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, 1998

                                     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 
          Incorporation or Organization)        Identification No.)
                         

                 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, 1998 the  aggregate  market  value of the shares of common
stock of the  registrant  outstanding  was  $240,542,578  excluding  the 498,237
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, 1998, which was $27.75 as reported in
the Wall  Street  Journal on  September  16,  1998.  The number of shares of the
registrant's  common stock  outstanding  as of September  15, 1998 was 9,166,438
shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions  of  the  definitive   Proxy   Statement  for  the  Annual  Meeting  of
Stockholders  to be  held  on  November  10,  1998  and  the  Annual  Report  to
Stockholders for fiscal year 1998 are  incorporated  herein by reference - Parts
II and III.


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<TABLE>
<CAPTION>

                                                  FORM 10-K CROSS REFERENCE INDEX

                                                                                                                    Page


<S>                                                                                                                   <C>
PART I   ..............................................................................................................3
         Item 1.    Business...........................................................................................3
                    General............................................................................................3
                    Completion of Acquisition of Continental Bank......................................................3
                    Market Area and Competition........................................................................4
                    Lending Activities.................................................................................5
                    Delinquent Loans and Foreclosed Assets.............................................................9
                    Allowances for Losses on Loans, Investments in Real Estate and Real Estate Owned..................10
                    Investment Activities.............................................................................11
                           General  ..................................................................................11
                           Debt and Equity Securities.................................................................12
                           Mortgage-Backed Securities.................................................................12
                    Sources of Funds..................................................................................13
                    Subsidiary Activities.............................................................................14
                    Personnel.........................................................................................15
         FEDERAL, STATE AND LOCAL TAXATION............................................................................15
                    Federal Taxation..................................................................................15
                    State And Local Taxation..........................................................................16
         REGULATION AND SUPERVISION...................................................................................17
                    General...........................................................................................17
                    Federal Savings Institution Regulation............................................................18
                    Federal Home Loan Bank System.....................................................................23
                    Federal Reserve System............................................................................24
                    Holding Company Regulation........................................................................24
                    Federal Securities Laws...........................................................................25
         Item 2.    Properties........................................................................................37
         Item 3.    Legal Proceedings.................................................................................39
         Item 4.    Submission of Matters to a Vote of Security Holders...............................................39

PART II  .............................................................................................................40
         Item 5.    Market for the Company's Common Equity and Related Stockholder Matters............................40
         Item 6.    Selected Financial Data...........................................................................40
         Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.............40
         Item 7A.   Quantitative and Qualitative Disclosures About Market Risk........................................40
         Item 8.    Financial Statements and Supplementary Data.......................................................40
         Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..............40

PART III .............................................................................................................41
         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 ...................................41
         Item 13.   Certain Relationships and Related Transactions....................................................41

PART IV  .............................................................................................................41
         Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K...................................41
                    1.     Financial Statements.......................................................................41
                    2.     Financial Statement Schedules..............................................................41

Signatures............................................................................................................43


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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.

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

General

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

         The information presented in the consolidated  financial statements and
in the Form 10-K reflect the  financial  condition  and results of operations of
the Company, as consolidated with the Bank, its wholly-owned subsidiary. At June
30, 1998, the Company had total assets of $2.5 billion.

Completion of Acquisition of Continental Bank

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

                                                         3

<PAGE>



the net assets  acquired into the Bank, the Bank continued to exceed each of its
regulatory capital requirements.

Market Area and Competition

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

The greater New York metropolitan area has historically benefitted from having a
large number of  corporate  headquarters  and a diversity  of financial  service
industries.  The New York  State  counties  of  Nassau  and  Suffolk  have  also
continued  to benefit  from a large and  well-developed  suburban  market,  well
educated  employment  base  and a  diversity  of  industrial,  service  and high
technology businesses.  After a prolonged period of decline, which was marked by
layoffs  in  the  financial   services  and  defense  industries  and  corporate
relocations and  downsizings,  the economy in the greater New York  metropolitan
area  performed  well during fiscal 1998.  Durable  goods,  retail trade and the
service  sector are driving  economic  growth in the  suburbs,  while  financial
services and securities  industries are responsible for growth in New York City.
In addition,  the pool of skilled labor, access to international markets and the
growing  media  industry  in the  area  have  kept  the  region  one of the most
attractive in the country.  The healthy  economy has also benefitted the greater
New York  metropolitan  area office  market where the overall and class A office
vacancy rates have significantly declined. This decline in the vacancy rate kept
asking  rents  for all  types of space on the  upswing.  The  improved  economic
environment  is also  evident  in the  Long  Island,  New  York  area,  which is
experiencing a rebound in its residential, commercial and industrial real estate
markets not seen in a number of years. The residential real estate market in the
greater New York  metropolitan  area was also favorably  impacted  during fiscal
year 1998 by increased  demand for housing during the period of low unemployment
and generally low stable interest rates.

During  fiscal  year  1998,  much of the  stimulation  in the  greater  New York
metropolitan  area commercial real estate market was from purchases made by real
estate investment trusts ("REITs").  Recently,  investor confidence in REITs has
eroded which may curtail  purchases  and  adversely  affect values of commercial
real estate.

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

                                                         4

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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, 1998,
consisted  of a variety  of  commercial,  consumer  and other  loans,  primarily
secured and unsecured  commercial,  guaranteed  student loans, auto and loans on
deposit accounts.

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

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

         At June 30,  1998,  $500.3  million,  or 51.1% of the Bank's total loan
portfolio consisted of one- to four-family residential and co-op loans loans, of
which  $205.2  million,  or 41.0%,  were ARM loans.  The Bank  currently  offers
one-year ARM loans with terms of up to 30 years and loans with terms of up to 30
years  which are fixed for three,  five,  seven and ten years and  convert  into
one-year ARM loans at the end of the initial fixed  period.  These ARM loans may
carry an initial interest rate which is less than the fully indexed rate for the
loan. These ARM loans may be originated on a point or no-point basis (i.e., with
or without a loan origination fee based on a percentage of the loan amount). The
maximum loan amount for ARM loans offered by the Bank is currently  $750,000 and
the maximum  loan-to-value  ratio is 80.0% of the property's  appraised value or
sales price,  whichever is lower, or over 80% if private  mortgage  insurance is
obtained. Presently, the Bank's interest rates on ARM loans fluctuate based upon
a spread above the weekly  average yield of United States  Treasury  securities,
adjusted to a constant  maturity which  corresponds to the adjustment  period of
the loan (the "U.S.  Treasury  constant  maturity index") as published weekly by
the Federal  Reserve Board and are generally  subject to limitations on interest
rate  increases and decreases and specified  lifetime caps. The Bank's ARM loans
typically carry an initial  interest rate below the  fully-indexed  rate for the
loan.  However,  to recognize the credit risks associated with ARM loans offered
at initial discounts below market interest rates, the Bank generally underwrites
its  one-year  ARM loans  assuming  a rate  equal to 200 basis  points  over the
initial  discount  rate.  For ARM loans  with  longer  adjustment  periods,  and
therefore,  less risk due to the longer  period for the  borrower's's  income to
adjust to anticipated  higher future  payments,  the Bank  underwrites the loans
using

                                                         5

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the initial  rate,  which may be  discounted.  The volume and types of ARM loans
originated by the Bank have been affected by such market factors as the level of
interest rates, competition, consumer preferences and the availability of funds.
During the past several  years,  demand for ARM loans has been weak due to a low
interest  rate  environment  and  consumer  preference  for  fixed  rate  loans.
Accordingly, although the Bank will continue to offer ARM loans, there can be no
assurance  that the Bank will be able to  originate a  sufficient  volume of ARM
loans in the future to  increase  or maintain  the  proportion  that these loans
currently bear to total loans.

         The Bank currently offers fixed rate mortgage loans with terms of 10 to
30 years, secured by one- to four-family  residences and condominiums.  The Bank
also  offers  these  loans  on a point or  no-point  basis  with the  respective
interest rates  determined in accordance with prevailing  market and competitive
factors.  Fixed rate mortgage loans 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, 1998, $295.1 million, or 59.0%,
of the Bank's one- to four-family  residential mortgage loan portfolio consisted
of fixed rate loans.

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

         For fiscal 1998,  originations  of  multi-family  loans  totalled $60.7
million as compared to $115.9 million in fiscal 1997 and $63.8 million in fiscal
1996. The Bank increased its emphasis on  originations  of 5 year ARM loans with
terms of up to 15 years and  amortizations  up to 30 years.  These ARM loans may
carry an initial interest rate which is less than the fully indexed rate for the
loan.  These ARM loans  are  originated  on a point  basis and  no-point  basis.
Presently,  the Bank's interest rates on 5 year ARM loans fluctuate based upon a
spread above the weekly  average  yield of United  States  Treasury  securities,
adjusted to a constant  maturity of 5 years which  corresponds to the adjustment
period of the loan (the "U.S.  Treasury constant maturity index for 5 years") as
published weekly by the Federal Reserve Board.

         During fiscal 1998, the Bank  originated  commercial  real estate loans
totalling  $1.1 million as compared to $650,000 for fiscal 1997 and $522,000 for
fiscal 1996. 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.


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         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, 1998,  the Bank's  multi-family  loans,  consisting of 221
loans,  totalled  $243.1  million,  or 24.8% of the Bank's total loan portfolio.
Commercial property loans,  consisting of 208 loans,  totalled $43.6 million, or
4.5% of the Bank's  total loan  portfolio.  At June 30, 1998,  all  multi-family
loans were current and  performing in accordance  with their terms.  At June 30,
1998,  the Bank had seven  commercial  real estate loans  totalling $2.1 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, 1998,  construction  loans
totalled $4.9 million or 0.50% of total loans. In addition, as of June 30, 1998,
the Bank has outstanding commitments to fund construction loans in the amount of
$12.7 million, of which $4.9 million has been disbursed.

