          --         2,217
Charge-offs.................................    (773)       (306)         (265)
Recoveries..................................     137          43            89
                                               -----      ------        ------
Balance at End of the Year.................. $ 8,941      $5,182       $ 4,495
                                               =====       =====         =====

9.  Real Estate Owned

Real estate owned, net is summarized as follows:
                                                           June 30,
                                                      -------------------
                                                      1998           1997
                                                      ----           ----
                                                        (In thousands)
One- to four-family Residences...................    $ 505         $ 365
Co-ops...........................................       73           419
Commercial.......................................      300            --
Allowance for Losses on Real Estate Owned........     (123)         (334)
                                                      ----          ----
                                                     $ 755         $ 450
                                                     =====         =====





                                                        37

<PAGE>



Results of operating  real estate owned for the years ended June 30, 1998,  1997
and 1996 are summarized as follows:

                                                      Year Ended June 30,
                                                  ---------------------------
                                                   1998      1997       1996
                                                   ----      ----       ----
                                                        (In thousands)
Net Gain on Sale on Real Estate Owned..........  $ 146       $ 56        $ 19
Net Expenses of Holding Property...............   (271)      (239)       (223)
Provision for Losses...........................    (93)      (200)       (375)
                                                  ----       ----        ----
                                                 $(218)    $ (383)      $(579)
                                                  =====      =====       ===== 

Activity in the  allowance  for losses in real  estate  owned is  summarized  as
follows:

                                                    Year Ended June 30,
                                                -------------------------
                                                1998      1997       1996
                                                ----      ----       ----
                                                     (In thousands)
Balance at Beginning of the Year............   $ 334     $ 768      $ 589
Provision for Losses........................      93       200        375
Allowance of Acquired Institutions..........      --       --         188
Charge-offs.................................    (304)     (634)      (384)
                                                 ---      ----       ----
Balance at End of the Year..................   $ 123     $ 334      $ 768
                                                 ===       ===        ===

10.  Accrued Interest Receivable

Accrued interest receivable, net is summarized as follows:

                                                                June 30,
                                                           ------------------
                                                            1997        1998
                                                           ------      ------
                                                              (In thousands)
Debt Securities.........................................   $ 1,708      $ 842
Mortgage-Backed Securities..............................     7,137      5,548
Loans Receivable, Net of Reserves for Uncollectible
  Interest of $1,293 and $1,741, respectively...........     6,113      5,650
                                                            ------     ------
                                                          $ 14,958   $ 12,040
                                                            ======     ======
11.  Office Properties and Equipment

A summary of office properties and equipment, net is as follows:
                                                            June 30,
                                                        ------------------
                                                        1998          1997
                                                        ----          ----
                                                         (In thousands)
Land..............................................    $ 4,489       $ 4,094
Buildings.........................................     10,477         8,970
Furniture, Fixtures and Equipment.................     13,853        12,161
Leasehold Improvements............................      4,407         2,908
Capital Lease.....................................      1,470         1,470
                                                       ------        ------

Office Properties and Equipment, at Cost..........     34,696        29,603
Accumulated Depreciation and Amortization.........    (19,260)      (15,514)
                                                      -------       -------
                                                     $ 15,436      $ 14,089
                                                       ======        ======

In October 1989, the Bank sold a building used for a branch operation located in
Jamaica, New York for approximately $2.3 million, and subsequently leased back a
portion of the  building  to conduct  the branch  operation.  The Bank  received
approximately  $2.0 million in cash from the transaction,  after expenses of the
sale,  which generated a gain of approximately  $1.1 million.  The gain has been
deferred and is being  amortized  over the twelve- year lease  period.  Deferred
gain on sale  amounted to  approximately  $311,000 and $404,000 at June 30, 1998
and  1997,  respectively,   and  is  included  in  accrued  expenses  and  other
liabilities. The leaseback is recorded as a capital

                                                        38

<PAGE>



lease in the  amount of $1.5  million  at June 30,  1998 and 1997  (refer to the
above table) and the related  obligation  under  capital  leases of $535,000 and
$673,000 at June 30, 1998 and 1997 is  reflected  in accrued  expenses and other
liabilities.  The projected  annual lease  payments  amount to $215,000 per year
(including interest) and total $717,000 through the duration of the lease.

Depreciation  and amortization of office  properties and equipment,  included in
occupancy and equipment expense, was approximately,  $1.6 million,  $1.4 million
and $1.0  million  for the  fiscal  years  ended June 30,  1998,  1997 and 1996,
respectively.

12.  Deposits

Deposits are summarized as follows:
<TABLE>
<CAPTION>
                                                                        June 30,
                                          --------------------------------------------------------------
                                                        1998                              1997
                                          -------------------------------     --------------------------
                                          Weighted                           Weighted
                                          average                             average
                                           rate         Amount     Percent    rate      Amount   Percent
                                           ----         ------     -------    ----      ------   -------
                                                             (Dollars in thousands)
<S>                                         <C>       <C>              <C>     <C>     <C>             <C>
NOW.....................................    1.52%     $  104,955       7%      1.00%   $  78,017       6%
Passbook................................    2.22         443,745      27       2.40      438,612      31
Money Market............................    2.22          92,815       6       2.40       92,184       6
Certificates of Deposit.................    5.56         934,558      57       5.61      806,750      56
Non-Interest Bearing Demand Deposit.....      --          52,225       3         --       20,474       1
                                                         -------     ---                  --------   ---
                                                     $ 1,628,298     100%             $ 1,436,037    100%
                                                       =========     ===                =========    ===

                                                                                   June 30,
                                                                    ----------------------------------------
                                                                           1998                 1997
                                                                    -------------------   ------------------
                                                                    Amount      Percent     Amount    Percent
                                                                    ------      -------     ------    -------
                                                                              (Dollars in thousands)
<S>                                                               <C>             <C>     <C>          <C>  
Contractual Maturity of Certificates of Deposit Accounts:
   Under 12 months............................................    $ 797,860        85%    $ 524,707      65%
   Over 12 months to 36 months................................      112,097        12       245,382      30
   Over 36 months.............................................       24,601         3        36,661       5
                                                                    -------       ---       -------     ---
                                                                  $ 934,558       100%    $ 806,750     100%
                                                                    =======       ===       =======     ===

The  aggregate  amount  of  certificates  of  deposit  accounts  with a  minimum
denomination of $100,000 was  approximately  $78,052,000 and $51,259,000 at June
30, 1998 and 1997, respectively.

Interest expense on deposits is summarized as follows:

                                                Year Ended June 30,
                                            ---------------------------
                                            1998       1997        1996
                                            ----       ----        ----
               (In thousands)
NOW.................................    $  1,257    $  1,041     $  1,161
Passbook............................      10,439      10,937        8,942
Money Market........................       2,249       2,493        2,515
Certificates of Deposit.............      49,487      39,668       29,807
                                          ------     -------       ------
                                        $ 63,432    $ 54,139     $ 42,425
                                          ======      ======       ======

On September 30, 1996,  Congress passed,  and the President signed,  legislation
that recapitalized the Savings  Association  Insurance Fund (the "SAIF").  Under
the major provisions of the legislation, savings institutions, such as the Bank,
were  assessed a one-time  assessment  of 65.7 basis  points per $100 of insured
SAIF deposits.  The Company  recorded a one-time pre-tax charge of $8.25 million
during the first quarter of fiscal year 1997.




