INDEPENDENCE COMMUNITY BANK CORP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO

0-23229
(COMMISSION FILE NUMBER)

INDEPENDENCE COMMUNITY BANK CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 11-3387931
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
195 MONTAGUE STREET, BROOKLYN, NEW YORK 11201
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)

(718) 722-5300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)

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 twelve months (or for such shorter period that the
Registrant was required to file reports) and (2) has been subject to such
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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. YES [ ] NO [X]

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12-b-2 of the Act). YES [X] NO [ ]

The aggregate market value of the 46,586,952 shares of the Registrant's
common stock held by non-affiliates (55,577,403 shares outstanding less
8,990,451 shares held by affiliates), based upon the closing price of $29.27 for
the Common Stock on June 28, 2002, the last business day in the Registrant's
second quarter, was approximately $1.36 billion. Shares of Common Stock held by
each executive officer and director, the Registrant's 401(k) Plan and Employee
Stock Ownership Plan and by each person who owns 5% or more of the outstanding
Common Stock have been excluded since such persons may be deemed affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.

As of March 14, 2003, there were 55,577,403 shares of the Registrant's
common stock issued and outstanding.

(1) Portions of the definitive proxy statement for the Annual Meeting of
Stockholders are incorporated into Part III.
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INDEPENDENCE COMMUNITY BANK CORP.

2002 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I
ITEM 1. Business
Independence Community Bank Corp............................ 1
Independence Community Bank................................. 1
Change in Fiscal Year End................................... 1
Market Area and Competition................................. 1
Forward Looking Information................................. 3
Available Information....................................... 3
Lending Activities.......................................... 4
Asset Quality............................................... 15
Investment Activities....................................... 22
Sources of Funds............................................ 26
Employees................................................... 29
Subsidiaries................................................ 29
Regulation.................................................. 30
Taxation.................................................... 39
ITEM 2. Properties.................................................. 41
ITEM 3. Legal Proceedings........................................... 43
ITEM 4. Submission of Matters to a Vote of Security Holders......... 43
PART II
ITEM 5. Market for Independence Community Bank Corp.'s Common Equity
and Related Stockholder Matters............................. 44
ITEM 6. Selected Financial Data..................................... 45
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 47
ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk... 71
ITEM 8. Financial Statements and Supplementary Data................. 76
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 119
PART III
ITEM 10. Directors and Executive Officers of Independence Community
Bank Corp. ................................................. 119
ITEM 11. Executive Compensation...................................... 119
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.................. 120
ITEM 13. Certain Relationships and Related Transactions.............. 121
ITEM 14. Controls and Procedures..................................... 121
PART IV
ITEM 15. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 122
SIGNATURES............................................................ 124

PART I

ITEM 1. BUSINESS

INDEPENDENCE COMMUNITY BANK CORP.

Independence Community Bank Corp. (the "Holding Company") is a Delaware
corporation organized in June 1997 by Independence Community Bank (the "Bank"),
for the purpose of becoming the parent savings and loan holding company of the
Bank. The Bank's reorganization to the stock form of organization and the
concurrent offer and sale of the Holding Company's common stock was completed on
March 13, 1998 (the "Conversion"). The assets of the Holding Company are
primarily the capital stock of the Bank, dividends receivable from the Bank,
certain cash and cash equivalents and securities available-for-sale. The
business and management of the Holding Company consists primarily of the
business and management of the Bank (the Holding Company and the Bank are
collectively referred to herein as the "Company"). The Holding Company neither
owns nor leases any property, but instead uses the premises and equipment of the
Bank. At the present time, the Holding Company does not intend to employ any
persons other than officers of the Bank, and will continue to utilize the
support staff of the Bank from time to time. Additional employees may be hired
as appropriate to the extent the Holding Company expands or changes its business
in the future.

The Company's executive office is located at 195 Montague Street, Brooklyn,
New York 11201, and its telephone number is (718) 722-5300. The Company's web
address is www.myindependence.com.

INDEPENDENCE COMMUNITY BANK

The Bank's principal business is gathering deposits from customers within
its market area and investing those deposits along with borrowed funds primarily
in multi-family residential mortgage loans, commercial real estate loans,
commercial business loans, lines of credit to mortgage bankers, single-family
residential loans (including cooperative apartment loans), consumer loans,
mortgage-related securities, investment securities and interest-bearing bank
balances. The Bank's revenues are derived principally from interest on its loan
and securities portfolios while its primary sources of funds are deposits,
Federal Home Loan Bank of New York ("FHLB") borrowings, loan amortization and
prepayments and maturities of mortgage-related securities and investment
securities. The Bank offers a variety of loan and deposit products to its
customers. The Bank also makes available other financial instruments, such as
annuity products and mutual funds, through arrangements with a third party.

The Bank has continued to broaden its banking strategy by emphasizing
commercial bank-like products, primarily commercial real estate and business
loans, mortgage warehouse lines of credit and commercial deposits. This strategy
focuses on increasing both net interest income and fee based revenue while
concurrently diversifying the Bank's customer base.

CHANGE IN FISCAL YEAR END

The Company announced in October 2001 that it changed its fiscal year end
from March 31, to December 31, effective December 31, 2001. This change provides
internal efficiencies as well as aligns the Company's reporting cycle with
regulators, taxing authorities and the investor community. Due to the change in
the Company's fiscal year end, the comparison of annual operating performance is
based upon the audited 12 month calendar year ended December 31, 2002 compared
to the 12 month calendar year ended December 31, 2001 and the audited 12 month
fiscal year ended March 31, 2001.

MARKET AREA AND COMPETITION

The Company is a community-oriented financial institution providing
financial services and loans for housing and commercial businesses within its
market area. The Company has sought to set itself apart from its many
competitors by tailoring its products and services to meet the diverse needs of
its customers, by emphasizing customer service and convenience and by being
actively involved in community affairs in the neighborhoods and communities it
serves. The Company oversees its 73 branch office network from its headquarters
located in downtown Brooklyn. The Company operates 19 branch offices in the
borough of Brooklyn, another nine in the borough of Queens and eleven more
branches dispersed among Manhattan, the Bronx, Staten Island, Nassau, Suffolk
and Westchester Counties of New York. As a result of the acquisitions of Broad
National Bancorporation ("Broad"), Newark, New Jersey and Statewide Financial
Corp.

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("Statewide"), Jersey City, New Jersey during fiscal 2000, the Company also
operates 34 branches in the northern New Jersey counties of Bergen, Essex,
Hudson, Middlesex and Union. The Company gathers deposits primarily from the
communities and neighborhoods in close proximity to its branches, which deposits
constitute the primary funding source of the Bank's operations. The Company
currently expects to expand its branch network through the opening of
approximately twelve branch locations over the next twelve to eighteen months.
During the first quarter of 2003, the Company opened two branches in Manhattan
which brings the total to 75 banking offices.

Although the Company generally lends throughout the New York City
metropolitan area, the substantial majority of its real estate loans are secured
by properties located in the boroughs of Brooklyn, Queens and Manhattan, Nassau
County, Long Island, and the counties in northern and central New Jersey. The
Company's customer base, like that of the urban neighborhoods which it serves,
is racially and ethnically diverse and is comprised of mostly middle-income
households and, to a lesser degree, low to moderate income households. Most of
the businesses the Company lends to are small and medium sized and are primarily
dependent upon the regional economy, which economy, due to its connections to
the national economy, may be adversely affected not only by conditions within
the local market but also by conditions existing elsewhere. At December 31,
2002, over 75% of the loan portfolio consisted of commercial real estate,
commercial business and multi-family residential loans. Such loans may be more
sensitive to adverse changes in the local economy than single-family residential
loans. Increased delinquencies or other problems with such loans could affect
the Company's financial condition and profitability.

Over the past few years there has been a national and local economic
slowdown, which has resulted in New York City currently being in a recession.
New York City, and to a lesser degree, the New York City metropolitan area, has
been impacted by a reduction in employment and profitability experienced by
national securities and investment banking firms, many of which are domiciled in
Manhattan, as well as the lack of growth and reduced profitability of other
financial service companies. In spite of its size and diversity, the New York
City metropolitan area economy is significantly affected by the level of
business activity and profitability within the securities and financial services
industries. New York City has lost approximately 220,000 jobs in two years, of
which approximately 23,000 are attributable to investment banking firms. The
reduction of jobs is a prime reason for the current fiscal crisis in New York
City. The elimination of these positions resulted in less taxes collected by New
York City on salaries and bonuses and has strained its social services
departments as an increased number of people are seeking public assistance.

Historically, the New York City metropolitan area has benefited from being
the corporate headquarters of many large industrial and commercial national
companies which have, in turn, attracted many smaller companies, particularly
within the service industry. However, as a consequence of being the home of many
national companies and to a large number of national securities and investment
banking firms, as well as being a popular travel destination, the New York City
metropolitan area is sensitive to the economic health of the United States. As a
result, continued economic deterioration in other parts of the United States
could have an adverse impact on the economic climate of New York City. In
addition, the events of September 11, 2001 and the resultant effect on the local
economy has lead to uncertainty as to the impact, both long and short-term, on
businesses and real estate values in Manhattan. The decline in tourism also
resulted in reduced profitability and job losses in New York City. Commercial
real estate values have declined during this period due to significant vacancies
in commercial properties and high end residential properties.

Furthermore, the rate of population growth of the New York City and Newark
metropolitan statistical areas, which are the primary market areas of the
Company, has been at a much slower rate than the nation as a whole during the
past 12 years. At June 30, 2002, the Company's deposit market share was 0.99% of
the New York City metropolitan statistical area and 1.99% of the Newark
metropolitan statistical area. These two areas account for 55 of the Company's
branch locations. In addition, the boroughs of Brooklyn and Queens, in which the
Company maintains its largest market presence, have experienced relatively
stagnant population growth in recent periods. Such stagnant population growth
also has been a factor in the increasing competition among financial
institutions operating in the Company's market area. Such slower growth

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may challenge the Company's ability to meet its full business plan.

The Company faces significant competition both in making loans and in
attracting deposits. The New York City metropolitan area has a significant
concentration of financial institutions, many of which are branches of
significantly larger institutions which have greater financial resources than
the Company. Over the past 10 years, consolidation of the banking industry in
the New York City metropolitan area has continued, resulting in the Company
facing larger and increasingly efficient competitors. It is also reflected in
the low deposit growth experienced in the Company's existing branch offices,
with deposit growth being primarily the result of acquisitions. The Company's
competition for loans comes principally from commercial banks, savings banks,
savings and loan associations, credit unions, mortgage-banking companies,
commercial finance companies and insurance companies. The Company's most direct
competition for deposits has historically come from commercial banks, savings
banks, savings and loan associations, credit unions and commercial finance
companies. The Company faces additional competition for deposits from short-term
money market funds and other corporate and government securities funds and from
other financial institutions such as brokerage firms and insurance companies.

FORWARD LOOKING INFORMATION

In addition to historical information, this Annual Report on Form 10-K
includes certain "forward-looking statements" based on current management
expectations. The Company's actual results could differ materially, as defined
in the Securities Act of 1933 and the Securities Exchange Act of 1934, from
management's expectations. Such forward-looking statements include statements
regarding management's current intentions, beliefs or expectations as well as
the assumptions on which such statements are based. These forward-looking
statements are subject to significant business, economic and competitive
uncertainties and contingencies, many of which are not subject to the Company's
control. Stockholders and potential stockholders are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those contemplated by such forward-looking statements. Factors that could cause
future results to vary from current management expectations include, but are not
limited to, general economic conditions, legislative and regulatory changes,
monetary and fiscal policies of the federal government, changes in tax policies,
rates and regulations of federal, state and local tax authorities, changes in
interest rates, deposit flows, the cost of funds, demand for loan products,
demand for financial services, competition, changes in the quality or
composition of the Company's loan and investment portfolios, changes in
accounting principles, policies or guidelines, availability and cost of energy
resources and other economic, competitive, governmental and technological
factors affecting the Company's operations, markets, products, services and
fees.

The Company undertakes no obligation to update or revise any
forward-looking statements to reflect changed assumptions, the occurrence of
unanticipated events or changes to future operating results over time.

AVAILABLE INFORMATION

The Company is a public company and files annual, quarterly and special
reports, proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). Members of the public may read and copy any document the
Company files at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Members of the public can request copies of these
documents by writing to the SEC and paying a fee for the copying cost. Please
call the SEC at 1-800-SEC-0330 for more information about the operation of the
public reference room. The Company's SEC filings are also available to the
public at the SEC's web site at http://www.sec.gov. In addition to the
foregoing, the Company maintains a web site at www.myindependence.com. The
Company's website content is made available for informational purposes only. It
should neither be relied upon for investment purposes nor is it incorporated by
reference into this Form 10-K. The Company makes available on its internet web
site copies of its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and any amendments to such documents as soon as
reasonable practicable after it files such material with or furnishes such
documents to the SEC.

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LENDING ACTIVITIES

GENERAL. At December 31, 2002, the Company's net loan portfolio totaled
$5.74 billion (not including $114.4 million loans available-for-sale), which
represented 71.5% of the Company's total assets of $8.02 billion at such date. A
key corporate objective is over time to change the mix of the Company's loan
portfolio by reducing the emphasis on the origination of one-to-four family
residential mortgage loans and cooperative apartment loans, and expanding the
origination of higher yielding and/or variable rate commercial real estate and
commercial business loans and mortgage warehouse lines of credit. However, the
largest category of loans in the Company's portfolio continues to be
multi-family residential mortgage loans, which totaled $2.44 billion or 41.9% of
the Company's total loan portfolio at December 31, 2002, although such loans
have materially declined as a percentage of the total loan portfolio over the
past three years. Such loans are secured primarily by apartment buildings
located in the Company's market area. Reflecting the shift in the Company's
lending strategy, the second and third largest loan categories are commercial
real estate loans and mortgage warehouse lines of credit loans which totaled
$1.31 billion or 22.6% and $692.4 million or 11.9%, respectively, of the total
loan portfolio at December 31, 2002. Commercial business loans accounted for
$598.3 million or 10.3% of the total loan portfolio at December 31, 2002. These
four categories collectively accounted for 86.7% of the Company's total loan
portfolio at December 31, 2002. The remainder of the loan portfolio was
comprised of $348.6 million of single-family residential mortgage loans, $207.7
million of cooperative apartment loans, $202.0 million of home equity loans and
lines of credit and $27.0 million of consumer and other loans.

The types of loans that the Company may originate are subject to federal
and state laws and regulations. Interest rates charged by the Company on loans
are affected principally by the demand for such loans and the supply of money
available for lending purposes, the rates offered by its competitors and the
term and credit risk associated with the loan. These factors in turn, are
affected by general and economic conditions, the monetary policy of the federal
government, including the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), legislative tax policies and governmental budgetary
matters.

As part of the Company's continuing enhancement of its credit
administration process, in 2002 the Company redefined its criteria for
classifying loans as either commercial real estate or commercial business loans.
As a result of the application of the new criteria and the Company's conversion
to a new commercial loan servicing system completed during the fourth quarter of
2002, the Company reviewed all of its commercial loan relationships and
redesignated as of September 30, 2002 approximately $238.0 million of commercial
business loans as commercial real estate or multi-family residential loans. The
Company has not revised any other current or prior period information related to
this redesignation since it did not affect the amount of the Company's net loan
portfolio, total assets, results of operations or earnings per share.

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LOAN PORTFOLIO AND LOANS AVAILABLE-FOR-SALE COMPOSITION. The following
table sets forth the composition of the Company's loan portfolio and loans
available-for-sale at the dates indicated.

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(1) Reflects redesignation of loans in 2002. See "Lending
Activities -- General".

(2) Includes loans secured by mixed-use (combined residential and commercial
use) properties. At December 31, 2002 and 2001, such loans totaled $919.6
million and $902.2 million, respectively.

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CONTRACTUAL PRINCIPAL REPAYMENTS AND INTEREST RATES. The following table
sets forth scheduled contractual amortization of the Company's loans at December
31, 2002, as well as the dollar amount of such loans which are scheduled to
mature after one year and which have fixed or adjustable interest rates. Demand
loans, overdraft loans and loans having no schedule of repayments and no stated
maturity are reported as due in one year or less. In addition, does not include
loans available-for-sale.

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(1) Does not include $8.5 million of single-family residential loans serviced by
others.

(2) Does not include $0.8 million of multi-family residential loans serviced by
others.

(3) Multi-family residential and commercial real estate loans are generally
originated with a term to repricing of five to seven years and may be
extended by the borrower for an additional five year period.

(4) Includes home equity loans and lines of credit, FHA and conventional home
improvement loans, automobile loans, passbook loans and secured and
unsecured personal loans.

(5) Of the $4.68 billion of loan principal repayments contractually due after
December 31, 2003, $3.43 billion have fixed rates of interest and $1.25
billion have adjustable rates of interest.

LOAN ORIGINATIONS, PURCHASES, SALES AND SERVICING. The Company originates
multi-family residential loans (primarily for sale), commercial real estate and
business loans, advances under mortgage warehouse lines of credit, single-family
residential mortgage loans, cooperative apartment loans, home equity, loans and
lines of credit, and consumer and other loans. The relative volume of
originations is dependent upon customer demand and current and expected future
levels of interest rates.

During 2002, the Company continued its focus on expanding its higher
yielding and/or variable rate portfolios of commercial real estate and
commercial business loans as well as expanding its mortgage warehouse lines of
credit portfolio as part of its business plan. As part of such effort, the
Company purchased in April 2001 the assets of Summit Bank's Mortgage Banking
Finance Group ("MBFG") from FleetBoston Financial Corporation (Summit Bank was
acquired by FleetBoston). MBFG provided mortgage warehouse lines of credit to
mortgage bankers in the New York, New Jersey, Connecticut area. The acquisition
increased the Company's existing mortgage warehouse line of credit portfolio by
$130 million in lines with approximately $83.5 million in outstanding advances.
Mortgage warehouse lines of credit are short-term secured advances extended to
mortgage-banking companies primarily to fund the origination of one-to-four
family mortgages.

In addition to continuing to generate multi-family residential mortgage
loans for portfolio, the Company originates and sells multi-family residential
mortgage loans in the secondary market to Fannie Mae while retaining servicing.
This relationship supports the Company's ongoing strategic objective of
increasing non-interest income related to lending and servicing revenue. The
Company underwrites these loans using its customary underwriting standards,
funds the loans, and sells the loans to Fannie Mae at agreed upon pricing
thereby eliminating rate and basis exposure to the Company. The Company can
originate and sell loans to Fannie Mae for not more than $20.0 million per loan.
During the year ended December 31, 2002, the Company originated for sale $1.17
billion and sold $1.07 billion of fixed-rate multi-family loans in the secondary
market with servicing retained by the

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Company. Under the terms of the sales program, the Company retains a portion of
the associated credit risk. The Company has a 100% first loss position on each
multi-family residential loan sold to Fannie Mae under such program until the
earlier to occur of (i) the losses on the multi-family residential loans sold to
Fannie Mae reaching the maximum loss exposure for the portfolio or (ii) until
all of the loans sold to Fannie Mae under this program are fully paid off. The
maximum loss exposure is available to satisfy any losses on loans sold in the
program subject to the foregoing limitations. Substantially all the loans sold
to Fannie Mae under this program are newly originated using the Company's
underwriting guidelines. At December 31, 2002, the Company serviced $1.97
billion of loans for Fannie Mae sold to it pursuant to this program with a
maximum potential exposure of $113.7 million.

The maximum loss exposure of the associated credit risk related to the
loans sold to Fannie Mae under this program is calculated pursuant to a review
of each loan sold to Fannie Mae. A risk level is assigned to each such loan
based upon the loan product, debt service coverage ratio and loan to value ratio
of the loan. Each risk level has a corresponding sizing factor which, when
applied to the original principal balance of the loan sold, equates to a
recourse balance for the loan. The sizing factors are periodically reviewed by
Fannie Mae based upon its continuing review of loan performance and are subject
to adjustment. The total of the recourse balance per loan is aggregated to
create a maximum loss exposure for the entire portfolio at any given point in
time. The Company's maximum loss exposure for the entire portfolio of sold loans
is periodically reviewed and, based upon factors such as amount, size, types of
loans and loan performance, may be adjusted downward. Fannie Mae is restricted
from increasing the maximum exposure on loans previously sold to it under this
program as long as (i) the total borrower concentration (i.e., the total amount
of loans extended to a particular borrower or a group of related borrowers) as
applied to all mortgage loans delivered to Fannie Mae since the effective date
of the sales program does not exceed 10% and (ii) the average principal balance
per loan of all mortgage loans delivered to Fannie Mae since the effective date
of the sales program continues to be $4.0 million or less.

During 2002, the Company sold from portfolio at par, $257.6 million of
fully performing multi-family loans in exchange for Fannie Mae mortgage-backed
securities representing a 100% interest in these loans. Such loans were sold
with full recourse with the Company retaining servicing. This transaction
supported the Company's efforts to continue to build and strengthen its
relationship with Fannie Mae, had no impact on 2002 earnings and had a positive
impact on the Company's risk-based capital ratios since the risk weighting on
the mortgage-backed securities is lower than would be applied to the underlying
loans.

The Company has not sold multi-family residential loans to any other
entities besides Fannie Mae during the last three years.

Although all of the loans serviced for Fannie Mae (both loans originated
for sale and loans sold from portfolio) are currently fully performing, the
Company has established a liability related to the fair value of the retained
credit exposure. This liability represents the amount that the Company would
have to pay a third party to assume the retained recourse obligation. The
estimated liability represents the present value of the estimated losses that
the portfolio is projected to incur based upon a standard Department of Housing
and Urban Development default curve with a range of estimated losses. At
December 31, 2002 the Company had a $4.5 million liability related to the fair
value of the retained credit exposure for loans sold to Fannie Mae.

As a result of retaining servicing on $2.23 billion of loans sold to Fannie
Mae, the Company had a $6.4 million servicing asset at December 31, 2002. Loan
servicing assets increased $2.1 million to $6.4 million at December 31, 2002
compared to $4.3 million at December 31, 2001. During 2002, the Company sold
$1.33 billion of multi-family loans to Fannie Mae and recorded a $5.5 million
servicing asset which was partially offset by $3.4 million of amortization of
the servicing asset.

Over the past few years, the Company has de-emphasized the origination for
portfolio of single-family residential mortgage loans in favor of higher
yielding loan products. In November 2001, the Company entered into a private
label program for the origination of single-family residential mortgage loans
through its branch network under a mortgage origination assistance agreement
with Cendant Mortgage Corporation, doing business as PHH Mortgage Services
("Cendant"). Under this program, the Company utilizes Cendant's mortgage

7

loan origination platforms (including telephone and Internet platforms) to
originate loans that close in the Company's name. The Company funds the loans
directly, and, under a separate loan and servicing rights purchase and sale
agreement, sells the loans and related servicing to Cendant on a non-recourse
basis at agreed upon pricing. During the year ended December 31, 2002, the
Company originated for sale $140.2 million of single-family residential mortgage
loans through the program. The Company is using this program as a means of
increasing non-interest income while efficiently serving its client base. In the
future, the Company may continue to originate certain adjustable and fixed-rate
residential mortgage loans for portfolio retention, but at significantly reduced
levels.

Mortgage loan commitments to borrowers related to loans originated for sale
are considered a derivative instrument under Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133") implementation issue C13. In addition, forward loan
sale agreements with Fannie Mae and Cendant also meet the definition of a
derivative instrument under SFAS No. 133. For more information regarding the
Company's derivative instruments, see Note 17 of the "Notes to Consolidated
Financial Statements" set forth in Item 8 hereof.

During the fourth quarter of 2002, the Company entered into a private label
program for the origination and servicing of small business lines of credit
through an origination assistance agreement with Wells Fargo & Company ("Wells
Fargo"). This program is referred to as "Business Custom Capital", which are
unsecured lines of credit, up to $100,000, to small business customers in the
Company's market area with over $50,000 in annual sales. These lines are
underwritten, funded and serviced by Wells Fargo for their own portfolio and
have no impact on the Company's Statement of Financial Condition. The Company is
using this program as a means of increasing non-interest income as the Company
receives an upfront fee for lines originated and a fee on the outstanding
balance of the line for a period of three years.

As of December 31, 2002, the Company serviced $98.5 million of
single-family residential mortgage loans and $2.26 billion of multi-family
residential loans for others.

In December 1998, Broad entered into an agreement with New Jersey Citizen
Action ("NJCA"), a community group, pursuant to which Broad agreed to use its
best efforts to lend a total of $20.0 million in the state of New Jersey over a
five year period beginning on January 1, 1999. Subsequent to the merger of Broad
and the Company in July 1999 and the merger of Statewide and the Company in
January 2000, the Bank entered into a modified agreement with NJCA pursuant to
which a revised target goal of extending $33.0 million in loans was established
for the five-year term of the agreement ending December 31, 2004. Such loans are
to consist primarily of affordable home mortgage products in the form of
one-to-four family mortgage loans to qualified low and moderate income
borrowers, community development financing consisting primarily of loans for the
purpose of purchasing, constructing and rehabilitating housing affordable to low
and moderate income families and economic development financing to facilitate
small business startup and expansion and job development. As of December 31,
2002, the Company had extended approximately $42.8 million of loans in
connection with the NJCA agreement.

8

LOAN ACTIVITY. The following table shows the activity in the Company's
loan portfolio and loans available-for sale portfolio during the periods
indicated.

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(1) Represents advances on the lines of credit.

(2) Includes home equity loans and lines of credit, FHA and conventional home
improvement loans, student loans, automobile loans, passbook loans and
secured and unsecured personal loans.

(3) Includes repayment of line advances ($6.77 billion for mortgage warehouse
lines of credit during the year ended December 31, 2002) and loans
charged-off or transferred to other real estate owned.

