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

                                    Form 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                     For the fiscal year ended June 30, 1999

                                     0-23126
                             Commission File Number

                             RELIANCE BANCORP, INC.
             (Exact name of registrant as specified in its charter)

                               Delaware 11-3187176
      (State or Other Jurisdiction of (I.R.S. Employer Identification No.)
                         Incorporation or Organization)

                 585 Stewart Avenue, Garden City, New York 11530
               (Address of Principal Executive Offices) (Zip Code)

                                 (516) 222-9300
              (Registrant's telephone number, including area code)

                                      None
           Securities registered pursuant to Section 12(b) of the Act

                          Common Stock, $.01 par value
           Securities registered pursuant to Section 12(g) of the Act

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                           Yes [ X ] No [ ]

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

                            [  X  ]

As of  September  15, 1999 the  aggregate  market  value of the shares of common
stock of the  registrant  outstanding  was  $306,612,295  excluding  the 467,310
shares held by all  directors  and  officers of the  registrant.  This figure is
based on the  closing  price by the  Nasdaq  National  Market for a share of the
registrant's common stock on September 15, 1999, which was $37.75 as reported in
the Wall  Street  Journal on  September  16,  1999.  The number of shares of the
registrant's  common stock  outstanding  as of September  15, 1999 was 8,589,490
shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

     No part of the following document is incorporated by reference.









                                                                 1

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                                                      PART I
Item 1.  Business

         Reliance  Bancorp,  Inc.  ("Reliance"  or the  "Company") is a Delaware
corporation  organized  on November  16, 1993 at the  direction  of the Board of
Directors  of  Reliance  Federal  Savings  Bank (the  "Bank") for the purpose of
becoming a holding  company to own all of the  outstanding  capital stock of the
Bank upon its  conversion  from a mutual to a stock  form of  organization.  The
stock conversion was completed on March 31, 1994.

         In  addition to  directing,  planning  and  coordinating  the  business
activities  of the  Bank,  the  Company  invests  primarily  in U.S.  Government
securities,  corporate debt and equity securities and repurchase agreements.  In
addition,  the Company completed its acquisitions of Bank of Westbury, a Federal
Savings  Bank,  in August  1995,  Sunrise  Bancorp  Inc.,  in  January  1996 and
Continental Bank ("Continental"), a commercial bank, in October 1997.

General

         The  primary   business  of  the  Company  is  the  operations  of  its
wholly-owned  subsidiary,  the Bank. The Bank's principal business is attracting
retail deposits from the general public and investing  those deposits,  together
with funds  generated from  operations,  principal  repayments  and  borrowings,
primarily in mortgage, multi-family, commercial, consumer (primarily home equity
lines of  credit,  home  equity  loans,  auto  and  guaranteed  student  loans),
commercial  real estate and  construction  loans. In the past, the Bank has also
invested in loans secured by  cooperative  units  ("co-op  loans") but in recent
years has  discontinued  its  origination  activities in this area. In addition,
during periods in which the demand for loans which meet the Bank's underwriting,
investment  and interest  rate risk  standards is lower than the amount of funds
available for  investment,  the Bank invests excess  funding in  mortgage-backed
securities,  securities  issued by the U.S.  Government and agencies thereof and
other investments permitted by federal laws and regulations. The Bank's revenues
are derived principally from interest on its loan and mortgage-backed securities
portfolios.  The Bank's  primary  sources of funds are  deposits,  principal and
interest  payments  on loans  and  mortgage-backed  and  investment  securities,
FHLB-NY advances and reverse repurchase agreements.  The Bank also operates five
Money Center check cashing  operations which generate  additional fee income for
the Bank.

     The information  presented in the consolidated  financial statements and in
the Form 10-K reflect the  financial  condition and results of operations of the
Company, as consolidated with the Bank, its wholly-owned subsidiary. At June 30,
1999, the Company had total assets of $2.5 billion.

Acquisition of Reliance Bancorp, Inc. by North Fork Bancorporation, Inc.

On August 30,  1999,  the  Company  announced  that it had  signed a  definitive
Agreement  and  Plan of  Merger,  dated  as of  August  30,  1999  (the  "Merger
Agreement"),  with  North Fork  Bancorporation,  Inc.,  a  Delaware  corporation
("NFB").  NFB is the bank  holding  company  parent of North Fork Bank and Trust
Company,  a New York State chartered stock commercial bank. The Merger Agreement
provides,  among other things,  that Reliance will merge with and into NFB, with
NFB being the surviving corporation ("Merger").

Pursuant to the Merger Agreement, each share of Reliance common stock, par value
$0.01 per share  ("Reliance  Common  Stock" or the  "Company's  Common  Stock"),
issued and outstanding immediately prior to the Effective Time will be converted
into and become the right to receive 2.0 shares of NFB common  stock,  par value
$2.50 per share ("NFB  Common  Stock").  The  exchange  ratio was based upon the
price of NFB's stock  utilizing  its closing  price on August 27, 1999 of $19.06
for a total value to Reliance shareholders of $38.12 per share.

The Merger will be structured as a tax-free reorganization and will be accounted
under the purchase  method of accounting.  Consummation of the Merger is subject
to the satisfaction of certain customary  conditions,  including approval of the
Merger Agreement by the stockholders of Reliance and approval of the appropriate
regulatory  agencies.  Following  consummation  of the Merger,  the Bank will be
merged with and into North Fork Bank and Trust Company.  It is anticipated  that
the Merger will be completed in 2000.

                                                         2

<PAGE>



Reliance has the right to terminate  the Merger  Agreement if should the closing
price of NFB's shares  decline  beyond a specified  price and index,  unless NFB
elects to  increase  the  Merger  Consideration  to be  received  by  Reliance's
stockholders as set forth in the Merger Agreement.

The Merger  Agreement also provides that options to purchase  shares of Reliance
Common Stock under  Reliance's  stock option plans that are  outstanding  at the
Effective Time shall be converted into options to purchase  shares of NFB Common
Stock in accordance  with the procedure  set forth in the Merger  Agreement.  In
connection  with the Merger  Agreement,  Reliance  granted to NFB a stock option
pursuant to a Stock Option Agreement,  dated as of August 30, 1999, which, under
certain  defined  circumstances,  would  enable NFB to  purchase  up to 19.9% of
Reliance's  issued and  outstanding  shares of common  stock.  The Stock  Option
Agreement  provides that the total profit  receivable  thereunder may not exceed
$17.4 million plus reasonable out-of-pocket expenses.

Market Area and Competition

         The Bank has been,  and continues to be, a  community-oriented  savings
institution  offering a variety of  financial  services to meet the needs of the
communities  it  serves.   The  Bank's  deposit   gathering  area  is  primarily
concentrated in the communities  surrounding its full service banking offices in
the New York City  Borough of Queens and the New York State  Counties  of Nassau
and  Suffolk.  The Bank's  primary  lending  area  extends  beyond  its  deposit
gathering  area to the New  York  City  Boroughs  of  Brooklyn,  Staten  Island,
Manhattan and the Bronx and the New York State County of Westchester.

The greater New York metropolitan area has historically benefitted from having a
large number of  corporate  headquarters  and a diversity  of financial  service
industries.  The New York  State  counties  of  Nassau  and  Suffolk  have  also
continued  to benefit  from a large and  well-developed  suburban  market,  well
educated  employment  base  and a  diversity  of  industrial,  service  and high
technology businesses.  After a prolonged period of decline, which was marked by
layoffs  in  the  financial   services  and  defense  industries  and  corporate
relocations and  downsizings,  the economy in the greater New York  metropolitan
area  performed  well during fiscal 1999.  Durable  goods,  retail trade and the
service  sector are driving  economic  growth in the  suburbs,  while  financial
services and securities  industries are responsible for growth in New York City.
In addition,  the pool of skilled labor, access to international markets and the
growing  media  industry  in the  area  have  kept  the  region  one of the most
attractive in the country.  The healthy  economy has also benefitted the greater
New York  metropolitan  area office  market where the overall and class A office
vacancy rates have significantly declined. This decline in the vacancy rate kept
asking  rents  for all  types of space on the  upswing.  The  improved  economic
environment  is also  evident  in the  Long  Island,  New  York  area,  which is
experiencing a rebound in its residential, commercial and industrial real estate
markets not seen in a number of years. The residential real estate market in the
greater New York  metropolitan  area was also favorably  impacted  during fiscal
year 1999 by increased  demand for housing during the period of low unemployment
and generally low stable interest rates.

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





                                                         3

<PAGE>



Lending Activities

         Portfolio Composition.  The Bank offers a variety of loans to serve the
credit  needs  of its  communities.  The  Bank's  loan  portfolio  is  comprised
primarily  of first  mortgage  loans,  most of which  are  underwritten  to meet
Federal Home Loan Mortgage  Corporation  ("FHLMC") or Federal National  Mortgage
Association  ("FNMA")  standards  and  guidelines  and  are  secured  by one- to
four-family  residences,  including  co-op  loans and,  to a lesser  extent,  by
multi-family residences and commercial real estate. The Bank also emphasizes the
origination of consumer loans in the form of its home equity lines of credit and
home equity loans. The remainder of the Bank's loan portfolio, at June 30, 1999,
consisted  of a variety  of  commercial,  consumer  and other  loans,  primarily
secured and unsecured  commercial,  guaranteed  student loans, auto and loans on
deposit accounts.

         The types of loans that the Bank may  originate  are subject to federal
laws and  regulations.  Interest rates charged by the Bank on loans are affected
principally by the demand for such loans, the cost and supply of money available
for lending purposes and rates offered by its competitors.  General and economic
conditions,  monetary policies of the federal  government  including the Federal
Reserve Board,  legislative tax policies and governmental budgetary matters also
affect interest rates charged by the Bank.

         One- to Four-Family  Residential  Mortgage Lending.  The Bank currently
offers  first  mortgage  loans  secured by one- to  four-family  residences  and
condominiums  located in the Bank's  primary  lending area. The Bank offers such
loans as fixed rate mortgage loans and  adjustable  rate mortgage loans ("ARMs")
with maturities  ranging from five to 30 years.  Loan originations are generally
obtained  from  existing  or past  customers,  members of the local  communities
served, or referrals from local real estate agents,  attorneys and builders. The
Bank's one- to four-family residential mortgage loans are generally underwritten
according to  guidelines  of the FHLMC,  FNMA and other  governmental  agencies.
However,  the Bank originates loans for its own portfolio with amounts in excess
of the loan amounts specified by such guidelines.

         At June 30,  1999,  $440.1  million,  or 44.8% of the Bank's total loan
portfolio consisted of one- to four-family residential and co-op loans loans, of
which  $159.1  million,  or 36.1%,  were ARM loans.  The Bank  currently  offers
one-year ARM loans with terms of up to 30 years and loans with terms of up to 30
years  which are fixed for three,  five,  seven and ten years and  convert  into
one-year ARM loans at the end of the initial fixed  period.  These ARM loans may
carry an initial interest rate which is less than the fully indexed rate for the
loan. These ARM loans may be originated on a point or no-point basis (i.e., with
or without a loan origination fee based on a percentage of the loan amount). The
maximum loan amount for ARM loans offered by the Bank is currently  $750,000 and
the maximum  loan-to-value  ratio is 80.0% of the property's  appraised value or
sales price,  whichever is lower, or over 80% if private  mortgage  insurance is
obtained. Presently, the Bank's interest rates on ARM loans fluctuate based upon
a spread above the weekly  average yield of United States  Treasury  securities,
adjusted to a constant  maturity which  corresponds to the adjustment  period of
the loan (the "U.S.  Treasury  constant  maturity index") as published weekly by
the Federal  Reserve Board and are generally  subject to limitations on interest
rate  increases and decreases and specified  lifetime caps. The Bank's ARM loans
typically carry an initial  interest rate below the  fully-indexed  rate for the
loan.  However,  to recognize the credit risks associated with ARM loans offered
at initial discounts below market interest rates, the Bank generally underwrites
its  one-year  ARM loans  assuming  a rate  equal to 200 basis  points  over the
initial  discount  rate.  For ARM loans  with  longer  adjustment  periods,  and
therefore,  less risk due to the longer  period for the  borrower's's  income to
adjust to anticipated  higher future  payments,  the Bank  underwrites the loans
using the initial  rate,  which may be  discounted.  The volume and types of ARM
loans  originated by the Bank have been  affected by such market  factors as the
level of interest rates, competition,  consumer preferences and the availability
of funds.  During the past several years, demand for ARM loans has been weak due
to a low interest rate environment and consumer preference for fixed rate loans.
Accordingly, although the Bank will continue to offer ARM loans, there can be no
assurance  that the Bank will be able to  originate a  sufficient  volume of ARM
loans in the future to  increase  or maintain  the  proportion  that these loans
currently bear to total loans.

         The Bank currently offers fixed rate mortgage loans with terms of 10 to
30 years, secured by one- to four-family  residences and condominiums.  The Bank
also  offers  these  loans  on a point or  no-point  basis  with the  respective
interest rates  determined in accordance with prevailing  market and competitive
factors. Fixed rate mortgage loans

                                                         4

<PAGE>



with terms  exceeding 15 years are currently  originated by the Bank for sale in
the secondary market to the FHLMC,  FNMA and other  investors.  The maximum loan
amount for fixed rate loans offered by the Bank is currently $750,000. For fixed
rate loans to be  retained  for the Bank's  portfolio,  the Bank's  underwriting
standards establish an 80.0% maximum  loan-to-value ratio or over 80% if private
mortgage  insurance  is  obtained.  Fixed rate loans which meet the  eligibility
requirements  for sale to FHLMC or FNMA will be  considered  for  amounts  up to
95.0%  of  the  appraised  value  or  sales  price,  whichever  is  lower.  Loan
applications  which meet the  eligibility  requirements of the State of New York
Mortgage  Agency  ("SONYMA")  Low Interest Rate Program will be  considered  for
amounts up to 100.0% of the appraised value or sales price,  whichever is lower.
At June 30, 1999,  $281.0  million,  or 63.9%, of the Bank's one- to four-family
residential mortgage loan portfolio consisted of fixed rate loans.

         Multi-Family  and Commercial  Real Estate  Lending.  The Bank currently
offers fixed rate loans and ARM loans (one, three, five, seven, ten and 15 year)
secured by  multi-family  dwellings  (five or more  units) and  commercial  real
estate (e.g., office buildings,  retail stores,  mixed use properties,  shopping
centers,  etc.).  The maximum loan amounts for  multi-family and commercial real
estate  loans   offered  by  the  Bank  are  $5.0  million  and  $1.5   million,
respectively.  The Bank offers multi-family or commercial real estate loans with
terms up to 15 years, and amortizations of up to 30 years for multi-family loans
and 15 years for commercial real estate loans. The maximum  loan-to-value ratios
for   multi-family  and  commercial  real  estate  loans  is  70.0%  and  60.0%,
respectively,  of the property's  appraised  value or sales price,  whichever is
lower.

         For fiscal 1999,  originations  of  multi-family  loans  totalled $90.0
million as compared to $60.7 million in fiscal 1998 and $115.9 million in fiscal
1997. The Bank increased its emphasis on  originations  of 5 year ARM loans with
terms of up to 15 years and  amortizations  up to 30 years.  These ARM loans may
carry an initial interest rate which is less than the fully indexed rate for the
loan.  These ARM loans  are  originated  on a point  basis and  no-point  basis.
Presently,  the Bank's interest rates on 5 year ARM loans fluctuate based upon a
spread above the weekly  average  yield of United  States  Treasury  securities,
adjusted to a constant  maturity of 5 years which  corresponds to the adjustment
period of the loan (the "U.S.  Treasury constant maturity index for 5 years") as
published weekly by the Federal Reserve Board.

         During fiscal 1999, the Bank  originated  commercial  real estate loans
totalling $12.4 million as compared to $1.1 million for fiscal 1998 and $650,000
for  fiscal  1997.  Due to market  conditions  and the Bank's  determination  to
originate such loans on a selective  basis,  the Bank's  commercial  real estate
originations  in recent  periods have been  relatively  low in comparison to its
other lending activities.

         The Bank determines the interest rate and term of each  multi-family or
commercial  real  estate loan on a  case-by-case  basis and in  accordance  with
prevailing market and competitive factors. In making its determination, the Bank
will  consider the financial  resources  and income level of the  borrower,  the
borrower's experience in owning or managing similar property,  the marketability
of the property and the Bank's  lending  experience  with the borrower,  and the
property's net operating income available for debt service.

          At June 30, 1999,  the Bank's  multi-family  loans,  consisting of 295
loans,  totalled  $316.1  million,  or 32.2% of the Bank's total loan portfolio.
Commercial  property loans,  consisting of 89 loans,  totalled $48.1 million, or
4.9% of the Bank's  total loan  portfolio.  At June 30, 1999,  all  multi-family
loans were current and  performing in accordance  with their terms.  At June 30,
1999,  the Bank had eight  commercial  real estate loans  totalling $1.9 million
which  were not  performing  in  accordance  with  their  loan  terms and are on
non-accrual status.

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


                                                         5

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         Construction  Lending.  The Bank currently  offers  construction  loans
secured  by  one-  to  four-family,  multi-family  and  commercial  real  estate
properties on a selective basis. The Bank's  construction  loan  originations in
recent periods have primarily been made to finance the  construction  of one- to
four-family  residential  properties.   As  of  June  30,  1999,  the  Bank  has
outstanding  commitments  to  fund  construction  loans  in the  amount  of $8.8
million, of which $7.5 million, or 0.79% of total loans, has been disbursed.

         Commercial  Lending.  A key  management  objective  is to maintain  the
quality  of the  commercial  loan  portfolio,  substantially  all of  which  was
acquired in the  Continental  Bank  acquisition.  This  objective is achieved by
maintaining high underwriting  standards coupled with regular  evaluation of the
creditworthiness of and the designation of lending limits for each borrower. The
portfolio  strategies seek to avoid  concentrations  by industry or loan size in
order to minimize  credit  exposure and to originate loans in markets with which
it is familiar. At June 30, 1999, the Bank's commercial loans, consisting of 419
loans, totalled $44.9 million, or 4.6% of the Bank's total loan portfolio. Loans
in this category are  typically  made to small and medium sized  businesses  and
range between  $25,000 and $5 million.  The primary  source of repayment is from
the  borrower's   operating  profits  and  cash  flows.  Based  on  underwriting
standards, loans may be secured in whole or in part by collateral such as liquid
assets, accounts receivable, equipment, inventory or real property.

         Consumer and Other  Lending.  The Bank  currently  offers three general
types of consumer loans consisting of: (1) home equity lines of credit; (2) home
equity loans; and (3) guaranteed  student loans. The Bank offers adjustable rate
home  equity  lines of  credit  secured  by one- to  four-family  owner-occupied
properties (including  condominiums) which serve as the primary residence of the
borrower. Co-op units do not qualify as security for such loans. The Bank's home
equity line of credit loans include a standard home equity line of credit, which
may be secured only by a first or second  mortgage on the  underlying  property,
and a  mini-home  equity  line of credit,  which may be secured by any  recorded
mortgage on the underlying property. Both are open end lines of credit available
only to  borrowers  within the Bank's  lending  community.  The maximum  line of
credit is presently  $250,000  for the  standard  home equity line of credit and
$50,000  for the  mini-home  equity  line of  credit.  The  maximum  total  debt
permitted to encumber a property varies based upon the loan-to-value ratio. When
the loan  balance  plus any prior liens is: (1)  $400,000  or less,  the maximum
loan-to-value  ratio is 80%; (2) greater than $400,000 but $500,000 or less, the
maximum  loan-to-value  ratio is 70%; (3) greater than  $500,000 but $650,000 or
less, the maximum  loan-to-value ratio is 65%; and (4) greater than $650,000 but
$750,000 or less, the maximum  loan-to-value ratio is 60%. For the standard home
equity line of credit, borrowers may draw on their line for a period of 10 years
and may pay interest only on a monthly basis.  At the end of the 10 year period,
borrowers must repay principal and interest at a 20-year  amortization rate. For
the  mini-home  equity  line of credit,  borrowers  may draw on their line for a
period of 5 years and may pay interest only on a monthly  basis.  Borrowers must
then repay  principal  and interest at a 10- year  amortization  rate.  Advances
under each line of credit are accessed by the borrower  drawing a personal check
on his or her  individual  account  set up  specifically  for the  program.  The
account is separate and  distinct  from any other  checking  account held by the
borrower.

         The Bank also offers  fixed rate home equity  loans with terms  ranging
from  one  to  15  years.   Such  loans  are  secured  by  one-  to  four-family
owner-occupied  real  property  (including  condominiums)  which is the  primary
residence of the borrower.  The loan is available  only to borrowers  within the
Bank's  lending  community  and co-op units do not qualify as security  for such
loans. The maximum loan amount is $50,000 and the maximum loan-to-value ratio is
80%.

         The Bank's guaranteed  student loans are made only under the Guaranteed
Student  Loan  Program  administered  by the New  York  State  Higher  Education
Services Corporation ("NYSHESC"). The Bank does not fix the amount, maturity, or
interest rate for its  Education  Loans;  however,  such terms meet the maximums
authorized by NYSHESC and therefore are guaranteed by NYSHESC. The Bank will not
approve an Education  Loan  application  for any course of study  offered by any
school with a default ratio above 15.0% on the most recent  Cohort  Default Rate
Listing  published  by the United  States  Department  of  Education.  Increased
competition  for  guaranteed  student  loans in general has  resulted in reduced
origination  activity by the Bank for such loans.  At June 30, 1999,  the Bank's
guaranteed student loans totalled $12.7 million, or 1.3% of total loans.


                                                         6

<PAGE>



         Additionally,  the Bank  offers  loans  fully  secured  by its  deposit
accounts  which,  at June 30, 1999,  totalled  $5.2  million,  or 0.53% of total
loans.  The Bank offered other consumer  loans in the form of home  improvement,
auto, overdraft checking and boat loans; however, the Bank currently offers only
auto and overdraft checking loans.
At June 30, 1999, such loans totalled $1.4 million or 0.14% of total loans.

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

Delinquent Loans and Foreclosed Assets

         Loan Collection.  When a borrower fails to make a required payment on a
loan,  the Bank takes a number of specific  steps to induce the borrower to cure
the delinquency and restore the loan to a current status.

         The Bank's collection procedures applicable to mortgage loans include a
computerized delinquency notice being sent at the time a payment is over 15 days
past due,  with a second  notice being sent at the time payment  becomes 30 days
past due. A personal letter is generally sent after the 40th day of delinquency.
In the event  that  payment  is not  received  after the 60th  day,  a  division
supervisor  will be notified.  Such  supervisor will then order an inspection of
the property  within the next week and assume  control of the account within two
weeks. If personal  contact is made with the borrower  during  inspection or any
time prior to foreclosure,  the Bank will attempt to obtain full payment or work
out a repayment  schedule  with the borrower to avoid  foreclosure.  Foreclosure
notices are sent when a loan is 85-90 days delinquent.  Foreclosure commences on
the 91st day of delinquency.  Most loan  delinquencies  are cured within 90 days
and no legal action is taken.

         The Bank's  collection  procedures  applicable  to home equity lines of
credit are generally similar to those discussed above;  however, if an agreeable
resolution of the delinquency is not reached, a notice of intent to foreclose is
generally  sent after the 45th day of  delinquency  and the matter is  generally
transferred  to  the  supervisor  on the  same  day.  As  with  mortgage  loans,
foreclosures  for  home  equity  lines  of  credit  commence  on the 91st day of
delinquency.

         With respect to  delinquent  payments on other loans  (e.g.,  mini-home
equity loans, automobile loans, etc.), delinquency letters are sent to borrowers
at the end of 26 and 40 days. In the event such loans become delinquent 120 days
or more, the account is charged off and legal action is pursued.

         As part of the Bank's  collection  procedures  applicable to commercial
loans,  telephone  contact is initiated and continued  until the  delinquency is
cured. If payment remains uncollected,  a demand for satisfaction is sent by the
45th day.  If  contact  is made with the  borrower  at any time prior to 90 days
delinquent,  the Bank  attempts to obtain  full  payment or work out a repayment
schedule  with the borrower to avoid legal  action.  All loans more than 90 days
delinquent are sent to an attorney for collection.

         Non-Accrual Loans. The following table sets forth information regarding
non-accrual  loans  and  loans  delinquent  90 days or more on which the Bank is
accruing  interest at the dates  indicated.  It is the Bank's policy to classify
any  loans,   or  any  portion   thereof,   that  have  been  determined  to  be
uncollectible,  in whole or in part, as non-accrual loans. With the exception of
guaranteed  student loans,  the Bank also  classifies as  non-accrual  loans all
loans 90 days or more past due. When a loan is placed on non-accrual status, the
Bank ceases the  accrual of interest  owed and  previously  accrued  interest is
charged against  interest  income.  During the fiscal years ended June 30, 1999,
1998, and 1997, the amounts of additional  interest  income that would have been
recorded on non-accrual loans, had they

                                                         7

<PAGE>



been current,  totalled $498,000,  $799,000, and $573,000,  respectively.  These
amounts  were not  included  in the Bank's  interest  income for the  respective
periods.
<TABLE>
<CAPTION>
                                                                                At June 30,
                                                       -----------------------------------------------------------
                                                       1999           1998         1997         1996          1995
                                                       ----           ----         ----         ----          ----

                                                                           (Dollars in thousands)
<S>                                                  <C>           <C>          <C>          <C>           <C>
Non-accrual mortgage loans delinquent
 more than 90 days.............................      $ 5,561       $  8,218     $ 14,262     $ 12,277       $ 3,210

Non-accrual commercial  loans delinquent
 more than 90 days.............................          433            567           --           --            --

Non-accrual other loans delinquent
    more than 90 days..........................          309            316          188          352            --
                                                      ------        -------     --------     --------      --------
Total non-accrual loans........................        6,303          9,101       14,450       12,629         3,210

Loans 90 days or more delinquent
   and still accruing..........................          255            201          277          350           461
                                                      ------         ------      -------      -------        ------
Total non-performing loans.....................        6,558          9,302       14,727       12,979         3,671
                                                       -----          -----       ------       ------         -----

Total foreclosed real estate, net of
    related allowance for losses...............          177            755          450        1,564         1,558
                                                      ------        -------      -------       ------        ------

Total non-performing assets....................      $ 6,735       $ 10,057     $ 15,177     $ 14,543       $ 5,229
                                                       =====         ======       ======       ======         =====

Non-performing loans to total loans............        0.67%          0.95%        1.61%        1.58%         1.10%
Non-performing assets to total assets..........        0.27%          0.40%        0.77%        0.82%         0.56%
</TABLE>

Allowances  for Losses on Loans,  Investments  in Real  Estate  and Real  Estate
Owned.

         The Bank's  allowance  for loan losses is  established  and  maintained
through a provision for loan losses based on management's evaluation of the risk
inherent in the Bank's loan  portfolio and the condition of the local economy in
the Bank's market areas.  Such evaluation,  which includes a review of all loans
on which full  collectibility is not reasonably  assured,  considers among other
matters, the estimated fair market value of the underlying collateral,  economic
and  regulatory  conditions,  and other factors that warrant  recognition  of an
adequate loan loss  allowance.  The  evaluation  includes a system of ranges and
percentages  as a  supplemental  measure  for  reviewing  the  adequacy  of  the
allowance  for  loan  losses.  Although  management  believes  it uses  the best
information available to make determinations with respect to the adequacy of the
Bank's  allowance  for loan  losses,  future  adjustments  may be  necessary  if
economic and other  conditions  differ from the economic and other conditions in
the assumptions used in making the initial determinations which such adjustments
could have an adverse  impact on the  earnings  or  financial  condition  of the
Company.

         General valuation  allowances represent loss allowances which have been
established to recognize the inherent risk associated  with lending  activities,
but which,  unlike  specific  allowances,  have not been allocated to particular
problem assets. The Bank's  determination as to the classification of its assets
and the amount of its valuation allowances is subject to review by the Office of
Thrift  Supervision  ("OTS") and the Federal Deposit Insurance Company ("FDIC"),
both of which can order the establishment of additional general or specific loss
allowances.

         As a result of the  declines in local and regional  real estate  market
values and the significant  losses  experienced by many financial  institutions,
there has been a greater level of scrutiny by regulatory authorities of the loan
portfolios of financial  institutions  undertaken as part of the  examination of
the  institutions  by the OTS and the  FDIC.  While  the  Bank  believes  it has
established  an adequate  allowance  for loan losses,  there can be no assurance
that regulators, where reviewing the Bank's loan portfolio, will not request the
Bank to materially  increase its allowance for loan losses,  thereby  negatively
affecting the Bank's financial condition and earnings.

                                                         8

<PAGE>



Investment Activities

General

         As part of the  present  investment  policy,  the Bank  deploys a large
portion of its investable funds into mortgage-backed securities, and to a lesser
extent,  U.S.  Government and agency  obligations,  and state and municipal debt
securities.  The Company  deploys a large portion of its  investable  funds into
corporate  debt and equity  securities.  The  investment  policy of the Bank and
Company,  which is approved by the Board of  Directors  and  implemented  by the
Company's Investment Committee as authorized by the Board, is designed primarily
to  generate  a  favorable  return  for the  Company  without  compromising  the
Company's  business  objectives or incurring undue interest rate or credit risk,
and to provide and maintain liquidity for the Company.

         The Investment Committee, which is comprised of the Company's President
and Chief Executive Officer,  Executive Vice President - Treasurer,  Senior Vice
President-Chief  Financial  Officer,  and Vice  President - Investment  Officer,
meets as needed but not less than on a monthly  basis to monitor  the  Company's
investment  transactions,  to establish future investment  strategies and to set
future  spending  parameters.  The  Board of  Directors  reviews  the  Company's
investment policy on a quarterly basis and the Company's  investment activity on
a monthly  basis.  In  establishing  its  investment  strategies,  the Committee
considers the Company's business and growth plans, its interest rate sensitivity
"gap"  position,  the  local and  national  economic  environment,  the types of
securities to be held and other factors.

         Although  federally-chartered  savings  institutions  have authority to
invest  in  various  types  of  assets,  including  U.S.  Treasury  obligations,
securities  of various  federal  agencies,  certain  certificates  of deposit of
insured banks and savings institutions, certain bankers acceptances,  repurchase
agreements,  loans of federal funds,  and, subject to certain limits,  corporate
securities,  commercial  paper  and  mutual  funds,  the Bank  currently  favors
mortgage-backed  securities  over other  types of  securities  due to the Bank's
focus upon residential  mortgage lending.  The Bank and the Company currently do
not purchase securities with the intention of trading such securities,  nor does
the Bank or the Company maintain trading portfolios.

Debt and Equity Securities

         At June 30,  1999,  the  Bank's  debt and equity  securities  portfolio
classified   held-to-maturity  totalled  $28.8  million.  The  debt  and  equity
securities   held-to-maturity  portfolio  consisted  of  $8.9  million  in  U.S.
Government  agency  obligations,  $390,000 in  municipal  obligations  and $19.6
million of FHLB stock.  At June 30, 1999, the Bank's debt and equity  securities
portfolio classified as  available-for-sale  totalled $112.1 million. The Bank's
debt and equity  securities  available-for-sale  portfolio  consisted  of $102.1
million in corporate debt securities and $10.0 million in U.S. Government agency
obligations.  The Bank's current  investment  policy does not permit the Bank to
invest in non-investment grade bonds or high-risk mortgage derivatives.

         At  June  30,  1999,   the   Company's   debt  and  equity   securities
available-for-sale  portfolio  totalled  $10.1  million  and  consisted  of $9.2
million of corporate debt securities and $877,000 of equity securities.

Mortgage-Backed Securities

         The Bank invests in mortgage-backed  securities,  including Real Estate
Mortgage Investment Conduits ("REMICs") and Collateralized  Mortgage Obligations
("CMOs"),  and utilizes  such  investments  to complement  its mortgage  lending
activities  in periods of low loan  demand for the types of  mortgage  loans the
Bank originates to be held for investment in conformance  with its  underwriting
standards and interest rate risk policies,  namely,  ARM loans and  shorter-term
fixed rate loans  secured by one- to  four-family  properties  and  multi-family
loans.  Investments  in  mortgage-backed  securities  involve a risk that actual
prepayments  will exceed  prepayments  estimated  over the life of the  security
which may  result in a loss of any  premium  paid for such  instruments  thereby
reducing  the net yield on such  securities.  In  addition,  if  interest  rates
increase, the market value of such securities may be adversely affected.

                                                         9

<PAGE>



         REMICs and CMOs are typically issued by a special purpose entity, which
may be organized in a variety of legal forms,  such as a trust, a corporation or
a partnership.  The entity aggregates pools of loans or pass-through securities,
which are used to collateralize the mortgage-related  securities. Once combined,
the cash flows are divided into "tranches" or classes of individual  securities,
thereby  creating  more  predictable  average  lives for each  security than the
underlying  collateral.   Accordingly,   under  this  security  structure,  loan
principal and interest payments are allocated to a  mortgage-related  securities
class or classes  structured to have priority  until it has been paid off. It is
the policy of the Bank to limit its privately issued REMICs and CMOs to non-high
risk securities rated "AAA". As of June 30, 1999, the Bank's portfolio of REMICs
totalled  $684.3  million of which $246.4  million were agency issued and $437.9
million were private issued.

         The Bank purchases mortgage-backed securities in order to: (i) generate
positive interest rate spreads with minimal  administrative  expense; (ii) lower
its credit risk as a result of the guarantees provided by FHLMC, FNMA, and GNMA;
(iii) utilize these  securities as collateral for borrowings;  and (iv) increase
the liquidity of the Bank.  The Bank has primarily  invested in  mortgage-backed
securities issued or sponsored by FNMA, FHLMC and GNMA and private issuers.

         At June 30, 1999,  mortgage-backed securities totalled $1.2 billion, or
48.6%  of  total   assets,   of  which  $255.9   million  were   classified   as
held-to-maturity and $935.0 million were classified as  available-for-sale.  The
Bank increased its purchases of mortgage-backed securities available-for-sale as
part of its  leveraging  strategy in order to improve  its return on equity.  At
June  30,  1999,  the  mortgage-backed   securities   portfolio   classified  as
available-for- sale had an unrealized loss of $15.8 million. The market value of
all mortgage-backed  securities totalled  approximately $1.2 billion at June 30,
1999.

          As of  June  30,  1999,  $381.3  million,  or  32.0%,  of  the  Bank's
mortgage-backed   securities   portfolio  carried   adjustable  rates  repricing
annually.  The adjustable  rate portfolio had a weighted  average  interest rate
yield of 5.85% at June 30, 1999.

Sources of Funds

         General.  Deposits, loans and mortgage-backed  securities principal and
interest payments,  FHLB-NY advances and reverse  repurchase  agreements are the
primary sources of the Bank's funds for use in lending,  investing and for other
general purposes.  The Bank utilizes  borrowings as part of its  asset/liability
management strategy.