                                                        39

<PAGE>



13.  Borrowed Funds

The Bank was obligated for borrowings as follows:
                                                                    June 30, 1998              June 30, 1997
                                                                 -------------------         -----------------
                                                                 Weighted                    Weighted
                                                                 average                     average
                                                                   rate       Amount           rate      Amount
                                                                   ----       ------           ----      ------
                                                                             (Dollars in thousands)
    Advances from FHLB - NY...................................     5.49%    $ 182,136         5.58%    $ 40,000
    Reverse Repurchase Agreements.............................     5.64       398,070         5.78      311,913
    Company Obligated Mandatorily Redeemable Capital
        Securities of Reliance Capital Trust I................     8.17        50,000           --           --
                                                                               ------                   -------
                                                                            $ 630,206                 $ 351,913
                                                                              =======                   =======

Information   concerning  borrowings  under  reverse  repurchase  agreements  is
summarized as follows:

                                                                                      At or for the Year Ended
                                                                                -------------------------------------
                                                                                June 30, 1998           June 30, 1997
                                                                                -------------           -------------
                                                                                       (Dollars in thousands)
<S>                                                                               <C>                  <C>      
Average Balance during the Year...........................................        $ 309,618            $ 288,845
Average Interest Rate during the Year.....................................             5.79%                5.63%
Maximum Month-end Balance during the Year.................................        $ 398,070            $ 326,391

Mortgage-Backed Securities Pledged as Collateral under Reverse
  Repurchase Agreements at Year End:
     Carrying Value.......................................................        $ 418,883            $ 326,843
     Estimated Market Value...............................................        $ 421,931            $ 326,801
</TABLE>


FHLB  advances  and  reverse  repurchase   agreements  at  June  30,  1998  have
contractual maturities as follows:

                                                    Reverse
         Year Ended            FHLB               Repurchase
          June 30,           Advances             Agreements
          --------           --------             ----------
                                     (In thousands)
            1999            $  28,136              $ 278,070
            2000                   --                 25,000
            2001               20,000                     --
            2002               34,000                 20,000
            2003                   --                 75,000
      Thereafter              100,000                     --
                              -------                -------
           Total            $ 182,136              $ 398,070
                              =======                =======


As a member of the Federal Home Loan Bank System  (FHLB),  the Bank borrows from
the FHLB on a secured  basis.  Borrowings at June 30, 1998 and 1997 were secured
by a blanket lien over all assets equal to 110% of borrowings.

On April 29, 1998,  Reliance  Capital  Trust I, a trust formed under the laws of
the State of Delaware (the "Capital  Trust") issued $50 million of 8.17% capital
securities.  The Holding  Company is the owner of all the  beneficial  interests
represented  by common  securities  of the Trust.  The Trust exists for the sole
purpose of issuing the Trust securities (comprised of the capital securities and
the common  securities)  and investing the proceeds  thereof in the 8.17% junior
subordinated  deferrable  interest  debentures  issued by the Holding Company on
April 23,  1998 which are  scheduled  to mature on May 1, 2028.  Interest on the
capital securities is payable in semiannual installments, commencing on November
1, 1998. The Trust securities are subject to mandatory  redemption (i) in whole,
but not in part upon  repayment  in full,  at the stated  maturity of the junior
subordinated debentures at a redemption price equal

                                                        40

<PAGE>



to the principal  amount of, plus accrued  interest on, the junior  subordinated
debentures,(ii)  in whole,  but not in part,  at any time  prior to May 1, 2008,
contemporaneously  with the  occurrence  and  continuation  of a special  event,
defined  as a  tax  event  or  regulatory  capital  event,  at a  special  event
redemption  price  equal to the greater of 100% of the  principal  amount of the
junior subordinated debentures or the sum of the present values of the principal
amount and premium payable with respect to an optional  redemption of the junior
subordinated  debentures on the initial optional repayment date to and including
the initial  optional  prepayment  date,  discounted to the prepayment date plus
accrued and unpaid interest thereon,  and (iii) in whole or in part, on or after
May 1, 2008,  contemporaneously  with the optional prepayment by the Corporation
of the  junior  subordinated  debentures  at a  redemption  price  equal  to the
optional prepayment price.  Subject to prior required regulatory  approval,  the
junior  subordinated  debentures  are  redeemable  during the  12-month  periods
beginning  on or  after  May  1,  2008  at  104.085%  of the  principal  amounts
outstanding,  declining  ratably each year  thereafter to 100%, plus accrued and
unpaid interest  thereon to the date of redemption.  Deferred  issuance costs in
the amount of $1.0 million,  are being amortized over ten years and are included
in Prepaid Expenses and Other Assets in the Company's  Consolidated Statement of
Condition as of June 30, 1998.

14.  Income Taxes

The Company files a consolidated  Federal  income tax return on a  calendar-year
basis.

Under  legislation  enacted  subsequent to June 30, 1996,  the Bank is no longer
able to use the  percentage  of taxable  income  method  previously  allowed for
Federal tax  purposes,  but is  permitted to deduct bad debts only as they occur
and is  additionally  required to recapture  (that is, take into taxable income)
the excess  balance of its bad debt  reserves as of  December  31, 1995 over the
balance of such  reserves as of  December  31,  1987.  However,  such  recapture
requirements  would  be  suspended  for  each of two  successive  taxable  years
beginning  January  1, 1996 in which  the Bank  originates  a minimum  amount of
certain  residential  loans based upon the average of the  principal  amounts of
such loans made by the Bank during its six taxable  years  preceding  January 1,
1996. As a result of this  legislation,  the Bank will incur additional  Federal
tax liability,  but with no impact on the Bank's results of operations.  The New
York  State and New York City tax laws have been  amended  to  prevent a similar
recapture of the Bank's bad debt reserve,  and to permit continued future use of
the bad debt reserve  methods,  for purposes of determining  the Bank's New York
State and New York City tax liabilities.

The Company files state and local tax returns on a  calendar-year  basis.  State
and local taxes imposed on the Company  consist of New York State franchise tax,
New  York  City  Financial  Corporation  tax and  Delaware  franchise  tax.  The
Company's  annual liability for New York State and New York City purposes is the
greater of a tax on income or an alternative  tax based on a specified  formula.
The Company's  liability for Delaware  franchise tax is based on the lesser of a
tax based on an authorized shares method or an assumed par value capital method;
however under either method,  the Company's total tax will not exceed  $150,000.
The  Company  provided  for New York  State  and New York  City  taxes  based on
alternative taxable income for the year ended June 30, 1998 and based on taxable
income for the years ended June 30, 1997 and 1996.

In connection with the  acquisitions of the Bank of Westbury,  Sunrise  Bancorp,
Inc and Continental  Bank, a net deferred tax asset of $911,000,  a net deferred
tax  liability  of  $2,285,000  and a net  deferred  tax  asset  of  $1,050,000,
respectively,  were recognized for temporary  differences between the book basis
and tax basis of assets and liabilities acquired.











                                                        41

<PAGE>



The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and  deferred  tax  liabilities  at June 30, 1998 and
June 30, 1997 are presented below:
<TABLE>
<CAPTION>

                                                                                                     June 30,      
                                                                                              --------------------      
                                                                                              1998           1997
                                                                                              ----           ----
Deferred Tax Assets:                                                                             (In thousands)
<S>                                                                                        <C>               <C>  
    Provisions for Losses on Loans and Real Estate Owned........................           $ 1,833           $ 325
    Book Deferred Gain on Sale of Building......................................               368             468
    Deposits....................................................................               333             535
    Deferred Fees...............................................................                71             128
    Other ......................................................................                 6              --
                                                                                              ----            ----
    Total Deferred Tax Assets...................................................             2,611           1,456
                                                                                             -----           -----
Deferred Tax Liabilities:
    Unrealized Gain on Available-for-Sale Securities............................             3,235           1,299
    Mortgage Loans..............................................................               483             680
    Office Properties and Equipment.............................................               335             830
    Mortgage Servicing Rights...................................................               298             492
    Debt and Equity and Mortgage-Backed Securities..............................               185             181
    Other.......................................................................               747             772
                                                                                             -----           -----
   Total Deferred Tax Liabilities...............................................             5,283           4,254
                                                                                             -----           -----
Net Deferred Tax Liability......................................................          $ (2,672)       $ (2,798)
                                                                                            =======         =======