         Commercial  Lending.  A key  management  objective  is to maintain  the
quality  of the  commercial  loan  portfolio,  substantially  all of  which  was
acquired in the  Continental  Bank  acquisition.  This  objective is achieved by
maintaining high underwriting  standards coupled with regular  evaluation of the
creditworthiness of and the designation of lending limits for each borrower. The
portfolio  strategies seek to avoid  concentrations  by industry or loan size in
order to minimize  credit  exposure and to originate loans in markets with which
it is familiar. At June 30, 1998, the Bank's commercial loans, consisting of 462
loans, totalled $49.9 million, or 5.1% of the Bank's total loan portfolio. Loans
in this category are  typically  made to small and medium sized  businesses  and
range between  $25,000 and $5 million.  The primary  source of repayment is from
the  borrower's   operating  profits  and  cash  flows.  Based  on  underwriting
standards, loans may be secured in whole or in part by collateral such as liquid
assets, accounts receivable, equipment, inventory or real property.

         Consumer and Other  Lending.  The Bank  currently  offers three general
types of consumer loans consisting of: (1) home equity lines of credit, (2) home
equity loans and (3) guaranteed  student loans. The Bank offers  adjustable rate
home  equity  lines of  credit  secured  by one- to  four-family  owner-occupied
properties (including  condominiums) which serve as the primary residence of the
borrower. Co-op units do not qualify as security for such loans. The Bank's home
equity line of credit loans include a standard home equity line of credit, which
may be secured only by a first or second  mortgage on the  underlying  property,
and a  mini-home  equity  line of credit,  which may be secured by any  recorded
mortgage on the

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underlying  property.  Both are  open end  lines  of  credit  available  only to
borrowers  within the Bank's  lending  community.  The maximum line of credit is
presently  $250,000 for the standard  home equity line of credit and $50,000 for
the  mini-home  equity  line of credit.  The  maximum  total debt  permitted  to
encumber a property  varies based upon the  loan-to-value  ratio.  When the loan
balance plus any prior liens is: (1) $400,000 or less, the maximum loan-to-value
ratio is 80%,  (2) greater  than  $400,000  but  $500,000  or less,  the maximum
loan-to-value  ratio is 70%, (3) greater than $500,000 but $650,000 or less, the
maximum  loan-to-value  ratio is 65%, and (4) greater than $650,000 but $750,000
or less,  the maximum  loan-to-value  ratio is 60%. For the standard home equity
line of  credit,  borrowers  may draw on their line for a period of 10 years and
may pay  interest  only on a monthly  basis.  At the end of the 10 year  period,
borrowers must repay principal and interest at a 20-year  amortization rate. For
the  mini-home  equity  line of credit,  borrowers  may draw on their line for a
period of 5 years and may pay interest only on a monthly  basis.  Borrowers must
then repay principal and interest at a 10-year amortization rate. Advances under
each line of credit are accessed by the borrower drawing a personal check on his
or her individual  account set up specifically  for the program.  The account is
separate and distinct from any other checking account held by the borrower.

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

         The Bank's guaranteed  student loans are made only under the Guaranteed
Student  Loan  Program  administered  by the New  York  State  Higher  Education
Services Corporation ("NYSHESC"). The Bank does not fix the amount, maturity, or
interest rate for its  Education  Loans;  however,  such terms meet the maximums
authorized by NYSHESC and therefore are guaranteed by NYSHESC. The Bank will not
approve an Education  Loan  application  for any course of study  offered by any
school with a default ratio above 15.0% on the most recent  Cohort  Default Rate
Listing  published  by the United  States  Department  of  Education.  Increased
competition  for  guaranteed  student  loans in general has  resulted in reduced
origination  activity by the Bank for such loans.  At June 30, 1998,  the Bank's
guaranteed student loans totalled $15.3 million, or 1.6% of total loans.

         Additionally,  the Bank  offers  loans  fully  secured  by its  deposit
accounts  which,  at June 30, 1998,  totalled  $5.4  million,  or 0.55% of total
loans.  The Bank offered other consumer  loans in the form of home  improvement,
auto, overdraft checking and boat loans; however, the Bank currently offers only
auto and overdraft  checking  loans.  At June 30, 1998, such loans totalled $3.6
million or 0.36% of total loans.

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

                                                         8

<PAGE>



principal  and interest to a mortgage  escrow  account from which the Bank makes
disbursements for items such as real estate taxes and private mortgage insurance
premiums, if required.

Delinquent Loans and Foreclosed Assets

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

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

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

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

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

         Non-Accrual Loans. The following table sets forth information regarding
non-accrual  loans  and  loans  delinquent  90 days or more on which the Bank is
accruing  interest at the dates  indicated.  It is the Bank's policy to classify
any  loans,   or  any  portion   thereof,   that  have  been  determined  to  be
uncollectible,  in whole or in part, as non-accrual loans. With the exception of
guaranteed  student loans,  the Bank also  classifies as  non-accrual  loans all
loans 90 days or more past due. When a loan is placed on non-accrual status, the
Bank ceases the  accrual of interest  owed and  previously  accrued  interest is
charged against  interest  income.  During the fiscal years ended June 30, 1998,
1997, and 1996, the amounts of additional  interest  income that would have been
recorded  on  non-accrual  loans,  had they  been  current,  totalled  $799,000,
$573,000,  and  $554,000,  respectively.  These amounts were not included in the
Bank's interest income for the respective periods.


                                                         9

<PAGE>

<TABLE>
<CAPTION>


                                                                                At June 30,
                                                       -----------------------------------------------------------
                                                        1998          1997         1996        1995          1994
                                                       ------         ------      ------      ------        ------
                                                                         (Dollars in thousands)
<S>                                                <C>            <C>           <C>          <C>           <C>    
Non-accrual mortgage loans delinquent
 more than 90 days.............................     $  8,218       $ 14,262     $ 12,277      $ 3,210       $ 2,666

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

Non-accrual other loans delinquent
    more than 90 days..........................          316            188          352           --            88
                                                     -------       --------     --------     --------       -------
Total non-accrual loans........................        9,101         14,450       12,629        3,210         2,754

Loans 90 days or more delinquent
   and still accruing..........................          201            277          350          461           843
                                                      ------        -------      -------       ------        ------
Total non-performing loans.....................        9,302         14,727       12,979        3,671         3,597
                                                       -----         ------       ------        -----         -----

Total foreclosed real estate, net of
    related allowance for losses...............          755            450        1,564        1,558         2,911
                                                     -------        -------       ------       ------        ------

Total non-performing assets....................     $ 10,057       $ 15,177     $ 14,543      $ 5,229       $ 6,508
                                                      ======         ======       ======        =====         =====

Non-performing loans to total loans............        0.95%          1.61%        1.58%        1.10%         1.08%
Non-performing assets to total assets..........        0.40%          0.77%        0.82%        0.56%         0.78%
</TABLE>

         At June 30, 1998,  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, 1998, the borrower has
$465,000  outstanding  on the building  loan.  An appraisal  dated July 1, 1998,
valued the property at $1.4 million.  As of June 30, 1998,  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  inability of the borrower to  restructure
the loan, the Bank commenced foreclosure proceedings. Subsequently, the borrower
declared  bankruptcy and a trustee was appointed by the bankruptcy  court and is
presently operating the property.

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

                                                        10

<PAGE>



initial  determinations  which such adjustments  could have an adverse impact on
the earnings or financial condition of the Company.

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

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

Investment Activities

General

     As part of the present  investment policy, the Bank deploys a large portion
of its investable funds into mortgage-backed securities, and to a lesser extent,
U.S. Government and agency obligations, and state and municipal debt securities.
The Company deploys a large portion of its investable  funds into corporate debt
and equity  securities.  The investment policy of the Bank, 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  Company'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 Company's  investment  activity on a monthly
basis. In establishing its investment  strategies,  the Committee  considers 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.  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.

                                                        11

<PAGE>



Debt and Equity Securities

         At June 30,  1998,  the  Bank's  debt and equity  securities  portfolio
classified   held-to-maturity  totalled  $40.2  million.  The  debt  and  equity
securities  held-to-maturity  portfolio  consisted  of  $22.5  million  in  U.S.
Government  agency  obligations,  $390,000 in  municipal  obligations  and $17.3
million of FHLB stock.  At June 30, 1998, the Bank's debt and equity  securities
portfolio classified as  available-for-sale  totalled $110.5 million. The Bank's
debt and  equity  securities  available-for-sale  portfolio  consisted  of $81.2
million in corporate debt securities and $29.3 million in U.S. Government agency
obligations.  The Bank's current  investment  policy does not permit the Bank to
invest in non-investment grade bonds or high-risk mortgage derivatives.

         At  June  30,  1998,   the   Company's   debt  and  equity   securities
available-for-sale  portfolio  totalled  $24.4  million and  consisted  of $22.0
million of corporate debt securities and $2.4 million of equity  securities.  At
June 30, 1998, the Company had money market  investments which consisted of $9.5
million in repurchase agreements.

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.

         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, 1998, the Bank's portfolio of REMICs
totalled  $614.1  million of which $181.3  million were agency issued and $432.8
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, 1998,  mortgage-backed securities totalled $1.2 billion, or
47.9%  of  total   assets,   of  which  $249.3   million  were   classified   as
held-to-maturity and $940.3 million were classified as available- 

                                                       12

<PAGE>

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, 1998, the  mortgage-backed  securities  portfolio
classified as  available-for-sale  had an unrealized  gain of $7.1 million.  The
market  value of all  mortgage-backed  securities  totalled  approximately  $1.2
billion at June 30, 1998.