9

MULTI-FAMILY RESIDENTIAL LENDING. The Company originates multi-family
(five or more units) residential mortgage loans which are secured primarily by
apartment buildings, cooperative apartment buildings and mixed-use (combined
residential and commercial) properties located primarily in the Company's market
area. These loans are comprised primarily of middle-income housing located in
the boroughs of Brooklyn, Queens, Manhattan, the Bronx and Northern New Jersey.
The main competitors for loans in the Company's market area tend to be
commercial banks, savings banks, savings and loan associations, credit unions,
mortgage-banking companies and insurance companies. Historically, the Company
has been an active lender of multi-family residential mortgage loans for
portfolio retention. More recently, in order to further its commitment to remain
a leader in the multi-family market, the Company continues to build on its
relationship with Fannie Mae to originate and sell multi-family residential
mortgage loans in the secondary market while retaining servicing. The Company
determines whether to originate a loan for portfolio retention or for sale based
upon the yield and terms of the loan. Due to the current low interest rate
environment, a larger portion of the Company's multi-family residential loan
originations have been for sale as opposed to portfolio retention. See
"Business-Lending Activities-Loan Originations, Purchases, Sales and Servicing".

At December 31, 2002, multi-family residential mortgage loans totaled $2.44
billion, or 41.9% of the Company's total loan portfolio. The Company originated
multi-family residential loans for portfolio of $505.7 million during the year
ended December 31, 2002 and $323.6 million for the nine months ended December
31, 2001. Multi-family residential mortgage loans in the Company's portfolio
generally range in amount from $500,000 to $4.0 million and have an average size
of approximately $1.1 million.

At December 31, 2002, the Company had $106.8 million of multi-family loans
available-for-sale. During the year ended December 31, 2002 the Company
originated for sale $1.17 billion and sold $1.33 billion (of which $1.07 billion
was originated for sale and $257.6 million was sold from portfolio) of
multi-family residential loans to Fannie Mae with servicing retained by the
Bank. During the nine months ended December 31, 2001, the Company sold $419.3
million of multi-family residential loans to Fannie Mae.

The Company has developed during the past several years working
relationships with several mortgage brokers. Under the terms of the arrangements
with such brokers, the brokers refer potential loans to the Company. The loans
are appraised and underwritten by the Company utilizing its underwriting
policies and standards. The mortgage brokers receive a fee from the borrower
upon the funding of the loans by the Company. In recent years, mortgage brokers
have been the source of a substantial majority of the multi-family residential
and commercial real estate loans originated by the Company. In October 2002, in
furtherance of its business strategy regarding commercial real estate and
multi-family loan originations and sales, the Company increased from 20% to 35%
its minority investment in Meridian Capital Group, LLC ("Meridian"), a New
York-based mortgage brokerage firm. Meridian is primarily engaged in the
origination of commercial real estate and multi-family mortgage loans. The loans
originated by the Company resulting from referrals by Meridian account for a
significant portion of the Company's total loan originations. For the year ended
December 31, 2002, such loans accounted for approximately 17.8% of the aggregate
amount of loans originated for portfolio and for sale. With respect to the loans
which were originated for portfolio in 2002 (excluding mortgage warehouse lines
of credit), loans resulting from referrals from Meridian amounted to
approximately 39.9% of such loans. In addition, referrals from Meridian
accounted for the majority of the loans originated for sale in 2002. All loans
resulting from referrals from Meridian are underwritten by the Company using its
loan underwriting standards and procedures. The Company generally has not paid
any referral fees to Meridian. In the future, the Company may consider paying
such fees if it is deemed necessary for competitive reasons. The ability of the
Company to continue to originate multi-family residential and commercial real
estate loans at the levels experienced in the past may be a function of, among
other things, maintaining the mortgage broker relationships discussed above. See
Note 19 of the "Notes to Consolidated Financial Statements" set forth in Item 8
hereof.

When approving new multi-family residential mortgage loans, the Company
follows a set of underwriting standards which generally permit a maximum
loan-to-value ratio of 75% based on an appraisal performed by either one of the
Company's in-house licensed and certified appraisers or by a

10

Company-approved licensed and certified independent appraiser (whose appraisal
is reviewed by a Company licensed and certified appraiser), and sufficient cash
flow from the underlying property to adequately service the debt. A minimum debt
service ratio of 1.3 generally is required on multi-family residential mortgage
loans. The Company also considers the financial resources of the borrower, the
borrower's experience in owning or managing similar properties, the market value
of the property and the Company's lending experience with the borrower. For
loans sold in the secondary market to Fannie Mae, the maximum loan-to-value
ratio is 80% and the minimum debt service ratio is 1.25. The Company's current
lending policy for loans originated for portfolio and for sale requires that
loans in excess of $2.0 million be approved by at least two members of the
Credit Committee of the Board of Directors, the composition of which is changed
periodically.

It is the Company's policy to require appropriate insurance protection,
including title and hazard insurance, on all mortgage loans prior to closing.
Other than cooperative apartment loans, mortgage loan borrowers generally are
required to advance funds for certain items such as real estate taxes, flood
insurance and private mortgage insurance, when applicable.

The Company's multi-family residential mortgage loans include loans secured
by cooperative apartment buildings. In underwriting these loans, the Company
applies the normal underwriting criteria used with other multi-family
properties. In addition, the Company generally will not make a loan on a
cooperative apartment building unless at least 50% of the total units in the
building are owner-occupied. However, the Company will consider making a loan
secured by a cooperative apartment building if it has a large positive rental
income which significantly exceeds maintenance expense. At December 31, 2002,
the Company had $535.8 million of loans secured by cooperative apartment
buildings located primarily in Manhattan.

The Company's typical multi-family residential mortgage loan is originated
with a term to repricing or maturity of 5 to 7 years. These loans have a fixed-
rate of interest and may be extended by the borrower, upon payment of an
additional fee, for an additional five year period at an interest rate based on
the 5-year FHLB advance rate plus a margin at the time of extension. Under the
terms of the Company's multi-family residential mortgage loans, the principal
balance generally is amortized at the rate of 1% per year with the remaining
principal due in full at maturity. Prepayment penalties are generally part of
the terms on these loans.

COMMERCIAL REAL ESTATE LENDING. In addition to multi-family residential
mortgage loans, the Company originates commercial real estate loans. This
growing portfolio is comprised primarily of loans secured by commercial and
industrial properties, office buildings and small shopping centers located
primarily within the Company's market area.

At December 31, 2002, commercial real estate loans amounted to $1.31
billion or 22.6% of total loans. This portfolio increased $293.4 million, or
28.8%, during the year ended December 31, 2002 due to the Company's increased
emphasis on originating higher yielding commercial real estate and business
loans in line with its business strategy and the redesignation of $178.5 million
of commercial business loans as commercial real estate loans. See "Lending
Activities-General". The Company originated $325.7 million of commercial real
estate loans during the year ended December 31, 2002 and $196.7 million for the
nine months ended December 31, 2001. The Company intends to continue to
emphasize these higher yielding loan products.

The Company's commercial real estate loans generally range in amount from
$50,000 to $5.0 million, and have an average size of approximately $1.5 million.
The Company originates commercial real estate loans using similar underwriting
standards as applied to multi-family residential mortgage loans. The Company
reviews rent or lease income, rent rolls, business receipts, the borrower's
credit history and business experience, and comparable values of similar
properties when underwriting commercial real estate loans.

Loans secured by apartment buildings and other multi-family residential and
commercial properties generally are larger and considered to involve a higher
inherent risk of loss than single-family residential mortgage or cooperative
apartment loans. Payments on loans secured by multi-family residential and
commercial properties are often dependent on the successful operation or
management of the properties and are subject, to a greater extent, to adverse
conditions in the real estate market or the local economy. The Company seeks to
minimize these risks through its underwrit-

11

ing policies, which generally limit the origination of such loans to loans
secured by properties located in the Company's market area and require such
loans to be qualified on, among other things, the basis of the property's income
and debt service ratio.

SINGLE-FAMILY RESIDENTIAL AND COOPERATIVE APARTMENT LENDING. The Company,
through its private label program with Cendant, offers both fixed-rate and
adjustable-rate mortgage loans secured by single-family residential properties
located in the Company's primary market area. Under its agreement with Cendant,
the Company offers a range of single-family residential loan products through
various delivery channels, supported by direct consumer advertising, including
telemarketing, branch referrals and the Company's Internet website. At December
31, 2002, the Company had $7.6 million of loans available-for-sale to Cendant.
During 2002, the Company originated for sale $140.2 million and sold $133.5
million of loans to Cendant. The Company will continue to emphasize this program
as a means of increasing non-interest income.

Over the past few years, the Company has de-emphasized the origination of
single-family residential mortgages, for portfolio, in favor of higher yielding
loan products. At December 31, 2002, $348.6 million, or 6.0% of the Company's
total loan portfolio consisted of single-family residential mortgage loans (of
which $149.4 million were adjustable-rate mortgage loans ("ARMs")) as compared
to $492.6 million or 8.5% of the total loan portfolio at December 31, 2001.

The interest rates on the Company's ARMs fluctuate based upon a spread
above the average yield on 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. In addition, ARMs generally are subject to limitations on
interest increases or decreases of 2% per adjustment period and an interest rate
cap during the life of the loan established at the time of origination. Certain
of the Company's ARMs can be converted at certain times to fixed-rate loans upon
payment of a fee. Interest rates charged on fixed-rate loans are competitively
priced based on market conditions. Included in single-family residential loans
is a modest amount of loans partially or fully guaranteed by the Federal Housing
Administration ("FHA") or the Department of Veterans' Affairs ("VA").

Under the Company's underwriting guidelines, ARMS can be originated with
loan-to-value ratios of up to 80%. Fixed-rate, single-family residential
mortgage loans can be originated with loan-to-value ratios of up to 95%;
provided, however, that private mortgage insurance is required for loans with
loan-to-value ratios in excess of 80%. Substantially all of the Company's
mortgage loans include due-on-sale clauses which provide the Company with the
contractual right to deem the loan immediately due and payable in the event the
borrower transfers ownership of the property without the Company's consent. It
is the Company's policy to enforce due-on-sale provisions within the applicable
regulations and guidelines imposed by New York law.

The Company continues to originate cooperative apartment loans although at
a substantially reduced level of activity. At December 31, 2002, such loans
amounted to $207.7 million or 3.5% of the Company's total loan portfolio as
compared to $356.5 million or 6.1% at December 31, 2001. At December 31, 2002,
ARMs represented $194.3 million of cooperative apartment loans. Although the
Company's cooperative apartment loans in the past have related to properties
located in the boroughs of Manhattan, Brooklyn and Queens, in recent periods
substantially all of such loans originated or purchased have related to
properties located in Manhattan, with a significant number of such loans having
original loan balances in excess of $300,000.

In order to provide financing for low and moderate-income home buyers, the
Company participates in residential mortgage programs and products sponsored by,
among others, the State of New York Mortgage Authority, the Community
Preservation Corporation and Neighborhood Housing Services. Various programs
sponsored by these groups provide low and moderate income households with
fixed-rate mortgage loans which are generally below prevailing fixed market
rates and which allow below-market down payments for the construction of
affordable rental housing.

COMMERCIAL BUSINESS LENDING ACTIVITIES. Part of the Company's strategy to
shift its portfolio mix is expanding its commercial business loan portfolio. The
Company makes commercial business loans directly to businesses located primarily
in its market area and targets small- and medium-sized businesses with annual
revenue up to $125.0 mil-

12

lion. Commercial business loans are obtained primarily from existing customers,
branch referrals, accountants, attorneys and direct inquiries. As of December
31, 2002, commercial business loans totaled $598.3 million, or 10.3%, of the
Company's total loan portfolio. The Company originated $406.2 million of
commercial business loans during the year ended December 31, 2002 and $405.4
million for the nine months ended December 31, 2001.

As of September 30, 2002, the Company redesignated approximately $238.0
million of commercial business loans as commercial real estate loans or
multi-family residential loans. See "-Lending Activities-General".

Commercial business loans originated by the Company generally range in
amount from $50,000 to $5.0 million and have an average size of approximately
$410,000. These loans have terms of five years or less, or when secured by
related real estate, generally have terms of ten years or less, and have
floating interest rates tied to the prime rate or the London Inter-Bank Offered
Rate ("LIBOR") plus a margin. Such loans are generally secured by real estate,
receivables, inventory, equipment, machinery and vehicles and are further
enhanced by the personal guarantees of the principals of the borrower.
Commercial business loans generally have shorter terms to maturity and provide
higher yields than single-family residential mortgage loans. The Company's
current lending policy for loans originated for portfolio and for sale requires
that loans in excess of $2.0 million be approved by two non-officer directors of
the Credit Committee of the Board of Directors. Although commercial business
loans generally are considered to involve greater credit risk, and generally a
corresponding higher yield, than certain other types of loans, management
intends to continue emphasizing the origination of commercial business loans to
small- and medium-sized businesses in its market area.

Included in commercial business loans is small business lending activities.
Small business lending activities are targeted to customers within the Company's
market area with over $50,000 in annual sales. The Company offers various
products to small business customers in its market area which include (i)
originating secured loans for its own portfolio, (ii) originating secured loans
in amounts up to $2.0 million using the Company's underwriting standards and
guidelines from the Small Business Administration ("SBA"), and selling, at a
gain, the guaranteed portion (75%) of each loan, with servicing retained, and
(iii) offering access to unsecured lines of credit up to $100,000 through its
private label program with Wells Fargo. (See "-- Loan Origination, Purchases,
Sales and Servicing"). The Company offers these activities to better serve its
small business customers as well as a means of increasing non-interest income.

MORTGAGE WAREHOUSE LINES OF CREDIT. Mortgage warehouse lines of credit are
revolving lines of credit to small- and medium-sized mortgage-banking companies
at interest rates indexed at a spread to the prime rate. The lines are drawn
upon by such companies to fund the origination of mortgages, primarily
one-to-four family loans, where the amount of the draw is generally no higher
than 99% of the loan amount, which, in turn, in most cases, is no higher than
80% of the appraised value of the property. In most cases, where the amount of
the draw is in excess of 80%, the mortgage is covered by private mortgage
insurance or government insurance through the FHA. In substantially all cases,
prior to funding the advance, the mortgage broker has received an approved
commitment for the sale of the loan which in turn reduces credit exposure
associated with the line. The lines are repaid upon completion of the sale of
the mortgage loan to third parties which usually occurs within 90 days of
origination of the loan. During the period between the origination and sale of
the loan, the Company maintains possession of the original mortgage note. These
loans are of short duration and are made to customers located primarily in New
Jersey and surrounding states whose primary business is mortgage refinancing. In
the event of rising interest rates, the Company expects that utilization of
these lines of credit would be substantially reduced and replaced only to the
extent of strength in the general housing market.

Mortgage warehouse lines of credits to brokers generally range in amount
from $1.0 million to $25.0 million, and have an average size of approximately
$7.5 million. The Company establishes limits on mortgage warehouse lines of
credit using its normal underwriting standards. The Company reviews credit
history, business experience, process controls and procedures and requires
personal guarantees of the principals of the borrower.

As of December 31, 2002, advances under mortgage warehouse lines of credit
totaled $692.4 million, or 11.9% of the Company's total

13

loan portfolio compared to $446.5 million at December 31, 2001. The increase
during 2002 was attributable to the current refinance market. During 2002,
advances on mortgage warehouse lines of credit totaled $7.02 billion and
repayments totaled $6.77 billion. Unused mortgage warehouse lines of credit
totaled $219.1 million at December 31, 2002. Utilization of the borrowers lines
of credit approximated 77% and 75% of the total line approved at December 31,
2002 and December 31, 2001, respectively.

CONSUMER LENDING ACTIVITIES. The Company offers a variety of consumer
loans including home equity loans and lines of credit, automobile loans, student
loans and passbook loans in order to provide a full range of financial services
to its customers. Such loans are obtained primarily through existing and walk-in
customers and direct advertising. At December 31, 2002, $228.9 million or 3.9%
of the Company's total loan portfolio was comprised of consumer loans.

The largest component of the Company's consumer loan portfolio is home
equity loans and lines of credit. Home equity lines of credit are a form of
revolving credit and are secured by the underlying equity in the borrower's
primary or secondary residence. The loans are underwritten in a manner such that
they result in a risk of loss which is similar to that of single-family
residential mortgage loans. The Company's home equity lines of credit have
interest rates that adjust or float based on the prime rate, have loan-to-value
ratios of 80% or less, and are generally for amounts of less than $100,000 but
can be as high as $300,000. The loan repayment is generally based on a 15 year
term consisting of principal amortization plus accrued interest. At December 31,
2002, home equity loans and lines of credit amounted to $202.0 million, or 3.5%,
of the Company's total loan portfolio. The Company had an additional $77.1
million of unused commitments pursuant to such equity lines of credit at
December 31, 2002.

The second largest component of the Company's consumer loan portfolio at
December 31, 2002 is passbook loans which totaled $10.0 million and are secured
by the borrowers' deposits at the Bank. At December 31, 2002, the remaining
$16.9 million of the Company's consumer loan portfolio was comprised primarily
of miscellaneous unsecured loans.

LOAN APPROVAL AUTHORITY AND UNDERWRITING. The Board of Directors of the
Bank has established lending authorities for individual officers as to its
various types of loan products. For multi-family residential mortgage loans,
commercial real estate and commercial business loans, an Executive Vice
President and a Senior Vice President have the authority to approve loans in
amounts up to $500,000 and for the private banking group within the Company's
retail banking area, two Senior Vice Presidents acting jointly have such
authority. Amounts up to $2.0 million may be approved by either the Chief
Executive Officer or the Chief Credit Officer. For single-family residential
mortgage loans and cooperative apartment loans, two senior officers acting
jointly have the authority to approve loans in amounts up to $500,000. Any
mortgage loan, cooperative apartment and commercial business loan in excess of
$2.0 million must be approved by at least two members of the Credit Committee of
the Board of Directors, which consists of various directors, the composition of
which is changed periodically. Consumer loans of less than $100,000 can be
approved by an individual loan officer, while loans between $100,000 and
$300,000 must be approved by two loan officers.

With certain limited exceptions, the Company's credit administration policy
limits the amount of credit related to mortgage loans and commercial loans that
can be extended to any one borrower to $20.0 million, substantially less than
the limits imposed by applicable law and regulation. With certain exceptions,
the Company's policy also limits the amount of commercial business or commercial
real estate loans that can be extended to any affiliated borrowing group to
$40.0 million. Exceptions to the above policy limits must have the approval of
the Chief Executive Officer, Chief Credit Officer and Credit Committee of the
Board of Directors. With certain limited exceptions, a New York-chartered
savings bank may not make loans or extend credit for commercial, corporate or
business purposes (including lease financing) to a single borrower, the
aggregate amount of which would exceed (i) 15% of the Bank's net worth if the
loan is unsecured, or (ii) 25% of net worth if the loan is secured. Pursuant to
such provisions, the Company could lend at December 31, 2002 up to $219.5
million to any one borrower and related entities.

Appraisals for multi-family residential and commercial real estate loans
are generally con-

14

ducted either by licensed and certified internal appraisers or qualified
external appraisers. In addition, the Company generally internally reviews all
appraisals conducted by independent appraisers on multi-family residential and
commercial real estate properties.

LOAN ORIGINATION AND LOAN FEES. In addition to interest earned on loans,
the Company receives loan origination fees or "points" for many of the loans it
originates. Loan points are a percentage of the principal amount of the mortgage
loan and are charged to the borrower in connection with the origination of the
loan. The Company also offers a number of residential loan products on which no
points were charged.

The Company's loan origination fees and certain related direct loan
origination costs are offset, and the resulting net amount is deferred and
amortized over the contractual life of the related loans as an adjustment to the
yield of such loans. At December 31, 2002, the Company had $13.2 million of net
deferred loan fees.

ASSET QUALITY

The Company generally places loans on non-accrual status when principal or
interest payments become 90 days past due, except those loans reported as 90
days past maturity within the overall total of non-performing loans. However,
student, FHA or VA loans continue to accrue interest because their interest
payments are guaranteed by various government programs and agencies. Loans may
be placed on non-accrual status earlier if management believes that collection
of interest or principal is doubtful or when such loans have such well defined
weaknesses that collection in full of principal or interest may not be probable.
When a loan is placed on non-accrual status, previously accrued but unpaid
interest is deducted from interest income.

Real estate acquired by the Company as a result of foreclosure or by
deed-in-lieu of foreclosure is classified as other real estate owned ("OREO")
until sold. Such assets are carried at the lower of fair value minus estimated
costs to sell the property, or cost (generally the balance of the loan on the
property at the date of acquisition). All costs incurred in acquiring or
maintaining the property are expensed and costs incurred for the improvement or
development of such property are capitalized up to the extent of their net
realizable value.

15

DELINQUENT LOANS. The following table sets forth delinquencies in the
Company's loan portfolio as of the dates indicated:

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

(1) Includes home equity loans and lines of credit, FHA and conventional home
improvement loans, student loans, automobile loans, passbook loans and
secured and unsecured personal loans.

(2) Total loans includes loans receivable less deferred loan fees and
unamortized discounts, net.

16

NON-PERFORMING ASSETS. The following table sets forth information with
respect to non-performing assets identified by the Company, including
non-performing loans and OREO at the dates indicated.

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

(1) Consists primarily of FHA home improvement loans and home equity loans and
lines of credit.

(2) Reflects loans that are 90 days or more past maturity which continue to make
payments on a basis consistent with the original repayment schedule.

(3) Net of related valuation allowances.

(4) Non-performing assets consist of non-performing loans and OREO.
Non-performing loans consist of (i) non-accrual loans and (ii) loans 90 days
or more past due as to interest or principal.

17

Non-performing assets decreased 9.8% to $41.6 million at December 31, 2002,
compared to $46.2 million at December 31, 2001. The decrease of $4.5 million
primarily reflects a $15.6 million decrease in loans past due 90 days or more as
to principal but still accruing, which loans continued to make payments on a
basis consistent with the original repayment schedule, partially offset by an
$11.2 million increase in non-accrual loans. The increase in non-accrual loans
was primarily due to increases of $9.2 million in non-accrual commercial
business loans and $5.0 million in non-accrual commercial real estate loans.

Loans 90 days or more past maturity which continued to make payments on a
basis consistent with the original repayment schedule amounted to $2.5 million
at December 31, 2002. The Company's multi-family residential and commercial real
estate loans are generally structured as a five or ten year balloon loan with
the ability of the borrower to extend the term of the loan for an additional
five years. At the contractual maturity date of these particular loans, the
borrowers failed to repay in full the principal due or negotiate a new borrowing
agreement. The borrowers, however, have continued to make payments on the loans
consistent with the loans' payment terms based on the original amortization
schedule. Although the Company has contacted the borrowers requesting that they
refinance their loans, the borrowers have not yet taken such step. The majority
of such loans bear interest rates that are above those being charged currently
on newly originated multi-family residential and commercial real estate loans.
Furthermore, the Company inspects each of such properties at least annually.
These loans decreased by $15.6 million during 2002 and the Company is continuing
its efforts to have the remaining borrowers refinance or extend the term of such
loans.

The interest income that would have been recorded during the year ended
December 31, 2002, the nine months ended December 31, 2001 and year ended March
31, 2001 if all of the Bank's non-accrual loans at the end of such period had
been current in accordance with their terms during such periods was $1.3
million, $1.0 million and $942,000, respectively.

A New York-chartered savings institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the Federal Deposit Insurance Corporation ("FDIC") and the
New York State Banking Department ("Department"), which can order the
establishment of additional general or specific loss allowances. The FDIC, in
conjunction with the other federal banking agencies, has adopted an interagency
policy statement on the allowance for loan and lease losses. The policy
statement provides guidance for financial institutions on both the
responsibilities of management for the assessment and establishment of adequate
allowances and guidance for banking agency examiners to use in determining the
adequacy of general valuation guidelines. Generally the policy statement
recommends that institutions have effective systems and controls to identify,
monitor and address asset quality problems; that management has analyzed all
significant factors that affect the collectibility of the portfolio in a
reasonable manner, and that management has established acceptable allowance
evaluation processes that meet the objectives set forth in the policy statement.
Although the Company believes that its allowance for loan losses was at a level
to cover all known and inherent losses in its loan portfolio at December 31,
2002 that were both probable and reasonable to estimate, there can be no
assurance that the regulators, in reviewing the Company's loan portfolio, will
not request the Company to materially adjust its allowance for possible loan
losses, thereby affecting the Company's financial condition and results of
operations at that time.

CRITICIZED AND CLASSIFIED ASSETS. Federal regulations require that each
insured institution classify its assets on a regular basis. Furthermore, in
connection with examinations of insured institutions, federal and state
examiners have authority to identify problem assets and, if appropriate,
classify them. There are three classifications for problem assets:
"substandard," "doubtful" and "loss." Substandard assets have one or more
defined weaknesses and are characterized by the distinct possibility that the
insured institution will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the same weaknesses of substandard assets with
the additional characteristic that the weaknesses make collection or liquidation
in full on the basis of currently existing facts, conditions and values
questionable, resulting in a high probability of loss. An asset classified as
loss is considered uncollectible and of such little value that continuance as an
asset of the institution is not warranted. The Company also categorizes assets
as "special mention". These are generally defined as

18

assets that have potential weaknesses that deserve management's close attention.
If left uncorrected, these potential weaknesses may result in deterioration of
the repayment prospects for the asset. However, they do not currently expose an
insured institution to a sufficient degree of risk to warrant classification as
substandard, doubtful or loss.

The Company's senior management reviews and classifies loans continually
and reports the results of its reviews to the Board of Directors on a monthly
basis. At December 31, 2002, the Company had classified an aggregate of $130.3
million of assets (a portion of which consisted of non-accrual loans). In
addition, at such date the Company had $58.4 million of assets that were
designated by the Company as special mention.