The total income tax provision for the years ended June 30, 1998,  1997 and 1996
differs  from the amount of tax  provision  that would  result by  applying  the
statutory  United States Federal income tax rate of 35.0% for fiscal 1998,  1997
and 1996 to income before income taxes:
                                                                         Year Ended June 30,
                                              -----------------------------------------------------------------
                                                      1998                   1997                   1996
                                              -------------------     ------------------      -----------------
                                               Amount        %         Amount        %        Amount        %
                                               ------       --         ------       --        ------       --
                                                                   (Dollars in thousands)
<S>                                           <C>          <C>         <C>        <C>        <C>          <C>  
Tax Provision Statutory Rate...............   $ 11,739     35.0%       $ 7,376    35.0%      $ 7,584      35.0%
Amortization of Excess of Cost Over
  Fair Value of Net Assets Acquired........      1,444      4.3          1,191     5.7           675       3.1
State and Local Income Tax, Net of
  Federal Income Tax Benefit...............        924      2.8          1,228     5.8         1,684       7.8
Non-Deductible Expense of ESOP.............        643      1.9            302     1.4           133       0.6
Tax Exempt Interest on Municipal
  Investments..............................        (11)     0.0            (11)   (0.1)          (23)     (0.1)
Other, Net.................................         71      0.2             52     0.3          (107)     (0.5)
                                                   ---      ---           ----     ---          ----       ---

   Income Tax Expense .....................   $ 14,810     44.2%      $ 10,138     48.1%     $ 9,946      45.9%
                                                ======     ====         ======     ====        =====      ====
</TABLE>

The  components  of the  provision for income taxes for the years ended June 30,
1998, 1997 and 1996 are as follows:
                                            Year Ended June 30,
                                       --------------------------------
                                       1998         1997           1996
                                       ----         ----           ----
  Current:                                      (In thousands)
    Federal......................    $ 13,876      $  8,193      $ 6,858
    State and Local..............       1,459         1,861        2,348
                                        -----         -----        -----
                                       15,335        10,054        9,206
  Deferred:
    Federal......................        (488)           56          497
    State and Local..............         (37)           28          243
                                        -----          ----         ----
                                         (525)           84          740
                                         ----        ------          ---
                                     $ 14,810      $ 10,138      $ 9,946
                                       ======        ======        =====


                                                        42

<PAGE>



15.  Commitments

At June 30, 1998,  the Company was  obligated  under a number of  non-cancelable
operating  leases on property used for banking  purposes.  Rental  expense under
these  leases  for the  fiscal  years  ended  June 30,  1998,  1997 and 1996 was
approximately  $1.3  million,  $1.0  million  and  $819,000,  respectively.  The
projected  minimum annual rentals under the terms of these leases,  exclusive of
taxes and other charges, are summarized as follows:

                                            Amount
                                            ------
           Year ended June 30:          (In thousands)
           1999......................       1,116
           2000......................         947
           2001......................         848
           2002......................         821
           2003......................         444
           Thereafter................       1,130
                                            -----
                                          $ 5,306
                                          =======

The Bank is a party to  financial  instruments  with  off-balance  sheet risk in
order to meet  the  financing  needs  of its  customers  and to  reduce  its own
exposure  to  fluctuations  in  interest  rates.  Standby  letters of credit are
conditional  commitments  issued by the Bank to guarantee the performance of the
purchaser  to  a  third  party.   The  Bank,  in  connection  with  its  service
corporations,  at June 30, 1998 and 1997, has outstanding balances on letters of
credits of $500,000 and $500,000,  respectively.  In addition, at June 30, 1998,
the Bank had $828,000 in commercial  standby letters of credit.  The credit risk
involved in issuing  letters of credit is essentially  the same as that involved
in extending loan facilities to customers (See note 7).

16.  Retirement Plans

Pension Plan

The  following  table sets forth the Pension  Plan's  funded  status and amounts
recognized in the Company's consolidated statements of condition:
<TABLE>
<CAPTION>
                                                                                                 June 30,
                                                                                            -------------------
                                                                                            1998           1997
                                                                                            ----           ----
                                                                                              (In thousands)
Actuarial Present Value of Benefits Obligations:
<S>                                                                                        <C>             <C>    
     Vested Benefit Obligation....................................................         $ 4,991         $ 7,494
     Accumulated Benefit Obligation...............................................           4,991           7,596
                                                                                             =====           =====

Plan Assets at Fair Value.........................................................           5,658           8,825
Projected Benefit Obligation for Service Rendered to Date.........................           4,991           9,365
                                                                                             -----           -----
Plan Assets Greater (Less) Than Projected Benefit Obligation......................             667            (540)
Unrecognized Net Asset Value Being Amortized over 15 Years........................              --             (21)
Unrecognized Prior Service Cost...................................................             (40)            (58)
Unrecognized Net Loss Due to Past Experience
   Different from Assumptions Made and Changes in Assumptions.....................             169           1,116
                                                                                              ----           -----
Prepaid Pension Cost..............................................................           $ 796           $ 497
                                                                                               ===             ===











                                                        43

<PAGE>



The components of net pension expense are as follows:
                                                          Year Ended June 30,
                                                        ----------------------
                                                        1998     1997     1996
                                                        ----     ----     ----
                                                           (In thousands)
Service Cost-benefits Earned during the Year.......    $ 627    $ 327    $ 330
Interest Cost on Projected Benefit Obligation......      710      627      553
Net Amortization and Deferral......................       20     (290)      64
Actual Return on Plan Assets.......................     (710)    (482)    (778)
Curtailment Gain Recognized........................     (739)      --       --
Settlement Loss Recognized.........................      117       --       --
                                                        ----     ----      ---
Net Pension Expense................................     $ 25    $ 182    $ 169
                                                         ===      ===      ===

                                                         Year Ended June 30,
                                                      -----------------------
                                                      1998     1997      1996
                                                      ----     ----      ----
Assumptions Used:
    Weighted Average Discount Rate..................   7.0%     7.0%     7.0%
    Rate of Increase in Compensation Levels.........   5.0%     5.0%     5.0%
    Expected Long-term Rate of Return on Assets.....   8.0%     9.0%     9.0%

Based on an  evaluation of the pension plan in fiscal 1998,  the Bank  concluded
that future benefit  accruals under the plan would cease, or "freeze" on May 31,
1998.  In  connection  with the  freezing  of the Plan,  the Bank  recognized  a
curtailment   gain  of   approximately   $739,000  and  a  settlement   loss  of
approximately $117,000 as of May 31, 1998.

In connection with the acquisitions of Bank of Westbury,  Sunrise Bancorp,  Inc.
and Continental Bank, their respective pension plans were terminated and are not
included in the above  tables.  All former  employees  of Bank of  Westbury  and
Sunrise Bancorp,  Inc.  remaining in the employment of the Company were eligible
to participate in the Company's pension plan effective June 1, 1997. However, as
a result of the pension plan's eligibility  requirements and the freezing of the
pension  plan on May  31,  1998,  no  Continental  employees  were  eligible  to
participate in the plan.

Reliance Federal Savings Bank 401(k) Retirement Plan

Effective  June 1, 1998,  employees of the Bank who are at least 21 years of age
and have  completed  one year of service  are  eligible  to  participate  in the
Reliance  Federal  Savings  Bank 401(k)  Retirement  Plan (the  "401(k)  Plan").
Eligible  employees  may make pre-tax  contributions  equal to the lesser of ten
percent of their annual  compensation or the amount  permitted by law. As a base
amount,  the Bank will make  contributions  (on account for eligible  employees)
equal to two percent of all eligible  employees  earnings  regardless of whether
employees make  contributions on their own behalf.  Additionally,  the Bank will
make matching  contributions equal to 75% of employee  contributions that do not
exceed four percent of their annual earnings.  Employees are immediately  vested
in their own  contributions  and after five years of service they will be vested
in the Bank's base and matching  contributions.  During  fiscal  1998,  the Bank
incurred $40,000 in 401(k) Plan costs.