         Deposits.  The Bank offers a variety of deposit accounts having a range
of interest rates and terms. The Bank presently offers passbook savings,  demand
deposit,  NOW, money market, and certificate  accounts.  The flow of deposits is
influenced  significantly by general economic conditions,  changes in prevailing
interest  rates,  pricing of deposits and  competition.  The Bank's deposits are
primarily  obtained  from areas  surrounding  its  offices,  and the Bank relies
primarily on marketing new  products,  service and  long-standing  relationships
with  customers  to attract  and retain  these  deposits.  The Bank does not use
brokers to obtain deposits,  nor does it offer a negotiated rate on large dollar
deposits.

         When  management  determines  the levels of the Bank's  deposit  rates,
consideration is given to local competition,  U.S. Treasury securities offerings
and the rates charged on other sources of funds.  The Bank has maintained a high
level of passbook, demand deposit and NOW accounts ("core deposits"),  which has
contributed to its low cost-of-funds. Passbook, demand deposits and NOW accounts
represented  39.9% of total  deposits  at June 30,  1999 as compared to 36.9% of
total deposits at June 30, 1998.

     Borrowings.  The Bank has utilized  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 are utilized as a source of
funding in order to take advantage of favorable  rates of interest in comparison
to its other sources of funds. The Bank's FHLB-NY advances are generally secured
by a blanket lien against the Bank's  mortgage  portfolio,  mortgage-backed  and
investment  securities  portfolios and the Bank's investment in the stock of the
FHLB-NY. The

                                                        10

<PAGE>



maximum amount that the FHLB-NY will advance for purposes other than for meeting
withdrawals, fluctuates from time to time in accordance with the policies of the
FHLB-NY.  At June 30, 1999, total advances from the FHLB-NY were $338.7 million.
The Bank has also entered into reverse  repurchase  agreements  with  nationally
recognized  primary  securities  dealers.   Reverse  repurchase  agreements  are
accounted  for as  borrowings  and  are  secured  by the  securities  sold  with
agreements to repurchase.  At June 30, 1999, borrowings under reverse repurchase
agreements totalled $313.7 million.

The  Company  has  utilized  borrowed  funds to obtain  capital to improve  Bank
capital ratios and fund asset growth. On April 29, 1998,  Reliance Capital Trust
I, a trust  formed  under  the laws of the  State  of  Delaware  (the "  Capital
Trust"), issued $50 million of 8.17% capital securities.  The Holding Company is
the owner of all the beneficial  interests  represented by common  securities of
the Trust. The Trust exists for the sole purpose of issuing the Trust securities
(comprised of the capital  securities and the common  securities)  and investing
the  proceeds  thereof  in the 8.17%  junior  subordinated  deferrable  interest
debentures  issued by the Holding  Company on April 23, 1998 which are scheduled
to mature on May 1,  2028.  Interest  on the  capital  securities  is payable in
semiannual  installments,  commencing on November 1, 1998. The Trust  securities
are subject to mandatory redemption (i) in whole, but not in part upon repayment
in full,  at the stated  maturity  of the junior  subordinated  debentures  at a
redemption price equal to the principal amount of, plus accrued interest on, the
junior subordinated debentures,(ii) in whole, but not in part, at any time prior
to May 1, 2008,  contemporaneously  with the  occurrence and  continuation  of a
special event,  defined as a tax event or regulatory capital event, at a special
event  redemption  price equal to the greater of 100% of the principal amount of
the  junior  subordinated  debentures  or the sum of the  present  values of the
principal  amount and premium payable with respect to an optional  redemption of
the junior subordinated debentures on the initial optional repayment date to and
including the initial  optional  prepayment  date,  discounted to the prepayment
date plus accrued and unpaid interest thereon, and (iii) in whole or in part, on
or after May 1, 2008,  contemporaneously  with the  optional  prepayment  by the
Corporation of the junior subordinated debentures at a redemption price equal to
the optional prepayment price.  Subject to prior required  regulatory  approval,
the junior  subordinated  debentures are redeemable  during the 12-month periods
beginning  on or  after  May  1,  2008  at  104.085%  of the  principal  amounts
outstanding,  declining  ratably each year  thereafter to 100%, plus accrued and
unpaid interest  thereon to the date of redemption.  Deferred  issuance costs in
the amount of $1.0 million,  are being amortized over ten years and are included
in Prepaid Expenses and Other Assets in the Company's  Consolidated Statement of
Condition as of June 30, 1999.

Subsidiary Activities

         The Bank formed a number of subsidiaries in the mid-1980s to enter into
real estate-development joint ventures for the development of properties located
in the Bank's  primary  lending area, all of which are currently  inactive.  The
Bank does not currently intend to form any new subsidiaries or use any currently
inactive  subsidiaries to enter into new real estate development  projects.  The
Bank maintains the following active subsidiaries.

         RFS  Insurance  Agency Inc. RFS  Insurance was organized by the Bank on
April 15, 1983 and currently offers the sale of non-deposit  investment products
(annuities  and mutual funds) to Bank  customers and  recognizes fee income from
such sales.

         Reliance Preferred Funding Corp.  Reliance Preferred Funding Corp. (the
"Subsidiary")  was  organized  by the Bank on April 4, 1997 for the  purpose  of
engaging  in a  real  estate  investment  trust  ("REIT").  The  purpose  of the
subsidiary  is to enhance  and  strengthen  the  Bank's  capital  position.  The
Subsidiary is poised to raise capital  expeditiously  in the event that the Bank
should need such capital  (e.g.,  for a  significant  strategic  transaction  or
combination).  In addition to such possible increased capital resulting from any
future  public  offering  that  the  Subsidiary  or the Bank  may  conduct,  the
Subsidiary affords the Bank certain tax benefits.





                                                        11

<PAGE>



Personnel

         As of June  30,  1999,  the Bank had 344  full-time  employees  and 162
part-time  employees.   The  employees  are  not  represented  by  a  collective
bargaining unit and the Bank considers its relationship with its employees to be
good.

                           FEDERAL, STATE AND LOCAL TAXATION

Federal Taxation

         General.  The Company and the Bank  report  their  income on a calendar
year basis using the  accrual  method of  accounting  and are subject to Federal
income  taxation  in the  same  manner  as  other  corporations.  The  following
discussion  of tax matters is intended only as a summary and does not purport to
be a  comprehensive  description of the tax rules  applicable to the Bank or the
Company.  The Company and the Bank have not been audited by the Internal Revenue
Service during the last five years.

         Tax Bad Debt Reserves. Prior to the enactment of the Small Business Job
Protection Act of 1996 (the "1996 Act"),  on August 20, 1996, for federal income
tax purposes, thrift institutions such as the Bank, were permitted under Section
593 of the Code ("IRC 593"), to establish tax reserves for bad debts and to make
annual additions thereto,  which additions could, within specified  limitations,
be deducted in arriving at taxable income.  Similar  deductions for additions to
the Bank's bad debt reserves were permitted  under the New York State  Franchise
Tax and the New York City  Financial  Corporation  Tax.  Under the 1996 Act, the
Bank,  as a "large bank" (one with assets  having an adjusted  base of more than
$500  million),  is unable to make  additions to its tax bad debt  reserves,  is
permitted  to deduct bad debts only as they occur and is required  to  recapture
the excess of the balance of its bad debt reserves (other than the  supplemental
reserve)  as of  December  31,  1995 over the  balance  of such  reserves  as of
December  31,  1987  (or over a  lesser  amount  if the  Bank's  loan  portfolio
decreased since December 31, 1987). However,  under the 1996 Act, such recapture
requirements  were  suspended  for  each of the  two  successive  taxable  years
beginning  January 1, 1996,  in which the Bank  originates  a minimum  amount of
certain residential loans during such years that is not less than the average of
the  principal  amounts of such loans  made by the Bank  during its six  taxable
years preceding January 1, 1996.

         Distributions.   To  the  extent  that  the  Bank  makes   "nondividend
distributions" to shareholders,  such distributions will be considered to result
in  distributions  from the Bank's base year  reserve to the extent  thereof and
then from its  supplemental  reserve for losses on loans, and an amount based on
the  amount   distributed  will  be  included  in  the  Bank's  taxable  income.
Nondividend  distributions include distributions in excess of the Bank's current
and  accumulated  earnings and profits,  as  calculated  for federal  income tax
purposes,  distributions in redemption of stock and  distributions in partial or
complete  liquidation.  However,  dividends  paid out of the  Bank's  current or
accumulated earnings and profits will not constitute  nondividend  distributions
and,  therefore,  will not be  included  in the  Bank's  income.  The  amount of
additional  taxable income created from a nondividend  distribution is an amount
that, when reduced by the tax attributable to the income, is equal to the amount
of the distribution.  Thus, approximately one and one-half times the nondividend
distribution  would be  includable  in  gross  income  for  federal  income  tax
purposes, assuming a 35% federal corporate income tax rate.

         Corporate  Alternative  Minimum Tax. In addition to the regular  income
tax, corporations generally are subject to an alternative minimum tax ("AMT") in
an amount equal to 20% of alternative  minimum  taxable  income  ("AMTI") to the
extent the AMT exceeds the  corporation's  regular tax. AMTI is regular  taxable
income  as  modified  by  certain  adjustments  and  increased  by  certain  tax
preference  items. AMTI includes an amount equal to three-quarters of the excess
of adjusted current earnings over such specially  computed AMTI. 90% of AMTI can
be offset by net  operating  loss  carryovers.  The AMT is available as a credit
against  future regular income tax. The Company does not expect to be subject to
the AMT.


                                                        12

<PAGE>



         Dividends Received Deduction and Other Matters. The Company may exclude
from its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations.  The corporate dividends received deduction is
generally 70% in the case of dividends  received from unaffiliated  corporations
with which the  Company  and the Bank will not file a  consolidated  tax return,
except  that if the  Company  and the Bank own more  than 20% of the  stock of a
corporation  distributing  a  dividend,  80% of any  dividends  received  may be
deducted.

State And Local Taxation

         New  York  State  Taxation.  The  Bank is  subject  to New  York  State
Franchise  Tax on net  income or one of  several  alternative  bases,  whichever
results in the highest tax. The Company and Bank will file a combined tax return
in the same manner as other  corporations  with some  exceptions,  including the
Bank's  reserve  for bad  debts  as  discussed  below.  New  York  State  passed
legislation  that  incorporated  the former  provisions of IRC 593 into New York
State tax law.  The  impact of this  legislation  enabled  the Bank to defer the
recapture of the New York State tax bad debt reserves that would have  otherwise
occurred as a result of the federal  amendment to IRC 593. The legislation  also
enabled the Bank to continue to utilize the reserve method for computing its bad
debt  deduction.  The  following  discussion  of the  reserve  for bad  debts is
intended  only  as a  summary  and  does  not  purport  to  be  a  comprehensive
description  of the New  York  State  tax  rules  applicable  to the Bank or the
Company.

         Bad Debt  Deduction.  Federally  chartered  savings banks,  such as the
Bank, which meet certain definition tests primarily relating to their assets and
the nature of their business ("qualifying thrifts") are permitted to establish a
reserve for bad debts and to make annual additions thereto, which additions may,
within  specified  formula  limits,  be deducted  in  arriving at their  taxable
income. The Bank will be a qualifying thrift only if, among other  requirements,
at least 60% of its assets are assets described in Section 1453(h)(1) of the New
York State Tax Law (the "60% Test"). The Bank presently  satisfies the 60% Test.
Although  there can be no  assurance  that the Bank will satisfy the 60% Test in
the future,  management  believes  that this level of  qualifying  assets can be
maintained  by the Bank.  The Bank's  deduction  for  additions  to its bad debt
reserve with respect to qualifying  loans may be computed  using the  experience
method or a percentage equal to 32% of the Bank's taxable income,  computed with
certain modifications,  without regard to the Bank's actual loss experience, and
reduced  by  the  amount  of  any   addition   permitted   to  the  reserve  for
non-qualifying  loans ("NYS  Percentage of Taxable Income  Method").  The Bank's
deduction  with  respect  to  non-qualifying  loans must be  computed  under the
experience  method  which  is  based  on the  qualifying  thrift's  actual  loss
experience. Under the experience method, the amount of a reasonable addition, in
general,  equals the amount  necessary  to increase  the balance of the bad debt
reserve at the close of the  taxable  year to the greater of (i) the amount that
bears the same ratio to loans  outstanding  at the close of the taxable  year as
the total net bad debts sustained during the current and five preceding  taxable
years bears to the sum of the loans outstanding at the close of those six years,
or (ii)  the  balance  of the bad debt  reserve  at the  close of the base  year
(assuming that the loans  outstanding  have not declined since then).  The "base
year" for these  purposes  is the last  taxable  year  beginning  before the NYS
percentage  of income  bad debt  deduction  was  taken.  Any  deduction  for the
addition to the reserve for non-qualifying loans reduces the taxable addition to
the  reserve  for  qualifying  real  property  loans  calculated  under  the NYS
Percentage  of  Taxable  Income  Method.  Each  year the Bank  reviews  the most
favorable way to calculate the deduction  attributable to an addition to the bad
debt reserve. The amount of the addition to the reserve for losses on qualifying
real property  loans under the NYS  Percentage  of Taxable  Income Method cannot
exceed the amount necessary to increase the balance of the reserve for losses on
qualifying  real  property  loans at the close of the taxable  year to 6% of the
balance of the  qualifying  real property  loans  outstanding  at the end of the
taxable year. Also, if the qualifying  thrift uses the NYS Percentage of Taxable
Income Method,  then the qualifying  thrift's  aggregate addition to its reserve
for losses on qualifying real property loans cannot,  when added to the addition
to the reserve for losses on  non-qualifying  loans,  exceed the amount by which
(i) 12% of the  amount  that the total  deposits  or  withdrawable  accounts  of
depositors  of the  qualifying  thrift at the close of the taxable year exceeded
(ii) the sum of the qualifying thrift's surplus,  undivided profits and reserves
at the beginning of such year.

         New York City  Taxation.  The Bank is also subject to the New York City
Financial  Corporation  Tax  calculated,  subject to a New York City  income and
expense  allocation,  on a similar basis as the New York State Franchise Tax. In
this connection,  legislation was enacted regarding the use and treatment of tax
bad debt reserves

                                                        13

<PAGE>



that is substantially similar to the New York State legislation described above.
A significant portion of the Bank's entire net income for New York City purposes
is  allocated  outside the  jurisdiction  which has the effect of  significantly
reducing the New York City taxable income of the Bank.

         Delaware Taxation.  As a Delaware holding company not earning income in
Delaware,  the Company is exempted  from  Delaware  corporate  income tax but is
required to file an annual  report with and pay an annual  franchise  tax to the
State of Delaware.

                           REGULATION AND SUPERVISION
General

         The  Bank  is  subject  to  extensive   regulation,   examination   and
supervision by the OTS, as its chartering  agency,  and the FDIC, as the deposit
insurer.  The Bank is a member of the FHLB System and its deposit  accounts  are
insured  up to  applicable  limits by the  Savings  Association  Insurance  Fund
("SAIF")  managed by the FDIC.  The Bank must file  reports with the OTS and the
FDIC concerning its activities and financial  condition in addition to obtaining
regulatory approvals prior to entering into certain transactions such as mergers
with,  or  acquisitions  of, other  financial  institutions.  There are periodic
examinations by the OTS and the FDIC to test the Bank's safety and soundness and
compliance with various regulatory requirements. This regulation and supervision
establishes a comprehensive  framework of activities in which an institution can
engage and is intended  primarily for the  protection of the insurance  fund and
depositors.  The  regulatory  structure  also gives the  regulatory  authorities
extensive  discretion  in  connection  with their  supervisory  and  enforcement
activities  and  examination  policies,  including  policies with respect to the
classification  of assets and the  establishment  of adequate loan loss reserves
for regulatory  purposes.  Any change in such policies,  whether by the OTS, the
FDIC or  through  legislation,  could  have a  material  adverse  impact  on the
Company,  the Bank and their  operations.  The  Company,  as a savings  and loan
holding company,  is required to file certain reports with, and otherwise comply
with the rules and  regulations  of the OTS under the Home  Owners' Loan Act, as
amended (the "HOLA"),  and of the  Securities  and Exchange  Commission  ("SEC")
under the  federal  securities  laws.  Certain  of the  regulatory  requirements
applicable  to the Bank and to the  Company are  referred to below or  elsewhere
herein.

         The description of statutory  provisions and regulations  applicable to
savings  institutions set forth in this document do not purport to be a complete
description of such statutes and regulations and their effects on the Bank.

Federal Savings Institution Regulation

         Business Activities. The activities of federal savings institutions are
governed by HOLA and, in certain  respects,  the Federal  Deposit  Insurance Act
("FDI Act") and the regulations  issued to implement those statutes.  These laws
and  regulations  delineate  the nature and  extent of the  activities  in which
federal   associations  may  engage.  In  particular,   many  types  of  lending
authorities for federal  associations,  e.g.,  commercial,  nonresidential  real
property  and  consumer  loans,  are  limited to a specified  percentage  of the
institution's capital assets.

         Loans  to One  Borrower.  Under  the  HOLA,  savings  institutions  are
generally  subject to the national bank limits on loans to one borrower.  Unless
an exception applies,  savings institutions may not make a loan or extend credit
to a single or  related  group of  borrowers  in  excess of 15.0% of the  Bank's
unimpaired capital and surplus. An additional amount may be lent, equal to 10.0%
of unimpaired capital and surplus, if such loan is secured by readily-marketable
collateral,  which is defined  to  include  certain  financial  instruments  and
bullion,  but does not include  real estate.  At June 30,  1999,  there were two
borrowers each with aggregate  loans  totalling $13.1 million and $12.5 million,
respectively.  These loans  represented the largest aggregate amount of loans to
one  borrower  and were below the Bank's  loans to one  borrower  limit of $25.8
million at such date. At June 30, 1999, both of these borrowers were current.

         QTL Test. The HOLA requires  savings  institutions  to meet a qualified
thrift lender  ("QTL")  test.  Under the QTL test, a savings bank is required to
either maintain at least 65.0% of its "portfolio assets" (total assets less (i)

                                                        14

<PAGE>



specified liquid assets up to 20.0% of total assets, (ii) intangibles, including
goodwill,  and (iii) the value of property used to conduct  business) in certain
"qualified  thrift  investments"  (primarily  residential  mortgages and related
investments,  including  certain  mortgage-backed  and related  securities) on a
monthly basis in 9 out of every 12 months.

         A savings  institution  that  fails the QTL test is  subject to certain
operating  restrictions and may be required to convert to a bank charter.  As of
June 30, 1999, the Bank  maintained  90.3% of its portfolio  assets in qualified
thrift  investments and,  therefore,  met the QTL test.  Recent  legislation has
expanded  the  extent to which  education  loans,  credit  card  loans and small
business loans may be considered "qualified thrift investments."

     Limitation on Capital  Distributions.  OTS regulations  impose  limitations
upon all capital distributions by a savings institution, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another  institution  in a cash-out  merger and other  distributions  charged
against  capital.  The  rule  effective  in  1998  established  three  tiers  of
institutions,  based primarily on an institution's capital level. An institution
that  exceeded  all  capital  requirements  before and after a proposed  capital
distribution  ("Tier 1 Bank") and has not been  advised by the OTS that it is in
need of more than normal  supervision,  could,  after  prior  notice but without
approval of the OTS, make capital  distributions during a calendar year equal to
the greater of: (i) 100% of its net  earnings to date during the  calendar  year
plus the amount  that would  reduce by  one-half  the  excess  capital  over its
capital  requirements  at the beginning of the calendar year; or (ii) 75% of its
net income for the previous four quarters.  Any additional capital distributions
required  prior  regulatory  approval.  At June 30, 1999,  the Bank was a Tier 1
Bank.  Effective  April 1,  1999,  the  OTS's  capital  distribution  regulation
changed.  Under the new regulation,  an application to and the prior approval of
the OTS will be required prior to any capital  distribution  if the  institution
does not meet the criteria for "expedited  treatment:  of applications under OTS
regulations  (i.e.,  generally,  safety and soundness,  compliance and Community
Reinvestment  Act  examination  ratings in the two tope  categories),  the total
capital distributions for the calendar year exceed net income for that year plus
the amount of retained net income for the preceding two years,  the  institution
would be  undercapitalized  following the distribution or the distribution would
otherwise  be contrary to a statute,  regulation  or  agreement  with OTS. If an
application is not required,  the institution must still provide prior notice to
OTS of the capital distribution.  In the event the Bank's capital fell below its
regulatory  requirements or the OTS notified it that it was in need of more than
normal  supervision,  the Bank's ability to make capital  distributions could be
restricted.  In addition, the OTS could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by the regulation, if the
OTS  determines  that such  distribution  would  constitute an unsafe or unsound
practice. At June 30, 1999, the Bank was a Tier 1 Bank.

         Liquidity. The Bank is required to maintain an average daily balance of
liquid assets (cash,  certain time  deposits,  bankers'  acceptances,  specified
United States Government, state or federal agency obligations, shares of certain
mutual funds and certain  corporate debt securities and commercial  paper) equal
to a  monthly  average  of not  less  than a  specified  percentage  of its  net
withdrawable  deposit  accounts  plus  short-term  borrowings.   This  liquidity
requirement may be changed from time to time by the OTS to any amount within the
range of 4.0% to 10.0% depending upon economic  conditions and the savings flows
of member institutions, and is currently 4.0%. Monetary penalties may be imposed
for failure to meet these liquidity  requirements.  The Bank's average liquidity
for the year  ended  June 30,  1999 was  9.34%  which  exceeded  the  applicable
requirements.  The Bank has never been subject to monetary penalties for failure
to meet its liquidity requirements.

         Assessments.  Savings  institutions  are required to pay assessments to
the OTS to fund the  agency's  operations.  The  general  assessment,  paid on a
semi-annual  basis, is computed as a percentage  upon the savings  institution's
total assets,  including  consolidated  subsidiaries,  as reported in the bank's
latest quarterly thrift financial  report.  The assessments paid by the Bank for
the fiscal year ended June 30, 1999 totalled $366,000.

         Branching.  The OTS regulations  authorize  federally chartered savings
associations to branch nationwide to the extent allowed by federal statute. This
permits  federal  savings  and loan  associations  with  interstate  networks to
diversify   more   easily   their  loan   portfolios   and  lines  of   business
geographically.  The OTS authority preempts any state law purporting to regulate
branching by federal savings institutions.


                                                        15

<PAGE>



         Community  Reinvestment.  Under the Community Reinvestment Act ("CRA"),
as implemented by OTS  regulations,  a savings  institution has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire  community,  including  low and  moderate  income
neighborhoods.  The CRA does not  establish  specific  lending  requirements  or
programs  for  financial   institutions  nor  does  it  limit  an  institution's
discretion  to develop the types of products and  services  that it believes are
best  suited  to its  particular  community,  consistent  with the CRA.  The CRA
requires the OTS, in connection with its  examination of a savings  institution,
to assess the institution's  record of meeting the credit needs of its community
and to take such record into account in its  evaluation of certain  applications
by such  institution.  The CRA also  requires  all  institutions  to make public
disclosure of their CRA ratings.  The Bank received a "satisfactory"  CRA rating
in its most recent examination.

         Transactions  with Related  Parties.  The Bank's authority to engage in
certain  transactions  with related parties or "affiliates"  (i.e.,  any company
that  controls or is under common  control with an  institution,  including  the
Company and any non-savings institution subsidiaries) is limited by Sections 23A
and 23B of the Federal  Reserve Act  ("FRA").  Section 23A limits the  aggregate
amount of "covered transactions" (including extension of credit to, purchases of
assets from or the  issuance of a guarantee,  acceptance  or letter of credit on
behalf of affiliate)  with any individual  affiliate to 10.0% of the capital and
surplus of the  savings  institution  and also  limits the  aggregate  amount of
transactions with all affiliates to 20.0% of the savings  institution's  capital
and surplus.  Certain transactions with affiliates are required to be secured by
collateral in an amount and of a type  described in Section 23A and the purchase
of low quality  assets from  affiliates  is  generally  prohibited.  Section 23B
generally provides that certain  transactions with affiliates,  (including loan,
asset sales or purchases, and any servicing, leases or other agreements) must be
on  terms  and  under  circumstances,   including  credit  standards,  that  are
substantially  the same or at least as  favorable  to the  institution  as those
prevailing at the time for comparable transactions with nonaffiliated companies.
Notwithstanding  Sections 23A and 23B, savings  institutions are prohibited from
lending to any affiliate that is engaged in activities  that are not permissible
for bank holding  companies  under Section 4 (c) of the Bank Holding Company Act
("BHC Act").  Further, no savings institution may purchase the securities of any
affiliate other than a subsidiary.

         The Bank's authority to extend credit to executive officers,  directors
and principal shareholders  (generally considered to be those owners controlling
or having the power to vote ten  percent  or more of any class of the  Company's
stock) as well as entities controlled by such persons, are currently governed by
Sections  22(g) and 22(h) of the FRA, and the Federal  Reserve  Board's  ("FRB")
Regulation O thereunder.  Among other  things,  these  regulations  require such
loans  to  be  made  on  terms  substantially  the  same  as  those  offered  to
unaffiliated  individuals  and may not  involve  more  than the  normal  risk of
repayment.  Recent legislation created an exception for loans made pursuant to a
benefit or compensation program that is widely available to all employees of the
institution  and does not give  preference  to  insiders  over other  employees.
Regulation O also places  individual and aggregate limits on the amount of loans
the Bank may make to insiders based, in part, on the Bank's capital position and
requires certain board approval procedures to be followed.

         Enforcement.  Under  the  FDI  Act,  the OTS  has  primary  enforcement
responsibility over savings  institutions and has the authority to bring actions
against  the  institution  and  all  institution-affiliated  parties,  including
stockholders,  and any attorneys,  appraisers and  accountants  who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution.  Formal enforcement action may range from the issuance of a
capital  directive  or cease and  desist  order to removal  of  officers  and/or
directors to  institution  of  receivership,  conservatorship  or termination of
deposit  insurance.  Civil  penalties  cover a wide range of violations  and can
amount to $25,000 per day, or even $1 million  per day in  especially  egregious
cases.  Under  the FDI Act,  the  FDIC has the  authority  to  recommend  to the
Director of the OTS enforcement  action to be taken with respect to a particular
savings  institution.  If action is not taken by the Director,  the FDIC has the
authority to take such action under certain circumstances.
Federal law also establishes criminal penalties for certain violations.

         Standards for Safety and Soundness.  The federal banking  agencies have
adopted Interagency  Guidelines  Prescribing  Standards for Safety and Soundness
("Guidelines")  and a final rule to  implement  safety and  soundness  standards
required  under the FDI Act. The  Guidelines  set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems
at insured depository institutions before capital becomes

                                                        16

<PAGE>



impaired.  The  standards  set  forth in the  Guidelines  address  internal
controls and information  systems;  internal audit system;  credit underwriting;
loan documentation;  interest rate risk exposure;  asset growth;  asset quality;
earnings;  and  compensation,  fees and  benefits.  If the  appropriate  federal
banking  agency  determines  that an  institution  fails  to meet  any  standard
prescribed by the  Guidelines,  the agency may require the institution to submit
to the agency an acceptable  plan to achieve  compliance  with the standard,  as
required by the FDI Act. The final rule establishes deadlines for the submission
and review of such  safety and  soundness  compliance  plans when such plans are
required.  Most recently,  the agencies adopted  guidelines related to Year 2000
computer compliance.

         Capital  Requirements.  The OTS  capital  regulations  require  savings
institutions to meet three minimum capital  standards:  a 1.5% tangible  capital
standard, a 4.0% (3% for the most highly rated institutions)  leverage ratio (or
core capital ratio) and an 8.0% risk-based  capital standard.  In addition,  the
prompt corrective action standards discussed below also establish,  in effect, a
minimum 2% tangible capital standard, a 4% leverage (core) capital ratio (3% for
institutions  receiving the highest  rating on the CAMEL  financial  institution
rating system),  and, together with the risk-based capital standard itself, a 4%
Tier  I  risk-based  capital  standard.   Core  capital  is  defined  as  common
stockholders'  equity  (including  retained  earnings),   certain  noncumulative
perpetual preferred stock and related surplus,  and minority interests in equity
accounts  of  consolidated  subsidiaries  less  intangibles  other than  certain
mortgage  servicing  rights and credit card  relationships.  The OTS regulations
also require  that,  in meeting the  tangible,  leverage  (core) and  risk-based
capital  standards,  institutions must generally deduct investments in and loans
to subsidiaries  engaged in activities as principal that are not permissible for
a national bank.

         The risk-based capital standard for savings  institutions  requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and   supplementary   capital)  to  risk  weighted  assets  of  4.0%  and  8.0%,
respectively.  In determining the amount of  risk-weighted  assets,  all assets,
including certain  off-balance sheet assets,  are multiplied by a risk-weight of
0% to 100%,  as assigned by the OTS  capital  regulation  based on the risks OTS
believes  are  inherent in the type of asset.  The  components  of Tier 1 (core)
capital are equivalent to those discussed  earlier under the 3.0% leverage ratio
standard.  The components of supplementary  capital currently include cumulative
preferred stock,  long-term  perpetual  preferred stock,  mandatory  convertible
securities, subordinated debt and intermediate preferred stock and allowance for
loan and  lease  losses.  Allowance  for loan and  lease  losses  includable  in
supplementary  capital is limited to a maximum of 1.25% of risk-weighted assets.
Overall,  the amount of supplementary  capital included as part of total capital
cannot exceed 100% of core capital.

         The OTS (and other federal banking agencies) has revised the risk-based
capital  standards to ensure that such  standards  take account of interest rate
risk. The OTS  regulations set forth the methodology for calculating an interest
rate risk component that would be incorporated  into the OTS risk-based  capital
regulations.  A savings  institutions  with "above  normal"  interest  rate risk
exposure  must deduct from total  capital a portion of its capital to cover such
interest  rate  risk  for  purposes  of  calculating  their  risk-based  capital
requirements.  A savings  institution's  interest  rate risk is  measured by the
decline in the net portfolio value of its assets (i.e.,  the difference  between
incoming  and  outgoing  discounted  cash flows  from  assets,  liabilities  and
off-balance  sheet  contracts)  that would result from a hypothetical  200-basis
point  increase or decrease in market  interest  rates  (except when the 3-month
Treasury bond equivalent yield falls below 4.0%, then the decrease will be equal
to one-half of that Treasury  rate) divided by the estimated  economic  value of
the institution's  assets, as calculated in accordance with guidelines set forth
by the OTS. A savings  institution  whose  measured  interest rate risk exposure
exceeds 2.0% must deduct an interest  rate  component in  calculating  its total
capital under the  risk-based  capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2.0%,  multiplied by the estimated  economic value of the
bank's  assets.  That dollar  amount is  deducted  from an  institution's  total
capital in calculating  compliance with its risk-based capital requirement.  For
the present time,  the OTS has deferred  implementation  of a capital  deduction
based on the  interest-rate  risk component.  If the Bank had been subject to an
interest-rate  risk  component as of June 30, 1999, the Bank would not have been
subject to any  deduction  from  capital as a result of its  interest  rate risk
position.


                                                        17

<PAGE>



         At June 30, 1999,  the Bank met each of its capital  requirements.  The
following table sets forth in terms of dollars and percentages the OTS tangible,
leverage and risk-based capital requirements,  and the Bank's historical amounts
and percentages at June 30, 1999.
<TABLE>
<CAPTION>

                                                                    At June 30, 1999
                                           -----------------------------------------------------------------
                                            Capital                Actual                  Excess
                                          Requirement     %        Capital        %        Capital       %
                                          -----------    ---       -------       ---       -------      ---

<S>                                        <C>          <C>       <C>           <C>       <C>            <C>
Tangible............................       $ 36,113     1.5%      $ 163,267       6.8%    $ 127,154      5.3%

Leverage............................         72,226     3.0         163,267       6.8        91,041      3.8

Risk-based..........................         80,415     8.0         172,333      17.1        91,918      9.1
</TABLE>

         Prompt Corrective  Regulatory  Action.  Under the OTS prompt corrective
action  regulations,  the OTS is required to take  certain  supervisory  actions
against  undercapitalized  institutions,  the severity of which depends upon the
institution's degree of undercapitalization. Generally, a savings institution is
considered  "well  capitalized"  if its ratio of total capital to  risk-weighted
assets is at least  10%,  its ratio of Tier I (core)  capital  to  risk-weighted
assets is at least 6%, its ratio of core capital to total assets is at least 5%,
and it is not  subject to any order or  directive  by the OTS to meet a specific
capital  level.  A  savings  institution  generally  is  considered  "adequately
capitalized" if its ratio of total capital to  risk-weighted  assets is at least
8%, its ratio of Tier I (core) capital to  risk-weighted  assets is at least 4%,
and its  ratio  of core  capital  to  total  assets  is at  least  4% (3% if the
institution receives the highest CAMEL rating). A savings institution that has a
ratio of total capital to risk-weighted  assets of less than 8%, a ratio of Tier
I (core)  capital  to  risk-weighted  assets  of less than 4% or a ratio of core
capital to total  assets of less than 4% (3% or less for  institutions  with the
highest  examination rating) is considered to be  "undercapitalized."  A savings
institution  that has a total  risk-based  capital  ratio less than 6%, a Tier 1
capital  ratio  of less  than 3% or a  leverage  ratio  that is less  than 3% is
considered to be "significantly undercapitalized" and a savings institution that
has a tangible  capital to assets ratio equal to or less than 2% is deemed to be
"critically  undercapitalized."  Subject  to a  narrow  exception,  the  banking
regulator is required to appoint a receiver or  conservator  for an  institution
that is  "critically  undercapitalized."  The  regulation  also  provides that a
capital restoration plan must be filed with the OTS within 45 days of the date a
savings   institution   receives   notice   that   it   is   "undercapitalized,"
"significantly  undercapitalized" or "critically  undercapitalized."  Compliance
with the plan must be guaranteed  by any parent  holding  company.  In addition,
numerous  mandatory  supervisory  actions  become  immediately  applicable to an
undercapitalized   institution,   including,   but  not  limited  to,  increased
monitoring by regulators and restrictions on growth,  capital  distributions and
expansion.  The OTS  could  also  take  any  one of a  number  of  discretionary
supervisory  actions,  including  the  issuance of a capital  directive  and the
replacement of senior executive officers and directors.

