Reliance Bancorp, Inc. and Subsidiary
FINANCIAL SECTION
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          CONTENTS
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          Selected Consolidated Financial and Other Data
          of the Company.....................................................10

          Management's Discussion and Analysis of
          Financial  Condition and Results of Operations.....................12

          Consolidated Statements of Condition as of
          June 30, 1997 and 1996.............................................25

          Consolidated Statements of Income for
          the year ended June 30, 1997, 1996 and 1995........................26
     
          Consolidated Statements of Changes in
          Stockholders' Equity for the year ended
          June 30, 1997, 1996 and 1995.......................................27

          Consolidated Statements of Cash Flows for
          the year ended June 30, 1997, 1996 and 1995........................28
     
          Notes to Consolidated Financial Statements.........................30

          Independent Auditors' Report.......................................53

          Selected Consolidated Quarterly Financial Data.....................52

                                                             9

<PAGE>

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

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.
<TABLE>
<CAPTION>
                                                                                          At June 30,    
                                                             ---------------------------------------------------------------------
Selected Financial Data:                                        1997           1996         1995             1994           1993
------------------------                                        ----           ----         ----             ----           ----
<S>                                                          <C>            <C>             <C>            <C>            <C>     
Total Assets..............................................   $1,976,764     $1,782,550      $931,436       $830,501       $736,276
Loans Receivable, Net.....................................      909,321        817,746       332,080        330,720        365,913
Debt and Equity Securities Available-for-Sale.............       26,909         13,271        23,880         37,588             --
Debt and Equity Securities Held-to-Maturity...............       46,026         48,330        23,890         39,492         38,819
Mortgage-Backed Securities Available-for-Sale.............      721,819        591,740       104,453             --             --
Mortgage-Backed Securities Held-to-Maturity...............      159,356        184,492       413,762        394,199        304,490
Excess of Cost Over Fair Value
  of Net Assets Acquired..................................       45,463         49,429            --             --             --
Real Estate Owned, Net....................................          450          1,564         1,558          2,911          3,909
Deposits..................................................    1,436,037      1,345,626       670,317        587,221        600,278
FHLB Advances.............................................       40,000          3,000        40,000         78,000         65,000
Securities Sold Under Agreements to Repurchase............      311,913        263,160        57,035            --              --
Total Stockholders' Equity (1)............................      162,670        153,619       153,733        157,851         61,412
<CAPTION>

                                                                                  Year Ended June 30,
                                                               --------------------------------------------------------------------
Selected Operating Data:                                         1997           1996           1995           1994           1993
------------------------                                         ----           ----           ----           ----           ----
<S>                                                            <C>            <C>           <C>            <C>            <C>     
Interest Income...........................................     $133,289       $100,372      $ 61,260       $ 47,224       $ 48,178
Interest Expense .........................................       71,653         52,985        28,361         20,024         21,322
                                                                 ------         ------        ------         ------         ------
 
    Net Interest Income .................................        61,636         47,387        32,899         27,200         26,856
Less Provision for Loan Losses  ..........................          950            725           400            393            234
                                                                 ------         ------        ------         ------         ------
 Net Interest Income After Provision for
        Loan Losses.......................................       60,686         46,662        32,499         26,807         26,622

Non-Interest Income:
Loan Fees and Service Charges.............................          683            826           269            260            234
Other Operating Income....................................        2,557          1,606           841            859            960
Net Gain on Securities....................................          172            678           147             --             --
                                                                 ------         ------        ------         ------         ------
       Total Non-Interest Income............................      3,412          3,110         1,257          1,119          1,194
                                                                 ------         ------        ------         ------         ------
Non-Interest Expense:
Compensation and Benefits.................................       16,509         13,395         9,562          7,068          6,534
Occupancy and Equipment...................................        5,719          4,481         2,462          2,336          2,252
Federal Deposit Insurance Premiums........................        1,813          2,399         1,376          1,374            820
Advertising...............................................        1,168          1,152         1,158            670            658
Other Operating Expenses..................................        5,778          4,169         3,039          2,366          2,078
                                                                 ------         ------        ------         ------         ------
     Total General and Administrative Expenses............       30,987         25,596        17,597         13,814         12,342
Real Estate Operations, Net...............................          383            579          (385)         1,080          3,598
Amortization of Excess of Cost Over Fair
  Value of Net Assets Acquired............................        3,404          1,928            --             --             --
SAIF Recapitalization Charge..............................        8,250             --            --             --             --
                                                                 ------         ------        ------         ------         ------
    Total Non-Interest Expense...........................        43,024         28,103        17,212         14,894         15,940

     Income Before Income Taxes  and Cumulative
         Effect of Change in Accounting Principle.........       21,074         21,669        16,544         13,032         11,876
Income Tax Expense........................................       10,138          9,946         6,842          5,538          5,243
                                                                 ------         ------        ------         ------         ------
     Income Before Cumulative Effect of
         Change in Accounting Principle...................       10,936         11,723         9,702          7,494          6,633
Cumulative Effect of Change in
  Accounting Principle (2)................................           --             --            --          1,200             --
                       --                                        ------         ------         -----          -----          ----- 
     Net Income...........................................     $ 10,936       $ 11,723       $ 9,702        $ 8,694        $ 6,633
                                                               ========       ========       =======        =======        =======
Earnings Per Share: (3)                   Primary........      $   1.24       $   1.31       $  1.03        $  0.22            N/A
                                                               ========       ========       =======        =======        =======  
                                          Fully Diluted...     $   1.21       $   1.31       $  1.03        $  0.22            N/A
                                                               ========       ========       =======        =======        ======= 
</TABLE>

(See footnotes on following page)

                                                                 10

<PAGE>



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

                                                                                    At or for the Year Ended June 30,
                                                                       ----------------------------------------------------------
                                                                        1997         1996         1995         1994          1993
                                                                        ----         ----         ----         ----          ----
Selected Financial Ratios and Other Data:

Performance Ratios:
<S>                                                                   <C>           <C>          <C>          <C>          <C> 
Return on Average Assets (2)......................................      0.58%        0.83%        1.08%        1.15%         0.97%
Return on Average Stockholders' Equity (2)(4).....................      7.02         7.58         6.17         9.82         11.19
Return on Average Tangible Stockholders' Equity (2)(4)............     10.10         9.18         6.17         9.82         11.19
Average Stockholders' Equity to Average Assets....................      8.24        10.92        17.60        11.68          8.65
Stockholders' Equity to Total Assets..............................      8.23         8.62        16.51        19.01          8.34
Tangible Stockholders' Equity to Tangible Assets..................      6.07         6.01        16.51        19.01          8.34
Core Deposits to Total Deposits...................................     37.40        41.68        36.12        49.08         47.92
Net Interest Spread...............................................      3.22         3.17         3.11         3.36          3.77
Net Interest Margin (5)...........................................      3.47         3.52         3.77         3.69          4.03
General and Administrative Expenses to Average Assets.............      1.66         1.81         1.97         1.82          1.80
Operating Income to Average Assets (6)............................      0.17         0.16         0.14         0.15          0.17
Average Interest-Earning Assets to
  Average Interest-Bearing Liabilities............................      1.06X        1.09X        1.20X        1.12X         1.08X

Selected Financial Ratios, Excluding SAIF
Recapitalization Assessment
Return on Average Assets (2)......................................      0.84%        0.83%        1.08%        1.15%         0.97%
Return on Average Stockholders' Equity (2)(4).....................     10.12         7.58         6.17         9.82         11.19
Return on Average Tangible Stockholders' Equity (2)(4)............     14.56         9.18         6.17         9.82         11.19

Asset Quality Ratios:
Non-Performing Loans to Total Loans (7)...........................      1.61%        1.58%        1.10%        1.08%         1.43%
Non-Performing Loans to Total Assets..............................      0.75         0.73         0.39         0.43          0.72
Non-Performing Assets to Total Assets (8)........................       0.77         0.82         0.56         0.78          1.25
Allowance for Loan Losses to Total Loans..........................      0.57         0.55         0.52         0.43          0.37
Allowance for Loan Losses to Non-Performing Loans.................     35.18        34.63        47.10        39.38         25.52

Other Data:

Number of Deposit Accounts....................................        164,121     164,368       68,617       63,416       67,143
Full-Service Banking Offices..................................             28          28           11           11           11
</TABLE>


(1)  For  1993,   amount  represents  only  retained   earnings,   substantially
     restricted,  and at June 30, 1997,  1996,  1995 and 1994 includes  retained
     earnings of $89.7 million $84.0  million,  $76.2 million and $70.1 million,
     respectively, substantially restricted.
(2)  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.
(3)  Earnings  per share for fiscal  year ended 1994 is based on net income from
     March 31, 1994 to June 30, 1994.
(4)  For  purposes  of these  calculations,  average  stockholder's  equity  and
     average stockholder's  tangible equity exclude the effect of changes in the
     unrealized  appreciation  (depreciation) on securities  available-for-sale,
     net of taxes.
(5)  Calculation  is based upon net interest  income  before  provision for loan
     losses divided by average interest-earning assets.
(6)  Operating income represents total non-interest income less net gain on sale
     of debt and equity securities.
(7)  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.
(8)  Non-performing  assets  consist  of  non-performing  loans and real  estate
     owned.



                                                                 11

<PAGE>


Reliance Bancorp, Inc.
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 and
repurchase  agreements.  In addition,  the Company completed the acquisitions of
the Bank of  Westbury,  a  Federal  Savings  Bank,  in August  1995 and  Sunrise
Bancorp, Inc. in January 1996, both of which were merged into the Bank. On May 5
1997, the Company  announced its planned  acquisition  of Continental  Bank. The
acquisition is subject to Continental  Bank's  stockholder  approval and certain
regulatory approvals. The Company had no operations prior to March 31, 1994 and,
accordingly,  the results of operations prior to that date reflect only those of
the Bank and its subsidiaries.

The Bank's  principal  business is attracting  retail  deposits from the general
public  and  investing  those  deposits,  together  with  funds  generated  from
operations  and  borrowings,  primarily in mortgage,  multi-family  and consumer
loans  (primarily  in the form of home  equity  loans and home  equity  lines of
credit, secured by one- to four-family,  owner occupied, residential properties,
auto and guaranteed  student  loans),  and to a lesser extent,  commercial  real
estate and construction  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 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 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.

Planned Acquisition of Continental Bank

On May 5, 1997,  the Company  announced  that it had entered  into a  definitive
agreement to acquire Continental Bank ("Continental"),  a commercial bank with 2
full  service  banking  offices  located in Nassau and Suffolk  counties in Long
Island,  New York, a commercial  lending facility and 5 check cashing facilities
in Manhattan. Under the terms of the agreement,  Reliance will issue 1.10 shares
of its common stock for each outstanding common share of Continental.  The total
transaction  value is estimated to be $24.2 million.  As of June 30, 1997, total
assets of Continental were $177.3 million, deposit were $136.2 million and total
stockholders' equity was $13.4 million. The merger is subject to the approval of
Continental shareholders, as well as certain regulatory approvals. The merger is
expected to be completed in the fourth  quarter of calendar  year 1997 and to be
accounted for under the purchase method of accounting.





                                                        12

<PAGE>



Financial Condition

Total assets increased $194.2 million,  or 10.9%,  from $1.8 billion at June 30,
1996 to $2.0  billion  at June 30,  1997.  The  growth in assets  was  primarily
attributable  to an increase in mortgage loans and  mortgage-backed  securities.
Mortgage loans  increased $84.6 million,  or 12.3%,  from $691.0 million at June
30, 1996 to $775.6  million at June 30, 1997.  The increase in mortgage loans is
primarily   due  to  increased   multi-family   loan   originations   offset  by
amortizations.   The  mortgage-backed   securities  portfolio  increased  $104.9
million,  or 13.5%,  from $776.2  million at June 30, 1996 to $881.2  million at
June 30, 1997 with the increase primarily due to increased  purchases of private
label  collateralized  mortgage  obligations  classified  as  available-for-sale
offset  by  amortization  and  prepayments.  As  a  result  of  these  increased
purchases,   mortgage-backed  securities   available-for-sale  increased  $130.1
million,  or 22.0%,  to $721.8 million at June 30, 1997,  from $591.7 million at
June 30, 1996, however,  mortgage-backed  securities  held-to-maturity decreased
$25.1 million,  or 13.6%, from $184.5 million at June 30, 1996 to $159.4 million
at June 30, 1997 as a result of continued  amortization of these securities.  At
June 30, 1997, the unrealized appreciation on securities available-for-sale, net
of taxes was $1.7 as compared to unrealized depreciation of $5.3 million at June
30, 1996. The increased  appreciation on the  available-for-sale  securities was
due to the lower  interest rate  environment at June 30, 1997 as compared to the
prior year end.

Funding for the purchases of mortgage-backed  securities and loans was through a
combination of new deposit growth, borrowings and cash flows. Deposits increased
$90.4  million,  or 6.7%,  from $1.3 billion at June 30, 1996 to $1.4 billion at
June 30,  1997.  The  increase in deposits is mainly the result of growth in new
certificate of deposit products.  Borrowings  increased $85.8 million, or 32.2%,
from  $266.2  million at June 30,  1996 to $351.9  million at June 30, 1997 as a
result of the Bank continuing to use borrowings to leverage its capital and fund
asset growth.

