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, 1997
                                               -------------

                                     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, 1997 the  aggregate  market  value of the shares of common
stock of the  registrant  outstanding  was  $253,480,000  excluding  the 565,519
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, 1997,  which was $32.125 as reported
in the Wall Street  Journal on September  16, 1997.  The number of shares of the
registrant's  common stock  outstanding  as of September  15, 1997 was 8,709,455
shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions  of  the  definitive   Proxy   Statement  for  the  Annual  Meeting  of
Stockholders  to be  held  on  November  19,  1997  and  the  Annual  Report  to
Stockholders for fiscal year 1997 are  incorporated  herein by reference - Parts
II and III.


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<TABLE>
<CAPTION>

                         FORM 10-K CROSS REFERENCE INDEX

                                     PART I
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                                                                                                                          Page No.
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<S>                                                                                                                           <C> 
Item 1.   Business
             Description of Business..........................................................................................   1
             Statistical Data:
             Distribution of Assets, Liabilities, and Stockholders' Equity;
                 Interest Rates and Interest Differential.....................................................................  27
             Mortgage and Other Loan Activities...............................................................................  28
             Loan Maturity and Repricing......................................................................................  29
             Summary of Allowance for Loan Losses.............................................................................  30
             Composition of Loan Portfolio....................................................................................  32
             Money Market, Debt and Equity and Mortgage-Backed Securities Portfolio...........................................  33
             Maturity Listing for Money Market Investments, Debt and Equity
                 and Mortgage-Backed Securities Portfolio.....................................................................  34
             Deposit Activities...............................................................................................  35
             Borrowings.......................................................................................................  37
Item 2.   Properties..........................................................................................................  38
Item 3.   Legal Proceedings...................................................................................................  40
Item 4.   Submission of Matters to a Vote of Security Holders.................................................................  40

                                     PART II
                                     -------

Item 5.   Market for Company's Common Equity and Related Stockholder Matters..................................................  40
Item 6.   Selected Financial Data.............................................................................................  41
Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations...............................  41
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk............................................................41
Item 8.   Financial Statements and Supplementary Data.........................................................................  41
             Reliance Bancorp, Inc. and Subsidiary:
                 Independent Auditors' Report.................................................................................  41
                 Consolidated Statements of Condition.........................................................................  41
                 Consolidated Statements of Income............................................................................  41
                 Consolidated Statements of Changes in Stockholders' Equity...................................................  41
                 Consolidated Statements of Cash Flows........................................................................  41
                 Notes to Consolidated Financial Statements...................................................................  41
Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................  41

                                    PART III
                                    --------

Item 10.  Directors and Executive Officers of the Company.....................................................................  41
Item 11.  Executive Compensation..............................................................................................  41
Item 12.  Security Ownership of Certain Beneficial Owners and Management......................................................  42
Item 13.  Certain Relationships and Related Transactions......................................................................  42

                                     PART IV
                                     -------

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................................................  42

Signatures....................................................................................................................  45
</TABLE>




                                                     

                                                         2

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                                             PART I


Item 1.   Business

         Reliance  Bancorp,  Inc.  (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 which raised $103.6 million of net proceeds from
the sale of 10,750,820 common shares in the conversion including the issuance of
400,820 shares of stock to the Bank's Recognition and Retention Plans and Trusts
from  authorized but unissued shares at $10.00 per share.  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.

         In  addition to  directing,  planning  and  coordinating  the  business
activities  of the  Bank,  the  Company  invests  primarily  in U.S.  Government
securities and repurchase  agreements.  In addition,  the Company  completed its
acquisitions  of Bank of Westbury,  a Federal  Savings  Bank, in August 1995 and
Sunrise  Bancorp,  Inc.  in  January  1996  and  intends  to close  its  planned
acquisition  of  Continental  Bank  ("Continental")  in the  fourth  quarter  of
calendar year 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, consumer loans (primarily home equity lines
of credit, home equity loans, auto and guaranteed student loans) and to a lesser
extent, commercial real estate and construction loans. In the past, the Bank has
also  invested  in loans  secured  by  cooperative  units  ("co-op  loans")  and
commercial   loans,  but  in  recent  years  has  discontinued  its  origination
activities  in these  areas.  In the  future,  with the planned  acquisition  of
Continental,  the  Bank  expects  to  begin  originating  commercial  loans.  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 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, 1997, the Company had total assets of $2.0 billion.

Planned Acquisition of Continental Bank

         On May 5,  1997,  the  Company  announced  that it had  entered  into a
definitive  agreement  to acquire  Continental,  a  commercial  bank with 2 full
service banking offices located in Nassau and Suffolk counties

                                                         3

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in Long  Island,  New York, a commercial  lending  facility and 5 check  cashing
facilities in Manhattan.  Under the terms of the agreement,  Reliance will issue
1.10  shares  of  its  common  stock  for  each  outstanding   common  share  of
Continental. The total transaction value is estimated to be $24.2 million. As of
June 30,  1997(unaudited),  total  assets of  Continental  were $177.3  million,
deposit were $136.2  million and total  stockholders'  equity was $13.4 million.
The merger is subject to the approval of  Continental  shareholders,  as well as
certain  regulatory  approvals.  The merger is expected to be  completed  in the
fourth quarter of calendar year 1997.

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 New York City  metropolitan  area has  historically  benefited from
having a large  number of  corporate  headquarters  and a diversity of financial
service industries. In particular, Long Island has historically benefited from a
large and well-developed suburban market, a well-educated  employment base and a
diversity of industrial, service and high technology businesses. During the late
1980s  and  early  1990s,  the New York City  metropolitan  experienced  reduced
employment as a result of layoffs in the financial services industry,  corporate
relocations and a general decline of the local, regional and national economies.
Additionally,  during that period the area  experienced  a general  weakening of
real estate values and a decline in home sales and construction.  In particular,
the counties of Nassau and Suffolk  suffered  reduced  employment as a result of
restructuring  and  downsizing  in  the  high  technology  and  defense  related
industries,  which have historically  been significant  sources of employment in
the Bank's primary market area. As a result,  loan  delinquencies  increased and
the  underlying  values of  properties  securing  non-performing  loans  made by
lending institutions  generally declined resulting in substantial losses to some
institutions.  In 1993,  however,  the economy of the Bank's primary market area
began  to  stabilize  as  demonstrated  by  improved   employment  and  economic
indicators.  Since  such  time,  residential  real  estate  values in the Bank's
primary  market  have  stabilized  and  recently  begun  to  improve.   However,
commercial real estate values,  which  experienced the greatest  declines during
the late 1980s and early 1990s,  have only recently  begun to stabilize and have
not improved as much as residential  real estate and generally  remain below the
values experienced in the late 1980s.

         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 savings banks,  savings and loan  associations,  mortgage
banking companies,  commercial banks, credit unions and insurance companies. Its
most direct competition for deposits has historically come from savings and loan
associations,  savings banks,  commercial banks and credit unions. The Bank also
faces  additional  competition  for  deposits  from money market  mutual  funds,
corporate and government  securities  funds and other  financial  intermediaries
such as brokerage firms and insurance companies.



                                                         4

<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, 1997,
consisted of a variety of consumer and other loans, primarily guaranteed student
loans,  auto and loans on deposit  accounts.  At June 30, 1997,  the Bank's loan
portfolio  totalled  $914.5  million,  of  which,  $552.6  million  were one- to
four-family  loans, $8.6 million were co-op loans,  $138.1 million were consumer
and other loans,  $190.3  million were  multi-family  loans,  $23.4 million were
commercial real estate loans, and $1.4 million were construction loans.

         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,  1997,  $552.6  million,  or 60.4% of the Bank's total loan
portfolio  consisted of one- to four-family  residential  loans, of which $241.7
million,  or 43.7%, 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 of 2.0% per adjustment period with a specified  lifetime
cap. At June 30, 1997,  the lifetime cap for point and no-point loans was 11.75%
and  12.75%,  respectively.  The  Bank's  ARM loans  typically  carry an initial
interest  rate  below the  fully-indexed  rate for the loan.  However,  the Bank
qualifies borrowers based upon

                                                         5

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the  fully-indexed  rate plus 200 basis points.  The Bank determines the initial
discount rate in accordance with market and competitive  factors and, as of June
30, 1997, the rate offered by the Bank on point loans was 275 basis points below
the fully-indexed rate of 8.40% as of such date. The rate offered by the Bank on
no-point   loans  during  the  same  period  was  175  basis  points  below  the
fully-indexed  rate.  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 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, 1997, $310.9 million, or 56.3%,
of the Bank's one- to four-family  residential mortgage loan portfolio consisted
of fixed rate loans.

         In the past, the Bank originated co-op loans. However,  since 1989, the
Bank has not  originated,  nor does it intend to  originate  in the future,  any
co-op loans,  with the exception of loans to facilitate the  restructuring  of a
classified  asset or the sale of real estate owned. At June 30, 1997, the Bank's
co-op loans totalled $8.6 million,  or 0.95% of total loans. The Bank also, from
1983 to 1989,  originated a number of "low  documentation"  loans. As with co-op
loans, the Bank has ceased originations of such 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.

         During fiscal 1997, the Bank increased its  origination of multi-family
loans.  For fiscal 1997,  originations  totalled  $115.9  million as compared to
$63.8  million in fiscal 1996 and $10.5 in fiscal 1995.  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.

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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.  The Bank determines the initial
discount rate in accordance with market and competitive  factors and, as of June
30, 1997, the rate offered by the Bank on point loans was 100 basis points below
the  fully-indexed  rate of 8.785% as of such date. The rate offered by the Bank
on  no-point  loans  during  the same  period  was 75  basis  points  below  the
fully-indexed rate.

         During fiscal 1997, the Bank  originated  commercial  real estate loans
totalling  $650,000,  as compared to $522,000 for fiscal 1996.  The Bank did not
originate any commercial  real estate loans during fiscal year 1995 other than a
small  loan  for  the  sale  of a real  estate  owned  property.  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, 1997,  the Bank's  multi-family  loans,  consisting of 165
loans,  totalled  $190.3  million,  or 20.8% of the Bank's total loan portfolio.
Commercial property loans,  consisting of 118 loans,  totalled $23.4 million, or
2.56% of the Bank's total loan  portfolio.  At June 30, 1997,  all  multi-family
loans were current and  performing in accordance  with their terms.  At June 30,
1997, the Bank had 9 commercial  real estate loans  totalling $3.3 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.