17.  Stock Benefit Plans

The following are the stock based benefit plans maintained by the Company:

Stock  Option  Plan 
The Company maintains the Reliance  Bancorp,  Inc. 1994 Incentive  Stock Option
Plan and the Reliance Bancorp, Inc. 1996 Incentive Stock Option Plan Amended and
Restated as of February  17, 1997 (the "Stock  Option  Plans").  Under the Stock
Option Plans, stock options (which expire ten years from the date of grant) have
been  granted to the  executive  officers  and  officers  of the Company and its
affiliate,  the Bank.  Each option  entitles the holder to purchase one share of
the Company's  common stock at an exercise  price equal to the fair market value
of the stock at the date of grant.  Options will be  exercisable  in whole or in
part over the vesting period.  However,  all options become 100%  exercisable in
the event that the employee terminates his employment due to death,  disability,
normal  retirement,  or in the event of a change in  control  of the Bank or the
Company.  Simultaneous with the grant of these options,  the Personnel Committee
of the Board of Directors  granted  "Limited  Rights" with respect to the shares
covered  by the  options.  Limited  Rights  granted  are  subject  to terms  and
conditions and can be exercised only in the event of a change in

                                                        44

<PAGE>



control of the  Company.  Upon  exercise of a limited  right,  the holder  shall
receive  from the Company a cash  payment  equal to the  difference  between the
exercise price of the option and the fair market value of the underlying  shares
of common stock.

Stock Option Plan for Outside  Directors 
The Company maintains the Amended and Restated Reliance Bancorp, Inc. 1994 Stock
Option Plans for Outside Directors (the "Directors' Option Plans").  Each member
of the Board of  Directors  who is not an officer or  employee of the Company or
the Bank is granted  non-statutory  options to purchase  shares of the Company's
common  stock.  Members of the Board of  Directors  of the  Company  are granted
options to  purchase  shares of the common  stock of the  Company at an exercise
price equal to the fair market  value of the stock at the date of grant.  All of
the options granted under the Directors' Option Plan become exercisable over the
vesting  period and expire  upon the earlier of 10 years  following  the date of
grant or one year following the date the optionee ceases to be a director.

                                                                       Number of Shares of
                                                                  ----------------------------------
                                                                                 Non-         Non-         Weighted
                                                                  Incentive    Statutory   Qualified        Average
                                                                    Stock        Stock     Options to      Exercise
                                                                  Options       Options    Directors         Price
                                                                  -------       -------    ---------         -----

<S>                                                                <C>          <C>          <C>            <C>    
Balance Outstanding at June 30, 1995..........................     608,505      216,390      196,650        $ 10.00
Granted.......................................................          --           --        6,727          15.25
Forfeited.....................................................          --           --           --             --
Exercised.....................................................          --           --           --             --
                                                                     -----        -----        -----           ----

Balance Outstanding at June 30, 1996..........................     608,505      216,390      203,377        $ 10.03
Granted.......................................................      70,398      213,402       40,500          18.22
Forfeited.....................................................          --           --           --             --
Exercised.....................................................     (48,780)     (35,000)      (6,000)         10.00
                                                                   --------     --------      -------         -----

Balance Outstanding at June 30, 1997..........................     630,123      394,792      237,877        $ 11.96
Granted.......................................................      13,647        3,353       40,500          29.87
Forfeited.....................................................          --           --           --             --
Exercised.....................................................    (131,399)    (102,816)      (1,500)         11.33
                                                                  ---------    ---------      -------         -----

Balance Outstanding at June 30, 1998..........................      512,371     295,329      276,877        $ 13.17
                                                                    =======     =======      =======          =====
Shares Exercisable at June 30, 1998...........................      390,294     250,847      274,634        $ 13.45

Had compensation  cost for the Company's three  stock-based  compensation  plans
been determined consistent with SFAS No. 123 for awards made after July 1, 1995,
the  Company's  net income per common  share would have been  reduced to the pro
forma amounts indicated below for the years ended June 30:

                                                  1998       1997        1996
                                                --------   --------    -------
 (Dollars in thousands, except per share data)

 Net Income                   As Reported      $ 18,729    $ 10,936    $ 11,723
                              Pro forma          18,492       8,672      11,669

 Net Income per Common Share:
 Basic                        As Reported        $ 2.11      $ 1.32      $ 1.36
                              Pro forma          $ 2.08        1.04        1.36
     
 Diluted                      As Reported        $ 1.99      $ 1.25      $ 1.32
                              Pro forma          $ 1.96        0.99        1.32


                                                        45

<PAGE>



The fair values of the share  grants were  estimated  on the date of grant using
the  Black-Scholes  option - pricing  model using the following  assumptions  in
fiscal  1998,  1997 and 1996:  dividend  yield of 3.00% for all years;  expected
volatility  of 22.05%  for fiscal  1998 and  16.64%  for  fiscal  1997 and 1996;
risk-free  interest rates of 6.25% for all years; and expected option lives of 6
years for all years.

Employees Stock Ownership Plan ("ESOP")
The Bank has  established an ESOP for eligible  employees.  Full-time  employees
employed  with the Bank as of January 1, 1993,  and  full-time  employees of the
Company  or the Bank  employed  after such date who have been  credited  with at
least 1,000 hours during a twelve-month  period and who have attained age 21 are
eligible to participate.

The ESOP  borrowed  $8.3 million from the Company and used the funds to purchase
828,000 shares of the Company's common stock issued in the Conversion.  The loan
is repaid  principally from the Bank's  discretionary  contributions to the ESOP
over a 10 year period.  At June 30, 1998 and 1997,  the loan had an  outstanding
balance of $4.8 million and $5.6 million,  respectively, and an interest rate of
8.50% and 8.50%, respectively. Interest expense for the obligation was $441,000,
$502,000 and $588,000,  respectively, for the year ended June 30, 1998, 1997 and
1996. Shares purchased with the loan proceeds are held in a suspense account for
allocation among participants as the loan is paid. Contributions to the ESOP and
shares  released  from the loan  collateral  in an  amount  proportional  to the
repayment  of the ESOP  loan is  allocated  among  participants  on the basis of
compensation,  as described  in the plan,  in the year of  allocation.  Benefits
generally become 100% vested after five years of credited service.  However,  in
the event of a change in control,  as defined in the plan, any unvested  portion
of  benefits  shall  vest   immediately.   Forfeitures  are  reallocated   among
participating  employees, in the same proportion as contributions.  Benefits are
payable upon death, retirement,  disability, or separation from service based on
vesting status and share allocations made.

As of June 30, 1998,  288,394  shares  remaining  in the ESOP were  allocated to
participants  and 41,400  shares were  committed to be  released.  As shares are
released from collateral,  the shares become  outstanding for earnings per share
computations. As of June 30, 1998 and 1997, the fair market value of the 455,400
and  538,200  unallocated  shares,  respectively,  was $17.4  million  and $15.8
million, respectively.