Non-performing  loans  increased $1.7 million,  or 13.1% from $13.0 million,  or
1.58% of total loans at June 30, 1996 to $14.7 million,  or 1.61% of total loans
at June 30, 1997.  The increase is primarily  due to two large  commercial  real
estate loans which became non-performing  during the year.  Non-performing loans
at June 30, 1997 were  comprised  of $11.0  million of loans  secured by one- to
four-family  residences,  $3.3 million of commercial real estate loans, $277,000
of  guaranteed  student  loans and  $188,000 of consumer  loans.  As a result of
decrease  in real  estate  owned and an  increased  asset  base,  the  Company's
non-performing  assets to total assets ratio  improved to 0.77% at June 30, 1997
from 0.82% at June 30, 1996.  The Company's  allowance for loan losses  totalled
$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  35.18%  and  0.57%,
respectively,  as compared to 34.63% and 0.55%,  respectively  at June 30, 1996.
For the fiscal  year ended  June 30,  1997,  the  Company  experienced  net loan
charge-offs  of $263,000 as compared to $176,000 in the prior year.  The Company
continues  to increase its loan loss  reserves  after  analyzing  non-performing
loans as well as the need to increase general valuation allowances on commercial
real estate and multi-family  loans.  Management believes the allowance for loan
losses at June 30,  1997 is  adequate  and  sufficient  reserves  are  presently
maintained to cover losses on any 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")
and consumer loans, shorter-term fixed rate multi-family,  mortgage 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  saturates with
short- and medium-term average lives


                                                        13

<PAGE>



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  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,  1997,  $873.6  million,  or 48.7%,  of the Bank's  interest-earning
assets consisted of adjustable-rate  loans and mortgage-backed  securities.  The
Bank's  mortgage  loan  portfolio  totalled  $775.6  million,  of which,  $415.8
million, or 53.6%, were adjustable-rate loans and $359.8 million, or 46.4%, were
fixed-rate  loans.  In addition,  at June 30,  1997,  the Bank's  consumer  loan
portfolio  totalled $138.9 million,  of which,  $109.9 million,  or 79.2%,  were
adjustable-rate  home equity lines of credit and  guaranteed  student  loans and
$28.9 million,  or 20.8%,  were fixed-rate home equity and other consumer loans.
At June 30, 1997,  the  mortgage-backed  securities  portfolio  totalled  $881.2
million of which $721.8 million was classified as available-for-sale  and $159.4
million was classified as held-to- maturity. Of the $721.8 million classified as
available-for-sale,  $244.2 million, or 33.8%, of the mortgage-backed  portfolio
were  adjustable-rate  securities and $477.6 million,  or 66.2%, were fixed-rate
securities.  Of  the  $159.4  million  classified  as  held-to-maturity,  $103.6
million,  or  65.0%,  of  the  mortgage-backed  portfolio  were  adjustable-rate
securities and $55.8 million,  or 35.0%,  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.

At June 30, 1997, the Bank's estimated one year interest  sensitivity "gap" (the
difference between assets that reprice or mature within such period expressed as
a percentage of total assets) was a negative $55.6 million, or (2.82)%, of total
assets, based on the following table setting forth the  interest-earning  assets
and  interest-bearing  liabilities  outstanding  at  June  30,  1997.  A gap  is
considered  positive when the amount of interest rate sensitive  assets maturing
or repricing  within a specified  time frame exceeds the amount of interest rate
sensitive  liabilities repricing or maturing within that same time period. A gap
is considered  negative when interest  rate  sensitive  liabilities  maturing or
repricing  within a specified  time period  exceeds the amount of interest  rate
sensitive assets repricing or maturing within that same time period. In a rising
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 cost 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.

Interest Rate Sensitivity Analysis

The  following  table sets  forth the  amounts  of  interest-earning  assets and
interest-bearing liabilities outstanding at June 30, 1997, which are anticipated
by the Bank, 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.  This table does not  necessarily  indicate  the impact of
general  interest rate  movements on the Bank's net interest  income because the
actual  repricing  of various  assets  and  liabilities  is subject to  customer
discretion and competitive and other pressures and, therefore, actual experience
may vary from that indicated.

                                                        14

<PAGE>

<TABLE>
<CAPTION>



                                                                                     June 30, 1997
                                            ---------------------------------------------------------------------------------------
                                                       More Than
                                                       3 Months    More Than     More Than     More Than
                                            Months       to 12      1 Year to    3 Years to    5 Years to    More Than
                                           or Less      Months      3 Years      5 Years       10 Years      10 Years     Total
                                           -------      ------      -------      -------       --------      --------     -----
Interest-Earning Assets:                                                     (Dollars in thousands)
<S>                                      <C>          <C>          <C>          <C>          <C>           <C>          <C>        
Mortgage Loans(1)(2).................... $  78,994    $ 190,182    $ 137,207    $ 182,506     $ 138,799    $  48,714    $ 776,402
Other Loans(1)(2).......................   103,715       19,479        8,878        2,941         2,051        1,051      138,115
Mortgage-Backed Securities(3)(2)........   205,471      256,890      140,716       79,433       103,229       86,355      872,094
Debt and Equity Securities(3)(2)........    15,683        1,200       11,290       10,000        30,000            8       68,181
                          -- --             ------       ------       ------       ------        ------       ------       ------
    Total Interest-Earning Assets.......   403,863      467,751      298,091      274,880       274,079      136,128    1,854,792
                                           -------      -------      -------      -------       -------      -------    ---------
 
Interest-Bearing Liabilities:
Passbook Accounts.......................    29,570       77,229      140,527       83,089        85,541       22,656      438,612
NOW Accounts............................     3,364        9,416       20,716       15,484        23,031        6,006       78,017
Money Market Accounts...................     7,093       18,334       32,573       17,446        15,044        1,694       92,184
Certificate of Deposit Accounts(2)......   229,270      294,539      244,981       36,726            --           --      805,516
Borrowed Funds..........................   178,468       79,945       33,500       60,000            --           --      351,913
                                           -------       ------       ------       ------                                 -------
    Total Interest-Bearing Liabilities..   447,765      479,463      472,297      212,745       123,616       30,356    1,766,242
                                           -------      -------      -------      -------       -------       ------    ---------

Interest Rate Sensitivity Gap........... $ (43,902)   $ (11,712)  $ (174,206)  $   62,135     $ 150,463    $ 105,772     $ 88,550
                                         =========    =========   ==========   ==========     =========    =========     ========
Cumulative Interest Rate Sensitivity Gap $ (43,902)   $ (55,614)  $ (229,820)  $ (167,685)    $ (17,222)   $  88,550
                                         =========    =========   ==========   ==========     =========    =========
Cumulative Interest Rate Sensitivity Gap
        as a Percentage of Total Assets..   (2.22)%      (2.82)%     (11.64)%      (8.49)%       (0.87)%        4.49%
Cumulative Net Interest-Earning Assets as
       a Percentage of Cumulative
        Interest-Bearing Liabilities.....    90.20%       94.00%       83.58%       89.60%        99.01%      105.01%
</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 discount, 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  $3.0  million  on  securities   classified  as
available-for-sale.

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

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


                                                        15

<PAGE>


<TABLE>
<CAPTION>

                                                                                                  Portfolio
                    Rates                           Net Portfolio Value                        Value of Assets
                   in Basis                --------------------------------------         ------------------------
                    Points                     $              $               %            NPV              %
                 (Rate Shock)               Amount         Change          Change         Ratio         Change (1)
                 ------------               ------         ------          ------         -----         ----------
                                                                  (Dollar in Thousands)
          <S>                               <C>           <C>               <C>           <C>             <C>   
           200......................        111,532       (42,668)          (27.7)         5.87           (25.2)
           100......................        130,237       (23,963)          (15.5)         6.75           (14.0)
           Static...................        154,200                                        7.85
           (100)....................        181,545        27,345            17.7          9.08            15.7
           (200)....................        185,149        30,949            16.7          9.17            16.8
</TABLE>

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

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

Analysis of Net Interest Income

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

The  following  table sets forth certain  information  relating to the Company's
consolidated  statements of condition and the consolidated  statements of income
for the years  ended June 30,  1997,  1996,  and 1995 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.



















                                                        16

<PAGE>

<TABLE>
<CAPTION>


                                                                                Year Ended June 30,
                                            ---------------------------------------------------------------------------------------
                                                       1997                           1996                          1995
                                            --------------------------    --------------------------    ---------------------------
                                            Average             Yield/    Average              Yield/   Average               Yield/
                                            Balance   Interest   Cost     Balance   Interest    Cost    Balance    Interest    Cost
                                            -------   --------   ----     -------   --------    ----    -------    --------    ----
                                                                                (Dollars in thousands)
<S>                                      <C>         <C>         <C>   <C>          <C>         <C>    <C>         <C>         <C>
Assets:                                                                                  
 Interest-Earning Assets:
 Mortgage Loans, Net .................   $  709,471  $ 56,948    8.03% $  473,427   $ 39,073    8.25%  $226,299     $17,701    7.82%
 Consumer and Other Loans, Net .......      133,965    11,525    8.60     121,565     10,942    9.00    104,754       9,540    9.11
 Mortgage-Backed Securities (1) ......      850,094    59,392    6.99     685,348     46,084    6.72    459,468      29,469    6.41
 Money Market Investments ............       11,590       618    5.33      17,349        991    5.71     14,590         804    5.51
 Debt and Equity Securities (1) ......       68,824     4,806    6.98      49,203      3,282    6.67     67,508       3,746    5.55
                                            ------     -----                ------     -----             ------       -----    
    Total Interest-Earning
            Assets ...................    1,773,944   133,289    7.51   1,346,892    100,372    7.45    872,619      61,260    7.02
                                                      -------                        -------                         ------    
Non-Interest Earning Assets ..........       96,082                        63,883                        21,930
                                             ------                        ------                        ------
        Total Assets..........           $1,870,026                    $1,410,775                      $894,549
                                          =========                     =========                       =======
Liabilities and Stockholders'Equity:
 Interest-Bearing Liabilities:
 Passbook Accounts ...................   $  441,922    10,937    2.47    $353,617      8,942    2.53   $236,047       5,926    2.51
 NOW Accounts ........................       80,121     1,041    1.30      58,576      1,161    1.98     25,275         485    1.92
 Money Market Accounts ...............       99,536     2,493    2.50      97,975      2,515    2.57     91,051       2,283    2.51
 Certificate of Deposit Accounts .....      737,018    39,668    5.38     547,562     29,807    5.44    267,340      13,318    4.98
 Borrowed Funds ......................      311,363    17,514    5.62     180,055     10,560    5.87    105,657       6,349    6.01
                                            -------    ------    ----     -------     ------    ----    -------       -----    ----
        Total Interest-Bearing
          Liabilities ................    1,669,960    71,653    4.29   1,237,785     52,985    4.28    725,370      28,361    3.91
Non-Interest Bearing Liabilities .....       46,036    ------              18,919     ------             11,719      ------
                                             ------                        ------                        ------
          Total Liabilities ..........    1,715,996                     1,256,704                       737,089

  Stockholders' Equity ...............      154,030                       154,071                       157,460
                                            -------                       -------                       -------
          Total Liabilities and
            Stockholders' Equity.        $1,870,026                    $1,410,775                      $894,549
                                         ==========                    ==========                      ========

  Net Interest Income/Interest
    Rate Spread (2) ..................                $61,636   3.22%                $47,387    3.17%               $32,899    3.11%
                                                      =======   ====                  ======    ====                =======    =====

  Net Interest-Earning Assets/
    Net Interest Margin (3) ..........   $  103,984             3.47%    $109,107               3.52%  $147,249                3.77%
                                         ==========             ====     ========               ====   ========                =====
  Ratio of Interest-Earning Assets to
   Interest-Bearing Liabilities ......                          1.06X                           1.09X                          1.20X
                                                                ====                            ====                           ==== 
</TABLE>

(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.









                                                               17

<PAGE>

<TABLE>
<CAPTION>


                                                    Year Ended June 30, 1997                  Year Ended June 30, 1996
                                                          Compared to                               Compared to
                                                    Year Ended June 30, 1996                  Year Ended June 30, 1995
                                               --------------------------------          ---------------------------------
                                                       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..................    $ 18,945     $ (1,070)    $ 17,875          $ 20,347      $ 1,025      $ 21,372
     Consumer and Other Loans, Net........       1,083         (500)         583             1,518         (116)        1,402
     Mortgage-Backed Securities...........      11,402        1,906       13,308            15,127        1,488        16,615
     Money Market Investments.............        (309)         (64)        (373)              156           31           187
     Debt and Equity Securities...........       1,365          159        1,524            (1,133)         669          (464)
                                                 -----          ---        -----            ------          ---          ---- 
          Total...........................      32,486          431       32,917            36,015        3,097        39,112
                                                ------          ---       ------            ------        -----        ------
                                           
Interest-Bearing Liabilities:
     Passbook Accounts....................       2,210         (215)       1,995             2,969           47         3,016
     NOW Accounts.........................         350         (470)        (120)              660           16           676
     Money Market Accounts................          43          (65)         (22)              177           55           232
     Certificate of Deposits Accounts.....      10,193         (332)       9,861            15,154        1,335        16,489
     Borrowed Funds.......................       7,421         (467)       6,954             4,363         (152)        4,211
                                                 -----         ----        -----             -----         ----         -----
          Total...........................      20,217       (1,549)      18,668            23,323        1,301        24,624
                                                ------       ------       ------            ------        -----        ------
Net Change in Net Interest Income.........    $ 12,269      $ 1,980     $ 14,249          $ 12,692      $ 1,796      $ 14,488
                                              ========      =======     ========          ========      =======      ========
</TABLE>


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 $ 4.9  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
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

                                                        18

<PAGE>



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.