          As of  June  30,  1998,  $262.8  million,  or  22.1%,  of  the  Bank's
mortgage-backed   securities   portfolio  carried   adjustable  rates  repricing
annually.  The adjustable  rate portfolio had a weighted  average  interest rate
yield of 7.25% at June 30, 1998.

Sources of Funds

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

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

         When  management  determines  the levels of the Bank's  deposit  rates,
consideration is given to local competition,  U.S. Treasury securities offerings
and the rates charged on other sources of funds.  The Bank has maintained a high
level of passbook, demand deposit and NOW accounts ("core deposits"),  which has
contributed to its low cost-of-funds. Passbook, demand deposits and NOW accounts
represented  36.9% of total  deposits  at June 30,  1998 as compared to 37.4% of
total deposits at June 30, 1997.

         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, 1998,  total advances
from the FHLB-NY  were $182.1  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, 1998, borrowings
under reverse repurchase agreements totalled $398.1 million.

The  Company  has  utilized  borrowed  funds to obtain  capital to improve  Bank
capital ratios and fund asset growth. On April 29, 1998,  Reliance Capital Trust
I, a trust  formed  under  the laws of the  State  of  Delaware  (the "  Capital
Trust"), issued $50 million of 8.17% capital securities.  The Holding Company is
the owner of all the beneficial  interests  represented by common  securities of
the Trust. The Trust exists

                                                        13

<PAGE>



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

Subsidiary Activities

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

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

         Reliance Preferred Funding Corp.  Reliance Preferred Funding Corp. (the
"Subsidiary")  was  organized  by the Bank on April 4, 1997 for the  purpose  of
engaging  in a  real  estate  investment  trust  ("REIT").  The  purpose  of the
subsidiary  is to enhance  and  strengthen  the  Bank's  capital  position.  The
Subsidiary is poised to raise capital  expeditiously  in the event that the Bank
should need such capital  (e.g.,  for a  significant  strategic  transaction  or
combination).  In addition to such possible increased capital resulting from any
future  public  offering  that  the  Subsidiary  or the Bank  may  conduct,  the
Subsidiary   promotes  greater  retained  earnings  for  the  Bank  and  thereby
strengthens the Bank's capital position from an operational  standpoint as well.
This is so for two reasons:  (1) after transferring a portion of the Bank's loan
portfolio  to the  Subsidiary,  the  Bank  may be  better  able to  isolate  and
effectively  manage such assets in preparation  of going to the capital  markets
and (2) the Bank expects to receive favorable tax benefits from the Subsidiary's
continuing operations as a REIT.



                                                        14

<PAGE>



Personnel

         As of June  30,  1998,  the Bank had 353  full-time  employees  and 182
part-time  employees.   The  employees  are  not  represented  by  a  collective
bargaining unit and the Bank considers its relationship with its employees to be
good.

                           FEDERAL, STATE AND LOCAL TAXATION

Federal Taxation

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

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

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

     Corporate  Alternative  Minimum Tax. In addition to the regular income tax,
corporations  (including savings and loan associations) generally are subject to
an alternative minimum tax ("AMT") in

                                                        15

<PAGE>



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

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

State And Local Taxation

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

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

                                                        16

<PAGE>



percentage  of income  bad debt  deduction  was  taken.  Any  deduction  for the
addition to the reserve for non-qualifying loans reduces the taxable addition to
the  reserve  for  qualifying  real  property  loans  calculated  under  the NYS
Percentage  of  Taxable  Income  Method.  Each  year the Bank  reviews  the most
favorable way to calculate the deduction  attributable to an addition to the bad
debt reserve. The amount of the addition to the reserve for losses on qualifying
real property  loans under the NYS  Percentage  of Taxable  Income Method cannot
exceed the amount necessary to increase the balance of the reserve for losses on
qualifying  real  property  loans at the close of the taxable  year to 6% of the
balance of the  qualifying  real property  loans  outstanding  at the end of the
taxable year. Also, if the qualifying  thrift uses the NYS Percentage of Taxable
Income Method,  then the qualifying  thrift's  aggregate addition to its reserve
for losses on qualifying real property loans cannot,  when added to the addition
to the reserve for losses on  non-qualifying  loans,  exceed the amount by which
(i) 12% of the  amount  that the total  deposits  or  withdrawable  accounts  of
depositors  of the  qualifying  thrift at the close of the taxable year exceeded
(ii) the sum of the qualifying thrift's surplus,  undivided profits and reserves
at the beginning of such year.

         New York City  Taxation.  The Bank is also subject to the New York City
Financial  Corporation  Tax  calculated,  subject to a New York City  income and
expense  allocation,  on a similar basis as the New York State Franchise Tax. In
this connection,  legislation was enacted regarding the use and treatment of tax
bad  debt  reserves  that  is  substantially  similar  to  the  New  York  State
legislation  described  above.  A  significant  portion of the Bank's entire net
income for New York City purposes is allocated  outside the  jurisdiction  which
has the effect of significantly reducing the New York City taxable income of the
Bank.

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

                         REGULATION AND SUPERVISION
General

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

                                                        17

<PAGE>



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

Federal Savings Institution Regulation

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

         Loans  to One  Borrower.  Under  the  HOLA,  savings  institutions  are
generally  subject to the national bank limits on loans to one borrower.  Unless
an exception applies,  savings institutions may not make a loan or extend credit
to a single or  related  group of  borrowers  in  excess of 15.0% of the  Bank's
unimpaired capital and surplus. An additional amount may be lent, equal to 10.0%
of unimpaired capital and surplus, if such loan is secured by readily-marketable
collateral,  which is defined  to  include  certain  financial  instruments  and
bullion,  but does not include  real estate.  At June 30,  1998,  there were two
borrowers  each with  aggregate  loans  totalling  $12.0  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 $23.1  million at such date.  At June
30, 1998, both of these borrowers were current.

         QTL Test. The HOLA requires  savings  institutions  to meet a qualified
thrift lender  ("QTL")  test.  Under the QTL test, a savings bank is required to
either maintain at least 65.0% of its "portfolio  assets" (total assets less (i)
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, 1998, the Bank  maintained  89.2% 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.

                                                        18

<PAGE>



In the event the Bank's  capital fell below its regulatory  requirements  or the
OTS notified it that it was in need of more than normal supervision,  the Bank's
ability to make capital distributions could be restricted.  In addition, the OTS
could prohibit a proposed capital  distribution by any institution,  which would
otherwise  be  permitted  by the  regulation,  if the OTS  determines  that such
distribution  would constitute an unsafe or unsound practice.  At June 30, 1998,
the Bank was a Tier 1 Bank.

         Liquidity. The Bank is required to maintain an average daily balance of
liquid assets (cash,  certain time  deposits,  bankers'  acceptances,  specified
United States Government, state or federal agency obligations, shares of certain
mutual funds and certain  corporate debt securities and commercial  paper) equal
to a  monthly  average  of not  less  than a  specified  percentage  of its  net
withdrawable  deposit  accounts  plus  short-term  borrowings.   This  liquidity
requirement may be changed from time to time by the OTS to any amount within the
range of 4.0% to 10.0% depending upon economic  conditions and the savings flows
of member institutions, and is currently 4.0%. Monetary penalties may be imposed
for failure to meet these liquidity  requirements.  The Bank's average liquidity
for the  year  ended  June  30,  1998 was 8.0%  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, 1998, totalled $329,000.

         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 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

                                                        19

<PAGE>



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 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.


                                                        20

<PAGE>



         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% of risk-weighted assets.
Overall,  the amount of supplementary  capital included as part of total capital
cannot exceed 100% of core capital.

         The OTS (and other federal banking agencies) has revised the risk-based
capital  standards to ensure that such  standards  take account of interest rate
risk. The OTS  regulations set forth the methodology for calculating an interest
rate risk component that would be incorporated  into the OTS risk-based  capital
regulations.  A savings  institutions  with "above  normal"  interest  rate risk
exposure  must deduct from total  capital a portion of its capital to cover such
interest  rate  risk  for  purposes  of  calculating  their  risk-based  capital
requirements.  A savings  institution's  interest  rate risk is  measured by the
decline in the net portfolio value of its assets (i.e.,  the difference  between
incoming  and  outgoing  discounted  cash flows  from  assets,  liabilities  and
off-balance  sheet  contracts)  that would result from a hypothetical  200-basis
point  increase or decrease in market  interest  rates  (except when the 3-month
Treasury bond equivalent yield falls below 4.0%, then the decrease will be equal
to one-half of that Treasury  rate) divided by the estimated  economic  value of
the institution's  assets, as calculated in accordance with guidelines set forth
by the OTS. A savings  institution  whose  measured  interest rate risk exposure
exceeds 2.0% must deduct an interest  rate  component in  calculating  its total
capital under the  risk-based  capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2.0%,  multiplied by the estimated  economic value of the
bank's  assets.  That dollar  amount is  deducted  from an  institution's  total
capital in calculating  compliance with its risk-based capital requirement.  For
the present time,  the OTS has deferred  implementation  of a capital  deduction
based on the  interest-rate  risk component.  If the Bank had been subject to an
interest-rate  risk  component as of June 30, 1998, the Bank would not have been
subject to any  deduction  from  capital as a result of its  interest  rate risk
position.


                                                        21

<PAGE>



         At June 30, 1998,  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, 1998.