ALLOWANCE FOR LOAN LOSSES. The determination of the level of the allowance
for loan losses and the periodic provisions to the allowance charged to income
is the responsibility of management. In assessing the level of the allowance for
loan losses, the Company considers the composition of its loan portfolio, the
growth of loan balances within various segments of the overall portfolio, the
state of the local (and to a certain degree, the national) economy as it may
impact the performance of loans within different segments of the portfolio, the
loss experience related to different segments or classes of loans, the type,
size and geographic concentration of loans held by the Company, the level of
past due and non-performing loans, the value of collateral securing the loan,
the level of classified loans and the number of loans requiring heightened
management oversight. The continued shifting of the composition of the loan
portfolio to be more commercial-bank like by increasing the balance of
commercial real estate and business loans and mortgage warehouse lines of credit
may increase the level of known and inherent losses in the Company's loan
portfolio.

The formalized process for assessing the level of the allowance for loan
losses is performed on a quarterly basis. Individual loans are specifically
identified by loan officers as meeting the criteria of pass, criticized or
classified loans. Such criteria include, but are not limited to, non-accrual
loans, past maturity loans, impaired loans, chronic delinquencies and loans
requiring heightened management oversight. Each loan is assigned to a risk level
of special mention, substandard, doubtful and loss. Loans that do not meet the
criteria of criticized or classified are categorized as pass loans. Each risk
level, including pass loans, has an associated reserve factor that increases as
the risk level category increases. The reserve factor for criticized and
classified loans becomes larger as the risk level increases but is the same
factor regardless of the loan type. The reserve factor for pass loans differs
based upon the loan and collateral type. Commercial business loans have a larger
loss factor applied to pass loans since these loans are deemed to have higher
levels of known and inherent loss than commercial real estate and multi-family
residential loans. The reserve factor is applied to the aggregate balance of
loans designated to each risk level to compute the aggregate reserve
requirement. This method of analysis is performed on the entire loan portfolio.

The reserve factors that are applied to pass, criticized and classified
loans are generally reviewed by management on a quarterly basis unless
circumstances require a more frequent assessment. In assessing the reserve
factors, the Company takes into consideration, among other things, the state of
the national or local economies which could affect the Company's customers or
underlying collateral values, the loss experience related to different segments
or classes of loans, changes in risk categories, the acceleration or decline in
loan portfolio growth rates and underwriting or servicing weaknesses. To the
extent that such assessment results in an increase or decrease to the reserve
factors that are applied to each risk level, the Company may need to adjust its
provision for loan losses which could impact earnings in the period in which
such provisions are taken.

The Company considers a loan impaired when, based upon current information
and events, it is probable that it will be unable to collect all amounts due for
both principal and interest, according to the contractual terms of the loan
agreement. The measurement value of the Company's impaired loans is based on
either the present value of expected future cash flows discounted at the loan's
effective interest rate, the observable market prices of the loan, or the fair
value of the underlying collateral if the loan is collateral dependent. The
Company identifies and measures impaired loans in conjunction with its
assessment of the level of the allowance for loan losses. Specific factors used
in the identification of impaired loans include, but are not limited to,
delinquency status, loan-to-value ratio, the condition of the underlying
collateral, credit history and debt coverage. Impaired loans totaled $39.9
million

19

at December 31, 2002 with a related allowance allocated of $7.1 million
applicable to $39.9 million of such loans.

The Company's allowance for loan losses amounted to $80.5 million at
December 31, 2002 as compared to $78.2 million at December 31, 2001. The
Company's allowance amounted to 1.38% of total loans at December 31, 2002 and
1.33% at December 31, 2001. The allowance for loan losses as a percent of
non-performing loans was 193.6% at December 31, 2002 compared to 170.0% at
December 31, 2001.

The Company's allowance for loan losses increased $2.3 million from
December 31, 2001 to December 31, 2002 due to provisions totaling $8.0 million
and charge-offs, net of recoveries, of $5.7 million. The provision recorded
reflected the Company's increase in non-accrual loans, the increase in
classified loans, the increase in delinquencies and charge-offs, the substantial
increase in mortgage warehouse advances, the continued emphasis on commercial
real estate and business loan originations as well as the recognition of current
economic conditions. Included in the $8.0 million of provisions are adjustments
to the allowance for loan losses by loan category to reflect changes in the
Company's loan mix and risk characteristics.

The Company will continue to monitor and modify its allowance for loan
losses as conditions dictate. Management believes that, based on information
currently available, the Company's allowance for loan losses at December 31,
2002 was at a level to cover all known and inherent losses in its loan portfolio
at such date that were both probable and reasonable to estimate. In the future,
management may adjust the level of its allowance for loan losses as economic and
other conditions dictate. In addition, the FDIC and the Department as an
integral part of their examination process periodically review the Company's
allowance for possible loan losses. Such agencies may require the Company to
adjust the allowance based upon their judgment.

20

The following table sets forth the activity in the Company's allowance for
loan losses during the periods indicated.

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

(1) Reflects allowance for loan losses acquired in connection with the
acquisitions of Broad and Statewide during fiscal 2000 of $6.7 million and
$2.8 million, respectively.

(2) Includes commercial business loans, mortgage warehouse lines of credit, home
equity loans and lines of credit, student loans, automobile loans and
secured and unsecured personal loans.

(3) Non-performing loans consist of (i) non-accrual loans and (ii) loans 90 days
or more past due as to interest or principal.

21

The following table sets forth information concerning the allocation of the
Company's allowance for loan losses by loan category at the dates indicated.

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

(1) Percent of loans in each category to total loans.

(2) Includes home equity loans and lines of credit, student loans, automobile
loans, passbook loans and secured and unsecured personal loans.

ENVIRONMENTAL ISSUES

The Company encounters certain environmental risks in its lending
activities. Under federal and state environmental laws, lenders may become
liable under certain circumstances for costs of cleaning up hazardous materials
found on property securing their loans. In addition, the existence of hazardous
materials may make it uneconomic for a lender to foreclose on such properties.
Although environmental risks are usually associated with loans secured by
commercial real estate, risks also may be substantial for loans secured by
residential real estate if environmental contamination makes security property
unsuitable for use. This could also have a negative effect on nearby property
values. The Company attempts to control its risk by requiring a Phase One
environmental assessment be completed as part of its underwriting review for all
non-residential mortgage applications.

The Company believes its procedures regarding the assessment of
environmental risk are adequate and the Company is unaware of any environmental
issues which would subject it to any material liability at this time. However,
no assurance can be given that the values of properties securing loans in the
Company's portfolio will not be adversely affected by unforeseen environmental
risks.

INVESTMENT ACTIVITIES

INVESTMENT POLICIES. The investment policy of the Company, which is
established by the Board of Directors, is designed to help the Company achieve
its fundamental asset/liability management objectives. Generally, the policy
calls for the Company to emphasize principal preservation, liquidity,
diversification, short maturities and/or repricing terms, and a favorable return
on investment when selecting new investments for the Company's investment and
mortgage-related securities portfolios. In addition, the policy sets forth
objectives which are designed to limit new investments to those which further
the Company's goals with respect to interest rate risk management. The Company's
current securities investment policy permits investments in various types of
liquid assets including obligations of the U.S. Treasury and federal agencies,
investment-grade corporate and trust obligations, preferred securities, various
types of mortgage-related securities, including collateralized mortgage
obligations ("CMOs"), commercial paper and insured certificates of deposit. The
Bank, as a New York-chartered savings bank, is permitted to make certain
investments in equity securities and stock mutual funds. At December 31, 2002,
these equity investments totaled $118.0 million. See "-Regulation-Activities and
Investments of FDIC-Insured State-Chartered Banks".

The Company also received Board of Director approval to enter into various
derivative contracts for hedging purposes to facilitate its ongoing asset/
liability management process. The Company's hedging activities are limited to
interest rate swaps, caps and floors with outstanding notional amounts not to
exceed in the aggregate 10% of total assets. The objective of any hedging
activities is to reduce

22

the Company's interest rate risk. Similarly, the Company does not invest in
mortgage-related securities which are deemed by rating agencies to be "high
risk," or purchase bonds which are not rated investment grade. At December 31,
2002, the Company had forward starting interest rate swap agreements outstanding
with aggregate notional values of $200.0 million. These agreements qualify as
cash flow hedges of anticipated interest payments relating to $200.0 million of
variable-rate FHLB borrowings that the Company intends to use during 2003 to
replace existing borrowings that will mature during 2003. The swaps require the
Company at a future date to make periodic-fixed rate payments to the swap
counterparties, while receiving periodic variable-rate payments indexed to the
three month LIBOR rate from the swap counterparties based on a common notional
amount and maturity date. As a result, the net impact of the swaps will be to
convert the variable interest payments on the $200.0 million FHLB borrowings to
fixed interest payments the Company will make to the swap counterparties. The
swaps had a $2.9 million unrealized loss at December 31, 2002. See Note 17 of
the "Notes to Consolidated Financial Statements" set forth in Item 8 hereof.

MORTGAGE-RELATED SECURITIES. Mortgage-related securities represent a
participation interest in a pool of single-family or multi-family mortgages, the
principal and interest payments on which are passed from the mortgage
originators, through intermediaries (generally U.S. Government agencies and
government sponsored enterprises) that pool and repackage the participation
interests in the form of securities, to investors such as the Company. Such U.S.
Government agencies and government sponsored enterprises, which guarantee the
payment of principal and interest to investors, primarily include the Federal
Home Loan Mortgage Corporation ("FHLMC"), the Fannie Mae and the Government
National Mortgage Association ("GNMA"). The Company primarily invests in CMO
private issuances, which are principally AAA rated and are current pay
sequentials or planned amortization class structures and CMOs backed by U.S.
Government agency securities.

Mortgage-related securities generally increase the quality of the Company's
assets by virtue of the insurance or guarantees that back them, are more liquid
than individual mortgage loans and may be used to collateralize borrowings or
other obligations of the Company. However, the existence of the guarantees or
insurance generally results in such securities bearing yields which are less
than the loans underlying such securities.

The FHLMC is a publicly traded corporation chartered by the U.S.
Government. The FHLMC issues participation certificates backed principally by
conventional mortgage loans. FHLMC guarantees the timely payment of interest and
the ultimate return of principal on participation certificates. The Fannie Mae
is a private corporation chartered by the U.S. Congress with a mandate to
establish a secondary market for mortgage loans. The Fannie Mae guarantees the
timely payment of principal and interest on Fannie Mae securities. The FHLMC and
Fannie Mae securities are not backed by the full faith and credit of the United
States, but because the FHLMC and the Fannie Mae are U.S. Government-sponsored
enterprises, these securities are considered to be among the highest quality
investments with minimal credit risks. The GNMA is a government agency within
the Department of Housing and Urban Development which is intended to help
finance government-assisted housing programs. GNMA securities are backed by
FHA-insured and VA-guaranteed loans, and the timely payment of principal and
interest on GNMA securities are guaranteed by the GNMA and backed by the full
faith and credit of the U.S. Government. Because the FHLMC, the Fannie Mae and
the GNMA were established to provide support for low-and middle-income housing,
there are limits to the maximum size of one-to-four family loans that qualify
for these programs.

At December 31, 2002, the Company's $1.04 billion of mortgage-related
securities, which represented 12.9% of the Company's total assets, were
comprised of $654.4 million of AAA rated CMOs and $81.0 of CMOs which were
issued or guaranteed by the FHLMC, the Fannie Mae or the GNMA ("Agency CMOs")
and $303.3 million of pass through certificates, which were also issued or
guaranteed by the FHLMC, the Fannie Mae or the GNMA. The portfolio increased by
$136.6 million during the year ended December 31, 2002 primarily due to $1.1
billion of purchases partially offset by proceeds totaling approximately $940.2
million received from normal and accelerated principal repayments and a $14.7
million sale of an Agency CMO at a loss of $0.2 million. The purchases during
the year ended December 31, 2002 consisted of $783.3 million of AAA rated CMOs
with an average yield of 6.02%, $58.3 million of Agency CMOs

23

with a weighted average yield of 5.65% and $257.6 million of Fannie Mae pass
through certificates at a weighted average yield of 6.60%.

At December 31, 2002, the contractual maturity of approximately 86.0% of
the Company's mortgage-related securities was in excess of ten years. The actual
maturity of a mortgage-related security is generally less than its stated
maturity due to repayments of the underlying mortgages. Prepayments at a rate
different than that anticipated will affect the yield to maturity. The yield is
based upon the interest income and the amortization of any premium or discount
related to the mortgage-backed security. In accordance with generally accepted
accounting principles used in the United States ("GAAP"), premiums and discounts
are amortized over the estimated lives of the securities, which decrease and
increase interest income, respectively. The repayment assumptions used to
determine the amortization period for premiums and discounts can significantly
effect the yield of mortgage-related securities, and these assumptions are
reviewed periodically to reflect actual prepayments. If prepayments are faster
than anticipated, the life of the security may be shortened and may result in
the acceleration of any unamortized premium. Although repayments of underlying
mortgages depend on many factors, including the type of mortgages, the coupon
rate, the age of mortgages, the geographical location of the underlying real
estate collateralizing the mortgages and general levels of market interest
rates, the difference between the interest rates on the underlying mortgages and
the prevailing mortgage interest rates generally is the most significant
determinant of the rate of repayments. During periods of falling mortgage
interest rates, if the coupon rate of the underlying mortgages exceeds the
prevailing market interest rates offered for mortgage loans, refinancing
generally increases and accelerates the repayment of the underlying mortgages
and the related security. The Company experienced this condition during the past
twelve months as mortgage rates declined and repayments, prepayments and
maturities increased significantly to $940.2 million for the year ended December
31, 2002 compared to $221.4 million for the nine months ended December 31, 2001.
Under this circumstance, the Company may be subject to reinvestment risk to the
extent that the Company's mortgage-related securities amortize or repay faster
than anticipated, the Company may not be able to reinvest the proceeds of such
repayments and prepayments at comparable rates.

The following table sets forth the activity in the Company's
mortgage-related securities portfolio during the periods indicated, all of which
are available-for-sale.

INVESTMENT SECURITIES. The Company has the authority to invest in various
types of liquid assets, including U.S. Treasury obligations, securities of
various federal agencies and of state and municipal governments, preferred
securities, mutual funds, equity securities and corporate and trust obligations.
The Company's investment securities portfolio increased $99.1 million to $224.9
million at December 31, 2002 compared to $125.8 million at December 31, 2001.
The increase was due to purchases of $226.1 million consisting in large part of
preferred securities and corporate bonds, which purchases were partially offset
by the proceeds received from maturities and repayments of $38.1 million and
from sales of $90.3 million of securities. The sales consisted primarily of
preferred securities, with a weighted average yield of 3.16% at a $0.6 million
gain.

24

The following table sets forth the activity in the Company's investment
securities portfolio, all of which are available-for-sale during the periods
indicated.

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

(1) The Company recognized a net gain of $0.6 million and $2.8 million on the
sale of investment securities during the year ended December 31, 2002 and
the nine months ended December 31, 2001, respectively.

The following table sets forth information regarding the amortized cost and
fair value of the Company's investment and mortgage-related securities at the
dates indicated.

25

The following table sets forth certain information regarding the
contractual maturities of the Company's investment and mortgage-related
securities at December 31, 2002, all of which were classified as available-for-
sale.

SOURCES OF FUNDS

GENERAL. Deposits are the primary source of the Company's funds for
lending and other investment purposes. In addition to deposits, the Company
derives funds from loan principal and interest payments, maturities and sales of
securities, interest on securities, advances from the FHLB of New York and other
borrowings. Loan payments are a relatively stable source of funds, while deposit
inflows and outflows are influenced by general interest rates and money market
conditions. Borrowings may be used on a short-term basis to compensate for
reductions in the availability of funds from other sources. They may also be
used on a longer term basis for general business purposes.

DEPOSITS. The Company's product line is structured to attract both
consumer and business prospects. The current product line includes negotiable
order of withdrawal ("NOW") accounts (including the "Active Management" NOW
accounts), money market accounts, non-interest-bearing checking accounts,
passbook and statement savings accounts, business checking accounts, cash
management services, New Jersey municipal deposits, Interest on Lawyers Trust
Accounts ("IOLTA") and Interest on Lawyers Accounts ("IOLA") and term
certificate accounts.

During 2002, the Company's product line was expanded to attract middle
market business and larger corporate customers by offering a full suite of
non-credit cash management services. The current product line includes lockbox
services, sweep accounts, automated clearing house (ACH) services, account
reconciliation services, escrow services, zero balance accounts, cash
concentration, wire transfer services, and a cash management suite of services
business customers can access via the internet. Business customers benefit from
these services through reduced operational costs, accelerated funds
availability, and increased interest income. The primary goal in development of
these services was to increase core deposits from business customers by offering
additional products and services where fees are offset with compensating
balances on deposit. Accounting for these service dollars and compensating
balances are calculated through the Company's account analysis system which
provides its customers with earnings credits applied against equivalent balances
for services.

Development of these products and services was designed to penetrate new
markets by obtaining larger deposit relationships from business customers as
well as offering borrowing customers additional business banking products in
order to increase their deposit relationships. Approximately 400 business

26

customers are using some form of cash management services as of December 31,
2002.

The Company's deposits are obtained primarily from the areas in which its
branch offices are located. The Company neither pays fees to brokers to solicit
funds for deposit nor does it actively solicit negotiable-rate certificates of
deposit with balances of $100,000 or more.

The Company attracts deposits through a network of convenient office
locations offering a variety of accounts and services, competitive interest
rates and convenient customer hours. The Company's branch network consists of 71
traditional full-service offices and two limited service offices. During the
twelve months ended December 31, 2002 the Company opened four branches: two
full-service branches, one of which is in Staten Island, New York and the other
in Brooklyn, New York, and two limited service branches, one of which is in
Elmsford, New York and the other in Melville, New York. The Company currently
expects to expand its branch network through the opening of approximately twelve
additional branch offices over the next twelve to eighteen months. During the
first quarter of 2003 the Company opened two additional full-service branches in
Manhattan, New York.

During 2002, the Company also expanded its retail banking services to
include a private banking/wealth management group. This group was added to
broaden and diversify the Company's customer base and offers personalized and
specialized services, including a carefully selected range of managed investment
alternatives through a third party, to meet the needs of the Company's clients.
As of December 31, 2002, the private banking/wealth management group had $61.2
million in deposits of which $55.8 million or 91% were core deposits. In
addition, this group generated $24.2 million of multi-family and commercial
business loans during the year ended December 31, 2002.

In addition to its branch network, the Company currently maintains 94 ATMs
in or at its branch offices and 22 ATMs at remote sites. The Company currently
plans to install 12 additional ATMs in its offices and four ATMs at remote sites
by the end of calendar 2003.

Supplementing the Company's branch and ATM network, are its call center,
the Interactive Voice Response unit and its Internet banking services. On an
average monthly basis, the Company's call center responds and processes over
40,000 customer transactional requests and informational inquiries. The call
center also provides account-opening services and can accept loan applications
related to the Company's consumer loan product line. The Interactive Voice
Response unit provides automated voice and touch-tone information to over
200,000 telephoned inquiries per month. The Company's Internet banking site
currently has approximately 38,000 users and provides a wide range of product
and account information to both existing and new customers. Services on this
site are being expanded to include account-opening capabilities, on-line bill
paying and other products and services.

Deposit accounts offered by the Company vary according to the minimum
balance required, the time periods the funds must remain on deposit and the
interest rate, among other factors. The Company is not limited with respect to
the rates it may offer on deposit accounts. In determining the characteristics
of its deposit accounts, consideration is given to the profitability to the
Company, matching terms of the deposits with loan products, the attractiveness
to customers and the rates offered by the Company's competitors.

The Company's focus on customer service has facilitated its growth and
retention of lower-costing NOW accounts, money market accounts, non-interest
bearing checking accounts, business checking accounts and savings accounts,
which generally bear rates substantially less than certificates of deposit. At
December 31, 2002, these types of deposits amounted to $3.35 billion or 67.8% of
the Company's total deposits. During the year ended December 31, 2002, the
weighted average rate paid on the Company's deposits, excluding certificates of
deposit was 1.01%, as compared to a weighted average rate of 2.85% paid on the
Company's certificates of deposit during this period. At December 31, 2002,
approximately 69.5% of the Company's certificate of deposit portfolio was
scheduled to mature within one year, reflecting customer preference to maintain
their deposits with relatively short terms during the current economic
environment.

27

The Company's deposits increased $145.3 million or 3.0% to $4.94 billion at
December 31, 2002 from $4.79 billion at December 31, 2001 as a result of deposit
inflows of $63.6 million combined with interest credited of $81.6 million. For
further information regarding the Company's deposit liabilities see Note 10 of
the "Notes to Consolidated Financial Statements" set forth in Item 8 hereof.

The following table sets forth the activity in the Company's deposits
during the periods indicated.

The following table sets forth by various interest rate categories the
certificates of deposit with the Company at the dates indicated.

The following table sets forth the amount and remaining contractual
maturities of the Company's certificates of deposit at December 31, 2002.

28

As of December 31, 2002, the aggregate amount of outstanding certificates
of deposit in amounts greater than or equal to $100,000 was approximately $315.4
million. The following table presents the maturity of these certificates of
deposit at such date.

BORROWINGS. The Company may obtain advances from the FHLB of New York
based upon the security of the common stock it owns in that bank and certain of
its residential mortgage loans, provided certain standards related to
creditworthiness have been met. Such advances are made pursuant to several
credit programs, each of which has its own interest rate and range of
maturities. Such advances are generally available to meet seasonal and other
withdrawals of deposit accounts, to fund increased lending or for investment
purchases. The Company, at December 31, 2002, had $1.23 billion of FHLB advances
outstanding with maturities of ten years or less with the majority having a
maturity of less than four years. During 2002, the Company took advantage of the
steepness in the yield curve by securing $350.0 million of adjustable-rate three
and four year borrowings from the FHLB of New York. These borrowings have
interest rate caps that prevent the rates from exceeding 5.25% to 5.70%. These
borrowings have a weighted average interest rate of 2.46% and are indexed to
LIBOR. The Company also replaced $100.0 million of borrowings that matured in
2002 with fixed-rate ten-year borrowings, callable in five years, at a weighted
average interest rate of 4.12% and paid off $50.0 million of borrowings that
matured with a weighted average interest rate of 5.21%. At December 31, 2002 the
Company had the ability to borrow, from the FHLB, an additional $1.0 billion on
a secured basis, utilizing mortgage related loans and securities as collateral.
Another funding source available to the Company is repurchase agreements with
the FHLB. These repurchase agreements are generally collateralized by CMOs or
U.S. Government and agency securities held by the Company. At December 31, 2002,
the Company had $705.0 million of FHLB repurchase agreements outstanding with
maturities ranging up through ten years with the majority having a maturity of
between five and ten years. For further discussion see "Management's Discussion
and Analysis of Financial Condition and Results of Operation-Business
Strategy-Controlled Growth" set forth in Item 7 hereof and Note 11 of the "Notes
to Consolidated Financial Statements" set forth in Item 8 hereof.

EMPLOYEES

The Company had 1,293 full-time employees and 266 part-time employees at
December 31, 2002. None of these employees are represented by a collective
bargaining agreement or agent and the Company considers its relationship with
its employees to be good.

SUBSIDIARIES

At December 31, 2002, the Holding Company's two active subsidiaries were
the Bank and Mitchamm Corp. ("Mitchamm").

MITCHAMM CORP. Mitchamm was established in September 1997 primarily to
operate Mail Boxes Etc. ("MBE") franchises, which provides mail services,
packaging and shipping services primarily to individuals and small businesses.
Mitchamm is the area franchisee for MBE in Brooklyn, Queens and Staten Island
and currently operates one facility.

BNB CAPITAL TRUST. BNB Capital Trust (the "Issuer Trust") (assumed by the
Holding Company as part of the acquisition of Broad) is a statutory business
trust formed under Delaware law in June 1997. As a result of the Broad
acquisition, the Issuer Trust is wholly owned by the Holding Company. In
accordance with the terms of the trust indenture, the Trust redeemed all of its
outstanding 9.5% Cumulative Trust Preferred Securities (the "Trust Preferred
Securities") totaling $11.5 million, at $10.00 per share, effective June 30,
2002. Accordingly, the Issuer Trust is now considered to be an inactive
subsidiary. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" set forth in Item 7 hereof and "Financial Statements and
Supplementary Data" set forth in Item 8 hereof for additional information.

The following are the subsidiaries of the Bank:

INDEPENDENCE COMMUNITY INVESTMENT CORP. ("ICIC"). ICIC was established in
December 1998, and is the Delaware-chartered holding company for Independence
Community Realty Corp.

29

("ICRC") and the Renaissance Asset Corporation ("RAC"). On December 18, 1998 the
Bank transferred 1,000 shares of ICRC's common stock, par value $.01 per share,
and 9,889 shares of junior preferred stock, stated value $1,000 per share, to
ICIC in return for all 1,000 shares of ICIC's common stock, par value $.01 per
share.

INDEPENDENCE COMMUNITY REALTY CORP. ICRC was established in September 1996
as a real estate investment trust. On October 1, 1996, the Bank transferred to
ICRC real estate loans with a fair market value of approximately $834.0 million
in return for all 1,000 shares of ICRC's common stock and all 10,000 shares of
ICRC's 8% junior preferred stock. In January 1997, 111 officers and employees of
the Bank each received one share of 8% junior preferred stock with a stated
value of $1,000 per share of ICRC. At December 31, 2002, ICRC held $1.19 billion
of loans and $453.1 million of short-term investments.

RENAISSANCE ASSET CORPORATION. RAC, which was acquired from Broad, was
established by Broad National Bank ("Broad National") in November 1997 as a New
Jersey real estate investment trust. At December 31, 2002, RAC held $312.0
million of loans and $61.8 million of short-term investments. Effective January
1, 2003, RAC was merged into a newly formed Delaware corporation, also called
Renaissance Asset Corporation, with the Delaware company the surviving entity.
Pursuant to the terms of the merger, each share of common and preferred stock of
the New Jersey corporation was converted into an identical share of the Delaware
company.