         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, 1997,  construction  loans
totalled $1.4 million or 0.16% of total loans. In addition, as of June 30, 1997,
the Bank has an outstanding commitment to fund a construction loan in the amount
of $12.0 million, of which $425,000 has been disbursed

         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

                                                         7

<PAGE>



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.  Each line of credit loan is limited to a maximum  loan-to-value
ratio of 80.0%,  less any prior  lien(s);  provided the maximum loan amount plus
any prior lien balance does not exceed  $350,000.  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.  At
June 30, 1997,  loans  outstanding  under the Bank's home equity lines of credit
totalled $91.8 million, or 10.0% of total loans.

         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 75.0%,  less any prior  liens;  provided  that the loan amount plus any prior
lien balance does not exceed a total of $350,000.  At June 30, 1997,  the Bank's
home equity loans totalled $19.5 million, or 2.1% of total loans.

         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, 1997,  the Bank's
guaranteed student loans totalled $17.0 million, or 1.9% of total loans.

         Additionally,  the Bank  offers  loans  fully  secured  by its  deposit
accounts which, at June 30, 1997, totalled $5.5 million, or 0.6% of total loans.
The Bank offered other consumer loans in the form of home improvement,  auto and
boat loans;  however,  the Bank  currently  offers only auto loans.  At June 30,
1997, such loans totalled $4.3 million or 0.5% 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 Committee and
Consumer Loan  Committee.  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

                                                         8

<PAGE>



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.

         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, 1997,
1996, and 1995, the amounts of additional  interest  income that would have been
recorded  on  non-accrual  loans,  had they  been  current,  totalled  $573,000,
$554,000,  and  $130,000,  respectively.  These amounts were not included in the
Bank's interest income for the respective periods.






                                                         9

<PAGE>


<TABLE>
<CAPTION>

                                                                                At June 30,
                                                       ----------------------------------------------------------
                                                       1997           1996         1995        1994          1993
                                                       ----           ----         ----        ----          ----
                                                                         (Dollars in thousands)
<S>                                                 <C>            <C>           <C>          <C>           <C> 
Non-accrual mortgage loans delinquent
 more than 90 days.............................     $ 14,262       $ 12,277      $ 3,210      $ 2,666       $ 4,073

Non-accrual other loans delinquent
    more than 90 days..........................          188            352           --           88            95
                                                    --------       --------     --------      -------        ------
Total non-accrual loans........................       14,450         12,629        3,210        2,754         4,168

Loans 90 days or more delinquent
   and still accruing..........................          277            350          461          843         1,099
                                                    --------       --------      -------      -------        ------
Total non-performing loans.....................       14,727         12,979        3,671        3,597         5,267
                                                     -------        -------       ------       ------        ------

Total foreclosed real estate, net of
    related allowance for losses...............          450          1,564        1,558        2,911         3,909
                                                    --------        -------       ------       ------        ------

Total non-performing assets....................     $ 15,177       $ 14,543      $ 5,229      $ 6,508       $ 9,176
                                                     =======        =======       ======       ======        ======

Non-performing loans to total loans............        1.61%          1.58%        1.10%        1.08%         1.43%
Non-performing assets to total assets..........        0.77%          0.82%        0.56%        0.78%         1.25%
</TABLE>


         The increase in  non-performing  loans is  primarily  the result of the
following  four  commercial  real estate  loans to two  borrowers  which  became
non-performing during the year ended June 30, 1997.

          At June 30, 1997,  two loans totalled $1.2 million and were secured by
a boat marina in Lindenhurst, NY. The loans were originated in September 1994 in
the form of a $687,500  first  mortgage on the  property  and a $550,000  second
mortgage  building loan. As of June 30, 1997, the borrower was more than 90 days
delinquent  on the first and second  mortgage  loans.  The borrower had declared
bankruptcy and a bankruptcy trustee was appointed by the court and was operating
the property.  Subsequent  to year end, the property was sold by the  bankruptcy
trustee to a subsidiary of the Bank which has taken  possession of the property.
The Bank is presently  marketing  the property for sale and is in the process of
determining the fair value of the property.

         At June 30, 1997,  the Bank had two loans  outstanding  totalling  $1.0
million secured by a funeral home in Westbury,  NY. The loans were originated in
August  1995 in the  form of a  $580,000  first  mortgage  on the  property  and
$500,000  second  mortgage  building loan. As of June 30, 1997, the borrower has
$465,000 outstanding on the building loan. An appraisal dated March 1995, valued
the property at $1.7 million.  As of June 30, 1997, the borrower is more than 90
days  delinquent on the first and second  mortgage  loans.  Because of cash flow
problems  of  the  borrower  and  the  present  inability  of  the  borrower  to
restructure the loan, the Bank has commenced foreclosure proceedings.






                                                        10

<PAGE>


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,  in reviewing the Bank's loan portfolio,  will not request the
Bank to materially increase at that time its allowance for loan losses,  thereby
negatively affecting the Bank's financial condition and earnings at that time.

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 investment policy of the Bank, which is approved by the Board of
Directors and  implemented by the Bank's  Investment  Committee as authorized by
the Board,  is designed  primarily  to generate a favorable  return for the Bank
without  compromising the Bank's business objectives or incurring undue interest
rate or credit risk, and to provide and maintain liquidity for the Bank.

         The Investment  Committee,  which is comprised of the Bank'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  Bank's
investment  transactions,  to establish future investment  strategies and to set
future spending parameters. The Board of Directors reviews the Bank's investment
policy on a  quarterly  basis and the Bank's  investment  activity  on a monthly
basis. In establishing its investment strategies, the Committee considers

                                                        11

<PAGE>



the Bank'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.  Statement of  Financial  Accounting
Standards (SFAS) No. 115 "Accounting for Certain  Investments in Debt and Equity
Securities"  ("SFAS No.115")  requires that  investments in securities are to be
classified  in  one  of  the  following  three   categories  and  accounted  for
accordingly: (1) trading securities; (2) securities available- for-sale; and (3)
securities  held-to-maturity.  Unrealized gains or losses on trading  securities
would be  included in the  determination  of net  income.  Unrealized  gains and
losses on available-for-sale  securities,  which include, equity securities that
have readily determinable fair values are excluded from earnings and reported as
a separate component of equity, net of taxes. Upon the purchase of an investment
security,  the  Bank  and  the  Company  will  make  a  determination  as to the
classification of the security.  However,  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,  1997,  the  Bank's  debt and equity  securities  portfolio
classified   held-to-maturity  totalled  $46.0  million.  The  debt  and  equity
securities  held-to-maturity  portfolio  consisted  of  $30.0  million  in  U.S.
Government  agency  obligations,  $391,000 in  municipal  obligations  and $15.7
million of FHLB stock.  At June 30, 1997, the Bank's debt and equity  securities
portfolio classified  available-for-sale totalled $26.9 million. The Bank's debt
and equity securities available-for-sale portfolio consisted of $22.0 million in
U.S.
Government agency obligations, and $17,000 in marketable equity securities.

         At June 30,  1997,  the holding  company's  debt and equity  securities
available-for-sale  portfolio totalled $4.8 million and consisted of US Treasury
bills.  At June 30,  1997,  the  Company  had  money  market  investments  which
consisted  of  $1.1  million  in  repurchase  agreements.   The  Bank's  current
investment  policy  does not permit the Bank to invest in  non-investment  grade
bonds or high-risk mortgage derivatives.

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.


                                                        12

<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, 1997, the Bank's portfolio of REMICs
totalled  $131.2  million of which $20.5  million were agency  issued and $110.7
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, 1997,  mortgage-backed  securities totalled $881.2 million,
or  44.6%  of  total  assets,   of  which  $159.4  million  were  classified  as
held-to-maturity and $721.8 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,  1997,  the  mortgage-backed   securities   portfolio   classified  as
available-for-sale  had an unrealized gain of $2.9 million.  The market value of
all mortgage-backed securities totalled approximately $884.9 million at June 30,
1997.

          As of  June  30,  1997,  $347.8  million,  or  39.5%,  of  the  Bank's
mortgage-backed   securities   portfolio  carried   adjustable  rates  repricing
annually.  The portfolio had a weighted  average interest rate yield of 7.20% at
June 30, 1997.

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

                                                        13

<PAGE>



contributed to its low cost-of-funds. Passbook, demand deposits and NOW accounts
represented  37.4% of total  deposits  at June 30,  1997 as compared to 41.7% of
total deposits at June 30, 1996.

         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 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, 1997,  total advances
from the FHLB-NY  were $40.0  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, 1997, borrowings
under reverse repurchase agreements totalled $311.9 million.

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.
However, the Bank currently uses one subsidiary to hold a foreclosed  commercial
real estate property. The Bank maintains the following active subsidiaries.

         RFS  Insurance  Agency Inc. RFS  Insurance was organized by the Bank on
April 15, 1983 for the purpose of engaging in the sale of savers life  insurance
issued by American International Life Insurance ("AILI") through its Savers Life
Insurance  Program.  AILI terminated this program on January 1, 1989; since that
time the Bank has  originated no new policies and has only accepted  renewals of
existing policies.  The Bank currently offers the sale of non-deposit investment
products  (annuities and mutual funds) to Bank customers through this subsidiary
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 this
subsidiary  is to  enhance  and  strengthen  Reliance's  capital  position.  The
Subsidiary  would be poised to raise  capital  expeditiously  in the event  that
Reliance 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 Reliance may conduct,  the
Subsidiary will promote greater retained  earnings for Reliance and thereby will
serve to strengthen  Reliance's capital position from an operational  standpoint
as well.  This is so for two  reasons:  (1)  after  transferring  a  portion  of
Reliance's  loan  portfolio  to the  Subsidiary,  Reliance may be better able to
isolate  and  effectively  manage  such  assets in  preparation  of going to the
capital markets and (2) Reliance expects to receive  favorable tax benefits from
the Subsidiary's continuing operations as a REIT.