                                    At June 30, 1998
                ----------------------------------------------------------
                  Capital           Actual                Excess
                Requirement   %     Capital       %      Capital        %
                -----------   -     -------       -      -------        -

Tangible.........  $35,825   1.5    145,337      6.1     $109,512      4.6

Leverage.........  $71,650   3.0    145,337      6.1      $73,687      3.1

Risk-based.......  $80,724   8.0    154,245     15.3      $73,521      7.3

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

         Insurance on Deposit  Accounts.  The FDIC has  established a risk-based
assessment  system for insured  depository  institutions that takes into account
the risks attributable to different  categories and concentrations of assets and
liabilities. Under the risk-based assessment system, the average assessment rate
paid by institutions insured under the SAIF was increased. Under the risk- based
assessment  system,  the FDIC  assigns an  institution  to one of three  capital
categories based on the institution's  financial information as of the reporting
period ending seven months before the assessment period,  consisting of (1) well
capitalized,  (2) adequately capitalized or (3) undercapitalized.  The FDIC also
assigns an institution to one

                                                        22

<PAGE>



of three  supervisory  subcategories  within each capital group. The supervisory
subgroup  to  which  an  institution  is  assigned  is  based  on a  supervisory
evaluation  provided to the FDIC by the institution's  primary federal regulator
and  information  that the FDIC  determines to be relevant to the  institution's
financial  conditions and the risk posed to the deposit  insurance  funds (which
may include,  if applicable,  information  provided by the  institution's  state
supervisor).  An  institution's  assessment rate depends on the capital category
and  supervisory  category  to  which  it  is  assigned.  Under  the  risk-based
assessment  system,  there  are  nine  assessment  risk  classifications  (i.e.,
combinations  of capital groups and  supervisory  subgroups) to which  different
assessment rates are applied. As a result of the recapitalization of the SAIF in
1996 after the  enactment of the Deposit Funds  Insurance Act of 1996,  the FDIC
reduced the assessment rates for deposit insurance for SAIF-assessable  deposits
for fiscal 1998 to a range of 0 to 27 basis points.  The assessment rate for the
Company's  SAIF-assessable  deposits  for  fiscal  1998 was 0 basis  points.  In
addition,  SAIF-assessable deposits are also subject to assessments for payments
on the bonds issued in the late 1980s by the Financing  Corporation  (the "FICO"
bonds) to  recapitalize  the now  defunct  Federal  Savings  and Loan  Insurance
Corporation.  The Company's  total expense in fiscal 1998 for the assessment for
deposit  insurance and the FICO  payments was $921,000,  which was a substantial
reduction from the total amount of $1.8 million paid in fiscal 1997.

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

Federal Home Loan Bank System

         The Bank is a member of the FHLB System,  which consists of 12 regional
FHLBs.  The FHLB  provides  a  central  credit  facility  primarily  for  member
institutions. The Bank, as a member of the FHLB, is required to acquire and hold
shares of capital  stock in that FHLB in an amount at least equal to 1.0% of the
aggregate principal amount of its unpaid residential  mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its advances  (borrowings)
from the  FHLB,  whichever  is  greater.  The Bank was in  compliance  with this
requirement with an investment in FHLB stock at June 30, 1998, of $17.3 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.


                                                        23

<PAGE>



         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,  1998,  1997 and 1996,
dividends  from the FHLB to the Bank  amounted  to $1.2  million,  $820,000  and
$725,000,  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  $47.8  million or less (subject to adjustment by the FRB)
the reserve  requirement is 3.0%;  and for accounts  greater than $47.8 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 excess  of $47.8  million.  The first  $4.7  million  of  otherwise
reservable  balances  (subject to  adjustments by the FRB) are exempted from the
reserve requirements. The Bank is in compliance with the foregoing requirements.
The balances maintained to meet the reserve  requirements imposed by the FRB may
be used to satisfy liquidity requirements imposed by the OTS.

 Holding Company Regulation

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

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

         As a unitary savings and loan holding company (i.e.,  one that controls
only one thrift subsidiary),  the Company generally will not be restricted under
existing  banking  laws as to the types of business  activities  in which it may
engage,  provided  that the Bank  continues to be a QTL.  See  "Federal  Savings
Institution  Regulation  - QTL Test" for a discussion  of the QTL  requirements.
Upon  any  non-supervisory   acquisition  by  the  Company  of  another  savings
association  or  savings  bank  that  meets  the QTL test and is  deemed to be a
savings institution by OTS, the Company would become a multiple savings and loan
holding company (if the acquired  institution is held as a separate  subsidiary)
and would be subject to

                                                        24

<PAGE>



extensive  limitations  on the types of  business  activities  in which it could
engage.  The HOLA limits the  activities of a multiple  savings and loan holding
company and its  non-insured  institution  subsidiaries  primarily to activities
permissible for bank holding companies under Section 4(c)(8) of the Bank Holding
Company  Act,  subject  to the prior  approval  of the OTS,  and  certain  other
activities  authorized  by OTS  regulation,  and no  multiple  savings  and loan
holding  company may acquire more than 5.0% of the stock of a company engaged in
impermissible activities.

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

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

 Federal Securities Laws

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

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



                                                        25

<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 1998
Annual Report to Stockholders included 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  12 of the  Company's  1998  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 13 of the  Company's  1998 Annual  Report  presents  the  interest
         differential   under  the  caption   "Rate/Volume   Analysis"   and  is
         incorporated herein by reference.



                                                        26

<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,
                                                              -----------------------------------------
                                                                1998            1997              1996
                                                              --------        --------           -------
                                                                          (In thousands)
<S>                                                          <C>             <C>                <C>         
Mortgage loans (gross):
  At beginning of period..................................    $776,402         $690,983          $224,841
  Mortgage loans originated:
    One- to four-family...................................      38,783           39,370            38,557
    Multi-family..........................................      60,715          115,887            63,840
    Construction..........................................       4,491            6,417             4,159
    Commercial real estate................................       1,066              650               522
                                                               -------        ---------         ---------
      Total mortgage loans originated ....................     105,055          162,324           107,078
  Mortgage loans purchased (1)............................      32,656           16,956           426,328
                                                               -------          -------           -------
      Total mortgage loans originated
        and purchased ....................................     137,711          179,280           533,406
  Transfer of mortgage loans
    to real estate owned..................................      (3,491)            (820)           (1,450)
  Principal repayments....................................    (110,300)         (85,766)          (59,984)
  Sales of loans..........................................      (8,429)          (7,275)           (5,830)
                                                              ---------         --------         ---------
       At end of period...................................    $791,893         $776,402          $690,983
                                                               =======          =======           =======

Commercial loans (gross):
    At beginning of period................................  $       --     $         --     $          --
    Asset based loans originated..........................     106,660               --                --
    Other commercial  loans originated....................      18,744               --                --
    Commercial  loans purchased (1).......................      55,842               --                --
    Principal repayments..................................    (131,359)              --                --
                                                              ---------      ----------        ----------
          At end of period................................     $49,887      $        --      $         --
                                                                ======        =========        ==========

 Other loans (gross):
    At beginning of period................................    $138,115          $130,410         $108,653
    Other loans originated................................      46,726            47,718           35,816
    Other loans purchased (1).............................         706                --           23,489
    Principal repayments..................................     (48,335)         (40,013)          (37,548)
                                                               --------         --------         ---------
          At end of period................................    $137,212          $138,115         $130,410
                                                               =======           =======          =======


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



                                                        27

<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, 1998.  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  $290.0
million,  $125.8  million and $97.5 million,  respectively,  for the years ended
June 30, 1998, 1997 and 1996.

                                                                  At June 30, 1998
                                   --------------------------------------------------------------------------
                                                     Mortgage Loans                           Commercial     
                                   ----------------------------------------------------   ------------------ 
                                                                        Comm-                                
                                                                       ercial                         Other  
                                     One- to        Co-      Multi-    Real     Const-    Asset      Comm-   
                                   four-family   operative   family    Estate   ruction    Based      ercial 
                                   -----------   ---------   ------    ------   -------    -----      ------ 
 Amounts due:                                                       (In thousands)
<S>                                  <C>          <C>         <C>      <C>      <C>      <C>        <C>      
  Within one year.................   $154,360     $6,818      $ 473    $19,914  $4,879   $ 21,339   $22,655  
  After one year:
     One to three years...........     17,013        108     56,568     11,278      --         --      1,938 
     Three to five years..........     25,600         --     93,837      1,966      --         --      1,597 
     Five to ten years............    124,960        118     75,122      9,183      --         --      2,083 
     Ten to twenty years..........    135,080        202      8,400      1,283      --         --        275 
     Over twenty years............     35,791        270      8,670         --      --         --         -- 
                                      -------      -----     ------    -------  ------    -------    ------- 
  Total due after one year........    338,444        698    242,597     23,710      --         --      5,893 
                                      -------      -----    -------     ------  ------    -------      ----- 
  Total amounts due...............    492,804      7,516    243,070     43,624   4,879     21,339     28,548 
                                      =======      =====    =======     ======   =====     ======     ====== 
                                                                 
                                                                        
                                                   At June 30, 1998                                    
                                     -------------------------------------------                              
                                       Consumer and Other Loans                
                                     ------------------------------                
                                       Home                           
                                      Equity       Home                             
                                     Lines of     Equity      Other     Total            
                                     Credit       Loans       Loans   Receivable   
                                     ------       -----       -----   ----------   
                                                  (In thousands)                          
Amounts due:                                  
<S>                                   <C>        <C>        <C>        <C>             
   Within one year.................   $93,862        $231    $16,863   $341,394        
   After one year:                                                                   
      One to three years...........        --       1,665      4,681     93,251        
      Three to five years..........        --       5,756      2,390    131,146        
      Five to ten years............        --       8,359        332    220,157        
      Ten to twenty years..........        --       3,039         34    148,313        
      Over twenty years............        --          --         --     44,731        
                                      -------     -------    -------     ------        
   Total due after one year........        --      18,819      7,437    637,598        
                                      -------      ------      -----    -------        
   Total amounts due...............    93,862      19,050     24,300    978,992        
                                       ======      ======     ======    =======        
 Discounts, premiums and                                                                       
        deferred loan fees, net....                                        (254)       
 Allowance for loan losses.........                                      (8,941)       
                                                                        -------   
      Loans receivable, net........                                    $969,797       
                                                                        =======   