INDEPENDENCE COMMUNITY INSURANCE AGENCY, INC. ("ICIA"). ICIA was
established in 1984. ICIA was formed as a licensed life insurance agency to sell
the products of the new mutual insurance company formed by the Savings Bank Life
Insurance Department of New York.

WILJO DEVELOPMENT CORP. ("WILJO"). The assets of Wiljo consist primarily
of the office space in the building in which the Company's executive offices are
located and its limited partnership interest in the partnership which owns the
remaining portion of the building. At December 31, 2002, Wiljo had total assets
of $9.4 million and the Company's equity investment in Wiljo amounted to $8.7
million.

BROAD NATIONAL REALTY CORP. ("BNRC"). BNRC was established by Broad
National in July 1987. The assets of BNRC consist primarily of an office
building located at 909 Broad Street, Newark, New Jersey. BNRC is also the
holding company for BNB Horizons Inc. ("Horizon"). BNRC had total assets of $3.0
million at December 31, 2002.

BROAD HORIZONS INC. Horizon was established by Broad National in May 1998
to manage vacant land located at 901 Broad Street, Newark, New Jersey. Horizon's
assets totaled $202,000 at December 31, 2002.

BNB INVESTMENT CORP. ("INVESTMENT CORP"). Investment Corp. was established
by Broad National in February 1987 to hold various investment securities.
Investment Corp. had total assets of $61.9 million at December 31, 2002.

BRONATOREO, INC. ("BRONATOREO"). Bronatoreo was established by Broad
National in August 1992 to maintain parking lots located behind 905 Broad
Street, Newark New Jersey. Bronatoreo had total assets of $1.9 million at
December 31, 2002.

STATEWIDE FINANCIAL SERVICES ("SFS"). SFS was established by Statewide
Savings Bank, S.L.A. in July 1985 to sell annuity products. SFS is currently
inactive with no assets.

REGULATION

Set forth below is a brief description of certain laws and regulations
which are applicable to the Company and the Bank. The description of the laws
and regulations hereunder, as well as descriptions of laws and regulations
contained elsewhere herein, does not purport to be complete and is qualified in
its entirety by reference to applicable laws and regulations.

THE HOLDING COMPANY

GENERAL. Upon consummation of the Conversion, the Holding Company became
subject to regulation as a savings and loan holding company under the Home
Owners' Loan Act, as amended ("HOLA"), instead of being subject to regulation as
a bank holding company under the Bank Holding Company Act of 1956 because the
Bank made an election under Section 10(l) of HOLA to be treated as a "savings
association" for purposes of Section 10(e) of HOLA. As a result, the Holding
Company was required to register with the Office of Thrift Supervision ("OTS")
and is subject to OTS regulations, examinations, supervision and reporting
requirements relating to savings and loan holding

30

companies. The Holding Company is also required to file certain reports with,
and otherwise comply with the rules and regulations of, the Department and the
Securities and Exchange Commission ("SEC"). As a subsidiary of a savings and
loan holding company, the Bank is subject to certain restrictions in its
dealings with the Holding Company and affiliates thereof.

ACTIVITIES RESTRICTIONS. The Holding Company operates as a unitary savings
and loan holding company. Generally, there are only limited restrictions on the
activities of a unitary savings and loan holding company which applied to become
or was a unitary savings and loan holding company prior to May 4, 1999 and its
non-savings institution subsidiaries. Under the Gramm-Leach-Bliley Act of 1999
(the "GLBA"), companies which applied to the OTS to become unitary savings and
loan holding companies after May 4, 1999 will be restricted to engaging in those
activities traditionally permitted to multiple savings and loan holding
companies. If the Director of the OTS determines that there is reasonable cause
to believe that the continuation by a savings and loan holding company of an
activity constitutes a serious risk to the financial safety, soundness or
stability of its subsidiary savings institution, the Director may impose such
restrictions as deemed necessary to address such risk, including limiting (i)
payment of dividends by the savings institution; (ii) transactions between the
savings institution and its affiliates; and (iii) any activities of the savings
institution that might create a serious risk that the liabilities of the holding
company and its affiliates may be imposed on the savings institution.
Notwithstanding the above rules as to permissible business activities of
grandfathered unitary savings and loan holding companies under the GLBA, if the
savings institution subsidiary of such a holding company fails to meet the
Qualified Thrift Lender ("QTL") test, as discussed under "-- Qualified Thrift
Lender Test," then such unitary holding company also shall become subject to the
activities restrictions applicable to multiple savings and loan holding
companies and, unless the savings institution requalifies as a QTL within one
year thereafter, shall register as, and become subject to the restrictions
applicable to, a bank holding company. See "-- Qualified Thrift Lender Test."

The GLBA also imposed new financial privacy obligations and reporting
requirements on all financial institutions. The privacy regulations require,
among other things, that financial institutions establish privacy policies and
disclose such policies to its customers at the commencement of a customer
relationship and annually thereafter. In addition, financial institutions are
required to permit customers to opt out of the financial institution's
disclosure of the customer's financial information to non-affiliated third
parties. Such regulations become mandatory as of July 1, 2001.

If the Holding Company were to acquire control of another savings
institution, other than through merger or other business combination with the
Bank, the Holding Company would thereupon become a multiple savings and loan
holding company. Except where such acquisition is pursuant to the authority to
approve emergency thrift acquisitions and where each subsidiary savings
institution meets the QTL test, as set forth below, the activities of the
Holding Company and any of its subsidiaries (other than the Bank or other
subsidiary savings institutions) would thereafter be subject to further
restrictions. Among other things, no multiple savings and loan holding company
or subsidiary thereof which is not a savings institution shall commence or
continue for a limited period of time after becoming a multiple savings and loan
holding company or subsidiary thereof any business activity other than: (i)
furnishing or performing management services for a subsidiary savings
institution; (ii) conducting an insurance agency or escrow business; (iii)
holding, managing, or liquidating assets owned by or acquired from a subsidiary
savings institution; (iv) holding or managing properties used or occupied by a
subsidiary savings institution; (v) acting as trustee under deeds of trust; (vi)
those activities authorized by regulation as of March 5, 1987 to be engaged in
by multiple savings and loan holding companies; or (vii) unless the Director of
the OTS by regulation prohibits or limits such activities for savings and loan
holding companies, those activities authorized by the Federal Reserve Board as
permissible for bank holding companies. Those activities described in clause
(vii) above also must be approved by the Director of the OTS prior to being
engaged in by a multiple savings and loan holding company.

QUALIFIED THRIFT LENDER TEST. Under Section 2303 of the Economic Growth
and Regulatory Paperwork Reduction Act of 1996, a savings association can comply
with the QTL test by either meeting the QTL test set forth in the HOLA and
implementing regulations or qualifying as a domestic building and loan
association as defined in Sec-

31

tion 7701(a)(19) of the Internal Revenue Code of 1986, as amended (the "Code").
A savings bank subsidiary of a savings and loan holding company that does not
comply with the QTL test must comply with the following restrictions on its
operations: (i) the institution may not engage in any new activity or make any
new investment, directly or indirectly, unless such activity or investment is
permissible for a national bank; (ii) the branching powers of the institution
shall be restricted to those of a national bank; and (iii) payment of dividends
by the institution shall be subject to the rules regarding payment of dividends
by a national bank. Upon the expiration of three years from the date the savings
institution ceases to meet the QTL test, it must cease any activity and not
retain any investment not permissible for a national bank (subject to safety and
soundness considerations).

The QTL test set forth in the HOLA requires that qualified thrift
investments ("QTIs") represent 65% of portfolio assets of the savings
institution and its consolidated subsidiaries. Portfolio assets are defined as
total assets less intangibles, property used by a savings association in its
business and liquidity investments in an amount not exceeding 20% of assets.
Generally, QTIs are residential housing related assets. The 1996 amendments
allow small business loans, credit card loans, student loans and loans for
personal, family and household purpose to be included without limitation as
qualified investments. At December 31, 2002, approximately 88.1% of the Bank's
assets were invested in QTIs, which was in excess of the percentage required to
qualify the Bank under the QTL test in effect at that time.

LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. Transactions between savings
institutions and any affiliate are governed by Sections 23A and 23B of the
Federal Reserve Act. An affiliate of a savings institution is any company or
entity which controls, is controlled by or is under common control with the
savings institution. In a holding company context, the parent holding company of
a savings institution (such as the Company) and any companies which are
controlled by such parent holding company are affiliates of the savings
institution. Generally, Sections 23A and 23B (i) limit the extent to which the
savings institution or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such institution's capital
stock and surplus, and contain an aggregate limit on all such transactions with
all affiliates to an amount equal to 20% of such capital stock and surplus and
(ii) require that all such transactions be on terms substantially the same, or
at least as favorable, to the institution or subsidiary as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and other similar transactions.

In addition, Sections 22(g) and (h) of the Federal Reserve Act place
restrictions on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, an executive officer and
to a greater than 10% stockholder of a savings institution, and certain
affiliated interests of either, may not exceed, together with all other
outstanding loans to such person and affiliated interests, the savings
institution's loans to one borrower limit (generally equal to 15% of the
institution's unimpaired capital and surplus). Section 22(h) also requires that
loans to directors, executive officers and principal stockholders be made on
terms substantially the same as offered in comparable transactions to other
persons unless the loans are made pursuant to a benefit or compensation program
that (i) is widely available to employees of the institution and (ii) does not
give preference to any director, executive officer or principal stockholder, or
certain affiliated interests of either, over other employees of the savings
institution. Section 22(h) also requires prior board approval for certain loans.
In addition, the aggregate amount of extensions of credit by a savings
institution to all insiders cannot exceed the institution's unimpaired capital
and surplus. Furthermore, Section 22(g) places additional restrictions on loans
to executive officers. At December 31, 2002, the Bank was in compliance with the
above restrictions.

RESTRICTIONS ON ACQUISITIONS. Except under limited circumstances, savings
and loan holding companies are prohibited from acquiring, without prior approval
of the Director of the OTS, (i) control of any other savings institution or
savings and loan holding company or substantially all the assets thereof or (ii)
more than 5% of the voting shares of a savings institution or holding company
thereof which is not a subsidiary. Except with the prior approval of the
Director, no director or officer of a savings and loan holding company or person
owning or controlling by proxy or otherwise more than 25% of such company's
stock, may acquire control of any savings institution, other than a subsidiary
savings institution, or of any other savings and loan holding company.

32

The Director of the OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
institutions in more than one state if (i) the multiple savings and loan holding
company involved controls a savings institution which operated a home or branch
office located in the state of the institution to be acquired as of March 5,
1987; (ii) the acquiror is authorized to acquire control of the savings
institution pursuant to the emergency acquisition provisions of the Federal
Deposit Insurance Act ("FDIA"); or (iii) the statutes of the state in which the
institution to be acquired is located specifically permit institutions to be
acquired by the state-chartered institutions or savings and loan holding
companies located in the state where the acquiring entity is located (or by a
holding company that controls such state-chartered savings institutions).

FEDERAL SECURITIES LAWS. The Holding Company's common stock is registered
with the SEC under Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Holding Company is subject to the proxy and
tender offer rules, insider trading reporting requirements and restrictions, and
certain other requirements under the Exchange Act.

THE BANK

GENERAL. The Bank is subject to extensive regulation and examination by
the Department, as its chartering authority, and by the FDIC, as the insurer of
its deposits, and is subject to certain requirements established by the OTS as a
result of the Holding Company's savings and loan holding company status. The
federal and state laws and regulations which are applicable to banks regulate,
among other things, the scope of their business, their investments, their
reserves against deposits, the timing of the availability of deposited funds and
the nature and amount of and collateral for certain loans. The Bank must file
reports with the Department and the FDIC concerning its activities and financial
condition, in addition to obtaining regulatory approvals prior to entering into
certain transactions such as establishing branches and mergers with, or
acquisitions of, other depository institutions. There are periodic examinations
by the Department and the FDIC to test the Bank's 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 regulation, whether by the Department, the FDIC or as a result of
the enactment of legislation, could have a material adverse impact on the
Company, the Bank and their operations.

CAPITAL REQUIREMENTS. The FDIC has promulgated regulations and adopted a
statement of policy regarding the capital adequacy of state-chartered banks
which, like the Bank, are not members of the Federal Reserve System.

The FDIC's capital regulations establish a minimum 3.0% Tier 1 leverage
capital requirement for the most highly-rated state-chartered, non-member banks,
with an additional cushion of at least 100 to 200 basis points for all other
state-chartered, non-member banks, which effectively increases the minimum Tier
1 leverage ratio for such other banks to 4.0% to 5.0% or more. Under the FDIC's
regulation, the highest-rated banks are those that the FDIC determines are not
anticipating or experiencing significant growth and have well diversified risk,
including no undue interest rate risk exposure, excellent asset quality, high
liquidity, good earnings and, in general, which are considered a strong banking
organization and are rated composite 1 under the Uniform Financial Institutions
Rating System. Leverage or core capital is defined as the sum of common
stockholders' equity (including retained earnings), noncumulative perpetual
preferred stock and related surplus, and minority interests in consolidated
subsidiaries, minus all intangible assets other than certain qualifying
supervisory goodwill and certain mortgage servicing rights.

The FDIC also requires that savings banks meet a risk-based capital
standard. The risk-based capital standard for savings banks requires the
maintenance of total capital (which is defined as Tier 1 capital and
supplementary (Tier 2) capital) to risk-weighted assets of 8%. In determining
the amount of risk-weighted assets, all assets, plus certain off-balance sheet
assets, are multiplied by a risk-weight of 0% to 100%, based on the risks the
FDIC believes are inherent in the type of asset or item. The components of Tier
1 capital are

33

equivalent to those discussed above under the 3% leverage capital standard. The
components of supplementary capital include certain perpetual preferred stock,
certain mandatory convertible securities, certain subordinated debt and
intermediate preferred stock and general allowances 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
capital counted toward supplementary capital cannot exceed 100% of core capital.
At December 31, 2002, the Bank exceeded each of its capital requirements. See
Note 21 of the "Notes to Consolidated Financial Statements" set forth in Item 8
hereof.

In August 1995, the FDIC, along with the other federal banking agencies,
adopted a regulation providing that the agencies will take account of the
exposure of a bank's capital and economic value to changes in interest rate risk
in assessing a bank's capital adequacy. According to the agencies, applicable
considerations include the quality of the bank's interest rate risk management
process, the overall financial condition of the bank and the level of other
risks at the bank for which capital is needed. Institutions with significant
interest rate risk may be required to hold additional capital. The agencies
issued a joint policy statement providing guidance on interest rate risk
management, including a discussion of the critical factors affecting the
agencies' evaluation of interest rate risk in connection with capital adequacy.
However, the agencies have determined not to proceed with the previously issued
proposal to develop a supervisory framework for measuring interest rate risk and
an explicit capital component for interest rate risk.

ACTIVITIES AND INVESTMENTS OF NEW YORK-CHARTERED SAVINGS BANKS. The Bank
derives its lending, investment and other authority primarily from the
applicable provisions of New York Banking Law and the regulations of the
Department, as limited by FDIC regulations and other federal laws and
regulations. See "-- Activities and Investments of FDIC Insured
State -- Chartered Banks." These New York laws and regulations authorize savings
banks, including the Bank, to invest in real estate mortgages, consumer and
commercial loans, certain types of debt securities, including certain corporate
debt securities and obligations of federal, state and local governments and
agencies, certain types of corporate equity securities and certain other assets.
Under the statutory authority for investing in equity securities, a savings bank
may directly invest up to 7.5% of its assets in certain corporate stock and may
also invest up to 7.5% of its assets in certain mutual fund securities.
Investment in stock of a single corporation is limited to the lesser of 2% of
the outstanding stock of such corporation or 1% of the savings bank's assets,
except as set forth below. Such equity securities must meet certain tests of
financial performance. A savings bank's lending powers are not subject to
percentage of asset limitations, although there are limits applicable to single
borrowers. A savings bank may also, pursuant to the "leeway" authority, make
investments not otherwise permitted under the New York Banking Law. This
authority permits investments in otherwise impermissible investments of up to 1%
of the savings bank's assets in any single investment, subject to certain
restrictions and to an aggregate limit for all such investments of up to 5% of
assets. Additionally, in lieu of investing in such securities in accordance with
the reliance upon the specific investment authority set forth in the New York
Banking Law, savings banks are authorized to elect to invest under a "prudent
person" standard in a wider range of debt and equity securities as compared to
the types of investments permissible under such specific investment authority.
However, in the event a savings bank elects to utilize the "prudent person"
standard, it will be unable to avail itself of the other provisions of the New
York Banking Law and regulations which set forth specific investment authority.
A New York-chartered stock savings bank may also exercise trust powers upon
approval of the Department.

Under recently enacted legislation, the Department has been granted the
authority to maintain the power of state-chartered banks reciprocal with those
of a national bank.

New York-chartered savings banks may also invest in subsidiaries under
their service corporation investment power. A savings bank may use this power to
invest in corporations that engage in various activities authorized for savings
banks, plus any additional activities which may be authorized by the Department.
Investment by a savings bank in the stock, capital notes and debentures of its
service corporations is limited to 3% of the savings bank's assets, and such
investments, together with the savings bank's loans to its service corporations,
may not exceed 10% of the savings bank's assets.

34

With certain limited exceptions, a New York-chartered savings bank may not
make loans or extend credit for commercial, corporate or business purposes
(including lease financing) to a single borrower, the aggregate amount of which
would be in excess of 15% of the bank's net worth. The Bank currently complies
with all applicable loans-to-one-borrower limitations.

ACTIVITIES AND INVESTMENTS OF FDIC-INSURED STATE-CHARTERED BANKS. The
activities and equity investments of FDIC-insured, state-chartered banks are
generally limited to those that are permissible for national banks. Under
regulations dealing with equity investments, an insured state bank generally may
not directly or indirectly acquire or retain any equity investment of a type, or
in an amount, that is not permissible for a national bank. An insured state bank
is not prohibited from, among other things, (i) acquiring or retaining a
majority interest in a subsidiary,(ii) investing as a limited partner in a
partnership the sole purpose of which is direct or indirect investment in the
acquisition, rehabilitation or new construction of a qualified housing project,
provided that such limited partnership investments may not exceed 2% of the
bank's total assets, (iii) acquiring up to 10% of the voting stock of a company
that solely provides or reinsures directors', trustees' and officers' liability
insurance coverage or bankers' blanket bond group insurance coverage for insured
depository institutions, and (iv) acquiring or retaining the voting shares of a
depository institution if certain requirements are met. In addition, an
FDIC-insured state-chartered bank may not directly, or indirectly through a
subsidiary, engage as "principal" in any activity that is not permissible for a
national bank unless the FDIC has determined that such activities would pose no
risk to the insurance fund of which it is a member and the bank is in compliance
with applicable regulatory capital requirements.

Also excluded from the foregoing proscription is the investment by a
state-chartered, FDIC-insured bank in common and preferred stock listed on a
national securities exchange and in shares of an investment company registered
under the Investment Company Act of 1940. In order to qualify for the exception,
a state-chartered FDIC-insured bank must (i) have held such types of investments
during the 14-month period from September 30, 1990 through November 26, 1991,
(ii) be chartered in a state that authorized such investments as of September
30, 1991 and (iii) file a one-time notice with the FDIC in the required form and
receive FDIC approval of such notice. In addition, the total investment
permitted under the exception may not exceed 100% of the bank's tier one capital
as calculated under FDIC regulations. The Bank received FDIC approval of its
notice to engage in this investment activity on February 26, 1993. As of
December 31, 2002, the book value of the Bank's investments under this exception
was $118.0 million, which equaled 17.21% of its Tier I capital. Such
grandfathering authority is subject to termination upon the FDIC's determination
that such investments pose a safety and soundness risk to the Bank or in the
event the Bank converts its charter or undergoes a change in control.

REGULATORY ENFORCEMENT AUTHORITY. Applicable banking laws include
substantial enforcement powers available to federal banking regulators. This
enforcement authority includes, among other things, the ability to assess civil
money penalties, to issue cease-and-desist or removal orders and to initiate
injunctive actions against banking organizations and institution-affiliated
parties, as defined. In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound practices. Other
actions or inactions may provide the basis for enforcement action, including
misleading or untimely reports filed with regulatory authorities.

Under the New York Banking Law, the Department may issue an order to a New
York-chartered banking institution to appear and explain an apparent violation
of law, to discontinue unauthorized or unsafe practices and to keep prescribed
books and accounts. Upon a finding by the Department that any director, trustee
or officer of any banking organization has violated any law, or has continued
unauthorized or unsafe practices in conducting the business of the banking
organization after having been notified by the Department to discontinue such
practices, such director, trustee or officer may be removed from office by the
Department after notice and an opportunity to be heard. The Bank does not know
of any past or current practice, condition or violation that might lead to any
proceeding by the Department against the Bank or any of its directors or
officers. The Department also may take possession of a banking organization
under specified statutory criteria.

PROMPT CORRECTIVE ACTION. Section 38 of the FDIA provides the federal
banking regulators with

35

broad power to take "prompt corrective action" to resolve the problems of
undercapitalized institutions. The extent of the regulators' powers depends on
whether the institution in question is "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." Under regulations adopted by the federal banking
regulators, an institution shall be deemed to be (i) "well capitalized" if it
has total risk-based capital ratio of 10.0% or more, has a Tier I risk-based
capital ratio of 6.0% or more, has a Tier I leverage capital ratio of 5.0% or
more and is not subject to specified requirements to meet and maintain a
specific capital level for any capital measure, (ii) "adequately capitalized" if
it has a total risk-based capital ratio of 8.0% or more, a Tier I risk-based
capital ratio of 4.0% or more and a Tier I leverage capital ratio of 4.0% or
more (3.0% under certain circumstances) and does not meet the definition of
"well capitalized," (iii) "undercapitalized" if it has a total risk-based
capital ratio that is less than 8.0%, a Tier I risk-based capital ratio that is
less than 4.0% or a Tier I leverage capital ratio that is less than 4.0% (3.0%
under certain circumstances), (iv) "significantly undercapitalized" if it has a
total risk-based capital ratio that is less than 6.0%, a Tier I risk-based
capital ratio that is less than 3.0% or a Tier I leverage capital ratio that is
less than 3.0% and (v) "critically undercapitalized" if it has a ratio of
tangible equity to total assets that is equal to or less than 2.0%. The
regulations also provide that a federal banking regulator may, after notice and
an opportunity for a hearing, reclassify a "well capitalized" institution as
"adequately capitalized" and may require an "adequately capitalized" institution
or an "undercapitalized" institution to comply with supervisory actions as if it
were in the next lower category if the institution is in an unsafe or unsound
condition or engaging in an unsafe or unsound practice. The federal banking
regulator may not, however, reclassify a "significantly undercapitalized"
institution as "critically undercapitalized."

An institution generally must file a written capital restoration plan which
meets specified requirements, as well as a performance guaranty by each company
that controls the institution, with an appropriate federal banking regulator
within 45 days of the date that the institution receives notice or is deemed to
have notice that it is "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." Immediately upon becoming undercapitalized, an
institution becomes subject to statutory provisions which, among other things,
set forth various mandatory and discretionary restrictions on the operations of
such an institution.

As December 31, 2002, the Bank had capital levels which qualified it as a
"well-capitalized" institution. See Note 21 of the "Notes to Consolidated
Financial Statements" set forth in Item 8 hereof.

FDIC INSURANCE PREMIUMS. The Bank is a member of the Bank Insurance Fund
("BIF") administered by the FDIC but has deposit accounts insured by both the
BIF and the Savings Association Insurance Fund ("SAIF"). The SAIF-insured
accounts are held by the Bank as a result of certain acquisitions and branch
purchases involving SAIF-insured deposits. Such SAIF-insured deposits amounted
to $2.32 billion as of December 31, 2002. As insurer, the FDIC is authorized to
conduct examinations of, and to require reporting by, FDIC-insured institutions.
It also may prohibit any FDIC-insured institution from engaging in any activity
that the FDIC determines by regulation or order poses a serious threat to the
FDIC.

The FDIC may terminate the deposit insurance of any insured depository
institution, including the Bank, if it determines after a hearing that the
institution has engaged or is engaging in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance temporarily during the hearing
process for the permanent termination of insurance, if the institution has no
tangible capital. If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. Management is aware of no existing circumstances which would result in
termination of the Bank's deposit insurance.

Beginning October 1, 1996, effective SAIF rates ranged from zero basis
points to 27 basis points which was the same range of premiums as the BIF rates.
From 1997 through 1999, almost all FDIC-insured institutions paid 6.4 basis
points of their SAIF-assessable deposits and approximately 1.3 basis points of
their BIF-assessable deposits to fund the Financing Corporation. Since January
1, 2000, all FDIC insured institutions are assessed the same rate for their BIF
and SAIF assessable deposits to fund the Financing Corporation. Based upon

36

the $2.94 billion of BIF-assessable deposits and $2.32 billion of
SAIF-assessable deposits at December 31, 2002, the Bank expects to pay
approximately $221,000 in insurance premiums per quarter during calendar 2003.

BROKERED DEPOSITS. The FDIA restricts the use of brokered deposits by
certain depository institutions. Under the FDIA and applicable regulations, (i)
a "well capitalized insured depository institution" may solicit and accept,
renew or roll over any brokered deposit without restriction, (ii) an "adequately
capitalized insured depository institution" may not accept, renew or roll over
any brokered deposit unless it has applied for and been granted a waiver of this
prohibition by the FDIC and (iii) an "undercapitalized insured depository
institution" may not (x) accept, renew or roll over any brokered deposit or (y)
solicit deposits by offering an effective yield that exceeds by more than 75
basis points the prevailing effective yields on insured deposits of comparable
maturity in such institution's normal market area or in the market area in which
such deposits are being solicited. The term "undercapitalized insured depository
institution" is defined to mean any insured depository institution that fails to
meet the minimum regulatory capital requirement prescribed by its appropriate
federal banking agency. The FDIC may, on a case-by-case basis and upon
application by an adequately capitalized insured depository institution, waive
the restriction on brokered deposits upon a finding that the acceptance of
brokered deposits does not constitute an unsafe or unsound practice with respect
to such institution. The Company had no brokered deposits outstanding at
December 31, 2002.