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

                                                        19

<PAGE>



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 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.

Income Tax Expense. Income tax expense increased $192,000 million, 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.

Comparison of Operating Results for the Years Ended June 30, 1996 and 1995.

General.  Net income for fiscal  1996 was $11.7  million,  an  increase  of $2.0
million, or 20.8%, from $9.7 million for fiscal 1995. Net income for fiscal 1996
and  fiscal  1995  represent  a return on  average  assets  of 0.83% and  1.08%,
respectively, and a return on average equity of 7.58% and 6.17%, respectively.

Interest  Income.  Interest income  increased by $39.1 million,  or 63.8%,  from
$61.3 million for fiscal 1995, to $100.4  million for fiscal 1996.  The increase
resulted  primarily from a $474.3 million  increase in average  interest-earning
assets from $872.6  million for fiscal 1995 to $1.3  billion for fiscal 1996 and
from a 43 basis point increase in the average yield of  interest-earning  assets
from 7.02% in fiscal 1995 to 7.45% in fiscal  1996.  The increase in the average
interest-earning  assets was  primarily  due to assets  acquired  in the Bank of
Westbury  and  Sunrise   Bancorp,   Inc.   acquisitions.   Interest   income  on
mortgage-backed securities increased $16.6 million, or 56.4%, from $29.5 million
for fiscal 1995 to $46.1  million for fiscal 1996,  primarily due to an increase
of $225.9 million, or 49.2%, in the average balance of these securities,  and an
increase in the average yield on these  securities of 31 basis points from 6.41%
for  fiscal  1995 to 6.72%  for  fiscal  1996 due to upward  repricing  of these
assets.  Mortgage-backed  securities  generally  bear interest  rates lower than
loans.  Accordingly,  to the extent  the demand for loans  which meet the Bank's
underwriting  standard  remains low and the Company  continues  to increase  its
investments in mortgage-backed securities, yields on interest-earning assets may
tend to be lower than if loan demand were to be stronger.  Interest  income from
mortgage loans increased by $21.4 million,  or 120.7%,  due to a $247.1 million,
or 109.2%, increase in the average balance of mortgage loans and from a 43 basis
point increase in the average yield on mortgage loans from 7.82% for fiscal 1995
to 8.25% for  fiscal  1996.  The  increase  in the  average  mortgage  loans was
primarily  due to loans  acquired in the Bank of Westbury  and Sunrise  Bancorp,
Inc. acquisitions and increased originations of multi-family loans. The increase
in the  average  yield  resulted  primarily  from the  upward  repricing  of the
Company's  adjustable-rate  loans and higher  rates  earned on the  multi-family
loans.


                                                        20

<PAGE>



Interest  Expense.  Interest  expense  for  fiscal  1996 was $53.0  million,  an
increase of $24.6 million,  or 86.8%, from the $28.4 million recorded for fiscal
1995.  The  increase  is  primarily  the result of a $512.4  million,  or 70.6%,
increase  in the average  balance of  interest-bearing  liabilities  from $725.4
million  for fiscal  1995 to $1.2  billion  for fiscal  1996 and from a 37 basis
point increase in the cost of interest-bearing liabilities from 3.91% for fiscal
1995  to  4.28%  for  fiscal  1996.  The  increase  in the  average  balance  of
interest-bearing  liabilities was primarily due to deposits acquired in the Bank
of Westbury and Sunrise Bancorp,  Inc.  acquisitions and additional  borrowings.
Interest expense on total deposits increased $20.4 million, or 92.7%, from $22.0
million for fiscal 1995 to $42.4 million for fiscal 1996,  primarily as a result
of a $426.3  million,  or 68.8% increase in the average balance of deposits from
$619.7 million in fiscal 1995 to $1.0 billion in fiscal 1996 and from a 46 basis
point increase in the average cost of such deposits from 3.55% in fiscal 1995 to
4.01% in fiscal  1996.  The  increase in the average  cost of deposits  resulted
primarily from the Bank  competitively  raising interest rates on certificate of
deposit  accounts to attract new deposits.  The average  balance of  certificate
accounts  increased  $280.2 million,  or 104.8%,  from $267.3 million for fiscal
1995 to $547.6  million for fiscal  1996.  In  addition  to the  increase in the
average balance of certificates  accounts,  the average balance of core deposits
also increased $150.9 million,  or 57.7%, from $261.3 million for fiscal 1995 to
$412.2 million for fiscal 1996. The increase  relates to core deposits  acquired
in the Bank of Westbury and Sunrise Bancorp, Inc. acquisitions which resulted in
the core deposit ratio increasing from 36.12% at June 30, 1995 to 41.68% at June
30, 1996.  Interest expense on borrowed funds increased $4.2 million,  or 66.3%,
from $6.3 million for fiscal 1995 to $10.6  million for fiscal 1996.  Borrowings
averaged $180.0 million for fiscal 1996, an increase of $74.4 million, or 70.4%,
from the $105.7  million  for fiscal  1995.  The  Company  continues  to utilize
borrowed  funds to grow,  leveraging the Bank's capital and improving the return
on equity. Borrowed funds,  principally from the FHLB- NY and reverse repurchase
agreements,  have been  invested by the  Company  primarily  in  mortgage-backed
securities and multi-family loans.

Net  Interest  Income.  Net  interest  income for fiscal  1996  increased  $14.5
million,  or 44.0%,  from $32.9  million  for fiscal  1995 to $47.4  million for
fiscal  1996.  The  increase  in net  interest  income  primarily  relates to an
increase in the net interest spread coupled with the  significant  growth in the
average balances of interest-earning  assets and  interest-bearing  liabilities.
The net interest rate spread  increased  from 3.11% for fiscal 1995 to 3.17% for
fiscal  1996 as a result  of higher  yielding  loans  acquired  from the Bank of
Westbury and Sunrise Bancorp, Inc. acquisitions. Average interest-earning assets
increased $474.3 million,  or 54.4%,  from $872.6 million in fiscal 1995 to $1.3
billion in fiscal  1996 while  average  interest-bearing  liabilities  increased
$512.4 million,  or 70.6%,  from $725.4 in fiscal 1995 to $1.2 billion in fiscal
1996. As a result of leveraging  the Bank's  capital with the two  acquisitions,
net interest margin decreased from 3.77% in fiscal 1995 to 3.52% in fiscal 1996.
In addition,  the ratio of average  interest-earning  assets to interest-bearing
liabilities declined from 1.20X in fiscal 1995 to 1.09X in fiscal 1996.

Provision  for Loan Losses.  The  provision  for loan losses for fiscal 1996 was
$725,000,  and increase of $325,000,  or 81.3%,  from  $400,000 for fiscal 1995.
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 $3.7 million at
the end of  fiscal  1995 to  $13.0  million  at the end of  fiscal  1996 and net
charge-offs  increased from $88,000 for fiscal 1995 to $176,000 for fiscal 1996.
Management increased the provision for loan losses during fiscal 1996 due to its
assessment  of the  loan  portfolio  and  to  increase  loan  loss  coverage  on
non-performing loans acquired from Sunrise Bancorp, Inc. and Bank of Westbury to
bring such reserves in line with Company  policy.  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.

Non-Interest Income. Non-interest income for fiscal 1996 increased $1.9 million,
or 147.4%,  from $1.2  million for fiscal 1995 to $3.1  million for fiscal 1996.
The increase in non-interest income relates to a gain of $678,000 in fiscal 1996
from the sale of mortgage-backed  securities classified as available-for-sale in
order to fund the purchase of Sunrise  Bancorp,  Inc. In addition,  the increase
relates to  increased  servicing  income,  deposit  fee income and a recovery of
claim which was previously written off.

Non-Interest Expense. Non-interest expense totalled $28.1 million for the fiscal
year ended June 30, 1996 as compared to $17.2  million for the fiscal year ended
June 30, 1995, an increase of $10.9  million,  or 63.3%.  The increase is mainly
the result of banking office  personnel,  deposit insurance  premiums,  goodwill
amortization and other

                                                        21

<PAGE>



occupancy costs associated with the Sunrise  Bancorp,  Inc. and Bank of Westbury
acquisitions,  however,  the operating expense to average assets ratio decreased
from 1.97% for the fiscal  year ended June 30, 1995 to 1.81% for the fiscal year
ended June 30, 1996  primarily due to the increased  asset base and  acquisition
related efficiencies.  For the fiscal year ended June 30, 1996, compensation and
benefits  expense  increased to $13.4 million,  an increase of $3.8 million,  or
40.1%,  from $9.6 million for the fiscal year ended June 30, 1995.  The increase
in  compensation  and benefits  expense is due to the addition of banking office
personnel  from the Sunrise  Bancorp,  Inc.  and Bank of Westbury  acquisitions,
higher benefit expenses and normal salary  adjustments.  Occupancy and equipment
expense increased $2.0 million,  or 82.0%, from $2.5 million for the fiscal year
ended June 30, 1995 to $4.5  million for the fiscal year ended June 30, 1996 due
to costs  associated  with the operation of the seventeen new banking offices as
well as miscellaneous  data processing costs. For the fiscal year ended June 30,
1996,  advertising  totalled $1.2  million,  the same as recorded for the fiscal
year ended June 30,  1995.  The Company  maintained  the same level of newspaper
advertising  for its Home Equity  Line of Credit and deposit  products as in the
prior year. Other operating expenses increased $1.2 million, or 37.2%, from $3.0
million  during the fiscal  year ended  June 30,  1995 to $4.2  million  for the
fiscal year ended June 30, 1996 as a result of general  expenses  related to the
addition of the seventeen new banking offices.

For the  fiscal  year ended June 30,  1996,  real  estate  owned  expenses  were
$579,000  as  compared  to income of  $385,000  in the prior  year  period.  The
increase in real estate owned expenses primarily relates to the reduction in net
gains on the sale of real estate  owned from  $657,000 in fiscal 1995 to $19,000
in fiscal  1996.  In addition,  during the fiscal year ended June 30, 1996,  the
Bank  established  a provision for REO losses of $375,000 as compared to $60,000
for the prior  year  period.  Additional  reserves  on real  estate  owned  were
established  in order to facilitate  the sale of such  properties in the current
market place.

During fiscal year 1996, the Bank recognized amortization of excess of cost over
fair value of net assets acquired of $1.9 million as compared to no amortization
in fiscal 1995. 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.

Income Tax Expense.  Income tax expense  increased $3.1 million,  or 45.4%, from
$6.8  million for fiscal 1995 to $9.9  million for fiscal  1996.  The  effective
income tax rate was 45.9% for fiscal 1996 as compared to 41.4% for fiscal  1995.
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 and other employee benefit expenses.

Liquidity and Capital Resources

The  Company's  current  primary  sources of funds are  principal  and  interest
payments and sales of  securities  available-  for-sale 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
year 1996 and 1995, the Bank did not make any dividend  payments to the Company.
During  fiscal  1997,  the Bank made a dividend  payment of $6.7  million to the
Company.

The Company's liquidity is also available to, among other things, support future
expansion of operations or diversification  into other banking related business,
payments of dividends  or  repurchase  its common  stock.  In this  regard,  the
Company declared cash dividends of $4,930,000,  $3,924,000 and $3,641,000 during
fiscal year 1997, 1996 and 1995, respectively.

During fiscal 1995, the Company  repurchased 998,930 shares at an aggregate cost
of $13,040,000.  During fiscal 1996 the Company repurchased 260,776 shares at an
aggregate  cost of  $3,829,000.  On April 4, 1997,  the  Company  announced  the
approval  of its fifth five  percent  stock  repurchase  plan  which  allows the
Company to repurchase up to 441,138 common shares.  As of June 30, 1997,  80,000
shares under this program were  repurchased  at an aggregate cost of $1,831,000.
During fiscal 1997, the Company  repurchased 442,182 shares at an aggregate cost
of $8,113,000.

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

                                                        22

<PAGE>



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 and
short-term  liquid assets as a percentage of net  withdrawable  deposit accounts
plus short-term  borrowings as defined by OTS regulations.  The minimum required
liquidity  and  short-term   liquidity  ratios  are  currently  5.0%  and  1.0%,
respectively.  The Bank's  liquidity and short-term  liquidity  ratios  averaged
5.29% and 1.65%,  respectively,  for the fiscal  year ended June 30,  1997.  The
Bank's short-term liquidity ratio was 2.33% at June 30, 1997.

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, 1997,
assets  qualifying  for  short-term  liquidity,  including  cash and short  term
investments, totalled $40.0 million.

The primary investment activity of the Bank is the origination of mortgage loans
and  consumer  loans,  and the  purchase of mortgage  loans and  mortgage-backed
securities.  During the fiscal year ended June 30, 1997, the Bank originated and
purchased  mortgage loans and consumer loans in the amount of $179.3 million and
$47.7  million,  respectively.  During the fiscal year ended June 30, 1997,  the
Bank purchased  $277.5 million of  mortgage-backed  securities all of which were
classified  as  available-for-sale  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 and reverse repurchase agreements. At June 30, 1997, borrowings from the
FHLB-NY and reverse  repurchase  agreements  totalled  $40.0  million and $311.9
million, respectively.