         Insurance on Deposit  Accounts.  The FDIC has  established a risk-based
assessment  system for insured  depository  institutions that takes into account
the risks attributable to different  categories and concentrations of assets and
liabilities. Under the risk-based assessment system, the average assessment rate
paid by institutions insured under the SAIF was increased. Under the risk- based
assessment  system,  the FDIC  assigns an  institution  to one of three  capital
categories based on the institution's  financial information as of the reporting
period ending seven months before the assessment period,  consisting of (1) well
capitalized,  (2) adequately capitalized or (3) undercapitalized.  The FDIC also
assigns an institution  to one of three  supervisory  subcategories  within each
capital group.  The supervisory  subgroup to which an institution is assigned is
based on a  supervisory  evaluation  provided  to the FDIC by the  institution's
primary  federal  regulator  and  information  that  the FDIC  determines  to be
relevant to the  institution's  financial  conditions  and the risk posed to the
deposit insurance funds (which may include, if applicable,  information provided
by the institution's state supervisor). An institution's assessment rate depends
on the capital category and supervisory category to which it is assigned.  Under
the risk-based assessment system, there are nine assessment risk classifications
(i.e.,  combinations  of capital  groups  and  supervisory  subgroups)  to which
different  assessment rates are applied. As a result of the  recapitalization of
the SAIF in 1996 after the enactment of the Deposit Funds Insurance Act of 1996,
the FDIC reduced the assessment rates for deposit insurance for  SAIF-assessable
deposits for fiscal 1999

                                                        18

<PAGE>



to a range of 0 to 27  basis  points.  The  assessment  rate  for the  Company's
SAIF-assessable  deposits  for  fiscal  1999 was 0 basis  points.  In  addition,
SAIF-assessable  deposits  are also subject to  assessments  for payments on the
bonds issued in the late 1980s by the Financing  Corporation  (the "FICO" bonds)
to recapitalize the now defunct Federal Savings and Loan Insurance  Corporation.
The  Company's  total  expense in fiscal  1999 for the  assessment  for  deposit
insurance and the FICO payments was $930,000.

         Thrift Rechartering  Legislation.  The Funds Act provides that the Bank
Insurance  Fund (the  "BIF") and SAIF will merge on January 1, 1999 if there are
no more savings  associations  as of that date. That  legislation  also required
that the  Department  of  Treasury  submit  a  report  to  Congress  that  makes
recommendations  regarding a common financial  institutions  charter,  including
whether the separate charters for thrifts and banks should be abolished. Various
proposals to eliminate the federal thrift  charter,  create a uniform  financial
institutions  charter and abolish the OTS have been introduced in Congress.  The
bills would require federal  savings  institutions to convert to a national bank
or some type of state  charter by a  specified  date under some  bills,  or they
would  automatically  become  national banks.  Under some  proposals,  converted
federal thrifts would generally be required to conform their activities to those
permitted for the charter selected and divestiture of nonconforming assets would
be required over a two year period, subject to two possible one year extensions.
State chartered  thrifts would become subject to the same federal  regulation as
applies to state  commercial  banks.  A more  recent bill passed by the House of
Representatives  would not affect the federal thrift charter,  but would subject
unitary savings and loan holding  companies to the same activities  restrictions
applicable to multiple savings and loan holding companies existing on or applied
for by March 31,  1998  would be  grandfathered.  The Bank is unable to  predict
whether such legislation would be enacted or the extent to which the legislation
would restrict or disrupt its operations.

Federal Home Loan Bank System

         The Bank is a member of the FHLB System,  which consists of 12 regional
FHLBs.  The FHLB  provides  a  central  credit  facility  primarily  for  member
institutions. The Bank, as a member of the FHLB, is required to acquire and hold
shares of capital  stock in that FHLB in an amount at least equal to 1.0% of the
aggregate principal amount of its unpaid residential  mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its advances  (borrowings)
from the  FHLB,  whichever  is  greater.  The Bank was in  compliance  with this
requirement with an investment in FHLB stock at June 30, 1999, of $19.6 million.
FHLB advances must be secured by specified types of collateral and all long-term
advances may only be obtained for the purpose of providing funds for residential
housing finance.

         The FHLBs are required to provide funds for the resolution of insolvent
thrifts  and  to  contribute  funds  for  affordable  housing  programs.   These
requirements  could reduce the amount of  dividends  that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their  members.  For the years ended June 30,  1999,  1998 and 1997,
dividends  from the FHLB to the Bank amounted to $1.3 million,  $1.2 million and
$820,000,  respectively.  If dividends were reduced,  or interest on future FHLB
advances increased, the Bank's net interest income would likely also be reduced.
Further,  there can be no assurance  that the impact of FDICIA and the FIRREA on
the FHLBs will not also cause a decrease  in the value of the FHLB stock held by
the Bank.

 Federal Reserve System

         The  FRB   regulations   require   savings   institutions  to  maintain
non-interest-earning  reserves against their transaction accounts (primarily NOW
and regular  checking  accounts).  The FRB  regulations  generally  require that
reserves be maintained against aggregate  transaction  accounts as follows:  For
accounts  aggregating  $46.5  million or less (subject to adjustment by the FRB)
the reserve  requirement is 3.0%;  and for accounts  greater than $46.5 million,
the reserve  requirement  is $1.395 million plus 10.0% (subject to adjustment by
the FRB  between  8.0% and 14.0%)  against  that  portion  of total  transaction
accounts  in excess  of $46.5  million.  The first  $4.9  million  of  otherwise
reservable  balances  (subject to  adjustments by the FRB) are exempted from the
reserve requirements. The Bank is

                                                        19

<PAGE>



in compliance with the foregoing  requirements.  The balances maintained to meet
the  reserve  requirements  imposed by the FRB may be used to satisfy  liquidity
requirements imposed by the OTS.

Holding Company Regulation

         The  Company is a  non-diversified  unitary  savings  and loan  holding
company  within the meaning of the HOLA,  as amended.  As such,  the Company has
registered  with  the  OTS  and is  subject  to OTS  regulations,  examinations,
supervision  and reporting  requirements.  In addition,  the OTS has enforcement
authority over the Company and its non-savings institution  subsidiaries.  Among
other things,  this authority permits the OTS to restrict or prohibit activities
that are  determined  to be a serious risk to the holding  company's  subsidiary
savings  institution.  The Bank must notify the OTS 30 days before declaring any
dividend to the Company.

         The HOLA  prohibits a savings  and loan  holding  company,  directly or
indirectly,  or through one or more subsidiaries,  from acquiring more than 5.0%
of the voting stock of another savings  institution or holding company  thereof,
without prior written approval of the OTS; or acquiring or retaining  control of
a  depository  institution  that  is not  insured  by the  FDIC.  In  evaluating
applications by holding companies to acquire savings institutions,  the OTS must
consider the financial  and  managerial  resources  and future  prospects of the
company and institution  involved,  the effect of the acquisition on the risk to
the insurance  funds, the convenience and needs of the community and competitive
factors.

         As a unitary savings and loan holding company (i.e.,  one that controls
only one thrift subsidiary),  the Company generally will not be restricted under
existing  banking  laws as to the types of business  activities  in which it may
engage,  provided  that the Bank  continues to be a QTL.  See  "Federal  Savings
Institution  Regulation  - QTL Test" for a discussion  of the QTL  requirements.
Upon  any  non-supervisory   acquisition  by  the  Company  of  another  savings
association  or  savings  bank  that  meets  the QTL test and is  deemed to be a
savings institution by OTS, the Company would become a multiple savings and loan
holding company (if the acquired  institution is held as a separate  subsidiary)
and  would  be  subject  to  extensive  limitations  on the  types  of  business
activities  in which it  could  engage.  The HOLA  limits  the  activities  of a
multiple  savings  and loan  holding  company  and its  non-insured  institution
subsidiaries  primarily to  activities  permissible  for bank holding  companies
under  Section  4(c)(8) of the Bank Holding  Company  Act,  subject to the prior
approval of the OTS, and certain other activities  authorized by OTS regulation,
and no multiple  savings and loan holding  company may acquire more than 5.0% of
the stock of a company engaged in impermissible activities.

         The OTS is prohibited from approving any acquisition  that would result
in a multiple savings and loan holding company controlling savings  institutions
in  more  than  one  state,  subject  to two  exceptions:  (i) the  approval  of
interstate supervisory  acquisitions by savings and loan holding companies,  and
(ii) the  acquisition  of a savings  institution in another state if the laws of
the  state  of  the  target  savings   institution   specifically   permit  such
acquisitions.  The states  vary in the extent to which  they  permit  interstate
savings and loan holding company acquisitions.

     Federal  law  generally  provides  that no  "person,"  acting  directly  or
indirectly or through or in concert with one or more other persons,  may acquire
"control," as that term is defined in OTS  regulations,  of a  federally-insured
savings  institution  without  giving at least 60 days written notice to the OTS
and providing the OTS an opportunity to disapprove of the proposed  acquisition.
Such acquisitions of control may be disapproved if it is determined, among other
things,  that (i) the acquisition would substantially  lessen competition;  (ii)
the financial  condition of the acquiring  person might jeopardize the financial
stability  of  the  savings  institution  or  prejudice  the  interests  of  its
depositors;  or (iii) the  competency,  experience or integrity of the acquiring
person or the proposed  management  personnel  indicates that it would not be in
the  interest  of the  depositors  or the  public to permit the  acquisition  of
control by such  person.This  requirement  would  apply to  acquisitions  of the
Company's stock.




                                                        20

<PAGE>



         Thrift Rechartering  Legislation.  The Funds Act provides that the Bank
Insurance  Fund (the  "BIF") and SAIF were to have  merged on January 1, 1999 if
there had been no more savings  associations as of that date.  That  legislation
also required that the  Department of Treasury  submit a report to Congress that
makes  recommendations   regarding  a  common  financial  institutions  charter,
including  whether  the  separate  charters  for  thrifts  and  banks  should be
abolished.  Various proposals to eliminate the federal thrift charter,  create a
uniform financial  institutions charter and abolish the OTS have been introduced
in Congress.  The bills would require federal savings institutions to convert to
a national  bank or some type of state  charter by a  specified  date under some
bills, or they would automatically  become national banks. Under some proposals,
converted   federal  thrifts  would  generally  be  required  to  conform  their
activities  to those  permitted  for the charter  selected  and  divestiture  of
nonconforming  assets would be required  over a two year period,  subject to two
possible one year  extensions.  State chartered  thrifts would become subject to
the same federal  regulation as applies to state commercial banks. A more recent
bill pending in a House of Representatives Senate Conference Committee would not
affect the federal thrift  charter,  but would subject  unitary savings and loan
holding  companies to the same  activities  restrictions  applicable to multiple
savings  and loan  holding  companies  under the  legislation.  Unitary  holding
companies  existing on or applied  for by March 4, 1999 would be  grandfathered.
The Bank is unable to predict whether such  legislation  would be enacted or the
extent to which the legislation would restrict or disrupt its operations.

 Federal Securities Laws

         The  Company's  Common  Stock  is  registered  with the SEC  under  the
Exchange  Act of 1934,  as amended  (the  "Exchange  Act").  The Company and its
officers and directors  are subject to periodic  reporting,  proxy  solicitation
regulations,  insider  trading  restrictions  and other  requirements  under the
Exchange Act.

         The  registration  under the  Securities  Act of 1933 (the  "Securities
Act") of shares of the Common Stock issued in the  Conversion or pursuant to the
Company's employee stock benefit plans does not cover the resale of such shares.
Shares  purchased  or acquired by an affiliate of the Company will be subject to
the resale  restrictions  of Rule 144 under the  Securities  Act. If the Company
meets  the  current  public  information  requirements  of Rule  144  under  the
Securities  Act,  each  affiliate  of the  Company who  complies  with the other
conditions of Rule 144 (including  those that require the affiliate's sale to be
aggregated  with those of certain  other  persons)  would be able to sell in the
public market,  without  registration,  a number of shares not to exceed, in any
three-month  period,  the greater of (i) 1.0% of the  outstanding  shares of the
Company or (ii) the average  weekly  volume of trading in such shares during the
preceding four calendar weeks.  Shares acquired from the Company that are deemed
to be restricted under the definition of that term in Rule 144, must be held for
a period of at least one year before they may be  publicly  resold.  A provision
may be made in the  future by the  Company  to permit  affiliates  to have their
shares registered for sale under the Securities Act under certain circumstances.

STATISTICAL DATA

The detailed statistical data that follows is being presented in accordance with
Guide 3, prescribed by the Securities and Exchange Commission.  This data should
be read in conjunction  with the financial  statements and related notes and the
discussion  included in the  Management's  Discussion  and Analysis of Financial
Condition and Results of Operations.





                                                        21

<PAGE>



A.  Mortgage and Other Loan Activities

The following  table sets forth the Bank's loan  originations,  loan  purchases,
sales, and principal repayments for the periods indicated:
<TABLE>
<CAPTION>


                                                                         Year ended June 30,
                                                                -------------------------------------
                                                                 1999            1998           1997
                                                                -------         ------         ------
                                                                           (In thousands)
Mortgage loans (gross):
<S>                                                          <C>              <C>               <C>
  At beginning of period..................................   $ 791,893        $ 776,402         $ 690,983
  Mortgage loans originated:
    One- to four-family...................................      62,421           38,783            39,370
    Multi-family..........................................      89,980           60,715           115,887
    Construction..........................................      11,173            4,491             6,417
    Commercial real estate................................      12,398            1,066               650
                                                               -------          -------         ---------
      Total mortgage loans originated ....................     175,972          105,055           162,324
  Mortgage loans purchased (1)............................          --           32,656            16,956
                                                            ----------          -------           -------
      Total mortgage loans originated
        and purchased ....................................     175,972          137,711           179,280
  Transfer of mortgage loans
    to real estate owned..................................        (725)          (3,491)             (820)
  Principal repayments....................................    (127,191)        (110,300)          (85,766)
  Sales of loans..........................................     (28,106)          (8,429)           (7,275)
                                                               --------        ---------          --------
       At end of period...................................   $ 811,843        $ 791,893         $ 776,402
                                                               =======          =======           =======

Commercial loans (gross):
    At beginning of period................................    $ 49,887       $       --      $         --
    Asset based loans originated..........................     116,022          106,660                --
    Other commercial  loans originated....................      22,290           18,744                --
    Commercial  loans purchased (1).......................       4,671           55,842                --
    Principal repayments..................................    (147,921)        (131,359)               --
                                                              ---------        ---------       ----------
          At end of period................................    $ 44,949         $ 49,887       $        --
                                                                ======           ======         =========

 Other loans (gross):
    At beginning of period................................   $ 137,212        $ 138,115         $ 130,410
    Other loans originated................................      41,741           46,726            47,718
    Other loans purchased (1).............................          --              706                --
    Principal repayments..................................     (52,203)         (48,335)          (40,013)
                                                               --------         --------          --------
          At end of period................................   $ 126,750        $ 137,212         $ 138,115
                                                               =======          =======           =======
</TABLE>

 (1)   For fiscal year 1998, mortgage loans, commercial loans and consumer loans
       include $26.1 million, $55.8 million and $706,000, respectively, of loans
       acquired from the Continental acquisition.



                                                        22

<PAGE>



B.  Loan Maturity and Repricing

The following table shows the maturity or period to repricing of the Bank's loan
portfolio at June 30, 1999.  Loans that have adjustable rates are shown as being
due in the period  during which the  interest  rates are next subject to change.
The table does not include  prepayments  or  scheduled  principal  amortization.
Prepayments  and scheduled  principal  amortization  on loans  totalled  $325.5,
$290.0 million and $125.8  million,  respectively,  for the years ended June 30,
1999, 1998 and 1997.
<TABLE>
<CAPTION>

                                                                    At June 30, 1999
                                       --------------------------------------------------------------------------
                                                         Mortgage Loans                            Commercial
                                       -----------------------------------------------------    -----------------
                                                                            Comm-
                                                                            ercial                         Other
                                         One- to       Co-       Multi-     Real      Const-       Asset   Comm-
                                       four-family   operative   family     Estate   ruction      Based    ercial
                                       -----------   ---------   ------     ------   -------      -----    ------
 Amounts due:                                                        (In thousands)
<S>                                     <C>          <C>        <C>       <C>        <C>        <C>        <C>
  Within one year.....................  $ 119,843    $ 5,333    $ 2,446   $ 15,680   $ 7,515    $11,056    $12,373
  After one year:
     One to three years...............     17,537          2     74,772      2,390        --         --      5,323
     Three to five years..............     15,474         --     85,904      7,297        --         --      6,320
     Five to ten years................    124,950         55     93,137     16,241        --         --      4,986
     Ten to twenty years..............    116,304        216     51,973      4,720        --         --      4,891
     Over twenty years................     40,129        266      7,883      1,776        --         --         --
                                           ------      -----   --------      ------     ----     ------     ------
  Total due after one year............    314,394        539    313,669     32,424        --         --     21,520
                                          -------      -----    -------     -------     ----     ------     ------
  Total amounts due...................  $ 434,237    $ 5,872  $ 316,115   $ 48,104   $ 7,515   $ 11,056   $ 33,893
                                          =======      =====    =======     ======     =====     ======     ======


                                                          June 30, 1999
                                      ----------------------------------------------
                                        Consumer and Other Loans
                                      -----------------------------
                                         Home
                                        Equity       Home
                                       Lines of     Equity     Other        Total
                                        Credit       Loans     Loans      Receivable
                                        ------       -----     -----      ----------
                                                       (In thousands)
<S>                                   <C>           <C>     <C>          <C>
Within one year.....................  $ 85,576      $ 303   $ 13,716     $ 273,841
After one year:
   One to three years...............        --      2,142      3,307       105,473
   Three to five years..............        --      7,048      1,823       123,866
   Five to ten years................        --      8,725        700       248,794
   Ten to twenty years..............        --      3,312         98       181,514
   Over twenty years................        --         --         --        50,054
                                     ---------  ---------   --------      --------
Total due after one year............        --     21,227      5,928       709,701
                                     ---------     ------      -----       -------
Total amounts due...................  $ 85,576   $ 21,530   $ 19,644     $ 983,542
                                        ======     ======     ======       =======

Discounts, premiums and
       deferred loan fees, net......                                          (349)
Allowance for loan losses...........                                        (9,120)
                                                                           --------
     Loans receivable, net..........                                      $974,073
                                                                           =======

The following table sets forth, at June 30, 1999, the dollar amount of all fixed
rate loans  contractually  due after June 30, 2000,  and  adjustable  rate loans
repricing after June 30, 2000.
                                                                             Due After June 30, 2000
                                                                       --------------------------------------
                                                                       Fixed          Adjustable        Total
                                                                       -----          ----------        -----
Mortgage loans:                                                                     (In thousands)
<S>                                                                  <C>             <C>             <C>
   One- to four-family............................................   $ 279,574       $ 34,820        $ 314,394
   Co-operative...................................................         539             --              539
   Multi-family...................................................      96,828        216,841          313,669
   Commercial real estate.........................................      18,839         13,585           32,424
   Commercial loans...............................................      11,064         10,456           21,520
   Consumer and other loans.......................................      27,155             --           27,155
                                                                       -------      ---------          -------
Total loans.......................................................    $433,999      $ 275,702        $ 709,701
                                                                       =======       ========          ========




                                                        23

<PAGE>



C.  Summary of Allowance for Losses

         The following table sets forth the Bank's  allowances for loan and real
estate owned losses at the dates indicated.
                                                                           Year Ended June 30,
                                                       ------------------------------------------------------------
                                                        1999          1998        1997          1996          1995
                                                       ------        ------      ------        ------        ------
                                                                        (Dollars in thousands)
Allowance for loan losses:
<S>                                                   <C>          <C>          <C>          <C>           <C>
Balance at beginning of period...................     $ 8,941      $ 5,182      $ 4,495      $ 1,729       $ 1,417
Charge-offs:
   One- to four-family...........................       (397)         (696)        (184)         (67)          (54)
   Co-op.........................................          --           --           --          (76)          (28)
   Commercial real estate........................          --           --         (107)          --            --
   Commercial....................................         (73)         (19)          --           --            --
   Consumer and other loans......................         (43)         (58)         (15)        (122)          (31)
                                                        ------       ------     --------      -------      --------
      Total charge-offs..........................        (513)        (773)        (306)        (265)         (113)

Recoveries:
   Mortgage loans................................          15           101          12           35            17
   Commercial....................................           3            21          --           --            --
   Consumer and other loans......................          24            15          31           54             8
                                                         ----        ------     -------      -------      --------
      Total recoveries...........................          42           137          43           89            25
Allowances of acquired institutions..............          --         2,745          --        2,217            --
Provision for loan losses........................         650         1,650         950          725           400
                                                        -----         -----     -------       ------       -------

Balance at end of the period.....................      $9,120        $8,941     $ 5,182       $4,495        $1,729
                                                        =====         =====       =====        =====         =====

Ratio of net charge-offs during the period
   to average loans outstanding  during
   the period....................................        0.05%        0.07%        0.03%        0.03%         0.03%

Ratio of allowance for loan losses to total
   loans at the end of the period................        0.93%        0.91%        0.57%        0.55%         0.52%

Ratio of allowance for loan losses to non-
   performing loans at the end of the
   period........................................      139.08%       96.12%       35.18%       34.63%        47.10%

Allowance for losses on real estate owned:
Balance at beginning of period...................       $ 123         $334         $768         $589          $632
Charge-offs......................................         (87)        (304)        (634)        (384)         (103)
Recoveries.......................................          --          --            --           --            --
Allowances of acquired institutions..............          --          --            --          188            --
Provision for losses.............................          35          93           200          375            60
                                                         ----        ----          ----         ----          ----
Balance at the end of the period.................         $71        $123          $334         $768          $589
                                                           ==         ====          ===          ===           ===

                                                        24

<PAGE>



The following  table sets forth the Bank's  allocation of the allowance for loan
losses by loan category and the percent of loans in each category to total loans
receivable at the dates indicated.  The portion of the allowance for loan losses
allocated to each loan  category  does not  represent  the total  available  for
future losses which may occur within the loan category since the total loan loss
reserve is a valuation reserve applicable to the entire loan portfolio.

                                                                          At June 30,
                                           -----------------------------------------------------------------------
                                                  1999                      1998                   1997
                                           ---------------------   -----------------------  ----------------------
                                                   % of Loans in             % of Loans in           % of Loans in
                                                    Category to               Category to             Category to
                                           Amount   Total Loans     Amount    Total Loans    Amount   Total Loans
                                           ------   -----------     ------    -----------    ------   -----------
                                                                (Dollars in thousands)
<S>                                       <C>          <C>         <C>           <C>        <C>          <C>
One- to-four-family(1)..............      $3,173       44.76%      $3,457        51.10%     $3,327       61.37%
Commercial real estate..............         345        4.89          340         4.46         308        2.56
Multi-family........................       1,150       32.15          851        24.83         666       20.81
Construction........................          53        0.77           29         0.50          89        0.16
Commercial loans....................       3,545        4.57        3,390         5.10          --          --
Consumer and other loans............         854       12.86          874        14.01         792       15.10
                                          ------       ------      ------       ------      ------       ----
     Total allowances...............      $9,120      100.00%      $8,941       100.00%     $5,182      100.00%
                                           =====      ======        =====       ======       =====      ======



                                                            At June 30,
                                         -------------------------------------------------
                                                 1999                       1998
                                         ---------------------     -----------------------
                                                 % of Loans in              % of Loans in
                                                  Category to                Category to
                                         Amount   Total Loans       Amount    Total Loans
                                         ------   -----------       ------    -----------
                                                      (Dollars in thousands)

<S>                                      <C>            <C>        <C>           <C>
One- to-four-family(1)..............     $3,336         70.46%     $1,249        60.84%
Commercial real estate..............        158          3.30          --         0.68
Multi-family........................        278          9.69          74         5.64
Construction........................         47          0.67          --         0.22
Commercial loans....................         --            --          --           --
Consumer and other loans............        676         15.88         406        32.62
                                            ---         -----         ---        -----

     Total allowances...............     $4,495        100.00%     $1,729       100.00%
                                         ======        ======      ======       ======

                                                                 25
(1)   Includes allocations for co-op loans.
<PAGE>



D.  Composition of Loan Portfolio

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

                                                                    June 30,
                                                         1999                     1998                  1997
                                                    -------------------     --------------------    -------------------
                                                               Percent                   Percent                Percent
                                                                 of                        of                     of
                                                    Amount      Total       Amount       Total      Amount      Total
                                                    ------      -----       ------       -----      ------      -----
Mortgage loans:                                                          (Dollars in thousands)
<S>                                                <C>          <C>        <C>           <C>       <C>           <C>
One- to four-family............................    $434,237     44.15%     $492,804      50.33%    $552,577      60.42%
Co-op..........................................       5,872      0.60         7,516       0.77        8,647       0.95
Multi-family...................................     316,115     32.14       243,070      24.83      190,293      20.81
Commercial real estate.........................      48,104      4.89        43,624       4.46       23,445       2.56
Construction...................................       7,515      0.76         4,879       0.50        1,440       0.16
                                                    -------     -----       -------      -----      -------      -----
    Total mortgage loans.......................     811,843     82.54       791,893      80.89      776,402      84.90
                                                    -------     -----       -------      -----      -------      -----

Commercial loans:
Asset based loans..............................      11,056      1.12        21,339       2.18           --         --
Other commercial loans.........................      33,893      3.45        28,548       2.92           --         --
                                                     ------      ----        ------      -----                    ----
    Total commercial loans.....................      44,949      4.57        49,887       5.10           --         --
                                                     ------      ----        ------      -----      -------       ----

Consumer and other loans:
Home equity lines of credit....................      85,576      8.70        93,862       9.59       91,782      10.04
Guaranteed student loans.......................      12,791      1.30        15,262       1.56       17,006       1.86
Home equity loans..............................      21,530      2.19        19,050       1.95       19,505       2.13
Loans on deposit accounts......................       4,788      0.49         5,416       0.55        5,514       0.60
Other loans....................................       2,065      0.21         3,622       0.36        4,308       0.47
                                                   --------     -----      --------      -----      -------      -----
    Total  consumer and other loans............     126,750     12.89       137,212      14.01      138,115      15.10
                                                    -------     -----       -------      -----      -------      -----
Total loans....................................     983,542    100.00%      978,992      100.0%     914,517      100.0%
                                                               ======                    =====                   =====
Discounts, premiums and
 deferred loan fees, net.......................        (349)                   (254)                    (14)
Allowance for loan losses......................      (9,120)                 (8,941)                 (5,182)
                                                    --------                --------               ---------
Total loans, net...............................   $ 974,073                $969,797                $909,321
                                                   ========                 =======                 =======

                                                                    June 30,
                                                  ---------------------------------------------
                                                          1996                     1995
                                                  ------------------      ---------------------
                                                             Percent                    Percent
                                                               of                        of
                                                  Amount     Total          Amount       Total
                                                  ------     -----          ------       -----
Mortgage loans:
<S>                                              <C>          <C>         <C>            <C>
One- to four-family............................  $569,031     69.28%      $194,290       58.26%
Co-op..........................................     9,687      1.18          8,774        2.63
Multi-family...................................    79,571      9.69         18,774        5.63
Commercial real estate.........................    27,134      3.30          2,258        0.68
Construction...................................     5,560      0.67            745        0.22
                                                  -------     -----        -------       -----
    Total mortgage loans.......................   690,983     84.12        224,841       67.42
                                                  -------     -----        -------       -----

Commercial loans:
Asset based loans..............................        --        --             --          --
Other commercial loans.........................        --        --             --          --
                                                  -------    ------        -------       -----
    Total commercial loans.....................        --        --             --          --
                                                  -------    ------        -------       -----

Consumer and other loans:
Home equity lines of credit....................    81,205      9.89         70,954       21.28
Guaranteed student loans.......................    18,754      2.28         20,529        6.16
Home equity loans..............................    16,747      2.04         15,774        4.73
Loans on deposit accounts......................     5,782      0.70            980        0.29
Other loans....................................     7,922      0.97            416        0.12
                                                 --------     -----       --------       -----
    Total  consumer and other loans............   130,410     15.88        108,653       32.58
                                                  -------     -----        -------       -----
Total loans....................................   821,393    100.00%       333,494      100.00%
                                                             ======                     ======
Discounts, premiums and
 deferred loan fees, net.......................       848                      315
Allowance for loan losses......................    (4,495)                  (1,729)
                                                 ---------                 --------
Total loans, net...............................  $817,746                 $332,080
   =======                  =======


                                                                    26

<PAGE>



E. Money  Market,  Debt and Equity and  Mortgage-Backed  Securities  Composition
Table.

The following  table sets forth certain  information  regarding the carrying and
market values of the Company's  money market  investments  and its portfolios of
debt and equity and mortgage-backed securities at the dates indicated:

                                                                                         At June 30,
                                                         -------------------------------------------------------------------------
                                                                  1999                     1998                      1997
                                                         ---------------------    ----------------------      --------------------
                                                         Amortized      Market    Amortized       Market      Amortized     Market
                                                           Cost         Value       Cost          Value         Cost        Value
Money Market  Investments                                                                 (In thousands)
Federal funds sold and
<S>                                                        <C>          <C>         <C>           <C>          <C>          <C>
   repurchase agreements.............................      $  --        $  --       $9,500        $9,500       $1,100       $1,100
                                                            ====         ====        =====         =====        =====        =====

Debt and Equity Securities
Held-to-Maturity:
  United States Agency Obligations...................     $8,885       $8,888      $22,493       $22,786      $29,952      $30,042
  Obligation of New York State.......................        390          392          390           417          391          427
  FHLB stock.........................................     19,560       19,560       17,306        17,306       15,683       15,683
                                                          ------      -------      -------       -------      -------      -------
     Total debt and equity securities
        held-to-maturity.............................    $28,835      $28,840      $40,189       $40,509      $46,026      $46,152
                                                          ======       ======       ======        ======       ======       ======
Available-for-Sale:
   United States Agency Obligations..................    $10,000      $10,010      $29,031       $29,290      $22,036      $22,080
   Corporate Obligations.............................    113,855      111,281      103,070       103,167          --           --
   United States Treasury Bills......................         --           --          --            --         4,785        4,812
   United States Treasury Notes......................         --           --          --            --            --           --
   Marketable equity securities......................      1,177          877        2,419         2,450            8           17
                                                         -------       ------     --------       -------    ---------     --------
     Total debt and equity securities
        available-for-sale...........................   $125,032     $122,168     $134,520      $134,907      $26,829      $26,909
                                                         =======      =======      =======       =======       ======       ======

Mortgage-Backed Securities
  Held-to-Maturity:
    Pass-through certificates guaranteed by:
    GNMA.............................................    $55,782      $56,838      $78,106       $80,232     $106,900     $109,978
    FHLMC............................................      7,792        7,940       10,304        10,571       12,963       13,139
    FNMA.............................................     28,228       28,481       33,949        34,908       39,493       39,991
       REMICs:
           Agency Issuance...........................     91,476       87,214       53,021        52,799          --           --
           Private Issuance..........................     72,639       71,760       73,879        73,822          --           --
                                                          ------       ------       ------        ------  ----------    ---------
   Total mortgage-backed securities
         held-to-maturity............................   $255,917     $252,233     $249,259      $252,332     $159,356    $163,108
                                                         =======      =======      =======       =======      =======     =======
Available-for-Sale:
    Pass-through certificates guaranteed by:
    GNMA.............................................   $285,238     $283,311     $187,562      $190,247     $233,572     $237,754
    FHLMC............................................     48,259       48,510      118,982       120,677      222,961      221,756
    FNMA.............................................     83,555       83,008      140,597       142,183      131,066      131,085
       REMICs:
           Agency Issuance...........................    160,742      154,905      128,113       128,272       20,806       20,552
           Private Issuance..........................    373,053      365,304      358,033       358,968      110,481      110,672
                                                         -------      -------      -------       -------      -------      -------
 Total mortgage-backed securities
         available-for-sale..........................   $950,847     $935,038     $933,287      $940,347     $718,886     $721,819
                                                         =======      =======      =======       =======      =======      =======







                                                                   27

<PAGE>



F.  Maturity  Listing  for  Money  Market  Investments,   Debt  and  Equity  and
Mortgage-Backed Securities Portfolio

       The table below sets forth  certain  information  regarding  the carrying
value,  weighted  average  yields and  maturities  of the  Company's  repurchase
agreement, debt and equity securities and mortgage-backed securities at June 30,
1999.  There  were no debt and  equity,  exclusive  of  obligations  of the U.S.
Treasury  securities,  issued by any one entity with a total  carrying  value in
excess of 10.0% of retained earnings at June 30, 1999.