COMMUNITY INVESTMENT AND CONSUMER PROTECTION LAWS. In connection with its
lending activities, the Bank is subject to a variety of federal laws designed to
protect borrowers and promote lending to various sectors of the economy and
population. Included among these are the federal Home Mortgage Disclosure Act,
Real Estate Settlement Procedures Act, Truth-in-Lending Act, Equal Credit
Opportunity Act, Fair Credit Reporting Act and the CRA.

The CRA requires insured institutions to define the communities that they
serve, identify the credit needs of those communities and adopt and implement a
"Community Reinvestment Act Statement" pursuant to which they offer credit
products and take other actions that respond to the credit needs of the
community. The responsible federal banking regulator (in the case of the Bank,
the FDIC) must conduct regular CRA examinations of insured financial
institutions and assign to them a CRA rating of "outstanding," "satisfactory,"
"needs improvement" or "unsatisfactory." The Bank's latest federal CRA rating
based upon its last examination is "satisfactory."

The Company is also subject to provisions of the New York Banking Law which
impose continuing and affirmative obligations upon banking institutions
organized in New York State to serve the credit needs of its local community
("NYCRA"), which are similar to those imposed by the CRA. Pursuant to the NYCRA,
a bank must file an annual NYCRA report and copies of all federal CRA reports
with the Department. The NYCRA requires the Department to make an annual written
assessment of a bank's compliance with the NYCRA, utilizing a four-tiered rating
system, and make such assessment available to the public. The NYCRA also
requires the Department to consider a bank's NYCRA rating when reviewing a
bank's application to engage in certain transactions, including mergers, asset
purchases and the establishment of branch offices or automated teller machines,
and provides that such assessment may serve as a basis for the denial of any
such application. The Bank's latest NYCRA rating received from the Department
based upon its last examination is "satisfactory."

LIMITATIONS ON DIVIDENDS. The Holding Company is a legal entity separate
and distinct from the Bank. The Holding Company's principal source of revenue
consists of dividends from the Bank. The payment of dividends by the Bank is
subject to various regulatory requirements including a requirement, as a result
of the Holding Company's savings and loan holding company status, that the Bank
notify the Director of the OTS not less than 30 days in advance of any proposed
declaration by its directors of a dividend.

Under New York Banking Law, a New York-chartered stock savings bank may
declare and pay dividends out of its net profits, unless there is an impairment
of capital, but approval of the Department is required if the total of all
dividends declared in a calendar year would exceed the total of its net profits
for that year combined with its retained net profits of the preceding two years,
subject to certain adjustments.

37

During 2002, the Bank requested and received approval of the distribution
to the Company of an aggregate of $100.0 million, of which $75.0 million was
declared by the Bank and was funded during 2002 with the remaining $25.0 million
declared and funded in 2003. In December 2000, the Bank requested and received
approval of the distribution to the Company of an aggregate of $25.0 million, of
which $6.0 million had been distributed as of December 31, 2001, with the
remainder distributed in 2002. The distributions were primarily used by the
Company to fund the Company's open market stock repurchase programs, dividend
payments and consideration paid in October 2002 to increase the Company's
minority investment in Meridian. See "Business -- Lending
Activities-Multi-Family Residential Lending".

MISCELLANEOUS. The Bank is subject to certain restrictions on loans to the
Holding Company or its non-bank subsidiaries, on investments in the stock or
securities thereof, on the taking of such stock or securities as collateral for
loans to any borrower, and on the issuance of a guarantee or letter of credit on
behalf of the Company or its non-bank subsidiaries. The Bank also is subject to
certain restrictions on most types of transactions with the Holding Company or
its non-bank subsidiaries, requiring that the terms of such transactions be
substantially equivalent to terms of similar transactions with non-affiliated
firms.

FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB of New
York, which is one of 12 regional FHLBs that administers the home financing
credit function of savings institutions. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB. The Bank had
$1.93 billion of FHLB outstanding borrowings at December 31, 2002.

As an FHLB member, the Bank is required to purchase and maintain stock in
the FHLB of New York in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year or 5% of its advances from the FHLB of New York,
whichever is greater. At December 31, 2002, the Bank had approximately $101.6
million in FHLB stock, which resulted in its compliance with this requirement.

The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low-and moderate-income housing projects. These contributions have adversely
affected the level of FHLB dividends paid in the past and could continue to do
so in the future. These contributions also could have an adverse effect on the
value of FHLB stock in the future.

FEDERAL RESERVE SYSTEM. The Federal Reserve Board requires all depository
institutions to maintain reserves against their transaction accounts (primarily
NOW and Super NOW checking accounts and personal and business demand deposits)
and non-personal time deposits. As of December 31, 2002, the Bank was in
compliance with applicable requirements. However, because required reserves must
be maintained in the form of vault cash or a non-interest-bearing account at a
Federal Reserve Bank, the effect of this reserve requirement is to reduce an
institution's earning assets.

SARBANES-OXLEY ACT OF 2002

On July 30, 2002, the President signed into law the Sarbanes-Oxley Act of
2002 implementing legislative reforms intended to address corporate and
accounting fraud. In addition to the establishment of a new accounting oversight
board which will enforce auditing, quality control and independence standards
and will be funded by fees from all publicly traded companies, the bill
restricts provision of both auditing and consulting services by accounting
firms. To ensure auditor independence, any non-audit services being provided to
an audit client will require preapproval by the Company's audit committee
members. In addition, the audit partners must be rotated. The bill requires
chief executive officers and chief financial officers, or their equivalent, to
certify to the accuracy of periodic reports filed with the SEC, subject to civil
and criminal penalties if they knowingly or willfully violate this certification
requirement. In addition, under the Act, counsel will be required to report
evidence of a material violation of the securities laws or a breach of fiduciary
duty by a company to its chief executive officer or its chief legal officer,
and, if such officer does not appropriately respond,

38

to report such evidence to the audit committee or other similar committee of the
board of directors or the board itself.

Longer prison terms will also be applied to corporate executives who
violate federal securities laws, the period during which certain types of suits
can be brought against a company or its officers has been extended, and bonuses
issued to top executives prior to restatement of a company's financial
statements are now subject to disgorgement if such restatement was due to
corporate misconduct. Executives are also prohibited from insider trading during
retirement plan "blackout" periods, and loans to company executives are
restricted. In addition, a provision directs that civil penalties levied by the
SEC as a result of any judicial or administrative action under the Act be
deposited to a fund for the benefit of harmed investors. The Federal Accounts
for Investor Restitution ("FAIR") provision also requires the SEC to develop
methods of improving collection rates. The legislation accelerates the time
frame for disclosures by public companies, as they must immediately disclose any
material changes in their financial condition or operations. Directors and
executive officers must also provide information for most changes in ownership
in a company's securities within two business days of the change.

The Act also increases the oversight of, and codifies certain requirements
relating to audit committees of public companies and how they interact with the
Company's "registered public accounting firm" ("RPAF"). Audit Committee members
must be independent and are barred from accepting consulting, advisory or other
compensatory fees from the issuer. In addition, companies must disclose whether
at least one member of the committee is a "financial expert" (as such term is
defined by the SEC) and if not, why not. Under the Act, a RPAF is prohibited
from performing statutorily mandated audit services for a company if such
company's chief executive officer, chief financial officer, comptroller, chief
accounting officer or any person serving in equivalent positions has been
employed by such firm and participated in the audit of such company during the
one-year period preceding the audit initiation date. The Act also prohibits any
officer or director of a company or any other person acting under their
direction from taking any action to fraudulently influence, coerce, manipulate
or mislead any independent public or certified accountant engaged in the audit
of the company's financial statements for the purpose of rendering the financial
statement's materially misleading. The Act also requires the SEC to prescribe
rules requiring inclusion of an internal control report and assessment by
management in the annual report to shareholders. The Act requires the RPAF that
issues the audit report to attest to and report on management's assessment of
the company's internal controls. In addition, the Act requires that each
financial report required to be prepared in accordance with (or reconciled to)
generally accepted accounting principles and filed with the SEC reflect all
material correcting adjustments that are identified by a RPAF in accordance with
generally accepted accounting principles and the rules and regulations of the
SEC.

TAXATION

FEDERAL TAXATION

GENERAL. The Company is subject to federal income taxation in the same
general manner as other corporations with some exceptions discussed below.

The following discussion of federal taxation is intended only to summarize
certain pertinent federal income tax matters and is not a comprehensive
description of the tax rules applicable to the Company. The Company's federal
income tax returns have been audited or closed without audit by the Internal
Revenue Service through 1998.

METHOD OF ACCOUNTING. For federal income tax purposes, the Company
currently reports its income and expenses on the accrual method of accounting
and uses a tax year ending December 31 for filing its consolidated federal
income tax returns. The Small Business Protection Act of 1996 (the "1996 Act")
eliminated the use of the reserve method of accounting for bad debt reserves by
savings institutions, effective taxable years beginning after 1995.

BAD DEBT RESERVE. Prior to the 1996 Act, the Company was permitted to
establish a reserve for bad debts and to make annual additions to the reserve.
These additions could, within specified formula limits, be deducted in arriving
at the Bank's taxable income. As a result of the 1996 Act, the Bank must use the
specific charge off method in computing its bad debt deduction beginning with
its 1996 federal tax return. In addition, federal legislation requires the
recapture (over a six year period) of the excess of tax bad debt reserves at
Decem-

39

ber 31, 1995 over those established as of December 31, 1987. The amount of such
reserve remaining subject to recapture as of December 31, 2002 was approximately
$601,000. The Company has an associated deferred tax liability of approximately
$252,000 at December 31, 2002.

As discussed more fully below, the Company and certain eligible or
qualified subsidiaries file combined New York State Franchise and New York City
Financial Corporation tax returns. The basis of the determination of each tax is
the greater of a tax on entire net income (or on alternative entire net income)
or a tax computed on taxable assets. However, for state purposes, New York State
enacted legislation in 1996, which among other things, decoupled the Federal and
New York State tax laws regarding thrift bad debt deductions and permits the
continued use of the bad debt reserve method under Section 593 of the Code.
Thus, provided the Bank continues to satisfy certain definitional tests and
other conditions, for New York State and City income tax purposes, the Bank is
permitted to continue to use the special reserve method for bad debt deductions.
The deductible annual addition to the state reserve may be computed using a
specific formula based on the Bank's loss history ("Experience Method") or a
statutory percentage equal to 32% of the Bank's New York State or City taxable
income ("Percentage Method").

TAXABLE DISTRIBUTIONS AND RECAPTURE. Prior to the 1996 Act, bad debt
reserves created prior to January 1, 1988 were subject to recapture into taxable
income should the Bank fail to meet certain thrift asset and definitional tests.
New federal legislation eliminated these thrift related recapture rules.
However, under current law, pre-1988 reserves remain subject to recapture should
the Bank make certain non-dividend distributions or cease to maintain a bank
charter.

At December 31, 2002, the Bank's total federal pre-1988 reserve was
approximately $30.0 million. This reserve reflects the cumulative effects of
federal tax deductions by the Company for which no Federal income tax provision
has been made.

ALTERNATIVE MINIMUM TAX. The Code imposes an alternative minimum tax
("AMT") at a rate of 20% on a base of regular taxable income plus certain tax
preferences ("alternative minimum taxable income" or "AMTI"). The AMT is payable
to the extent such AMTI is in excess of an exemption amount. Net operating
losses can offset no more than 90% of AMTI. Certain payments of alternative
minimum tax may be used as credits against regular tax liabilities in future
years. As of December 31, 2002, the Company has no AMT credits available as
credits for carryover.

NET OPERATING LOSS CARRYOVERS. For the years beginning after August 5,
1997, a financial institution may carry back net operating losses to the
preceding two taxable years and carry forward to the succeeding twenty taxable
years. At December 31, 2002, the Bank had no net operating loss carryforwards
for federal income tax purposes.

CORPORATE DIVIDENDS-RECEIVED DEDUCTION. The Holding 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
80% in the case of dividends received from corporations with which a corporate
recipient does not file a consolidated tax return, and corporations which own
less than 20% of the stock of a corporation distributing a dividend may deduct
only 70% of dividends received or accrued on their behalf.

STATE AND LOCAL TAXATION

NEW YORK STATE AND NEW YORK CITY TAXATION. The Company and certain eligible
and qualified subsidiaries report income on a combined calendar year basis to
both New York State and New York City. New York State Franchise Tax on
corporations is imposed in an amount equal to the greater of (a) 8% of "entire
net income" allocable to New York State (b) 3% of "alternative entire net
income" allocable to New York State (c) 0.01% of the average value of assets
allocable to New York State or (d) nominal minimum tax. Entire net income is
based on federal taxable income, subject to certain modifications. Alternative
entire net income is equal to entire net income without certain modifications.
The New York City Corporation Tax is imposed in an amount equal to the greater
of 9% of "entire net income" allocable to New York City or similar alternative
taxable methods and rates as New York State.

A Metropolitan Transportation Business Tax Surcharge on Corporations doing
business in the Metropolitan District has been applied since 1982. The Company
transacts a significant portion of its business within this District and is
subject to this surcharge. For the tax year ended December 31,

40

2002, the surcharge rate is 19.125% of New York State franchise tax liability.

If the Bank fails to meet certain thrift assets and definitional tests for
New York State and New York City tax purposes, it would have to recapture into
taxable income approximately $130.0 million of previously recognized deductions.
As of December 31, 2002, no related deferred taxes have been recognized.

New York State audited the Company's income tax returns for calendar years
1997, 1998 and 1999 with no material adjustments made.

NEW JERSEY STATE TAXATION. The Company and certain eligible and qualified
subsidiaries report income on a separate company basis, as New Jersey Law does
not permit consolidated return filing. The state of New Jersey imposes a tax on
entire net income at a rate of 9% of allocated income on corporations.

DELAWARE STATE TAXATION. As a Delaware holding company not earning income
in Delaware, the Company is exempt from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware. The tax is imposed as a percentage of the capital base of the
Company with an annual maximum of $150,000. The Holding Company pays the maximum
franchise tax.

ITEM 2. PROPERTIES

OFFICES AND PROPERTIES

At December 31, 2002, the Company conducted its business from its executive
offices in Brooklyn and 73 branch offices:

(continued)

41

(continued)

42

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

(1) Branch offices located at 43 East 8th Street, New York, NY 10003 and 169
Seventh Avenue, New York, NY 10011 opened for business during the first
quarter of 2003.

(2) The Bank operates a full-service branch on the ground floor of the building.

(3) Designated as the Bank's main office.

(4) The Bank executed a "Memorandum of Understanding" with the Pratt Institute
to occupy the space; no expiration date was stated in the Memorandum.

ITEM 3. LEGAL PROCEEDINGS

LEGAL PROCEEDINGS

The Company is involved in routine legal proceedings occurring in the
ordinary course of business which in the opinion of management, in the
aggregate, will not have a material adverse effect on the consolidated financial
condition and results of operations of the Company.

On December 1, 1995, Statewide Savings Bank ("Statewide") initiated a suit
against the U.S. Government alleging, among other things, breach of contract and
seeking damages for harm caused to Statewide through changes in Federal banking
regulations regarding the treatment of supervisory goodwill in calculating the
capital of thrift institutions. The case relates to supervisory goodwill created
by Statewide's 1982 acquisition of Arch Federal Savings and Loan Association
("Arch"). The enactment of the Financial Institutions Reform, Recovery and
Enforcement Act ("FIRREA") in 1989 resulted in the amendment of Federal
regulations requiring a phase-out of supervisory goodwill from the calculation
of a thrift institution's capital ratios and requiring that by January 1, 1995,
no supervisory goodwill be counted as capital. As of the effective date of the
regulations, Statewide had $18.7 million in goodwill from the Arch acquisition
on its balance sheet. Statewide filed its claim on December 1, 1995. After
litigating the matter for approximately seven years, the parties agreed to a
stipulation of dismissal which was signed on February 14, 2003. The order of the
court dismissing the case was signed on February 19, 2003.

See "Taxation-State and Local Taxation" for a discussion of the status of
audits of the Company's New York State income tax returns.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

43

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS'
MATTERS
On March 13, 1998 the conversion and reorganization of the Bank and its
mutual holding company parent was completed. The common stock began trading on
the Nasdaq Stock Market on March 17, 1998. In connection with the consummation
of the Conversion, the Holding Company issued 76,043,750 shares of common stock,
including 5,632,870 shares which were contributed to the Independence Community
Foundation (the "Foundation"). As of December 31, 2002, there were 56,248,898
shares of common stock outstanding. As of March 14, 2003 the Holding Company had
11,475 stockholders of record not including the number of persons or entities
holding stock in nominee or street name through various brokers and banks.

The following table sets forth the high and low closing stock prices of the
Holding Company's common stock as reported by the Nasdaq Stock Market under the
symbol "ICBC" during the periods presented. Price information appears in major
newspapers under the symbols "IndepCmntyBk" or "IndpCm".

The following table sets forth the high and low bid information of the
Holding Company's common stock as reported by the Nasdaq Stock Market under the
symbol "ICBC" during the periods presented. Such bid information reflects
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.

The following schedule summarizes the cash dividends per share of common
stock paid by the Holding Company during the periods indicated.

The following schedule summarizes the total cash dividends paid by the
Holding Company on its common stock during the periods indicated.

On January 31, 2003, the Board of Directors declared a quarterly cash
dividend of $0.15 per share of Common Stock, payable on February 25, 2003, to
stockholders of record at the close of business on February 11, 2003.

See "Liquidity and Commitments" set forth in Item 7 hereof and Notes 1 and
23 of the "Notes to Consolidated Financial Statements" set forth in Item 8
hereof for discussion of restrictions on the Holding Company's ability to pay
dividends.

44

ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

(footnotes on next page)

45

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

(1) Represents the excess of cost over fair value of net assets acquired. The
increase from March 31, 1999 to March 31, 2000 reflected the $98.8 million
and $88.6 million of goodwill resulting from the acquisitions of Broad and
Statewide, respectively. Effective April 1, 2001, the Company adopted
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets", which resulted in discontinuing the amortization of
goodwill. See Note 8 of the "Notes to Consolidated Financial Statements" set
forth in Item 8 hereof.

(2) The Trust Preferred Securities were assumed by the Holding Company as part
of the Broad acquisition effective the close of business on July 31, 1999.
In accordance with the terms of the trust indenture, the Trust redeemed all
of its outstanding Trust Preferred Securities totaling $11.5 million, at
$10.00 per share, effective June 30, 2002.

(3) Where applicable, ratios have been annualized.

(4) With the exception of end of period ratios and the efficiency ratio, all
ratios are based on average daily balances during the respective periods.

(5) Interest rate spread represents the difference between the weighted-average
yield on interest-earning assets and the weighted-average cost of
interest-bearing liabilities; net interest margin represents net interest
income as a percentage of average interest-earning assets.

(6) Reflects adjusted operating expense (net of amortization of goodwill and
other intangibles) as a percent of the aggregate of net interest income and
adjusted non-interest income (excluding gains and losses on the sales of
loans and securities).

(7) Non-performing assets consist of non-accrual loans, loans past due 90 days
or more as to interest or principal repayment and accruing and real estate
acquired through foreclosure or by deed-in-lieu therefore.

(8) Ratios reflect the capital position of the Bank only.

46

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

GENERAL

The Company's results of operations depend primarily on its net interest
income, which is the difference between interest income on interest-earning
assets, which principally consist of loans, mortgage-related securities and
investment securities, and interest expense on interest-bearing liabilities,
which consist of deposits and borrowings. Net interest income is determined by
the Company's interest rate spread (i.e., the difference between the yields
earned on its interest-earning assets and the rates paid on its interest-bearing
liabilities) and the relative amounts of interest-earning assets and interest-
bearing liabilities.

The Company's results of operations also are affected by the provision for
loan losses resulting from management's assessment of the level of the allowance
for loan losses, its non-interest income, including service fees and related
income, mortgage-banking activities and gains and losses from the sales of loans
and securities, the level of its non-interest expense, including compensation
and employee benefits, occupancy expense, data processing services, amortization
of intangibles and income tax expense.

The Bank is a community-oriented bank, which emphasizes customer service
and convenience. As part of this strategy, the Bank offers products and services
designed to meet the needs of its retail and commercial customers. The Company
generally has sought to achieve long-term financial strength and stability by
increasing the amount and stability of its net interest income and non-interest
income and by maintaining a high level of asset quality. In pursuit of these
goals, the Company has adopted a business strategy of controlled growth,
emphasizing commercial real estate and multi-family residential lending,
commercial business lending, mortgage warehouse lines of credit and retail and
commercial deposit products, while maintaining asset quality and stable
liquidity.

The Company announced in October 2001 that it had changed its fiscal year
end from March 31 to December 31, effective December 31, 2001. This change
provided internal efficiencies as well as aligned the Company's reporting cycle
with regulators, taxing authorities and the investor community. Due to the
change in the reporting period, the comparison of annual operating performance
is based upon the audited 12 month calendar year ended December 31, 2002
compared to the 12 month calendar year ended December 31, 2001 compared to the
audited 12 month fiscal year ended March 31, 2001.

BUSINESS STRATEGY

CONTROLLED GROWTH. In recent years, the Company has sought to increase its
assets and expand its operations through internal growth as well as through
acquisitions. During the year ended December 31, 2002, the Company opened four
de novo branches and opened two de novo branches during the year ended December
31, 2001. The Company currently expects to expand its branch network through the
opening of approximately twelve additional banking locations during the next
twelve to eighteen months. During the first quarter of 2003, the Company opened
two locations in Manhattan bringing the total to 75 banking offices, of which 73
are full-service.

The Company has selectively used acquisitions in the past as a means to
expand its footprint and operations. The Company completed its acquisition of
Broad, which had $646.3 million in assets, effective the close of business on
July 31, 1999 and its acquisition of Statewide, which had $745.2 million in
assets, effective the close of business on January 7, 2000. The Broad and
Statewide acquisitions enabled the Company to expand into contiguous markets in
northern New Jersey with similar demographics as the Company's New York market
area. The acquisitions also enabled the Company to further emphasize its broad
array of commercial business products, including business lending and lower cost
deposits, which helped accelerate the Company's strategy of becoming more
commercial bank-like. The Company also completed several other smaller whole
bank and branch acquisitions in earlier periods.

The Company's assets increased by $398.8 million, or 5.2%, from $7.62
billion at December 31, 2001 to $8.02 billion at December 31, 2002 resulting
mainly from increases of $235.7 million in the securities available for sale
portfolio, $110.7 million in the loans available for sale portfolio, $68.6
million in other assets, and $55.6 million in Bank Owned Life Insurance
("BOLI"), partially offset by a $57.1 million decrease in the loan portfolio.
Such

47

growth was funded primarily through the use of borrowings and an increase in
deposits.

EMPHASIS ON COMMERCIAL REAL ESTATE, COMMERCIAL BUSINESS AND MULTI-FAMILY
LENDING. Since 1999, the Company has focused on expanding its higher yielding
loan portfolios as compared to single-family mortgage loans including fixed and
variable-rate portfolios of commercial real estate loans, commercial business
loans and mortgage warehouse lines of credit. Given the concentration of
multi-family housing units in the New York City metropolitan area, as well as
the Company's commitment to remain a leader in the multi-family loan market, the
Company continues to emphasize the origination (both for portfolio and for sale)
of loans secured by first liens on multi-family residential properties, which
consist primarily of mortgage loans secured by apartment buildings. In addition
to continuing to generate mortgage loans secured by multi-family and commercial
real estate, the Company also commenced a strategy in the fourth quarter of 2000
to originate and sell multi-family residential mortgage loans in the secondary
market to Fannie Mae while retaining servicing in order to further the Company's
ongoing strategic objective of increasing non-interest income related to lending
and servicing revenue. During the year ended December 31, 2002, the Company
originated for sale $1.17 billion and sold $1.07 billion of such loans. See
"Business -- Lending Activities -- Loan Originations, Purchases, Sales and
Servicing". In addition, to further expand variable yielding portfolios, in
April 2001, the Company purchased the assets of Summit Bank's MBFG, a
specialized lending group providing mortgage warehouse lines of credit to
mortgage bankers in New York, New Jersey and Connecticut. The acquisition
increased the mortgage warehouse line of credit portfolio by $130 million in
lines with approximately $83.5 million in outstanding advances at the time of
acquisition.

In October 2002, in furtherance of its business strategy regarding
commercial real estate and multi-family loan originations and sales, the Company
increased its minority investment in Meridian, a New York-based mortgage
brokerage firm. Meridian is primarily engaged in the origination of commercial
real estate and multi-family mortgage loans. As consideration for such
additional interest, the Company paid $0.6 million in cash and issued 520,716
shares of common stock for total consideration of approximately $12.5 million.
See "Business -- Lending Activities -- Multi-family Residential Lending".

Commercial real estate, commercial business, multi-family residential loans
and mortgage warehouse lines of credit all generally have a higher inherent risk
of loss than single-family residential mortgage or cooperative apartment loans
because repayment of the loans or lines often depends on the successful
operation of a business or the underlying property. Accordingly, repayment of
these loans is subject to adverse conditions in the real estate market and the
local economy. In addition, the Company's commercial real estate and
multi-family residential loans have significantly larger average loan balances
compared to its single-family residential mortgage and cooperative apartment
loans.

The Company's strategy of emphasizing higher yielding and variable rate
loan products is reflected in the shifting composition of its loan portfolio.
The Company's continued emphasis on commercial lending resulted in commercial
real estate, commercial business and advances under mortgage warehouse lines of
credit comprising in the aggregate 44.0% of its total loan portfolio at December
31, 2002 compared to 36.2% at December 31, 2001 while single-family and
multi-family residential loans comprised in the aggregate 48.9% of the Company's
loan portfolio at December 31, 2002 compared to 55.0% at December 31, 2001.