                                                        14

<PAGE>



Personnel

         As of June  30,  1997,  the Bank had 320  full-time  employees  and 179
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  will  report  their  income  on a
calendar year basis using the accrual  method of accounting  and will be subject
to federal income  taxation in the same manner as other  corporations  with some
exceptions,  including  particularly  the Bank's reserve for bad debts discussed
below. 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 Bank is being  audited by the Internal  Revenue
Service  ("IRS") for the calendar years 1989 and 1990. The IRS has  specifically
audited  the items  related  to joint  ventures  losses  and has  submitted  the
findings  to a joint  committee  for  further  action.  Based  upon  preliminary
discussions with the IRS, management of the Bank believes that any actions taken
by the IRS will not  materially  affect the  financial  condition and results of
operations of the Company and the Bank. In addition,  the Bank of Westbury's tax
returns  are being  audited  by New York  State for the 1992,  1993 and 1994 tax
years. Based upon discussions with the New York State Department of Taxation and
Finance, these tax returns are being settled for an immaterial amount.

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

         Under legislation  enacted  subsequent to June 30, 1996, the Bank is no
longer  able to use the  percentage  of taxable  income  method for  federal tax
purposes,  but is  permitted  to  deduct  bad  debts  only as they  occur and is
additionally  required  to  recapture  (that is, take into  taxable  income) the
excess balance of its bad debt reserves as of December 31, 1995 over the balance
of such reserves as of December 31, 1987. However,  such recapture  requirements
are 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
liability.


                                                        15

<PAGE>



         Distributions.  To the extent that (I) the Bank's tax bad debt  reserve
for losses on qualifying  real property loans exceeds the amount that would have
been allowed under the  experience  method and (ii) the Bank makes  "nondividend
distributions"  to the Company  that are  considered  to have been made from the
excess bad debt  reserve,  i.e.,  that  portion,  if any,  of the balance of the
reserve for qualifying real property loans  attributable  to certain  deductions
under the percentage of taxable income method,  or the supplemental  reserve for
losses  on  loans  ("Excess  Distributions"),   then  an  amount  based  on  the
distribution  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,  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,  as  calculated  for
federal income tax purposes,  will not be considered to result in a distribution
from the Bank's bad debt reserves. Thus, any dividends to the Company that would
reduce  amounts  appropriated  to the Bank's bad debt  reserves and deducted for
federal income tax purposes would create a tax liability for the Bank.

         The  amount  of  additional  taxable  income  created  from  an  Excess
Distribution  is an amount  that when  reduced  by the tax  attributable  to the
income  is  equal  to the  amount  of  the  distribution.  Thus,  if  after  the
Conversion, the Bank makes a "nondividend  distribution",  approximately one and
one-half  times the  amount so used  would be  includable  in gross  income  for
federal  income  tax  purposes,  assuming  a 35.0%  corporate  income  tax  rate
(exclusive of state and city taxes). See "Regulation and Supervision-Limitations
on Capital  Distributions"  for limits on the payment of  dividends by the Bank.
The Bank does not intend to pay  dividends  that would  result in a recapture of
any portion of its tax bad debt reserves.

         Corporate  Alternative  Minimum  Tax.  The  Internal  Revenue Code (the
"Code")  imposes a tax on alternative  minimum taxable income ("AMTI") at a rate
of 20.0%.  Only 90.0% of AMTI can be offset by net  operating  loss  carryovers.
AMTI is  increased by an amount equal to 75.0% of the amount by which the Bank's
adjusted current  earnings  exceeds its AMTI (determined  without regard to this
preference  and prior to reduction for net operating  losses).  In addition,  an
environmental  tax of .12% of the  excess of AMTI (with  certain  modifications)
over $2.0 million is imposed on corporations, including the Bank, whether or not
an  Alternative  Minimum  Tax  ("AMT")  is paid.  The Bank does not expect to be
subject to the AMT. The Bank was subject to an  environmental  tax liability for
the tax year ended December 31, 1996 and 1995, which liability was not material.

         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 70.0% 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 20.0% of the stock of a
corporation  distributing  a dividend,  80.0% of any  dividends  received may be
deducted.

State and Local Taxation

         New York State and New York City  Taxation.  The Bank is subject to the
New York State  Franchise Tax on Banking  Corporations in an amount equal to the
greater of (I) 9.0% of "entire net income"  allocable to New York State,  during
the  taxable  year,  or  (ii)  the  applicable   alternative  minimum  tax.  The
alternative  minimum tax is  generally  the greater of (a) 3.0% of  "alternative
entire net income"  allocable  to New York State,  (b) 0.01% of the value of the
Bank's  assets  allocable  to New York State with certain  modifications,  or (c
)$250.  Entire  net income is similar  to  federal  taxable  income,  subject to
certain

                                                        16

<PAGE>



modifications  (including the addition of interest income on state and municipal
obligations,  the partial  exclusion of interest income on certain United States
Treasury,  New York State, and New York City obligations,  and an additional New
York State bad debt deduction). Alternative entire net income is equal to entire
net income without certain deductions which are allowable for the calculation of
entire net income.  New York State also imposes a surcharge on the Franchise Tax
of Banking  Corporations  which includes the 17.0%  Metropolitan  Transportation
Business Tax Surcharge which currently applies to the Bank.

         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. Currently, New York City does
not impose surcharges applicable to the Bank.

         Delaware Taxation.  As a Delaware holding company not earning income in
Delaware,  the  Company  is exempt  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  Office of Thrift  Supervision  ("OTS"),  as its  chartering
agency, and the Federal Deposit Insurance  Corporation  ("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 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.

Federal Savings Institution Regulation

         Business Activities. The activities of federal savings institutions are
governed by the Home  Owner's  Loan Act, as amended (the "HOLA") and, in certain
respects,  the Federal Deposit  Insurance Act ("FDI Act").  The HOLA and the FDI
Act were amended by the Financial  Institution Reform,  Recovery and Enforcement
Act of 1989 ("FIRREA") and the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA").  FIRREA was enacted for the purpose of resolving problem
savings institutions, establishing a new thrift insurance fund, reorganizing the
regulatory structure applicable to savings institutions,  and imposing bank-like
standards on savings institutions. FDICIA, among other things,

                                                        17

<PAGE>



requires that federal banking  regulators  intervene  promptly when a depository
institution experiences financial difficulties,  mandates the establishment of a
risk-based  deposit  insurance  assessment  system and  requires  imposition  of
numerous additional safety and soundness operational standards and restrictions.
FIRREA and FDICIA both  contain  provisions  affecting  numerous  aspects of the
operations and  regulations of  federally-insured  savings banks and empower the
OTS and the FDIC, among other agencies, to promulgate  regulations  implementing
their  provisions.  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.

         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,  1997,  there were two
borrowers  each  with  aggregate  loans  totalling  $9.3  million.  These  loans
represented the largest aggregate amount of loans to one borrower and were below
the Bank's loans to one borrower  limit of $17.0  million at such date.  At June
30, 1997, 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, as modified by FDICIA, a savings
bank is required to maintain  at least 65.0% of its  "portfolio  assets"  (total
assets  less ( I ) 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, 1997, the Bank  maintained  95.7% 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 establishes  three tiers of institutions,  which are
based primarily on an  institution's  capital level. An institution that exceeds
all fully phased-in  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 to 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  its  "surplus  capital  ratio" (the excess  capital over its
fully phased-in capital  requirements) at the beginning of the calendar year; or
(ii) 75.0% of its net earnings for the previous four  quarters.  Any  additional
capital  distributions would require prior regulatory approval. 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

                                                        18

<PAGE>



unsafe or unsound practice. In December 1994, the OTS proposed amendments to its
capital  distribution  regulation that would generally  authorize the payment of
capital  distributions  without OTS approval  provided that the payment does not
cause the  institution to be  undercapitalized  within the meaning of the prompt
corrective  action  regulation.  However,  institutions  in  a  holding  company
structure  would still have a prior notice  requirement.  At June 30, 1997,  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 5.0%. OTS regulations also require each
savings  institution  to maintain an average daily balance of short-term  liquid
assets  at a  specified  percentage  (currently  1.0%)  of the  total of its net
withdrawable  deposit  accounts and borrowings  payable in one year or less. The
OTS has recently  proposed to lower the liquidity  requirement from 5% to 4% and
eliminate the 1% short-term liquid asset requirement.  Monetary penalties may be
imposed for failure to meet these  liquidity  requirements.  The Bank's  average
liquidity  and  short-term  liquidity  ratios  for June 30,  1997 were 5.29% and
1.65%,  respectively,  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, 1997, totalled $305,000.

         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.

         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

                                                        19

<PAGE>



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  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

                                                        20

<PAGE>



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.

                  Capital  Requirements.  The OTS  capital  regulations  require
savings  institutions to meet three minimum capital  standards:  a 1.5% tangible
capital  standard,  a 3.0%  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%.  Overall, the amount of
supplementary  capital  included as part of total capital  cannot exceed 100% of
core capital.

         FDICIA  required  that the OTS (and  other  federal  banking  agencies)
revise the risk-based capital standards,  with appropriate  transition rules, to
ensure that such standards take account of interest rate risk,  concentration of
risk and the risks of nontraditional  activities.  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 the interest-rate risk component. If the Bank had

                                                        21

<PAGE>



been subject to an  interest-rate  risk  component as of June 30, 1997, the Bank
would not have been  subject to any  deduction  from  capital as a result of its
interest rate risk position.

         At June 30, 1997,  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, 1997.

                                 At June 30, 1997
              -------------------------------------------------------------
                 Capital             Actual                Excess    
              Requirement     %     Capital       %        Capital       %
              -----------     -     -------       -        -------       -
Tangible......  $ 28,937    1.5%   $ 107,967     5.6%     $ 79,030     4.1%

Leverage......  $ 57,874    3.0%   $ 107,967     5.6%     $ 50,093     2.6%

Risk-based....  $ 59,670    8.0%   $ 113,094    15.2%     $ 53,424     7.2%

         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  of  Deposit  Accounts.  Deposits  of the Bank are  presently
insured by the SAIF.  Both the SAIF and the Bank  Insurance  Fund  ("BIF")  (the
deposit   insurance  fund  that  covers  most   commercial  bank  deposits)  are
statutorily  required to be recapitalized to a 1.25% of insured reserve deposits
ratio.  Until recently,  members of the SAIF and BIF were paying average deposit
insurance premiums of between

                                                        22

<PAGE>



24 and 25 basis points.  The BIF met the required  reserve in 1995,  whereas the
SAIF was not  expected  to meet or exceed the  required  level until 2002 at the
earliest.  This  situation was primarily due to the statutory  requirement  that
SAIF  members make  payments on bonds issued in the late 1980s by the  Financing
Corporation ("FICO") to recapitalize the predecessor to the SAIF.