                                                                                         At June 30, 1999
                                                         One Year or Less      One to Five Years    Five to Ten Years
                                                       --------------------  --------------------  -------------------
                                                                 Annualized            Annualized            Annualized
                                                                  Weighted              Weighted              Weighted
                                                       Amortized  Average    Amortized  Average    Amortized   Average
                                                         Cost      Yield       Cost      Yield       Cost      Yield
                                                       ---------  -------    ---------  -------    ---------  -------
                                                                                       (Dollars in thousands)
<S>                                                      <C>         <C>       <C>        <C>        <C>        <C>
Money Market Investments
Repurchase agreement.................................    $    --       --%     $    --        --%    $    --       --%
                                                          ======     ====        =====     =====       =====    =====

Debt and Equity Securities
Held-to-Maturity:
United States Government Agency Obligations..........     $   --       --%     $    --        --%    $ 8,885     7.00%
Obligation of New York State.........................         --       --          390      7.90          --       --
FHLB stock...........................................         --       --                     --          --       --
                                                           -----   ------        -----     -----       -----     ----
 Total debt and equity securities held-to-maturity$           --       --%     $   390      7.90%    $ 8,885     7.00%
                                                           =====   ======          ===      ====       =====     ====

Available-for-Sale:
United States Government Agency Obligations..........     $   --       --%     $    --        --%   $ 10,000     7.46%
Corporate Bonds......................................         --       --        2,046      8.65      22,753     5.50
Marketable Equity Securities.........................         --       --           --        --          --       --
                                                           -----   ------        -----      ----      ------     ----
 Total debt and equity securities available-for-sale$         --       --%     $ 2,046      8.65%   $ 32,753     6.10%
                                                           =====   ======        =====      ====      ======     ====

Mortgage-Backed  Securities
Held-to-Maturity:
Pass-through certificates guaranteed by:
GNMA.................................................     $   --       --%     $    --        --%    $ 1,860     6.50%
FHLMC................................................         --       --           --        --       7,792     7.02
FNMA.................................................         --       --           --        --      20,028     7.02
REMICS:
   Agency Issuance ..................................         --       --           --        --          --       --
   Private Issuance..................................         --       --           --        --          --       --
                                                           -----   ------       ------     -----      ------     ----
     Total mortgage-backed securities held-to-maturity    $   --       --%     $    --        --%   $ 29,680     6.99%
                                                           =====   ======       ======     =====      ======     ====

Available-for-Sale:
Pass-through certificates guaranteed by:
GNMA.................................................     $   --       --%     $   146      6.87%   $     --       --%
FHLMC................................................        972     7.50        8,797      7.03         576     9.19
FNMA.................................................      7,768     6.50        7,862      6.37       9,897     7.00
REMICS:
  Agency Issuance....................................         --       --           --        --          --       --
  Private Issuance...................................         --       --           --        --          --       --
                                                           -----    -----       ------      ----      ------     ----
     Total mortgage-backed securities available-for-sale $ 8,740     6.61%    $ 16,805      6.72%   $ 10,473     7.12%
                                                           =====     ====       ======      ====      ======     ====

                                                                               At June 30, 1999
                                                          --------------------------------------------------------------
                                                            More Than Ten Years               Total Securities
                                                          ---------------------  ---------------------------------------
                                                                    Annualized                                Annualized
                                                                     Weighted    Average              Approx.   Weighted
                                                         Amortized   Average      Life     Amortized  Market    Average
                                                           Cost       Yield     (in years)  Cost      Value      Yield
                                                         ---------   -------    ---------  --------   ------    -------

<S>                                                       <C>         <C>         <C>     <C>         <C>       <C>
Money Market Investments
Repurchase agreement.................................     $     --       --%        --    $    --     $   --       --%
                                                           =======    =====       ====     ======      =====    =====

Debt and Equity Securities
Held-to-Maturity:
United States Government Agency Obligations..........     $     --       --%       5.6    $ 8,885    $ 8,888     7.00%
Obligation of New York State.........................           --       --        0.8        390        392     7.90
FHLB stock...........................................       19,560     6.50         --     19,560     19,560     6.50
                                                            ------     ----       ----     ------     ------     ----
 Total debt and equity securities held-to-maturity$       $ 19,560     6.50%       5.4   $ 28,835   $ 28,840     6.67%
                                                            ======     ====        ===     ======     ======     ====

Available-for-Sale:
United States Government Agency Obligations..........     $     --       --%       7.4   $ 10,000    $10,010     7.46%
Corporate Bonds......................................       89,056     6.01       23.6    113,855    111,281     5.95%
Marketable Equity Securities.........................        1,177     0.02         --      1,177        877     0.02
                                                             -----     ----      -----      -----    -------     ----
 Total debt and equity securities available-for-sale$     $ 90,233     5.93%      22.3  $ 125,032  $ 122,168     6.02%
                                                            ======     ====       ====    =======    =======     ====

Mortgage-Backed  Securities
Held-to-Maturity:
Pass-through certificates guaranteed by:
GNMA.................................................     $ 53,922     6.60%       3.2   $ 55,782   $ 56,838     6.60%
FHLMC................................................           --       --        3.5      7,792      7,940     7.02
FNMA.................................................        8,200     7.44        4.0     28,228     28,481     7.14
REMICS:
   Agency Issuance ..................................       91,476     6.37        6.8     91,476     87,214     6.37
   Private Issuance..................................       72,639     6.82        5.4     72,639     71,760     6.82
                                                           -------     ----        ---     ------     ------     ----
     Total mortgage-backed securities held-to-maturity   $ 226,237     6.61%       5.2  $ 255,917  $ 252,233     6.65%
                                                           =======     ====        ===     =======    =======    ====

Available-for-Sale:
Pass-through certificates guaranteed by:
GNMA.................................................    $ 285,091     5.67%       5.9  $ 285,238  $ 283,311     5.67%
FHLMC................................................       37,914     7.14        4.8     48,259     48,510     7.15
FNMA.................................................       58,029     6.71        4.4     83,555     83,008     6.69
REMICS:
  Agency Issuance....................................      160,742     6.47        6.1    160,742    154,905     6.47
  Private Issuance...................................      373,053     6.55        5.9    373,053    365,304     6.55
                                                           -------     ----        ---    -------    -------     ----
     Total mortgage-backed securities available-for-sale $ 914,829     6.30%       5.7  $ 950,847  $ 935,038     6.32%
                                                           =======     ====        ===    =======    =======     ====


                                                                    28

<PAGE>



G.  Deposit Activities

    The  following  table  presents  the  deposit  activity  of the Bank for the
periods indicated.

                                                                                 Years Ended June 30,
                                                                        ------------------------------------------
                                                                          1999            1998              1997
                                                                        --------         --------          -------
                                                                                   (In thousands)
<S>                                                                 <C>              <C>                <C>
Opening balance...............................................      $ 1,628,298      $ 1,436,037        $ 1,345,626
Continental Bank deposits assumed.............................               --          137,011                 --
(Withdrawals) in Excess of deposits...........................         (140,851)          (8,182)            36,272
Interest credited on deposits.................................           61,972           63,432             54,139
                                                                       --------         --------         ----------
Ending balance................................................      $ 1,549,419      $ 1,628,298        $ 1,436,037
                                                                      =========        =========          =========

Net (decrease)increase in deposits............................        $ (78,879)       $ 192,261           $ 90,411
                                                                        ========         =======             ======
Percentage (decrease)/increase................................           (4.85)%            13.4%              6.7%

         At  June  30,  1999,  the  Bank  has   outstanding   $81.1  million  in
certificates  of deposit  accounts in amounts of  $100,000 or more,  maturing as
follows:
                                                                                              Weighted
                                                                         Amount            Average Rate
                                                                         ------            ------------
Maturity Period:                                                     (In thousands)
<S>                                                                     <C>                     <C>
Three months or less..........................................          $ 34,469                5.13%
Over three through six months.................................            10,153                4.80
Over six through 12 months....................................            21,818                5.09
Over 12 months................................................            14,741                5.49
                                                                         -------                ----
      Total...................................................          $ 81,181                5.14%
                                                                          ======                ====


                                                        29

<PAGE>



The following  table sets forth the  distribution  of the Bank's average deposit
accounts for the periods  indicated and the weighted  average  nominal  interest
rates on each category of deposits presented.
                                                                             Year ended June 30,
                                         ---------------------------------------------------------------------------------------
                                                     1999                           1998                        1997
                                         -----------------------------  ---------------------------   --------------------------
                                                              Weighted                     Weighted                     Weighted
                                                   Percent    Average             Percent  Average             Percent   Average
                                         Average   of Total   Nominal   Average  of Total  Nominal    Average  of Total  Nominal
                                         Balance   Deposits    Rate     Balance  Deposits   Rate      Balance  Deposits   Rate
                                                                        (Dollars in thousands)
<S>                                     <C>          <C>       <C>     <C>          <C>      <C>     <C>         <C>      <C>
Passbook accounts.....................  $ 443,352    27.35%    2.04%   $435,844     28.06%   2.40%   $441,921    32.01%   2.47
Demand Deposits and
   NOW accounts.......................    165,580    10.21     0.95     140,977      9.08    0.89     102,119     7.39    1.10
                                          -------     ----     ----     -------     -----             -------    -----

Total passbook and Demand Deposits
  and NOW accounts....................    608,932    37.56     1.74     576,821     37.14    2.03     544,040    39.40    2.21
                                          -------    -----     ----     -------     -----             -------    -----

Money market accounts.................     90,442     5.58     2.03      93,715      6.03    2.40      99,536     7.21    2.48
                                           ------     ----     ----     -------     -----             -------    -----
Certificate accounts:
      31 days.........................         --       --       --          --        --      --          38     0.00    2.50
      91 days.........................     29,278     1.81     4.20      31,767      2.05    4.73      34,775     2.52    4.82
       4 months.......................      2,069     0.13     4.01         795      0.05    4.20         880     0.06    4.28
       6 months.......................    119,102     7.35     4.56     223,876     14.41    5.34     126,700     9.18    5.19
       9 months.......................     26,461     1.63     4.81      15,134      0.97    5.10      65,202     4.72    5.15
     12 months........................    449,875    27.75     5.40     196,139     12.63    5.47     144,536    10.47    5.12
     15 months........................      9,287     0.57     4.89      15,128      0.97    4.88      44,691     3.24    5.32
     18 months........................     25,829     1.59     5.17      37,022      2.38    5.30      59,993     4.35    5.45
     24 months........................    147,172     9.08     5.87     233,293     15.02    6.04     129,499     9.38    6.08
     30 months........................      8,053     0.50     5.41      10,657      0.69    5.50      12,915     0.94    5.52
     36 months........................      6,190     0.38     5.32       7,578      0.49    5.55       8,857     0.64    5.38
     42 months........................      1,853     0.12     5.31       2,431      0.16    5.50       2,784     0.20    5.36
     48 months........................     11,056     0.68     5.72      13,090      0.84    5.74      16,507     1.20    5.50
     60 months........................     77,066     4.75     6.20      82,156      5.29    6.15      87,253     6.32    6.15
Other certificates....................      8,491     0.52     5.51      13,709      0.88    5.54       2,388     0.17    4.87
                                            -----     ----             --------     -----           ---------   ------
Total certificates....................    921,782    56.86     5.37     882,775     56.83    5.60     737,018    53.39    5.47
                                          -------    -----             --------     -----            --------    -----
Total deposits........................ $1,621,156   100.00%    3.82  $1,553,311    100.00%   4.08  $1,380,594   100.00%   3.95
                                        =========   ======            =========    ======           =========   ======

                                                                 30

<PAGE>



         The following table presents,  by rate categories,  the balances of the
Bank's certificates of deposit accounts  outstanding,  interest rate categories,
at June 30,  1999,  1998  and 1997 and the  remaining  periods  to  maturity  of
certificate deposit accounts outstanding at June 30, 1999.

                                               Period to maturity from
                                                    June 30, 1999                                   June 30,
                                     ---------------------------------------------      -------------------------------
                                                 One to        Two to        Over
                                      Within      Two          Three         Three
                                     One Year    Years         Years         Years       1999         1998         1997
                                     --------    -----         -----         -----      ------       ------       -----
                                                                          (In thousands)
Certificates of deposit accounts:
<C>                               <C>          <C>            <C>         <C>         <C>          <C>          <C>
2.99% or less................     $    612     $    110       $ 3,664     $    477    $   4,863    $   2,059    $   1,341
3.00% to 3.99%...............        7,669          --             --           --        7,669           --           --
4.00% to 4.99%...............      440,960       32,525            --        5,623      479,108      171,881       65,449
5.00% to 5.99%...............      222,909       49,429         9,195        7,550      289,083      513,417      508,266
6.00% to 6.99%...............       38,487       15,263         7,923          259       61,932      246,743      230,989
7.00% to 7.99%...............           78           31             7           --          116          111          341
8.00% to 8.99%...............            7          --             --           --            7          208          228
9.00% and greater............           --           --            --           --           --          139          136
                                 ---------    ---------     ---------  -----------    ---------     --------     --------
Total........................     $710,722      $97,358       $20,789      $13,909     $842,778     $934,558     $806,750
                                   =======       ======        ======       ======      =======      =======      =======

H.   Borrowings

         The following table sets forth certain information regarding the Bank's
borrowed funds at or for the fiscal years ended on the dates indicated:
                                                                                           At or For the
                                                                                         Year Ended June 30,
                                                                                  --------------------------------------
                                                                                   1999           1998             1997
                                                                                  ------         ------           ------
FHLB-NY advances:                                                                          (In thousands)
<S>                                                                              <C>             <C>              <C>
  Average balance outstanding..........................................          $309,323        $ 84,920         $ 22,519
   Maximum amount outstanding at any
       month-end during the period.....................................           383,826         182,136           43,000
   Balance outstanding at end of period................................           338,718         182,136           40,000
   Weighted-average interest rate during the period....................              5.35%           5.58%            5.61%
   Weighted-average interest rate at end of period.....................              5.27%           5.49%            5.58%

Reverse repurchase agreements:
  Average balance outstanding..........................................          $276,748        $309,618         $288,845
   Maximum amount outstanding at any
       month-end during the period.....................................           350,060         398,070          326,391
   Balance outstanding at end of period................................           313,716         398,070          311,913
   Weighted-average interest rate during the period....................              5.57%           5.79%            5.63%
   Weighted-average interest rate at end of period.....................              5.23%           5.64%            5.78%

Company Obligated Mandatorily Redeemable Capital Securities:
  Average balance outstanding..........................................          $ 50,000        $  8,876         $     --
   Maximum amount outstanding at any
      month-end during the period......................................            50,000          50,000               --
   Balance outstanding at end of period................................            50,000          50,000               --
   Weighted-average interest rate during the period....................              8.17%           8.17%              --%
   Weighted-average interest rate at end of period.....................              8.17%           8.17%              --%

Total borrowings:
  Average balance outstanding..........................................          $636,095        $403,414         $311,364
   Maximum amount outstanding at any
       month-end during the period.....................................           733,856         630,206          351,913
   Balance outstanding at end of period................................           702,434         630,206          351,913
   Weighted-average interest rate during the period....................              5.66%           5.80%            5.62%
   Weighted-average interest rate at end of period.....................              5.46%           5.80%            5.76%

                                                            31

<PAGE>



Item 2.       Properties

        The Bank conducts its business through its administrative  office and 29
full-service   branch   offices.   Loan   originations   are  processed  at  the
administrative office.
                                                                                                            Net Book Value
                                                                                                            of Property or
                                                                          Original Date      Date of           Leasehold
                                                              Leased or     Leased or         Lease         Improvements at
           Location                                             Owned       Acquired       Expiration(1)     June 30, 1999
         ------------                                          -------     ----------      -------------     --------------
                                                                                                             (In thousands)
Administrative Office:
585 Stewart Avenue
<S>                                                            <C>              <C>            <C>                 <C>
Garden City, NY  11530.............................            Leased           1977           2002                $ 29

Banking Offices:
300 Garden City Plaza
Garden City, NY  11530
(Home Office)......................................            Leased           1979           2004                  46

118 Seventh Street
Garden City, NY  11530.............................            Leased           1997           2008                   3

983 Willis Avenue
Albertson, NY  11507...............................             Owned           1965             --                 540

422 Hillside Avenue
Williston Park, NY  11596..........................            Leased           1972           2017                 232

380 Hillside Avenue(2)
Williston Park, NY  11596..........................             Owned           1964             --                 200

570 Stewart Avenue
Bethpage, NY  11714................................            Leased           1963           2008                  26

341 Post Avenue
Westbury, NY  11590................................             Owned           1995             --                 577

2530 Stewart Avenue
Westbury, NY  11590................................             Owned           1995             --                 740

405 Jerusalem Avenue
Hicksville, NY  11801..............................            Leased           1995           2005                   4

2843 Jerusalem Avenue
North Bellmore, NY  11710..........................            Leased           1995           2012                  27

172 New Hyde Park Road
Franklin Square, NY  11010.........................            Leased           1995           2019                  24





                                                            32

<PAGE>



                                                                                                             Net Book Value
                                                                                                             of Property or
                                                                           Original Date     Date of           Leasehold
                                                              Leased or      Leased or        Lease          Improvements at
           Location                                             Owned         Acquired    Expiration(1)       June 30, 1999
           --------                                             -----         --------    -------------       -------------
(Continued)                                                                                                   (In thousands)

312 Conklin Street
<S>                                                             <C>             <C>             <C>               <C>
Farmingdale, NY  11735.............................             Owned           1996             --               $ 772

195 Merritts Road
South Farmingdale,  NY  11735......................             Owned           1996             --               1,378

1074 Old Country Road
Plainview, NY  11803...............................             Owned           1996             --                 571

300 S. Wellwood Avenue
Lindenhurst, NY  11757.............................             Owned           1996             --                 656

1134 Deer Park Avenue
North Babylon, NY  11703...........................            Leased           1996           2008                  16

1383 Deer Park Avenue
North Babylon, NY  11703...........................             Owned           1997             --               1,053

2087 Deer Park Avenue
Deer Park, NY  11729...............................             Owned           1996             --                 611

2080 Deer Park Avenue(2)
Deer Park, NY 11729................................             Owned           1996             --                 299

434 Union Boulevard
West Islip, NY  11795..............................            Leased           1996           2004                  37

340 Washington Avenue
North Brentwood, NY  11717.........................   Owned/Leased(6)           1996           2014                 257

742 Route 25 A
Kings Park, NY  11754..............................            Leased           1996           2002                  52

250 Smithtown Boulevard
Nesconset, NY  11767...............................             Owned           1996             --                 487

245 Lake Avenue
St. James, NY  11780...............................             Owned           1996             --                 496

335 Main Street
Farmingdale, NY 11735..............................            Leased           1996           2000                  11

375 Fulton Avenue
Farmingdale, NY 11735..............................            Leased           1996           2002                  --


                                                            33

<PAGE>




                                                                                                             Net Book Value
                                                                                                             of Property or
                                                                           Original Date       Date of           Leasehold
                                                               Leased or      Leased or         Lease          Improvements at
                          Location                               Owned         Acquired      Expiration(1)      June 30, 1999
                        ------------                            -------       ----------     -------------      --------------
 (Continued)                                                                                                  (In thousands)
233-15 Hillside Avenue
Queens Village, NY  11427..........................               Owned         1961               --               $ 356

19-01 Utopia Parkway
Whitestone, NY  11357..............................           Leased(4)         1976             2026                  63

32-02 Francis Lewis Blvd
Flushing, NY  11358................................               Owned         1957               --                 312

69-09 164th Street
Flushing, NY  11365................................               Owned         1967               --                 707

204-12 Hillside Avenue(3)
Hollis, NY  11423..................................        Owned/Leased         1954             2003                  30


162-04 Jamaica Avenue
Jamaica, NY  11432.................................           Leased(5)         1989             2001                 286

216-26 Jamaica Avenue
Queens Village, NY  11428..........................               Owned         1939               --                 158
                                                                                                                     ----

          Total....................................                                                              $ 11,056
                                                                                                                   ======
</TABLE>

-------------------
(1)  Leased property includes all option periods.
(2)  Drive-up facility.
(3) The Bank owns one half of the  property  and leases the other half.
(4) TheBank pays all real estate taxes on this property.
5)  This branch was  originally  owned by the Bank.  The Bank has  subsequently
     sold the property and is now leasing it. The  transaction  is being treated
     as a capital lease (sale/leaseback).
(6) The Bank owns the building and leases the land.  Option to purchase the land
    at the end of the last lease option.

Item 3.       Legal Proceedings

     The Bank is  involved  in various  legal  actions  arising in the  ordinary
course of its  business  which,  in the  aggregate,  involve  amounts  which are
believed by  management  to be not  material to the  financial  condition of the
Bank.

Item 4.       Submission of Matters to a Vote of Security Holders

     None





                                                            34

<PAGE>




                                                          PART II

Item 5. Market for the Company's Common Equity and Related Stockholder Matters

     The  Company's  common  stock is traded on the Nasdaq  National  Market and
quoted under the symbol "RELY".  As of September 16, 1999, the Company had 1,500
stockholders of record,  not including the number of persons or entities holding
stock in nominee or street name through various brokers and banks.

     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 1999 and 1998.

                                1999
              ---------------------------------------
               First     Second     Third     Fourth
              Quarter    Quarter   Quarter    Quarter
              -------    -------   -------    -------
High..........$38.50     $29.88     $31.63     $29.63
Low...........$23.88     $21.50     $28.00     $26.00

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


On September 18, 1996,  the Company's  Board of Directors  adopted a Stockholder
Protection  Rights Plan and declared a dividend of one preferred  share purchase
right ("Right") for each outstanding share of common stock of the Company.  Each
Right, initially,  will entitle stockholders to buy a one one-hundredth interest
in a share of a new series of  preferred  stock of the  Company  at an  exercise
price of $60.00,  upon the occurrence of certain  events  described in the Plan.
Initially,  Rights will not be exercisable  and will transfer with and only with
the  shares of common  stock.  The Rights  will be  exercisable  and  separately
transferable  ten business days after a person or group of persons  acquires 10%
or more of the common stock of Reliance Bancorp,  Inc. ("Acquiring Person") or a
person or group of persons  announces a tender offer,  the consummation of which
would  result in  ownership  by a person or group of  persons  of 10% or more of
Company common stock.  Subject to certain  limitations,  the Company's  Board of
Directors may reduce the 10% threshold.

If a person or group of persons becomes an Acquiring Person,  each Right, unless
redeemed by the Board of Directors  at a price of $0.01 per Right,  will entitle
its holder (other than such person or member of such group) to purchase,  at the
then-current  exercise price of the Right, a number of shares of common stock of
Reliance  Bancorp,  Inc. having a market value equal to twice the exercise price
of the Right. Alternatively, at any time after an Acquiring Person becomes such,
but prior to the  acquisition  by such  person  of 50% or more of the  Company's
common stock, the Board of Directors may, at its option,  direct the issuance of
one share of common  stock in  exchange  for each Right other than those held by
the Acquiring Person.

     The Rights  dividend  distribution  was made to  stockholders  of record on
October 3, 1996.  The Rights will expire ten years later on October 3, 2006. The
distribution of the Rights is not taxable to stockholders. Pursuant to the terms
of the Stockholder Protection Rights Plan, the rights did not become exercisable
upon execution of the Merger Agreement and will not become  exercisable upon the
completion of the transactions  contemplated by the Merger agreement. The Rights
Plan will expire upon consummation of the merger with North Fork.











                                                            35

<PAGE>



Item 6. Selected Financial 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:                                                  1999       1998         1997         1996        1995
                                                                         -------    ------       -------      -------     ------
<S>                                                                   <C>         <C>           <C>          <C>         <C>
Total Assets......................................................    $2,451,773  $2,485,729    $1,976,764   $1,782,550  $931,436
Loans Receivable, Net.............................................       974,073     969,797       909,321      817,746   332,080
Debt and Equity Securities Available-for-Sale.....................       122,168     134,907        26,909       13,271    23,880
Debt and Equity Securities Held-to-Maturity.......................        28,835      40,189        46,026       48,330    23,890
Mortgage-Backed Securities Available-for-Sale.....................       935,038     940,347       721,819      591,740   104,453
Mortgage-Backed Securities Held-to-Maturity.......................       255,917     249,259       159,356      184,492   413,762
Excess of Cost Over Fair Value of Net Assets Acquired.............        54,373      58,936        45,463       49,429        --
Real Estate Owned, Net............................................           177         755           450        1,564     1,558
Deposits..........................................................     1,549,419   1,628,298     1,436,037    1,345,626   670,317
Borrowed Funds....................................................       702,434     630,206       351,913      266,160    97,035
Total Stockholders' Equity........................................       171,667     194,864       162,670      153,619   153,733

                                                                                           Year Ended June 30,
                                                                         --------------------------------------------------------
Selected Operating Data:                                                  1999        1998          1997         1996       1995
                                                                         ------      ------        ------       ------     ------
<S>                                                                     <C>        <C>            <C>          <C>       <C>
Interest Income...................................................      $167,310   $153,819       $133,289     $100,372  $ 61,260
Interest Expense .................................................        98,006     86,828         71,653       52,985    28,361
                                                                          ------     ------         ------       ------    ------
     Net Interest Income..........................................        69,304     66,991         61,636       47,387    32,899
Less Provision for Loan Losses....................................           650      1,650            950          725       400
                                                                          ------     ------         ------      -------    ------
     Net Interest Income After Provision for Loan Losses..........        68,654     65,341         60,686       46,662    32,499

Non-Interest Income:
Loan Fees and Service Charges.....................................         1,352      1,047            683          826       269
Other Operating Income............................................         4,279      3,452          2,557        1,606       841
Income from Money Centers.........................................         2,650      1,882             --           --        --
Condemnation Award on Joint Venture...............................            --      1,483             --           --        --
Net Gain (Loss) on Securities.....................................           119         (5)           172          678       147
                                                                          ------     -------       -------       ------    ------
     Total Non-Interest Income....................................         8,400      7,859          3,412        3,110     1,257
                                                                          ------     ------        -------       ------    ------

Non-Interest Expense:
Compensation and Benefits.........................................        20,373     20,297         16,509       13,395     9,562
Occupancy and Equipment...........................................         7,064      6,531          5,719        4,481     2,462
Federal Deposit Insurance Premiums................................           930        921          1,813        2,399     1,376
Advertising.......................................................         1,247      1,202          1,168        1,152     1,158
Other Operating Expenses..........................................         6,675      6,274          5,778        4,169     3,039
                                                                          ------     ------        -------       ------    ------
     Total General and Administrative Expenses....................        36,289     35,225         30,987       25,596    17,597
Real Estate Operations, Net.......................................           111        218            383          579      (385)
Amortization of Excess of Cost Over Fair
  Value of Net Assets Acquired....................................         4,563      4,218          3,404        1,928        --
SAIF Recapitalization Charge......................................            --         --          8,250           --        --
                                                                          ------     ------         ------       ------    ------
     Total Non-Interest Expense...................................        40,963     39,661         43,024       28,103    17,212
                                                                          ------     ------         ------       ------    ------

     Income Before Income Taxes ..................................        36,091     33,539         21,074       21,669    16,544
Income Tax Expense................................................        15,940     14,810         10,138        9,946     6,842
                                                                          ------    -------        -------       ------    ------
     Net Income...................................................      $ 20,151   $ 18,729       $ 10,936     $ 11,723   $ 9,702
                                                                          ======     ======         ======       ======     =====
Earnings Per Share:               Basic...........................      $   2.38   $   2.11       $   1.32     $   1.36   $  1.04
                                          Diluted.................      $   2.26   $   1.99       $   1.25     $   1.32   $  1.03
(See footnotes on following page)

                                                                 36

<PAGE>



                                                                                 At or for the Year Ended June 30,
                                                                     ----------------------------------------------------------
                                                                      1999       1998          1997         1996          1995
                                                                      ----       ----          ----         ----          ----
Selected Financial Ratios and Other Data:

Performance Ratios:
<S>                                                                  <C>          <C>          <C>          <C>           <C>
Return on Average Assets..........................................   0.81%        0.86%        0.58%        0.83%         1.08%
Return on Average Stockholders' Equity (1)........................  11.22        10.42         7.02         7.58          6.17
Return on Average Tangible Stockholders' Equity (1)...............  16.40        15.14        10.10         9.18          6.17
Average Stockholders' Equity to Average Assets....................   7.30         8.45         8.24        10.92         17.60
Stockholders' Equity to Total Assets..............................   7.00         7.84         8.23         8.62         16.51
Tangible Stockholders' Equity to Tangible Assets..................   4.89         5.60         6.07         6.01         16.51
Core Deposits to Total Deposits...................................  39.94        36.91        37.40        41.68         36.12
Net Interest Spread...............................................   2.67         2.98         3.22         3.17          3.11
Net Interest Margin (2)...........................................   2.95         3.28         3.47         3.52          3.77
General and Administrative Expenses to Average Assets.............   1.47         1.62         1.66         1.81          1.97
Operating Income to Average Assets (3)............................   0.33         0.29         0.17         0.16          0.14
Average Interest-Earning Assets to
  Average Interest-Bearing Liabilities............................  1.07X        1.07X        1.06X        1.09X         1.20X

Selected Financial Ratios, Excluding SAIF
Recapitalization Assessment
Return on Average Assets..........................................   0.81%        0.86%        0.84%        0.83%         1.08%
Return on Average Stockholders' Equity (1)........................  11.22        10.42        10.12         7.58          6.17
Return on Average Tangible Stockholders' Equity (1)...............  16.40        15.14        14.56         9.18          6.17

Asset Quality Ratios:
Non-Performing Loans to Total Loans (4)...........................   0.67         0.95%        1.61%        1.58%         1.10%
Non-Performing Loans to Total Assets..............................   0.27         0.37         0.75         0.73          0.39
Non-Performing Assets to Total Assets (5)........................    0.27         0.40         0.77         0.82          0.56
Allowance for Loan Losses to Total Loans..........................   0.93         0.91         0.57         0.55          0.52
Allowance for Loan Losses to Non-Performing Loans................. 139.08        96.12        35.18        34.63         47.10

Other Data:

Number of Deposit Accounts........................................160,358      169,071      164,121       164,368       68,617
Full-Service Banking Offices......................................     29           30           28            28           11

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

(1) For purposes of these calculations, average stockholders' equity and average
stockholders'  tangible  equity  exclude the effect of changes in the unrealized
appreciation (depreciation) on securities available-for-sale, net of taxes.
(2)  Calculation  is based upon net interest  income  before  provision for loan
losses divided by average interest-earning assets.
(3) Operating income
represents  total  non-interest  income  less  (plus) net gain (loss) on sale of
securities and condemnation award on joint venture.
(4)  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.
(5) Non-performing assets consist of non-performing loans and real estate owned.







                                                                 37

<PAGE>



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

General

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

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

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

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

Financial Condition

As of June 30, 1999, total assets were $2.5 billion, a decrease of $34.0 million
from June 30, 1998.  Investment  securities  decreased $24.1 million,  or 13.8%,
from  $175.1  million at June 30,  1998 to $151.0  million at June 30, 1999 as a
result of sales and calls of debt securities.

Deposits decreased $78.9 million, or 4.8%, during the fiscal year ended June 30,
1999 as a result  of a  reduction  in  certificate  of  deposit  products  while
borrowings  increased $72.2 million,  or 11.5%,  from $630.2 million at June 30,
1998 to $702.4 million at June 30, 1999 as a result of additional FHLB advances.

Treasury stock increased from $24.0 million at June 30, 1998 to $50.6 million at
June 30, 1999 as a result of 1.0 million shares repurchased net of stock options
exercised during the fiscal year ended.



                                                        38

<PAGE>



Non-performing assets

Non-performing  loans totaled $6.6 million,  or 0.67% of total loans at June 30,
1999 as compared to $9.3  million,  or 0.95% of total  loans,  at June 30, 1998.
Non-performing  loans at June 30, 1999 were  comprised  of $4.0 million of loans
secured by one- to  four-family  residences,  $1.9  million of  commercial  real
estate loans,  $433,000 of commercial  loans and $255,000 of guaranteed  student
and other loans.

For the fiscal year ended June 30, 1999,  the Company's  loan loss provision was
$650,000 as  compared  to $1.7  million in the prior  fiscal  year.  The Company
decreased its provision for loan losses due to the lower level of non-performing
loans and  charge-offs.  Net charge-offs were $471,000 for the fiscal year ended
June 30, 1999 as  compared  to $636,000 in the fiscal year ended June 30,  1998.
The Company's  allowance for loan losses  totalled $9.1 million at June 30, 1999
as  compared  to $8.9  million  at June 30,  1998  which  represents  a ratio of
allowance for loan losses to non-performing  loans and to total loans of 139.08%
and  0.93% at June 30,  1999  compared  to 96.12%  and  0.91% at June 30,  1998,
respectively. Management believes the allowance for loan losses at June 30, 1999
is adequate and sufficient reserves are presently  maintained to cover losses on
loans.

Asset/Liability Management

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

The Company has  attempted to limit its  exposure to interest  rate risk through
the  origination  and purchase of  adjustable-rate  mortgage  loans ("ARMs") and
through  purchases  of  adjustable-rate   mortgage-backed  and  mortgage-related
securities and fixed rate mortgage-backed and  mortgage-related  securities with
short- and  medium-term  average lives. In the most recent fiscal year, the Bank
has not been able to  originate  a  significant  amount of ARM's due to customer
preference for fixed rate loans.

The actual  duration of mortgage  loans and  mortgage-backed  securities  can be
significantly  impacted by changes in mortgage  prepayment  and market  interest
rates. Mortgage prepayment rates will vary due to a number of factors, including
the regional economy in the area where the underlying mortgages were originated,
seasonal factors,  demographic  variables and the assumability of the underlying
mortgages.  However, the largest determinants of prepayment rates are prevailing
interest  rates  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,  1999,  $922.2  million,  or 39.5%,  of the Bank's  interest-earning
assets consisted of adjustable-rate  loans and mortgage-backed  securities.  The
Bank's  mortgage  loan  portfolio  totalled  $810.9  million,  of which,  $408.8
million, or 50.4%, were adjustable-rate loans and $402.1 million, or 49.6%, were
fixed-rate  loans.  In addition,  at June 30,  1999,  the Bank's  consumer  loan
portfolio  totalled  $127.3 million,  of which,  $99.6 million,  or 78.2%,  were
adjustable-rate  home equity lines of credit and  guaranteed  student  loans and
$27.7 million,  or 21.8%,  were fixed-rate home equity and other consumer loans.
At June 30, 1999, the Bank's commercial loan portfolio totalled $44.9 million of
which $32.5 million,  or 72.3% were adjustable rate loans and $12.4 million,  or
27.7% were fixed rate loans.  At June 30, 1999, the  mortgage-backed  securities
portfolio  totalled  $1.2 billion of which $935.0  million  were  classified  as
available-for-sale and $255.9 million was classified as held-to-maturity. Of the
$935.0 million classified as available-for-sale, $327.4 million, or 27.5% of the
total  mortgage-backed  portfolio,  were  adjustable-rate  securities and $607.6
million,  or 51.0%,  were  fixed-rate  securities.  Of the $255.9  million  were
classified as held-to-maturity,

                                                        39

<PAGE>



$53.9  million,   or  4.5%  of  the  total   mortgage-backed   portfolio,   were
adjustable-rate  securities  and  $202.0  million,  or  17.0%,  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.

Market Risk and Interest Rate Sensitivity Analysis

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

Management  monitors  interest rate sensitivity so that adjustments in the asset
and liability mix, when deemed  appropriate,  can be made on a timely basis.  At
June 30, 1999, the Company's interest-bearing  liabilities maturing or repricing
within one year  exceeded  net  interest-earning  assets  maturing or  repricing
within  the  same  time  period  by  $100.1  million,  representing  a  negative
cumulative   one-year  gap  of  4.08%  of  total   assets.   This   compares  to
interest-bearing liabilities maturing or repricing within one year exceeding net
interest-earning  assets  maturing or  repricing  within the same time period by
$213.7  million,  representing  a negative  cumulative  one-year gap of 8.60% of
total assets at June 30, 1998.