Recognition and Retention Plans and Trusts ("RRPs")

The Bank  maintains  the  Reliance  Federal  Savings Bank  Recognition  and
Retention Plan for Officers and Employees and the Amended and Restated  Reliance
Federal Savings Bank 1994  Recognition and Retention Plan for Outside  Directors
(the  "RRPs").  The  purpose  of the  RRPs  is to  provide  executive  officers,
officers,  and directors of the Bank with a proprietary  interest in the Company
in a manner designed to encourage such persons to remain with the Bank. The RRPs
acquired an aggregate  of 414,000  shares of the  Company's  common stock in the
Conversion of which  412,447  shares have been awarded to Officers and Directors
(327,715 at the time of the  Conversion  and 84,732  thereafter).  Such  amounts
represent  deferred  compensation  and have been accounted for as a reduction of
stockholders'  equity.  Awards vest at a rate of 20% per year for  directors and
officers,  commencing one year from the date of award. Awards become 100% vested
upon termination of employment due to death,  disability,  or following a change
in control of the Bank or the Company.

The Company recorded compensation expenses for the ESOP and RRP of $3.7 million,
$2.5 million and $2.0 million,  respectively, for the years ended June 30, 1998,
1997 and 1996.

18.  Earnings Per Share

Effective  December 31, 1997,  the Company  adopted SFAS No. 128,  "Earnings Per
Share",  which  establishes new standards for computing and presenting  earnings
per share ("EPS").  All earnings per share amounts have been restated to conform
to the new requirements.

Basis EPS is computed by dividing net income by the weighted  average  number of
common  shares  outstanding.  The  weighted  average  number  of  common  shares
outstanding  includes the average  number of shares of common stock  outstanding
adjusted for the weighted average number of unallocated shares held by the ESOP.


                                                        46

<PAGE>



Diluted EPS is computed by dividing net income by the weighted average number of
common shares and common equivalent shares  outstanding during the year. For the
diluted EPS calculation, the weighted average number of common shares and common
equivalent  shares  outstanding  include the average  number of shares of common
stock outstanding adjusted for the weighted average number of unallocated shares
held by the ESOP and the dilutive effect of unexercised  stock options using the
treasury stock method.  When applying the treasury  stock method,  the Company's
average  stock price is  utilized,  and the Company adds to the proceeds the tax
benefit that would have been credited to  additional  paid-in  capital  assuming
exercise of non-qualified stock options.

The  computation  of basis and diluted  EPS for the fiscal  years ended June 30,
1998, 1997 and 1996 are presented in the following table:

                                                                 Year Ended June 30,
                                                         -------------------------------------
                                                         1998           1997              1996
                                                         ----           ----              ----
                                                                  (In thousands)
<S>                                                   <C>            <C>              <C>     
Net income.........................................   $ 18,729       $ 10,936         $ 11,723
Weighted average common shares.....................      8,890          8,299            8,594
                                                         -----        -------          -------
Basic earnings per share...........................  $    2.11      $    1.32        $    1.36
                                                      ========       ========         ========


Net income.........................................   $ 18,729       $ 10,936         $ 11,723

Weighted average common shares - basic.............      8,890          8,299            8,594
Effect of dilutive stock options...................        535            425              269
                                                      --------        -------          -------
Weighted average common shares and common
   equivalent shares...............................      9,425          8,724            8,863
                                                      --------          -----          -------
Diluted earnings per share.........................  $    1.99       $   1.25         $   1.32
                                                       =======         ======           ======


19.  Regulatory Matters

Federal regulations  require  institutions to have a minimum regulatory tangible
capital  equal  to 1.5% of  total  assets,  a 3% core  capital  ratio  and an 8%
risk-based capital ratio. The OTS prompt corrective action standards effectively
establish  a minimum 2% tangible  capital  ratio,  a minimum 4%  leverage  ratio
(core) capital ratio and a minimum 4% Tier 1 risked based capital  ratio.  As of
June 30, 1998 and 1997, the Bank was in compliance  with the regulatory  capital
requirements.

Additionally,  under prompt corrective action  regulations,  the regulators have
adopted  rules,  which  require  them to take  action  against  undercapitalized
institutions, based upon five categories of capitalization:  "well capitalized",
"adequately capitalized", "undercapitalized",  "significantly undercapitalized",
and "critically  undercapitalized".  The rules adopted generally provide that an
insured  institution  whose risk-based  capital ratio is 10% or greater,  Tier 1
risk- based  capital is 6% or greater,  and  leverage  ratio is 5% or greater is
considered a "well capitalized" institution. As of June 30, 1998, 1997 and 1996,
the Bank was considered a "well capitalized" institution.

Dividend  payments to the Company from the Bank are subject to the profitability
of the Bank and by applicable laws and regulations. During fiscal 1998 and 1997,
the Bank  made  dividend  payments  to the  Company  of $14.0  million  and $6.7
million, respectively.

During fiscal 1998, the Company  invested $18.8 million of the proceeds from the
issuance of its Junior  Subordinated debt in the Bank which increased the Bank's
capital and capital ratios.







                                                        47

<PAGE>




The  following  table sets forth the required  ratios and amounts and the Bank's
actual capital amounts and ratios at June 30, 1998 and 1997:

                                                          June 30, 1998
                                  ------------------------------------------------------------------
                                    Capital                  Actual                  Excess
                                  Requirement     %         Capital       %          Capital       %
                                  -----------    --         -------      --          -------      --
                                                       (Dollars in thousands)
<S>                               <C>            <C>      <C>            <C>      <C>             <C> 
       Tangible.................. $ 35,825       1.5%     $ 145,337      6.1%     $ 109,512       4.6%
       Leverage..................   71,650       3.0        145,337      6.1         73,687       3.1
       Risk-based................   80,724       8.0        154,245     15.3         73,521       7.3

                                                          June 30, 1997
                                  ------------------------------------------------------------------
                                    Capital                  Actual                  Excess
                                  Requirement     %         Capital       %          Capital       %
                                  -----------    --         -------      --          -------      --
                                                       (Dollars in thousands)

<S>                               <C>            <C>      <C>            <C>        <C>           <C> 
       Tangible.................. $ 28,937       1.5%     $ 107,967      5.6%       $79,030       4.1%
       Leverage..................   57,874       3.0        107,967      5.6         50,093       2.6
       Risk-based................   59,670       8.0        113,094     15.2         53,424       7.2

20.  Fair Value of Financial Instruments

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" ("SFAS No.
107"), requires disclosure of estimated fair value information for the Company's
financial instruments.  Fair values are most commonly derived from quoted market
prices  available  in the  formal  trading  marketplaces.  In  many  cases,  the
Company's  financial  instruments  are not  bought  or sold  in  formal  trading
marketplaces.   Accordingly,  in  cases  where  quoted  market  prices  are  not
available,  fair values are derived or estimated based on a variety of valuation
techniques.  These  techniques  are  sensitive  to the various  assumptions  and
estimates used and the resulting fair value estimates may be materially affected
by minor  variations in those  assumption or  estimates.  In that regard,  it is
likely that amounts different from the fair value estimates would be realized by
the Company in immediate settlement of the financial instruments.

SFAS No. 107 excludes certain financial  instruments as well as all nonfinancial
instruments from fair value disclosure.  Accordingly,  the fair values presented
do not represent the Company's fair value as a going concern.  In addition,  the
differences  between the carrying  amounts and the fair values presented may not
be  realized  since  the  Company  generally  intends  to hold  these  financial
instruments to maturity and realize their recorded value.

SFAS No.  107  provides  minimal  guidance  and no  limitations  with  regard to
assumptions and estimates to be used.  Therefore,  while disclosure of estimated
fair values is  required,  the fair value  amounts  presented  in the  financial
statements  do not represent the  underlying  value of the Company,  nor do they
provide  any basis for  comparison  of the value of this  Company  with  similar
companies.
