The following table sets forth, at June 30, 1998, the dollar amount of all fixed
rate loans  contractually  due after June 30, 1999,  and  adjustable  rate loans
repricing after June 30, 1999.
                                            Due After June 30, 1999
                                      ------------------------------------
                                      Fixed       Adjustable       Total
                                      -----       ----------       -----
Mortgage loans:                                 (In thousands)
   One- to four-family............  $293,834       $44,610        $338,444
   Co-operative...................       594           104             698
   Multi-family...................    50,676       191,921         242,597
   Commercial real estate.........    14,622         9,088          23,710
   Commercial loans...............     5,893            --           5,893
   Consumer and other loans.......    26,256            --          26,256
                                      ------            --          ------
Total loans.......................  $391,875      $245,723        $637,598
                                     =======       =======         =======



                                                        28

<PAGE>

C.  Summary of Allowance for Losses

         The following table sets forth the Bank's  allowances for loan and real
estate owned losses at the dates indicated.
                                                                          Year Ended June 30,
                                                         ---------------------------------------------------------
                                                          1998        1997        1996         1995          1994
                                                         ------      ------      ------       ------        ------
                                                                           (Dollars in thousands)
<S>                                                     <C>         <C>         <C>          <C>           <C>   
Allowance for loan losses:
Balance at beginning of period...................       $5,182      $4,495       $1,729       $1,417        $1,344
Charge-offs:
   One- to four-family...........................        (696)        (184)         (67)         (54)         (241)
   Co-op.........................................          --           --          (76)         (28)          (74)
   Commercial real estate........................          --         (107)          --           --           --
   Commercial....................................         (19)          --           --           --           --
   Consumer and other loans......................         (58)         (15)        (122)         (31)          (79)
                                                        ------     --------      -------     --------      --------
      Total charge-offs..........................        (773)        (306)        (265)        (113)         (394)

Recoveries:
   Mortgage loans................................          101          12           35           17            14
   Commercial....................................           21          --           --           --           --
   Consumer and other loans......................           15          31           54            8            60
                                                        ------     -------      -------     --------      --------
      Total recoveries...........................          137          43           89           25            74
Allowances of acquired institutions..............        2,745          --        2,217           --            --
Provision for loan losses........................        1,650         950          725          400           393
                                                         -----     -------       ------      -------       -------

Balance at end of the period.....................       $8,941      $5,182       $4,495       $1,729        $1,417
                                                         =====       =====        =====        =====         =====

Ratio of net charge-offs during the period
   to average loans outstanding  during
   the period....................................        0.07%        0.03%        0.03%        0.03%         0.09%

Ratio of allowance for loan losses to total
   loans at the end of the period................        0.91%        0.57%        0.55%        0.52%         0.43%

Ratio of allowance for loan losses to non-
   performing loans at the end of the period.....       96.12%       35.18%       34.63%       47.10%        39.38%


Allowance for losses on real estate owned:
Balance at beginning of period...................        $334         $768         $589         $632        $2,288
Charge-offs......................................        (304)        (634)        (384)        (103)       (2,740)
Recoveries.......................................         --            --           --           --            11
Allowances of acquired institutions..............         --            --          188           --            --
Provision for losses.............................          93          200          375           60         1,073
                                                         ----         ----         ----         ----         -----
Balance at the end of the period.................        $123         $334         $768         $589          $632
                                                         ====          ===          ===          ===           ===

                                                        29

<PAGE>

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

                                                                      At June 30,
                                    -------------------------------------------------------------------------------
                                            1998                        1997                       1996                   
                                    -----------------------     -----------------------    ------------------------    
                                              % 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).............  $3,457       51.10%         $3,327        61.37%       $3,336        70.46%         
Commercial real estate.............     340        4.46             308         2.56           158         3.30          
Multi-family.......................     851       24.83             666        20.81           278         9.69          
Construction.......................      29        0.50              89         0.16            47         0.67          
Commercial loans...................   3,390        5.10              --           --            --           --          
Consumer and other loans...........     874      14.01              792        15.10           676        15.88          
                                     ------      ------          ------      -------         -----       ------          
     Total allowances..............  $8,941      100.00%         $5,182       100.00%       $4,495       100.00%         
                                      =====      ======           =====       ======         =====       ======          

                                                       At June 30,
                                      -------------------------------------------------
                                               1995                      1994               
                                      ---------------------     -----------------------          
                                              % 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).............  $1,249       60.84%         $1,073        65.73%    
Commercial real estate.............      --        0.68              --         0.75     
Multi-family.......................      74        5.64              --         2.71          
Construction.......................      --        0.22              --         0.60         
Commercial loans...................      --          --              --           --        
Consumer and other loans...........     406       32.62             344        30.21       
                                      -----     -------           -----       ------    
     Total allowances..............  $1,729      100.00%         $1,417       100.00%   
                                      =====      ======           =====       ======    
                 
(1)   Includes allocations for co-op loans.



                                                                 30

<PAGE>

D.  Composition of Loan Portfolio

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

                                                                         June 30,
                                             -------------------------------------------------------------------
                                                     1998                  1997                     1996             
                                             -------------------    --------------------    --------------------    
                                                         Percent                 Percent                 Percent     
                                                           of                      of                      of        
                                              Amount     Total        Amount      Total        Amount     Total      
                                              ------     -----        ------      -----        ------     -----      
Mortgage loans:                                                     (Dollars in thousands)
<S>                                           <C>         <C>       <C>           <C>         <C>         <C>        
One- to four-family.......................    $492,804    50.33%      $552,577    60.42%      $569,031    69.28%     
Co-op.....................................       7,516     0.77          8,647     0.95          9,687     1.18      
Multi-family..............................     243,070    24.83        190,293    20.81         79,571     9.69      
Commercial real estate....................      43,624     4.46         23,445     2.56         27,134     3.30      
Construction..............................       4,879     0.50          1,440     0.16          5,560     0.67      
                                              --------    -----       --------    -----       --------    -----      
    Total mortgage loans..................     791,893    80.89        776,402    84.90        690,983    84.12      
                                               -------    -----        -------    -----        -------    -----      
Commercial loans:
Asset based loans.........................      21,339     2.18             --       --              --      --      
Other commercial loans....................      28,548     2.92             --       --              --      --      
                                                ------    -----       --------     ----        --------    ----      
    Total commercial loans................      49,887     5.10             --       --              --      --      
                                                ------    -----       --------     ----        --------    ----      
Consumer and other loans:
Home equity lines of credit...............      93,862     9.59         91,782    10.04         81,205     9.89      
Guaranteed student loans..................      15,262     1.56         17,006     1.86         18,754     2.28      
Home equity loans.........................      19,050     1.95         19,505     2.13         16,747     2.04      
Loans on deposit accounts.................       5,416     0.55          5,514     0.60          5,782     0.70      
Other loans...............................       3,622     0.36          4,308     0.47          7,922     0.97      
                                              --------    -----        -------    -----       --------    -----      
    Total  consumer and other loans.......     137,212    14.01        138,115    15.10        130,410    15.88      
                                               -------    -----        -------    -----        -------    -----      
Total loans...............................     978,992   100.0%        914,517   100.0%        821,393   100.00%   
                                                         =====                   =====                   ======    
Discounts, premiums and
 deferred loan fees, net..................        (254)                    (14)                    848               
Allowance for loan losses.................      (8,941)                 (5,182)                 (4,495)              
                                               --------               ---------               ---------              
Total loans, net..........................    $969,797                $909,321                $817,746               
                                               =======                 =======                 =======               

                                                                June 30,
                                                --------------------------------------------
                                                       1995                     1994          
                                                -------------------       ------------------   
                                                            Percent                   Percent  
                                                              of                       of     
                                                 Amount     Total        Amount       Total   
                                                 ------     -----        ------       -----   
Mortgage loans:                                             (Dollars in thousands)               
<S>                                             <C>          <C>        <C>            <C>    
One- to four-family.......................      $194,290     58.26%     $ 208,550      62.85% 
Co-op.....................................         8,774      2.63          9,567       2.88  
Multi-family..............................        18,774      5.63          8,991       2.71  
Commercial real estate....................         2,258      0.68          2,504       0.75  
Construction..............................           745      0.22          2,003       0.60  
                                                 -------     -----        -------      -----  
    Total mortgage loans..................       224,841     67.42        231,615      69.79  
                                                 -------     -----        -------      -----  
Commercial loans:                                                                         
Asset based loans.........................            --        --             --         --                             
Other commercial loans....................            --        --             --         --     
                                                 -------     -----         ------       ----     
    Total commercial loans................            --        --             --         --     
                                                 -------     -----         ------       ----     
Consumer and other loans:                         
Home equity lines of credit...............        70,954      21.28        61,338      18.48                                
Guaranteed student loans..................        20,529       6.16        22,924       6.91                     
Home equity loans.........................        15,774       4.73        14,334       4.32   
Loans on deposit accounts.................           980       0.29           982       0.30   
Other loans...............................           416       0.12           672       0.20   
                                                --------      -----     ---------      -----   
    Total  consumer and other loans.......       108,653      32.58       100,250      30.21   
                                                 -------      -----       -------      -----   
Total loans...............................       333,494     100.00%      331,865     100.00%
                                                             ======                    ====== 
Discounts, premiums and                                                                     
 deferred loan fees, net..................           315                      272              
Allowance for loan losses.................        (1,729)                  (1,417)             
                                                 --------                ---------                               
Total loans, net..........................      $332,080                 $330,720              
                                                 =======                  =======              
                                                                31
<PAGE>                                                                                                   
                                                  