At June 30, 1997, the Bank had outstanding loan commitments of $26.7 million and
open lines of credit of $53.4 million.  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, 1997 totalled  $524.7 million.  Management  believes that a significant
portion of such deposits will remain with the Bank.

At June 30, 1997,  the Bank exceeded each of the OTS capital  requirements.  The
Bank's  tangible,  core, and risked- based ratios were 5.60%,  5.60% and 15.16%,
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.

Impact of New Accounting Standards

During fiscal year 1997, the Company adopted  Statement of Financial  Accounting
Standards No. 121,  "Accounting for the Impairment of Long-Lived  Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS No. 121), SFAS No. 122,  "Accounting
for Mortgage  Servicing  Rights and SFAS No. 125,  "Accounting  for Transfer and
Servicing of Financial Asset and  Extinguishment of Liabilities".  The Company's
adoption of these  accounting  pronouncements  did not have a material impact on
its financial condition or results of operation.

In February  1997, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
No. 128").  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

                                                        23

<PAGE>



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.  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.  SFAS No. 128 is
effective for financial  statements issued for periods ending after December 15,
1997 and requires the restatement of all prior-period  EPS data presented.  Upon
adoption of SFAS No. 128,  the change from  primary EPS to basic EPS will result
in a modest increase in this EPS presentation, but will not result in a material
change in the EPS presentation from fully diluted to diluted EPS.

In June 1997, the FASB issued  Statement of Financial  Accounting  Standards No.
130,  "Reporting  Comprehensive  Income" ("SFAS No. 130"). 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 owner".  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  Statement of Financial  Accounting  Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS
No.131").  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.

Impact of Legislation

Recapitalization  of SAIF  Fund.  Legislation  was  signed  into law  during the
quarter ended  September  30, 1996 to mitigate the effect of the Bank  Insurance
Fund ("BIF") and Savings Association  Insurance Fund ("SAIF") premium disparity.
Under the legislation a special assessment was imposed on the amount of deposits
held by SAIF-member  institutions,  including the Bank, as of a specified  date,
March 31, 1995, to  recapitalize  the SAIF.  The special  assessment was paid on
November 27, 1996. The amount of the special  assessment  determined by the FDIC
was 65.7 basis  points of insured  deposits.  As a result of  enactment  of this
legislation  on September 30, 1996,  the Bank recorded a one-time  non-recurring
charge pre-tax of $8.25 million.  As a result of recognition of such charge, the
Company  recorded a net loss for the  quarter  ended  September  30,  1996 which
resulted  in a  reduction  of  retained  earnings.  The  payment of the  special
assessment  had the effect of  immediately  reducing the capital of  SAIF-member
institutions,  net of any tax effect;  however,  the Bank remained in compliance
with its regulatory  capital  requirements.  This  legislation  also spreads the
obligation  for payment of the Financing  Corporation  ("FICO") bonds across all
SAIF and BIF members.  As of January 1, 1997,  BIF  deposits  will be assessed a
FICO payment of 1.3 basis points,  while SAIF deposits will pay an estimated 6.4
basis points on the FICO bonds.  Full pro rata sharing of the FICO payments will
occur on the earlier of January 1, 2000 or the date the BIF and SAIF are merged.
This  legislation  specifies  that the BIF and SAIF will be merged on January 1,
1999 provided no savings associations remain as of that time.

As a result of this legislation, the FDIC recently lowered SAIF assessments to 0
to 27 basis points effective  January 1, 1997, a range comparable to that of BIF
members.  However,  SAIF members will  continue to make the higher FICO payments
described  above.   Management  cannot  predict  the  level  of  FDIC  insurance
assessments on an on-going basis,  whether the savings  association charter will
be eliminated or whether the BIF and SAIF will eventually be merged.


                                                        24

<PAGE>



Reliance Bancorp, Inc. and Subsidiary
Consolidated Statements of Condition
------------------------------------
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
                                                                                                 June 30,
                                                                                          --------------------
                                                                                           1997          1996
                                                                                           ----          ----
Assets
<S>                                                                                  <C>            <C>        
Cash and Due from Banks............................................................. $    29,565    $    22,420
Money Market Investments............................................................       1,100         10,450
Debt and Equity Securities Available-for-Sale.......................................      26,909         13,271
Debt and Equity Securities Held-to-Maturity (with estimated
   market values of $46,152 and $48,036, respectively)..............................      46,026         48,330
Mortgage-Backed Securities Available-for-Sale.......................................     721,819        591,740
Mortgage-Backed Securities Held-to-Maturity (with estimated
   market values of $163,108 and $184,995, respectively)............................     159,356        184,492
Loans receivable:
     Mortgage Loans.................................................................     775,612        690,967
     Consumer and Other Loans.......................................................     138,891        131,274
       Less Allowance for Loan Losses...............................................      (5,182)        (4,495)
                                                                                          ------         ------ 
             Loans Receivable, Net..................................................     909,321        817,746

Accrued Interest Receivable, Net....................................................      12,040         11,312
Office Properties and Equipment, Net................................................      14,089         13,821
Prepaid Expenses and Other Assets...................................................       7,580         14,070
Mortgage Servicing Rights...........................................................       3,046          3,905
Excess of Cost Over Fair Value of Net Assets Acquired...............................      45,463         49,429
Real Estate Owned, Net..............................................................         450          1,564
                                                                                             ---          -----
             Total Assets...........................................................  $1,976,764     $1,782,550
                                                                                      ==========     ==========

Liabilities and Stockholders' Equity
Deposits............................................................................  $1,436,037     $1,345,626
FHLB Advances.......................................................................      40,000          3,000
Securities Sold Under Agreements to Repurchase......................................     311,913        263,160
Advance Payments by Borrowers for Taxes and Insurance...............................       9,017          8,846
Accrued Expenses and Other Liabilities..............................................      17,127          8,299
                                                                                          ------          -----
             Total Liabilities......................................................   1,814,094      1,628,931
                                                                                       ---------      ---------

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; 8,776,337 and 9,128,739
   Outstanding, Respectively........................................................         108            108
Additional Paid-in Capital..........................................................     105,871        104,041
Retained Earnings, Substantially Restricted.........................................      89,660         83,966
Net, Unrealized Appreciation (Depreciation) on Securities
   Available-for-Sale, Net of Taxes.................................................       1,705         (5,281)
Less:
Unallocated Common Stock Held by ESOP...............................................      (5,382)        (6,210)
Unearned Common Stock Held by Recognition and Retention Plans (RRPs)................      (1,567)        (2,392)
Common Stock Held by SERP, at Cost (11,021 shares)..................................        (209)            --
Treasury Stock, at Cost (1,974,483 and 1,622,081 shares, respectively)..............     (27,516)       (20,613)
                                                                                         -------        ------- 
     Total Stockholders' Equity.....................................................     162,670        153,619
                                                                                         -------        -------

            Total Liabilities and Stockholders' Equity..............................  $1,976,764     $1,782,550
                                                                                      ==========     ==========
                           See accompanying notes to consolidated financial statements.
</TABLE>

                                                        25

<PAGE>



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

                                                                                           Year Ended June 30,
                                                                                ----------------------------------------
                                                                                 1997             1996             1995
                                                                                 ----             ----             ----
Interest Income:
<S>                                                                           <C>                <C>             <C>    
    First Mortgage Loans.............................................         $ 56,948           $39,073         $17,701
    Consumer and Other Loans.........................................           11,525            10,942           9,540
    Mortgage-Backed Securities.......................................           59,392            46,084          29,469
    Money Market Investments.........................................              618               991             804
    Debt and Equity Securities.......................................            4,806             3,282           3,746
                                                                                 -----             -----           -----
          Total Interest Income......................................          133,289           100,372          61,260

Interest Expense:
    Deposits.........................................................           54,139            42,425          22,012
    Borrowed Funds...................................................           17,514            10,560           6,349
                                                                                ------            ------           -----
          Total Interest Expense.....................................           71,653            52,985          28,361
    Net Interest Income Before Provision for Loan Losses.............           61,636            47,387          32,899
Provision for Loan Losses............................................              950               725             400
                                                                                   ---               ---             ---
    Net Interest Income After Provision for Loan Losses..............           60,686            46,662          32,499
                                                                                ------            ------          ------

Non-Interest Income:
    Loan Fees and Service Charges....................................              683               826             269
    Other Operating Income...........................................            2,557             1,606             841
    Net Gain on Securities...........................................              172               678             147
                                                                                   ---               ---             ---
          Total Non-Interest Income..................................            3,412             3,110           1,257
                                                                                 -----             -----           -----

Non-Interest Expense:
    Compensation and Benefits........................................           16,509            13,395           9,562
    Occupancy and Equipment..........................................            5,719             4,481           2,462
    Federal Deposit Insurance Premiums...............................            1,813             2,399           1,376
    Advertising......................................................            1,168             1,152           1,158
    Other Operating Expenses.........................................            5,778             4,169           3,039
                                                                                 -----             -----           -----
          Total General and Administrative Expenses..................           30,987            25,596          17,597
    Real Estate Operations, Net......................................              383               579            (385)
    Amortization of Excess of Cost Over Fair Value
      of Net Assets Acquired.........................................            3,404             1,928              --
    SAIF recapitalization charge.....................................            8,250                --              --
                                                                                 -----            ------          ------            
          Total Non-Interest Expense.................................           43,024            28,103          17,212
                                                                                ------            ------          ------
Income Before Income Taxes...........................................           21,074            21,669          16,544
Income Tax Expense ..................................................           10,138             9,946           6,842
                                                                                ------             -----           -----
Net Income ..........................................................          $10,936           $11,723         $ 9,702
                                                                               =======           =======         =======

Net Income per Common Share:
             Primary.................................................         $   1.24          $   1.31           $1.03
                                                                              ========          ========           =====
             Fully Diluted...........................................         $   1.21          $   1.31         $  1.03
                                                                              ========          ========         =======
</TABLE>

      See accompanying notes to consolidated financial statements.

                                                            26

<PAGE>



Reliance Bancorp, Inc. and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
----------------------------------------------------------
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
                                                                                  Year Ended June 30,
                                                                             --------------------------------
                                                                             1997         1996           1995
                                                                             ----         ----           ----
<S>                                                                       <C>          <C>            <C>
Common Stock (Par Value: $.01):
  Balance at Beginning and End of Year............................        $   108      $     108      $     108
                                                                          -------      ---------      ---------

Additional Paid in Capital:
  Balance at Beginning of Year....................................        104,041        103,655        103,479
  Allocation of ESOP Stock and Earned Portion of RRPs.............            868            386            176
  Common Stock Acquired by SERP...................................            209             --             --
  Tax Benefits on Stock Plans.....................................            753             --             --
                                                                          -------        -------        -------
  Balance at End of Year..........................................        105,871        104,041        103,655
                                                                          -------        -------        -------

Retained Earnings, Substantially Restricted:
  Balance at Beginning of Year....................................         83,966         76,167         70,106
  Net Income......................................................         10,936         11,723          9,702
  Dividends Declared..............................................         (4,930)        (3,924)        (3,641)
  Loss on Reissuance of Treasury Stock............................           (312)            --             --
                                                                           -------        ------         ------ 
  Balance at End of Year..........................................         89,660         83,966         76,167
                                                                           ------         ------         ------
                                                                           
Net Unrealized Appreciation (Depreciation) on
 Securities Available-for-Sale, Net of Tax:
  Balance at Beginning of Year....................................         (5,281)           839           (118)
  Unrealized Appreciation on Securities Transferred from
     Held-to-Maturity to Available-for-Sale.......................             --          1,144             --
  Change in Net Unrealized Appreciation
    (Depreciation), Net of Tax....................................          6,986         (7,264)           957
                                                                           -------        -------        ------
  Balance at End of Year..........................................          1,705         (5,281)           839
                                                                           -------        -------        ------
Unallocated Common Stock Held by ESOP:
  Balance at Beginning of Year....................................         (6,210)        (7,038)        (8,004)
  Allocation of ESOP Stock........................................            828            828            966
                                                                           -------        ------         ------- 
  Balance at End of Year..........................................         (5,382)        (6,210)        (7,038)
                                                                           -------        -------        -------
Unearned Common Stock Held by RRPs:
  Balance at Beginning of Year....................................         (2,392)        (3,214)        (3,976)
  Earned Portion of RRPs..........................................            825            822            762
                                                                           -------        -------        -------
  Balance at End of Year..........................................         (1,567)        (2,392)        (3,214)
                                                                           -------        -------        -------
Supplemental Executive Retirement Plan:
   Balance at Beginning of Year...................................             --             --             --
   Common Stock Acquired by SERP (11,021 shares)..................           (209)            --             --
                                                                           -------        ------        -------
   Balance at End of Year.........................................           (209)            --             --
                                                                           -------        ------        -------
Treasury Stock:
   Balance at Beginning of Year...................................        (20,613)       (16,784)        (3,744)
   Common Stock Purchased, at Cost (442,182, 260,776 and
     998,930 shares)..............................................         (8,113)        (3,829)       (13,040)
   Exercise of Stock Options......................................          1,210             --             --
                                                                           -------       --------       --------
   Balance at End of Year.........................................        (27,516)       (20,613)       (16,784)
                                                                           -------       --------       --------
  Total Stockholders' Equity......................................      $ 162,670       $ 153,619     $ 153,733
                                                                        =========       =========     =========
</TABLE>

       See accompanying notes to consolidated financial statements.