MAINTAIN ASSET QUALITY. Management believes that maintaining high asset
quality is key to achieving and sustaining long-term financial success.
Accordingly, the Company has sought to maintain a high level of asset quality
and moderate credit risk through its underwriting standards and by generally
limiting its origination to loans secured by properties or collateral located in
its market area. Non-performing assets as a percentage of total assets at
December 31, 2002 amounted to 0.52% and the ratio of its allowance for loan
losses to non-performing loans amounted to 193.6%, while at December 31, 2001,
the percentages were 0.61% and 170.0%, respectively. Non-performing assets
decreased $4.5 million or 9.8% to $41.6 million at December 31, 2002 compared to
$46.2 million at December 31, 2001. Loans 90 days or more past maturity which
continued to make payments on a basis consistent with the original repayment
schedule decreased by $15.6 million to $2.5 million at December 31, 2002. The
Company's non-accrual loans increased $11.2 million, to $39.0 million at
December 31, 2002 with the increase being primarily related to commercial
business and real estate loans.

48

STABLE SOURCE OF LIQUIDITY. The Company purchases short- to medium-term
investment securities and mortgage-related securities combining what management
believes to be appropriate liquidity, yield and credit quality in order to
achieve a managed and a reasonably predictable source of liquidity to meet loan
demand and, to a lesser extent, a stable source of interest income. These
portfolios, which totaled in the aggregate $1.26 billion at December 31, 2002
compared to $1.03 billion at December 31, 2001, are comprised primarily of
mortgage-related securities totaling $1.04 billion (of which $735.4 million
consists of CMOs and $303.3 million of mortgage-backed securities), $155.3
million of corporate bonds, $14.6 million of obligations of the U.S. Government
and federal agencies and $48.1 million of preferred securities. In accordance
with the Company's policy, securities purchased by the Company generally must be
rated at least "investment grade" upon purchase.

EMPHASIS ON RETAIL DEPOSITS AND CUSTOMER SERVICE. The Company, as a
community-based financial institution, is largely dependent upon its growth and
retention of competitively priced core deposits (non certificate of deposit
accounts) to provide a stable source of funding. The Company has retained many
loyal customers over the years through a combination of quality service,
customer convenience, an experienced staff and a commitment to the communities
which it serves. The Company has increased the emphasis on expanding commercial
and consumer relationships, lower costing core deposits, which do not include
certificates of deposits, increased $410.0 million or 13.9%, to $3.35 billion or
67.8% of the Company's total deposits at December 31, 2002, as compared to $2.94
billion at December 31, 2001. This increase in lower costing core deposits
reflects both the continued successful implementation of the Company's business
strategy of increasing core deposits, as well as the current interest rate
environment. In addition, the Company does not accept brokered deposits as a
source of funds and presently has no plans to do so in the future.

CHANGES IN FINANCIAL CONDITION

Total assets increased by $398.8 million, or 5.2%, from $7.62 billion at
December 31, 2001 to $8.02 billion at December 31, 2002 primarily due to
increases of $235.7 million in the securities available-for-sale portfolio,
$110.7 million in loans available-for-sale, $55.6 million in BOLI, $68.6 million
in other assets partially offset by a $57.1 million decline in the loan
portfolio. These increases were funded primarily through the use of borrowings
and growth in deposits.

CASH AND CASH EQUIVALENTS. Cash and cash equivalents decreased from $207.6
million at December 31, 2001 to $199.1 million at December 31, 2002. The $8.6
million decrease was principally due to the use of such assets to fund the
origination or purchase of higher yielding interest-earning assets.

SECURITIES AVAILABLE-FOR-SALE. The aggregate securities available-for-sale
portfolio (which includes investment securities and mortgage-related securities)
increased $235.7 million, or 22.9%, from $1.03 billion at December 31, 2001 to
$1.26 billion at December 31, 2002. The increase in securities
available-for-sale was funded primarily through the use of borrowings.

The Company's mortgage-related securities portfolio increased $136.6
million, or 15.1% to $1.04 billion at December 31, 2002 compared to $902.2
million at December 31, 2001. The securities were comprised of $654.4 million of
AAA rated CMOs and $81.0 million of CMOs which were issued or guaranteed by
FHLMC, the Fannie Mae or GNMA and $303.3 million of mortgage-backed pass through
certificates which were also issued or guaranteed by FHLMC, Fannie Mae or GNMA.
The increase in the portfolio was primarily due to purchases of $783.3 million
of AAA rated CMOs with an average yield of 6.02% and $58.3 million of Agency
CMOs with a weighted average yield of 5.65% and $257.6 million of Fannie Mae
pass through certificates at a weighted average yield of 6.60%. Partially
offsetting these increases were proceeds totaling approximately $940.2 million
received from normal and accelerated principal repayments and a $14.7 million
sale of an Agency CMO at a loss of $0.2 million.

The Company's investment securities portfolio increased $99.1 million to
$224.9 million at December 31, 2002 compared to $125.8 million at December 31,
2001. The increase was primarily due to $226.1 million of purchases, primarily
preferred securities and corporate bonds, which were partially offset by the
proceeds received from maturing securities of $38.1 million and from sales of
$90.3 million of securities, primarily equity securities, at a $0.6 million
gain.

49

At December 31, 2002, the Company had a $7.4 million net unrealized gain,
net of tax, on available-for-sale investment and mortgage-related securities.

LOANS AVAILABLE-FOR-SALE. Loans available-for-sale increased by $110.7
million to $114.4 million at December 31, 2002 from $3.7 million at December 31,
2001. The Company commenced a strategy in the December 2000 quarter to originate
and sell multi-family residential mortgage loans in the secondary market to
Fannie Mae while retaining servicing. As part of these transactions, the Company
retains a portion of the associated credit risk. During the year ended December
31, 2002, the Company originated $1.17 billion and sold $1.07 billion of loans
to Fannie Mae under this program and as a result serviced $1.97 billion of loans
with a maximum potential loss exposure of $113.7 million. Multi-family loans
available for sale at December 31, 2002 totaled $106.8 million. The increase in
multi-family loans available-for-sale at December 31, 2002 compared to December
31, 2001 was a result of significant loan volume at the end of the fourth
quarter of 2002 due to the current interest rate cycle and the time delay
between the date of origination and the date of sale to Fannie Mae, which
usually occurs within seven days. See "Lending Activities -- Loan Originations,
Purchases, Sales and Servicing" set forth in Item 1 and Note 17 of the "Notes to
Consolidated Financial Statements" set forth in Item 8 hereof for additional
information.

The Company also originates and sells single-family residential mortgage
loans under a mortgage origination assistance agreement with Cendant. The
Company funds the loans directly and sells the loans and related servicing to
Cendant. The Company originated $140.2 million and sold $133.5 million of such
loans during the year ended December 31, 2002. Single-family residential
mortgage loans available for sale at December 31, 2002 totaled $7.6 million.

Both programs were established in order to further the Company's ongoing
strategic objective of increasing non-interest income related to lending and/or
servicing revenue.

LOANS, NET. Loans, net, decreased by $59.4 million, or 1.0%, to $5.74
billion at December 31, 2002 from $5.80 billion at December 31, 2001. The
Company continued its focus on expanding its higher yielding portfolios of
commercial real estate, commercial business and variable-rate mortgage warehouse
lines of credit as part of its business plan. The Company is also committed to
remaining a leader in the multi-family residential loan market. The Company
originated for its own portfolio during the year ended December 31, 2002
approximately $843.1 million of mortgage loans compared to $543.6 million for
the nine months ended December 31, 2001. Although the Company had significant
loan originations during 2002, total loans decreased due to the combination of
the heavy run off in the single-family residential portfolio, the sale to Fannie
Mae of $257.6 million of multi-family residential loans sold from portfolio and
the accelerated rate of repayments in the multi-family residential portfolio.

As part of the Company's continuing enhancement of its credit
administration process, during 2002 the Company redefined its criteria for
classifying loans as either commercial real estate or commercial business loans.
As a result of the application of the new criteria and the Company's conversion
to a new commercial loan servicing system completed during the fourth quarter of
2002, the Company reviewed all of its commercial loan relationships and
redesignated as of September 30, 2002 approximately $238.0 million of commercial
business loans as commercial real estate or multi-family residential loans. The
Company has not revised any other current or prior period information related to
this redesignation since it did not affect the amount of the Company's net loan
portfolio, total assets, results of operations or earnings per share.

Multi-family residential loans decreased $294.8 million to $2.44 billion at
December 31, 2002 compared to $2.73 billion at December 31, 2001. The decrease
was primarily due to repayments of $602.6 million and sales of $257.6 million
which were partially offset by $505.7 million of originations for portfolio
retention and $59.6 million of loans redesignated as discussed above. During the
fourth quarter of 2002, the Company sold from portfolio at par $257.6 million of
fully performing multi-family residential loans in a securitization transaction
in exchange for Fannie Mae mortgage-backed securities representing a 100%
interest in these loans. These loans were sold with full recourse with the
Company retaining servicing. This transaction supported the Company's efforts to
continue to build and strengthen its relationship with Fannie Mae, had no impact
on 2002 earnings but had a positive impact on the Company's risk-based capital
ratios since the risk weighting on the mortgage-

50

backed securities was lower than on the underlying loans. As a result of these
activities, multi-family residential loans comprised 41.9% of the total loan
portfolio at December 31, 2002 compared to 46.5% at December 31, 2001.

Commercial real estate loans increased $293.4 million or 28.8% to $1.31
billion at December 31, 2002 compared to $1.02 billion at December 31, 2001. The
increase was primarily due to $325.7 million of originations, $178.5 million of
loans redesignated as discussed above partially offset by $210.6 million of loan
repayments for the year ended December 31, 2002. As a result of these
activities, commercial real estate loans comprised 22.6% of the total loan
portfolio at December 31, 2002 compared to 17.4% at December 31, 2001.

Commercial business loans decreased $67.6 million, or 10.1%, from $665.8
million at December 31, 2001 to $598.3 million at December 31, 2002. The
decrease was primarily due to $238.0 million of loans being redesignated as
commercial real estate loans or multi-family residential loans as discussed
above, and $230.5 million of repayments partially offset by $406.2 million of
originations and advances during the year ended December 31, 2002. Commercial
business loans comprised 10.3% of the total loan portfolio at December 31, 2002.

Mortgage warehouse lines of credit are secured short-term advances extended
to mortgage-banking companies to fund the origination of one-to-four family
mortgages. Advances under mortgage warehouse lines of credit increased $245.9
million from $446.5 million at December 31, 2001 to $692.4 million at December
31, 2002. At December 31, 2002, there were $219.1 million of unused lines of
credit related to mortgage warehouse lines of credit. The increase was due to
the current interest cycle and resultant refinance market. Mortgage warehouse
lines of credit comprised 11.9% of the total loan portfolio at December 31,
2002.

Partially offsetting the growth in the commercial real estate and business
loan and mortgage warehouse lines of credit portfolios was the run-off of the
Company's residential mortgage portfolio. Single-family residential and
cooperative apartment loans decreased $296.5 million from an aggregate of $852.8
million at December 31, 2001 to an aggregate of $556.3 million at December 31,
2002. The decline was due to increased repayments as a result of the current
interest rate environment combined with the decreased emphasis on originating
these loans for portfolio in favor of higher yielding commercial real estate and
business loans. The Company originates and sells single-family residential
mortgage loans to Cendant as previously discussed.

NON-PERFORMING ASSETS. Non-performing assets as a percentage of total
assets at December 31, 2002 amounted to 0.52% compared to 0.61% at December 31,
2001. The Company's non-performing assets, which consist of non-accrual loans,
loans past due 90 days or more as to interest or principal and accruing and
other real estate owned acquired through foreclosure or deed-in-lieu thereof,
decreased by $4.6 million or 9.8% to $41.6 million at December 31, 2002 from
$46.2 million at December 31, 2001. The decrease in non-performing assets was
primarily due to a $15.6 million decrease in loans contractually past maturity
but which are continuing to pay in accordance with their original repayment
schedule partially offset by an $11.2 million increase to $39.0 million in
non-accrual loans, primarily commercial real estate and business loans. At
December 31, 2002, the Company's non-performing assets consisted of $39.0
million of non-accrual loans (including $22.5 million of commercial business
loans, $11.7 million of commercial real estate loans, $3.0 million of
single-family residential loans and $1.1 million of multi-family residential
loans), $2.5 million of loans past due 90 days or more as to principal and
accruing, $0.1 million of loans past due 90 days or more as to interest and
accruing and $7,000 of other real estate owned.

ALLOWANCE FOR LOAN LOSSES. The Company's allowance for loan losses
amounted to $80.5 million at December 31, 2002, as compared to $78.2 million at
December 31, 2001. At December 31, 2002, the Company's allowance amounted to
1.38% of total loans and 193.6% of total non-performing loans compared to 1.33%
and 170.0% at December 31, 2001, respectively. The Company's allowance increased
$2.3 million during the year ended December 31, 2002 primarily due to an $8.0
million provision for loan losses partially offset by $5.7 million of net
charge-offs or 0.10% of average total loans. The provision recorded reflected
the Company's increase in non-accrual loans, the increase in classified loans,
delinquencies and charge-offs, the substantial increase in mortgage warehouse
advances, the continued emphasis on commercial real estate and business loan
originations, which are generally considered to have greater risk of loss, as
well as the recognition of the current economic conditions.

51

In assessing the level of the allowance for loan losses, the Company
considers the composition of its loan portfolio, the growth of loan balances
within various segments of the overall portfolio, the state of the local (and to
a certain degree, the national) economy as it may impact the performance of
loans within different segments of the portfolio, the loss experience related to
different segments or classes of loans, the type, size and geographic
concentration of loans held by the Company, the level of past due and
non-performing loans, the value of collateral securing loans, the level of
classified loans and the number of loans requiring heightened management
oversight. The continued shifting of the composition of the loan portfolio to be
more commercial-bank like by increasing the balance of commercial real estate
and business loans and mortgage warehouse lines of credit may increase the level
of known and inherent losses in the Company's loan portfolio.

The Company has identified the evaluation of the allowance for loan losses
as a critical accounting estimate where amounts are sensitive to material
variation. Critical accounting estimates are significantly affected by
management judgment and uncertainties and there is a likelihood that materially
different amounts would be reported under different, but reasonably plausible,
conditions or assumptions. The allowance for loan losses is considered a
critical accounting estimate because there is a large degree of judgment in (i)
assigning individual loans to specific risk levels (pass, special mention,
substandard, doubtful and loss), (ii) valuing the underlying collateral securing
the loans, (iii) determining the appropriate reserve factor to be applied to
specific risk levels for criticized and classified loans (special mention,
substandard, doubtful and loss) and (iv) determining reserve factors to be
applied to pass loans based upon loan type. To the extent that loans change risk
levels, collateral values change or reserve factors change, the Company may need
to adjust its provision for loan losses which would impact earnings.

Management has discussed the development and selection of this critical
accounting estimate with the Audit Committee of the Board of Directors and the
Audit Committee has reviewed the Company's disclosure relating to it in this
Management's Discussion and Analysis ("MD&A").

Management believes the allowance for loan losses at December 31, 2002 was
at a level to cover the known and inherent losses in the portfolio that were
both probable and reasonable to estimate. In the future, management may adjust
the level of its allowance for loan losses as economic and other conditions
dictate. Management reviews the allowance for loan losses not less than
quarterly.

GOODWILL AND INTANGIBLE ASSETS. Effective April 1, 2001, the Company
adopted SFAS No. 142, which resulted in discontinuing the amortization of
goodwill. Under the Statement, goodwill is carried at its book value as of April
1, 2001 and any future impairment of goodwill will be recognized as non-interest
expense in the period of impairment. However, under the terms of the Statement,
identifiable intangibles with identifiable lives continue to be amortized. The
Company did not recognize an impairment loss as a result of its annual
impairment test effective October 1, 2002. The Company is required to test the
value of its goodwill at least annually.

The Company's goodwill, which aggregated $185.2 million at December 31,
2002, resulted from the acquisitions of Broad and Statewide as well as the
acquisition of Bay Ridge Bancorp, Inc. in January 1996. The Company's $2.0
million of identifiable intangible assets at December 31, 2002 resulted
primarily from two branch purchase transactions effected in fiscal 1996. The
Company's intangible assets decreased by $7.0 million to $2.0 million at
December 31, 2002 from $9.0 million at December 31, 2001. The decrease was a
result of amortization of the intangible assets. The amortization of identified
intangible assets will continue to reduce net income until such intangible
assets are fully amortized. However, most of the remaining identified
intangibles as of December 31, 2002 will be amortized by September 30, 2003.

The Company performs a goodwill impairment test on an annual basis. The
goodwill impairment test compares the fair value of a reporting unit with its
carrying amount, including goodwill. If the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is considered not
impaired. If the carrying amount of a reporting unit exceeds its fair value,
goodwill is considered impaired and the Company must measure the amount of
impairment loss, if any.

The fair value of a reporting unit may be determined by a combination of
quoted market prices, a present value technique or multiples of earnings or
revenue. Quoted market prices in active markets are the best evidence of fair
value and shall

52

be used as the basis for the measurement, if available. However, the market
price of an individual equity security (and thus the market capitalization of a
reporting unit with publicly traded equity securities) may not be representative
of the fair value of the reporting unit as a whole. The quoted market price of
an individual equity security, therefore, need not be the sole measurement basis
of the fair value of a reporting unit. A present value technique is another
method with which to estimate the fair value of a group of net assets. If a
present value technique is used to measure fair value, estimates of future cash
flows used in that technique shall be consistent with the objective of measuring
fair value. Those cash flow estimates shall incorporate assumptions that
marketplace participants would use in their estimates of fair value. If that
information is not available without undue cost and effort, an entity may use
its own assumptions. A third method of estimating the fair value of a reporting
unit, is a valuation technique based on multiples of earnings or revenue.

The Company currently uses a combination of quoted market prices of its
publicly traded stock and multiples of earnings in its goodwill impairment test.

The Company has identified the goodwill impairment test as a critical
accounting estimate due to the various methods (quoted market price, present
value technique or multiples of earnings or revenue) and judgment involved in
determining the fair value of a reporting unit. A change in judgment could
result in goodwill being considered impaired which would result in a charge to
non-interest expense in the period of impairment.

Management has discussed the development and selection of this critical
accounting estimate with the Audit Committee of the Board of Directors and the
Audit Committee has reviewed the Company's disclosure relating to it in this
MD&A.

BANK OWNED LIFE INSURANCE ("BOLI"). The Company holds BOLI policies to
fund certain future employee benefit costs and to provide attractive tax-exempt
returns to the Company. The BOLI is recorded at its cash surrender value and
changes in value are recorded in non-interest income. BOLI increased $55.6
million to $168.4 million at December 31, 2002 compared to $112.8 million at
December 31, 2001. During the fourth quarter of 2002, the Company increased its
holdings of BOLI by $50.0 million. The remaining $5.6 million increase was due
to a change in the cash surrender value of the BOLI.

OTHER ASSETS. Other assets increased $68.6 million from $163.6 million at
December 31, 2001 to $232.2 at December 31, 2002. The increase was primarily due
to a $25.5 million increase in net deferred tax assets, a $16.1 million increase
in FHLB stock, a $13.5 million increase in the Company's minority equity
investment in Meridian and an $11.1 million increase in prepaid pension
obligation. At the end of the fourth quarter of 2002, the Company made a cash
contribution of approximately $10.0 million to restore the Company's pension
plan to fully funded status. The contribution did not reduce 2002 earnings.

DEPOSITS. Deposits increased $145.3 million or 3.0% to $4.94 billion at
December 31, 2002 compared to $4.79 billion at December 31, 2001. The increase
was due to deposit inflows totaling $64.0 million as well as interest credited
of $81.3 million.

Complementing the increased emphasis on expanding commercial and consumer
relationships, lower costing core deposits (consisting of all deposit accounts
other than certificates of deposit) grew by $409.7 million, or 13.9%, to $3.35
billion at December 31, 2002 compared to $2.94 billion at December 31, 2001.
This increase reflects both the continued successful implementation of the
Company's business strategy of increasing core deposits as well as the current
interest rate environment. Execution of this strategy is evidenced by the
increase in core deposits to approximately 67.8% of total deposits at December
31, 2002 compared to 61.3% of total deposits at December 31, 2001.

The Company focuses on the growth of core deposits as a key element of its
asset/liability management process to lower interest expense and thus increase
net interest margin given that these deposits have a lower cost of funds than
certificates of deposit and FHLB borrowings. Core deposits also reduce liquidity
fluctuations since these accounts generally are considered to be less likely
than certificates of deposit to be subject to disintermediation. In addition,
these deposits improve non-interest income through increased customer related
fees and service charges. The weighted average interest rate of core deposits
was 1.01% compared to 2.85% for certificates of deposit and 4.90% for borrowings
for the year ended December 31, 2002.

53

BORROWINGS. Borrowings increased $248.8 million or 14.8% to $1.93 billion
at December 31, 2002 compared to $1.68 billion at December 31, 2001. The
increase was principally due to a $222.8 million increase in FHLB advances, a
$50.0 million increase in FHLB repurchase agreements partially offset by a $24.0
million decrease in FHLB overnight borrowings. During the year ended December
31, 2002, the Company took advantage of the steepness in the yield curve by
securing $350.0 million of adjustable-rate three and four year borrowings from
the FHLB of New York. These borrowings have interest rate caps that prevent the
rates from exceeding 5.25% to 5.70%. These borrowings have a weighted average
interest rate of 2.46% and are indexed to LIBOR. The Company also replaced
$100.0 million of borrowings that matured during 2002 with fixed-rate ten-year
borrowings, callable in five years, at a weighted average interest rate of 4.12%
and paid off $50.0 million of borrowings that matured at a weighted average
interest rate of 5.21%. The $248.8 million increase was primarily used to fund
the growth in the available-for-sale securities portfolio and to fund loan
originations. See Note 11 of the "Notes to Consolidated Financial Statements"
set forth in Item 8 hereof.

COMPANY-OBLIGATED MANDATORILY REDEEMABLE CUMULATIVE TRUST PREFERRED
SECURITIES. On June 30, 1997, $11.5 million of Trust Preferred Securities were
issued by the Issuer Trust. In accordance with the terms of the trust indenture,
the Issuer Trust redeemed all of its outstanding Trust Preferred Securities at
$10.00 per share (par), effective June 30, 2002. The Company determined to have
the Issuer Trust redeem the securities due to the high interest rate paid on the
Trust Preferred Securities in relation to the current interest rate environment.

STOCKHOLDERS' EQUITY. The Holding Company's stockholders' equity totaled
$920.3 million at December 31, 2002, compared to $880.5 million at December 31,
2001. The $39.7 million increase was primarily due to net income of $122.4
million, amortization of the earned portion of restricted stock grants of $9.7
million, $7.8 million related to the Employee Stock Ownership Plan ("ESOP")
shares committed to be released for the year ended 2002 and $0.1 million related
to accelerated vesting of stock options. In addition, increases were also
attributable to $10.7 million related to the exercise of stock options and the
issuance of shares in payment of directors' fees and $11.9 million of
consideration paid for the Company's increased equity investment in Meridian.
These increases were partially offset by a $1.3 million decrease in the net
unrealized gain on securities available-for-sale, a $1.0 million valuation
adjustment of the deferred tax asset reflecting the fair market value of stock
contributed to the Foundation at its inception in March 1998, a $92.1 million
reduction in capital resulting from the purchase during the year ended December
31, 2002 of 3,538,650 shares of common stock in connection with the Holding
Company's open market repurchase programs, a $26.5 million decrease due to
dividends declared and a $1.9 million decrease for the change in fair value of
interest rate swaps, net of tax.

CONTRACTUAL OBLIGATIONS, COMMITMENTS, CONTINGENT LIABILITIES AND OFF-BALANCE
SHEET ARRANGEMENTS

The following table presents, as of December 31, 2002, the Company's
significant fixed and determinable contractual obligations by payment date. The
payment amounts represent those amounts contractually due to the recipient and
do not include any unamortized premiums, or discounts, or other similar carrying
value adjustments. Further discussion of the nature of each obligation is
included in the referenced notes to the Consolidated Financial Statements set
forth in Item 8 hereof.

54

The Company also entered into forward starting interest rate swap
agreements under which the Company is required at a future date to make periodic
fixed rate payments to the swap counterparties while receiving periodic variable
rate payments indexed to the three month LIBOR from the swap counterparties
based on a common notional amount and maturity date. The total notional value of
such contracts aggregated $200.0 million at December 31, 2002. Derivative
contracts are carried at fair value on the consolidated balance sheet. For
further discussion of derivative instruments see "Business-Investment
Activities" and Notes 1 and 17 of the "Notes to Consolidated Financial
Statements" set forth in Item 8 hereof.

A schedule of significant commitments at December 31, 2002 follows:

For further discussion of these commitments as well as the Company's
commitments and obligations under pension and other postretirement benefit
plans, see Notes 14 and 18 of the "Notes to Consolidated Financial Statements"
set forth in Item 8 hereof.

AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID

The table on the following page sets forth, for the periods indicated,
information regarding (i) the total dollar amount of interest income of the
Company from interest-earning assets and the resultant average yields; (ii) the
total dollar amount of interest expense on interest-bearing liabilities and the
resultant average rate; (iii) net interest income; (iv) the interest rate
spread; and (v) the net interest margin. Information is based on average daily
balances during the indicated periods.

55

- ---------------
(1) The average balance of loans receivable includes non-performing loans,
interest on which is recognized on a cash basis.

(2) Includes home equity loans and lines of credit, FHA and conventional home
improvement loans, student loans, automobile loans, passbook loans and
secured and unsecured personal loans.

(3) Includes federal funds sold, interest-earning bank deposits and FHLB stock.

(4) Includes NOW and checking accounts.

(5) Trust Preferred Securities redeemed effective June 30, 2002.