         In view of the BIF's  achieving  the 1.25% ratio,  the FDIC  ultimately
adopted a new assessment  rate schedule of from 0 to 27 basis points under which
92% of BIF members paid an annual  premium of only $2,000.  With respect to SAIF
member  institutions,  the FDIC adopted a final rule  retaining  the  previously
existing  assessment rate schedule  applicable to SAIF member institutions of 23
to 31 basis points. As long as the premium differential  continued,  it may have
had adverse  consequences  for SAIF members,  including  reduced earnings and an
impaired  ability to raise  funds in the  capital  markets.  In  addition,  SAIF
members, such as the Bank were placed at a substantial competitive  disadvantage
to BIF members  with respect to pricing of loans and deposits and the ability to
achieve lower operating costs.

         On  September  30,  1996,  the  President  signed  into law the Deposit
Insurance Funds Act of 1996 (the "Funds Act") which, among other things, imposed
special one-time assessment on SAIF member institutions, including the Bank, the
recapitalize  the SAIF.  As required by the Funds Act, the FDIC imposed  special
assessment of 65.7 basis points on SAIF assessable deposits held as of March 31,
1995,  payable  November  27,  1996 (the "SAIF  Special  Assessment").  The SAIF
Special Assessment was recognized by the Bank as an expense in the quarter ended
September 30, 1996 and is generally tax deductible.  The SAIF Special Assessment
recorded  by the Bank  amounted  to $8.25  million  on a pre-tax  basis and $4.9
million on an after-tax basis.

         The Funds Act also  spreads  the  obligations  for  payment of the FICO
bonds  across all SAIF and BIF  members.  Beginning  on  January  1,  1997,  BIF
deposits  were  assessed for a FICO payment of  approximately  1.3 basis points,
while SAIF deposits pay approximately 6.4 basis points. Full pro rata sharing of
the FICO  payments  between  BIF and SAIF  members  will occur on the earlier of
January 1, 2000 or the date the BIF and SAIF are merged. The Funds Act specifies
that the BIF and SAIF will be merged on  January 1,  1999,  provided  no savings
associations remain as of that time.

         As a result of the Funds Act, the FDIC voted to effectively  lower SAIF
assessments to 0 to 27 basis points as of January 1, 1997, a range comparable to
that of BIF members.  SAIF members will also  continue to make the FICO payments
described  above.  The FDIC also  lowered the SAIF  assessment  schedule for the
third quarter of 1997 to 18 to 27 basis points.  Management  cannot  predict the
level of FDIC insurance  assessments on an on-going  basis,  whether the savings
association  charter  will be  eliminated  or  whether  the BIF  and  SAIF  will
eventually be merged.

         The Bank's  assessment  rate for fiscal  1997 ranged from 4 to 23 basis
points and the premium  paid for this  period was $1.8  million.  A  significant
increase in SAIF  insurance  premiums would likely have an adverse effect on the
operating expenses and results of operations of the Bank.

         Under the FDI Act,  insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound  practices,
is in an unsafe or unsound condition to continue  operations or has violated any
applicable law, regulation,  rule, order or condition imposed by the FDIC or the
OTS.  The  management  of the Bank does not know of any  practice,  condition or
violation that might lead to termination of deposit insurance.

                                                        23

<PAGE>



         Thrift  Rechartering  Legislation.  The Funds Act provides that 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 Banking Committee would
allow savings  institutions to continue to exercise  activities  being conducted
when they convert to a bank  regardless  of whether a national bank could engage
in the activity. Holding companies for savings institutions would become subject
to the same regulation as holding companies that control  commercial banks, with
a limited grandfather provision for savings and loan holding company activities.
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, 1997, of $15.7 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,  1997,  1996 and 1995,
dividends from the FHLB to the Bank amounted to $820,000, $725,000 and $502,000,
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  $49.3  million or less (subject to adjustment by the FRB)
the reserve  requirement is 3.0%;  and for accounts  greater than $49.3 million,
the reserve  requirement  is $1.48 million plus 10.0%  (subject to adjustment by
the FRB  between  8.0% and 14.0%)  against  that  portion  of total  transaction
accounts in

                                                        24

<PAGE>



excess of $49.3 million. The first $4.4 million of otherwise reservable balances
(subject to adjustments by the FRB) are exempted from the reserve  requirements.
The  Bank  is in  compliance  with  the  foregoing  requirements.  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 without
prior  written  approval  of the  OTS;  acquiring  or  retaining,  with  certain
exceptions,  more than 5% of a nonsubsidiary company engaged in activities other
than  those  permitted  by the HOLA;  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   nonsupervisory   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% of the
stock of a company engaged in impermissible activities.

         The HOLA  prohibits a savings  and loan  holding  company,  directly or
indirectly, or through one or more subsidiaries,  from acquiring more than 5% 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.

                                                        25

<PAGE>



         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.

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  does not cover the
resale of such shares.  Shares of the Common Stock  purchased by persons who are
not  affiliates  of the  Company  may be  resold  without  registration.  Shares
purchased  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.  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.


                                                        26

<PAGE>



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 incorporated herein by reference to the 1997
Annual Report to Stockholders included and as Exhibit 13.0 to this Form 10-K.

I.       Distribution of Assets, Liabilities and Stockholders' Equity; Interest
         Rates and Interest
         Differential.

         A,  B.  Page  16 of the  Company's  1997  Annual  Report  presents  the
         distribution  of  assets,  liabilities  and  stockholders'  equity  and
         interest  differential,  under the caption  "Analysis  of Net  Interest
         Income" and is incorporated herein by reference.

         C.  Interest Differential
         Page 17 of the  Company's  1997 Annual  Report  presents  the  interest
         differential   under  the  caption   "Rate/Volume   Analysis"   and  is
         incorporated herein by reference.



                                                        27

<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,
                                                       ---------------------------------------
                                                       1997             1996              1995
                                                       ----             ----              ----
                                                                    (In thousands)
<S>                                                 <C>             <C>               <C>   
Mortgage loans (gross):
  At beginning of period........................    $ 690,983       $ 224,841         $ 231,615
  Mortgage loans originated:
    One- to four-family.........................       39,370          38,557            10,913
    Co-operatives...............................           --              --                86
    Multi-family................................      115,887          63,840            10,500
    Construction................................        6,417           4,159            12,589
    Commercial real estate......................          650             522               155
                                                   ----------        --------         ---------
      Total mortgage loans originated ..........      162,324         107,078            34,243
  Mortgage loans purchased......................       16,956         426,328             1,236
                                                       ------         -------          --------
      Total mortgage loans originated
        and purchased ..........................      179,280         533,406            35,479
  Transfer of mortgage loans
    to real estate owned........................        (820)          (1,450)             (646)
  Principal repayments..........................     (85,766)         (59,984)          (40,126)
  Sales of loans................................      (7,275)          (5,830)           (1,481)
                                                      -------        ---------         ---------
       At end of period.........................    $ 776,402       $ 690,983         $ 224,841
                                                      =======        ========          ========

  Other loans (gross):
    At beginning of period......................    $ 130,410       $ 108,653         $ 100,250
    Other loans originated......................       47,718          35,816            33,586
    Other loans purchased.......................           --          23,489                --
    Principal repayments........................     (40,013)         (37,548)         ( 25,183)
                                                     --------        ---------        ----------
          At end of period......................    $ 138,115       $ 130,410         $ 108,653
                                                      =======        ========          ========
</TABLE>





                                                        28

<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, 1997.  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  $125.8
million, $97.5 million and $65.3 million, respectively, for the years ended June
30, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
                                                               At June 30, 1997
                                       -----------------------------------------------------------
                                                                Mortgage Loans                            
                                       -----------------------------------------------------------                            
                                                                            Commercial              
                                        One- to                    Multi-     Real                  
                                       four-family  Co-operative   family    Estate   Construction  
                                       -----------  ------------   ------    ------   ------------  
 Amounts due:                                                 (In thousands)
<S>                                    <C>          <C>        <C>          <C>        <C>         
  Within one year...................   $ 191,472    $ 7,600    $     190    $ 11,549   $ 1,440     
  After one year:
     One to three years.............      14,063        498       11,045       8,312        --     
     Three to five years............      30,051         14      102,878       1,919        --     
     Five to ten years..............     131,176        104       40,667         191        --     
     Ten to twenty years............     156,114        157       11,076       1,474        --     
     Over twenty years..............      29,701        274       24,437          --        --     
                                         -------      -----      -------     -------    ------     
  Total due after one year..........     361,105      1,047      190,103      11,896        --     
                                         -------      -----      -------     -------    ------     
  Total amounts due.................   $ 552,577    $ 8,647    $ 190,293    $ 23,445   $ 1,440     
                                        ========     ======     ========     =======    ======     

  Discounts, premiums and...........   
       deferred loan fees, net......                                                               
Allowance for loan losses...........                                                               
                                                                                                   
     Loans receivable, net..........          
<CAPTION>
                                                    
                                                                    At June 30, 1997                           
                                           ----------------------------------------------------------                           
                                                                Consumer and Other Loans             
                                           ----------------------------------------------------------             
                                             Home                                         
                                            Equity        Home                                        
                                           Lines of     Equity      Other    Installment     Total  
                                            Credit       Loans      Loans    Commercial    Receivable    
                                            ------       -----      -----    ----------    ----------    
                                                                       (In thousands)
 Amounts due:                     
<S>                                        <C>           <C>      <C>          <C>        <C>         
  Within one year...................       $ 91,782      $ 165    $ 18,971     $  44      $ 323,213   
  After one year:                                                                                     
     One to three years.............             --      1,970       5,014         6         40,908   
     Three to five years............             --      4,841       1,846         8        141,557   
     Five to ten years..............             --      9,427         415        --        181,980   
     Ten to twenty years............             --      3,102          35       489        172,447   
     Over twenty years..............             --         --          --        --         54,412   
                                           --------    -------     -------      ----        -------   
  Total due after one year..........             --     19,340       7,310       503        591,304   
                                           --------    -------     -------      ----        -------   
  Total amounts due.................       $ 91,782   $ 19,505    $ 26,281     $ 547        914,517   
                                           ========   ========    ========     =====        
                                            