                                                            27

<PAGE>



Reliance Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
-------------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>

                                                                                            Year Ended June 30,
                                                                                    -----------------------------------
                                                                                    1997           1996            1995
                                                                                    ----           ----            ----
Cash Flows From Operating Activities:
<S>                                                                              <C>             <C>             <C>    
 Net Income..................................................................    $ 10,936        $ 11,723        $ 9,702
 Adjustments to Reconcile Net Income to Net Cash
  Provided by Operating Activities:
   Provision for Loan Losses.................................................         950             725            400
   Provision for Losses on Real Estate Owned ................................         200             375             60
   Amortization of Premiums (Accretion of Discounts), Net....................       1,448            (567)        (1,459)
   Net Gain on Securities....................................................        (172)           (678)          (147)
   Expense Charge Relating to Allocation and Earned
       Portions of Stock Plans...............................................       2,521           2,036          1,904
   Amortization of Excess of Cost Over Fair Value of
        Net Assets Acquired .................................................       3,404           1,928             --
   Amortization of Mortgage Servicing Rights.................................         859             240             --
   Acquisition Related Tax Benefits not Previously Recognized................         562              --             --
   Depreciation and Amortization.............................................       1,417           1,027            467
   Net Gain on Loans Sold....................................................         (28)            (30)            --
   Net Gain on Sale of Real Estate Owned.....................................         (56)            (19)          (657)
   (Increase) Decrease in Accrued Interest  Receivable.......................        (728)            738         (1,657)
   Decrease (Increase) in Prepaid Expenses and Other Assets..................       3,174           3,037           (263)
   Increase (Decrease) in Accrued Expenses and
     Other Liabilities.......................................................       7,164          (6,413)         1,318
                                                                                    -----          ------          -----
       Net Cash Provided by Operating  Activities............................      31,651          14,122          9,668
                                                                                   ------          ------          -----

Cash Flows From Investing Activities:
 Originations and Purchased Loans, Net of Principal Repayments...............    (101,583)        (44,258)        (3,820)
 Purchases of Mortgage-Backed Securities Held-to-Maturity....................          --         (16,472)       (63,894)
 Purchases of Mortgage-Backed Securities Available-for-Sale..................    (277,483)       (382,645)      (105,654)
 Proceeds from Sales of Mortgage-Backed Securities Available-for-Sale........      59,810         180,590             --
 Principal Repayments from Mortgage-Backed Securities........................     123,823         148,059         47,586
 Proceeds from Call of Debt Securities.......................................       7,313          21,800             --
 Proceeds from Sales of Debt and Equity Securities Available-for-Sale........       5,028          29,245         11,146
 Purchases of Debt Securities Available-for-Sale.............................     (19,715)             --        (19,654)
 Purchases of Debt and Equity Securities Held-to-Maturity....................      (5,007)        (20,000)        (1,296)
 Proceeds from Maturities of Debt Securities.................................       1,350          28,100         40,338
 Purchases of Premises and Equipment.........................................      (1,734)         (2,595)        (1,610)
 Proceeds from Loans Sold....................................................       7,303           5,860          1,481
 Proceeds from Sale of Real Estate Owned ....................................       1,899           1,715          2,572
 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.................................        (198,996)       (145,025)       (92,805)
                                                                                 --------        --------        ------- 
</TABLE>











                                                            28

<PAGE>



Reliance Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows, Continued
------------------------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>


                                                                                              Year Ended June 30,
                                                                                     ----------------------------------
                                                                                     1997           1996           1995
                                                                                     ----           ----           ----
Cash Flows from Financing Activities:
<S>                                                                              <C>             <C>            <C>     
 Increase in Deposits........................................................    $ 91,009        $ 44,558       $ 83,096
 Increase (Decrease) in Advance Payments by Borrowers
    for Taxes and Insurance..................................................         171          (9,210)           (12)
 Proceeds from FHLB Advances.................................................      60,000              --        344,000
 Repayment of FHLB Advances..................................................     (23,000)        (87,000)      (382,000)
 Proceeds from Reverse Repurchase Agreements.................................   1,177,298         824,727         98,694
 Repayment of Reverse Repurchase Agreements..................................  (1,128,545)       (618,602)       (41,659)
 Purchase of Treasury Stock..................................................      (8,113)         (3,829)       (13,040)
 Net Proceeds from Issuance of Common Stock Upon
    Exercise of Stock Options................................................         898              --             --
 Dividends Paid..............................................................      (4,578)         (3,808)        (2,707)
                                                                                   ------          ------         ------ 
       Net Cash Provided by Financing Activities.............................     165,140         146,836         86,372
                                                                                  -------         -------         ------

Net (Decrease) Increase  in Cash and Cash Equivalents........................      (2,205)         15,933          3,235
Cash and Cash Equivalents at Beginning of Year...............................      32,870          16,937         13,702
                                                                                   ------          ------         ------

Cash and Cash Equivalents at End of Year.....................................    $ 30,665        $ 32,870       $ 16,937
                                                                                 ========        ========       ========


Supplemental Disclosures of Cash Flow Information

Cash Paid During the Year for:
  Interest...................................................................    $ 71,005        $ 50,847       $ 28,211
                                                                                 ========        ========       ========
  Income Taxes ..............................................................    $  4,745        $  8,384       $  5,965
                                                                                 ========        ========       ========

Non-cash Investing Activities:
 Transfers from Loans to Real Estate Owned...................................    $    929        $  1,311       $    622
                                                                                 ========        ========       ========
 Transfers of Mortgage-Backed Securities From Held-to-Maturity
   to Available-for-Sale.....................................................    $     --        $283,245       $     --
                                                                                 ========        ========       ========           
</TABLE>

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

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

Fair Value of Assets Acquired, Excluding Cash and Cash         
   Equivalents Acquired........................................   $ 745,341
Liabilities Assumed............................................    (702,273)
Excess of Cost Over Fair Value of Net Assets Acquired..........      51,356
                                                                     ------
Cash Paid for Bank of Westbury and Sunrise Bancorp, Inc., 
   Net of Cash and Cash Equivalents Acquired...................   $  94,424
                                                                  =========


    See accompanying notes to consolidated financial statements.






                                                            29

<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 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").   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  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.

                                                        30

<PAGE>



(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 not
made on a discounted  basis is credited to income based on the principal  amount
outstanding during the period. Unearned income on discounted loans originated by
the Bank,  principally  education  loans,  is  recognized  as  income  using the
level-yield  method.  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" ("SFAS No. 114") and SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan-Income  Recognition and Disclosures"  ("SFAS No. 118"). 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
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.




                                                        31

<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 fiscal 1996
acquisitions  of Bank of Westbury and Sunrise  Bancorp,  Inc. 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  are  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.  Actuarial  gains and losses  that arise from  changes in  assumptions
concerning future events, used in estimating pension costs, are amortized over a
period that reflects the long range nature of pension expense.

The Company 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 will result in
fluctuations in compensation expense as a result of changes in the fair value of
the Company's common stock;  however, any such compensation expense fluctuations
will result in an offsetting adjustment to paid in capital.
Therefore, total capital will not be affected.

The Bank adopted SFAS No. 123,  "Accounting for Stock-Based  Compensation" (SFAS
No. 123").  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. 25,  "Accounting  fro 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.
While the SFAS No. 123 fair  value-based  method is  considered by the Financial
Accounting  Statements Board ("FASB") to be preferable to the APB No. 25 method,
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.

                                                        32

<PAGE>



The disclosure  requirements  are effective for financial  statements for fiscal
years beginning after December 15, 1995; however,  the pro forma disclosures are
required to include the effects of all awards granted in fiscal years that begin
after December 15, 1994. Pro forma  disclosures  for awards granted in the first
fiscal year  beginning  after  December  15,  1994 need to be included  whenever
financial statements for that fiscal year are presented for comparative purposes
with financial statements for a later fiscal year.

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

(n)  Earnings Per Share
Earnings per share is computed by dividing  net income by the  weighted  average
number  of  shares  of  common  stock  and  dilutive  common  stock  equivalents
outstanding, adjusted for the unallocated portion of shares held by the Employee
Stock  Ownership  Plan  ("ESOP") in  accordance  with the American  Institute of
Certified  Public  Accountants'  Statement of Position  93-6. For the year ended
June 30, 1997, 1996 and 1995,  fully-diluted  weighted  average common stock and
common stock  equivalent  shares  outstanding  (adjusted  for  unallocated  ESOP
shares) was 9,044,000, 8,946,000 and 9,404,000, respectively. For the year ended
June 30, 1997, 1996 and 1995,  primary  weighted average common stock and common
stock equivalent shares  outstanding  (adjusted for unallocated ESOP shares) was
8,815,000, 8,917,000 and 9,387,000, respectively.

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  $103,575,000.  The Company retained
$51,787,500  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, 1997,  1996 and
1995 are presented in Note 20.

During fiscal 1995, the Company  repurchased 998,930 shares at an aggregate cost
of $13,040,000. During fiscal 1996, the Company repurchased 260,776 shares at an
aggregate  cost of  $3,829,000.  On April 4, 1997,  the  Company  announced  the
approval  of its fifth five  percent  stock  repurchase  plan  which  allows the
Company to repurchase up to 441,138 common shares.  As of June 30, 1997,  80,000
shares under this program were  repurchased  at an aggregate cost of $1,831,000.
During fiscal 1997, the Company  repurchased 442,182 shares at an aggregate cost
of $8,113,000.

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,  1997  and  1996  was
approximately $25,284,000 and $30,416,000, 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,  the
amount required for the liquidation  account, or if such declaration and payment
would otherwise violate regulatory requirements. During fiscal 1997, the Company
declared cash dividends totalling $4,930,000.






                                                        33

<PAGE>



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 6 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.

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 Projected...............    (3,384)            (53)       (336)          (225)           467       (3,531)
1999 Projected...............    (3,384)           (101)       (239)          (203)           457       (3,470)
2000 Projected...............    (3,384)            (92)       (151)          (182)           300       (3,509)
Thereafter Projected.........   (35,310)           (170)        228         (1,369)             8      (36,613)
                                -------            ----         ---         ------          -----      ------- 
                               $(50,794)          $(417)      $(730)       $(2,409)       $ 2,284     $(52,066)
                               ========           =====       =====        =======        =======     ======== 

</TABLE>

Planned Acquisition of Continental Bank

On May 5, 1997,  the Company  announced  that it had entered  into a  definitive
agreement to acquire Continental Bank ("Continental"),  a commercial bank with 2
full  service  banking  offices  located in Nassau and Suffolk  counties in Long
Island,  New York, a commercial  lending facility and 5 check cashing facilities
in Manhattan. Under the terms of the agreement,  Reliance will issue 1.10 shares
of its common stock for each outstanding common share of Continental.  The total
transaction  value is  estimated  to be  $24.2  million.  As of June  30,  1997,
(unaudited),  total  assets of  Continental  were $177.3  million,  deposit were
$136.2 million and total stockholders'  equity was $13.4 million.  The merger is
subject  to the  approval  of  Continental  shareholders,  as  well  as  certain
regulatory  approvals.  The merger is  expected  to be  completed  in the fourth
quarter of calendar year 1997 and to be accounted for under the purchase  method
of accounting.






                                                        34

<PAGE>



4.  Money Market Investments

Money market investments  generally have original  maturities of three months or
less. The following presents the components of money market investments:
                                             June 30,
                                      ------------------
                                      1997          1996
                                      ----          ----
                                        (In thousands)
Federal Funds Sold..............     $   --        $ 1,000
Repurchase Agreements...........      1,100          9,450
                                      -----          -----
Total Money Market Investments..     $1,100        $10,450
                                     ======        =======

The  Company  purchases   securities  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  $2,987,000 for the
year ended June 30, 1997 and  $7,225,000  for the year ended June 30, 1996.  The
maximum amount of such agreements outstanding at any month-end during the fiscal
year ended June 30, 1997 and 1996 was $8,500,000 and $11,000,000, respectively.