                                                        48

<PAGE>




                                                                                    June 30,
                                                             ------------------------------------------------------
                                                                      1998                           1997
                                                             -------------------------     ------------------------
                                                             Carrying       Estimated      Carrying       Estimated
                                                              Amount        Fair Value      Amount        Fair Value
                                                                                    (In thousands)
On Balance Sheet:
Financial Assets:
<S>                                                          <C>            <C>            <C>             <C>     
Cash and Due from Banks..............................        $ 37,596       $ 37,596       $ 29,565        $ 29,565
Money Market Investments.............................           9,500          9,500          1,100           1,100
Debt and Equity Securities Available-for-Sale........         134,907        134,907         26,909          26,909
Debt and Equity Securities Held-to-Maturity..........          40,189         40,509         46,026          46,152
Mortgage-Backed Securities Available-for-Sale........         940,347        940,347        721,819         721,819
Mortgage-Backed Securities Held-to-Maturity..........         249,259        252,332        159,356         163,108
Loans Receivable, Net................................         969,797        984,224        909,321         910,671
Mortgage Servicing Rights............................           2,317          2,632          3,046           3,797

Financial Liabilities:
Deposits.............................................       1,628,298      1,630,087      1,436,037       1,432,234
Borrowed Funds.......................................         630,206        631,407        351,913         349,499

Off Balance Sheet:
Outstanding Commitments..............................         116,425        116,425         80,122          80,122
Letters of Credit....................................           1,382          1,382            500             500

Methods and assumptions used to produce fair value are stated below:

Cash and Due from Banks
The  carrying  amounts  reported in the  consolidated  statements  of  condition
approximate the assets' fair values.

Money Market Investments
The carrying amounts of federal funds sold and repurchase agreements approximate
their fair values because these investments all mature in three months or less.

Debt, Equity and Mortgage-Backed Securities
Fair  values  for  debt,  equity  and  mortgage-backed  securities  are based on
published market or securities dealers' estimated prices.

Loans
Fair  value   estimates  are   calculated   for  pools  of  loans  with  similar
characteristics.  The loans are first  segregated  by type,  such as 1-4  family
residential, other residential, commercial, construction, and consumer, and then
further segregated into fixed and adjustable rate categories.

Fair value is  estimated by  discounting  expected  future cash flows.  Expected
future cash flows are based on contractual cash flows, adjusted for prepayments.
Prepayment  estimates  are based on a variety  of factors  including  the Bank's
experience  with respect to each loan category,  the effect of current  economic
and lending  conditions,  and regional  statistics  for each loan  category,  if
available.  The  discount  rates used are based on market rates for new loans of
similar  type  and  purpose,  adjusted,  when  necessary,  for  factors  such as
servicing cost, credit risk, and term.

As mentioned  previously,  this technique of estimating  fair value is extremely
sensitive to the assumptions and estimates used.  While management has attempted
to use  assumptions  and  estimates  which are the most  reflective  of the loan
portfolio and the current  market,  a greater degree of subjectivity is inherent
in these values than those determined in formal trading  marketplaces.  As such,
readers are again cautioned in using this information for purposes of evaluating
the  financial  condition  and/or  value of the  Company  in and of itself or in
comparison with any other company.


                                                        49

<PAGE>



Mortgage Servicing Rights
The fair value is estimated based upon a valuation which stratifies the mortgage
servicing  portfolio  based upon the  predominate  risk  characteristics  of the
underlying cash flows utilizing current market  assumptions  regarding  discount
rates, prepayment speeds, delinquency rates, etc.

Other Receivables and Payables
The carrying amounts of short-term  receivables and payables,  including accrued
interest approximate their fair values.

Deposits
SFAS No.  107  stipulates  that the  fair  values  of  deposits  with no  stated
maturity,  such as demand  deposits,  savings,  NOW  accounts  and money  market
accounts,  are equal to the amount payable on demand. The relative insensitivity
of the majority of these deposits to interest rate changes creates a significant
inherent value which is not reflected in the fair value reported.

The fair value of  certificates  of deposit are based on discounted  contractual
cash flows using rates which  approximate  the rates  offered by the Company for
deposits of similar remaining maturities.

Other Borrowings
Fair value estimates are based on discounting contractual cash flows using rates
which  approximate  the  rates  offered  for  borrowings  of  similar  remaining
maturities.

Outstanding Commitments
Fair value of commitments outstanding are estimated based on the fees that would
be  charged  for  similar  agreements,  considering  the  remaining  term of the
agreement, the rate offered and the creditworthiness of the parties.

21.  Parent-Only Financial Information

The  following  condensed  statements of condition at June 30, 1998 and 1997 and
condensed statements of income and cash flows for the years ended June 30, 1998,
1997 and 1996 for Reliance  Bancorp,  Inc.  (parent  company only)  reflects the
Company's investment in its wholly-owned subsidiary,  the Bank, using the equity
method of accounting.


CONDENSED STATEMENTS OF CONDITION
                                                                                                 June 30,
                                                                                         --------------------------
                                                                                          1998                1997
                                                                                          ----                ----
ASSETS                                                                                        (In thousands)
<S>                                                                                       <C>                 <C>  
Cash.....................................................................                 $ 1,294             $ 470
Money Market Investments.................................................                   9,500             1,100
Debt Securities Available-for-Sale.......................................                  24,374             4,811
ESOP Loan Receivable.....................................................                   4,799             5,622
Other Assets.............................................................                   2,210               633
Investment in Reliance Federal Savings Bank..............................                 205,355           151,772
Investment in Reliance Capital Trust I...................................                   1,547                --
                                                                                           ------             -----
        Total Assets.....................................................               $ 249,079         $ 164,408
                                                                                          =======           =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued Expenses.........................................................                 $ 2,668           $ 1,738
Junior Subordinated Debt Issued to Reliance Capital Trust I..............                  51,547                --
Stockholders' Equity.....................................................                 194,864           162,670
                                                                                          -------           -------
        Total Liabilities and Stockholders' Equity.......................               $ 249,079         $ 164,408
                                                                                          =======           =======






                                                        50

<PAGE>



CONDENSED STATEMENTS OF INCOME
                                                                                   Year Ended June 30,
                                                                         -------------------------------------
                                                                         1998             1997            1996
                                                                         ----             ----            ----
                                                                                      (In thousands)
<S>                                                                 <C>              <C>               <C>     
Interest Income - Securities and Repurchase Agreements..........       $ 615             $ 230            $ 958
Interest Income - ESOP Loan Receivable..........................         441               502              588
                                                                       -----              ----            -----
        Total Interest Income...................................       1,056               732            1,546

Interest Expense................................................        (724)               --               --
Cash Dividends from the Bank....................................      14,000             6,700               --
Other Operating Income..........................................          11                --                3
Other Operating Expense.........................................        (418)             (521)            (551)
                                                                       -----              ----             ----
Income Before Income Taxes and Equity in Undistributed
   Earnings of the Bank.........................................      13,925             6,911              998
(Recovery) Provision for Income Taxes...........................         (30)               90              445
                                                                       -----              ----             ----
Income before Equity in Undistributed
    Earnings of the Bank........................................      13,955             6,821              553
Equity in Undistributed Earnings of Reliance
    Federal Savings Bank........................................       4,774             4,115           11,170
                                                                       -----             -----           ------

                Net Income......................................    $ 18,729          $ 10,936         $ 11,723
                                                                      ======            ======           ======

CONDENSED STATEMENTS OF CASH FLOWS
                                                                                 Year Ended June 30,
                                                                        -------------------------------------
                                                                        1998             1997            1996
                                                                        ----             ----            ----
                                                                                    (In thousands)
Cash from Operating Activities:
<S>                                                                 <C>               <C>              <C>     
Net Income......................................................    $ 18,729          $ 10,936         $ 11,723
Equity in Undistributed Earnings of the Bank ...................      (4,774)           (4,115)         (11,170)
Accretion of Discounts..........................................         (47)              (70)              --
Net Gain on Sale of Securities..................................         (11)               --               (3)
(Increase) Decrease in Other Assets.............................      (1,655)              544              (73)
Increase in Accrued Expenses....................................       2,550               122               52
                                                                       -----              ----              ---
     Net Cash Provided by Operating Activities..................      14,792             7,417              529
                                                                      ------             -----              ---