The following table ("the Gap table") sets forth the amount of  interest-earning
assets and interest-bearing  liabilities  outstanding at June 30, 1999, that are
anticipated  by the Company using certain  assumptions  based on its  historical
experience  and other data  available to management to reprice or mature in each
of the future time periods shown.  Except as stated below,  the amount of assets
and  liabilities  shown which reprice or mature  during a particular  period was
determined  in  accordance  with the  earlier  of the term to  repricing  or the
contractual  terms of the asset or liability.  Prepayment  assumptions have been
applied  in  estimating  the  repricing  of the  Company's  mortgage  loans  and
mortgage-backed  securities. The estimated rates of prepayment assumed for loans
and mortgage-backed securities are based upon coupon rates. The Company utilized
deposit withdrawal assumptions for its deposit decay rate. For

                                                        40

<PAGE>



passbook  accounts,  NOW accounts and money market accounts,  such assumed rates
were 8%, 15% and 18%,  respectively.  The assumptions used may not be indicative
of future  withdrawals of deposits or  prepayments of loans and  mortgage-backed
securities.  The Gap table does not  necessarily  indicate the impact of general
interest rate movements on the Company's net interest  income because the actual
repricing  dates of  various  assets and  liabilities  are  subject to  customer
discretion and competitive  and other  pressures.  Callable  features of certain
assets  and  liabilities,  in  addition  to  the  foregoing,  may  cause  actual
experience  to vary from  that  indicated.  Included  in this  table are  $113.7
million of callable investment  securities,  classified  according to their call
dates. Of such securities,  $18.9 million,  $0.0, $18.0 million, $0.0, $0.0, and
$76.8 million are callable in the "Up to One Year", "One to Two Years",  "Two to
Three Years", "Three to Four Years", "Four to Five Years", and "Over Five Years"
categories,  respectively.  Also  included  in this table are $407.5  million of
callable  borrowings,   classified  according  to  their  call  dates.  Of  such
borrowings,  $244.0 million,  $58.5 million,  $0.0, $30.0 million, $25.0 million
and $50.0 million are callable in the "Up to One Year", "One to Two Years", "Two
to Three  Years",  "Three to Four Years",  "Four to Five Years",  and "Over Five
Years" categories, respectively.
<TABLE>
<CAPTION>

                                                                                    June 30,
                                              -----------------------------------------------------------------------------------
                                              Up to      One to    Two to      Three to   Four to    Over
                                               One         Two      Three       Four       Five      Five                   Fair
                                              Year        Years     Years       Years      Years     Years      Total       Value
                                              ----        -----     -----       -----      -----     -----      -----       -----
Interest-Earning Assets:                                                     (Dollars in thousands)
<S>                                          <C>        <C>        <C>         <C>        <C>       <C>        <C>        <C>
Mortgage Loans(1)(2).....................    $290,673   $137,324   $110,199   $ 95,201   $ 55,715   $122,731   $811,843   $806,791
Commercial Loans(1)(2)...................      36,913        508        824        828        938      4,938     44,949     45,069
Other Loans(1)(2)........................     112,770      5,663      3,047      1,743      1,036      2,405    126,664    127,120
Mortgage-Backed Securities(2)(3).........     551,928    125,574     90,671     69,973     69,209    296,515  1,203,870  1,187,271
Debt and Equity Securities(2)(3).........     145,107          --          --    2,000         --      7,700    154,807    151,008
                                           ---------- ----------- ----------- -------- ----------- ---------   ----------  -------
    Total Interest-Earning Assets........   1,137,391    269,069    204,741    169,745    126,898    434,289  2,342,133  2,317,259
                                            ---------    -------    -------    -------    -------    -------  ---------  ---------

Interest-Bearing Liabilities:
Passbook Accounts........................      38,279     31,908     29,447     27,175     25,079    300,073    451,961    443,413
NOW Accounts.............................      14,877     12,792     11,000      9,459     58,055         --    106,183    102,757
Money Market Accounts....................      11,778     10,128      8,709      7,489     45,963         --     84,067     81,931
Certificate of Deposit Accounts(2).......     710,424     97,349     20,789     10,651      3,256         --    842,469    841,259
Borrowed Funds...........................     462,156     58,500     76,182     30,000     25,000     50,596    702,434    693,564
                                           ----------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
    Total Interest-Bearing Liabilities...   1,237,514    210,677    146,127     84,774    157,353    350,669  2,187,114  2,162,924
                                            ---------   --------   --------  ---------   --------   --------  ---------  ---------

Interest Rate Sensitivity Gap............ $ (100,123)     58,392     58,614     84,971   (30,455)    83,620     155,019
                                           ==========  =========     ======     ======   ========    =======    =======
Cumulative Interest Rate Sensitivity Gap. $ (100,123)   (41,731)     16,883    101,854     71,399    155,019
                                            =========   ========     ======    =======   ========    =======
Cumulative Interest Rate Sensitivity Gap as
   a Percentage of Total Assets..........     (4.08)%    (1.70)%      0.69%      4.15%      2.91%      6.32%
Cumulative Net Interest-Earning Assets as
   a Percentage of Cumulative Interest-
   Bearing Liabilities...................      91.91%     97.12%    101.06%    106.07%    103.89%    107.09%

</TABLE>

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

(1) For purposes of the GAP  analysis,  mortgage and other loans are not reduced
for the allowance for loan losses and non-performing  loans.
(2) For purposes of the GAP analysis,  premiums,  unearned  discounts,  deferred
loan fees and purchase accounting adjustments are excluded.
(3)  Mortgage-backed  and debt and equity  securities  were shown  excluding the
market  value  depreciation  of  $18.7  million  on  securities  claassified  as
available-for-sale.

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


                                                        41

<PAGE>



The Company's  interest rate sensitivity is also monitored by management through
analysis of the change in the net portfolio value ("NPV"). NPV is defined as the
net present  value of the expected  future cash flows of an entity's  assets and
liabilities  and,  therefore,  hypothetically  represents the market value of an
institution's  net worth.  Increases in the market value of assets will increase
the NPV  whereas  decreases  in market  value of assets will  decrease  the NPV.
Conversely,  increases  in the market  value of  liabilities  will  decrease NPV
whereas  decreases in the market value of liabilities will increase the NPV. The
changes in market  value of assets and  liabilities  due to changes in  interest
rates reflect the interest  sensitivity of those assets and liabilities as their
values are derived  from the  characteristics  of the asset or  liability  (i.e.
fixed  rate,  adjustable  rate,  caps,  floors)  relative to the  interest  rate
environment.  For example, in a rising interest rate environment the fair market
value of a fixed rate asset will  decline,  whereas the fair market  value of an
adjustable  rate asset,  depending  on its  repricing  characteristics,  may not
decline. The NPV ratio, under any interest rate scenario,  is defined as the NPV
in that  scenario  divided by the market  value of assets in the same  scenario.
This  analysis,  referred  to in the NPV table,  initially  measures  percentage
changes  from the value of  projected  NPV in a given  rate  scenario,  and then
measures  interest rate sensitivity by the change in the NPV ratio, over a range
of interest  rate change  scenarios.  The OTS also  produces a similar  analysis
using its own model based upon data  submitted  on the Bank's  quarterly  Thrift
Financial  Reports,  the results of which may vary from the  Company's  internal
model  primarily  because of  differences in  assumptions  utilized  between the
Company's internal model and the OTS model,  including estimated loan prepayment
rates,  reinvestment  rates and deposit  decay  rates.  For  purposes of the NPV
table,  prepayment  speeds and deposit  decay rates similar to those used in the
Gap  table  were  used.  The NPV  table is based on  simulations  which  utilize
institution  specific  assumptions  with regard to future cash flows,  including
customer  options such as loan  prepayments,  period and lifetime caps, puts and
calls,  and deposit  withdrawal  estimates.  The NPV table uses  discount  rates
derived from  various  sources  including,  but not limited to,  treasury  yield
curves,  thrift  retail  certificate  of  deposit  curves,  national  and  local
secondary  mortgage  markets,  brokerage  security  pricing services and various
alternative funding sources.

Specifically,  for mortgage loans receivable, the discount rates used were based
on market  rates for new  loans of  similar  type and  purpose,  adjusted,  when
necessary,  for  factors  such as  servicing  cost,  credit  risk and term.  The
discount rates used for  certificates  of deposit and  borrowings  were based on
rates  which  approximate  the rates  offered by the Company  for  deposits  and
borrowings of similar  remaining  maturities.  The table calculates the NPV at a
flat rate  scenario by  computing  the  present  value of cash flows of interest
earning assets less the present value of interest bearing  liabilities.  Certain
assets, including fixed assets and real estate held for development, are assumed
to remain at book value (net of valuation allowance) regardless of interest rate
scenario. Other non-interest earning assets and non-interest bearing liabilities
such as deferred fees,  unamortized premiums,  goodwill and accrued expenses and
other  liabilities  are excluded from the NPV  calculation.  The following table
sets forth the Bank's NPV as of June 30, 1999, as  calculated  by the Bank,  for
instantaneous  and sustained changes in interest rates relative to the NPV in an
unchanging interest rate environment.

 Changes in Interest                                           Portfolio
  Rates in Basis               Net Portfolio Value          Value of Assets
                         -----------------------------    -------------------
      Points              $          $           %          NPV          %
    (Rate Shock)         Amount      Change    Change      Ratio      Change
    ------------         ------      ------    ------      -----      ------
                             (Dollar in Thousands)
  200..................  102,338    (77,424)    (43.1)      4.42       40.8
  100..................  148,675    (31,087)    (17.3)      6.28       15.9
  0....................  179,762                            7.47
  (100)................  215,043      35,281      19.6      8.76      (17.3)
  (200)................  223,290      43,528      24.2      9.03      (20.9)

As with the Gap table, certain shortcomings are inherent in the methodology used
in the above  interest  rate  risk  measurements.  Modeling  of  changes  in NPV
requires  the making of certain  assumptions  which may or may not  reflect  the
manner in which actual  yields and costs  respond to changes in market  interest
rates.  In this  regard,  the NPV  model  assumes  that the  composition  of the
Company's interest sensitive assets and liabilities existing at the beginning of
a period remains constant over the period being measured and also assumes that a
particular  change in interest  rates is immediate  and is  reflected  uniformly
across the yield curve regardless of the duration to maturity or repricing of

                                                        42

<PAGE>



specific assets and  liabilities.  In addition,  prepayment  estimates and other
assumptions  within the model are  subjective in nature,  involve  uncertainties
and, therefore, cannot be determined with precision.  Accordingly,  although the
NPV measurements in theory,  may provide an indication of the Company's interest
rate risk  exposure at a particular  point in time,  such  measurements  are not
intended to and do not  provide for a precise  forecast of the effect of changes
in market  interest  rates on the Company's net portfolio  value and will differ
from actual results.

Analysis of Net Interest Income

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

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,  1999,  1998,  and 1997 and  reflects  the average
yields on assets and average cost of liabilities for the periods indicated. Such
yields and costs are  derived  by  dividing  income or  expense  by the  average
balance of assets or  liabilities,  respectively,  for the fiscal  years  shown.
Average  balances are derived from daily balances.  The average balance of loans
receivable includes loans on which the Bank has discontinued  accruing interest.
The yields and costs include fees,  premiums and discounts  which are considered
adjustments to yields.
<TABLE>
<CAPTION>
                                                                               Year Ended June 30,
                                         ------------------------------------------------------------------------------------------
                                                      1999                              1998                         1997
                                         ----------------------------     ----------------------------   --------------------------
                                                              Average                          Average                      Average
                                         Average               Yield/     Average               Yield/   Average             Yield/
                                         Balance    Interest    Cost      Balance     Interest  Cost     Balance   Interest   Cost
                                         -------    --------    ----      -------     --------  ----     -------   --------   ----
Assets:                                                                                   (Dollars in thousands)
  Interest-Earning Assets:
<S>                                     <C>        <C>          <C>     <C>          <C>         <C>    <C>         <C>        <C>
     Mortgage Loans, Net..............  $ 791,419  $  62,182    7.86%   $  785,119   $ 63,573    8.10%  $ 709,471   $ 56,948   8.03%
     Commercial Loans, Net............     42,985      4,892   11.38        33,087      3,916   11.84          --         --     --
     Consumer and Other Loans, Net....    130,501     10,730    8.22       140,479     12,130    8.63     133,965     11,525   8.60
     Mortgage-Backed Securities (1)...  1,222,199     78,948    6.46       986,567     67,185    6.81     850,094     59,392   6.99
     Money Market Investments.........      5,213        284    5.43        11,126        615    5.53      11,590        618   5.33
     Debt and Equity Securities (1)...    154,869     10,274    6.63        87,791      6,400    7.29      68,824      4,806   6.98
                                        ---------    -------               -------    -------             -------   --------
      Total Interest-Earning Assets...  2,347,186    167,310    7.13     2,044,169    153,819    7.52   1,773,944    133,289   7.51
                                        ---------                        ---------                      ---------
  Non-Interest Earning Assets.........    128,460                          134,093                         96,082
                                         --------                        ---------                      ---------
          Total Assets................ $2,475,646                       $2,178,262                     $1,870,026
                                        =========                        =========                      =========
Liabilities and Stockholders' Equity:
  Interest-Bearing Liabilities:
     Passbook Accounts................    443,352      9,175    2.07    $  435,844     10,439    2.40   $ 441,922     10,937   2.47
     NOW Accounts.....................    106,541      1,608    1.51        95,663      1,257    1.31      80,121      1,041   1.30
     Money Market Accounts............     90,442      1,879    2.07        93,715      2,249    2.40      99,536      2,493   2.50
     Certificate of Deposit Accounts..    921,782     49,310    5.35       882,775     49,487    5.60     737,018     39,668   5.38
     Borrowed Funds...................    636,095     36,034    5.66       403,414     23,396    5.80     311,363     17,514   5.62
                                        ---------    -------               -------    -------            --------    -------
          Total Interest-Bearing
            Liabilities...............  2,198,212     98,006    4.46     1,911,411     86,828    4.54   1,669,960     71,653   4.29
                                        ---------                        ---------                      ---------
  Non-Interest Bearing Liabilities....     96,740                           82,853                         46,036
                                        ---------                        ---------                      ---------
          Total Liabilities...........  2,294,952                        1,994,264                      1,715,996

  Stockholders' Equity................    180,694                          183,998                        154,030
                                                                         ---------                       --------
          Total Liabilities and
            Stockholders' Equity...... $2,475,646                       $2,178,262                     $1,870,026
                                        =========                        =========                      =========

  Net Interest Income/Interest
    Rate Spread (2)..................               $ 69,304    2.67%                $ 66,991    2.98%               $ 61,636  3.22%
                                                      ======    ====                   ======    ----                  ======  ====

  Net Interest-Earning Assets/
    Net Interest Margin (3)..........   $148,974                2.95%    $ 132,758               3.28%  $ 103,984              3.47%
                                         =======                ====       =======               ----     =======              ====

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

(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.

                                                                    43

<PAGE>



Rate/Volume Analysis

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

                                                   Year Ended June 30, 1999               Year Ended June 30, 1998
                                                        Compared to                            Compared to
                                                   Year Ended June 30, 1998               Year Ended June 30, 1997
                                                --------------------------------        ------------------------------
                                                    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..................  $      507     $ (1,898)   $  (1,391)     $  6,124     $    501      $  6,625
     Commercial Loans, Net................       1,133         (157)         976         3,916           --         3,916
     Consumer and Other Loans, Net........        (839)        (561)      (1,400)          565           40           605
     Mortgage-Backed Securities...........      15,363       (3,600)      11,763         9,353       (1,560)        7,793
     Money Market Investments.............        (320)         (11)        (331)          (25)          22            (3)
     Debt and Equity Securities...........       4,500         (626)       3,874         1,373          221         1,594
                                                 ------        -----       -----        ------       ------        ------
          Total...........................      20,344       (6,853)      13,491        21,306         (776)       20,530
                                                -------      -------      ------        ------       -------       ------

Interest-Bearing Liabilities:
     Passbook Accounts....................         180       (1,444)      (1,264)         (163)        (335)         (498)
     NOW Accounts.........................         150          201          351           208            8           216
     Money Market Accounts................         (75)        (295)        (370)         (145)         (99)         (244)
     Certificate of Deposits Accounts.....       2,108       (2,285)        (177)        8,137        1,682         9,819
     Borrowed Funds.......................       13,213        (575)      12,638         5,307          575         5,882
                                                 ------        -----      ------        ------        -----         -----
          Total...........................       15,576      (4,398)      11,178        13,344        1,831        15,175
                                                 ------      -------      -------      -------        ------       ------
Net Change in Net Interest Income.........     $  4,768    $ (2,455)    $  2,313      $  7,962     $ (2,607)      $ 5,355
                                                  =====      =======       =====       ========     ========        =====

</TABLE>

Comparison of Operating Results for the Years Ended June 30, 1999 and 1998

General.  Net income  for fiscal  1999 was $20.2  million as  compared  to $18.7
million for fiscal 1998.

Interest Income.  Interest income increased $13.5 million,  or 8.8%, from $153.8
million for fiscal 1998 to $167.3 million for fiscal 1999. The increase resulted
primarily from a $303.0 million increase in average interest-earning assets from
$2.0 billion for fiscal 1998 to $2.3 billion for fiscal 1999.  The average yield
on  interest-earning  assets  decreased  from  7.52% in fiscal  1998 to 7.13% in
fiscal 1999.  Interest  income on  mortgage-backed  securities  increased  $11.8
million,  or 17.5%,  from $67.2  million  for fiscal  1998 to $78.9  million for
fiscal 1999,  primarily due to an increase of $235.6  million,  or 23.9%, in the
average balance of these securities,  offset by a 35 basis point decrease in the
average yield on these securities from 6.81% for fiscal 1998 to 6.46% for fiscal
1999. Interest income on investment securities increased $3.9 million, or 60.5%,
from $6.4 million in fiscal 1998 to $10.3 million in fiscal 1999,  primarily due
to an increase of $67.1 million in the average balance of investment securities,
offset  by a 66  basis  point  decrease  in  the  average  yield  on  investment
securities  from 7.29% for fiscal 1998 to 6.63% for fiscal 1999. The increase in
the average  balance of investment  securities was primarily due to purchases of
corporate debt securities.


                                                        44

<PAGE>



Interest  Expense.  Interest  expense  for  fiscal  1999 was $98.0  million,  an
increase of $11.2  million,  or 12.9%,  from $86.8  million in fiscal 1998.  The
increase is primarily the result of a $286.8 million, or 15.0%,  increase in the
average  balance of  interest-bearing  liabilities  from $1.9 billion for fiscal
1998 to $2.2  billion for fiscal 1999 offset by a 8 basis point  decrease in the
cost of  interest-bearing  liabilities  from 4.54% for fiscal  1998 to 4.46% for
fiscal 1999. The increase in the average balance of interest-bearing liabilities
was primarily due to new certificates of deposits and additional borrowings. The
decrease in the average yield of interest-bearing  liabilities was primarily due
to lower  interest  rate  environment  during the year which  resulted  in lower
certificate of deposits and borrowing rates.  Interest expense on total deposits
decreased  $1.5  million,  or 2.3%,  from $63.4 million for fiscal 1998 to $62.0
million for fiscal 1999,  primarily as a result of a 24 basis point  decrease in
the average cost of such  deposits  from 4.21% in fiscal 1998 to 3.97% in fiscal
1999.  The  decrease in the average  yield on  deposits  is  primarily  due to a
reduction in passbook  savings  rates during the year and lower rates offered on
certificates  of deposits.  Interest  expense on borrowed funds  increased $12.6
million,  or 54.0%,  from $23.4  million  for fiscal  1998 to $36.0  million for
fiscal 1999. The average balance of borrowed funds increased $232.7 million,  or
57.7% to $636.1 million for fiscal 1999 as compared to $403.4 million for fiscal
1998. The increase in borrowings is attributable to additional leveraging of the
balance sheet and the proceeds from the trust preferred securities. The Bank had
been using borrowings to leverage its capital and fund asset growth.

Net Interest Income. Net interest income for fiscal 1999 increased $2.3 million,
or 3.5%,  from $67.0  million for fiscal 1998 to $69.3  million for fiscal 1999.
The increase in net interest income  primarily  relates to growth in the average
balances of  interest-earning  assets  offset by a decrease in the net  interest
spread. Average interest-earning assets increased $303.0 million, or 14.8%, from
$2.0  billion  in fiscal  1998 to $2.3  billion  in fiscal  1999  while  average
interest-bearing  liabilities  increased  $286.8  million,  or 15.0%,  from $1.9
billion in fiscal 1998 to $2.2  billion in fiscal 1999.  The net  interest  rate
spread  declined  by 31 basis  points  from 2.98% for  fiscal  1998 to 2.67% for
fiscal  1999  as  a  result  of   reinvestment  of  funds  into  lower  yielding
interest-earning  assets.  As a  result  of  further  leveraging  of the  Bank's
capital, the net interest margin decreased from 3.28% in fiscal 1998 to 2.95% in
fiscal 1999.

Provision  for Loan Losses.  The  provision  for loan losses for fiscal 1999 was
$650,000,  a decease of $1.0 million or 60.6%,  from $1.7 for fiscal 1998.  When
determining the provision for loan losses, management assesses the risk inherent
in its loan portfolio based on information  available to management at such time
relating  to trends in the  national  and  local  economies,  trends in the real
estate market and trends in the Company's level of non-performing  loans, assets
and net  charge-offs.  Management  decreased  the  provision for loan losses for
fiscal  1999 due to the lower  level of  non-performing  loans and  charge-offs.
Non-performing  loans decreased $2.7 million, or 29.5%, from $9.3 million at the
end of fiscal 1998 to $6.6 million at the end of fiscal 1999 and net charge-offs
decreased from $636,000 for fiscal 1998 to $471,000 for fiscal 1999. At June 30,
1999 and 1998,  the allowance for loan losses was $9.1 million and $8.9 million,
respectively,  which represented  139.08% of  non-performing  loans and 0.93% of
total loans at June 30, 1999 as compared to 96.12% of  non-performing  loans and
0.91%  of total  loans at June 30,  1998.  Management  believes  that,  based on
information  currently  known to  management,  the  provision  for possible loan
losses and the allowance for possible loan losses are currently  reasonable  and
adequate to cover  potential  losses  reasonably  expected in the existing  loan
portfolio.  While  management  estimates  loan losses  using the best  available
information,  no assurance  can be given that future  additions to the allowance
will not be  necessary  based on  changes in  economic  and real  estate  market
conditions, further information obtained regarding problem loans, identification
of  additional  problem  loans and other  factors,  both  within and  outside of
management's  control.  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 1999 increased $541,000, or
6.9%,  from $7.9  million for fiscal 1998 to $8.4 million for fiscal 1999 due to
increased fee income  generated  from the check cashing  operations,  prepayment
penalties, ATM fees and deposit fee income offset by a condemnation award in the
prior fiscal year.

Non-Interest  Expense.  Non-interest  expense  totalled $41.0 million for fiscal
1999 as compared to $39.7  million for fiscal 1998, an increase of $1.3 million,
or 3.3%. For fiscal 1999,  compensation and benefits expense  increased to $20.4
million,  an increase of $76,000,  or 0.37%, from $20.3 million for fiscal 1998.
The increase in compensation

                                                        45

<PAGE>



and  benefits  expense  is due to higher  benefit  expenses  and  normal  salary
adjustments.  For fiscal 1999, ESOP and RRP expense was $3.1 million as compared
to $3.7 million in the prior year, a decrease of $585,000,  or 15.8%.  Occupancy
and equipment expense increased $533,000,  or 8.2%, from $6.5 million for fiscal
1998 to $7.1 million for fiscal 1999 due to costs  associated with the full year
operation of two new banking  offices and five check  cashing  facilities  which
were acquired from Continental  Bank.  Federal deposit premium expense increased
$9,000,  or 1.0%,  from $921,000  million for fiscal 1998 to $930,000 for fiscal
1999. Other operating  expenses increased  $401,000,  or 6.4%, from $6.3 million
during  fiscal 1998 to $6.7  million for fiscal  1999  primarily  as a result of
general  expenses  related to the full year operation of two new banking offices
and five check cashing facilities.

For fiscal 1999,  expenses related to real estate operations,  net was $111,000,
as compared to $218,000 in the prior  fiscal  year.  The  decrease is mainly the
result of a lower  provision  for REO  losses and lower  expenses  due to faster
disposition  of  properties  during the fiscal year ended June 30, 1999.  During
fiscal  1999,  the Bank  established  a  provision  for REO losses of $34,500 as
compared to $93,000 in the prior fiscal year period.

During fiscal 1999, the Bank recognized amortization of excess of cost over fair
value of net assets  acquired of $4.6  million as  compared  to $4.2  million in
fiscal 1998.  The  amortization  of cost over fair value of net assets  acquired
relates to the Company  accounting  for the  acquisitions  of Bank of  Westbury,
Sunrise  Bancorp,  Inc.  and  Continental  Bank  using  the  purchase  method of
accounting.

Income Tax Expense.  Income tax expense  increased $1.1 million,  or 7.6%,  from
$14.8  million for fiscal 1998 to $15.9  million for fiscal 1999.  The effective
income tax rate was 44.2% for fiscal  1999 and 1998.  The  effective  income tax
rate is affected by certain tax benefits  associated  with the  operations  of a
subsidiary of the Bank and by  amortization of excess of cost over fair value of
net assets acquired, which provides no tax benefit.

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

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

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

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


                                                        46

<PAGE>



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

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

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

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

Non-Interest  Expense.  Non-interest  expense  totalled $39.7 million for fiscal
1998 as compared to $43.0  million for fiscal 1997, a decrease of $3.3  million,
or 7.8%. Included in non-interest expense for fiscal 1997 is the special SAIF

                                                        47

<PAGE>



pre-tax charge of $8.25 million. Excluding the SAIF charge, non-interest expense
increased  $4.9 million,  or 14.1%.The  increase is mainly the result of banking
office personnel,  goodwill  amortization and other expenses associated with the
Continental Bank acquisition offset by a decrease in deposit insurance premiums.
Due to the increased asset base and the operational  efficiencies  realized from
the acquisition, the general and administrative expenses to average assets ratio
improved  from 1.66% for the fiscal year ended June 30, 1997 to 1.62% for fiscal
1998.  For fiscal 1998,  compensation  and benefits  expense  increased to $20.3
million,  an increase of $3.8 million,  or 23.0%,  from $16.5 million for fiscal
1997. The increase in compensation  and benefits  expense is due to the addition
of banking  office  personnel  from the  Continental  Bank  acquisition,  higher
benefit  expenses and normal salary  adjustments.  For fiscal 1998, ESOP and RRP
expense  was $3.7  million as compared  to $2.5  million in the prior  year,  an
increase of $1.2 million,  or 46.9%.  Occupancy and equipment  expense increased
$812,000, or 14.2%, from $5.7 million for fiscal 1997 to $6.5 million for fiscal
1998 due to costs  associated  with the operation of two new banking offices and
five  check  cashing  facilities.  Federal  deposit  premium  expense  decreased
$892,000,  or 49.2%,  from $1.8  million for fiscal 1997 to $921,000  for fiscal
1998 due to the reduction in SAIF. Other operating expenses increased  $496,000,
or 8.6%,  from $5.8 million  during  fiscal 1997 to $6.3 million for fiscal 1998
primarily  as a result of general  expenses  related to the  addition of two new
banking offices and five check cashing facilities.

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

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

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

Liquidity and Capital Resources

The  Company's  current  primary  sources of funds are  principal  and  interest
payments, sales of securities available-for- sale, borrowings and dividends from
the Bank.  Dividend  payments  to the  Company  from the Bank are subject to the
profitability of the Bank and to applicable laws and regulations.  During fiscal
1999,  1998 and 1997, the Bank made dividend  payments of $13.0  million,  $14.0
million and $6.7 million, respectively, to the Company.

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

The Company's liquidity is also available to, among other things, support future
expansion of operations or diversification  into other banking related business,
pay  dividends or  repurchase  its common  stock.  In this  regard,  the Company
declared cash  dividends of $6.5 million,  $6.0 million and $4.9 million  during
fiscal years 1999, 1998 and 1997, respectively.


                                                        48

<PAGE>



On November 6, 1998,  the Company  completed  its  seventh  five  percent  stock
repurchase plan purchasing 500,000 shares at an aggregate cost of $13.9 million.
The Company also announced its eighth stock  repurchase plan to repurchase up to
500,000 of the Company's outstanding shares. As of June 30, 1999, 146,207 shares
under this program were repurchased at an aggregate cost of $4.1 million. During
fiscal  years 1999,  1998 and 1997,  the  Company  repurchased  total  shares of
1,040,207,  460,973 and 442,182,  respectively,  at an  aggregate  cost of $27.9
million, $15.3 million and $8.1 million, respectively.

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

The Bank is required to maintain an average  daily balance of liquid assets as a
percentage of net withdrawable  deposit  accounts plus short-term  borrowings as
defined by OTS regulations.  The minimum  required  liquidity is currently 4.0%.
The Bank's liquidity ratio averaged 9.3% for the year ended June 30, 1999.

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, 1999,
assets qualifying for liquidity,  including cash, US government  obligations and
other eligible securities, totalled $201.4 million.

The primary  investment  activity of the Bank is the  origination  of  mortgage,
commercial  and  consumer  and loans,  and the  purchase of  mortgage  loans and
mortgage-backed securities. During the fiscal year ended June 30, 1999, the Bank
originated and purchased  mortgage  loans,  commercial and consumer loans in the
amount of $175.8 million, $141.2 million and $41.7 million, respectively. During
the fiscal  year ended  June 30,  1999,  the Bank  purchased  $836.5  million of
mortgage-backed   securities  of  which  $730.2  million  and  $106.3   million,
respectively,  were classified as  available-for-sale  and  held-to-maturity and
purchased as part of the Bank's growth  strategy.  These  activities were funded
primarily  by  deposits,  principal  repayments  on  loans  and  mortgage-backed
securities and borrowings from the FHLB-NY,  reverse  repurchase  agreements and
proceeds from Capital Securities.  At June 30, 1999, borrowings from the FHLB-NY
and reverse  repurchase  agreements  totalled $338.7 million and $313.7 million,
respectively.

At June 30, 1999, the Bank had outstanding loan commitments of $45.2 million and
commercial and consumer open lines of credit of $18.1 million and $52.0 million,
respectively.  The Bank anticipates that it will have sufficient funds available
to meet its current loan origination commitments.  Certificates of deposit which
are scheduled to mature in one year or less from June 30, 1999  totalled  $710.7
million.  Management  believes that a significant  portion of such deposits will
remain with the Bank.

At June 30, 1999,  the Bank exceeded each of the OTS capital  requirements.  The
Bank's  tangible,  core, and risked-based  ratios were 6.78%,  6.78% and 17.14%,
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.

                                                        49

<PAGE>



Impact of New Accounting Standards

In June 1998, the FASB issued  Statement of Financial  Accounting  Standards No.
133,  "Accounting  for Derivative  Instruments  and Hedging  Activities"  ("SFAS
No.133").   SFAS  No.  133  establishes   accounting  and  reporting   standards
forderivative  instruments  and for  hedging  activities.  It  requires  that an
entityrecognize all derivatives as either assets or liabilities in the statement
offinancial   condition  and  measure  those  instruments  at  fair  value.  The
accountingfor  changes in the fair value of a  derivative  (that is,  unrealized
gains andlosses) depends on the intended use of the derivative and the resulting
designation.  SFAS No. 133 is  effective  for fiscal  quarters  of fiscal  years
beginning after June 15, 1999 and does not require restatement of prior periods.
In June 1999, the FASB issued SFAS No. 137,  "Deferral of Effective Date of SFAS
No. 133",  which defers the adoption of SFAS No. 133 by one year.  Management of
the Company believes the implementation of SFAS No. 133 will not have a material
impact on the Company's financial condition or results of operations.

Impact of the Year 2000 Issue

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

The Company has adopted a "Year 2000  Policy" and is in the process of reviewing
its  internal  systems.  The  Company  completed  testing of  computer  software
programs and hardware to determine Year 2000  compliance.  Further,  the Company
has purchased Year 2000  compliant  software from EDS for use with the mainframe
computer.  The Company  believes  that with existing  modifications  to existing
software and conversions to new software and hardware where necessary,  the Year
2000 problem will be mitigated  without causing a material adverse impact on the
operations of the Company.  The Company has completed testing and implementation
of changes.

The  Company  has  initiated  formal  written  communications  with  all  of its
significant suppliers to determine the extent to which the Company is vulnerable
to those  third  parties'  failures  to  remediate  their own Year  2000  Issue.
Significant  suppliers  have been  requested  to certify that they are Year 2000
compliant or, if not, to provide their plans to become compliant.  Management of
the Company receives monthly updates as to which significant  suppliers are Year
2000 compliant and follow-up with all  significant  suppliers is being conducted
according to plan. The Company  presently  believes that with  modifications  to
existing  software and conversions to new software,  the Year 2000 Issue will be
mitigated  without  causing a material  adverse  impact on the operations of the
Company. However, if such modifications and conversions are not made, or are not
completed timely,  the Year 2000 Issue could have an impact on the operations of
the Company.  At this time,  management does not believe that the impact and any
resulting costs will be material.


                                                        50

<PAGE>



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

Presently,  the  Company  has a formal  contingency  plan in the event  that its
computer  software and hardware vendors are not Year 2000 compliant.  Based upon
discussions with the Company's computer software and hardware vendors, including
its data  processing  vendors,  such  vendors  have  indicated  that  they  have
completed testing and will be Year 2000 compliant.

Private Securities Litigation Reform Act Safe Harbor Statement

This report contains certain  forward-looking  statements  within the meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities  Exchange  Act  of  1934,  as  amended.   The  Company  intends  such
forward-looking  statements  to be covered  by the safe  harbor  provisions  for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995,  and is including  this statement for purposes of these safe harbor
provisions.  Forward-looking statements,  which are based on certain assumptions
and describe  future plans,  strategies  and  expectations  of the Company,  are
generally  identified  by  use  of  the  words  "believe,"  "expect,"  "intend,"
"anticipate,"  "estimate,"  "project,"  or similar  expressions.  The  Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain.  Factors which could have a material adverse effect on the
operations of the Company and the subsidiaries  include, but are not limited to,
changes in: interest rates, general economic conditions,  legislative/regulatory
changes, monetary and fiscal policies of the U.S. Government, including policies
of the U.S.  Treasury and the Federal Reserve Board,  the quality or composition
of the loan or investment portfolios,  demand for loan products,  deposit flows,
competition,  demand for  financial  services in the  Company's  market area and
accounting  principles and guidelines.  These risks and uncertainties  should be
considered in evaluating  forward-looking  statements and undue reliance  should
not be placed on such statements. Further information concerning the Company and
its business,  including  additional  factors that could  materially  affect the
Company's  financial  results,  is included in the  Company's  filings  with the
Securities and Exchange Commission.

The Company does not undertake -- and  specifically  disclaims any obligation --
to  publicly  release  the  result  of any  revisions  which  may be made to any
forward-looking  statements to reflect events or circumstances after the date of
such  statements or to reflect the occurrence of  anticipated  or  unanticipated
events.  Information regarding management's discussion and analysis of financial
condition and results of operations appears under Item 7 of this report.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

See the information contained in the section captioned "Management's  Discussion
and Analysis of Financial  Condition  and Results of  Operations-Asset/Liability
Management  /Market Risk and Interest  Rate  Sensitivity  Analysis" in Item 7 of
this report.

Item 8.