                                                                                                      
  Discounts, premiums and...........                                                                  
       deferred loan fees, net......                                                            (14)  
Allowance for loan losses...........                                                         (5,182) 
                                                                                           --------- 
     Loans receivable, net..........                                                      $ 909,321   
                                                                                          =========   

</TABLE>
The following table sets forth, at June 30, 1997, the dollar amount of all fixed
rate loans  contractually  due after June 30, 1997,  and  adjustable  rate loans
repricing after June 30, 1997.
<TABLE>
<CAPTION>

                                                                  Due After June 30, 1997
                                                     ---------------------------------------------
                                                     Fixed           Adjustable              Total
                                                     -----           ----------              -----
Mortgage loans:                                                  (In thousands)
<S>                                               <C>                  <C>                <C>      
   One- to four-family....................        $ 310,129            $ 50,976           $ 361,105
   Co-operative...........................              549                 498               1,047
   Multi-family...........................           44,592             145,511             190,103
   Commercial real estate.................            1,976               9,920              11,896
   Consumer and other loans...............           26,650                  --              26,650
   Installment commercial loans...........              503                  --                 503
                                                   --------            --------            --------
Total loans...............................        $ 384,399           $ 206,905           $ 591,304
                                                  =========           =========           =========
                                             
</TABLE>



                                                        29

<PAGE>




C.  Summary of Allowance for Loan Losses

         The  following  table  sets  forth  the  Bank's  allowances  for  loan,
investment in real estate and real estate owned losses at the dates indicated.
<TABLE>
<CAPTION>

                                                                             Year Ended June 30,
                                                        --------------------------------------------------------
                                                        1997        1996          1995         1994         1993
                                                        ----        ----          ----         ----         ----
                                                                           (Dollars in thousands)
Allowance for loan losses:
<S>                                                   <C>          <C>          <C>          <C>           <C>    
Balance at beginning of period...................     $ 4,495      $ 1,729      $ 1,417      $ 1,344       $ 1,110
Charge-offs:
   One- to four-family...........................        (184)         (67)         (54)        (241)          (14)
   Multi-family..................................          --           --           --           --            --
   Co-op.........................................          --          (76)         (28)         (74)           --
   Commercial real estate........................        (107)          --           --           --            --
   Consumer and other loans......................         (15)        (122)         (31)         (79)          (54)
                                                      --------      -------     --------     --------      --------
      Total charge-offs..........................        (306)        (265)        (113)        (394)          (68)

Recoveries:
   Mortgage loans................................          12           35           17           14            51
   Consumer and other loans......................          31           54            8           60            17
                                                      -------      -------     --------     --------       -------
      Total recoveries...........................          43           89           25           74            68
Allowances of acquired institutions..............          --        2,217           --           --           --
Provision for loan losses........................         950          725          400          393           234
                                                      -------       ------      -------      -------       -------

Balance at end of the period.....................     $ 5,182      $ 4,495      $ 1,729      $ 1,417       $ 1,344
                                                       ======       ======       ======       ======        ======

Ratio of net charge-offs during the period
   to average loans outstanding  during
   the period....................................        0.03%        0.03%        0.03%        0.09%           --

Ratio of allowance for loan losses to total
   loans at the end of the period................        0.57%        0.55%        0.52%        0.43%         0.37%

Ratio of allowance for loan losses to non-
   performing loans at the end of the period.....       35.18%       34.63%       47.10%       39.38%        25.52%

Allowance for losses on investment
in real estate:
Balance at beginning of period...................     $    --      $    --    $      --     $     --      $ 44,157
Charge-offs......................................          --           --           --           --       (44,157)
Provision for losses.............................          --           --           --           --            --
                                                       ------       ------     --------       ------   -----------
Balance at the end of the period.................     $    --      $    --    $      --     $     --  $         --
                                                       ======       ======     ========       ======   ===========

Allowance for losses on real estate owned:
Balance at beginning of period...................       $ 768       $  589       $  632       $2,288       $   416
Charge-offs......................................        (634)        (384)        (103)      (2,740)         (253)
Recoveries.......................................          --           --           --           11            --
Allowances of acquired institutions..............          --          188           --           --            --
Provision for losses.............................         200          375           60        1,073         2,125
                                                        -----        -----       ------       ------       -------
Balance at the end of the period.................      $  334       $  768       $  589       $  632       $ 2,288
                                                        =====        =====        =====        =====        ======
</TABLE>

                                                        30

<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.
<TABLE>
<CAPTION>

                                                                            At June 30,
                                          ---------------------------------------------------------------------------
                                                  1997                         1996                      1995    
                                          ---------------------      ---------------------      ---------------------    
                                                   % 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)..............      $3,327       61.37%       $ 3,336       70.46%      $ 1,249         60.84%      
Commercial real estate..............         308        2.56            158        3.30            --          0.68         
Multi-family........................         666       20.81            278        9.69            74          5.64         
Construction........................          89        0.16             47        0.67            --          0.22         
Consumer and other loans............         792       15.10            676       15.88           406         32.62         
                                         -------    --------          -----      ------         -----       -------         
     Total allowances...............     $ 5,182      100.00%       $ 4,495      100.00%      $ 1,729        100.00%      
                                          ======      ======         ======      ======        ======        ======       

<CAPTION>
                                                            At June 30,                                           
                                           ------------------------------------------------       
                                                   1994                      1993 
                                           ---------------------     ---------------------- 
                                                    % 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)..............      $ 1,073       65.73%       $ 1,104         67.27%
Commercial real estate..............           --        0.75             --          1.14   
Multi-family........................           --        2.71             --          3.13   
Construction........................           --        0.60             --          0.23   
Consumer and other loans............          344       30.21            240         28.23   
                                            -----       -----          -----        ------   
     Total allowances...............      $ 1,417      100.00%       $ 1,344        100.00%
                                           ======      ======         ======        ====== 
</TABLE>
                                         
(1)   Includes allocations for co-op loans.






                                                                 31

<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.
<TABLE>
<CAPTION>

                                                                       June 30,
                                            ----------------------------------------------------------------
                                                   1997                  1996                   1995        
                                            ------------------     -----------------       -----------------        
                                                     
                                                       Percent               Percent                 Percent      
                                                        of                     of                      of          
                                            Amount      Total      Amount     Total       Amount     Total       
                                            ------      -----      ------     -----       ------     -----       
                                                                 (Dollars in thousands)
Mortgage loans:
<S>                                       <C>         <C>        <C>          <C>         <C>         <C>      
One- to four-family.....................  $ 552,577   60.42%     $ 569,031    69.28%      $ 194,290   58.26%   
Co-operative............................      8,647    0.95          9,687     1.18           8,774    2.63      
Multi-family............................    190,293   20.81         79,571     9.69          18,774    5.63      
Commercial real estate..................     23,445    2.56         27,134     3.30           2,258    0.68      
Construction............................      1,440    0.16          5,560     0.67             745    0.22      
                                           --------    ----       --------     ----        --------    ----      
    Total mortgage loans................    776,402   84.90        690,983    84.12         224,841   67.42      
                                            -------   -----        -------    -----         -------   -----      

Consumer and other loans:
Home equity lines of credit.............     91,782   10.04         81,205     9.89          70,954   21.28      
Guaranteed student loans................     17,006    1.86         18,754     2.28          20,529    6.16      
Home equity loans.......................     19,505    2.13         16,747     2.04          15,774    4.73      
Loans on deposit accounts...............      5,514    0.60          5,782     0.70             980    0.29      
Other loans.............................      4,308    0.47          7,922     0.97             416    0.12      
                                            -------    ----       --------     ----           -----    ----      
Total  consumer and other loans.........    138,115   15.10        130,410    15.88         108,653   32.58      
                                            -------   -----        -------    -----         -------   -----      
Total loans.............................    914,517   100.0%       821,393   100.00%        333,494  100.00%   
                                                      =====                  ======                  ======    

Discounts, premiums and
 deferred loan fees, net................       (14)                    848                      315              
Allowance for loan losses...............    (5,182)                 (4,495)                 (1,729)              
                                          ---------               ---------               ---------              
Total loans, net........................ $ 909,321               $ 817,746                $ 332,080              
                                          ========                ========                 ========              

<CAPTION>
                                                       June 30,
                                        ---------------------------------------------
                                               1994                        1993    
                                        --------------------        -----------------    
                                                     Percent                   Percent  
                                                       of                        of      
                                         Amount       Total         Amount      Total   
                                         ------       -----         ------      -----   
                                                       (Dollars in thousands)
Mortgage loans:                         
<S>                                      <C>           <C>        <C>           <C>     
One- to four-family..................... $ 208,550     62.85%     $ 236,798     64.50%  
Co-operative............................     9,567      2.88         10,163      2.77     
Multi-family............................     8,991      2.71         11,506      3.13       
Commercial real estate..................     2,504      0.75          4,183      1.14     
Construction............................     2,003      0.60            857      0.23     
                                           -------      ----        -------     -----     
    Total mortgage loans................   231,615     69.79        263,507     71.77     
                                           -------     -----        -------     -----     
                                                                                        
Consumer and other loans:                                                               
Home equity lines of credit.............    61,338     18.48         59,513     16.21      
Guaranteed student loans................    22,924      6.91         24,871      6.77      
Home equity loans.......................    14,334      4.32         16,661      4.54      
Loans on deposit accounts...............       982      0.30          1,146      0.31     
Other loans.............................       672      0.20          1,454      0.40     
                                            ------     -----         ------     -----     
Total  consumer and other loans.........   100,250     30.21        103,645     28.23     
                                           -------     -----        -------     -----     
Total loans.............................   331,865    100.00%       367,152     100.00%  
                                                      ======                    ======   
                                                                                        
Discounts, premiums and                                                                 
 deferred loan fees, net................       272                      105             
Allowance for loan losses...............    (1,417)                  (1,344)             
                                         ---------                ---------             
Total loans, net........................ $ 330,720                $ 365,913             
                                          ========                 ========             
</TABLE>


                                                            32

<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:
<TABLE>
<CAPTION>

                                                                                       At June 30,
                                                        -------------------------------------------------------------------
                                                                 1997                     1996                 1995
                                                        --------------------    -------------------     -------------------
                                                      