5. Debt and Equity Securities

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

                                                                                    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
Obligations of New York State and
   Local Municipalities.........................................        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
                                                                   ========         ====         ===       ========

                                                                                  June 30, 1996                   
                                                                  -----------------------------------------------  
                                                                                Gross        Gross      Estimated 
                                                                  Amortized   unrealized   unrealized     market  
                                                                    cost        gain         loss         value   
                                                                    ----        ----         ----         -----    

<S>                                                                <C>            <C>         <C>          <C>     
U.S. Government Agency Obligations..............................   $34,950        $  --       $ (338)      $ 34,612
Obligations of New York State and
   Local Municipalities.........................................       391           44           --            435
FHLB Stock......................................................    12,989           --           --         12,989
                                                                    ------        ------       ------        ------
                                                                  $ 48,330        $  44       $ (338)      $ 48,036
                                                                  ========        =====       ======       ========
Available-for-Sale:
U.S. Government Agency Obligations..............................  $ 10,319        $  --       $  (92)      $ 10,227
United States Treasury Notes....................................     2,992           --           (9)         2,983
Marketable Equity Securities....................................        42           19           --             61
                                                                   -------        -----         -----       -------
                                                                  $ 13,353        $  19       $ (101)      $ 13,271
                                                                  ========        =====       ======       ========
</TABLE>

                                                        35

<PAGE>



The amortized cost and estimated  market value of debt and equity  securities at
June 30, 1997 and 1996, by contractual maturity are shown below:

<TABLE>
<CAPTION>

                                               June 30, 1997                                   June 30, 1996
                               --------------------------------------------    -------------------------------------------
                                 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....   $     --    $     --    $ 10,955   $ 10,981     $    --    $     --     $ 6,334    $ 6,318
Due After One Year
  Through Five Years.......     10,343      10,369       5,866      5,845       10,322     10,220       6,977      6,892
Due after Five Years
  Through Ten Years........     20,000      20,100      10,000     10,066       25,019     24,827          --         --
Equity Securities..........     15,683      15,683           8         17       12,989     12,989          42         61
                                ------      ------           -         --       ------     ------          --         --
                              $ 46,026    $ 46,152    $ 26,829   $ 26,909     $ 48,330   $ 48,036     $13,353   $ 13,271
                              ========    ========    ========   ========     ========   ========     =======   ========
</TABLE>


In fiscal 1997,  1996 and 1995,  gross proceeds from the sale of debt and equity
securities available-for-sale totalled $5,028,000,  $29,245,000 and $11,146,000,
respectively.  For fiscal  1997,  1996 and 1995 gross  realized  gains  totalled
$17,000, $20,000, and $153,000, respectively, and gross realized losses totalled
$16,000, $15,000 and $6,000, respectively.

6.  Mortgage-Backed Securities

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

<TABLE>
<CAPTION>
                                                                                    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>








                                                        36

<PAGE>
<TABLE>
<CAPTION>

                                                                                     June 30, 1996                   
                                                                  -------------------------------------------------- 
                                                                                   Gross        Gross      Estimated 
                                                                  Amortized      unrealized   unrealized     market  
                                                                     cost           gain        loss         value   
                                                                     ----           ----        ----         -----   
                                                                                         (In thousands)
Held- to-Maturity:
Pass-through Certificates Guaranteed by:
<S>                                                               <C>           <C>       <C>             <C>      
      GNMA....................................................    $ 125,195     $    511    $     (6)     $ 125,700
      FHLMC...................................................       14,967           38          --         15,005
      FNMA....................................................       44,330           71        (111)        44,290
                                                                     ------         ----         ----        ------
                                                                  $ 184,492     $    620    $   (117)     $ 184,995
Available-for-Sale:
Pass-through Certificates Guaranteed by:
      GNMA....................................................    $ 170,142      $ 1,110    $ (1,499)     $ 169,753
      FHLMC...................................................      255,498          828      (6,728)       249,598
      FNMA....................................................      172,863          756      (3,675)       169,944
      REMIC...................................................        2,503           --         (58)         2,445
                                                                      -----       ------         ---          -----
                                                                  $ 601,006      $ 2,694    $(11,960)     $ 591,740
                                                                  =========       ======     ========      =========
</TABLE>

There were no sales of  mortgage-backed  securities during the fiscal year ended
June  30,  1995.  In  fiscal  1997 and  1996,  gross  proceeds  from the sale of
mortgage-backed   securities   available-for-sale   totalled   $59,810,000   and
$180,590,000,   respectively.   Gross  realized  gains  totalled   $466,000  and
$1,881,000  and  gross  realized  losses   totalled   $295,000  and  $1,208,000,
respectively for fiscal 1997 and 1996.

7.  Loans

Loans Receivable, Net are summarized as follows:
                                                             June 30,
                                                     ----------------------
                                                     1997              1996
                                                     ----              ----
 Mortgage Loans:                                        (In thousands)
     One- to four-family........................ $ 552,577         $ 569,031
     Co-op......................................     8,647             9,687
     Multi-family...............................   190,293            79,571
     Commercial Real Estate.....................    23,445            27,134
     Construction...............................     1,440             5,560
                                                     -----             -----
                                                   776,402           690,983
Less:
     Unearned Discount, Premiums and
     Deferred Loan Origination Fees, Net........      (790)              (16)
                                                     -----             -----
         Total Mortgage Loans..................    775,612           690,967
                                                   -------           -------

Consumer and Other Loans:
     Home Equity Lines of Credit................    91,782            81,205
     Guaranteed Student Loans...................    17,006            18,754
     Home Equity Loans..........................    19,505            16,747
     Loans on Deposit Accounts..................     5,514             5,782
     Other Loans................................     4,308             7,922
                                                     -----             -----
                                                   138,115           130,410
     Net Deferred Loan Origination Costs........       776               864
                                                       ---               ---
          Total Consumer and Other Loans........   138,891           131,274
                                                   -------           -------
Less:
     Allowance for Loan Losses..................    (5,182)           (4,495)
                                                    ------            ------ 
                                                 $ 909,321         $ 817,746
                                                 =========         =========

                                                        37

<PAGE>



                                                             June 30,
                                                       ---------------------
                                                       1997             1996
                                                       ----             ----
   Commitments Outstanding:                                  (In thousands)
     Mortgage Loans........................         $ 26,214         $  8,650
                                                    ========         ========
     Consumer and Other Loans..............         $    509         $  7,865
                                                    ========         ========
     Unused Lines of Credit................         $ 53,399         $ 45,044
                                                    ========         ========

At June 30, 1997 and 1996, the Company had commitments to sell loans of $525,000
and  $1,734,000,  respectively.  At June 30,  1997 and  1996,  the  Company  had
commitments to purchase loans of $1,536,000 and $1,945,000, respectively.

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

                                                 June 30,
                                   -----------------------------------
                                         1997               1996
                                   ---------------    ----------------
                                   No. of             No. of
                                   loans    Amount    loans     Amount
                                   -----    ------    -----     ------
                                        (Dollars in thousands)
One- to four-family Mortgages.....  120   $ 10,959      142   $ 11,538
Consumer and Other Loans..........   71        465       77        702
Commercial Real Estate............    9      3,303        3        739
                                    ---      -----      ---        ---
                                    200   $ 14,727      222   $ 12,979
                                    ===   ========      ===   ========

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,
                                                       -----------------------
                                                       1997     1996      1995
                                                       ----     ----      ----
                                                           (In thousands)
Interest Income that would have been Recorded.....   $  838    $ 622     $ 175
Interest Income Recognized........................     (265)     (68)      (45)
                                                       ----      ---       --- 
Interest Income Foregone..........................   $  573    $ 554     $ 130
                                                     ======    =====     =====

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, 1997, the Company had four  commercial  real estate loans  totalling
$2,913,000 with no related allowance which were considered impaired. At June 30,
1996, the Company had two commercial  loans  totalling  $655,000 with no related
allowance  which  were  considered  impaired.  The  Company's  average  recorded
investment  in  impaired  loans for the year  ended  June 30,  1997 and 1996 was
$1,934,000 and$493,000, respectively. The Company did not recognize any interest
income on impaired loans for the year ended June 30, 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, 1997
and 1996, there were no fixed rate loans classified as held for sale.

Included  in  mortgage  loans at June 30,  1997  and 1996 are  $416,201,000  and
$354,551,000, respectively, of adjustable rate mortgage loans.


                                                        38

<PAGE>



Proceeds from the sale of first mortgage loans were  $7,303,000,  $5,860,000 and
$1,481,000  during  the  fiscal  years  ended  June 30,  1997,  1996  and  1995,
respectively.  Gross  realized  gains and  losses  resulting  from sale of first
mortgage loans were as follows:
                                         Year Ended June 30,
                                    ------------------------------
                                    1997         1996         1995
                                    ----         ----         ----
                                           (In thousands)
Gross Realized Gains.........      $ 31         $ 34          $  1
Gross Realized Losses........        (3)          (4)           (1)
                                   -----        -----         ---- 
                                   $ 28         $ 30          $ --
                                   ====         ====          ====  

The Bank services  mortgage  loans for  investors  which are not included in the
accompanying  consolidated  statements of condition.  A summary of the principal
balance,  custodial  escrow,  servicing  income and number of loans serviced for
others by the Bank are as follows:
                                                     Year Ended June 30,
                                                 ----------------------------
                                                   1997        1996       1995
                                                   ----        ----       ----
                                                    (Dollars in thousands)
Principal Balances............................  $ 410,229   $ 455,626  $ 32,367
                                                =========   =========  ========
Custodial Escrow..............................  $    4,493  $   6,980  $    357
                                                ==========  =========  ========
Servicing Income (Excludes MSR Amortization)..  $    1,399  $     861  $    120
                                                ==========  =========  ========
Number of Loans...............................       6,842      7,497       333
                                                     =====      =====       ===

Fees earned for servicing loans are reported as income when the related mortgage
payments are  collected.  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, 1997 and 1996,  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,
                                                         -------------------
                                                          1997          1996
                                                          ----          ----
                                                            (In thousands)
Balance at Beginning of the Year.......................   $ 3,905   $      --
MSRs Acquired in Acquisitions of Bank of Westbury and
   Sunrise Bancorp, Inc................................        --       4,145
Amortization...........................................      (859)       (240)
                                                           ------      ------ 
Balance at End of the Year.............................   $ 3,046     $ 3,905
                                                          =======     =======

8.  Allowance for Loan Losses

Activity in the allowance for loan losses is summarized as follows:
                                                    Year Ended June 30,
                                               ------------------------------
                                               1997         1996        1995
                                               ----         ----        ----
                                                (In thousands)
Balance at Beginning of the Year........    $ 4,495      $ 1,729       $ 1,417
Provision for Loan Losses...............        950          725           400
Allowances of Acquired Institutions.....         --        2,217            --
Charge-offs.............................       (306)        (265)         (113)
Recoveries..............................         43           89            25
                                             ------      -------       -------
Balance at End of the Year..............    $ 5,182      $ 4,495       $ 1,729
                                            =======      =======       =======







                                                        39

<PAGE>




9.  Real Estate Owned

Real estate owned, net is summarized as follows:

                                                         June 30,
                                                         --------
                                                    1997         1996
                                                    ----         ----
                                                    (In thousands)
One- to four-family Residences...................  $ 365       $ 1,293
Co-ops...........................................    419         1,039
Allowance for Losses on Real Estate Owned........   (334)         (768)
                                                    ----          ---- 
                                                   $ 450       $ 1,564
                                                   =====       =======


Results of operating  real estate owned for the years ended June 30, 1997,  1996
and 1995 are summarized as follows:


                                                        Year Ended June 30,
                                                     ------------------------
                                                     1997     1996       1995
                                                     ----     ----       ----
                                                       (In thousands)
Net Gain on Sale on Real Estate Owned...........  $   56    $   19     $ 657
Net Expenses of Holding Property................    (239)     (223)     (212)
Provision for Losses............................    (200)     (375)      (60)
                                                    ----      ----       --- 
                                                  $ (383)   $ (579)    $ 385
                                                  ======    ======     =====


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

                                                     Year Ended June 30,
                                                ----------------------------
                                                1997       1996         1995
                                                ----       ----         ----
                                                       (In thousands)
Balance at Beginning of the Year.............. $ 768      $ 589       $ 632
Provision for Losses..........................   200        375          60
Allowance of Acquired Institutions............   --         188          --
Charge-offs...................................  (634)      (384)       (103)
                                                ----       ----        ---- 
Balance at End of the Year.................... $ 334      $ 768       $ 589
                                               =====      =====       =====

10.  Accrued Interest Receivable

Accrued Interest Receivable, Net is summarized as follows:

                                                            June 30,
                                                       -------------------
                                                       1996           1997
                                                       ----           ----
                                                        (In thousands)
Debt Securities.....................................  $   842    $    657
Mortgage-Backed Securities..........................    5,548       4,860
Loans Receivable, Net of Reserves for Uncollectible
  Interest of $1,741 and $1,030, respectively.......    5,650       5,795
                                                        -----       -----
                                                      $ 12,04    $ 11,312
                                                      =======    ========







                                                        40

<PAGE>



11.  Office Properties and Equipment

A summary of office properties and equipment, net is as follows:
                                                              June 30,
                                                      ---------------------
                                                      1997             1996
                                                      ----             ----
                                                          (In thousands)
Land............................................     $ 4,094       $ 4,094
Buildings.......................................       8,970         8,495
Furniture, Fixtures and Equipment...............      12,161        11,047
Leasehold Improvements..........................       2,908         2,812
Capital Lease...................................       1,470         1,470
                                                       -----         -----

Office Properties and Equipment, at Cost........      29,603        27,918
Accumulated Depreciation and Amortization.......     (15,514)      (14,097)
                                                     -------       ------- 
                                                    $ 14,089      $ 13,821
                                                    ========      ========

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 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  $404,000,  $497,000 and $590,000 at June 30,
1997, 1996 and 1995, respectively, and is included in accrued expenses and other
liabilities.  The  leaseback  is  recorded  as a capital  lease in the amount of
$1,470,000  at June 30, 1997 and 1996 (refer to the above table) and the related
obligation  under  capital  leases of $673,000 and $802,000 at June 30, 1997 and
1996 is  reflected  in accrued  expenses and other  liabilities.  The  projected
annual lease payments amount to $215,000 per year (including interest) and total
$932,000 through the duration of the lease.