Consolidated Financial Statements and Supplementary Data




                                                        51

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

[LOGO] Arthur Andersen LLP
         Independent Public Accountants
         1345 Avenue of the Americas
         New York, NY  10105


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

We have audited the accompanying consolidated statement of condition of Reliance
Bancorp,  Inc. and subsidiary as of June 30, 1999, and the related  consolidated
statements of income, changes in stockholders' equity,  comprehensive income and
cash  flows  for  the  year  then  ended.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion  on these  financial  statements  based on our audit.  The  consolidated
financial  statements of Reliance  Bancorp,  Inc. and  subsidiary as of June 30,
1998,  and for each of the years in the two year period then ended were  audited
by other  auditors  whose report dated July 23, 1998,  expressed an  unqualified
opinion on those statements.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Reliance  Bancorp,  Inc. and
subsidiary as of June 30, 1999,  and the results of their  operations  and their
cash  flows  for the year  then  ended in  conformity  with  generally  accepted
accounting principles.


/s/  Arthur Andersen LLP
---  -------------------
     Arthur Andersen LLP
     New York, New York
     July 21, 1999
    (except with respect to the matter
     discussed in Note 2, as to which
     the date is  August 30, 1999)


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

[LOGO] KPMG LLP
         1305 Walt Whitman Road
         Melville, NY 11747-4302

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

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

     We conducted  our audit 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 statementsare free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

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


/s/ KMPG LLP
      KPMG LLP
      July 23, 1998


                                                        52

<PAGE>



                                       Reliance Bancorp, Inc. and Subsidiary
                                       Consolidated Statements of Condition
                                       (In thousands, except share amounts)
<TABLE>
<CAPTION>


                                                                                               June 30,
                                                                                         --------------------
                                                                                          1999          1998
                                                                                         ------        ------
Assets
<S>                                                                                     <C>            <C>
Cash and due from banks.............................................................    $ 33,255       $ 37,596
Money market investments............................................................          --          9,500
Debt and equity securities available-for-sale.......................................     122,168        134,907
Debt and equity securities held-to-maturity (with estimated
   market values of $28,840 and $40,509, respectively)..............................      28,835         40,189
Mortgage-backed securities available-for-sale.......................................     935,038        940,347
Mortgage-backed securities held-to-maturity (with estimated
   market values of $252,233 and $252,332, respectively)............................     255,917        249,259
Loans receivable:
     Mortgage loans.................................................................     810,894        790,951
     Commercial loans...............................................................      44,949         49,887
     Consumer and other loans.......................................................     127,350        137,900
       Less allowance for loan losses...............................................      (9,120)        (8,941)
                                                                                        ---------      ---------
             Loans receivable, net..................................................     974,073        969,797
Accrued interest receivable, net....................................................      13,095         14,958
Office properties and equipment, net................................................      16,368         15,436
Prepaid expenses and other assets...................................................      16,960         11,732
Mortgage servicing rights...........................................................       1,514          2,317
Excess of cost over fair value of net assets acquired...............................      54,373         58,936
Real estate owned, net..............................................................         177            755
                                                                                         -------    -----------
             Total assets........................................................... $ 2,451,773    $ 2,485,729
                                                                                       =========      =========

Liabilities and Stockholders' Equity
Deposits............................................................................ $ 1,549,419    $ 1,628,298
Borrowed Funds......................................................................     702,434        630,206
Advance payments by borrowers for taxes and insurance...............................       6,399          9,806
Accrued expenses and other liabilities..............................................      21,854         22,555
                                                                                        --------      ---------
             Total liabilities......................................................   2,280,106      2,290,865
                                                                                       ---------      ---------

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; 8,586,210 and 9,564,988
    outstanding, respectively.......................................................         108            108
Additional paid-in capital..........................................................     121,037        117,909
Retained earnings, substantially restricted.........................................     115,976        102,305
Accumulated other comprehensive income:
   Net unrealized (depreciation) appreciation on securities
    available-for-sale, net of taxes................................................     (10,546)         4,212
Less:
Unallocated common stock held by ESOP...............................................      (3,726)        (4,554)
Unearned common stock held by RRP...................................................         (66)          (713)
Common stock held by SERP (at cost).................................................        (550)          (373)
Treasury stock, at cost (2,164,610 and 1,185,832 shares, respectively)..............     (50,566)       (24,030)
                                                                                        ---------       --------
     Total stockholders' equity.....................................................     171,667        194,864
                                                                                        --------        -------

            Total liabilities and stockholders' equity.............................. $ 2,451,773    $ 2,485,729
                                                                                       =========      =========
                           See accompanying notes to consolidated financial statements.

                                                        53

<PAGE>



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

                                                                                          Year Ended June 30,
                                                                                ----------------------------------------
                                                                                 1999            1998             1997
                                                                                ------          ------           ------
Interest Income:
<S>                                                                          <C>              <C>                <C>
    First Mortgage Loans.............................................        $  62,182        $  63,573          $ 56,948
    Commercial Loans.................................................            4,892            3,916                --
    Consumer and Other Loans.........................................           10,730           12,130            11,525
    Mortgage-Backed Securities.......................................           78,948           67,185            59,392
    Money Market Investments.........................................              284              615               618
    Debt and Equity Securities.......................................           10,274            6,400             4,806
                                                                               -------          -------           -------
          Total Interest Income......................................          167,310          153,819           133,289
                                                                               -------          -------           -------

Interest Expense:
    Deposits.........................................................           61,972           63,432            54,139
    Borrowed Funds...................................................           36,034           23,396            17,514
                                                                                ------           ------            ------
          Total Interest Expense.....................................           98,006           86,828            71,653
                                                                                ------           ------            ------
    Net Interest Income Before Provision for Loan Losses.............           69,304           66,991            61,636
Provision for Loan Losses............................................              650            1,650               950
                                                                                ------           ------            ------
    Net Interest Income After Provision for Loan Losses..............           68,654           65,341            60,686
                                                                                ------           ------            ------

Non-Interest Income:
    Loan Fees and Service Charges....................................            1,352            1,047               683
    Other Operating Income...........................................            4,279            3,452             2,557
    Income from Money Centers........................................            2,650            1,882                --
    Condemnation Award on Joint Venture..............................               --            1,483                --
    Net Gain (Loss) on Securities....................................              119               (5)              172
                                                                                ------            ------            -----
          Total Non-Interest Income..................................            8,400            7,859             3,412
                                                                                ------            -----             -----

Non-Interest Expense:
    Compensation and Benefits........................................           20,373           20,297            16,509
    Occupancy and Equipment..........................................            7,064            6,531             5,719
    Federal Deposit Insurance Premiums...............................              930              921             1,813
    Advertising......................................................            1,247            1,202             1,168
    Other Operating Expenses.........................................            6,675            6,274             5,778
                                                                                ------           ------            ------
          Total General and Administrative Expenses..................           36,289           35,225            30,987
    Real Estate Operations, Net......................................              111              218               383
    Amortization of Excess of Cost Over Fair Value
      of Net Assets Acquired.........................................            4,563            4,218             3,404
    SAIF Recapitalization Charge.....................................               --               --             8,250
                                                                                ------           ------            ------
          Total Non-Interest Expense.................................           40,963           39,661            43,024
                                                                                ------           ------            ------
Income Before Income Taxes...........................................           36,091           33,539            21,074
Income Tax Expense ..................................................           15,940           14,810            10,138
                                                                                ------           ------           -------
Net Income ..........................................................         $ 20,151         $ 18,729          $ 10,936
                                                                                ======           ======            ======

Net Income per Common Share:
             Basic...................................................           $ 2.38           $ 2.11            $ 1.32
             Diluted.................................................           $ 2.26           $ 1.99            $ 1.25


                               See accompanying notes to consolidated  financial
statements.

                                                            54

<PAGE>



                                           Reliance Bancorp, Inc. and Subsidiary
                                Consolidated Statements of Changes in Stockholders' Equity
                                           (In thousands, except share amounts)

                                                                                 Year Ended June 30,
                                                                       -------------------------------------
 Common Stock (Par Value: $.01):                                        1999           1998            1997
                                                                       ------         ------          ------
<S>                                                                  <C>           <C>            <C>
  Balance at Beginning and End of Year............................   $     108     $      108     $      108
                                                                           ---            ---            ---

Additional Paid in Capital:
  Balance at Beginning of Year....................................     117,909        105,871        104,041
  Net (Loss) Gain from Reissuance of Treasury Stock...............        (675)         7,903             --
  Allocation of ESOP Stock and Earned Portion of RRPs.............       1,646          2,023            868
  Common Stock Acquired by SERP...................................         177            164            209
  Tax Benefits on Stock Plans.....................................       1,980          1,948            753
                                                                       -------        -------        -------
  Balance at End of Year..........................................     121,037        117,909        105,871
                                                                       -------        -------        -------

Retained Earnings, Substantially Restricted:
  Balance at Beginning of Year....................................     102,305         89,660         83,966
  Net Income......................................................      20,151         18,729         10,936
  Dividends Declared..............................................      (6,480)        (6,044)        (4,930)
  Loss on Reissuance of Treasury Stock............................          --            (40)          (312)
                                                                       -------        -------        --------
  Balance at End of Year..........................................     115,976        102,305         89,660
                                                                       -------        -------         ------

Accumulated Other Comprehensive Income:
  Net Unrealized (Depreciation) Appreciation on
  Securities Available-for-Sale, Net of Tax:
  Balance at Beginning of Year....................................       4,212          1,705         (5,281)
  Change in Net Unrealized (Depreciation)
   Appreciation,Net of Tax........................................     (14,758)         2,507          6,986
                                                                       --------        ------          -----
  Balance at End of Year..........................................     (10,546)         4,212          1,705
                                                                       --------        ------          -----

Unallocated Common Stock Held by ESOP:
  Balance at Beginning of Year....................................      (4,554)        (5,382)        (6,210)
  Allocation of ESOP Stock........................................         828            828            828
                                                                         -----         ------          -----
  Balance at End of Year..........................................      (3,726)        (4,554)        (5,382)
                                                                        -------        -------        -------

Unearned Common Stock Held by RRPs:
  Balance at Beginning of Year....................................        (713)        (1,567)        (2,392)
  Earned Portion of RRPs..........................................         647            854            825
                                                                         ------          ----          -----
  Balance at End of Year..........................................         (66)          (713)        (1,567)
                                                                         ------          -----        -------

Common Stock Held by Supplemental Executive Retirement Plan:
   Balance at Beginning of Year...................................        (373)          (209)            --
   Common Stock Acquired by SERP (6,312, 4,433 and
          11,021 shares)..........................................        (177)          (164)          (209)
                                                                         ------          -----          -----
   Balance at End of Year.........................................        (550)          (373)          (209)
                                                                         ------          -----          -----

Treasury Stock:
   Balance at Beginning of Year...................................     (24,030)       (27,516)       (20,613)
   Reissuance of stock for Continental Bank acquisition
         (1,013,909 shares).......................................          --         14,711             --
   Common Stock Purchased, at Cost (1,040,207, 460,973 and
          442,182 shares).........................................     (27,936)       (15,269)        (8,113)
   Exercise of Stock Options......................................       1,400          4,044          1,210
                                                                       -------        -------        -------
   Balance at End of Year.........................................     (50,566)       (24,030)       (27,516)
                                                                       --------       --------       --------
  Total Stockholders' Equity......................................   $ 171,667      $ 194,864      $ 162,670
                                                                       =======        =======        =======

                               See accompanying notes to consolidated  financial
statements.

                                                            55

<PAGE>



                                                  Reliance Bancorp, Inc.
                                      Consolidated Statements of Comprehensive Income
                                                      (In thousands)

                                                                               Years Ended June 30,
                                                                        -----------------------------------
                                                                        1999            1998           1997
                                                                        ----            ----           ----

<S>                                                                 <C>               <C>            <C>
Net Income......................................................... $  20,151         $18,729        $10,936
Other Comprehensive Income, Net of Income Taxes:
Unrealized (Losses)/Gains on Securities Available-for-Sale.........   (14,758)          2,507          6,986
                                                                      --------          -----          -----
Comprehensive Income............................................... $   5,393         $21,236        $17,922
                                                                      ========        =======        =======

                               See accompanying notes to consolidated  financial
statements.

                                                            56

<PAGE>




                                           Reliance Bancorp, Inc. and Subsidiary
                                           Consolidated Statements of Cash Flows
                                                      (In thousands)

                                                                                            Year Ended June 30,
                                                                                    -----------------------------------
                                                                                    1999           1998            1997
                                                                                    ----           ----            ----
Cash Flows From Operating Activities:
<S>                                                                              <C>             <C>            <C>
 Net Income..................................................................    $ 20,151        $ 18,729       $ 10,936
 Adjustments to Reconcile Net Income to Net Cash
  Provided by Operating Activities:
   Provision for Loan Losses.................................................         650           1,650            950
   Provision for Losses on Real Estate Owned ................................          35              93            200
   Amortization of Premiums, Net.............................................       2,060           2,755          1,448
   Net (Gain) Loss on Securities.............................................        (118)              5           (172)
   Expense Charge Relating to Allocation and Earned
       Portions of Stock Plans...............................................       3,120           3,705          2,521
   Amortization of Excess of Cost Over Fair Value of
        Net Assets Acquired .................................................       4,564           4,218          3,404
   Amortization of Mortgage Servicing Rights.................................         803             729            859
   Acquisition Related Tax Benefits not Previously Recognized................          --              --            562
   Depreciation and Amortization.............................................       1,844           1,635          1,417
   Net Gain on Loans Sold....................................................        (134)            (44)           (28)
   Proceeds from Loans Sold..................................................      28,240           8,473          7,303
   Net Gain on Sale of Real Estate Owned.....................................         (84)           (146)           (56)
   Decrease (Increase) in Accrued Interest  Receivable, Net..................       1,863          (1,837)          (728)
   Decrease (Increase) in Prepaid Expenses and Other Assets..................       3,862          (1,345)         3,174
   Increase in Accrued Expenses and
     Other Liabilities.......................................................       3,251           2,670          7,164
                                                                                   ------          ------         ------
       Net Cash Provided by Operating  Activities............................      70,107          41,290         38,954
                                                                                   ------          ------         ------

Cash Flows From Investing Activities:
(Originations and Purchased Loans) Net of Principal Payments.................     (33,733)          5,417       (101,583)
 Purchases of Mortgage-Backed Securities Held-to-Maturity....................    (106,292)       (147,163)            --
 Purchases of Mortgage-Backed Securities Available-for-Sale..................    (730,157)       (623,759)      (277,483)
 Proceeds from Sales of Mortgage-Backed Securities Available-for-Sale........     322,180         190,245         59,810
 Principal Repayments from Mortgage-Backed Securities........................     488,009         351,591        123,823
 Proceeds from Call of Debt Securities.......................................      38,145          12,500          7,313
 Proceeds from Sales of Debt and Equity Securities Available-for-Sale........      15,229           4,870          5,028
 Purchases of Debt Securities Available-for-Sale.............................     (24,743)       (115,500)       (19,715)
 Purchases of Debt and Equity Securities Held-to-Maturity....................     (11,138)             --         (5,007)
 Proceeds from Maturities of Debt Securities.................................       3,400           1,205          1,350
 Purchases of Premises and Equipment.........................................      (2,837)         (1,623)        (1,734)
 Proceeds from Sale of Real Estate Owned ....................................       1,199           3,402          1,899
 Cash and Cash Equivalents Acquired from Continental Bank Acquisition........          --           9,106             --
                                                                                  -------         -------       --------

       Net Cash Used in Investing Activities.................................     (40,738)       (309,709)      (206,299)
                                                                                  --------       ---------      ---------










                                                            57

<PAGE>



                                           Reliance Bancorp, Inc. and Subsidiary
                                     Consolidated Statements of Cash Flows, Continued
                                                      (In thousands)


                                                                                             Year Ended June 30,
                                                                                    ----------------------------------
                                                                                    1999           1998           1997
                                                                                    ----           ----           ----
Cash Flows from Financing Activities:
<S>                                                                             <C>            <C>              <C>
 (Decrease) Increase in Deposits.............................................   $ (78,422)     $   55,717       $ 91,009
 (Decrease) Increase in Advance Payments by Borrowers
    for Taxes and Insurance..................................................      (3,407)            789            171
 Proceeds from FHLB Advances.................................................   1,095,981         143,336         60,000
 Repayment of FHLB Advances..................................................    (939,399)        (22,025)       (23,000)
 Proceeds from Reverse Repurchase Agreements.................................     743,772       1,077,963      1,177,298
 Repayment of Reverse Repurchase Agreements..................................    (828,126)     (1,002,606)    (1,128,545)
 Proceeds from Capital Securities............................................          --          50,000             --
 Purchases of Treasury Stock.................................................     (27,936)        (15,269)        (8,113)
 Net Proceeds from Issuance of Common Stock Upon
    Exercise of Stock Options................................................         725           2,670            898
 Dividends Paid..............................................................      (6,398)         (5,725)        (4,578)
                                                                                   -------         -------     ----------
       Net Cash (Used in) Provided by Financing Activities...................     (43,210)        284,850        165,140
                                                                                  --------        -------       --------

Net (Decrease) Increase in Cash and Cash Equivalents.........................     (13,841)         16,431         (2,205)
Cash and Cash Equivalents at Beginning of Year...............................      47,096          30,665         32,870
                                                                                  -------          ------        -------

Cash and Cash Equivalents at End of Year.....................................    $ 33,255        $ 47,096       $ 30,665
                                                                                   ======          ======         ======

Supplemental Disclosures of Cash Flow Information

Cash Paid During the Year for:
  Interest...................................................................      $97,218        $ 85,449      $ 71,005
                                                                                    ======          ======        ======
  Income Taxes ..............................................................      $14,390        $ 11,077     $   4,745
                                                                                    ======          ======         =====

Non-cash Investing Activities:
 Transfers from Loans to Real Estate Owned...................................     $    571        $  3,654     $     929
                                                                                       ===           =====           ===

Supplemental Information to the Consolidated Statement of Cash Flows Relating to
Continental Bank Acquisition.

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

                                                                        1998
                                                                     ----------
Fair Value of Assets Acquired, Excluding Cash and Cash
   Equivalents Acquired...........................................   $ 168,240
Liabilities Assumed...............................................    (171,083)
Excess of Cost Over Fair Value of Net Assets Acquired.............      17,691
Stock Consideration...............................................     (23,954)
                                                                       -------
Cash and Cash Equivalents Acquired................................   $  (9,106)
                                                                        =======

</TABLE>

          See accompanying notes to consolidated financialstatements.






                                                            58

<PAGE>



                      Reliance Bancorp, Inc. and Subsidiary

                   Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

The  accounting  and reporting  policies of Reliance 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. All
significant   intercompany   transactions   and  balances  are   eliminated   in
consolidation.

As  more  fully  discussed  in  Note  3,  Reliance   Bancorp  Inc.,  a  Delaware
corporation,  was  organized by the Bank for the purpose of acquiring all of the
capital  stock  of the  Bank  pursuant  to the  conversion  of the  Bank  from a
federally  chartered mutual savings bank to a federally  chartered stock savings
bank.  The Company is subject to the  financial  reporting  requirements  of the
Securities and Exchange Act of 1934, as amended.

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

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

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

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.

(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

                                                        59

<PAGE>



principal balances,  adjusted for unamortized premiums and unaccreted discounts.
Premiums are  amortized  and discounts are accreted to income over the estimated
life of the respective  securities  using the  level-yield  method.  The Company
currently has the ability and intent to hold the securities until maturity.

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

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

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

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

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

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

(i) Excess of Cost Over Fair Value of Net Assets Acquired
The  excess  of  cost  over  the  fair  value  of  net  assets  acquired  in the
acquisitions of the Bank of Westbury, Sunrise Bancorp, Inc. and Continental Bank
is amortized  using the straight line method over fifteen  years.  The excess of
cost

                                                        60

<PAGE>



over the fair value of net assets  acquired  is  evaluated  periodically  by the
Company for impairment in response to changes in circumstances or events.

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

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

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

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

Actuarial  gains and losses that arise from  changes in  assumptions  concerning
future  events,  used in estimating  pension  costs,  have been amortized over a
period that  reflects the long range nature of pension  expense.  However,  as a
result of the freezing of the plan,  the Bank  recognized a curtailment  gain in
fiscal 1998. (See Note 17).

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

The Bank follows SFAS No. 123, "Accounting for Stock-Based  Compensation".  SFAS
No.  123  applies  to all  transactions  in which an  entity  acquires  goods or
services by issuing  equity  instruments or by incurring  liabilities  where the
payment  amounts  are based on the  entity's  common  stock  price,  except  for
employee stock  ownership  plans.  SFAS No. 123  established a fair  value-based
method of accounting for stock-based  compensation  arrangements with employees,
rather than the  intrinsic  value-based  method that is contained in  Accounting
Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to  Employees"
("APB No. 25"). SFAS No. 123 does not require an entity to adopt

                                                        61

<PAGE>



the new fair  value-based  method for purposes of preparing its basic  financial
statements;  an entity is allowed to  continue  to use the APB No. 25 method for
preparing its basic financial statements.  The Company has chosen to continue to
use the APB No. 25 method,  however,  SFAS No. 123 requires  presentation of pro
forma  net  income  and  earnings  per  share  information,  in the notes to the
financial statements, as if the fair value-based method had been adopted.

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

(n)   Comprehensive Income
 The Company  follows  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 owners.  The Company  adopted the  provisions  of SFAS No. 130
during the first quarter of fiscal 1999 and as such was required to (a) classify
items of other  comprehensive  income by their nature in a financial  statement;
(b) display the accumulated  balance of other  comprehensive  income  separately
from retained  earnings and additional  paid-in capital in the equity section in
the statement of financial condition and (c) reclassify prior periods presented.
As the requirements of SFAS No. 130 are  disclosure-related,  its implementation
had no impact on the Company's financial condition or results of operations.

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

(p)  Segment Reporting
During  fiscal 1999,  the Company  adopted  Statement  of  Financial  Accounting
Standards  No.131,  "Disclosures  about  Segments of an  Enterprise  and Related
Information." SFAS No. 131 requires public companies to report certain financial
information  about  significant  revenue-producing  segments of the business for
which such information is available and utilized by the chief operating decision
maker.  Specific  information to be reported for individual  operating  segments
includes a measure of profit and loss,  certain  revenue and expense items,  and
total assets. As a community-oriented  financial institution,  substantially all
of the Company's operations involve the delivery of loan and deposit products to
customers. Management makes operating decisions and assesses performance base on
an ongoing review of these community  banking  operations,  which constitute the
Company's only  operating  segment for financial  reporting  purposes under SFAS
No.131.

2.  Subsequent Event

Acquisition of Reliance Bancorp, Inc. by North Fork Bancorporation, Inc.

On August 30,  1999,  the  Company  announced  that it had  signed a  definitive
Agreement  and Plan of  Merger,  dated as of August  30,  1999,  with North Fork
Bancorporation, Inc. NFB is the bank holding company parent of North Fork

                                                        62

<PAGE>



Bank and Trust Company,  a New York State chartered stock  commercial  bank. The
Merger Agreement provides, among other things, that Reliance will merge with and
into NFB, with NFB being the surviving corporation.

Pursuant to the Merger Agreement, each share of Reliance common stock, par value
$0.01 per share, issued and outstanding  immediately prior to the Effective Time
will be converted  into and become the right to receive 2.0 shares of NFB common
stock, par value $2.50 per share.

The Merger will be structured as a tax-free reorganization and will be accounted
under the purchase  method of accounting.  Consummation of the Merger is subject
to the satisfaction of certain customary  conditions,  including approval of the
Merger Agreement by the stockholders of Reliance and approval of the appropriate
regulatory  agencies.  Following  consummation  of the Merger,  the Bank will be
merged with and into North Fork Bank and Trust Company.  It is anticipated  that
the Merger will be completed in 2000.

Reliance has the right to terminate the Merger Agreement if the closing price of
NFB's shares  decline beyond a specified  price and index,  unless NFB elects to
increase the Merger  Consideration to be received by Reliance's  stockholders as
set forth in the Merger Agreement.

The Merger  Agreement also provides that options to purchase  shares of Reliance
Common Stock under  Reliance's  stock option plans that are  outstanding  at the
Effective Time shall be converted into options to purchase  shares of NFB Common
Stock in accordance  with the procedure  set forth in the Merger  Agreement.  In
connection  with the Merger  Agreement,  Reliance  granted to NFB a stock option
pursuant to a Stock Option Agreement,  dated as of August 30, 1999, which, under
certain  defined  circumstances,  would  enable NFB to  purchase  up to 19.9% of
Reliance's  issued and  outstanding  shares of common  stock.  The Stock  Option
Agreement  provides that the total profit  receivable  thereunder may not exceed
$17.4 million plus reasonable out-of-pocket expenses.

3.  Stock Form of Ownership

On  September  16,  1993,  the Board of  Directors of the Bank adopted a Plan of
Conversion  to convert  from a  federally  chartered  mutual  savings  bank to a
federally  chartered  stock  savings  bank with the  concurrent  formation  of a
holding company.  As part of the conversion,  the Company was incorporated under
Delaware law on November  16, 1993.  The Company  completed  its initial  public
offering  on March  31,  1994 and  issued  10,750,820  shares  of  common  stock
resulting in net proceeds of approximately  $103.6 million. The Company retained
$51.8  million  of the net  proceeds  and used the  remaining  net  proceeds  to
purchase all of the  outstanding  stock of the Bank. The financial  position and
results of operations of the Company as of and for the year ended June 30, 1999,
1998 and 1997 are presented in Note 22.

On November 6, 1998,  the Company  completed  its  seventh  five  percent  stock
repurchase plan purchasing 500,000 shares at an aggregate cost of $13.9 million.
The Company also announced its eighth stock  repurchase plan to repurchase up to
500,000 of the Company's outstanding shares. As of June 30, 1999, 146,207 shares
under this program were repurchased at an aggregate cost of $4.1 million. During
fiscal  years 1999,  1998 and 1997,  the  Company  repurchased  total  shares of
1,040,207,  460,973 and 442,182,  respectively,  at an  aggregate  cost of $27.9
million, $15.3 million and $8.1 million, respectively.

At the time of the conversion, the Bank established a liquidation account with a
balance equal to its retained earnings  reflected in its statement of condition.
The  balance  in  the  liquidation  account  at  June  30,  1999  and  1998  was
approximately  $18.3 million and $21.4 million,  respectively.  The  liquidation
account  will be  maintained  for the  benefit of eligible  account  holders who
continue  to  maintain  their  accounts  at the Bank after the  conversion.  The
liquidation account will be reduced annually to the extent that eligible account
holders have reduced  their  qualifying  deposits as of each  anniversary  date.
Subsequent  increases will not restore an eligible account holder's  interest in
the liquidation account. In the event of a complete  liquidation,  each eligible
account holder will be entitled to receive a distribution  from the  liquidation
account in an amount  proportionate to the current adjusted  qualifying balances
for accounts then held.


                                                        63

<PAGE>



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 1999, the Company
declared cash dividends totalling $6.5 million.

4.  Acquisition

Acquisition of Continental Bank

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

5.  Money Market Investments

Money market investments  generally have original  maturities of three months or
less, and at 1998 consist  solely of securities  purchased  under  agreements to
resell (repurchase  agreements).  There were no money market investments at June
30,1999.  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 $1.4 million for the
year ended June 30, 1999 and $4.5 million for the year ended June 30, 1998.  The
maximum amount of such agreements outstanding at any month-end during the fiscal
year  ended  June  30,  1999  and  1998 was  $8.0  million  and  $23.0  million,
respectively.

6. 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, 1999
                                          ----------------------------------------------
                                                       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......   $ 8,885       $  3        $  --      $  8,888
Obligation of New York State............       390          2           --           392
FHLB Stock..............................    19,560         --           --        19,560
                                            ------        ---           --        ------
                                           $28,835       $  5        $  --       $28,840
                                            ======         ==          ===        ======
Available-for-Sale:
U.S. Government Agency Obligations......  $ 10,000       $ 10     $     --      $ 10,010
Corporate Obligations...................   113,855        138       (2,712)       111,281
Marketable Equity Securities............     1,177         19         (319)           877
                                           -------        ---        ------      --------
                                          $125,032       $167      $(3,031)      $122,168
                                          ========       ====      =======       ========







                                                        64

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

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


The amortized cost and estimated  market value of debt and equity  securities at
June 30, 1999 and 1998, by contractual maturity, are shown below:

                                              June 30, 1999                                 June 30, 1998
                               ------------------------------------------  ---------------------------------------------
                                 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....    $   390   $   392    $     --   $     --      $ 2,493    $ 2,499     $ 5,892    $ 5,902
Due After One Year
  Through Five Years.......         --        --       2,046      1,970          390        417      18,466     18,493
Due After Five Years
  Through Ten Years........      8,885     8,888      32,753     32,901       20,000     20,287      13,144     13,378
Due After Ten Years........         --        --      89,056     86,420           --         --      94,599     94,684
Equity Securities..........     19,560    19,560       1,177        877       17,306     17,306       2,419      2,450
                               -------   -------     -------     ------       ------     ------     -------    -------
                               $28,835   $28,840    $125,032   $122,168      $40,189    $40,509    $134,520   $134,907
                                ======    ======     =======    =======       ======     ======     =======    =======


In fiscal 1999,  1998 and 1997 gross  proceeds  from the sale of debt and equity
securities  available-for-sale  totalled  $15.2  million,  $4.9 million and $5.0
million,  respectively.  For fiscal  1999,  1998 and 1997 gross  realized  gains
totalled $172,000, $11,000 and $17,000,  respectively, and gross realized losses
totalled $127,000, $0, and $16,000, respectively.














                                                        65

<PAGE>




7.  Mortgage-Backed Securities

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

                                                                                  June 30, 1999
                                                                   ----------------------------------------------
                                                                                 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....................................................    $  55,782      $ 1,056     $   --       $ 56,838
      FHLMC...................................................        7,792          148         --          7,940
      FNMA....................................................       28,228          269        (16)        28,481
      REMICs:
             Agency Issuance..................................       91,476           27     (4,289)        87,214
             Private Issuance.................................       72,639           15       (894)        71,760
                                                                    -------     --------     -------      -------
                                                                   $255,917      $1,515      $5,199)      $252,233
Available-for-Sale:
Pass-through Certificates Guaranteed by:
      GNMA....................................................     $285,238       $  601    $ (2,528)     $283,311
      FHLMC...................................................       48,259          403        (152)       48,510
      FNMA....................................................       83,555          160        (707)       83,008
      REMICs:
            Agency Issuance...................................      160,742           47      (5,884)      154,905
            Private Issuance..................................      373,053           13      (7,762)      365,304
                                                                    -------        -----     --------      -------
                                                                   $950,847       $1,224    $(17,033)     $935,038


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

In fiscal 1999,  1998 and 1997 gross  proceeds from the sale of  mortgage-backed
securities  available-for-sale totalled $322.2 million, $190.2 million and $59.8
million,  respectively.  For fiscal  1999,  1998 and 1997 gross  realized  gains
totalled $1.2 million, $540,000 and $466,000,  respectively,  and gross realized
losses totalled $1.1 million, $556,000 and $295,000, respectively.

                                                        66

<PAGE>



8.  Loans Receivable

Loans receivable, net are summarized as follows:
                                                                             June 30,
                                                                       ----------------------
                                                                        1999            1998
                                                                       ------          ------
 Mortgage Loans:                                                           (In thousands)
<S>                                                                <C>                <C>
     One- to four-family.....................................      $  434,237         $ 492,804
     Multi-family............................................         316,115           243,070
     Commercial Real Estate..................................          48,104            43,624
     Co-op...................................................           5,872             7,516
     Construction............................................           7,515             4,879
                                                                      -------          --------
                                                                      811,843           791,893
Less:
     Unearned Discount, Premiums and
     Deferred Loan Origination Fees, Net.....................            (949)             (942)
                                                                       -------            ------
          Total Mortgage Loans...............................         810,894           790,951
                                                                      -------           -------

Commercial Loans:
     Asset Based Loans.......................................          11,056            21,339
     Other Commercial Loans..................................          33,893            28,548
                                                                       ------            ------
          Total Commercial Loans.............................          44,949            49,887
                                                                       ------            ------

Consumer and Other Loans:
     Home Equity Lines of Credit.............................          85,576            93,862
     Guaranteed Student Loans................................          12,791            15,262
     Home Equity Loans.......................................          21,530            19,050
     Loans on Deposit Accounts...............................           4,788             5,416
     Other Loans.............................................           2,065             3,622
                                                                       ------            ------
                                                                      126,750           137,212
    Deferred Loan Origination Costs, Net.....................             600               688
                                                                      -------            ------
          Total Consumer and Other Loans.....................         127,350           137,900
                                                                      -------           -------
Less:
     Allowance for Loan Losses...............................          (9,120)           (8,941)
                                                                       -------           -------
                                                                     $974,073          $969,797
                                                                      =======           =======

                                                                              June 30,
                                                                         ---------------------
                                                                         1999             1998
                                                                         ----             ----
   Commitments Outstanding:                                                    (In thousands)
<S>                                                                   <C>               <C>
     Mortgage Loans..........................................         $ 40,412          $ 33,386
                                                                        ======            ======
     Consumer and Other Commercial Loans.....................         $  4,793          $  7,056
                                                                        ======            ======
     Unused Consumer Lines of Credit.........................         $ 52,014          $ 53,361
                                                                        ======            ======
     Unused Commercial Lines of Credit.......................         $ 18,105          $ 22,622
                                                                        ======            ======
</TABLE>

At June 30, 1999 and 1998,  the Company  had  commitments  to sell loans of $2.2
million and $3.7 million,  respectively.  At June 30, 1999 and 1998, the Company
had no commitments to purchase loans.











                                                        67

<PAGE>



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

                                                        June 30,
                                          -------------------------------------
                                                1999                1998
                                          ----------------    -----------------
                                          No. of              No. of
                                          loans     Amount     loans    Amount
                                          -----     ------     -----    ------
                                                  (Dollars in thousands)
One- to four-family Mortgages............   44      $3,693      70     $6,256
Consumer and Other Loans.................   59         564      62        517
Commercial Real Estate...................    8       1,868       7      1,962
Commercial...............................   10         433       9        567
                                           ---       -----     ---       ----
                                           121      $6,558     148     $9,302
                                           ===       =====     ===      =====

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,
                                                      -----------------------
                                                      1999     1998      1997
                                                      ----     ----      ----
                                                           (In thousands)
Interest Income that would have been Recorded...     $792    $1,159     $838
Interest Income Recognized......................     (294)     (360)    (265)
                                                     -----    -----      ----
Interest Income Foregone........................     $498    $ 799      $573
                                                      ===      ===       ===

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, 1999,  1998 and 1997 the Company had seven,  four and four  impaired
commercial  real estate  loans  totalling  $1.6  million,  $1.9 million and $2.9
million,  respectively,  with no related allowance.  The Company had 10 impaired
commercial loans totalling $433,000 and $567,000, respectively, at June 30, 1999
and 1998 and no  impaired  commercial  loans at June 30,  1997,  with no related
allowances.  The Company's average recorded investment in impaired loans for the
years ended June 30, 1999, 1998 and 1997 was $2.5 million, $2.5 million and $1.9
million,  respectively.  The Company did not  recognize  any interest  income on
impaired loans for the years ended June 30, 1999, 1998 and 1997.