                                               
E.  Money Market, Debt and Equity and Mortgage-Backed Securities Composition Table.

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

                                                                                    At June 30,
                                                      ------------------------------------------------------------------------
                                                              1998                     1997                      1996
                                                      -------------------     ----------------------     ---------------------
                                                      Amortized    Market     Amortized       Market     Amortized      Market
                                                        Cost       Value        Cost          Value         Cost         Value
                                                        ----       -----        ----          -----         ----         -----
                                                      (In thousands)
<S>                                                  <C>          <C>          <C>            <C>         <C>          <C>
Money Market  Investments  
Federal funds sold and
   repurchase agreements..........................    $9,500       $9,500       $1,100        $1,100      $10,450      $10,450
                                                       =====        =====        =====         =====       ======       ======

Debt and Equity Securities
Held-to-Maturity:
  United States Agency Obligations................   $22,493      $22,786      $29,952       $30,042      $34,950      $34,612
  Obligation of New York State....................       390          417          391           427          391          435
  FHLB stock......................................    17,306       17,306       15,683        15,683       12,989       12,989
                                                     -------      -------      -------       -------       ------       ------
     Total debt and equity securities
        held-to-maturity..........................   $40,189      $40,509      $46,026       $46,152      $48,330      $48,036
                                                      ======       ======       ======        ======       ======       ======
Available-for-Sale:
   United States Agency Obligations...............   $29,031      $29,290      $22,036       $22,080      $10,319      $10,227
   Corporate Obligations..........................   103,070      103,167          --            --           --            --
   United States Treasury Bills...................       --           --         4,785         4,812          --            --
   United States Treasury Notes...................       --           --            --            --        2,992        2,983
   Marketable equity securities...................     2,419        2,450            8            17           42           61
                                                    --------      -------    ---------      --------     --------     --------
     Total debt and equity securities
        available-for-sale........................  $134,520     $134,907      $26,829       $26,909      $13,353      $13,271
                                                     =======      =======       ======        ======       ======       ======
Mortgage-Backed Securities
  Held-to-Maturity:
    Pass-through certificates guaranteed by:
    GNMA..........................................   $78,106      $80,232     $106,900      $109,978     $125,195     $125,700
    FHLMC.........................................    10,304       10,571       12,963        13,139       14,967       15,005
    FNMA..........................................    33,949       34,908       39,493        39,991       44,330       44,290
       REMICs:
           Agency Issuance........................    53,021       52,799          --            --            --           --
           Private Issuance.......................    73,879       73,822          --            --              --         --
                                                      ------       ------  ----------     ---------     ----------- ----------
   Total mortgage-backed securities
         held-to-maturity.........................  $249,259     $252,332     $159,356      $163,108     $184,492     $184,995
                                                     =======      =======      =======       =======      =======      =======
Available-for-Sale:
    Pass-through certificates guaranteed by:
    GNMA..........................................  $187,562     $190,247     $233,572      $237,754     $170,142     $169,753
    FHLMC.........................................   118,982      120,677      222,961       221,756      255,498      249,598
    FNMA..........................................   140,597      142,183      131,066       131,085      172,863      169,944
       REMICs:
           Agency Issuance........................   128,113      128,272       20,806        20,552        2,503        2,445
           Private Issuance.......................   358,033      358,968      110,481       110,672           --           --
                                                     -------      -------      -------       -------    ---------      -------
 Total mortgage-backed securities
         available-for-sale.......................  $933,287     $940,347     $718,886      $721,819     $601,006     $591,740
                                                     =======      =======      =======       =======      =======      =======

                                                                 32

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

         The table below sets forth certain  information  regarding the carrying
value,  weighted  average  yields and  maturities  of the  Company's  repurchase
agreement, debt and equity securities and mortgage-backed securities at June 30,
1998.  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, 1998.

                                                                               At June 30, 1998
                                                     ----------------------------------------------------------------
                                                       One Year or Less        One to Five Years   Five to Ten Years  
                                                     ----------------------  -------------------- ------------------- 
                                                                 Annualized           Annualized           Annualized 
                                                                  Weighted            Weighted             Weighted   
                                                       Amortized   Average  Amortized  Average    Amortized  Average  
                                                          Cost     Yield      Cost      Yield       Cost      Yield   
                                                         ------   -------    ------   -------      ------    -------  
                                                                                 (Dollars in thousands)
Money Market Investments
<S>                                                       <C>        <C>      <C>                   <C>               
Repurchase agreement.................................     $9,500     5.80%    $   --        --%     $   --       --%  
                                                           =====     ====       ====      ====        ====     ====   
Debt and Equity Securities
Held-to-Maturity:
United States Government Agency Obligations..........     $2,493     5.53%      $ --        --%    $20,000     7.47%  
Obligation of New York State.........................         --                 390      7.89          --       --   
FHLB stock...........................................         --       --         --        --          --       --   
                                                         -------   ------      -----   -------    --------   ------   
     Total debt and equity securities held-to-maturity    $2,493     5.53%      $390      7.89%    $20,000     7.47%  
                                                           =====     ====        ===      ====      ======     ====   
Available-for-Sale:
United States Government Agency Obligations..........     $5,892     5.41%    $9,995      6.67%    $13,144     7.43%  
Corporate Bonds......................................         --       --      8,471      9.93          --       --   
Marketable Equity Securities.........................         --       --         --        --          --       --   
                                                         -------  -------    -------    ------    --------   ------   
     Total debt and equity securities available-for-sale  $5,892     5.41%   $18,466      8.16%    $13,144     7.43%  
                                                           =====     ====     ======      ====      ======     ====   
Mortgage-Backed  Securities
Held-to-Maturity:
Pass-through certificates guaranteed by:
GNMA.................................................     $   --       --%    $   --        --%     $2,364     6.50%  
FHLMC................................................         --       --         --        --       1,262     8.45   
FNMA.................................................         --       --         --        --      14,604     7.33   
REMICS:
   Agency Issuance ..................................         --       --         --        --          --       --   
   Private Issuance..................................         --       --         --        --          --       --   
                                                            ----     ----       ----      ----    --------    -----   
     Total mortgage-backed securities held-to-maturity    $   --       --%    $   --        --%    $18,230     7.30%  
                                                            ====     ====       ====      ====      ======     ====   
Available-for-Sale:
Pass-through certificates guaranteed by:
GNMA.................................................       $ --       --%      $133      7.42%     $4,981     8.01%  
FHLMC................................................      5,106     5.55      9,732      7.19       7,544     7.23   
FNMA.................................................         --       --     23,525      6.35       4,439     7.21   
REMICS:
  Agency Issuance....................................         --       --         --        --          --       --   
  Private Issuance...................................         --       --         --        --          --       --   
                                                          ------    -----    -------    ------   ---------   ------   
     Total mortgage-backed securities available-for-sale  $5,106     5.55%   $33,390      6.60%    $16,964     7.46%  
                                                           =====     ====     ======      ====      ======     ====   

                                                                               At June 30, 1998
                                                        -------------------------------------------------------------
                                                         More Than Ten Years              Total Securities              
                                                        ---------------------  --------------------------------------       
                                                                  Annualized                               Annualized        
                                                                   Weighted    Average             Approx.  Weighted   
                                                        Amortized   Average      Life   Amortized  Market    Average        
                                                           Cost      Yield    (in years)  Cost      Value     Yield        
                                                          ------    -------    --------  -------   ------     ------        
                                                                              (Dollars in thousands)                       
Money Market Investments                                                                                                 
<S>                                                        <C>         <C>       <C>    <C>        <C>        <C>      
Repurchase agreement.................................      $   --       --%       --     $9,500     $9,500     5.80%    
                                                             ====     ====      ====      =====      =====     ====     
Debt and Equity Securities                                                                                               
Held-to-Maturity:                                                                                                        
United States Government Agency Obligations..........       $  --       --%      7.2    $22,493    $22,786     7.25%    
Obligation of New York State.........................          --       --       2.9        390        417     7.89     
FHLB stock...........................................      17,306     6.50        --     17,306     17,306     6.50     
                                                           ------     ----      ----     ------     ------     ----     
     Total debt and equity securities held-to-maturity    $17,306     6.50%      7.1    $40,189    $40,509     6.94%    
                                                           ======     ====       ===     ======     ======     ====     
Available-for-Sale:                                                                                                      
United States Government Agency Obligations..........        $ --       --%      5.1    $29,031    $29,290     6.76%    
Corporate Bonds......................................      94,599     6.68      27.3    103,070    103,167     6.94     
Marketable Equity Securities.........................       2,419     2.29        --      2,419      2,450     2.29     
                                                           ------     ----      ----    -------   --------     ----     
     Total debt and equity securities available-for-sale  $97,018     6.57%     22.5   $134,520   $134,907     6.82%    
                                                           ======     ====      ====    =======    =======     ====     
Mortgage-Backed  Securities                                                                                              
Held-to-Maturity:                                                                                                        
Pass-through certificates guaranteed by:                                                                                 
GNMA.................................................     $75,742     7.14%      3.0    $78,106    $80,232     7.12%      
FHLMC................................................       9,042     7.09       3.3     10,304     10,571     7.25       
FNMA.................................................      19,345     7.05       3.8     33,949     34,908     7.17       
REMICS:                                                                                                                  
   Agency Issuance ..................................      53,021     6.62       3.5     53,021     52,799     6.62       
   Private Issuance..................................      73,879     6.95       2.9     73,879     73,822     6.95       
                                                          -------     ----       ---    -------    -------     ----       
     Total mortgage-backed securities held-to-maturity   $231,029     6.95%      3.2   $249,259   $252,332     6.98%      
                                                          =======     ====       ===    =======    =======     ====       
Available-for-Sale:                                                                                                      
Pass-through certificates guaranteed by:                                                                                 
GNMA.................................................    $182,448     7.58%      3.2   $187,562   $190,247     7.59%      
FHLMC................................................      96,600     7.51       3.9    118,982    120,677     7.38       
FNMA.................................................     112,633     7.34       3.5    140,597    142,183     7.17       
REMICS:                                                                                                                  
  Agency Issuance....................................     128,113     6.74       3.4    128,113    128,272     6.74       
  Private Issuance...................................     358,033     6.98       3.1    358,033    358,968     6.98       
                                                          -------     ----       ---    -------    -------     ----       
    Total mortgage-backed securities available-for-sale  $877,827     7.17%      3.3   $933,287   $940,347     7.15%      
                                                          =======     ====       ===    =======    =======     ====       
                                                                 