                                                        Amortized    Market      Carrying   Market      Carrying     Market
                                                          Cost        Value        Value     Value        Value       Value
Money Market Investments                                                          (In thousands)
<S>                                                       <C>        <C>        <C>        <C>          <C>        <C>     
Federal funds sold and repurchase agreements.........   $  1,100   $  1,100     $ 10,450   $ 10,450     $  2,700   $  2,700
                                                          ======     ======      =======    =======      =======    =======
Debt and Equity Securities

Held-to-Maturity:
  United State Agency Obligations....................   $ 29,952   $ 30,042     $ 34,950   $ 34,612     $     --   $     --
  United States Treasury Notes.......................         --        --            --         --       14,997     14,972
  Obligations of New York State and
     local municipalities............................        391        427          391        435        1,394      1,412
  FHLB stock.........................................     15,683     15,683       12,989     12,989        7,499      7,499
                                                         -------    -------       ------     ------        -----      -----
     Total debt and equity securities
        held-to-maturity.............................   $ 46,026   $ 46,152     $ 48,330   $ 48,036     $ 23,890   $ 23,883
                                                         =======    =======      =======    =======      =======    =======

Available-for-Sale:
   United States Agency Obligations..................   $ 22,036   $ 22,080     $ 10,319     10,227     $     --   $     --
   United Sates Treasury Bills.......................      4,785      4,812           --         --       10,531     10,547
   United States Treasury Notes......................         --         --        2,992      2,983       13,377     13,333
   Marketable equity securities......................          8         17           42         61           --         --
                                                       ---------   --------     --------   --------    ---------  ---------
     Total debt and equity securities
        available-for-sale...........................    $26,829    $26,909     $ 13,353   $ 13,271     $ 23,908   $ 23,880
                                                          ======     ======      =======    =======      =======    =======

Mortgage-Backed Securities

  Held-to-Maturity:
    Pass-through certificates guaranteed by:
    GNMA.............................................   $106,900   $109,978    $ 125,195  $ 125,700    $ 157,073  $ 160,939
    FHLMC............................................     12,963     13,139       14,967     15,005      188,611    186,727
    FNMA.............................................     39,493     39,991       44,330     44,290       68,078     68,154
                                                          ------     ------     --------   --------     --------     ------
       Total mortgage-backed securities
         held-to-maturity............................   $159,356   $163,108    $ 184,492   $184,995    $ 413,762  $ 415,820
                                                         =======    =======     ========    =======     ========   ========

Available-for-Sale:
       Pass-through certificates guaranteed by:
    GNMA.............................................   $233,572   $237,754    $ 170,142  $ 169,753    $      --   $     --
    FHLMC............................................    222,961    221,756      255,498    249,598       77,072     78,195
    FNMA.............................................    131,066    131,085      172,863    169,944       25,845     26,258
       REMICs:
           Agency Issuance...........................     20,806     20,552        2,503      2,445           --         --
           Private Issuance..........................    110,481    110,672           --         --           --         --
                                                         -------    -------       ------     ------       ------     ------
 Total mortgage-backed securities
         available-for-sale..........................   $718,886   $721,819    $ 601,006  $ 591,740    $ 102,917  $ 104,453
                                                         =======    =======     ========   ========     ========   ========
</TABLE>

                                                            33

<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  federal funds
sold and repurchase  agreement,  debt and equity securities and  mortgage-backed
securities  at June 30,  1997.  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, 1997.
<TABLE>
<CAPTION>
                                                                     At June 30, 1997
                                                      ---------------------------------------------
                                                         One Year or Less       One to Five Years    
                                                      ---------------------   --------------------- 
                                                                  Annualized              Annualized   
                                                                   Weighted                Weighted    
                                                       Amortized   Average     Amortized   Average     
                                                         Cost       Yield        Cost       Yield      
                                                         ----       -----        ----       -----  
                                                                (Dollars in thousands)
<S>                                                    <C>          <C>       <C>           <C>    
Money Market Investments
Federal funds sold and repurchase agreement........    $  1,100     5.65%     $     --        --       
                                                         ======                 ======               

Debt and Equity Securities
Held-to-Maturity:
United States Government Agency Obligations........    $     --      --       $   9,952     6.13%    
Obligations of New York State and local municipalities       --      --             391     7.89     
FHLB stock.........................................          --      --              --       --     
                                                        -------                 -------       
  Total debt and equity securities held-to-maturity    $     --      --       $  10,343     6.20%   
                                                        =======                 =======               

Available-for-Sale:
United States Treasury Bills.......................    $  4,785    5.64%      $      --       --      
United States Government Agency Obligations........       6,170    6.60           5,866     5.47%     
Marketable Equities................................          --      --              --       --       
                                                        -------                 -------               
  Total debt and equity securities available-for-sale  $ 10,955    6.18%      $   5,866     5.47%     
                                                         ======                 =======               

Mortgage-Backed Securities
Held-to-Maturity:
Pass-through certificates guaranteed by:
GNMA...............................................    $      2    10.25%     $      --       --      
FHLMC..............................................          --     7.00             --       --      
FNMA...............................................          --       --             --       --      
                                                        -------                 -------                
  Total mortgage-backed securities held-to-maturity    $      2    10.05%     $      --       --      
                                                        =======                 =======                

Available-for-Sale:
Pass-through certificates guaranteed by:
GNMA...............................................    $    --       --       $     235    7.52%     
FHLMC..............................................      9,307     6.00%         17,019    6.56      
FNMA...............................................         --       --          29,250    6.34      
REMICS:
  Agency Issuance..................................         --       --              --      --      
  Private Issuance.................................         --       --              --      --      
                                                        -------                 -------                
  Total mortgage-backed securities available-for-sale  $ 9,307     6.00%      $  46,504    6.43%    
                                                        ======                  =======                 
<CAPTION>
                                                                      At June 30, 1997
                                                       -----------------------------------------------
                                                          Five to Ten Years      More Than Ten Years
                                                       ----------------------  ------------------------
                                                                  Annualized             Annualized 
                                                                   Weighted               Weighted  
                                                        Amortized  Average     Amortized  Average 
                                                          Cost      Yield        Cost      Yield    
                                                          ----      -----        ----      -----    
                                                                (Dollars in thousands)
<S>                                                     <C>         <C>       <C>           <C>    
Money Market Investments                           
Federal funds sold and repurchase agreement........     $     --      --      $      --       --    
                                                          ======                =======             
                                                                                                   
Debt and Equity Securities                                                                         
Held-to-Maturity:                                                                                  
United States Government Agency Obligations........     $ 20,000    7.47%     $      --       --    
Obligations of New York State and local municipalities        --      --             --       --    
FHLB stock.........................................           --      --         15,683     6.50%   
                                                         -------                -------
  Total debt and equity securities held-to-maturity     $ 20,000    7.47%     $  15,683     6.50%   
                                                         =======                =======             
                                                                                                   
Available-for-Sale:                                                                                
United States Treasury Notes.......................     $     --      --      $      --       --    
United States Government Agency Obligations........       10,000    7.46%            --       --    
Marketable Equities................................           --      --              8       --    
                                                          ------                -------             
  Total debt and equity securities available-for-sale   $ 10,000      --      $       8     2.29%   
                                                          ======                =======             
                                                                                                   
Mortgage-Backed Securities                                                                         
Held-to-Maturity:                                                                                  
Pass-through certificates guaranteed by:                                                           
GNMA...............................................     $     --      --      $ 106,898     7.03%   
FHLMC..............................................        1,707    8.45%        11,256     7.08    
FNMA...............................................           --      --         39,493     7.21    
                                                          ------                -------             
  Total mortgage-backed securities held-to-maturity     $  1,707    8.45%     $ 157,647     7.08%   
                                                          ======                =======             
                                                                                                   
Available-for-Sale:                                                                                
Pass-through certificates guaranteed by:                                                           
GNMA...............................................     $  2,315    7.99%     $ 231,022     7.54%   
FHLMC..............................................           --    --          196,635     7.26    
FNMA...............................................           --    --          101,816     7.41    
REMICS:                                                                                            
  Agency Issuance..................................           --    --           20,806     7.23    
  Private Issuance.................................           --    --          110,481     7.51    
                                                         -------                -------             
  Total mortgage-backed securities available-for-sale   $  2,315    7.99%     $ 660,760     7.42%   
                                                          ======                =======               
                                                                          
<CAPTION>
                                                                      At June 30, 1997               
                                                     ------------------------------------------------
                                                                       Total Securities                             
                                                     ------------------------------------------------
                                                                (Dollars in thousands)
                                                                                           Annualized             
                                                       Average                   Approx.    Weighted      
                                                        Life      Amortized      Market     Average      
                                                     (in years)     Cost         Value       Yield        
                                                     ----------     ----         -----       -----        

<S>                                                     <C>      <C>          <C>            <C>
Money Market Investments                           
Federal funds sold and repurchase agreement........     0.0      $   1,100     $   1,100      5.65% 
                                                                    ======        ======         
                                                                                                
Debt and Equity Securities                                                                      
Held-to-Maturity:                                                                               
United States Government Agency Obligations........     7.0      $  29,952     $  30,042      7.02%
Obligations of New York State and local municipalities  2.9            391           427      7.89 
FHLB stock.........................................      --         15,683        15,683      6.50 
                                                                   -------       -------           
  Total debt and equity securities held-to-maturity     6.9      $  46,026     $  46,152      6.85 
                                                                   =======       -------           
                                                                                                
Available-for-Sale:                                                                             
United States Treasury Notes.......................     0.7      $   4,785     $   4,812      5.64 
United States Government Agency Obligations........     5.7         22,036        22,080      6.69 
Marketable Equities................................      --              8            17      7.21 
                                                                   -------       -------           
  Total debt and equity securities available-for-sale    --      $  26,829     $  26,909      6.50%
                                                                   =======       =======           
                                                                                                
Mortgage-Backed Securities                                                                      
Held-to-Maturity:                                                                               
Pass-through certificates guaranteed by:                                                        
GNMA...............................................     6.1      $ 106,900     $ 109,978      7.03% 
FHLMC..............................................     4.1         12,963        13,139      7.26  
FNMA...............................................     5.1         39,493        39,991      7.21  
                                                                   -------       -------            
  Total mortgage-backed securities held-to-maturity     5.7      $ 159,356     $ 163,108      7.09% 
                                                                   =======       =======            
                                                                                                