Depreciation  and amortization of office  properties and equipment,  included in
occupancy and equipment expense, was approximately,  $1,417,000,  $1,027,000 and
$467,000 for the fiscal years ended June 30, 1997, 1996 and 1995, respectively.

12.  Deposits

Deposits are summarized as follows:

<TABLE>
<CAPTION>
                                                                           June 30,
                                           -----------------------------------------------------------------------
                                                          1997                                     1996
                                           ----------------------------------   ----------------------------------
                                           Weighted                              Weighted
                                           average                                average
                                            rate           Amount    Percent      rate          Amount    Percent
                                                                      (Dollars in thousands)
<S>                                         <C>        <C>              <C>     <C>        <C>              <C>
NOW.....................................    1.00%      $    78,017       6%      2.17%     $    81,953       6%
Passbook................................    2.40           438,612      31       2.50          458,524      34
Money Market............................    2.40            92,184       6       2.64          109,953       8
Certificates of Deposit.................    5.61           806,750      56       5.40          674,836      50
Non-Interest Bearing
  Demand Deposit........................      --            20,474       1         --           20,360       2
                                                            ------     ---                      ------     ---
                                                       $ 1,436,037     100%                $ 1,345,626     100%
                                                       ===========     ===                 ===========     === 
</TABLE>








                                                        41

<PAGE>

<TABLE>
<CAPTION>


                                                                                     June 30,
                                                                    ---------------------------------------
                                                                           1997                   1996
                                                                    ------------------   ------------------
                                                                    Amount     Percent    Amount    Percent
                                                                    ------     -------    ------    -------
                                                                           (Dollars in thousands)
Contractual Maturity of Certificates of Deposit Accounts:
<S>                                                              <C>            <C>     <C>            <C>
   Under 12 months............................................    $ 524,707      65%     $ 482,653      72%
   Over 12 months to 36 months................................      245,382      30        130,406      19
   Over 36 months.............................................       36,661       5         61,777       9
                                                                     ------     ---         ------     ---
                                                                  $ 806,750     100      $ 674,836     100%
                                                                  =========     ===      =========     === 
</TABLE>

The  aggregate  amount  of  certificates  of  deposit  accounts  with a  minimum
denomination of $100,000 was  approximately  $51,259,000 and $36,017,000 at June
30, 1997 and 1996, respectively.

Interest expense on deposits is summarized as follows:
                                              Year Ended June 30,
                                     -----------------------------------
                                     1997           1996            1995
                                     ----           ----            ----
                                               (In thousands)
NOW.............................  $  1,041       $  1,161      $     485
Passbook........................    10,937          8,942          5,926
Money Market....................     2,493          2,515          2,283
Certificates of Deposit.........    39,668         29,807         13,318
                                    ------         ------         ------
                                  $ 54,139       $ 42,425      $  22,012
                                  ========       ========      =========

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,
are being  assessed  a  one-time  assessment  of 65.7  basis  points per $100 of
insured SAIF deposits.  The Company  recorded a one-time charge of $8.25 million
during the first quarter of fiscal year 1997.

13.  Borrowed Funds

The Bank was obligated for borrowings as follows:
<TABLE>
<CAPTION>
                                                    June 30, 1997              June 30, 1996
                                                --------------------        --------------------
                                                Weighted                    Weighted
                                                 average                     average
                                                   rate       Amount          rate       Amount
                                                  -----       ------         -----      --------
                                                               (Dollars thousands)
<S>                                                <C>      <C>               <C>       <C>        
Advances from FHLB - NY (due 2002)....             5.58%    $ 40,000          5.98%     $  3,000
Reverse Repurchase Agreements ........             5.78%     311,913          5.41%      263,160
                                                             -------                     -------
                                                            $351,913                    $266,160
                                                            ========                    ========
</TABLE>

Information   concerning  borrowings  under  reverse  repurchase  agreements  is
summarized as follows:
<TABLE>
<CAPTION>

                                                                           At or for the Year Ended
                                                                        --------------------------------
                                                                        June 30, 1997      June 30, 1996
                                                                        -------------      -------------
                                                                           (Dollars in thousands)
<S>                                                                     <C>                  <C>      
Average Balance during the Year....................................     $ 288,845            $ 150,173
Average Interest Rate during the Year..............................          5.63%                5.58%
Maximum Month-end Balance during the Year..........................     $ 326,391            $ 279,678

Mortgage-Backed Securities Pledged as Collateral under Reverse
  Repurchase Agreements at Year End:
     Carrying Value................................................     $ 326,843            $ 284,124
     Estimated Market Value........................................     $ 326,801            $ 277,652
</TABLE>



                                                        42

<PAGE>



Reverse  repurchase  agreements at June 30, 1997 have contractual  maturities as
follows:

                                  Year Ended
                                   June 30,          Amount
                                                (In thousands)
                                     1998          $ 258,413
                                     1999             33,500
                                     2000                 --
                                     2001                 --
                                     2002             20,000
                                                      ------
                                                   $ 311,913
                                                   =========

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, 1997 and 1996 were secured
by a blanket lien over all assets equal to 110% of borrowings.

14.  Income Taxes

The Company files a consolidated  Federal  income tax return on a  calendar-year
basis. For calendar year ended December 31, 1995, the Bank was allowed a special
bad debt  deduction  based on the  greater  of the amount  calculated  under the
experience  method or the  percentage of taxable  income  method.  The statutory
percentage  under the latter method was 8% for 1995.  The  percentage of taxable
income  method was  allowable  only if the Bank  maintained  at least 60% of its
total assets in qualifying  assets, as defined.  If qualifying assets fell below
60%,  the Bank would have been  required to  recapture  its tax bad debt reserve
into taxable income over a four-year  period.  The Bank's qualifying assets as a
percentage  of total  assets  exceeded the 60%  limitation  as of and during the
fiscal years ended June 30, 1997, 1996 and 1995. The Bank used the percentage of
taxable income method in its 1995 tax return.

Under  legislation  enacted  subsequent to June 30, 1996,  the Bank is no longer
able to use the  percentage  of taxable  income method 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.
For the fiscal year ended June 30, 1997,  1996 and 1995, the Company's  Delaware
franchise tax was based on the authorized  shares method.  The Company  provided
for New York State and New York City taxes based on taxable income for the years
ended June 30, 1997, 1996 and 1995.

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

The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and  deferred  tax  liabilities  at June 30, 1997 and
June 30, 1996 are presented below:



                                                        43

<PAGE>

<TABLE>
<CAPTION>


                                                                      June 30       June 30,
                                                                       1997          1996
                                                                       ----          ----
                                                                           (In thousands)
<S>                                                                <C>            <C>    
    Provisions for Losses on Loans and Real Estate Owned.........  $    325       $      --
    Unrealized Loss on Available-for-Sale Securities.............        --           4,058
    Deferred Fees................................................       128             264
    Deposits.....................................................       535             795
    Other .......................................................       183             600
                                                                        ---             ---
    Total Deferred Tax Assets....................................     1,171           5,717
                                                                      -----           -----
Deferred Tax Liabilities:
    Provisions for Losses on Loans and Real Estate Owned.........        --             326
    Mortgage Loans...............................................       680             950
    Debt and Equity and Mortgage-Backed Securities...............       181             218
    Office Properties and Equipment..............................       830             690
    Mortgage Servicing Rights....................................       492             629
    Unrealized Gain on Available-for-Sale Securities.............     1,299              --
    Other........................................................       487             261
                                                                        ---             ---
   Total Deferred Tax Liabilities................................     3,969           3,074
                                                                      -----           -----
Net Deferred Tax (Liability) Asset...............................  $ (2,798)        $ 2,643
                                                                   ========         =======
</TABLE>

The total income tax provision for the years ended June 30, 1997,  1996 and 1995
differs  from the amount of tax  provision  that would  result by  applying  the
statutory  United States Federal income tax rate of 35% for fiscal 1997 and 1996
and 34% for fiscal 1995 to income before income taxes:
<TABLE>
<CAPTION>
                                                                    Year Ended June 30,
                                          --------------------------------------------------------------
                                                 1997                   1996                  1995
                                          -----------------      ----------------      -----------------
                                           Amount      %          Amount      %         Amount       %
                                           ------   -----         ------   -----        ------    -----
                                                           (Dollars in thousands)
<S>                                       <C>         <C>        <C>        <C>        <C>         <C>  
Tax Provision Statutory Rate...........   $ 7,376     35.0%      $ 7,584    35.0%      $ 5,625     34.0%
Tax Exempt Interest on Municipal
  Investments..........................       (11)    (0.1)          (23)   (0.1)          (73)    (0.4)
Amortization of Excess of Cost Over
  Fair Value of Net Assets Acquired....     1,191      5.7           675     3.1            --       --
State and Local Income Tax, Net of
  Federal Income Tax Benefit...........     1,228      5.8         1,684     7.8         1,114      6.7
Other, Net.............................       354      1.7            26     0.1           176      1.1
                                           ------   -----         ------   -----        ------    -----
   Income Tax Expense .................   $10,138     48.1%      $ 9,946    45.9%      $ 6,842     41.4%
                                          =======     ====       =======    ====       =======     ==== 
</TABLE>

The  components  of the  provision for income taxes for the years ended June 30,
1997, 1996 and 1995 are as follows:
                                           Year Ended June 30,
                                     -------------------------------
                                       1997        1996        1995
                                       ----        ----        ----
  Current:                                 (In thousands)
    Federal..................       $ 8,193     $ 6,858       $4,708
    State and Local..........         1,861       2,348        1,470
                                      -----       -----        -----
                                     10,054       9,206        6,178
                                     ------       -----        -----
  Deferred:
    Federal..................            56         497          446
    State and Local..........            28         243          218
                                     ------       -----        -----
                                         84         740          664
                                      -----       -----        -----
                                   $ 10,138     $ 9,946       $6,842
                                     ======       =====        =====
                           



                                                        44

<PAGE>





15.  Commitments

At June 30,  1997 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,  1997,  1996 and 1995 is
approximately  $1,048,000,  $819,000 and $577,000,  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)
                         1998...............................     $ 1,070
                         1999...............................         990
                         2000...............................         853
                         2001...............................         709
                         2002...............................         685
                         Thereafter.........................         906
                                                                   -----
                                                                 $ 5,213
                                                                 =======

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, 1997 and 1996, has outstanding balances on letters of
credits of $500,000  and  $500,000,  respectively.  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 Plan

The following  table sets forth the Plan's funded status and amounts  recognized
in the Company's consolidated statements of condition:
<TABLE>
<CAPTION>
                                                                                  June 30,
                                                                           ----------------------
                                                                            1997            1996
                                                                            ----            ----
                                                                              (In thousands)
<S>                                                                      <C>              <C>    
Vested Benefit Obligation...........................................      $ 7,494         $ 6,933
Accumulated Benefit Obligation......................................        7,596           7,000
                                                                            =====           =====

Plan Assets at Fair Value............................................       8,825           8,435
Projected Benefit Obligation for Service Rendered to Date............       9,365           8,655
                                                                            -----           -----
Plan Assets Less Than Projected Benefit Obligation...................        (540)           (220)
Unrecognized Net Asset Value Being Amortized over 15 Years...........         (21)            (26)
Unrecognized Prior Service Cost......................................         (58)            (66)
Unrecognized Net Loss Due to Past Experience
   Different from Assumptions Made and Changes in Assumptions........       1,116             710
                                                                            -----             ---
Prepaid Pension Cost.................................................      $  497         $   398
                                                                           ======         =======
</TABLE>

The components of net pension expense are as follows:
                                                         Year Ended June 30,
                                                    ----------------------------
                                                     1997       1996       1995
                                                     ----       ----       ----
                                                         (In thousands)
Service Cost-benefits Earned during the Year....    $ 327      $ 330      $ 282
Interest Cost on Projected Benefit Obligation...      627        553        502
Net Amortization and Deferral...................     (290)        64          9
Actual Return on Plan Assets....................     (482)      (778)      (680)
                                                     ----       ----       ---- 
Net Pension Expense.............................    $ 182      $ 169      $ 113
                                                    =====      =====      =====


                                                        45

<PAGE>
                                                       Year Ended June 30,
                                                    ----------------------------
                                                     1997       1996       1995
                                                     ----       ----       ----
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.....  9.0%       9.0%       9.0%

In connection  with the  acquisitions  of Bank of Westbury and Sunrise  Bancorp,
Inc., 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 pension plan effective June 1, 1997.

17.  Stock Benefit Plans

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

Stock Option Plan
The Company  maintains  the 1994 and 1996 Stock Option Plans (the "Stock  Option
Plans").  Under the Stock Option Plans, (which expire ten years from the date of
grant) stock options 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 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 1994 and 1996 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
option 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.

