56

RATE/VOLUME ANALYSIS

The following table sets forth the effects of changing rates and volumes on
net interest income of the Company. Information is provided with respect to (i)
effects on interest income and expense attributable to changes in volume
(changes in volume multiplied by prior rate) and (ii) effects on interest income
and expense attributable to changes in rate (changes in rate multiplied by prior
volume). The combined effect of changes in both rate and volume has been
allocated proportionately to the change due to rate and the change due to
volume.

- ---------------
(1) Includes home equity loans and lines of credit, FHA and conventional home
improvement loans, student loans, automobile loans, passbook loans and
secured and unsecured personal loans.

57

COMPARISON OF RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31,
2002 AND THE TWELVE MONTHS ENDED DECEMBER 31, 2001

GENERAL. For the year ended December 31, 2002, the Company reported a
41.8% increase in diluted earnings per share to $2.24 compared to $1.58 for the
year ended December 31, 2001. Net income for the year ended December 31, 2002
increased 42.2% to $122.4 million compared to $86.1 million for the year ended
December 31, 2001.

NET INTEREST INCOME. Net interest income increased by $63.7 million or
25.9% to $309.9 million for the year ended December 31, 2002 as compared to
$246.2 million for the year ended December 31, 2001. The increase was primarily
due to a $60.8 million decrease in interest expense combined with a $2.9 million
increase in interest income. The growth in net interest income primarily
reflected the $653.3 million increase in average interest-earning assets as well
as a 54 basis point increase in the net interest margin during the year ended
December 31, 2002 compared to the year ended December 31, 2001. The increase in
average interest-earning assets was primarily attributable to growth in
mortgage-related securities, commercial real estate and business loans, and
mortgage warehouse lines of credit.

For the year ended December 31, 2002, the Company's net interest margin
increased 54 basis points to 4.23% from 3.69% for the year ended December 31,
2001. The improvement in net interest margin was directly attributable to the
Company's strategy to reduce the average cost of interest-bearing liabilities in
order to offset the decline in the average yield earned on interest-earning
assets resulting from the current interest rate environment. For the year ended
December 31, 2002 as compared to the year ended December 31, 2001, the average
rate paid on average interest-bearing liabilities decreased 122 basis points,
more than offsetting the 61 basis point decline in the average yield earned on
interest-earning assets. This decline mirrored the movement in the yield curve
with short-term interest rates declining more rapidly than longer term rates.
Complementing the movement in the yield curve, the Company contributed to the
improvement in net interest margin by originating higher yielding commercial
loan products through its expanded presence in the New York metropolitan market
and the continuing evolution of a retail banking sales culture focused on
expanding the Company's level of core deposits. In addition, the Company
continued a disciplined pricing strategy for deposits, which was effective in
addressing the current interest rate yield curve.

The Company, based upon the current interest rate and refinance
environment, expects a compression of its net interest margin in 2003. However,
the Company continues to rely on all of the components of its business model to
offset or substantially lessen the reduction in net interest income as it
continues to implement the shift in its deposits to lower costing core deposits
while continuing to build non-interest rate sensitive revenue channels,
including in particular the expansion of its mortgage-banking activities.

The Company's interest rate spread (i.e., the difference between the yields
earned on its interest-earning assets and the rates paid on its interest-
bearing liabilities) increased to 4.08% for the year ended December 31, 2002
compared to 3.47% for the year ended December 31, 2001. The net interest rate
spread increased by 61 basis points reflecting the Company's strategy to reduce
the cost of interest-bearing liabilities in order to offset the decline in the
yield earned on interest-earning assets resulting from the current interest rate
environment.

Interest income increased by $2.9 million, or 0.6%, to $485.5 million for
the year ended December 31, 2002 compared to the year ended December 31, 2001.
This increase was primarily due to the $653.3 million increase in the average
balance of the Company's interest-earning assets partially offset by a 61 basis
point decrease in the weighted average yield, from 7.24% for the year ended
December 31, 2001 to 6.63% for the year ended December 31, 2002.

Interest income on mortgage loans decreased $9.9 million due to a 24 basis
point decrease in the yield earned on loans from 7.56% for the year ended
December 31, 2001 to 7.32% for the year ended December 31, 2002 as well as a
$13.2 million decrease in the average balance of mortgage loans. The decrease in
average balance was due to in large part the $271.0 million decrease in the
aggregate average balance of the Company's single-family and cooperative
apartment loans due to both increased prepayments as a result of the current
interest rate environment as well as decreased emphasis on originations. The
Company primarily originates single-family loans through its previously
discussed private

58

label program with Cendant. Partially offsetting the decrease in the
single-family and cooperative apartment loans portfolio was a $214.4 million and
$69.8 million increase in the average balance of commercial real estate and
multi-family residential loans, respectively, for the year ended December 31,
2002 compared to the year ended December 31, 2001. The increase in these
portfolios was due to the Company's continuing effort of originating higher
yielding commercial loan products as well as the Company's commitment to
maintaining its leadership position in the multi-family residential loan market.
The Company originated $843.1 million of mortgage loans for portfolio retention
in the year ended December 31, 2002 partially offset by loan repayments of $1.11
billion and sales of $257.6 million from portfolio at the end of the fourth
quarter of 2002. The decrease in yield was primarily due to the current interest
rate yield curve.

Interest income on other loans increased $9.9 million, or 14.2%, due to a
$220.4 million and $134.8 million increase in the average balance of commercial
business and mortgage warehouse lines of credit, respectively. Partially
offsetting the increase was a 147 basis point and 164 basis point decrease in
the yield earned on commercial business loans and mortgage warehouse lines of
credit loans, respectively, from 8.08% and 6.28%, respectively, for the year
ended December 31, 2001 to 6.61% and 4.64%, respectively, for the year ended
December 31, 2002. The decrease in yields was primarily due to the current
interest rate yield curve since these loans are primarily variable rate and thus
are repricing downward in the current interest rate environment.

Income on investment securities decreased $2.6 million for the year ended
December 31, 2002 due to a $17.9 million decrease in the average balance of
investment securities along with a decrease in the yield earned on such
securities from 5.66% for the year ended December 31, 2001 to 4.74% for the year
ended December 31, 2002. The decline in average balance was due to the Company's
reinvestment into other higher yielding assets.

Interest income on mortgage-related securities increased $9.1 million for
the year ended December 31, 2002 due primarily to the $269.1 million increase in
the average balance of mortgage-related securities. The increase in the average
balance was primarily due to an increase in borrowings which were invested in
mortgage-related securities. This increase was partially offset by a 75 basis
point decrease in the yield earned to 5.53% for the year ended December 31, 2002
from 6.28% for the year ended December 31, 2001, reflecting the decrease in
market rates of interest experienced during the calendar year.

Income on other interest-earning assets (consisting primarily of interest
on federal funds and dividends on FHLB stock) decreased $3.6 million for the
year ended December 31, 2002 compared to the year ended December 31, 2001. This
decrease primarily reflects the $2.7 million decline in interest on federal
funds, FHLB overnight deposits and other short-term investments as well as a
$0.9 million decrease in dividends on FHLB stock.

Interest expense on deposits decreased $71.0 million or 46.5% to $81.6
million for the year ended December 31, 2002 compared to $152.6 million for the
year ended December 31, 2001. The decrease was primarily the result of a 156
basis point decrease in the average rate paid on deposits to 1.65% for the year
ended December 31, 2002 compared to 3.21% for the year ended December 31, 2001.
The decrease in rates was attributable to the continued maintenance of the
disciplined pricing strategy which was effective in addressing the current
interest rate yield curve. This decrease was partially offset by a $216.2
million increase in the average balance of deposits as a result of the Company's
continuing evolution of a retail banking sales culture focused on increasing the
amount of lower costing core deposits. The average balance of lower costing core
deposits increased $640.2 million while the average balance of higher costing
certificates of deposit decreased $424.0 million for the year ended December 31,
2002 compared to the year ended December 31, 2001.

Interest expense on borrowings increased $10.6 million or 12.8% to $93.4
million for the year ended December 31, 2002 compared to $82.8 million for the
year ended December 31, 2001. The increase was primarily due to a $397.7 million
increase in the average balance of borrowings for the year ended December 31,
2002 compared to the year ended December 31, 2001. The increase in average
borrowings was primarily the result of the Company taking advantage of the
steepness in the yield curve by securing $350.0 million of adjustable-rate three
and four year borrowings from the FHLB of New York. The borrowings have interest
rate

59

caps that prevent the rates from exceeding 5.25% to 5.70%. The Company also
replaced $100.0 million of borrowings that matured in 2002 with fixed-rate
ten-year borrowings, callable in five years, at a weighted average interest rate
of 4.12% and paid off $50.0 million of borrowings that matured with a weighted
average interest rate of 5.21%. The borrowings were primarily used to fund the
purchase of mortgage-related securities and commercial real estate and business
loan originations.

Interest expense on Trust Preferred Securities decreased $0.5 million or
50.0% to $0.5 million for the year ended December 31, 2002 compared to $1.0
million for the year ended December 31, 2001. The Trust Preferred Securities
were assumed as part of the Broad acquisition effective the close of business on
July 31, 1999. In accordance with the terms of the trust indenture, the Trust
redeemed all of its outstanding Trust Preferred Securities of $11.5 million, at
$10.00 per share, effective June 30, 2002. The redemption was effected due to
the high interest rate paid on the Trust Preferred Securities in relation to the
current interest rate environment.

PROVISION FOR LOAN LOSSES. The Company's provision for loan losses
decreased by $0.5 million from $8.5 million for the year ended December 31,
2001, to $8.0 million for the year ended December 31, 2002. The provision
recorded reflected the Company's increase in non-accrual loans, the increase in
classified and impaired loans, the increase in delinquencies and charge-offs,
the increase in mortgage warehouse advances, the continued emphasis on
commercial and business loan originations which are deemed to have higher levels
of known and inherent loss, as well as the recognition of current economic
conditions. To date, the Company has not realized any direct credit impairment
as a result of the tragic events of September 11, 2001 but continues to monitor
its portfolio closely.

Non-performing assets as a percentage of total assets decreased to 52 basis
points at December 31, 2002, compared to 61 basis points at December 31, 2001.
Non-performing assets decreased 9.8% to $41.6 million at December 31, 2002
compared to $46.2 million at December 31, 2001. The decrease of $4.6 million was
primarily due to a $15.6 million decrease on loans that are contractually past
due 90 days or more as to maturity, although current as to monthly principal and
interest payments partially offset by an increase of $11.2 million in
non-accrual loans, primarily commercial real estate and business loans. Included
in the $41.6 million of non-performing loans at December 31, 2002 were $39.0
million of non-accrual loans and $2.5 million of loans contractually past
maturity but which are continuing to pay in accordance with their original
repayment schedule. At December 31, 2002 and 2001, the allowance for loan losses
as a percentage of total non-performing loans was 193.6% and 170.0%,
respectively.

NON-INTEREST INCOME. Emphasis on fee-based income continues to gain
momentum throughout the Company within the Company and continues to be on-going
strategic objective. As a result of the implementation of a variety of
initiatives, the Company experienced an $18.0 million, or 31.6%, increase in
non-interest income to $75.1 million for the year ended December 31, 2002,
compared to $57.1 million for the year ended December 31, 2001.

During 2002, the Company recognized net gains of $0.6 on the sales of loans
and securities, substantially all of which relates to the gain on the sale of
equity securities. During calendar 2001, the Company recognized net gains on
sales of $3.1 million primarily from sales of $90.0 million of securities.

Income from mortgage-banking activities increased $0.9 million to $13.8
million for the year ended December 31, 2002 compared to $12.9 million for the
year ended December 31, 2001. During the quarter ended December 31, 2000, the
Company initiated a program with Fannie Mae to originate for sale multi-family
residential loans in the secondary market, with the Company retaining servicing.
Under the terms of the sales program, the Company also retains a portion of the
associated credit risk. See "Business-Lending Activities-Loan Originations,
Purchases, Sales and Servicing". During the quarter ended December 31, 2001 the
Company also entered into a program with Cendant to originate and sell
single-family residential mortgage loans and servicing in the secondary market.

Mortgage-banking activities for the year ended December 31, 2002 reflected
$11.5 million in gains, $8.1 million of origination fees and $1.5 million in
servicing fees partially offset by $3.4 million of amortization of servicing
assets and $3.9 million in provisions recorded related to retained credit
exposure on multi-family residential loans sold. The $0.9 million increase in
mortgage-banking activities for the year ended December 31, 2002 compared to

60

the year ended December 31, 2001 was primarily due to a $3.2 million increase in
gains on sales and $4.2 million of higher origination and servicing fees
partially offset by $3.9 million in provisions recorded related to the retained
credit exposure and $2.6 million of additional amortization of capitalized
servicing rights.

During the year ended December 31, 2002, the Company originated $1.17
billion and sold $1.07 billion of multi-family loans under the program with
Fannie Mae and originated $140.2 million and sold $133.5 million of
single-family residential loans. By comparison, during 2001, the Company
originated $441.9 million and sold $419.3 million of multi-family loans and
originated $4.1 million and sold $0.4 million of single-family residential
mortgages.

Service fees increased 56.0% to $50.5 million for the year ended December
31, 2002 compared to the year ended December 31, 2001. The $18.1 million
increase was principally due to approximately $9.3 million in mortgage
prepayment fees combined with a $2.8 million increase in the Company's
modification and extension fees on mortgage loans due to the current interest
rate environment and resulting refinance market. In addition, other loan fees
increased $1.6 million and banking fees increased $2.9 million related primarily
to increased service fees on deposit accounts resulting from the growth in core
deposits, particularly commercial demand deposits, an increase in per unit
charges and the debit card program. The increase in fee income is also due to
increased fees of $1.2 million on the sales of mutual funds and annuity products
as investors seek higher yielding investment opportunities.

Income on BOLI increased $0.7 million or 13.1% to $6.3 million for the year
ended December 31, 2002 compared to the year ended December 31, 2001 due to an
increase in the cash surrender value of BOLI. During the later part of the
fourth quarter of 2002, the Company also increased its holdings in BOLI by $50.0
million to $168.4 million at December 31, 2002.

Other non-interest income increased by $0.9 million to $4.0 million for the
year ended December 31, 2002, compared to $3.1 million for the year ended
December 31, 2001. The increase was primarily due to an additional $1.1 million
from the Company's minority equity investment in Meridian.

NON-INTEREST EXPENSE. Non-interest expense increased by $29.1 million, or
18.7%, for the year ended December 31, 2002, as compared to the year ended
December 31, 2001. This increase primarily reflects increases of $22.2 million
in compensation and employee benefit expense, $10.2 million in other
non-interest expense, $0.7 million in data processing fees and $0.4 million in
advertising costs. Partially offsetting these increases were decreases of $3.6
million in amortization of goodwill, $0.5 million in amortization of intangibles
and $0.3 million in occupancy costs. Effective April 1, 2001, the Company
adopted SFAS No. 142 which resulted in discontinuing the amortization of
goodwill resulting in a $3.6 million decline in goodwill amortization for the
year ended December 31, 2002 compared to the year ended December 31, 2001.

Total compensation and benefits increased by $22.2 million for the year
ended December 31, 2002 to $96.3 million. The increase was comprised of
increases in compensation of $10.3 million, incentive pay of $5.9 million,
stock-related benefit plan costs of $2.7 million, pension expense costs of $3.2
million and $1.5 million of increased health insurance costs. These increases
were partially offset by a $0.4 million reduction to the value of deferred
compensation liability and $1.9 million reduction in postretirement health care
benefits. The additional compensation and incentive pay was primarily the result
of the continued building and expansion of the Company's infrastructure. During
calendar 2001 and 2002, the Company recruited several senior executives,
including a Chief Credit Officer and a Chief Information Officer, to add to
senior management. In addition, the Company increased the number of highly
experienced senior lenders in the Company's Business Banking area to serve its
pre-existing markets and to expand into neighboring geographical areas. The
Company also realized increases as a result of the expansion of retail banking
initiatives, such as the addition of a private banking/wealth management group
in 2002 to broaden and diversify its customer base and continued its de novo
branch expansion strategy through the opening of four facilities during 2002.

Occupancy costs decreased slightly by $0.3 million to $22.8 million for the
year ended December 31, 2002. However, the Company anticipates higher annual
operating costs in 2003 as a result of the increased number of branch facilities
resulting from the continuation of the de novo branch expansion program. The
Company currently
61

expects to open approximately twelve new branches in calendar 2003.

The Company's advertising expenses amounted to $6.2 million and $5.8
million for the years ended December 31, 2002 and December 31, 2001,
respectively. The cost reflects the Company's continued focus on brand awareness
through, in part, increased advertising in print media, radio and direct
marketing programs.

Amortization of goodwill decreased $3.6 million for the year ended December
31, 2002 as compared to the year ended December 31, 2001. Effective April 1,
2001, the Company adopted SFAS No. 142, which resulted in the discontinuation of
the amortization of goodwill.

Amortization of intangible assets continues under the provisions of SFAS
No. 142. The Company's intangible assets consist primarily of core deposit
intangibles recorded as the result of premiums paid on deposits acquired from
two branch purchase transactions in 1996. Amortization of intangible assets
decreased $0.5 million during the year ended December 31, 2002 as compared to
the year ended December 31, 2001. The decrease was due to the completion in
April 2002 of the amortization of the premium incurred in the acquisition in
April 2001 of Summit Bank's Mortgage -- Banking Finance Group. See
"Business -- Lending Activities -- Loan Originations, Purchases, Sales and
Servicing".

Other non-interest expense increased $10.2 million, or 30.2%, to $43.8
million for the year ended December 31, 2002, compared to $33.6 million for the
year ended December 31, 2001. The increase was primarily due to a $3.8 million
provision for probable losses from transactions in a commercial business deposit
account in the fourth quarter of 2002. The Company is aggressively pursuing
legal remedies available to recover these funds. The remaining increase in other
non-interest expense was due to the corporate expansion associated with a
broader banking footprint, de novo banking activities, the expanded retail sales
force and the introduction of new products and services. These expenses include
items such as professional services, business development expenses, equipment
expenses, recruitment costs, office supplies, commercial bank fees, postage,
insurance, telephone expenses and maintenance and security.

Compliance with changing regulation of corporate governance and public
disclosure may result in additional expenses. Changing laws, regulations and
standards relating to corporate governance and public disclosure, including the
Sarbanes-Oxley Act, new SEC regulations and proposed revisions to the listing
requirements of the Nasdaq Stock Market, are creating uncertainty for companies
such as ours. The Company is committed to maintaining high standards of
corporate governance and public disclosure. Compliance with the various new
requirements is expected to result in increased general and administrative
expenses and a diversion of management time and attention from
revenue-generating activities to compliance activities.

INCOME TAXES. Income tax expense increased $16.8 million to $69.6 million
for the year ended December 31, 2002 compared to $52.8 million for the year
ended December 31, 2001. This increase was primarily due to a $53.2 million
increase in pre-tax income to $192.0 million for the year ended December 31,
2002 compared to $138.8 million for the year ended December 31, 2001. However,
offsetting the effect of such increased taxable income was a decline in the
Company's effective tax rate for the year ended December 31, 2002 to 36.25%,
compared to 38.0% for the year ended December 31, 2001.

Net deferred tax assets increased by $25.5 million to $69.2 million at
December 31, 2002, compared to $43.6 million at December 31, 2001. The increase
was primarily the result of a $29.8 million reduction in the deferred tax
liability associated with the implementation of certain tax strategies which
changed the timing of tax payments. During the year ended December 31, 2002, the
Company recorded a $1.0 million increase to the valuation allowance associated
with the deferred tax asset reflecting the fair market value of Holding Company
common stock contributed to the Foundation at its inception in March 1998 based
on current projections of the Company's future net income. The valuation
allowance was established in the year ended March 31, 2001 due to the
possibility that the deferred tax asset would not be fully utilized. However,
due to current projections, the Company increased the allowance due to the
increased likelihood that a smaller amount of the deferred tax asset will be
utilized. The effect of the increase of the valuation allowance was to decrease
paid-in-capital.

62

The Company uses the liability method to account for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and liabilities
and are measured using the enacted tax rates and laws expected to be in effect
when the differences are expected to reverse. The Company must assess the
deferred tax assets and establish a valuation allowance where realization of a
deferred asset is not considered "more likely than not." The Company generally
uses the expectation of future taxable income in evaluating the need for a
valuation allowance. Since the Company has reported taxable income for Federal,
state and local income tax purposes in each of the past two years and in
management's opinion, in view of the Company's previous, current and projected
future earnings, such deferred tax assets is expected to be fully realized
except as described in the previous paragraph. See Note 20 of the "Notes to
Consolidated Financial Statements" set forth in Item 8 hereof.

The Company has identified the valuation of deferred tax assets as a
critical accounting estimate due to the judgment involved in projecting future
taxable income, determining when differences are expected to be reversed and
establishing a valuation allowance. Changes in judgments and estimate may have
an impact on the Company's net income.

Management has discussed the development and selection of this critical
accounting estimate with the Audit Committee of the Board of Directors and the
Audit Committee has reviewed the Company's disclosure relating to it in this
MD&A.

COMPARISON OF RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31,
2001 AND THE TWELVE MONTHS ENDED MARCH 31, 2001

GENERAL. For the twelve months ended December 31, 2001, the Company
reported a 43.6% increase in diluted earnings per share to $1.58 compared to
$1.10 for the twelve months ended March 31, 2001. Net income for the year ended
December 31, 2001 increased 38.7% to $86.1 million compared to $62.0 million for
the year ended March 31, 2001.

Effective April 1, 2001, the Company adopted SFAS No. 142, which resulted
in discontinuing the amortization of goodwill. As a result, net income for the
twelve months ended December 31, 2001 increased by $10.8 million and diluted
earnings per share increased by $0.20. If SFAS No. 142 had been effective for
the fiscal year ended March 31, 2001, net income and diluted earnings per share,
by comparison, would have been $76.4 million and $1.36 per share, respectively.
The Company did not recognize an impairment loss as a result of its transitional
impairment test of existing goodwill.

NET INTEREST INCOME. Net interest income increased by $22.9 million or
10.3% to $246.2 million for the year ended December 31, 2001 as compared to
$223.2 million for the year ended March 31, 2001. The increase was due to an
$11.9 million increase in interest income and an $11.0 million decrease in
interest expense. The growth in net interest income primarily reflected the
$312.8 million increase in average interest-earning assets as well as an 18
basis point increase in the net interest margin during the twelve months ended
December 31, 2001 compared to the twelve months ended March 31, 2001. The
increase in average interest-earning assets was primarily attributable to growth
in mortgage warehouse lines of credit as well as commercial real estate and
business loans.

For the calendar year ended December 31, 2001, the Company's net interest
margin increased 18 basis points to 3.69% from 3.51% for the twelve months ended
March 31, 2001. For the twelve months ended December 31, 2001 as compared to the
twelve months ended March 31, 2001, the rate paid on average interest-bearing
liabilities decreased 41 basis points, more than offsetting the 17 basis point
decline in yields earned on interest-earning assets. The improvement in the net
interest margin was directly attributable to the Company's emphasis on
originating higher yielding commercial loan products through its expanded
presence in the New York metropolitan market and the continuing evolution of a
retail banking sales culture focused on delivering core deposits. In addition,
the Company introduced a disciplined pricing strategy, which was effective in
addressing the interest rate yield curve existing in 2001. The ratio of
interest-earning assets to interest-bearing liabilities declined primarily due
to the use of earning assets to fund the purchase of BOLI during the quarter
ended December 31, 2000 as well as the Holding Company's ongoing stock purchase
programs (pursuant to which 2.0 million shares were repurchased in calendar
2001).

The Company's interest rate spread increased to 3.47% for the year ended
December 31, 2001 compared to 3.23% for the year ended March 31,
63

2001. The net interest rate spread increased by 24 basis points reflecting the
shift in the asset/liability composition to lower costing liabilities as a
result of the continuing evolution of a retail banking sales culture focused on
increasing core deposits.

Interest income increased by $11.9 million, or 2.5%, to $482.6 million for
the year ended December 31, 2001 compared to the year ended March 31, 2001. This
increase was primarily due to the $312.8 million increase in the average balance
of the Company's interest-earning assets partially offset by a 17 basis point
decrease in the weighted average yield, from 7.41% for the year ended March 31,
2001 to 7.24% for the year ended December 31, 2001.

Interest income on mortgage loans increased $0.5 million due to an 8 basis
point increase in the yield earned on loans from 7.48% for the year ended March
31, 2001 to 7.56% for the year ended December 31, 2001. Partially offsetting the
increase was a $43.7 million decrease in the average balance of mortgage loans.
The decrease in average balance was due to the anticipated run-off of the
Company's comparatively lower yielding residential mortgage portfolio as the
Company continued to emphasize the origination of higher yielding commercial
real estate and business loans. The Company originated $668.8 million of
mortgage loans for portfolio retention in the twelve months ended December 31,
2001 partially offset by loan repayments of $542.6 million. The increase in
yield was primarily due to the increased investment in higher yielding
commercial real estate and business loans.

Interest income on other loans increased $17.6 million, or 33.6%, due to a
$197.1 million and $165.3 million increase in the average balance of commercial
business loans and mortgage warehouse lines of credit, respectively. Partially
offsetting the increase was a 123 basis point and 274 basis point decrease in
the yield earned on commercial business loans and mortgage warehouse lines of
credit, respectively, from 9.31% and 9.02%, respectively, for the year ended
March 31, 2001 to 8.08% and 6.28%, respectively, for the year ended December 31,
2001. The decrease in yields was primarily due to the interest rate yield curve
existing in 2001 since these loans are variable rate and reprice frequently.

Income on investment securities decreased $1.6 million for the year ended
December 31, 2001 due to a $7.7 million decrease in the average balance of
investment securities along with a decrease in the yield earned on such
securities from 6.27% for the year ended March 31, 2001 to 5.66% for the year
ended December 31, 2001. The decline in average balance was due to the Company's
reinvestment into other higher yielding assets.