Available-for-Sale:                                                                             
Pass-through certificates guaranteed by:                                                        
GNMA...............................................     5.0      $ 233,572     $ 237,754      7.54% 
FHLMC..............................................     6.9        222,961       221,756      7.12  
FNMA...............................................     5.0        131,066       131,085      7.18  
REMICS:                                                                                         
  Agency Issuance..................................     4.8         20,806        20,552      7.23  
  Private Issuance.................................     3.4        110,481       110,672      7.51  
                                                                   -------       -------           
  Total mortgage-backed securities available-for-sale   5.3      $ 718,886     $ 721,819      7.33% 
                                                                   =======       =======     
                                                        
</TABLE>

                                                                    34

<PAGE>



G.  Deposit Activities

    The  following  table  presents  the  deposit  activity  of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
                                                                     Years Ended June 30,
                                                           -----------------------------------
                                                           1997           1996            1995         
                                                           ----           ----            ----         
                                                                      (In thousands)
<S>                                                   <C>             <C>               <C>      
Opening balance..................................     $ 1,345,626     $   670,317       $ 587,221
Bank of Westbury deposits assumed................              --         151,992              --
Sunrise Bancorp, Inc. deposits assumed...........              --         479,213              --
Excess of deposits...............................          36,272           1,679          61,084
Interest credited on deposits....................          54,139          42,425          22,012
                                                       ----------      ----------        --------
Ending balance...................................     $ 1,436,037     $ 1,345,626       $ 670,317
                                                       ==========      ==========        ========

Net increase in deposits.........................        $ 90,411      $  675,309        $ 83,096
                                                          =======        ========         =======
Percentage increase..............................            6.7%           100.7%           14.2%
</TABLE>

         At  June  30,  1997,  the  Bank  has   outstanding   $51.3  million  in
certificates  of deposit  accounts in amounts of  $100,000 or more,  maturing as
follows:
                                                                Weighted
                                              Amount          Average Rate
                                              ------          ------------
Maturity Period:                           (In thousands)
Three months or less.................         $ 14,101            5.25%
Over three through six months........            9,697            5.43
Over six through 12 months...........            7,063            5.56
Over 12 months.......................           20,398            6.18
                                               -------            -----
      Total..........................         $ 51,259            5.70%
                                               =======            ====



                                                        35

<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.
<TABLE>
<CAPTION>
                                                                            Year ended June  30,
                                    ------------------------------------------------------------------------------------------------
                                                1997                               1996                               1995
                                    -----------------------------  ----------------------------------   ----------------------------
                                                       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 thosands)
<S>                             <C>           <C>        <C>      <C>           <C>        <C>      <C>            <C>        <C>  
Passbook accounts.............  $ 441,921     32.01%     2.47%    $ 353,617     33.43%     2.50%    $ 236,047      38.09%     2.50%
Demand Deposits and
   NOW accounts...............    102,119      7.39      1.10        58,576      5.54      1.95        25,275       4.08      1.90
                                 --------    ------                 -------     -----                 -------       ----

Total passbook and Demand 
   Deposits nd NOW accounts...    544,040     39.40      2.21       412,193     38.97      2.42       261,322      42.17      2.44
                                 --------    ------                --------    ------                 -------      -----

Money market accounts.........     99,536      7.21      2.48        97,975      9.26      2.54        91,051      14.69      2.50
                                 --------    ------                --------    ------                 -------      -----
Certificate accounts:
     31 days..................         38      0.00      2.50            70      0.01      2.50            85       0.01      2.50
     91 days..................     34,775      2.52      4.82        23,655      2.24      4.79         2,565       0.41      3.31
      4 months................        880      0.06      4.28           447      0.04      4.31           317       0.05      2.80
      6 months. ..............    126,700      9.18      5.19        78,709      7.44      5.08        46,687       7.53      4.24
      9 months. ..............     65,202      4.72      5.15        55,401      5.24      5.49        17,732       2.86      5.83
     12 months................    144,536     10.47      5.12       145,466     13.76      5.07        81,499      13.15      4.58
     15 months................     44,691      3.24      5.32        60,638      5.73      6.22        31,777       5.13      6.32
     18 months................     59,993      4.35      5.45        79,042      7.47      6.14        38,857       6.27      5.38
     18 month variable IRA....         --        --        --            --        --        --            37       0.01      4.91
     24 months................    129,499      9.38      6.08        10,655      1.01      5.75            --         --        --
     30 months................     12,915      0.94      5.52        11,990      1.13      5.16        10,303       1.66      4.83
     36 months................      8,857      0.64      5.38        11,576      1.09      5.09        10,943       1.77      4.98
     42 months................      2,784      0.20      5.36         2,962      0.28      5.34         3,337       0.54      5.46
     48 months................     16,507      1.20      5.50        20,553      1.94      5.42        22,683       3.66      5.48
     60 months................     87,253      6.32      6.15        43,425      4.11      6.28            --         --        --
     72 months................         --        --        --            --        --        --           232       0.04      7.75
     96 months................         --        --        --            --        --        --           286       0.05      8.00
Other certificates............      2,388      0.17      4.87        2,973      0.28       5.28            --         --        --
                              -----------   -------             -----------    ------                --------    -------
Total certificates............    737,018     53.39      5.47       547,562     51.77      5.48       267,340      43.14      5.04
                               ----------    ------              ----------    ------                --------     ------
Total deposits................ $1,380,594    100.00%     3.95    $1,057,730    100.00%     4.02     $ 619,713     100.00%     3.57
                               ==========    ======              ==========    ======                ========     ======
</TABLE>

                                                                 36

<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,  1997,  1996  and 1995 and the  remaining  periods  to  maturity  of
certificate deposit accounts outstanding at June 30, 1997.
<TABLE>
<CAPTION>
                                                   Period to maturity from
                                                     June 30, 1997                                June 30,
                                     ---------------------------------------------      -------------------------------
                                                 One to        Two to        Over
                                      Within      Two          Three         Three
                                     One Year    Years         Years         Years       1997         1996         1995
                                     --------    -----         -----         -----      ------       ------       -----
                                                                                  (In thousands)
<S>                              <C>          <C>            <C>          <C>         <C>          <C>           <C>
Certificates of deposit accounts:
2.99% or less................    $     588    $     241      $    322     $    190    $   1,341    $   1,410     $    837
3.00% to 3.99%...............           --           --            --           --           --        2,388        2,907
4.00% to 4.99%...............       64,974          472             3           --       65,449      166,690       37,255
5.00% to 5.99%...............      435,874       48,509         6,776       17,107      508,266      362,920      160,180
6.00% to 6.99%...............       23,005      159,687        28,964       19,333      230,989      135,820      145,378
7.00% to 7.99%...............          250           --            60           31          341        5,239          237
8.00% to 8.99%...............           16          206             6           --          228          235           --
9.00% and greater............           --          136            --           --          136          134          142
                                  --------     --------       -------      -------     --------      -------      -------

Total........................    $ 524,707    $ 209,251      $ 36,131     $ 36,661    $ 806,750    $ 674,836     $346,936
                                  ========     ========       =======      =======     ========      =======      =======
</TABLE>


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:
<TABLE>
<CAPTION>
                                                                                   At or For the
                                                                                Year Ended June 30,
                                                                     ----------------------------------------
                                                                      1997           1996                1995
                                                                      ----           ----                ----
                                                                                (In thousands)
<S>                                                                <C>              <C>              <C>    
FHLB-NY advances:
  Average balance outstanding.................................     $ 22,519         $ 29,882         $ 95,554
   Maximum amount outstanding at any
       month-end during the period............................       43,000           71,218          126,000
   Balance outstanding at end of period.......................       40,000            3,000           40,000
   Weighted-average interest rate during the period...........         5.61%            7.29%            6.00%
   Weighted-average interest rate at end of period............         5.58%            5.98%            7.60%

Reverse repurchase agreements:
  Average balance outstanding.................................     $288,845         $150,173         $ 10,103
   Maximum amount outstanding at any
       month-end during the period............................      326,391          279,678           57,035
   Balance outstanding at end of period.......................      311,913          263,160           57,035
   Weighted-average interest rate during the period...........         5.63%            5.58%            6.09%
   Weighted-average interest rate at end of period............         5.78%            5.41%            6.04%

Total borrowings:
  Average balance outstanding.................................     $311,364         $180,055         $105,657
   Maximum amount outstanding at any
       month-end during the period............................     $351,913          282,678          183,035
   Balance outstanding at end of period.......................     $351,913          266,160           97,035
   Weighted-average interest rate during the period...........         5.62%            5.87%            6.01%
   Weighted-average interest rate at end of period............         5.76%            5.42%            6.68%
</TABLE>

                                                           37

<PAGE>



Item 2.   Properties

        The Bank conducts its business through its administrative  office and 28
full-service   branch   offices.   Loan   originations   are  processed  at  the
administrative office.
<TABLE>
<CAPTION>
                                                                                                       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, 1997
                                --------                   -----       --------       -------------     --------------
                                                                                                         (In thousands)
<S>                                                       <C>            <C>             <C>              <C>    
Administrative Office:                                                                                 
585 Stewart Avenue
Garden City, NY  11530...........................         Leased         1977            2002              $  40

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

983 Willis Avenue
Albertson, NY  11507.............................          Owned         1965              --                520

422 Hillside Avenue
Williston Park, NY  11596........................         Leased         1972            2017                266

380 Hillside Avenue(2)
Williston Park, NY  11596........................          Owned         1964              --                210

570 Stewart Avenue
Bethpage, NY  11714..............................         Leased         1963            2008                 34

341 Post Avenue
Westbury, NY  11590..............................          Owned         1995              --                601

2530 Stewart Avenue
Westbury, NY  11590..............................          Owned         1995              --                771

405 Jerusalem Avenue
Hicksville, NY  11801............................         Leased         1995            2005                 17

2843 Jerusalem Avenue
North Bellmore, NY  11710........................         Leased         1995            2012                 35

172 New Hyde Park Road
Franklin Square, NY  11010.......................         Leased         1995            2020                 29

215 Glen Cove Road
Carle Place, NY  11514...........................         Leased         1995            1998                 --

312 Conklin Street
Farmingdale, NY  11735...........................          Owned         1996              --                816

195 Merritt Road
South Farmingdale,  NY  11735....................          Owned         1996              --              1,266

1074 Old Country Road
Plainview, NY  11803.............................          Owned         1996              --                566