Cash Flows from Investing Activities:
Purchase of Debt Securities Available-for-Sale..................     (24,187)           (4,715)              --
Proceeds from Sales of Debt Securities Available-for-Sale.......       4,870                --           23,883
Principal Payments on ESOP Loan Receivable......................         823               850              831
Payments for Investments in Reliance Capital Trust I............      (1,547)               --               --
Payments for Investments in Bank................................     (18,750)               --           (9,673)
                                                                     -------              ----           ------
    Net Cash (Used in) Provided by Investing Activities.........     (38,791)           (3,865)          15,041
                                                                     -------            ------           ------

Cash Flows from Financing Activities:
Proceeds from Issuance of Junior Subordinated Debt..............      51,547                --               --
Purchase of Treasury Stock......................................     (15,269)           (8,113)          (3,829)
Net Proceeds from Issuance of Common Stock
   Upon Exercise of Stock Options...............................       2,670               898               --
Dividends Paid..................................................      (5,725)           (4,578)          (3,808)
                                                                      ------            -------          -------
     Net Cash Provided by (Used in) Financing Activities........      33,223           (11,793)          (7,637)
                                                                      ------           --------          -------

Net Increase (Decrease) in Cash and Cash Equivalents............       9,224            (8,241)           7,933
Cash and Cash Equivalents at Beginning of Year..................       1,570             9,811            1,878
                                                                      ------             -----            -----
Cash and Cash Equivalents at the End of Year....................    $ 10,794           $ 1,570          $ 9,811
                                                                      ======             =====            =====
</TABLE>


                                                        51

<PAGE>


INDEPENDENT AUDITORS' REPORT
----------------------------

[LOGO]  KPMG Peat Marwick LLP


         Certified Public Accountants
         1305 Walt Whitman Road
         Melville, NY  11747-4302


To the Board of Directors and Stockholders of
Reliance Bancorp, Inc.,

We have  audited  the  accompanying  consolidated  statements  of  condition  of
Reliance  Bancorp,  Inc.  and  subsidiary  as of June 30,  1998 and 1997 and the
related consolidated  statements of income,  changes in stockholders' equity and
cash flows for each of the years in the  three-year  period ended June 30, 1998.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of Reliance Bancorp,
Inc.  and  subsidiary  as of June 30,  1998 and 1997,  and the  results of their
operations and their cash flows for each of the years in the  three-year  period
ended  June  30,  1998,  in  conformity  with  generally   accepted   accounting
principles.




/s/  KPMG Peat Marwick
     Melville, NY  11747-4302
     July 23, 1998












                                                        52

<PAGE>
Reliance Bancorp, Inc. and Subsidiary
Selected Consolidated Quarterly Financial Data
----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>


(Dollars in thousands, except per share data)
                                                                           Fiscal 1998 Quarter Ended
                                                            -------------------------------------------------------
                                                            September 30,  December 31,     March 31,      June 30,
                                                            -------------  ------------     ---------      --------

Interest Income.............................................   $ 36,183      $ 39,266        $ 38,446       39,924
Interest Expense............................................     20,169        22,078          21,424       23,157
                                                                 ------        ------          ------       ------
Net Interest Income.........................................     16,014        17,188          17,022       16,767
Provision for Loan Losses...................................        900           300             300          150
                                                                 ------        ------          ------       ------
Net Interest Income after Provision for Loan Losses.........     15,114        16,888          16,722       16,617
Non-Interest Income.........................................      2,263         1,692           1,922        1,982
General and Administrative Expense..........................      8,047         8,816           9,087        9,275
Real Estate Operations, net.................................        225           (67)             12           48
Amortization of Excess of Cost Over Fair Value
  of Net Assets Acquired....................................        846         1,090           1,141        1,141
                                                                  -----         -----           -----        -----
Income Before Provision for Income Taxes....................      8,259         8,741           8,404        8,135
Income Tax Expense..........................................      3,518         3,854           3,746        3,692
                                                                  -----         -----           -----        -----
Net Income..................................................    $ 4,741       $ 4,887         $ 4,658      $ 4,443
                                                                  =====         =====           =====        =====
Basic Earnings Per Share....................................     $ 0.58        $ 0.54          $ 0.51       $ 0.48
                                                                   ====          ====            ====         ====
Diluted Earnings Per Share .................................     $ 0.54        $ 0.51          $ 0.48       $ 0.46
                                                                   ====          ====            ====         ====



                                                                           Fiscal 1997 Quarter Ended
                                                            -------------------------------------------------------
                                                            September 30,  December 31,     March 31,      June 30,
                                                            -------------  ------------     ---------      --------
<S>                                                           <C>            <C>            <C>           <C>     
Interest Income...........................................    $ 31,960       $ 33,189       $ 33,596      $ 34,544
Interest Expense..........................................      17,014         17,801         17,904        18,934
                                                                ------         ------         ------        ------
Net Interest Income.......................................      14,946         15,388         15,692        15,610
Provision for Loan Losses.................................         100            250            300           300
                                                                ------         ------         ------        ------
Net Interest Income after Provision for Loan Losses.......      14,846         15,138         15,392        15,310
Non-Interest Income.......................................         686          1,022            897           807
General and Administrative Expense........................      (7,997)        (7,830)        (7,539)       (7,621)
Real Estate Operations, net...............................       (104)           (117)          (114)          (48)
Amortization of Excess of Cost Over Fair Value
  of Net Assets Acquired..................................       (856)           (856)          (846)         (846)
SAIF Recapitalization Charge..............................      (8,250)            --             --            --
                                                                -------         -----          -----         -----
Income (Loss) Before Provision for Income Taxes...........      (1,675)         7,357          7,790         7,602
Income Tax Expense (Benefit)..............................        (271)         3,478          3,667         3,264
                                                                -------         -----          -----         -----
Net Income (Loss).........................................    $ (1,404)       $ 3,879        $ 4,123       $ 4,338
                                                                =======         =====          =====         =====
Basic Earnings (Loss) Per Share...........................     $ (0.17)        $ 0.47         $ 0.50        $ 0.53
                                                                 ======          ====           ====          ====
Diluted Earnings (Loss) Per Share ........................     $ (0.17)        $ 0.45         $ 0.47        $ 0.50
                                                                 ======          =====          ====          ====
 
                                                       53

</TABLE>
                                                     
<PAGE>



                                              RELIANCE BANCORP, INC.

                                                BOARD OF DIRECTORS

Raymond L. Nielsen
Chairman of the Board and
former Chief Executive Officer


Raymond A. Nielsen
Chief Executive Officer
and President

Thomas G. Davis, Jr.
Retired - President and Director
Institutional Mortgage Investors
   Management Corp.

Donald LaPasta
Retired - Chairman of the Board
and Chief Executive Officer
Reliance Federal Savings Bank

Douglas G. LaPasta
Principal of Stonehill
Management Consultants

Conrad J. Gunther, Jr.
Vice President
Allied Coverage Corp.

Peter F. Neumann
Retired President
Bradley & Parker
Flynn-Neumann Agency, Inc.

J. William Newby
Owner/President
Beacon Mortgage Company

                               EXECUTIVE OFFICERS

Raymond A. Nielsen
Chief Executive Officer
and President

Paul D. Hagan
Senior Vice President and
Chief Financial Officer

Gerald M. Sauvigne
Executive Vice President and
Treasurer

John F. Traxler
Vice President
Investment Officer

Joseph F. Lavelle
Senior Vice President
Retail Banking Division
and Corporate Secretary




                         RELIANCE FEDERAL SAVINGS BANK*
                               EXECUTIVE OFFICERS

* Executive officers of Reliance Bancorp,  Inc. also serve as executive officers
of Reliance Federal Savings Bank.