                                                        46

<PAGE>


<TABLE>
<CAPTION>

                                                             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>    
Options Reserved in Conversion.................     608,505      216,390      210,105        $ 10.00
                                                    =======      =======      =======        =======
Balance Outstanding at June 30, 1994...........     608,505      216,390      196,650        $ 10.00
Granted........................................          --           --           --             --
Forfeited......................................          --                        --             --
Exercised......................................          --           --           --             --
                                                   --------      -------      -------         ------
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
                                                    =======      =======      =======        =======
Shares Exercisable at June 30, 1997............     353,860      144,897      233,392        $ 11.02
                                                    =======      =======      =======        =======
</TABLE>

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:

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

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

         Net Income per Common Share:
         Primary                    As Reported          $1.24            $1.31
                                    Pro forma             0.98             1.31

         Fully Diluted              As Reported          $1.21            $1.31
                                    Pro forma             0.96             1.31

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 1997 and 1996:  dividend yield of 3.00%;  expected  volatility of 16.64%;
risk- free interest rates of 6.249%; and expected option lives of 6 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  $8,280,000  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

                                                        47

<PAGE>



to the ESOP over a 10 year  period.  At June 30, 1997 and 1996,  the loan had an
outstanding balance of $5,622,000 and $6,472,000,  respectively, and an interest
rate of 8.50% and 8.25%,  respectively.  Interest expense for the obligation was
$502,000 and $588,000,  respectively, for the year ended June 30, 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, 1997,  248,400 shares 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,  1997 and 1996,  the fair market  value of the 538,200 and 621,000  unearned
shares, respectively, was $15,845,000 and $9,703,000, respectively.

Recognition and Retention Plans and Trusts (RRPs")
The  Bank  maintains  a  Recognition  and  Retention  Plan  for  Officers  and a
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
410,895 shares have been awarded to Officers and Directors  (327,715 at the time
of the Conversion and 83,180  thereafter).  On June 19, 1996,  1,552 shares were
awarded to a new director.  The  additional  1,552 shares have been reserved for
future awards to directors.  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 $2.5 million,
$2.0 million, and $1.9 million,  respectively, for the year ended June 30, 1997,
1996 and 1995.

18.  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, 1997 and 1996, 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, 1997, 1996 and 1995,
the Bank is 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 1997, the Bank
made a $6.7  million  dividend  payment to the Company.  During  fiscal 1996 and
1995, the Bank did not make any dividend payments to the Company.







                                                        48

<PAGE>



The  following  table sets forth the required  ratios and amounts and the Bank's
actual capital amounts and ratios at June 30, 1997 and 1996:
<TABLE>
<CAPTION>
                                                 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


<CAPTION>
                                                 June 30, 1996
                       --------------------------------------------------------------
                         Capital                 Actual                Excess
                       Requirement     %        Capital      %        Capital      %
                       -----------   ----     ---------    ----     ---------    ----                
                                            (Dollars in thousands)
<S>                     <C>          <C>       <C>        <C>       <C>          <C> 
 Tangible.........      $ 26,118     1.5%      $ 97,470    5.6%      $ 71,352     4.1%
 Leverage.........        52,236     3.0         97,470    5.6         45,234     2.6
 Risk-based.......        55,478     8.0        101,911   14.7         46,433     6.7

</TABLE>

19.  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.
















                                                        49

<PAGE>

<TABLE>
<CAPTION>


                                                                                    June 30,
                                                             ------------------------------------------------------
                                                                      1997                          1996
                                                              Carrying     Estimated        Carrying      Estimated
                                                               Amount     Fair Value         Amount      Fair Value
                                                               ------     ----------         ------      ----------
                                                                                 (In thousands)
<S>                                                        <C>            <C>            <C>             <C>    
On Balance Sheet:
Cash and Due from Banks..............................      $   29,565     $   29,565     $   22,420      $   22,420
Money Market Investments.............................           1,100          1,100         10,450          10,450
Debt and Equity Securities Available-for-Sale........          26,909         26,909         13,271          13,271
Debt and Equity Securities Held-to-Maturity..........          46,026         46,152         48,330          48,036
Mortgage-Backed Securities Available-for-Sale........         721,819        721,819        591,740         591,740
Mortgage-Backed Securities Held-to-Maturity..........         159,356        163,108        184,492         184,995
Loans Receivable, Net................................         909,321        910,671        817,746         814,988
Mortgage Servicing Rights............................           3,046          3,797          3,905           4,555
Deposits.............................................       1,436,037      1,432,234      1,345,626       1,342,419
Borrowed Funds.......................................         351,913        349,499        266,160         265,867

Off Balance Sheet:
Outstanding Commitments..............................          80,122         80,122         61,559          61,559
Letters of Credit....................................             500            500            500             500
</TABLE>

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.




                                                        50

<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.

20.  Parent-Only Financial Information

The  following  condensed  statements of condition at June 30, 1997 and 1996 and
condensed statements of income and cash flows for the years ended June 30, 1997,
1996 and 1995 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.
<TABLE>
<CAPTION>

CONDENSED STATEMENTS OF CONDITION
                                                                                                    June 30,
                                                                                         ---------------------------
                                                                                             1997             1996
                                                                                         ---------         --------
                                                                                                    (In thousands)
<S>                                                                                      <C>               <C>    
ASSETS                                                                                            
Cash..............................................................                       $    470          $    361
Money Market Investments..........................................                          1,100             9,450
Debt Securities Available-for-Sale................................                          4,811                --
ESOP Loan Receivable..............................................                          5,622             6,472
Other Assets......................................................                            633               909
Investment in Reliance Federal Savings Bank.......................                        151,772           137,680
                                                                                         -------           -------
        Total Assets..............................................                       $164,408          $154,872
                                                                                         ========          ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued Expenses..................................................                       $  1,738          $  1,253
Stockholders' Equity..............................................                        162,670           153,619
                                                                                          -------           -------
        Total Liabilities and Stockholders' Equity................                       $164,408          $154,872
                                                                                         ========          ========
</TABLE>








                                                        51

<PAGE>


<TABLE>
<CAPTION>

CONDENSED STATEMENTS OF INCOME
                                                                                    Year Ended June 30,
                                                                    -------------------------------------------
                                                                        1997              1996             1995
                                                                        ----              ----             ----
                                                                                      (In thousands)
<S>                                                                 <C>               <C>               <C>    
Interest Income - Securities and Repurchase Agreements..........    $    230          $    958          $ 1,804
Interest Income - ESOP Loan Receivable..........................         502               588              655
                                                                         ---               ---              ---
        Total Interest Income...................................         732             1,546            2,459

Cash Dividends from the Bank....................................       6,700                --               --
Other Operating Income..........................................          --                 3               --
Other Operating Expense.........................................        (521)             (551)            (497)
                                                                        ----              ----             ---- 
Income Before Income Taxes and Equity in Undistributed
   Earnings of the Bank.........................................       6,911               998            1,962
Provision for Income Taxes......................................          90               445              810
                                                                       -----               ---             ----
Income before Equity in Undistributed
    Earnings of the Bank........................................       6,821               553            1,152
Equity in Undistributed Earnings of Reliance
    Federal Savings Bank........................................       4,115            11,170            8,550
                                                                       -----            ------            -----
                Net Income......................................     $10,936           $11,723          $ 9,702
                                                                    ========          ========          =======
</TABLE>
<TABLE>
<CAPTION>

CONDENSED STATEMENTS OF CASH FLOWS
          
                                                                                    Year Ended June 30,
                                                                    -------------------------------------------
                                                                        1997              1996             1995
                                                                        ----              ----             ----
                                                                                    (In thousands)
<S>                                                                 <C>               <C>               <C>      
Net Income......................................................    $ 10,936          $ 11,723          $ 9,702
Equity in Undistributed Earnings of the Bank ...................      (4,115)          (11,170)          (8,550)
Accretion of Discounts..........................................         (70)               --             (906)
Net Gain on Sale of Securities..................................          --                (3)              --
Decrease (Increase) in Other Assets.............................         544               (73)            (491)
Increase (Decrease) in Accrued Expenses.........................         122                52             (107)
                                                                         ---                --             ---- 
     Net Cash Provided by (Used in) Operating Activities........       7,417               529             (352)
                                                                       -----               ---             ---- 

Cash Flows from Investing Activities:
Purchase of Debt Securities Available-for-Sale..................      (4,715)               --          (19,654)
Maturities of Debt Securities Available-for-Sale................          --                --           23,300
Proceeds from Sales of Debt Securities Available-for-Sale.......          --            23,883           11,146
Principal Payments on ESOP Loan Receivable......................         850               831              977
Payments for Investments in Subsidiary..........................          --            (9,673)              --
                                                                      ------            ------           ------    
    Net Cash (Used in) Provided by Investing Activities.........      (3,865)           15,041           15,769
                                                                      ------            ------           ------
Cash Flows from Financing Activities:
Purchase of Treasury Stock......................................      (8,113)           (3,829)         (13,040)
Net Proceeds from Issuance of Common Stock
   Upon Exercise of Stock Options...............................         898                --               --
Dividends Paid..................................................      (4,578)           (3,808)          (2,707)
                                                                      ------            ------           ------ 
     Net Cash Used in Financing Activities......................     (11,793)           (7,637)         (15,747)
                                                                     -------            ------          ------- 

Net (Decrease) Increase in Cash and Cash Equivalents............      (8,241)            7,933             (330)
Cash and Cash Equivalents at Beginning of Year..................       9,811             1,878            2,208
                                                                       -----             -----            -----
Cash and Cash Equivalents at the End of Year....................     $ 1,570           $ 9,811          $ 1,878
                                                                     =======           =======          =======
</TABLE>




                                                        52

<PAGE>



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

[LOGO] KPMG Peat Marwick LLP
          
          Certified Public Accountants
          One Jericho Plaza 
          Jericho, NY 11753

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,  1997 and 1996 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, 1997.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  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,  1997 and 1996,  and the  results of their
operations and their cash flows for each of the years in the  three-year  period
ended  June  30,  1997,  in  conformity  with  generally   accepted   accounting
principles.



/s/  KPMG Peat Marwick LLP
     Jericho, New York
     July 24, 1997












                                                        53

<PAGE>




Reliance Bancorp, Inc. and Subsidiary
Selected Consolidated Quarterly Financial Data
----------------------------------------------
(Unaudited)


<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
                                                                           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
                                                              ========        =======        =======       =======

Primary Earnings (Loss) Per Share...........................  $  (0.17)       $  0.44        $  0.46       $  0.49
                                                              ========        =======        =======       =======
Fully Diluted Earnings (Loss) Per Share ....................  $  (0.17)       $  0.44        $  0.46       $  0.48
                                                              ========        =======        =======       =======
<CAPTION>

                                                                          Fiscal 1996 Quarter Ended
                                                          --------------------------------------------------------
                                                           September 30,   December 31,   March 31,       June 30,
                                                          -------------    ------------   ---------       --------
<S>                                                            <C>            <C>            <C>           <C>    
Interest Income...........................................     $18,956        $21,132        $29,156       $31,128
Interest Expense..........................................       9,862         11,197         15,601        16,325
                                                                ------         ------         ------        ------
Net Interest Income.......................................       9,094          9,935         13,555        14,803
Provision for Loan Losses.................................         100            100            425           100
                                                                ------         ------         ------        ------
Net Interest Income after Provision for Loan Losses.......       8,994          9,835         13,130        14,703
Non-Interest Income.......................................         316            389          1,405         1,000
General and Administrative Expense........................      (5,097)        (5,390)        (7,286)       (7,823)
Real Estate Operations, net...............................         (48)           (16)          (366)         (149)
Amortization of Excess of Cost Over Fair Value
  of Net Assets Acquired..................................         (86)          (130)          (856)         (856)
                                                                ------         ------         ------        ------
Income Before Provision for Income Taxes..................       4,079          4,688          6,027         6,875
Income Tax Expense........................................       1,719          2,048          2,904         3,275
                                                                ------         ------         ------        ------
Net Income................................................     $ 2,360        $ 2,640        $ 3,123       $ 3,600
                                                               =======        =======        =======       =======
Fully Diluted Earnings Per Share .........................     $  0.26        $  0.30        $  0.35       $  0.40
                                                               =======        =======        =======       =======
</TABLE>










                                                        54

<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

Frank A. Dreiss, Jr.
Data Processing


John J. Hogan
Marketing

James F. Kramer
Controller

William J. McKenna
Loan Servicing


Jeannette Sabatelli
Consumer Credit

Frances Secondo
Internal Audit

Kevin J. Talty
Mortgage Originations
                            ASSISTANT VICE PRESIDENTS

John F. Brackx
Joseph C. Byrne
Christine V. Gerber

Diane M. Holland
Russell M. Kerstein
Steven F. Leibow
John J. Martingale


Francis J. McHale, Jr.
Stephen Plezia
Ronald K. Session

                                                        55

<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
Pat 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
Thomas Rose
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

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

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

Plainview
1074 Old Country Road
Plainview, New York 11803
Sandra McGrath
Branch Manager
                                                           

<PAGE>



                             RELIANCE BANCORP, INC.

                           BANKING OFFICES, Continued


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

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


S U F F O L K
-------------
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 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
                                                        

<PAGE>


                   S T O C K H O L D E R   I N F O R M A T I O N


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  19,  1997 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  10,  1997.  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 1997 and 1996.

                                 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

                                 1996
                --------------------------------------
                First     Second     Third     Fourth
               Quarter    Quarter   Quarter    Quarter
               -------    -------   -------    -------
High..........$14.75     $15.25     $16.13     $16.50
Low...........$13.19     $13.13     $14.13     $14.50

As of July 31, 1997, the Company had approximately 1,000 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
1 Jericho Plaza
Jericho, New  York 11753

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

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