300 S. Wellwood Avenue
Lindenhurst, NY  11757...........................          Owned         1996              --                561

                                                        38

<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, 1997
                                --------                   -----       --------       -------------      -------------
                                                                                                         (In thousands)
<S>                                                 <C>                  <C>             <C>              <C>    
(Continued)                                                                                        
1134 Deer Park Avenue
North Babylon, NY  11703.........................         Leased         1996            1998                 19

2087 Deer Park Avenue
Deer Park, NY  11729.............................          Owned         1996              --                580

2080 Deer Park Avenue(2)
Deer Park, NY 11729..............................          Owned         1996              --                245

434 Union Boulevard
West Islip, NY  11795............................         Leased         1996            2004                  1

340 Washington Avenue
North Brentwood, NY  11717......................    Owned/Leased(6)      1996            2014                236

742 Route 25 A
Kings Park, NY  11754............................         Leased         1996            2002                  1

250 Smithtown Boulevard
Nesconset, NY  11767.............................          Owned         1996              --                491

245 Lake Avenue
St. James, NY  11780.............................          Owned         1996              --                497

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

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

233-15 Hillside Avenue
Queens Village, NY  11427........................          Owned         1961              --                393

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

32-02 Francis Lewis Blvd
Flushing, NY  11358..............................          Owned         1957              --                297

69-09 164th Street
Flushing, NY  11365..............................          Owned         1967              --                720

204-12 Hillside Avenue(3)
Hollis, NY  11423................................   Owned/Leased         1954            2003                 39

162-04 Jamaica Avenue
Jamaica, NY  11432...............................      Leased(5)         1989            2001                531

216-26 Jamaica Avenue
Queens Village, NY  11428........................          Owned         1939              --                 68
                                                                                                         -------

          Total..................................                                                        $ 9,850
                                                                                                          ======
(Footnotes on next page)
</TABLE>

                                                        39

<PAGE>




(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)  The Bank 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
                                     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 15, 1997, the Company had 1,000
stockholders of record,  not including the number of persons or entities holding
stock in nominee or street name through various brokers and banks.

     Information regarding the Company's common stock and its price for the 1997
fiscal  year  appears on page 55 of the 1997  Annual  Report  under the  caption
"Stockholder Information" and is incorporated herein by this reference.

     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
Corporation  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.

                                                        40

<PAGE>



The Rights dividend  distribution  was made payable 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.

Item 6.   Selected Financial Data

     Information  regarding  selected  financial  data appears on page 10 of the
1997  Annual  Report  under  the  caption  "Selected   Financial  Data"  and  is
incorporated herein by this reference.

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

     Information  regarding  management's  discussion  and analysis of financial
condition and results of  operations  appears on pages 12 through 24 of the 1997
Annual  Report  under the  caption  "Management's  Discussion  and  Analysis  of
Financial  Condition and Results of Operations"  and is  incorporated  herein by
this reference.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

     The information contained in the section captioned "Management's Discussion
and Analysis of Financial  Condition  and Results of  Operations-Asset/Liability
Management  /Interest  Rate  Sensitivity  Analysis"  in  the  Annual  Report  is
incorporated herein by this reference.

Item 8.   Financial Statements and Supplementary Data

     Information   regarding  the  financial   statements  and  the  Independent
Auditors' Report appears on pages 25 through 52 of the 1997 Annual Report and is
incorporated herein by this reference.

Item 9.   Changes in and Disagreements with Accountants on Accounting and 
          Financial Disclosure

              None
                                    PART III

Item 10.  Directors and Executive Officers of the Company

     Information  regarding the directors and executive  officers of the Company
appears on pages 4 through 13 of the  Company's  Proxy  Statement for the Annual
Meeting of  Stockholders  to be held on  November  19,  1997  under the  caption
"Information  With  Respect to the  Nominees,  Continuing  Directors,  and Named
Executive Officers" and is incorporated herein by this reference.

Item 11.  Executive Compensation

     Information  regarding  executive  compensation  included under the caption
"Summary Compensation Table" appears on page 15 of the Company's Proxy Statement
for the Annual  Meeting of  Stockholders  to be held on November 19, 1997 and is
incorporated herein by this reference.





                                                        41

<PAGE>



Item 12.  Security Ownership of Certain Beneficial Owners and Management

     Information  regarding  security  ownership  of certain  beneficial  owners
appears on page 3 of the Company's  Proxy  Statement  for the Annual  Meeting of
Shareholders to be held November 19, 1997 under the caption "Security  Ownership
of Certain Beneficial Owners" and is incorporated herein by this reference.

     Information  regarding  security ownership of management appears on pages 4
through  7  of  the  Company's   Proxy  Statement  for  the  Annual  Meeting  of
Stockholders to be held on November 19, 1997 under the caption "Information with
Respect to the Nominees,  Continuing Directors and Named Executive Officers" and
is incorporated herein by this reference.

Item 13.  Certain Relationships and Related Transactions

     Information   regarding  certain  relationships  and  related  transactions
appears on page 21 of the Company's  Proxy  Statement for the Annual  Meeting of
Stockholders  to be held on November  19,  1997 under the caption  "Transactions
With Certain Related Persons" and is incorporated herein by this reference.
                                                      
                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) 1.        Financial Statements

     The following  financial  statements  are included in the Company's  Annual
Report  to  Stockholders  for the  fiscal  year  ended  June  30,  1997  and are
incorporated by this reference:
       o   Consolidated Statements of Condition at June 30, 1997 and 1996
       o   Consolidated Statements of Income for each of the years in the three 
          year period ended June 30, 1997
       o   Consolidated  Statements of Changes in Stockholders'  Equity for each
           of the years in the three year period ended June 30, 1997
       o   Consolidated  Statements  of Cash  Flows for each of the years in the
           three year period ended June 30, 1997
       o   Notes to Consolidated Financial Statements
       o   Independent Auditors' Report

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

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 1997

       1) The  Company  filed an 8-K on April 8, 1997 to report that on April 4,
       1997, the Company  announced its fifth stock repurchase plan. The Company
       has been  authorized  by its Board of Directors to repurchase up to 5% of
       the Company's 8,822,769 outstanding shares during the next twelve months.
       2) The Company filed an 8-K on May 9, 1997 to report that on May 5, 1997,
       the Company  announced  that it had entered  into an agreement to acquire
       Continental Bank.

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

         Exhibit
          Number
           3.1        Certificate of Incorporation of Reliance Bancorp, Inc. (1)
           3.2        By-Laws of Reliance Bancorp, Inc. (1)
          10.1(a)     Reliance Federal Savings Bank Recognition and Retention 
                      Plan for Officers and Employees (2)
          10.1(b)     Reliance Federal Savings Bank Recognition and Retention 
                      Plans for Outside Directors (2)
          10.2        Reliance Bancorp, Inc. 1994 Incentive Stock Option Plan(2)
          10.3        Reliance Bancorp, Inc. 1994 Stock Option Plan for Outside 
                      Directors (2)
          10.4(a)     Form of Reliance Bancorp, Inc. Employee Stock Ownership 
                      Plan and Trust (1)
          10.4(b)     Form of Reliance Federal Savings Bank Employee Stock 
                      Ownership Trust Agreement (1)
          10.5        Form of Employment Agreement between Reliance Federal 
                      Savings Bank and Certain Officers (1)
          10.6        Form of Employment Agreement between Reliance Bancorp, 
                      Inc. and Certain
                      Executive Officers (1)
          10.7        Form of Change-in-Control Agreement between Reliance 
                      Federal Savings Bank and Certain Officers (1)
          10.8        Form of Change-in-Control Agreement among the Reliance
                      Bancorp, Inc. and Certain Officers (1)
          10.9        Form of Reliance Federal Savings Bank Employee Severance 
                      Compensation Plan (1)
          10.10       Form of Reliance Federal Savings Bank Supplemental 
                      Executive Retirement Plan (1)
          10.11       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. Employment Agreement (3)
          10.14       Reliance Bancorp, Inc. 1996 Stock Option Plan (4)
          10.15       Reliance Bancorp, Inc. 1996 Stock Option Plan for Outside 
                      Directors (4)
          11.0        Statement Re: Computation of Per Share Earnings
          13.0        1997 Annual Report to Stockholders
          21.0        Subsidiaries information incorporated herein by reference 
                      to Part 1 - Subsidiaries  
          23.0        Consent of Independent  Auditors 
          27.0        Financial Data  Schedule  
          99.0        Proxy   Statement  for  the  Annual  Meeting  of
                      Stockholders to be held on November 19, 1997 (5)
          99.1        Stockholders Protection Rights Agreement; dated as of 
                      September 18, 1996 (6)

(Footnotes on next page)


                                                        42

<PAGE>

(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.
(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. 
(5)  Pursuant to General  Instruction G(3) to the Form 10K, the Proxy Statement
     will be filed within 120 days of the Company's  fiscal year end. 
(6)  Incorporated by reference  into this  document  from the  Exhibits  filed 
     with the  registration statement on Form 8-A, filed on September 27, 1996.



                                                        43

<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 17, 1997
                            ----------------------           ------------------
                               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/ Raymond A. Nielsen       President and                    September 17, 1997
-----------------------      Chief Executive Officer          ------------------
    Raymond A. Nielsen       

/s/ Paul D. Hagan            Chief Financial Officer          September 17, 1997
-----------------                                             ------------------
    Paul D. Hagan

/s/ Raymond L. Nielsen       Chairman of the Board and        September 17, 1997
----------------------        former Chief Executive Officer ------------------
    Raymond L. Nielsen       

/s/ Thomas G. Davis, Jr.     Director                         September 17, 1997
------------------------                                      ------------------
    Thomas G. Davis, Jr.

/s/ Conrad J. Gunther, Jr.   Director                         September 17, 1997
--------------------------                                    ------------------
    Conrad J. Gunther, Jr.

/s/ Douglas G. LaPasta       Director                         September 17, 1997
----------------------                                        ------------------
    Douglas G. LaPasta

/s/ Donald LaPasta           Director                         September 17, 1997
    Donald LaPasta

/s/ Peter F. Neumann         Director                         September 17, 1997
--------------------                                          ------------------
    Peter F. Neumann

/s/ J. William Newby         Director                         September 17, 1997
--------------------                                          ------------------
    J. William Newby


                                                            44