                                                                    33

<PAGE>

G.  Deposit Activities

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

                                                                                Years Ended June 30,
                                                                    ----------------------------------------------
                                                                         1998             1997             1996
                                                                    ------------     -------------    ------------
                                                                                     (In thousands)
<S>                                                                 <C>               <C>             <C>         
Opening balance...............................................      $ 1,436,037       $ 1,345,626     $    670,317
Bank of Westbury deposits assumed.............................               --                --          151,992
Sunrise Bancorp, Inc. deposits assumed........................               --                --          479,213
Continental Bank deposits assumed.............................          137,011                --               --
(Withdrawals) in Excess of deposits...........................           (8,182)           36,272            1,679
Interest credited on deposits.................................           63,432            54,139           42,425
                                                                       --------        ----------       ----------
Ending balance................................................      $ 1,628,298       $ 1,436,037      $ 1,345,626
                                                                      =========         =========        =========

Net increase in deposits......................................        $ 192,261          $ 90,411        $ 675,309
                                                                        =======            ======          =======
Percentage increase...........................................             13.4%             6.7%            100.7%

         At  June  30,  1998,  the  Bank  has   outstanding   $78.1  million  in
certificates  of deposit  accounts in amounts of  $100,000 or more,  maturing as
follows:
                                                                                            Weighted
                                                                         Amount           Average Rate
                                                                         ------           ------------
Maturity Period:                                                               (In thousands)
<S>                                                                      <C>                    <C>  
Three months or less..........................................           $21,617                5.26%
Over three through six months.................................            11,597                5.41
Over six through 12 months....................................            31,945                5.73
Over 12 months................................................            12,893                6.07
                                                                          ------
      Total...................................................           $78,052                5.61
                                                                          ======


                                                        34

<PAGE>


The following  table sets forth the  distribution  of the Bank's average deposit
accounts for the periods  indicated and the weighted  average  nominal  interest
rates on each category of deposits presented.
                                                                        Year ended June 30,
                                       -----------------------------------------------------------------------------------------
                                                  1998                          1997                           1996
                                       ----------------------------   ---------------------------   ----------------------------
                                                          Weighted                       Weighted                       Weighted
                                                Percent    Average              Percent   Average             Percent    Average
                                       Average  of Total   Nominal    Average   of Total  Nominal   Average   of Total   Nominal
                                       Balance  Deposits    Rate      Balance   Deposits   Rate     Balance   Deposits    Rate
                                       -------  --------   ------     --------  --------  -------  ---------  --------   ------
                                                                       (Dollars in thousands)
<S>                                    <C>         <C>      <C>       <C>        <C>      <C>       <C>         <C>       <C>  
Passbook accounts...................   $435,844    28.06%   2.40%     $441,921   32.01%   2.47%     $353,617    33.43%    2.50%
Demand Deposits and
   NOW accounts.....................    140,977     9.08    0.89       102,119    7.39    1.10        58,576     5.54     1.95
                                        -------    -----               -------   -----                ------    -----

Total passbook and Demand 
 Deposits and NOW accounts..........    576,821    37.14    2.03       544,040   39.40    2.21       412,193    38.97     2.42
                                        -------    -----               -------   -----               -------    -----

Money market accounts...............     93,715     6.03    2.40        99,536    7.21    2.48        97,975     9.26     2.54
                                        -------    -----               -------   -----               -------    -----
Certificate accounts:
      31 days.......................         --       --      --            38    0.00    2.50            70     0.01     2.50
      91 days.......................     31,767     2.05    4.73        34,775    2.52    4.82        23,655     2.24     4.79
       4 months.....................        795     0.05    4.20           880    0.06    4.28           447     0.04     4.31
       6 months.....................    223,876    14.41    5.34       126,700    9.18    5.19        78,709     7.44     5.08
       9 months.....................     15,134     0.97    5.10        65,202    4.72    5.15        55,401     5.24     5.49
     12 months......................    196,139    12.63    5.47       144,536   10.47    5.12       145,466    13.76     5.07
     15 months......................     15,128     0.97    4.88        44,691    3.24    5.32        60,638     5.73     6.22
     18 months......................     37,022     2.38    5.30        59,993    4.35    5.45        79,042     7.47     6.14
     24 months......................    233,293    15.02    6.04       129,499    9.38    6.08        10,655     1.01     5.75
     30 months......................     10,657     0.69    5.50        12,915    0.94    5.52        11,990     1.13     5.16
     36 months......................      7,578     0.49    5.55         8,857    0.64    5.38        11,576     1.09     5.09
     42 months......................      2,431     0.16    5.50         2,784    0.20    5.36         2,962     0.28     5.34
     48 months......................     13,090     0.84    5.74        16,507    1.20    5.50        20,553     1.94     5.42
     60 months......................     82,156     5.29    6.15        87,253    6.32    6.15        43,425     4.11     6.28
Other certificates..................     13,709     0.88    5.54         2,388    0.17    4.87         2,973     0.28     5.28
                                       --------    -----             ---------  ------             ---------    -----
Total certificates..................    882,775    56.83    5.60       737,018   53.39    5.47       547,562    51.77     5.48
                                       --------    -----              --------   -----              --------    -----
Total deposits...................... $1,553,311   100.00%   4.08    $1,380,594  100.00%   3.95    $1,057,730    100.00%   4.02
                                      =========   ======             =========   =====             =========    ====== 

                                                             35

<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,  1998,  1997  and 1996 and the  remaining  periods  to  maturity  of
certificate deposit accounts outstanding at June 30, 1998.

                                                     Period to maturity from
                                                       June 30, 1998                                June 30,
                                     ----------------------------------------------     ----------------------------------
                                                 One to        Two to        Over
                                      Within      Two          Three         Three
                                     One Year    Years         Years         Years       1998         1997           1996
                                     --------    -----         -----         -----      ------       ------          -----
                                                                                  (In thousands)
<S>                               <C>           <C>           <C>           <C>        <C>           <C>          <C> 
Certificates of deposit accounts:
2.99% or less................         $363         $292           $96       $1,308       $2,059       $1,341       $1,410
3.00% to 3.99%...............           --           --            --           --           --           --        2,388
4.00% to 4.99%...............      171,878            3            --           --      171,881       65,449      166,690
5.00% to 5.99%...............      439,067       44,497        14,240       15,613      513,417      508,266      362,920
6.00% to 6.99%...............      186,211       37,819        15,039        7,674      246,743      230,989      135,820
7.00% to 7.99%...............           --           73            32            6          111          341        5,239
8.00% to 8.99%...............          202            6            --           --          208          228          235
9.00% and greater............          139           --            --           --          139          136          134
                                   -------       ------        ------       ------      -------      -------      -------
Total........................     $797,860      $82,690       $29,407      $24,601     $934,558     $806,750     $674,836
                                   =======       ======        ======       ======      =======      =======      =======

H.   Borrowings

         The following table sets forth certain information regarding the Bank's
borrowed funds at or for the fiscal years ended on the dates indicated:
                                                                                          At or For the
                                                                                        Year Ended June 30,
                                                                             ---------------------------------------
                                                                               1998              1997          1996
                                                                             -------           -------       -------
FHLB-NY advances:                                                                       (In thousands)
<S>                                                                          <C>               <C>             <C>    
  Average balance outstanding..........................................      $84,920           $22,519         $29,882
   Maximum amount outstanding at any
       month-end during the period.....................................      182,136            43,000          71,218
   Balance outstanding at end of period................................      182,136            40,000           3,000
   Weighted-average interest rate during the period....................         5.58%             5.61%           7.29%
   Weighted-average interest rate at end of period.....................         5.49%             5.58%           5.98%

Reverse repurchase agreements:
  Average balance outstanding..........................................     $309,618           $288,845       $150,173
   Maximum amount outstanding at any
       month-end during the period.....................................      398,070            326,391        279,678
   Balance outstanding at end of period................................      398,070            311,913        263,160
   Weighted-average interest rate during the period....................         5.79%              5.63%          5.58%
   Weighted-average interest rate at end of period.....................         5.64%              5.78%          5.41%

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

Total borrowings:
  Average balance outstanding..........................................     $403,414           $311,364       $180,055
   Maximum amount outstanding at any
       month-end during the period.....................................      630,206            351,913         282,678
   Balance outstanding at end of period................................      630,206            351,913         266,160
   Weighted-average interest rate during the period....................         5.80%              5.62%           5.87%
   Weighted-average interest rate at end of period.....................         5.80%              5.76%           5.42%