                                 VICE PRESIDENTS

Dorothy J. Brown
Human Resources

John C. Correll
Home Mortgage

Charles V. DeRosa
Taxation

Frank A. Dreiss, Jr.
Data Processing

John J. Hogan
Marketing

James F. Kramer
Controller

William J. McKenna
Loan Servicing

Peter McCarthy
Retail Banking

William Riley
Commercial Lending

Jeannette Sabatelli
Consumer Credit

Frances Secondo
Internal Audit

Kevin J. Talty
Mortgage Originations
                            ASSISTANT VICE PRESIDENTS

John F. Brackx
Joseph C. Byrne
Roseanne Cullmer
Christine V. Gerber
Russell M. Kerstein

Steven F. Leibow
Maureen Marsh
John J. Martingale
Charles McCartin
Peter O'Neill
Francis J. McHale, Jr.
Panagiota Paloscio
Stephen Plezia
Thomas Rose
Ronald K. Session

                                                        54

<PAGE>



                             RELIANCE BANCORP, INC.
                                 BANKING OFFICES


QUEENS
------

Auburndale
32-02 Francis Lewis Boulevard
Flushing, New York 11358
Mary Wright
AVP - Branch Manager

Hillcrest
69-09 164th Street
Flushing, New York 11365
Carol Murray
AVP - Branch Manager

Hollis
204-12 Hillside Avenue
Hollis, New York  11423
Patricia Klos
AVP - Branch Manager

Jamaica
162-04 Jamaica Avenue
Jamaica, NY 11432
Ruby Griffin
AVP - Branch Manager

Queens Village
216-26 Jamaica Avenue
Queens Village, New York 11428
Maureen Milo
Branch Manager

Whitestone
19-01 Utopia Parkway
Whitestone, New York 11357
Beverly Bent
Branch Manager

Winchester
233-15 Hillside Avenue
Queens Village, New York 11427
Margaret Modesti
AVP - Branch Manager


NASSAU
------

Albertson
983 Willis Avenue
Albertson, New York 11507
Hope Scorcia
AVP - Branch Manager

Bethpage
570 Stewart Avenue
Bethpage, New York 11714
Joanne Alexander
AVP - Branch Manager

Carle Place
215 Glen Cove Road
Carle Place, New York 11514

Farmingdale
312 Conklin Street
Farmingdale, New York 11735
Wendy Kubovec
AVP - Branch Manager

South Farmingdale
195 Merritt Road
So. Farmingdale, New York 11735
Rosemary Demeo
AVP - Branch Manager

Franklin Square
172 New Hyde Park Road
Franklin Square, New York 11010
Janet Heck
Branch Manager

Garden City
118 Seventh Street
Garden City, New York 11530
Thomas Quigley
AVP - Branch Manager

Hicksville
405 Jerusalem Avenue
Hicksville, New York 11801
Jacqueline Harrison
Branch Manager

North Bellmore
2843 Jerusalem Avenue
North Bellmore, New York 11710
Ann Marie Richartz
Branch Manager

Plainview
1074 Old Country Road
Plainview, New York 11803
Jacqueline Campo
 Branch Manager


Roosevelt Field
300 Garden City Plaza
Garden City, New York 11530
Jean Hahn
Branch Manager



                                                          55

<PAGE>

                             RELIANCE BANCORP, INC.
                           BANKING OFFICES, Continued

NASSAU Continued
----------------
Salisbury
2530 Stewart Avenue
Westbury, New York 11590
Lucille Rocco
AVP - Branch Manager


Westbury
341 Post Avenue
Westbury, New York 11590
Sandra McGrath
Branch Manager


Williston Park
422 Hillside Avenue
Williston Park, New York 11596
Dennis Holzbaur
AVP - Branch Manager


SUFFOLK
-------

Deer Park
2087 Deer Park Avenue
Deer Park, New York 11729
Emil Savoia
AVP - Branch Manager

Kings Park
742 Route 25 A
Kings Park, New York 11754
Rosemarie DiPiano
Branch Manager

Lindenhurst
300 S. Wellwood Avenue
Lindenhurst, New York 11757
Richard Griesche
Branch Manager

Nesconset
250 Smithtown Boulevard
Nesconset, New York 11767
Catherine Maidhof
Branch Manager

North Babylon
1134 Deer Park Avenue
North Babylon, New York 11703
Anthony Ferrante
Branch Manager

North Babylon North
1383 Deer Park Avenue
North Babylon, NY  11703
Theresa Mackey
Branch Manager

North Brentwood
340 Washington Avenue
North Brentwood, New York 11717
Richard Morrison
Branch Manager

St. James
245 Lake Avenue
St. James, New York 11780
Doreen Midili
Branch Manager

West Islip
434 Union Boulevard
West Islip, New York 11795
Lisa Guariglia
Branch Manager


                                                          56

<PAGE>

                             STOCKHOLDER INFORMATION


ADMINISTRATIVE OFFICES
585 Stewart Avenue
Garden City, New York 11530

ANNUAL MEETING OF SHAREHOLDERS Annual Meeting of Shareholders is scheduled to be
held on  November  10,  1998 at the Long Island  Marriott  Hotel and  Conference
Center. A notice of the meeting, a proxy statement and a proxy form are included
with this  mailing  to  stockholders  of  record  as of  October  9,  1998.  All
shareholders are welcome to attend.

STOCK LISTING INFORMATION
Reliance Bancorp,  Inc.'s common stock is traded on the National  Association of
Securities Dealers Automated  Quotation/National  Market Securities (NASDAQ/NMS)
under the symbol "RELY".  Daily  quotations are included in the NASDAQ  national
market  stock  tables   published   in  leading   dailies  and  other   business
publications.

INVESTOR RELATIONS
Shareholders,  investors and analysts interested in additional information about
Reliance Bancorp, Inc.
are invited to contact:

Paul D. Hagan
Senior Vice President
Chief Financial Officer
585 Stewart Avenue
Garden City, New York 11530
(516) 222-9300

Copies of the Company's earnings releases and financial publications,  including
the annual report on Form 10-K filed with the Securities and Exchange Commission
are  available   without  charge  by  writing  to  Helen  V.  Tolentino  at  the
Administrative Offices, or visit our website at http://www.reliance-federal.com.

STOCK  TRANSFER  AGENT AND  REGISTRAR  Shareholders  wishing to change the name,
address,  or ownership of stock,  to report lost  certificates or to consolidate
accounts are asked to contact the Company's  stock  registrar and transfer agent
directly:

Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
1-800-368-5948

STOCK PRICE INFORMATION
Shares of the common  stock were made  available  to  qualified  subscribers  at
$10.00 per share during the initial offering.  The tables show the reported high
and low sales prices of the common stock during fiscal 1998 and 1997.

                                     1998
                   -----------------------------------------
                   First       Second      Third      Fourth
                   Quarter    Quarter     Quarter    Quarter
                   -------    -------     -------    -------
High..........      $33.00     $36.88     $38.75     $42.25
Low...........      $27.69     $30.00     $29.69     $36.75

                                    1997
                   -----------------------------------------
                   First       Second      Third      Fourth
                   Quarter    Quarter     Quarter    Quarter
                   -------    -------     -------    -------
High..........      $19.50     $19.50     $25.38     $29.44
Low...........      $15.63     $17.50     $18.63     $22.00

As of July 31, 1998, the Company had approximately 1,100 shareholders of record,
not  including  the number of persons or  entities  holding  stock in nominee or
street name through various brokers and banks.

INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
1305 Walt Whitman Road
Melville, New  York 11747-4302

COUNSEL
Berkman, Henoch, Peterson & Peddy
777 Zeckendorf Boulevard
Garden City, New York 11530

Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, D.C.  20016

                                                        57