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, 1999
and 1998, there were no fixed rate loans classified as held for sale.

Included  in  mortgage  loans at June 30,  1999 and 1998 are $408.8  million and
$425.2 million, respectively, of adjustable rate mortgage loans.

Proceeds from the sale of first mortgage loans were $28.2 million,  $8.5 million
and $7.3 million  during the fiscal  years ended June 30,  1999,  1998 and 1997,
respectively.  Gross  realized  gains and  losses  resulting  from sale of first
mortgage loans were as follows:
                                       Year Ended June 30,
                                    --------------------------
                                    1999       1998       1997
                                    ----       ----       ----
                                          (In thousands)
Gross Realized Gains............   $144        $ 44       $ 31
Gross Realized Losses...........    (10)         --         (3)
                                    ----        ---        ----
                                   $134        $ 44       $ 28
                                    ===         ===        ===

                                                        68

<PAGE>



The Bank services  mortgage  loans for  investors  which are not included in the
accompanying  consolidated  statements of condition.  A summary of the principal
balances,  custodial  escrow,  servicing income and number of loans serviced for
others by the Bank are as follows:
                                                       Year Ended June 30,
                                                    -------------------------
                                                    1999      1998       1997
                                                    ----      ----       ----
                                                      (Dollars in thousands)
Principal Balances............................... $298,635   $355,149  $410,229
                                                   =======    =======   =======
Custodial Escrow................................. $  3,242    $ 4,290   $ 4,493
                                                     =====      =====     =====
Servicing Income (Excludes MSR Amortization).....   $  959    $ 1,183   $ 1,399
                                                       ===      =====     =====
Number of Loans..................................    5,186      6,085     6,842
                                                     =====      =====     =====

Fees earned for servicing loans are reported as income when the related mortgage
payments are collected.  Mortgage  Servicing  Rights ("MSRs") are amortized as a
reduction  to  loan  service  fee  income  on a  method  that  approximates  the
level-yield basis over the estimated  remaining life of the underlying  mortgage
loans.  MSRs are carried at fair value and  impairment,  if any,  is  recognized
through a valuation  allowance.  For the year ended June 30,  1999 and 1998,  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,
                                                --------------------------
                                                1999      1998        1997
                                                ----      ----        ----
                                                     (In thousands)
Balance at Beginning of the Year.........    $2,317     $3,046      $3,905
Amortization.............................      (803)      (729)       (859)
                                              ------     -----       ------
Balance at End of the Year...............    $1,514     $2,317      $3,046
                                              =====      =====       =====

9.  Allowance for Loan Losses

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

                                                  Year Ended June 30,
                                               ---------------------------
                                               1999       1998        1997
                                               ----       ----        ----
                                                     (In thousands)
Balance at Beginning of the Year...........  $8,941     $5,182      $4,495
Provision for Loan Losses..................     650      1,650         950
Allowances of Acquired Institutions........      --      2,745          --
Charge-offs................................    (513)      (773)       (306)
Recoveries.................................      42        137          43
                                              -----      -----       -----
Balance at End of the Year.................  $9,120     $8,941      $5,182
                                              =====      =====       =====

10.  Real Estate Owned

Real estate owned, net is summarized as follows:

                                                         June 30,
                                                    ------------------
                                                    1999          1998
                                                    ----          ----
                                                      (In thousands)
One- to four-family Residences...................   $185          $505
Co-ops...........................................     63            73
Commercial.......................................     --           300
Allowance for Losses on Real Estate Owned........    (71)         (123)
                                                     ----          ----
                                                    $177          $755
                                                    ====          ====







                                                        69

<PAGE>



Results of operating  real estate owned for the years ended June 30, 1999,  1998
and 1997 are summarized as follows:

                                                       Year Ended June 30,
                                                   --------------------------
                                                   1999      1998        1997
                                                   ----      ----        ----
                                                    (In thousands)
Net Gain on Sale on Real Estate Owned.......     $  84      $ 146      $  56
Net Expenses of Holding Property............      (160)      (271)      (239)
Provision for Losses........................       (35)       (93)      (200)
                                                  -----      -----      -----
                                                 $(111)     $(218)     $(383)

Activity in the  allowance  for losses in real  estate  owned is  summarized  as
follows:
                                                       Year Ended June 30,
                                                  ---------------------------
                                                  1999       1998        1997
                                                  ----       ----        ----
                                                        (In thousands)
Balance at Beginning of the Year.............     $123       $334       $768
Provision for Losses.........................       35         93        200
Charge-offs..................................      (87)      (304)      (634)
                                                   ----      -----      -----
Balance at End of the Year...................     $ 71       $123       $334
                                                    ==        ===        ===

11.  Accrued Interest Receivable

Accrued interest receivable, net is summarized as follows:

                                                                 June 30,
                                                             ----------------
                                                             1999        1998
                                                             ----        ----
                                                             (In thousands)
Debt Securities........................................    $  932       $1,708
Mortgage-Backed Securities.............................     6,533        7,137
Loans Receivable, Net of Reserves for Uncollectible
  Interest of $1,078 and $1,293, respectively..........     5,630        6,113
                                                           ------       ------
                                                          $13,095      $14,958
                                                           ======       ======
12.  Office Properties and Equipment

A summary of office properties and equipment, net is as follows:

                                                                June 30,
                                                            ----------------
                                                            1999        1998
                                                            ----        ----
                                                             (In thousands)
Land...................................................  $  4,489     $ 4,489
Buildings..............................................    10,943      10,477
Furniture, Fixtures and Equipment......................    15,852      13,853
Leasehold Improvements.................................     4,649       4,407
Capital Lease..........................................     1,470       1,470
                                                           ------      ------

Office Properties and Equipment, at Cost...............    34,403      34,696
Accumulated Depreciation and Amortization..............   (21,035)    (19,260)
                                                         ---------    -------
                                                          $16,368     $15,436

In October 1989, the Bank sold a building used for a branch operation located in
Jamaica, New York for approximately $2.3 million, and subsequently leased back a
portion of the  building  to conduct  the branch  operation.  The Bank  received
approximately  $2.0 million in cash from the transaction,  after expenses of the
sale,  which generated a gain of approximately  $1.1 million.  The gain has been
deferred and is being amortized over the twelve-year lease period. Deferred gain
on sale  amounted to  approximately  $217,000  and $311,000 at June 30, 1999 and
1998,  respectively,  and is included in accrued expenses and other liabilities.
The  leaseback  is recorded as a capital  lease in the amount of $1.5 million at
June 30,  1999 and 1998 (refer to the above  table) and the  related  obligation
under capital  leases of $387,000 and $535,000,  respectively,  at June 30, 1999
and 1998 is reflected in accrued expenses and other liabilities.

                                                        70

<PAGE>




Depreciation  and amortization of office  properties and equipment,  included in
occupancy and equipment expense, was approximately,  $1.8 million,  $1.6 million
and $1.4  million  for the  fiscal  years  ended June 30,  1999,  1998 and 1997,
respectively.

13.  Deposits

Deposits are summarized as follows:
<TABLE>
<CAPTION>

                                                                     June 30,
                                             -----------------------------------------------------
                                                          1999                     1998
                                             ---------------------------  ------------------------
                                             Weighted                     Weighted
                                              average                     average
                                               rate      Amount  Percent   rate    Amount  Percent
                                               ----      ------  -------   ----    ------  -------
                                                          (Dollars in thousands)
<S>                                            <C>     <C>         <C>   <C>    <C>          <C>
NOW........................................    1.39%   $ 102,473     7%    1.52%  $104,955     7%
Passbook...................................    2.00      451,961    29     2.22    443,745    27
Money Market...............................    2.00       87,777     6     2.22     92,815     6
Certificates of Deposit....................    5.56      842,778    54     5.56    934,558    57
Non-Interest Bearing Demand Deposit........      --       64,430     4       --     52,225     3
                                                         -------   ---             -------   ---
                                                      $1,549,419   100%         $1,628,298   100%
                                                       =========   ===           =========   ===

                                                                                 June 30,
                                                                 -----------------------------------------
                                                                       1999                   1998
                                                                 --------------------   ------------------
                                                                     Amount   Percent   Amount   Percent
                                                                         (Dollars in thousands)
Contractual Maturity of Certificates of Deposit Accounts:
<S>                                                                <C>           <C>   <C>          <C>
   Under 12 months............................................     $710,722      84%   $797,860     85%
   Over 12 months to 36 months................................      118,147      14     112,097     12
   Over 36 months.............................................       13,909       2      24,601      3
                                                                    -------     ---    --------    ---
                                                                   $842,778     100%   $934,558    100%
                                                                    =======     ===     =======    ===

The  aggregate  amount  of  certificates  of  deposit  accounts  with a  minimum
denomination of $100,000 was  approximately  $81,181,000 and $78,052,000 at June
30, 1999 and 1998, respectively.


Interest expense on deposits is summarized as follows:

                                                  Year Ended June 30,
                                         -----------------------------------
                                         1999            1998           1997
                                         ----            ----           ----
                                                    (In thousands)
NOW..................................   $1,608        $ 1,257         $ 1,041
Passbook.............................    9,175         10,439          10,937
Money Market.........................    1,879          2,249           2,493
Certificates of Deposit..............   49,310         49,487          39,668
                                        ------         ------          ------
                                       $61,972        $63,432         $54,139

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







                                                        71

<PAGE>



14.  Borrowed Funds

The Bank was obligated for borrowings as follows:
                                                                   June 30, 1999        June 30, 1998
                                                                ------------------   -------------------
                                                                Weighted             Weighted
                                                                average              average
                                                                 rate       Amount    rate        Amount
                                                                 ----       ------    ----        ------
                                                                            (Dollars in thousands)
<S>                                                               <C>     <C>          <C>      <C>
    Advances from FHLB - NY...................................    5.27%   $338,718     5.49%    $182,136
    Reverse Repurchase Agreements.............................    5.23     313,716     5.64      398,070
    Company Obligated Mandatorily Redeemable Capital
        Securities of Reliance Capital Trust I...............     8.17      50,000     8.17       50,000
                                                                           -------                ------
                                                                          $702,434              $630,206
                                                                           =======               =======

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

                                                                       At or for the Year Ended
                                                                     -----------------------------
                                                                     June 30, 1999   June 30, 1998
                                                                     -------------   -------------
                                                                         (Dollars in thousands)
<S>                                                                   <C>            <C>
Average Balance during the Year...................................... $276,748       $309,618
Average Interest Rate during the Year................................     5.57%          5.79%
Maximum Month-end Balance during the Year............................ $350,060       $398,070

Mortgage-Backed Securities Pledged as Collateral under Reverse
  Repurchase Agreements at Year End:
     Carrying Value.................................................. $339,052       $418,883
     Estimated Market Value.......................................... $334,736       $421,931

FHLB  advances  and  reverse  repurchase   agreements  at  June  30,  1999  have
contractual maturities as follows:

                                               Reverse
      Year Ended            FHLB               Repurchase
       June 30,           Advances             Agreements
       --------           --------             ----------
                                  (In thousands)
         2000              $72,000               $171,156
         2001               20,000                     --
         2002               62,622                 67,560
         2003                   --                 75,000
         2004                   --                     --
   Thereafter              184,096                     --
                           -------                -------
        Total             $338,718               $313,716
                           =======                =======

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, 1999 and 1998 were secured
by a blanket lien over all assets equal to 110% of borrowings.

On April 29, 1998,  Reliance  Capital  Trust I, a trust formed under the laws of
the State of Delaware (the "Capital  Trust") issued $50 million of 8.17% capital
securities.  The Holding  Company is the owner of all the  beneficial  interests
represented  by common  securities  of the Trust.  The Trust exists for the sole
purpose of issuing the Trust securities (comprised of the capital securities and
the common  securities)  and investing the proceeds  thereof in the 8.17% junior
subordinated  deferrable  interest  debentures  issued by the Holding Company on
April 23,  1998 which are  scheduled  to mature on May 1, 2028.  Interest on the
capital securities is payable in semiannual installments, commencing on November
1, 1998. The Trust securities are subject to mandatory  redemption (i) in whole,
but not in part upon  repayment  in full,  at the stated  maturity of the junior
subordinated  debentures at a redemption price equal to the principal amount of,
plus accrued interest on, the junior subordinated  debentures,(ii) in whole, but
not in  part,  at any  time  prior to May 1,  2008,  contemporaneously  with the
occurrence and continuation of a special event, defined

                                                        72

<PAGE>



as a tax event or regulatory  capital event, at a special event redemption price
equal to the greater of 100% of the principal amount of the junior  subordinated
debentures or the sum of the present values of the principal  amount and premium
payable  with  respect to an  optional  redemption  of the  junior  subordinated
debentures on the initial  optional  repayment date to and including the initial
optional  prepayment  date,  discounted to the prepayment  date plus accrued and
unpaid interest thereon, and (iii) in whole or in part, on or after May 1, 2008,
contemporaneously  with the optional prepayment by the Corporation of the junior
subordinated  debentures at a redemption price equal to the optional  prepayment
price.  Subject to prior required regulatory  approval,  the junior subordinated
debentures are redeemable  during the 12-month periods beginning on or after May
1, 2008 at 104.085% of the principal amounts outstanding, declining ratably each
year thereafter to 100%, plus accrued and unpaid interest thereon to the date of
redemption.  Deferred  issuance  costs in the amount of $1.0 million,  are being
amortized  over ten years and are included in Prepaid  Expenses and Other Assets
in the Company's Consolidated Statement of Condition as of June 30, 1998.

15.  Income Taxes

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

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

The Company files state and local tax returns on a  calendar-year  basis.  State
and local taxes imposed on the Company  consist of New York State franchise tax,
New  York  City  Financial  Corporation  tax and  Delaware  franchise  tax.  The
Company's  annual liability for New York State and New York City purposes is the
greater of a tax on income or an alternative  tax based on a specified  formula.
The Company's  liability for Delaware  franchise tax is based on the lesser of a
tax based on an authorized shares method or an assumed par value capital method;
however under either method,  the Company's total tax will not exceed  $150,000.
The  Company  provided  for New York  State  and New York  City  taxes  based on
alternative  taxable  income for the year ended June 30, 1999 and 1998 and based
on taxable income for the years ended June 30, 1997.

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

The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and  deferred  tax  liabilities  at June 30, 1999 and
June 30, 1998 are presented below:











                                                        73

<PAGE>



                                                                          June 30,
                                                                     -------------------
                                                                     1999           1998
                                                                     ----           ----
Deferred Tax Assets:                                                    (In thousands)
<S>                                                                 <C>            <C>
    Unrealized Loss on Available-for-Sale Securities...........     $8,120         $   --
    Provisions for Losses on Loans and Real Estate Owned.......      2,603          1,833
    Book Deferred Gain on Sale of Building.....................        263            368
    Deposits...................................................        134            333
    Deferred Fees..............................................         --             71
    Other Assets...............................................         --              6
                                                                    ------          -----
    Total Deferred Tax Assets..................................     11,120          2,611
                                                                    ------          -----
Deferred Tax Liabilities:
    Unrealized Gain on Available-for-Sale Securities...........         --          3,235
    Mortgage Loans.............................................        297            483
    Office Properties and Equipment............................        447            335
    Benefit Plans..............................................        263             39
    Mortgage Servicing Rights..................................        195            298
    Intangible Assets..........................................        108             94
    Debt and Equity and Mortgage-Backed Securities.............         66            185
    Other......................................................        656            614
                                                                     -----          -----
   Total Deferred Tax Liabilities..............................      2,032          5,283
                                                                     -----          -----
Net Deferred Tax Asset (Liability).............................     $9,088        $(2,672)
                                                                     =====         =======

The total income tax provision for the years ended June 30, 1999,  1998 and 1997
differs  from the amount of tax  provision  that would  result by  applying  the
statutory  United States Federal income tax rate of 35.0% for fiscal 1999,  1998
and 1997 to income before income taxes:

                                                                    Year Ended June 30,
                                                 -------------------------------------------------------------
                                                       1999                 1998                  1997
                                                 ---------------      ----------------       -----------------
                                                 Amount      %        Amount       %         Amount        %
                                                 ------      -        ------       -         ------        -
                                                                                        (Dollars in thousands)
<S>                                             <C>        <C>        <C>        <C>          <C>         <C>
Tax Provision Statutory Rate...............     $12,632    35.0%      $11,739    35.0%        $7,376      35.0%
Amortization of Excess of Cost Over
  Fair Value of Net Assets Acquired........       1,551     4.3         1,444     4.3          1,191       5.7
State and Local Income Tax, Net of
  Federal Income Tax Benefit...............        982      2.7           924     2.8          1,228       5.8
Non-Deductible Expense of ESOP.............        462      1.3           643     1.9            302       1.4
Other, Net.................................        323      0.9            71     0.2             52       0.3
Tax Exempt Interest on Municipal
  Investments..............................        (11)      --           (11)     --            ( 1)     (0.1)
                                                -------    ----        -------   ----          ------     -----
   Income Tax Expense .....................    $15,940     44.2%      $14,810    44.2%       $10,138      48.1%
                                                ======     ====        ======    ====         ======      ====

The  components  of the  provision for income taxes for the years ended June 30,
1999, 1998 and 1997 are as follows:

                                           Year Ended June 30,
                                      ------------------------------
                                      1999        1998          1997
                                      ----        ----          ----
  Current:                                   (In thousands)
    Federal....................     $14,856     $13,876         $8,193
    State and Local............       1,489       1,459          1,861
                                     ------      ------         ------
                                     16,345      15,335         10,054
  Deferred:
    Federal....................        (426)       (488)            56
    State and Local............          21         (37)            28
                                       ----        -----          ----
                                       (405)       (525)            84
                                       ----        ----             --
                                    $15,940     $14,810        $10,138
                                    =======     =======        =======


                                                        74

<PAGE>



16.  Commitments

At June 30, 1999,  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,  1999,  1998 and 1997 was
approximately  $1.4 million,  $1.3 million and $1.0 million,  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)
    2000........................   $1,286
    2001........................    1,227
    2002........................    1,156
    2003........................      757
    2004........................      570
    Thereafter..................    2,140
                                    -----
                                   $7,136
                                   ======

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, 1999 and 1998, has outstanding balances on letters of
credits of $500,000 and $500,000,  respectively.  In addition, at June 30, 1999,
the Bank had $565,000 in commercial  standby letters of credit.  The credit risk
involved in issuing  letters of credit is essentially  the same as that involved
in extending loan facilities to customers (See note 8).

17.  Retirement Plans

Pension Plan

The  following  table sets forth the Pension  Plan's  funded  status and amounts
recognized in the Company's consolidated statements of condition:
                                                                                        June 30,
                                                                                  -------------------
                                                                                  1999           1998
                                                                                  ----           ----
                                                                                    (In thousands)
Actuarial Present Value of Benefits Obligations:
<S>                                                                              <C>           <C>
     Vested Benefit Obligation........................................           $5,692        $ 4,991
     Accumulated Benefit Obligation...................................            5,692          4,991
                                                                                  =====          =====

Plan Assets at Fair Value.............................................            5,956          5,658
Projected Benefit Obligation for Service Rendered to Date.............            5,692          4,991
                                                                                  -----          -----
Plan Assets Greater (Less) Than Projected Benefit Obligation..........              264            667
Unrecognized Prior Service Cost.......................................              146            (40)
Unrecognized Net Loss Due to Past Experience
   Different from Assumptions Made and Changes in Assumptions.........              487            169
                                                                                    ---           ----
Prepaid Pension Cost..................................................            $ 897          $ 796
                                                                                   ====            ===
</TABLE>

The components of net pension expense are as follows:
                                                        Year Ended June 30,
                                                     ------------------------
                                                     1999      1998      1997
                                                     ----      ----      ----
                                                            (In thousands)
Service Cost-benefits Earned during the Year......  $   --    $ 627     $ 327
Interest Cost on Projected Benefit Obligation.....     358      710       627
Net Amortization and Deferral.....................     (61)      20      (290)
Actual Return on Plan Assets......................    (398)    (710)     (482)
Curtailment Gain Recognized.......................      --     (739)       --
Settlement Loss Recognized........................      --      117        --
                                                      ----      ---      ----
Net Pension Expense...............................   $(101)     $25      $182
                                                      =====      ==       ===

                                                        75

<PAGE>




                                                        Year Ended June 30,
                                                     -------------------------
                                                     1999       1998      1997
                                                     ----       ----      ----
Assumptions Used:
    Weighted Average Discount Rate.................  7.0%       7.0%       7.0%
    Rate of Increase in Compensation Levels........  5.0%       5.0%       5.0%
    Expected Long-term Rate of Return on Assets....  8.0%       8.0%       9.0%

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

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

Reliance Federal Savings Bank 401(k) Retirement Plan

Effective  June 1, 1998,  employees of the Bank who are at least 21 years of age
and have  completed  one year of service  are  eligible  to  participate  in the
Reliance  Federal  Savings  Bank 401(k)  Retirement  Plan (the  "401(k)  Plan").
Eligible  employees  may make pre-tax  contributions  equal to the lesser of ten
percent of their annual  compensation or the amount  permitted by law. As a base
amount,  the Bank will make  contributions  (on account for eligible  employees)
equal to two percent of all eligible  employees  earnings  regardless of whether
employees make  contributions on their own behalf.  Additionally,  the Bank will
make matching  contributions equal to 75% of employee  contributions that do not
exceed four percent of their annual earnings.  Employees are immediately  vested
in their own  contributions  and after five years of service they will be vested
in the Bank's base and matching contributions.  During fiscal 1999 and 1998, the
Bank incurred $420,000 and $40,000, respectively, in 401(k) Plan costs.

18.  Stock Benefit Plans

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

Stock Option Plan
The Company  maintains the Reliance  Bancorp,  Inc. 1994 Incentive  Stock Option
Plan and the Reliance  Bancorp,  Inc. 1996 Incentive  Stock Option Plans Amended
and Restated as of February 19, 1997 (the "Stock Option Plans"). Under the Stock
Option Plans, stock options (which expire ten years from the date of grant) have
been  granted to the  executive  officers  and  officers  of the Company and its
affiliate,  the Bank.  Each option  entitles the holder to purchase one share of
the Company's  common stock at an exercise  price equal to the fair market value
of the stock at the date of grant.  Options will be  exercisable  in whole or in
part over the vesting period.  However,  all options become 100%  exercisable in
the event that the employee terminates his employment due to death,  disability,
normal  retirement,  or in the event of a change in  control  of the Bank or the
Company.  Simultaneous with the grant of these options,  the Personnel Committee
of the Board of Directors  granted  "Limited  Rights" with respect to the shares
covered  by the  options.  Limited  Rights  granted  are  subject  to terms  and
conditions  and can be exercised only in the event of a change in control of the
Company.  Upon  exercise of a limited  right,  the holder shall receive from the
Company a cash payment equal to the difference between the exercise price of the
option and the fair market value of the underlying shares of common stock.

Stock Option Plan for Outside Directors
The Company maintains the Amended and Restated  Reliance Bancorp,  Inc. 1994 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  options to purchase shares of the
Company's  common  stock.  Members of the Board of  Directors of the Company are
granted  options to  purchase  shares of the common  stock of the  Company at an
exercise price equal to the fair market value of the stock at the date of grant.
All of the

                                                        76

<PAGE>



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

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

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

Balance Outstanding at June 30, 1998........    $512,371     $295,329     $276,877         $13.17
Granted.....................................         631       13,569       60,728          38.00
Forfeited...................................           --          --           --             --
Exercised...................................     (53,959)      (7,470)          --          11.79
                                                 --------      -------     -------          -----

Balance Outstanding at June 30, 1999........     $459,043     $301,428     $337,605        $14.94
                                                  =======      =======      =======        ======
Shares Exercisable at June 30, 1999.........     $452,881     $299,590     $337,605        $14.82
</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:

                                                  1999      1998       1997
                                                --------  --------   ------
  (Dollars in thousands, except per share data)

  Net Income                 As Reported         $20,151  $ 18,729   $ 10,936
                             Pro forma            19,681    18,492      8,672

  Net Income per Common Share:
  Basic                      As Reported          $ 2.38    $ 2.11     $ 1.32
                             Pro forma            $ 2.32    $ 2.08       1.04

  Diluted                    As Reported          $ 2.26    $ 1.99     $ 1.25
                             Pro forma            $ 2.21    $ 1.96       0.99

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  1999,  1998 and 1997:  dividend  yield of 3.00% for all years;  expected
volatility  of 29.14% for  fiscal  1999,  22.05% for fiscal  1998 and 16.64% for
fiscal  1997;  risk-free  interest  rates of 6.25% for all years;  and  expected
option lives of 6 years for all years.



                                                        77

<PAGE>




Employees Stock Ownership Plan ("ESOP")

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

The ESOP  borrowed  $8.3 million from the Company and used the funds to purchase
828,000 shares of the Company's common stock issued in the Conversion.  The loan
is repaid  principally from the Bank's  discretionary  contributions to the ESOP
over a 10 year period.  At June 30, 1999 and 1998,  the loan had an  outstanding
balance of $4.0 million and $4.8 million,  respectively, and an interest rate of
7.75% and 8.50%, respectively. Interest expense for the obligation was $348,000,
$441,000 and $502,000,  respectively, for the year ended June 30, 1999, 1998 and
1997. 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, 1999,  366,019  shares  remaining  in the ESOP were  allocated to
participants  and 41,400  shares were  committed to be  released.  As shares are
released from collateral,  the shares become  outstanding for earnings per share
computations. As of June 30, 1999 and 1998, the fair market value of the 372,600
and  455,400  unallocated  shares,  respectively,  was $10.3  million  and $17.4
million, respectively.

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

The Company recorded compensation expenses for the ESOP and RRP of $3.1 million,
$3.7 million and $2.5 million,  respectively, for the years ended June 30, 1999,
1998 and 1997.

19.  Earnings Per Share

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

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

Diluted EPS is computed by dividing net income by the weighted average number of
common shares and common equivalent shares  outstanding during the year. For the
diluted EPS calculation, the weighted average number of common shares and common
equivalent  shares  outstanding  include the average  number of shares of common
stock outstanding adjusted for the weighted average number of unallocated shares
held by the ESOP and the dilutive effect

                                                        78

<PAGE>



of unexercised stock options using the treasury stock method.  When applying the
treasury stock method,  the Company's  average stock price is utilized,  and the
Company adds to the  proceeds  the tax benefit that would have been  credited to
additional paid-in capital assuming exercise of non-qualified stock options.

The  computation  of basis and diluted  EPS for the fiscal  years ended June 30,
1999, 1998 and 1997 are presented in the following table:
<TABLE>
<CAPTION>

                                                            Year Ended June 30,
                                                      ----------------------------------
                                                      1999          1998            1997
                                                      ----          ----            ----
                                                             (In thousands)
<S>                                               <C>             <C>              <C>
Net income.......................................   $20,151       $ 18,729         $10,936
Weighted average common shares...................     8,467          8,890           8,299
                                                      -----          -----           -----
Basic earnings per share.........................     $2.38          $2.11           $1.32
                                                       ====           ====            ====


Net income.......................................   $20,151        $18,729         $10,936

Weighted average common shares - basic...........     8,467          8,890           8,299
Effect of dilutive stock options.................       447            535             425
                                                       ----          -----           -----
Weighted average common shares and common
   equivalent shares.............................     8,914          9,425           8,724
                                                      -----          -----           -----
Diluted earnings per share.......................     $2.26          $1.99           $1.25
                                                       ====           ====            ====

20.  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, 1999 and 1998, 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, 1999, 1998 and 1997,
the Bank was considered a "well capitalized" institution.

Dividend  payments to the Company from the Bank are subject to the profitability
of the Bank and by applicable laws and regulations. During fiscal 1999 and 1998,
the Bank made  dividend  payments  to the  Company  of $13.0  million  and $14.0
million, respectively.

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

The  following  table sets forth the required  ratios and amounts and the Bank's
actual capital amounts and ratios at June 30, 1999 and 1998:

                                     June 30, 1999
                ---------------------------------------------------------
                  Capital             Actual             Excess
                Requirement   %      Capital       %     Capital       %
                -----------  ---     -------      ---    -------      ---
                                  (Dollars in thousands)
 Tangible........ $36,113    1.5%   $163,267     6.8%   $127,154     5.3%
 Leverage........  72,226    3.0     163,267     6.8      91,041     3.8
 Risk-based......  80,415    8.0     172,333    17.1      91,918     9.1


                                                        79

<PAGE>


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

21.  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.
                                                                                June 30,
                                                        --------------------------------------------------------
                                                                   1999                          1998
                                                        ------------------------       -------------------------
                                                         Carrying      Estimated       Carrying       Estimated
                                                          Amount      Fair Value        Amount        Fair Value
                                                                             (In thousands)
On Balance Sheet:
Financial Assets:
<S>                                                      <C>             <C>           <C>             <C>
Cash and Due from Banks..............................     $33,255        $33,255        $37,596         $37,596
Money Market Investments.............................          --            --           9,500           9,500
Debt and Equity Securities Available-for-Sale........     122,168        122,168        134,907         134,907
Debt and Equity Securities Held-to-Maturity..........      28,835         28,840         40,189          40,509
Mortgage-Backed Securities Available-for-Sale........     935,038        935,038        940,347         940,347
Mortgage-Backed Securities Held-to-Maturity..........     255,917        252,233        249,259         252,332
Loans Receivable, Net................................     974,073        978,980        969,797         984,224
Mortgage Servicing Rights............................       1,514          1,612          2,317           2,632

Financial Liabilities:
Deposits.............................................   1,549,419      1,469,360      1,628,298       1,630,087
Borrowed Funds.......................................     702,434        693,564        630,206         631,407

Off Balance Sheet:
Outstanding Commitments..............................    $115,324        115,324        116,425         116,425
Letters of Credit....................................       1,065          1,065          1,382           1,382





                                                        80

<PAGE>



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.

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.


                                                        81

<PAGE>



22.  Parent-Only Financial Information

The  following  condensed  statements of condition at June 30, 1999 and 1998 and
condensed statements of income and cash flows for the years ended June 30, 1999,
1998 and 1997 for Reliance  Bancorp,  Inc.  (parent  company only)  reflects the
Company's investment in its wholly-owned subsidiary,  the Bank, using the equity
method of accounting.


CONDENSED STATEMENTS OF CONDITION
                                                                              June 30,
                                                                        ---------------------
                                                                        1999             1998
                                                                        ----             ----
ASSETS                                                                     (In thousands)
<S>                                                                    <C>               <C>
Cash..............................................................     $1,961            $1,294
Money Market Investments..........................................         --             9,500
Debt Securities Available-for-Sale................................     10,076            24,374
ESOP Loan Receivable..............................................      3,979             4,799
Other Assets......................................................      2,046             2,210
Investment in Reliance Federal Savings Bank.......................    205,096           205,355
Investment in Reliance Capital Trust I............................      1,547             1,547
                                                                      -------           -------
        Total Assets..............................................   $224,705          $249,079
                                                                      =======           =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued Expenses..................................................     $1,491            $2,668
Junior Subordinated Debt Issued to Reliance Capital Trust I.......     51,547            51,547
Stockholders' Equity..............................................    171,667           194,864
                                                                      -------           -------
        Total Liabilities and Stockholders' Equity................   $224,705          $249,079
                                                                      =======           =======


CONDENSED STATEMENTS OF INCOME

                                                                                     Year Ended June 30,
                                                                        --------------------------------------
                                                                        1999             1998             1997
                                                                        ----             ----             ----
                                                                                     (In thousands)
<S>                                                                   <C>                 <C>              <C>
Interest Income - Securities and Repurchase Agreements..........      $1,316              $615             $230
Interest Income - ESOP Loan Receivable..........................         348               441              502
                                                                       -----             -----             ----
        Total Interest Income...................................       1,664             1,056              732

Interest Expense................................................      (4,086)             (724)              --
Cash Dividends from the Bank....................................      13,000            14,000            6,700
Other Operating Income..........................................          45                11               --
Other Operating Expense.........................................        (630)             (418)            (521)
                                                                        -----             -----            -----
Income Before Income Taxes and Equity in Undistributed
   Earnings of the Bank.........................................       9,993            13,925            6,911
(Recovery) Provision for Income Taxes...........................      (1,214)              (30)              90
                                                                      -------             -----            ----
Income before Equity in Undistributed
    Earnings of the Bank........................................      11,207            13,955            6,821
Equity in Undistributed Earnings of Reliance
    Federal Savings Bank........................................       8,944             4,774            4,115
                                                                       -----             -----            -----

                Net Income......................................     $20,151           $18,729          $10,936
                                                                      ======            ======           ======







                                                        82

<PAGE>




CONDENSED STATEMENTS OF CASH FLOWS
                                                                                  Year Ended June 30,
                                                                       ---------------------------------------
                                                                       1999               1998            1997
                                                                       ----               ----            ----
                                                                                    (In thousands)
Cash from Operating Activities:
<S>                                                                 <C>               <C>              <C>
Net Income......................................................    $ 20,151          $ 18,729         $ 10,936
Equity in Undistributed Earnings of the Bank ...................      (8,944)           (4,774)          (4,115)
Accretion of Discounts..........................................          44               (47)             (70)
Net Gain on Sale of Securities..................................         (44)              (11)              --
Decrease (Increase) in Other Assets.............................         685            (1,655)             544
(Decrease) Increase in Accrued Expenses.........................      (1,165)            2,550              122
                                                                      -------           ------            -----
     Net Cash Provided by Operating Activities..................       10,727           14,792            7,417
                                                                       ------           ------            -----

Cash Flows from Investing Activities:
Purchase of Debt Securities Available-for-Sale..................      (2,000)          (24,187)          (4,715)
Proceeds from Sales of Debt Securities Available-for-Sale.......      15,229             4,870               --
Principal Payments on ESOP Loan Receivable......................         820               823              850
Payments for Investments in Reliance Capital Trust I............          --            (1,547)              --
Payments for Investments in Bank................................          --           (18,750)              --
                                                                      ------           --------          ------
    Net Cash Provided by (Used in) Investing Activities.........      14,049           (38,791)          (3,865)
                                                                      ------           --------          -------

Cash Flows from Financing Activities:
Proceeds from Issuance of Junior Subordinated Debt..............          --            51,547               --
Purchase of Treasury Stock......................................     (27,936)          (15,269)          (8,113)
Net Proceeds from Issuance of Common Stock
   Upon Exercise of Stock Options...............................         725             2,670              898
Dividends Paid..................................................      (6,398)           (5,725)          (4,578)
                                                                      -------           -------          -------
     Net Cash (Used in) Provided by Financing Activities........     (33,609)           33,223          (11,793)
                                                                     --------           ------           -------

Net (Decrease) Increase in Cash and Cash Equivalents............      (8,833)            9,224           (8,241)
Cash and Cash Equivalents at Beginning of Year..................      10,794             1,570            9,811
                                                                      ------             -----            -----
Cash and Cash Equivalents at the End of Year....................      $1,961           $10,794           $1,570
                                                                       =====            ======            =====























                                                        83

<PAGE>



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


(Dollars in thousands, except per share data)
                                                                             Fiscal 1999 Quarter Ended
                                                             ------------------------------------------------------
                                                             September 30,   December 31,    March 31,     June 30,
                                                             -------------   ------------    ---------     --------

<S>                                                            <C>              <C>             <C>            <C>
Interest Income.............................................   $ 42,868         $42,374        $ 41,439       40,629
Interest Expense............................................     25,665          24,774          23,958       23,609
                                                                -------          ------         -------      -------
Net Interest Income.........................................     17,203          17,600          17,481       17,020
Provision for Loan Losses...................................        150             350             150           --
                                                                 ------           -----         -------       ------
Net Interest Income after Provision for Loan Losses.........     17,053          17,250          17,331       17,020
Non-Interest Income.........................................      1,871           1,937           2,117        2,475
General and Administrative Expense..........................      9,127           8,790           9,192        9,180
Real Estate Operations, net.................................         87             (14)             17           21
Amortization of Excess of Cost Over Fair Value
  of Net Assets Acquired....................................      1,140           1,141           1,141        1,141
                                                                -------           -----          ------       ------
Income Before Provision for Income Taxes....................      8,570           9,270           9,098        9,153
Income Tax Expense..........................................      3,799           4,051           4,022        4,068
                                                                 ------           -----          ------       ------
Net Income..................................................     $4,771          $5,219         $ 5,076      $ 5,085
                                                                  =====           =====           =====        =====
Basic Earnings Per Share....................................      $0.53           $0.63          $ 0.61       $ 0.62
                                                                   ====            ====            ====         ====
Diluted Earnings Per Share .................................      $0.50           $0.60          $ 0.58       $ 0.59
                                                                   ====            ====            ====         ====



                                                                            Fiscal 1998 Quarter Ended
                                                              ------------------------------------------------------
                                                              September 30,  December 31,    March 31,      June 30,
                                                              -------------  ------------    ---------      --------

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

Item 9.