                                                            36

<PAGE>

Item 2.       Properties

        The Bank conducts its business through its administrative  office and 30
full-service   branch   offices.   Loan   originations   are  processed  at  the
administrative office.
                                                                                                             Net Book Value
                                                                                                             of Property or
                                                                           Original Date    Date of           Leasehold
                                                              Leased or     Leased or        Lease          Improvements at
           Location                                             Owned       Acquired      Expiration(1)      June 30, 1998
         ------------                                          -------      ----------    -------------      --------------
                                                                                                             (In thousands)
Administrative Office:
585 Stewart Avenue
<S>                                                            <C>              <C>            <C>                <C>  
Garden City, NY  11530.............................            Leased           1977           2002               $  36

Banking Offices:
300 Garden City Plaza
Garden City, NY  11530
(Home Office)......................................            Leased           1979           2004                   2

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

983 Willis Avenue
Albertson, NY  11507...............................             Owned           1965             --                 575

422 Hillside Avenue
Williston Park, NY  11596..........................            Leased           1972           2017                 249

380 Hillside Avenue(2)
Williston Park, NY  11596..........................             Owned           1964             --                 203

570 Stewart Avenue
Bethpage, NY  11714................................            Leased           1963           2008                  30

341 Post Avenue
Westbury, NY  11590................................             Owned           1995             --                 591

2530 Stewart Avenue
Westbury, NY  11590................................             Owned           1995             --                 757

405 Jerusalem Avenue
Hicksville, NY  11801..............................            Leased           1995           2005                   6

2843 Jerusalem Avenue
North Bellmore, NY  11710..........................            Leased           1995           2012                  31

172 New Hyde Park Road
Franklin Square, NY  11010.........................            Leased           1995           2020                  28

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


                                                            37

<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, 1998
         ------------                                          -------      ----------    -------------      --------------
                                                                                                             (In thousands)
(Continued)                                                                                                 
312 Conklin Street
Farmingdale, NY  11735.............................             Owned           1996             --               $ 795

195 Merritt Road
South Farmingdale,  NY  11735......................             Owned           1996             --               1,330

1074 Old Country Road
Plainview, NY  11803...............................             Owned           1996             --                 560

300 S. Wellwood Avenue
Lindenhurst, NY  11757.............................             Owned           1996             --                 663

1134 Deer Park Avenue
North Babylon, NY  11703...........................            Leased           1996           1998                  18

1383 Deer Park Avenue
North Babylon, NY  11703...........................             Owned           1997             --               1,081

2087 Deer Park Avenue
Deer Park, NY  11729...............................             Owned           1996             --                 567

2080 Deer Park Avenue(2)
Deer Park, NY 11729................................             Owned           1996             --                 262

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

340 Washington Avenue
North Brentwood, NY  11717.........................   Owned/Leased(6)           1996           2014                 249

742 Route 25 A
Kings Park, NY  11754..............................            Leased           1996           2002                  10

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

245 Lake Avenue
St. James, NY  11780...............................             Owned           1996             --                 499

335 Main Street
Farmingdale, NY 11735..............................            Leased           1996           2000                  12

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



                                                            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, 1998
         ------------                                          -------      ----------    -------------      --------------
                                                                                                             (In thousands)
<S>                                                         <C>              <C>            <C>                  <C>  
(Continued)                                                                                                
233-15 Hillside Avenue
Queens Village, NY  11427..........................             Owned         1961               --               $ 375

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

32-02 Francis Lewis Blvd
Flushing, NY  11358................................             Owned         1957               --                 333

69-09 164th Street
Flushing, NY  11365................................             Owned         1967               --                 734

204-12 Hillside Avenue(3)
Hollis, NY  11423..................................      Owned/Leased         1954             2003                  34


162-04 Jamaica Avenue
Jamaica, NY  11432.................................         Leased(5)         1989             2001                 408

216-26 Jamaica Avenue
Queens Village, NY  11428..........................             Owned         1939               --                 108
                                                                                                                -------

          Total....................................                                                            $ 11,041
                                                                                                                 ======
</TABLE>

-------------------
(1)  Leased property includes all option periods.
(2)  Drive-up facility.
(3) The Bank owns one half of the  property  and leases the other half.  
(4) 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




                                                            39

<PAGE>

                                     PART II

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

     The  Company's  common  stock is traded on the Nasdaq  National  Market and
quoted under the symbol "RELY".  As of September 16, 1998, the Company had 1,100
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 1998
fiscal  year  appears on page 57 of the 1998  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.

     The Rights  dividend  distribution  was made to  stockholders  of record on
October 3, 1996.  The Rights will expire ten years later on October 3, 2006. The
distribution of the Rights is not taxable to stockholders.

Item 6.       Selected Financial Data

     Information regarding selected financial data appears on page 5 of the 1998
Annual Report under the caption "Selected  Consolidated Financial and Other Data
of the Company" 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 7 through 21 of the 1998
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  /Market Risk and 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 22 through 52 of the 1998 Annual Report and is
incorporated herein by this reference.

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

     None

                                                            40

<PAGE>
                                    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 9 of the  Company's  Proxy  Statement  for the Annual
Meeting of  Stockholders  to be held on  November  10,  1998  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 pages 14 and 15 of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on November 10, 1998
and is incorporated herein by this reference.

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 10, 1998 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 10, 1998 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 19 of the Company's  Proxy  Statement for the Annual  Meeting of
Stockholders  to be held on November  10,  1998 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,  1998  and are
incorporated by this reference:
       o  Consolidated Statements of Condition at June 30, 1998 and 1997
       o  Consolidated  Statements  of Income for each of the years in the three
          year period ended June 30, 1998
       o  Consolidated  Statements of Changes in Stockholders' Equity for each
          of the years in the three year period ended June 30, 1998
       o  Consolidated  Statements  of Cash  Flows  for each of the years in the
          three year period ended June 30, 1998 
       o  Notes to  Consolidated  Financial Statements  
       o  Independent   Auditors'  Report  
       o  Selected  Consolidated Quarterly  Financial  Data  (Unaudited)  for 
          each of the years in the two year period ended June 30, 1998.

       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.


                                                            41

<PAGE>

(b)    Reports on Form 8-K filed during the last quarter of 1998

       1)  The Company  filed an 8-K on April 16, 1998,  and announced its third
           quarter  fiscal  year 1998  results.  For the  quarter and nine month
           ended March 31, 1998, the Company reported net income of $4.7 million
           and $14.3 million,  respectively.  As of March 31, 1998, total assets
           were $2.2 billion, deposits were $1.6 billion and total stockholders'
           equity was $193.8 million.

(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     Reliance Bancorp, Inc. By-Laws (1)
     10.1(a) Reliance  Federal Savings Bank  Recognition and Retention Plan for
             Officers and Employees (2)
     10.1(b) Amended  and  Restated  Reliance  Federal  Savings  Bank 1994
             Recognition and Retention Plans for Outside Directors (filed
             herewith)
     10.2    Reliance Bancorp, Inc. 1994 Incentive Stock Option Plan (2)
     10.3    Amended and Restated Reliance Bancorp, Inc. 1994 Stock Option Plan
             for Outside  Directors (filed  herewith)  
     10.4(a) Form of Reliance  Federal Savings Bank Employee Stock Ownership
             Plan (1) 
     10.4(b) Form of Reliance  Federal Savings Bank Employee Stock Ownership
             Trust Agreement (1) 
     10.5    Form of [Three/Two Year] Employment  Agreement  between Reliance 
             Federal Savings Bank and Certain Officers (1) 
     10.6    Form of [Three/Two Year] Employment Agreement between Reliance
             Bancorp,  Inc. and Certain Executive Officers (1) 
     10.7    Form of Reliance Federal Savings Bank Change-in-Control  Agreement
     10.8    Form of Reliance Bancorp, Inc. Change-in-Control  Agreement 
     10.9    Form of Reliance Federal Savings Bank Severance Compensation
             Plan (1) 
     10.10   Form of Reliance Federal Savings Bank Supplemental  Executive 
             Retirement  Plan (1) 
     10.11   Draft ESOP Loan  Commitment Letter  and Form of ESOP Loan 
             Documents  (1)  
     10.12   Form of  Reliance  Federal Savings Bank Outside Directors'
             Consultation and Retirement Plan (1) 
     10.13   Form of Reliance Bancorp, Inc. Five Year Employment Agreement (3) 
     10.14   Reliance Bancorp,  Inc.  1996  Incentive  Stock  Option Plan , 
             Amended and Restated as of February 19, 1997 (filed  herewith) 
     11.0    Statement Re:  Computation of Per Share Earnings 
     13.0    1998 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  10,  1998  (5)  
     99.1    Stockholder  Protection  Rights  Agreement,  dated as of September
             18, 1996 (6)


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


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

                                                            42

<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 16, 1998
                          ----------------------             ------------------
                              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 16, 1998
----------------------------                                  ------------------
     Raymond A. Nielsen      Chief Executive Officer

/s/  Paul D. Hagan           Chief Financial Officer          September 16, 1998
----------------------------                                  ------------------
     Paul D. Hagan

/s/  Raymond L. Nielsen      Chairman of the Board and        September 16, 1998
----------------------------                                  ------------------
     Raymond L. Nielsen      former Chief Executive Officer

/s/  Thomas G. Davis, Jr.    Director                         September 16, 1998
----------------------------                                  ------------------
     Thomas G. Davis, Jr.

/s/  Conrad J. Gunther, Jr.  Director                         September 16, 1998
----------------------------                                  ------------------
     Conrad J. Gunther, Jr.

/s/  Douglas G. LaPasta      Director                         September 16, 1998
----------------------------                                  ------------------
     Douglas G. LaPasta

/s/  Donald LaPasta          Director                         September 16, 1998
----------------------------                                  ------------------
     Donald LaPasta

/s/  Peter F. Neumann        Director                         September 16, 1998
----------------------------                                  ------------------
     Peter F. Neumann

/s/  J. William Newby        Director                         September 16, 1998
----------------------------                                  ------------------
     J. William Newby


                                                        43