Changes in and  Disagreements  with  Accountants  on  Accounting  and  Financial
Disclosure

None





                                                        84

<PAGE>



                                    PART III

Item 10.

Directors and Executive Officers of the Company

The  following  table  sets  forth the names of current  directors  and  certain
executive  officers,  their ages, a brief  description of their recent  business
experience,  including present occupations and employment, certain directorships
held by each,  the year in which each  became a  director  and the year in which
their terms as director  of the  Company  expire.  The table also sets forth the
amount  of Common  Stock  and the  percent  thereof  beneficially  owned by each
director and each executive officer of the Company.
                                                                                       Shares of
       Name and Principal                                            Expiration     Common Stock      Ownership
   Occupation at Present and                          Director       of Term as        Beneficially  As a Percent
    for the Past Five Years                 Age       Since(1)        Director          Owned(2)       of Class(3)
    -----------------------                 ---       --------        --------          --------       -----------

<S>                                          <C>       <C>              <C>           <C>                   <C>
Thomas G. Davis, Jr.                         65        1991             2002          80,609(5)              *
  Retired President and Director of
  Institutional Mortgage Investors
  Management Corporation, a national
  investment firm involved in the
  purchase of mortgages for pension
  and other types of funds.

Donald LaPasta                               81        1958             2002          85,719(5)              *
  Retired Chairman of the Board and
  Chief Executive Officer of the Bank.

Raymond L. Nielsen                           73        1961             2001         193,846 (6)(7)      2.00%
  Chairman of the Board and former
  Chief Executive Officer of the
  Company and the Bank.

Conrad J. Gunther, Jr.                       53        1996             2001          32,658 (5)             *
  Vice President of Allied Coverage Corp.,
   an independent insurance brokerage

J. William Newby                             71        1979             2001          84,196 (5)             *
  Owner/President of Beacon
  Mortgage Company, a national
  mortgage brokerage and servicing  firm.

Raymond A. Nielsen (8)                       48        1983             2000         239,365 (6)(7)       2.47%
 President and Chief Executive                                                               (9)(10)
 Officer of the Company and the Bank.

Douglas G. LaPasta (11)                      53        1983             2000          76,875 (5)             *
  Principal of Stonehill Management
  Consultants, a management
  consulting firm.

Peter F. Neumann                             65        1982             2000          92,651 (5)             *
  Retired - President of Bradley Parker,
  Flynn-Neumann, Inc., an insurance agency
  and director of Vicon Industries, Inc.

                                                        85

<PAGE>



                                                                                        Shares of
Name and Principal                                                      Expiration   Common Stock        Ownership
Occupation at Present and                               Director        of Term as      Beneficially    As a Percent
for the Past Five Years                      Age        Since(1)          Director       Owned(2)        of Class(3)
-----------------------                      ---        --------          --------       --------        -----------

Named Executive Officers Who Are Not Directors

<S>                                          <C>                                      <C>                 <C>
Gerald M. Sauvigne                           46           --             --           128,065 (7)(9)      1.32%
  Executive Vice President and                                                                   (10)
  Treasurer of the Company
  and the Bank.

Joseph F. Lavelle                            48           --             --            53,823  (7)(9)       *
  Senior Vice President Retail
  Banking and Secretary of the
  Company and the Bank.

Paul D. Hagan                                37           --             --             64,115 (7)(9)        *
  Senior Vice President and
  Chief Financial Officer of the
  Company and the Bank.

 John F. Traxler                             51           --             --             79,581  (7)(9)       *
  Vice President and Investment
  Officer of the Company
  and the Bank.

All directors and executive officers         --           --             --          1,211,503 (12)     12.52%
  as a group (12 persons)

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

 *  Does not exceed 1.0% of the Company's voting securities.

(1)  Includes  years of  service  as a director  of the  Company's  wholly-owned
subsidiary, the Bank.
(2) Each  person  effectively  exercises  sole (or shares  with  spouse or other
immediate family member) voting or dispositive power as to shares reported.
(3) For purposes of calculating the aggregate ownership percentage,  all options
exercisable  within 60 days have been added to the amount of outstanding  common
stock as of the September 15, 1999.
(4) Includes 621 unvested  shares  awarded to Mr.  Gunther under the Amended and
Restated  Reliance  Federal Savings Bank 1994 Recognition and Retention Plan for
Outside  Directors  (the "DRP").  Unvested  shares will vest equally on June 19,
2000 and June 19, 2001. Mr. Gunther  presently has voting power as to the shares
awarded.
(5) Includes 40,451; 7,848; 40,452;  32,951; 40,451 and 40,452 shares subject to
options held by Messrs.  Davis,  Gunther,  Donald  LaPasta,  Douglas G. LaPasta,
Neumann,  and Newby,  respectively,  under the  Amended  and  Restated  Reliance
Bancorp, Inc. 1994 Stock Option Plan for Outside Directors (the "1994 Directors'
Option Plan") which are currently exercisable. Also includes 22,500 options held
by Messrs.  Davis,  Gunther,  Donald LaPasta,  Douglas G. LaPasta,  Neumann, and
Newby each under the Reliance  Bancorp,  Inc. 1996  Incentive  Stock Option Plan
Amended  and  Restated as of February  19, 1997 (the "1996 Stock  Option  Plan")
which are currently exercisable.
(6) Includes 8,318 unvested  shares awarded to Messrs.  R.L.  Nielsen,  and R.A.
Nielsen under the Reliance  Federal Savings Bank  Recognition and Retention Plan
for Officers and Employees (the "MRP"). Such unvested shares vest on November 9,
1999. Messrs.  R.L. Nielsen,  and R.A. Nielsen presently have voting power as to
the shares awarded. (Footnotes continued on next page)

                                                        86

<PAGE>



(7) Includes 42,100;  110,250;  55,890; 17,805; 23,805 and 36,225 shares subject
to options held by Messrs. R.L. Nielsen, R.A. Nielsen, Sauvigne,  Lavelle, Hagan
and Traxler, respectively, under the Reliance Bancorp, Inc. 1994 Incentive Stock
Option Plan (the "1994 Stock Option Plan") which are currently exercisable. Also
includes 33,198;  33,198;  33,198;  21,282;  21,282 and 15,132 shares subject to
options held by Messrs. R.L. Nielsen, R.A. Nielsen, Sauvigne, Lavelle, Hagan and
Traxler,  respectively,  under the 1996 Stock  Option  Plan which are  currently
exercisable.
(8) Raymond A. Nielsen is the son of Raymond L. Nielsen.
(9) Includes 11,226; 11,226; 8,313; 6,714 and 8,699 shares beneficially owned by
Messrs. R.A. Nielsen, Sauvigne, Lavelle, Hagan and Traxler, respectively,  under
the ESOP.
(10) Includes 18,515 and 3,251 shares beneficially owned by Messrs. R.A. Nielsen
and Sauvigne, respectively, under the Reliance Federal Savings Bank Supplemental
Executive Retirement Plan (the "SERP").
(11) Douglas G. LaPasta is the nephew of Donald LaPasta.
(12) Includes a total of 17,257  unvested  shares awarded under the MRP and DRP,
as to which voting may be directed.

Item 11.

Executive Compensation

Summary  Compensation  Table.  The following  table shows,  for the fiscal years
ending June 30, 1999,  1998 and 1997,  the cash  compensation  paid,  as well as
certain  other  compensation  paid or  accrued  for  those  years,  to the Chief
Executive  Officer and the other highest paid Executive  Officers of the Company
and/or the Bank who received an amount in salary and bonus in excess of $100,000
in fiscal 1999.

                                               Annual Compensation                       Long-Term Compensation
                                         -------------------------------------  -----------------------------------
                                                                                        Awards              Payouts
                                                                                        ------              -------
                                                                     Other      Restricted  Securities
                                                                     Annual       Stock      Underlying                 All Other
           Name and                                      Bonus    Compensation    Awards     Options/         LTIP      Compensation
        Principal Office          Year   Salary ($)    ($)(1)        ($)(2)        ($)       SARs (#)(3)  Payouts(4)      $ (5)
---------------------------------------  ----------    ------      ----------   ---------    -----------   ----------    ----------

<S>                               <C>       <C>        <C>             <C>               <C>          <C>        <C>       <C>
Raymond A. Nielsen                1999      475,000    101,375         --               --            --         --       126,816
   President and Chief            1998      425,000    100,000         --               --            --         --       105,858
   Executive Officer              1997      375,000     85,000         --               --        31,600         --        88,982

Gerald M. Sauvigne                1999      235,000     49,375         --               --            --         --        50,709
  Executive Vice President        1998      205,000     47,500         --               --            --         --        20,718
  and Treasurer                   1997      175,000     36,375         --               --        31,600         --        11,747

Joseph F. Lavelle                 1999      135,000     21,500         --               --            --         --            --
  Senior Vice President           1998      120,000     22,750         --               --            --         --            --
  and Secretary                   1997      107,500     17,313         --               --        20,250         --            --

Paul D. Hagan                     1999      150,000     25,000         --               --            --         --            --
 Senior Vice President and        1998      135,000     22,638         --               --            --         --            --
 Chief Financial Officer          1997      107,500     15,888         --               --        20,250         --            --

John F. Traxler                   1999      114,000     14,690         --               --            --         --            --
  Vice President and              1998      109,000     14,640         --               --            --         --            --
  Investment Officer              1997      107,500     14,863         --               --        20,250         --            --

</TABLE>

-----------------------------
(1) Consists of payments under the Bank's Incentive Compensation Plan.
(2) For fiscal years 1999, 1998 and 1997, there were no (a) perquisites over the
lesser of  $50,000  or 10% of the  individual's  total  salary and bonus for the
year;   (b)  payments  of   above-market   preferential   earnings  on  deferred
compensation; (c) payments of earnings with respect to long-term incentive plans
prior to  settlement  or  maturation;  (d) tax  payment  reimbursements;  or (e)
preferential discounts on stock.
                                             (footnotes continued on next page)

                                                        87

<PAGE>



(3) Includes stock options  granted under the 1996 Stock Option Plan. Each stock
option was granted in tandem with a limited rights, which is exercisable only in
the event of a change in control of the Company.
(4) The Bank did not make any  payment of  long-term  incentive  plans in fiscal
1999, 1998 and 1997.
(5) For fiscal year 1999 amount  includes SERP  contributions  for Messrs.  R.A.
Nielsen and Sauvigne for the reduction of benefits related to the Bank's ESOP.

     Employment  Agreements.   The  Bank  and  the  Company  have  entered  into
employment agreements with Messrs. R.A. Nielsen,  Sauvigne,  Lavelle,  Hagan and
Traxler.  These  employment  agreements are intended to ensure that the Bank and
the Company will be able to maintain a stable and competent management base. The
continued success of the Bank and the Company depends to a significant degree on
the skills and competence of these individuals.

         The  Company  employment  agreements  provide for  five-year  terms for
Messrs. R.A. Nielsen and Sauvigne and two-year terms for Messrs.  Lavelle, Hagan
and Traxler,  except that the term is three years with respect to the obligation
to make payments based on termination of employment after a change in control as
discussed below.  The Bank agreements  provide for a three year term for Messrs.
R.A.  Nielsen and  Sauvigne  and two year terms for Messrs.  Lavelle,  Hagan and
Traxler. The Bank agreements further provide that commencing on July 1, 1999 and
continuing on July 1 of each year thereafter, the Board of Directors of the Bank
may,  with the  consent  of the  respective  employees,  extend  the  employment
agreements  with the Company and the Bank for an additional  year, such that the
remaining terms of the respective agreements shall be the amount of the original
term unless  written  notice of  non-renewal  is given by the Board of Directors
after  conducting a performance  evaluation  of the  executive.  The  employment
agreements with the Company provide for automatic daily extensions such that the
remaining  terms shall be the amount of the original term unless  written notice
of non-renewal is given by the Board of Directors or the employee. In such case,
the term shall end on the second  anniversary of the date of written notice. The
Company and Bank  employment  agreements  provide  that  Messrs.  R.A.  Nielsen,
Sauvigne,  Lavelle,  Hagan and Traxler  will  receive  annual  base  salaries of
$500,000, $250,000, $150,000, $160,000, and $118,000,  respectively,  which will
be reviewed  annually by the Board. In addition to the base salary,  the Company
and Bank  employment  agreements  provide for,  among other  things,  disability
payments,  participation  in  retirement  plans,  stock  benefit plans and other
compensation  plans  applicable to executive  personnel  from time to time.  The
Company and Bank  employment  agreements  provide for termination by the Bank or
the Company for  "cause",  as defined in such  agreements,  at any time.  In the
event the Bank or the Company  chooses to terminate the  executive's  employment
for reasons  other than a change in control,  retirement  or for cause or in the
event of the executive's  resignation  from the Bank and the Company  subsequent
to: (i) the  failure to re-elect  the  executive  to his current  offices or the
extent this executive serves as a director of the Company, failure to renominate
or reelect the executive as a director;  (ii) a material  adverse  change in the
executive's  functions,  duties  or  responsibilities,   or  relocation  of  his
principal place of employment, by more than 30 miles, or a material reduction in
benefits or  perquisites;  (iii)  liquidation  or dissolution of the Bank or the
Company;  or (iv) a breach  of the  agreement  by the Bank or the  Company,  the
executive  or, in the event of death,  his  beneficiary,  would be  entitled  to
receive  an  aggregate  payment  amount  equal to the  amount  of the  remaining
payments (or benefits) that the executive  would have earned if he had continued
his employment  with the Bank or Company during the remaining  unexpired term of
the  agreement  based on the  executive's  defined  base  salary on the date the
executive was  terminated.  Additionally,  the Company  employment  agreement of
Messrs. R.A. Nielsen and Sauvigne provide that in the event of their termination
of employment, the Company or any of its subsidiaries amend any employee benefit
plan maintained by the Company or any of its  subsidiaries  such that it reduces
the benefits  payable to the executives,  the Company will provide the executive
with an economic  benefit equal to the amount of any such reduction on an annual
basis.


                                                        88

<PAGE>



         Under the terms of the Company employment agreements, if termination of
employment,  whether voluntary or involuntary,  follows a "change in control" of
the Bank or the Company, as defined in the employment agreements,  the executive
or, in the event of death,  his  beneficiary,  would be entitled to an aggregate
payment equal to the greater of (1) the payments due under the remaining term of
the agreement,  (2) five times the average annual  compensation  with respect to
Messrs.  R.A.  Nielsen and Sauvigne or (3) three times the average  compensation
with  respect  to  Messrs.  Lavelle,  Hagan and  Traxler.  Such  average  annual
compensation will be determined,  in the case of the Bank employment agreements,
over the  five  most  recent  taxable  years,  and,  in the case of the  Company
employment  agreements,  for the three or two preceding taxable years, whichever
is applicable to the term of the respective employment  agreement.  Such average
annual compensation shall include any commissions,  bonuses,  pension and profit
sharing plan benefits,  severance  payments,  retirement  benefits,  director or
committee  fees and fringe  benefits  paid or to be paid to the executive in any
such years.  The Bank and the Company would also continue the executive's  life,
health,  and disability  coverage and any dependent that is currently covered by
such plans,  for the remaining  unexpired  term of the  agreements to the extent
allowed by the plans or policies  maintained by the Company or Bank from time to
time.  Payments to the executive under the Bank's employment  agreements will be
guaranteed by the Company in the event that payments or benefits are not paid by
the Bank.  The  agreements  also  provide  that the Bank and the  Company  shall
indemnify  the  executive  to the fullest  extent  allowable  under  federal and
Delaware law, respectively.

         In addition,  upon a change in control,  certain awards of Common Stock
and options to purchase  Common Stock made to each of the  executives  under the
Company's and Bank's various  non-qualified stock based benefit plans would vest
immediately. If any amounts payable in connection with any change in control are
determined  to be "excess  parachute  payments"  under  Section 280G of the code
resulting in the imposition of the 20% excise tax on such payments under Section
4999 of the code,  each  officer  will  receive  from the Company an  additional
amount such that the effect of the  imposition of that excise tax is effectively
eliminated.

         The following table provides  certain  information  with respect to the
number of shares  of Common  Stock  represented  by  outstanding  stock  options
granted  under the 1994 Stock Option Plan and the 1996 Stock Option Plan held by
the Named  Executive  Officers as of June 30, 1999. Also reported are the values
for  "in-the-money"  options  which  represent the positive  spread  between the
exercise  price of any such existing stock options and the year-end price of the
Common  Stock.  There were no options  exercised  by any of the Named  Executive
Officers in Fiscal Year 1999.

                          FISCAL YEAR END OPTION VALUES

                           Number of Securities          Value of Unexercised
                          Underlying Unexercised          In-the-Money Options
                         Options at June 30, 1999        at June 30, 1999
                             Exercisable                 Exercisable
       Name                        (#)                          ($)(1)
      ------                      -----                         ------
Raymond A. Nielsen               143,448                       2,219,902
Gerald M. Sauvigne                89,088                       1,261,807
Joseph F. Lavelle                 39,087                         492,462
Paul D. Hagan                     45,087                         598,212
John F. Traxler                   51,357                         744,084

(1) Market Value of underlying securities at fiscal year-end ($27.625) minus the
exercise or base prices of $10.00, $15.75, $19.375 and $38.00 per share.

         Pension  Plan.  The Bank  maintains the Reliance  Federal  Savings Bank
Retirement  Plan (the "Pension  Plan"),  for the benefit of the employees of the
Bank.  The  Pension is a  noncontributory  defined  benefit  pension  plan.  All
employees  over  the age of 21 who  have  worked  1,000  hours at the Bank for a
twelve month period are eligible to  participate  in the Pension Plan.  The Bank
annually  contributes  an amount to the Pension  Plan  necessary  to satisfy the
actuarially determined minimum funding requirements in accordance with ERISA.


                                                        89

<PAGE>



         Upon the attainment of normal retirement age (age 65), a participant is
entitled  to  a  retirement   benefit  in  an  amount  equal  to  50.0%  of  the
participant's  average annual base wage  (determined by using the  participant's
earnings for the highest five  complete  consecutive  plan years out of the last
ten plan  years  of a  participant's  employment)  multiplied  by a  ratio,  the
numerator of which is the number of months of the participant's service, and the
denominator of which is 240.  Under the Pension Plan,  benefits are also payable
for  termination  due to early  retirement  or death of a  married  participant.
Benefits become vested after a participant  completes five years of service.  In
the case of death, or early  retirement  occurring on or after attainment of age
60, but after the  completion of five years of service,  benefits are reduced if
they commence prior to age 65.

         Based on an  evaluation  of the pension plan in fiscal  1998,  the Bank
concluded that future benefit  accruals under the plan would cease,  or "freeze"
on May 31, 1998.

         401(k)  Plan.  The Bank  maintains  the Reliance  Federal  Savings Bank
401(k)  Retirement  Savings Plan (the "401(k) Plan"),  a  tax-qualified  defined
contributions  plan governed by Section 401(k) of the Internal Revenue Code. The
401(k) Plan allows  salaried  employees  to make pre-tax  salary  contributions,
limited to 10% of  compensation,  with a maximum of $10,000  per year.  The Bank
contributes  2% per  employee  and  matches  seventy-five  percent  of  employee
contributions  up to 4%, subject to a maximum total employer  contribution of 5%
of employee compensation.  Employees are fully vested in their contributions and
become vested in the Bank's  contributions after the completion of five years of
service.  Employees select the investments made with their account balances from
a fixed menu of options.

          Supplemental  Executives'  Retirement  Plan.  The Bank  maintains  the
Reliance  Federal  Savings Bank  Supplemental  Executives'  Retirement Plan (the
"SERP"),  which is  intended  to provide  an  additional  retirement  benefit to
designated  executives who are  participants in the Bank's tax qualified  plans,
and whose benefits under such plans are reduced due to the  limitations  imposed
by Section 415 of the Code on the maximum annual benefits and contributions that
may be made with  regard to such  plans and the  limitations  imposed by Section
401(a)(17) of the Code on the maximum amount of  compensation  that may be taken
into  account in  determining  benefits and  contributions  with respect to such
plans.  The SERP is  intended  to  provide a benefit  equal to the  benefit  the
participant  would have received under the applicable tax qualified plans if the
Code's  limitations did not apply and the amounts such individuals will actually
receive with the application of the Code's limitations.

         The following table sets forth the estimated  annual  benefits  payable
under the Pension Plan and SERP  described  above upon  retirement  at age 65 in
calendar year 1999,  expressed in the form of a 10-year  certain and  continuous
annuity,  for the average annual  earnings and years of service  classifications
specified.

                            Creditable Years of Service at Age 65
                    ---------------------------------------------------------
   Average
    Annual
 Earnings(1)(2)      15            20            25           30          35
                    ----          ----          ----         ----        ----

  $25,000        $ 9,375      $ 12,500      $ 12,500     $ 12,500     $ 12,500
   50,000         18,750        25,000        25,000       25,000       25,000
  100,000         37,500        50,000        50,000       50,000       50,000
  150,000         56,250        75,000        75,000       75,000       75,000
  200,000         75,000       100,000       100,000      100,000      100,000
  250,000         93,750       125,000       125,000      125,000      125,000
  300,000        112,500       150,000       150,000      150,000      150,000
  350,000        131,250       175,000       175,000      175,000      175,000
  400,000        150,000       200,000       200,000      200,000      200,000
  450,000        171,000       225,000       225,000      225,000      225,000
  510,000        191,250       255,000       255,000      255,000      255,000
  570,000        213,750       285,000       285,000      285,000      285,000

(1) The covered salary under the Pension Plan is the amounts shown in the column
entitled "Salary" in the Summary Compensation Table and does not include amounts
shown in the column entitled "Bonus" in such table.
(2) The  benefits  listed in the  retirement  benefit  table are not  subject to
Social Security or other offset amounts.



                                                        90

<PAGE>



         The following  table sets forth the years of certified  service  (i.e.,
benefit  service)  as of the fiscal  year ended June 30,  1999,  for each of the
individuals named in the Summary Compensation Table.

                                         Credited Service
                                         ----------------
                                         Years    Months
                                         -----    ------
  Raymond A. Nielsen.................     29         0
  Gerald M. Sauvigne.................     21        10
  Joseph F. Lavelle..................     30         5
  Paul D. Hagan......................      5         8
  John F. Traxler....................     26         4

Item 12.

Security Ownership of Certain Beneficial Owners and Management

The following  table sets forth certain  information as to those persons who are
beneficial owners of more than 5% of the Company's  outstanding shares of Common
Stock on the Record  Date  based  solely  upon  disclosure  in  certain  reports
received by the Company regarding such ownership filed with the Company and with
the Securities  and Exchange  Commission,  in accordance  with Sections 13(d) or
13(g) of the Securities  Exchange Act of 1934, as amended,  ("Exchange  Act") by
such persons and groups.  Other than those persons listed below,  the Company is
not aware of any person or group,  as such term is defined in the Exchange  Act,
that owns more than 5% of the Company's Common Stock as of the Record Date.
<TABLE>
<CAPTION>

                                                                  Number of Shares and         Percent
                                   Name and Address                     Nature of                 of
Title of Class                   of Beneficial Owner              Beneficial Ownership         Class(1)
--------------                   -------------------              --------------------         --------
<S>                                                                      <C>                    <C>
 Common Stock    Marine Midland Bank as Trustee for the                  780,019                9.08%
                 Reliance Federal Savings Bank Employee Stock
                 Ownership Plan ("ESOP") (2)
                 585 Stewart Avenue
                 Garden City, NY 11530


(1) As of  September  15,  1999,  there were  8,589,490  shares of common  stock
outstanding.
(2) A Committee of the Board of Directors has been  appointed to administer  the
ESOP (the "ESOP Committee").  An unrelated third party has been appointed as the
corporate trustee for the ESOP ("ESOP Trustee"). The ESOP Committee may instruct
the ESOP Trustee regarding investment of funds contributed to the ESOP. The ESOP
Trustee must vote all allocated  shares held in the ESOP in accordance  with the
instructions of the  participants.  As of September 15, 1999,  448,819 shares of
Common Stock in the ESOP have been  allocated to  participants.  Under the ESOP,
unallocated  shares  held in the  suspense  account  will be  voted  by the ESOP
Trustee in a manner  calculated  to most  accurately  reflect  the  instructions
received from participants regarding the allocated stock so long as such vote is
in accordance with the provisions of Employee  Retirement Income Security Act of
1974, as amended ("ERISA").

Information regarding security ownership of management appears in Item 10 above.

Item 13.

Certain Relationships and Related Transactions

Federal law and  regulation  require that all loans or  extensions  of credit to
executive  officers and directors must be made on substantially  the same terms,
including  interest rates and  collateral,  as those  prevailing at the time for
comparable  transactions  with the general public and must not involve more than
the normal risk of repayment or present other unfavorable features; and such law
and regulation places limitations on the amounts of certain extensions of credit
to executive  officers and  directors.  Although the Company does not  currently
lend funds to its executive officers and directors, the Bank, from time to time,
lends funds to executive officers. The Bank's policy regarding

                                                        91

<PAGE>



loans  to  directors  and  executive   officers  is  in  accordance   with  such
requirements.  Loans made by the Bank to its directors  and  executive  officers
shall be made in the ordinary  course of  business,  on  substantially  the same
terms, including interest rates and collateral,  as those prevailing at the time
for comparable  transactions with other persons and do not involve more than the
normal risk of collectibility.

     During fiscal 1999, the Bank engaged  Conrad Gunther to perform  consulting
services  related to the  expansion of the Bank's  services and  products.  Such
contract provides for a term of six (6) months at a fee of $12,000.00 per month.
Such contract may be terminated by the Bank upon six (6) months advance notice.

Nielsen and Shoemaker Architects P.C., of which the son of Raymond L. Nielsen is
a  principal,  has been  engaged by the Bank on a periodic  basis in the past to
provide professional  services and is currently so engaged for the modernization
of multiple branch facilities and installation of automated teller machines. The
engagement was approved by the Board of Directors of the Bank and  architectural
fees paid by the Bank during fiscal year 1999  totalling  approximately  $57,326
were fixed in accordance with professional standards.


                                     PART IV

Item 14.

Exhibits, Financial Statement Schedules and Reports on Form 8-K

The following financial statements are filed as part of this report:
                                                                                          Page
                                                                                           No.
                                                                                          ----

<S>                                                                                        <C>
o   Independent Auditors' Report............................................................52
o   Consolidated Statements of Financial Condition at June 30, 1999 and 1998................53
o   Consolidated Statements of Income for each of the years in the three year period
    ended June 30, 1999.....................................................................54
o   Consolidated Statements of Changes in Stockholders' Equity for each of the years
    in the three year period ended June 30, 1999............................................55
o   Consolidated Statements of Comprehensive Income for each of the years in the
    three year period ended June 30, 1999...................................................56
o   Consolidated Statements of Cash Flows for each of the years in the three year
    period ended June 30, 1999..............................................................57
o   Selected  Consolidated Quarterly Financial Data (Unaudited) for each of the
    years in the two year period ended June 30, 1999........................................85

2.     Financial Statement Schedules

Financial  Statement Schedules have been omitted because they are not applicable
or the required information is shown in the Consolidated Financial Statements or
notes thereto.

(b)    Reports on Form 8-K filed during the last quarter of 1999

     1)   The Company  filed an 8-K on May 17, 1999  announcing  a change in our
          independent accountants from KPMG LLP to Arthur Andersen LLP.

     2)   The  Company filed an 8-K/A on May 25,  1999 to file  the  termination
          letter from our former principal accountants KPMG LLP.








                                                        92

<PAGE>



(c)    Exhibits Required by Securities and Exchange Commission Regulation S-K

         Exhibit
          Number
          ------
          <S>         <C>
           3.1        Certificate of Incorporation of Reliance Bancorp, Inc. (1)
           3.2        Reliance Bancorp, Inc. By-Laws (1)
          10.1(a)     Reliance Federal Savings Bank Recognition and Retention Plan for Officers
                      and Employees (2)
          10.1(b)     Amended and Restated Reliance Federal Savings Bank 1994 Recognition and Retention Plans
                      for Outside Directors (6)
          10.2        Reliance Bancorp, Inc. 1994 Incentive Stock Option Plan (2)
          10.3        Amended and Restated Reliance Bancorp, Inc. 1994 Stock Option Plan for Outside Directors
                      (filed herewith)
          10.4(a)     Form of Reliance Federal Savings Bank Employee Stock Ownership Plan (1)
          10.4(b)     Form of Reliance Federal Savings Bank Employee Stock Ownership Trust Agreement (1)
          10.5        Form of [Three/Two Year] Employment Agreement between Reliance Federal Savings Bank
                      and Certain Officers (1)
          10.6        Form of [Three/Two Year] Employment Agreement between Reliance Bancorp, Inc. and
                      Certain  Executive Officers (1)
          10.7        Form of Reliance Federal Savings Bank Change-in-Control Agreement (1)
          10.8        Form of Reliance Bancorp, Inc. Change-in-Control Agreement (1)
          10.9        Form of Reliance Federal Savings Bank Severance Compensation Plan (1)
          10.10       Form of Reliance Federal Savings Bank Supplemental Executive Retirement
                      Plan (1)
          10.11       Draft ESOP Loan Commitment Letter and Form of ESOP Loan Documents (1)
          10.12       Form of Reliance Federal Savings Bank Outside Directors' Consultation and
                      Retirement Plan (1)
          10.13       Form of Reliance Bancorp, Inc. Five Year Employment Agreement (3)
          10.14       Reliance Bancorp, Inc. 1996 Incentive Stock Option Plan Amended and Restated as of
                      February 19, 1997 (6)
          11.0        Statement Re: Computation of Per Share Earnings (filed herewith)
          21.0        Subsidiaries information incorporated herein by reference to Part 1 - Subsidiaries
          23.0        Consent of Independent Auditors  (filed herewith)
          27.0        Financial Data Schedule  (filed herewith)
          99.1        Stockholder Protection Rights Agreement, dated as of September 18, 1996 (5)
----------------------

(1)  Incorporated  by reference  into this document from the Exhibits filed with
the Registration Statement on Form S-1, Registration No. 33-72476.
(2)  Incorporated  by reference into this document from the Exhibits to the 1994
Proxy Statement for the Annual Meeting of Stockholder  held on November 9, 1994,
filed on October 7, 1994.
(3)  Incorporated  by reference into this document from the Exhibits to the Form
10K for the fiscal year ended June 30, 1996, filed on September 30, 1996.
(4)  Incorporated  by reference into this document from the Exhibits to the 1996
Proxy  Statement  for the Annual  Meeting of  Stockholders  held on November 12,
1996, filed on October 11, 1996.
(5)  Incorporated  by reference  into this document from the Exhibits filed with
the registration statement on Form 8-A, filed on September 27, 1996.
(6)  Incorporated  by reference into this document from the Exhibits to the Form
10K for the fiscal year ended June 30, 1998, filed on September 28, 1998.




                                                        93

<PAGE>




                                   Signatures

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


                             Reliance Bancorp, Inc.
                                  (Registrant)


                    /s/ Raymond A. Nielsen            September 22, 1999
                    -----------------------------     ------------------
                        Raymond A. Nielsen
                        Chief Executive Officer


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


            NAME                                        TITLE                                          DATE
            ----                                        -----                                          ----

<S>                                         <C>                                                  <C>
/s/  Raymond A. Nielsen                     President and                                        September 22, 1999
----------------------------                                                                     ------------------
     Raymond A. Nielsen                     Chief Executive Officer

/s/  Paul D. Hagan                          Chief Financial Officer                              September 22, 1999
-------------------------------                                                                  ------------------
     Paul D. Hagan

/s/  Raymond L. Nielsen                     Chairman of the Board and former                     September 22, 1999
----------------------------                                                                     ------------------
     Raymond L. Nielsen                     Chief Executive Officer

/s/  Thomas G. Davis, Jr.                   Director                                             September 22, 1999
-----------------------------                                                                    ------------------
     Thomas G. Davis, Jr.

/s/  Conrad J. Gunther, Jr.                 Director                                             September 22, 1999
-----------------------------                                                                    ------------------
     Conrad J. Gunther, Jr.

/s/  Douglas G. LaPasta                     Director                                             September 22, 1999
-----------------------------                                                                    ------------------
     Douglas G. LaPasta

/s/  Donald LaPasta                         Director                                             September 22, 1999
     Donald LaPasta

/s/  Peter F. Neumann                       Director                                             September 22, 1999
-----------------------------                                                                    ------------------
     Peter F. Neumann

/s/  J. William Newby                       Director                                             September 22, 1999
----------------------------                                                                     ------------------
     J. William Newby




                                                        94
</TABLE>