Interest income on mortgage-related securities decreased $0.9 million for
the year ended December 31, 2001 compared to the year ended March 31, 2001 as a
result of a 14 basis point decrease in the yield earned to 6.28% for the year
ended December 31, 2001 from 6.42% for the year ended March 31, 2001, reflecting
the decrease in market rates of interest experienced during the calendar year.
This decrease was partially offset by an $1.5 million increase in the average
balance of these securities. Income on investment and mortgage-related
securities decreased during calendar 2001 as a result of the purchase of BOLI as
well as the Company's emphasis on increasing its investment in higher yielding
commercial loan products instead of securities.

Income on other interest-earning assets (consisting primarily of interest
on federal funds and dividends on FHLB stock) decreased $3.6 million for the
year ended December 31, 2001 compared to the year ended March 31, 2001. This
decrease primarily reflects the $2.9 million decline in interest on federal
funds, overnight deposits and other short-term investments as well as a $0.7
million decrease in dividends on FHLB stock.

Interest expense on deposits decreased $15.7 million or 9.3% to $152.6
million for the year ended December 31, 2001 compared to $168.2 million for the
year ended March 31, 2001. The decrease was primarily the result of a 49 basis
point decrease in the average rate paid on deposits to 3.21% for the year ended
December 31, 2001 compared to 3.70% for the year ended March 31, 2001. The
decrease in rates was attributable to the introduction of a disciplined pricing
strategy which was effective in addressing the interest rate yield curve
existing during 2001. This decrease was partially offset by a $203.3 million
increase in the average balance of deposits as a result of the Company's
continuing evolution of a retail banking sales culture focused on increasing the
amount of lower costing core deposits. The average balance of core deposits
increased $277.4 million while the average balance of certificates of deposit
decreased $74.1 million for the twelve months ended December 31, 2001 compared
to the twelve months ended March 31, 2001.
64

Interest expense on borrowings increased $4.6 million or 6.0% to $82.8
million for the year ended December 31, 2001 compared to $78.2 million for the
year ended March 31, 2001. The increase was primarily due to a $136.1 million
increase in the average balance of borrowings for the calendar year ended
December 31, 2001 compared to the fiscal year ended March 31, 2001. The increase
in average borrowings partially funded the growth in commercial real estate and
business loan originations. Interest expense on Trust Preferred Securities was
$1.0 million for both years ended December 31, 2001 and March 31, 2001. The
Trust Preferred Securities were assumed as part of the Broad acquisition.

PROVISION FOR LOAN LOSSES. The Company's provision for loan losses
increased by $7.1 million from $1.4 million for the year ended March 31, 2001,
to $8.5 million for the year ended December 31, 2001. The provision recorded
reflected the Company's increase in non-accrual loans, the increase in
classified loans, the substantial increase in mortgage warehouse advances, the
continued emphasis on commercial real estate and business loan originations as
well as the recognition of an overall softening of the economy.

Non-performing assets as a percentage of total assets increased to 61 basis
points at December 31, 2001, compared to 51 basis points at March 31, 2001.
Non-performing assets increased 28.6% to $46.2 million at December 31, 2001,
compared to $35.9 million at March 31, 2001. The increase of $10.3 million was
primarily due to an increase of $10.2 million in non-accrual loans, primarily
commercial real estate and business loans, as well as a $0.3 million increase on
loans that are contractually past due 90 days or more as to maturity, although
current as to monthly principal and interest payments. Included in the $46.0
million of non-performing loans at December 31, 2001 were $27.8 million of
non-accrual loans and $18.1 million of loans contractually past maturity but
which are continuing to pay in accordance with their original repayment
schedule. At December 31, 2001 and March 31, 2001, the allowance for loan losses
as a percentage of total non-performing loans was 170.0% and 201.2%,
respectively.

NON-INTEREST INCOME. Emphasis in fee-based income continued to gain
momentum throughout the various divisions within the Company in 2001. Increasing
non-interest income has been an on-going strategic objective. As a result of the
implementation of a variety of initiatives, the Company experienced an $18.7
million, or 48.9%, increase in non-interest income to $57.1 million for the year
ended December 31, 2001, compared to $38.3 million for the year ended March 31,
2001.

During calendar 2001, the Company recognized net gains on sales of $3.1
million primarily from the sales of $90.0 million of preferred securities.
During the year ended March 31, 2001, the Company recognized net gains on sales
of $3.4 million primarily from the sale of the $35.7 million student loan
portfolio and securities sales of $72.1 million, the proceeds of which funded
the purchase of $100 million of BOLI.

Income from mortgage-banking activities increased $7.4 million to $12.9
million for the twelve months ended December 31, 2001 compared to $5.5 million
for the twelve months ended March 31, 2001. Mortgage-banking activities for the
year ended December 31, 2001 reflected $8.3 million in gains and $4.5 million of
origination fees related to the sale to Fannie Mae of multi-family residential
loans in the secondary market. See "Business-Lending Activities-Loan
Originations, Purchases, Sales and Servicing". During the calendar year ended
December 31, 2001, the Company originated $597.1 million and sold $572.4 million
of such loans, recognizing a gain on sale of $5.3 million and a related loan
servicing asset of $3.0 million. Under the terms of the sales program, the
Company retains a portion of the associated credit risk. At December 31, 2001,
the Company's maximum potential exposure related to secondary market sales to
Fannie Mae under this program was $67.2 million. As of December 31, 2001, the
Company has not realized any losses related to these loans. No provisions
relating to this exposure were made during the 2001 periods made based on the
quality of the loans and their continued performance.

Service fees increased 32.6% to $32.4 million for the calendar year ended
December 31, 2001 compared to the year ended March 31, 2001. These increases
were due to increased service fees on deposit accounts resulting from the growth
in core deposits, particularly commercial demand deposits, an increase in per
unit charges as well as the introduction in the June 2001 quarter of a debit
card program. The increase in fee income is also due to increased fees on the
sales of annuity funds as investors seek higher yielding investment opportuni-

65

ties. Service fee income was positively effected by an increase in the level of
mortgage prepayments during calendar 2001 as general market rates of interest
decreased during the calendar year, resulting in increased mortgage refinancing
and higher mortgage prepayment fees of $0.8 million.

Income on BOLI increased $3.1 million or 120.8% to $5.6 million for the
year ended December 31, 2001 compared to the year ended March 31, 2001. Prior to
the purchase of BOLI during the quarter ended December 31, 2000, funds used to
pay the $100 million premium had been invested primarily in investment
securities, income from which was recognized in interest income.

Other non-interest income increased by $0.6 million to $3.1 million for the
year ended December 31, 2001, compared to $2.5 million for the prior fiscal year
ended March 31, 2001. The Company also recorded a $0.6 million refund from the
FDIC on the overassessment of 1992 deposit insurance premiums.

NON-INTEREST EXPENSE. Non-interest expense, excluding amortization of
goodwill, increased by $13.9 million, or 10.0%, for the twelve months ended
December 31, 2001, as compared to the twelve months ended March 31, 2001.

This increase primarily reflects increases of $11.1 million in compensation
and employee benefit expense, $1.8 million in other non-interest expense, $0.8
million in occupancy costs and $0.6 million in amortization of intangibles.
Partially offsetting these increases were decreases of $0.3 million in
advertising costs and $0.1 million in data processing fees. Effective April 1,
2001, the Company adopted SFAS No. 142 which resulted in discontinuing the
amortization of goodwill. As a result, amortization of goodwill decreased by
$10.8 million for the twelve months ended December 31, 2001 compared to the
twelve months ended March 31, 2001.

Total compensation and benefits increased by $11.1 million for the twelve
months ended December 31, 2001 to $74.0 million. The increase was comprised of
increases in compensation of $4.9 million, stock-related benefit plan costs of
$3.5 million, incentive pay of $2.7 million and post-retirement health care
costs of $1.5 million. These increases were partially offset by a $1.2 million
reduction to the value of deferred compensation liability and $0.4 million
reduction in pension expense, resulting from the modification of the Company's
pension plan in the second quarter of fiscal 2001. The additional compensation
and incentive pay was primarily the result of the continued building and
expansion of the Company's infrastructure. During calendar 2001, the Company
recruited several high level executives, including a Chief Credit Officer and a
Chief Information Officer, to add to senior management. In addition, the Company
increased the number of highly experienced senior lenders to serve pre-existing
markets and to expand into neighboring geographical areas. The Company also
realized increases as a result of the expansion of retail banking initiatives.
These latter increases relate to additional branch facilities and back office
support associated with new business initiatives.

Occupancy costs increased by $0.8 million to $23.1 million for the year
ended December 31, 2001. The increase was primarily the result of the expansion
of operations resulting from the opening of three de novo branches during the
last two quarters of the year ended March 31, 2001 as well as the two de novo
branches opened during the nine months ended December 31, 2001. The Company
anticipates higher annual operating costs as a result of the increased number of
branch facilities resulting from the continuation of the de novo branch
expansion program.

The Company's advertising expenses amounted to $5.8 million and $6.1
million for the years ended December 31, 2001 and March 31, 2001, respectively.
The cost reflects the Company's continued focus on brand awareness through, in
part, increased advertising in print media, radio and direct marketing programs.

Amortization of goodwill decreased $10.8 million for the twelve months
ended December 31, 2001 as compared to the twelve months ended March 31, 2001.
Effective April 1, 2001, the Company adopted SFAS No. 142, which resulted in the
discontinuation of the amortization of goodwill.

Amortization of intangible assets increased $0.6 million during the twelve
months ended December 31, 2001 as compared to the twelve months ended March 31,
2001. The increase was due to the amortization of the premium incurred in the
acquisition in April 2001 of Summit Bank's MBFG.

Other non-interest expense increased $1.7 million, or 5.6%, to $33.6
million for the year ended December 31, 2001, compared to $31.9 million for the
year ended March 31, 2001. These increases

66

relate to additional branch facilities, the operation of the customer call
center and back office support associated with new business initiatives. These
expenses also include items such as professional services, equipment expenses,
office supplies, postage, telephone expenses and maintenance and security.

INCOME TAXES. Income tax expense increased $7.5 million to $52.8 million
for the year ended December 31, 2001 compared to $45.3 million for the year
ended March 31, 2001. This increase was primarily due to a $31.4 million
increase in pre-tax income to $138.8 million for the year ended December 31,
2001 compared to $107.4 million for the year ended March 31, 2001. However,
offsetting the effect of such increased taxable income was a decline in the
Company's effective tax rate for the twelve months ended December 31, 2001 to
38.0%, compared to 42.2% for the twelve months ended March 31, 2001. The
decrease in the effective tax rate during the twelve months ended December 31,
2001 compared to the twelve months ended March 31, 2001 was attributable to the
adoption of SFAS No. 142, which discontinues the amortization of
non-tax-deductible goodwill for book purposes.

Net deferred tax assets decreased by $25.4 million to $43.6 million at
December 31, 2001, compared to $69.0 million at March 31, 2001. The decrease was
primarily the result of a $29.8 million deferred tax liability associated with
the implementation of certain tax strategies which change the timing of tax
payments. During the year ended December 31, 2001, the Company recorded a $7.9
million reduction to the valuation allowance associated with the deferred tax
asset reflecting the fair market value of Holding Company common stock
contributed to the Foundation at its inception in March 1998 based on current
projections of the Company's future net income. The valuation allowance was
established in the year ended March 31, 2001 due to the possibility that the
deferred tax asset would not be fully utilized. The Company reduced the
allowance due to the increased likelihood that a greater amount of the deferred
tax asset will be utilized. The effect of the reduction of the valuation
allowance was to increase paid-in-capital.

The Company has identified the valuation of deferred tax assets as a
critical accounting estimate. For further discussion see "-- Comparison of
Results of Operations for the Twelve Months Ended December 31, 2002 and the
Twelve Months Ended December 31, 2001-Income Taxes" set forth in Item 7 hereof.

REGULATORY CAPITAL REQUIREMENTS

The Bank is subject to minimum regulatory capital requirements imposed by
the FDIC which vary according to an institution's capital level and the
composition of its assets. An insured institution is required to maintain core
capital of not less than 3.0% of total assets plus an additional amount of at
least 100 to 200 basis points ("leverage capital ratio"). An insured institution
must also maintain a ratio of total capital to risk-based assets of 8.0%.
Although the minimum leverage capital ratio is 3.0%, the Federal Deposit
Insurance Corporation Improvement Act of 1991 stipulates that an institution
with less than a 4.0% leverage capital ratio is deemed to be an
"undercapitalized" institution which results in the imposition of certain
regulatory restrictions. See "Business-Regulation-Capital Requirements" and Note
21 of the "Notes to Consolidated Financial Statements" set forth in Item 8
hereof for a discussion of the Bank's regulatory capital requirements and
compliance therewith at December 31, 2002 and December 31, 2001.

LIQUIDITY AND COMMITMENTS

The Company's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. The Company's
primary sources of funds are deposits, the amortization, prepayment and maturity
of outstanding loans, mortgage-related securities, the maturity of debt
securities and other short-term investments and funds provided from operations.
While scheduled payments from the amortization of loans, mortgage-related
securities and maturing debt securities and short-term investments are
relatively predictable sources of funds, deposit flows and loan prepayments are
greatly influenced by general interest rates, economic conditions and
competition. In addition, the Company invests excess funds in federal funds sold
and other short-term interest-earning assets that provide liquidity to meet
lending requirements. Prior to fiscal 1999, the Company generated sufficient
cash through its deposits to fund its asset generation, using borrowings from
the FHLB of New York only to a limited degree as a source of funds. However, due
to the Company's increased focus on expanding its commercial real estate and
business loan portfolios, the Company has increased its FHLB borrowings to $1.93
billion at Decem-

67

ber 31, 2002, from $1.68 billion at December 31, 2001. At December 31, 2002, the
Company had the ability to borrow from the FHLB an additional $1.0 billion on a
secured basis, utilizing mortgage related loans and securities as collateral.
The amount of such borrowings have ranged from $56.0 million at March 31, 1996
to $1.93 billion at December 31, 2002. See Note 11 of the "Notes to Consolidated
Financial Statements" set forth in Item 8 hereof.

Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as federal funds sold, U.S. Treasury securities or preferred securities. On
a longer term basis, the Company maintains a strategy of investing in its
various lending products. The Company uses its sources of funds primarily to
meet its ongoing commitments, to pay maturing certificates of deposit and
savings withdrawals, fund loan commitments and maintain a portfolio of mortgage-
related securities and investment securities. At December 31, 2002, there were
outstanding commitments and unused lines of credit by the Company to originate
or acquire mortgage loans aggregating $446.8 million, consisting primarily of
fixed and adjustable-rate multi-family residential loans and fixed-rate
commercial real estate loans, which are expected to close during the
twelve-months ended December 31, 2003. At December 31, 2002, outstanding
commitments for other loans totaled $81.9 million, primarily comprised of home
equity loans and lines of credit. In addition, at December 31, 2002, unused
commercial business lines of credit and mortgage warehouse lines of credit
outstanding were $295.4 million and $219.1 million, respectively. Certificates
of deposit scheduled to mature in one year or less at December 31, 2002 totaled
$1.10 billion or 69.5% of total certificates of deposit. Based on historical
experience, management believes that a significant portion of maturing deposits
will remain with the Company. The Company anticipates that it will continue to
have sufficient funds, together with borrowings, to meet its current
commitments.

Following the completion of the Conversion, the Holding Company's principal
business was that of its subsidiary, the Bank. The Holding Company invested 50%
of the net proceeds from the Conversion in the Bank and initially invested the
remaining proceeds in short-term securities and money market investments. The
Bank can pay dividends to the Holding Company to the extent such payments are
permitted by law or regulation, which serves as an additional source of
liquidity.

The Holding Company's liquidity is available to, among other things, fund
acquisitions, support future expansion of operations or diversification into
other banking related businesses, pay dividends or repurchase its common stock.

Restrictions on the amount of dividends the Holding Company and the Bank
may declare can affect the Company's liquidity and cash flow needs. Under
Delaware law, the Holding Company is generally limited to paying dividends to
the extent of the excess of net assets of the Holding Company (the amount by
which total assets exceed total liabilities) over its statutory capital or, if
no such excess exists, from its net profits for the current and/or immediately
preceding year.

The Bank's ability to pay dividends to the Holding Company is also subject
to certain restrictions. Under the New York Banking Law, dividends may be
declared and paid only out of the net profits of the Bank. The approval of the
Superintendent of Banks of the State of New York is required if the total of all
dividends declared in any calendar year will exceed the net profits for that
year plus the retained net profits of the preceding two years, less any required
transfers. In addition, the OTS regulations govern capital distributions by
savings institutions, which include cash dividends, stock repurchases and other
transactions charged to the capital account of a savings institution to make
capital distributions. The Bank elected to be deemed a savings association for
certain purposes. As a result, it has to comply with the OTS capital
distribution regulations. A savings institution must file an application for OTS
approval of the capital distribution if any of the following occur or would
occur as a result of the capital distribution (1) the total capital
distributions for the applicable calendar year exceed the sum of the
institution's net income for that year-to-date plus the institution's retained
net income for the preceding two years, (2) the institution would not be at
least adequately capitalized following the distribution, (3) the distribution
would violate any applicable statute, regulation, agreement or OTS-imposed
condition, or (4) the institution is not eligible for expedited treatment of its
filings. If an application is not required to be filed, savings institutions
which are a subsidiary of a holding company (as well as certain other institu-
68

tions) must still file a notice with the OTS at least 30 days before the Board
of Directors declares a dividend or approves a capital distribution. In
addition, no dividends may be declared, credited or paid if the effect thereof
would cause the Bank's capital to be reduced below the amount required by the
Superintendent or the FDIC.

During 2002, the Bank requested and received approval of the distribution
to the Company of an aggregate of $100.0 million, of which $75.0 million was
declared by the Bank and was funded during 2002 with the remaining $25.0 million
declared and funded in 2003. In December 2000, the Bank requested and received
approval of the distribution to the Company of an aggregate of $25.0 million, of
which $6.0 million had been distributed as of December 31, 2001, with the
remainder distributed in 2002. The distributions were primarily used by the
Company to fund the Company's open market stock repurchase programs, dividend
payments and consideration paid in October 2002 to increase the Company's
minority investment in Meridian.

The Company has not had, and has no intention to have, any significant
transactions, arrangements or other relationships with any unconsolidated,
limited purpose entities that could materially affect its liquidity or capital
resources. The Company has not, and does not intend to trade in commodity
contracts.

IMPACT OF INFLATION AND CHANGING PRICES

The consolidated financial statements and related financial data presented
herein have been prepared in accordance with GAAP, which requires the
measurement of financial position and operating results in terms of historical
dollars, without considering changes in relative purchasing power over time due
to inflation. Unlike most industrial companies, virtually all of the Company's
assets and liabilities are monetary in nature. As a result, interest rates
generally have a more significant impact on a financial institution's
performance than does the effect of inflation.

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

MODIFICATIONS TO REPORTING OF EXTINGUISHMENTS OF DEBT AND ACCOUNTING FOR
CERTAIN CAPITAL LEASE MODIFICATIONS AND TECHNICAL CORRECTIONS

In April 2002, Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 145 "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" ("SFAS No. 145"). SFAS No. 145 rescinds FASB Statement No. 4
"Reporting Gains and Losses from Extinguishment of Debt, an amendment of APB
Opinion No. 30", which required all gains and losses from extinguishment of debt
to be aggregated and, if material, classified as an extraordinary item, net of
the related income tax effect. Upon adoption of SFAS No. 145, companies will be
required to apply the criteria in Accounting Principles Board, or APB, Opinion
No. 30 "Reporting the Results of Operations -- Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions" in determining the classification of gains
and losses resulting from the extinguishment of debt. Upon adoption, companies
must reclassify prior period items that do not meet the extraordinary item
classification criteria in APB Opinion No. 30. Additionally, SFAS No. 145 amends
FASB Statement No. 13 "Accounting for Leases" to require that certain lease
modifications that have economic effects similar to sale-leaseback transactions
be accounted for in the same manner as sale-leaseback transactions. The
provisions of SFAS No. 145 related to the rescission of SFAS No. 4 are effective
for fiscal years beginning after May 15, 2002. All other provisions of SFAS No.
145 are effective for transactions occurring and/or financial statements issued
on or after May 15, 2002. The implementation of SFAS No. 145 provisions which
were effective May 15, 2002 did not have a material impact on the Company's
financial condition or results of operations. The implementation of the
Statement's remaining provisions is not expected to have a material impact on
the Company's financial condition or results of operations.

OBLIGATIONS ASSOCIATED WITH DISPOSAL ACTIVITIES

In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146 "Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS No. 146"). SFAS 146 addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies Emerging Issues
Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The standard requires costs associated with
exit or disposal activities to be

69

recognized when they are incurred rather than at the date of a commitment to an
exit or disposal plan. SFAS. 146 is effective for exit or disposal activities
that are initiated after December 31, 2002, with earlier application permitted.
The adoption of SFAS No. 146 is not expected to have a material impact on the
Company's financial condition or results of operations.

ACQUISITIONS OF CERTAIN FINANCIAL INSTITUTIONS

In October 2002, the FASB issued Statement of Financial Accounting
Standards No. 147 "Acquisitions of Certain Financial Institutions -- an
Amendment of FASB Statement No. 72 and 144 and FASB Interpretation No. 9" ("SFAS
No. 147"). SFAS No. 147 removes acquisitions of financial institutions, except
for transactions between two or more mutual enterprises, from the scope of FASB
Statement No. 72 "Accounting for Certain Acquisitions of Banking or Thrift
Institutions", and FASB Interpretation No. 9 "Applying APB Opinions No. 16 and
17 When a Savings and Loan Association or Similar Institution is Acquired in a
Business Combination Accounted for by the Purchase Method," and requires that
those transactions be accounted for in accordance with SFAS No. 141 "Business
Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets." The
Statement also amends FASB Statement No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets" to include within its scope long-term
customer-relationship intangible assets of financial institutions, such as
depositor-and borrower-relationship intangible assets and credit cardholder
intangible assets. The provisions of SFAS No. 147 related to the purchase method
of accounting are effective for acquisitions occurring on or after October 1,
2002. The provisions of the Statement related to accounting for the impairment
or disposal of certain long-term customer-relationship intangible assets are
effective on October 1, 2002. Transition provisions for previously recognized
unidentifiable intangible assets are effective on October 1, 2002, with earlier
application permitted. The adoption of SFAS No. 147 did not have a material
effect on the Company's financial condition or results of operations.

ACCOUNTING FOR STOCK-BASED COMPENSATION

In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148 "Accounting for Stock-Based Compensation -- Transition and
Disclosure" ("SFAS No. 148"). SFAS No. 148 amends FASB Statement No. 123
"Accounting for Stock-Based Compensation" ("SFAS No. 123") to provide
alternative methods of transition to SFAS No. 123's fair value method of
accounting for stock-based employee compensation when a company changes from the
intrinsic value method to the fair value method of accounting for employee
stock-based compensation cost. SFAS No. 148 also amends the disclosure
provisions of SFAS No. 123 and APB Opinion No. 28 "Interim Financial Reporting"
to require disclosure in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in both annual as
well as interim financial statements. The provisions of SFAS No. 148 are
effective for financial statements issued for fiscal years ending after December
15, 2002 and for financial reports containing condensed consolidated financial
statements for interim periods beginning after December 15, 2002. In January
2003, the Company announced that beginning in 2003 it will recognize stock-based
compensation expense on options granted in 2003 and in subsequent years in
accordance with the prospective fair value-based method of accounting described
in SFAS No. 123, as amended. The implementation of SFAS No. 148 is not expected
to have a material effect on the Company's financial condition or results of
operations.

GUARANTOR'S ACCOUNTING

In November 2002, the FASB issued FASB Interpretation No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 identifies
characteristics of certain guarantee contracts and requires that a liability be
recognized at fair value at the inception of such guarantees for the obligations
undertaken by the guarantor. Additional disclosures also are prescribed for
certain guarantee contracts. The initial recognition and initial measurement
provisions of FIN 45 are effective for these guarantees issued or modified after
December 31, 2002. The disclosure requirements of FIN 45 are effective for the
Company as of December 31, 2002. Significant guarantees that have been entered
into by the Company are disclosed in Note 18. The Company does not expect the
requirements of FIN 45 to have a material effect on the Company's financial
condition or results of operations.

70

CONSOLIDATION OF VARIABLE INTEREST ENTITIES

In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities". This interpretation of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements", addresses
consolidation by business enterprises of variable interest entities with certain
characteristics. FIN 46 is effective immediately for all enterprises with
variable interests in variable interest entities created after January 31, 2003
and is effective beginning with the September 30, 2003 quarterly financial
statements for all variable interests in a variable interest entity created
before February 1, 2003. The Company does not anticipate that the adoption of
FIN 46 will have a material impact on the Company's financial condition or
results of operations.

ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

GENERAL. Market risk is the risk of loss arising from adverse changes in
the fair value of financial instruments. As a financial institution, the
Company's primary component of market risk is interest rate risk. Interest rate
risk is defined as the sensitivity of the Company's current and future earnings
to changes in the level of market rates of interest. Market risk arises in the
ordinary course of the Company's business, as the repricing characteristics of
its assets do not match those of its liabilities. Based upon the Company's
nature of operations, the Company is not subject to foreign currency exchange or
commodity price risk. The Company's various loan portfolios, concentrated
primarily within the greater New York City metropolitan area (which includes
parts of northern New Jersey and southern Connecticut), are subject to risks
associated with the local economy. The Company does not own any trading assets.

Net interest margin represents net interest income as a percentage of
average interest-earning assets. Net interest margin is directly affected by
changes in the level of interest rates, the relationship between rates, the
impact of interest rate fluctuations on asset prepayments, the level and
composition of assets and liabilities and the credit quality of the loan
portfolio. Management's asset/liability objectives are to maintain a strong,
stable net interest margin, to utilize its capital effectively without taking
undue risks and to maintain adequate liquidity.

Management responsibility for interest rate risk resides with the Asset and
Liability Management Committee ("ALCO"). The committee is chaired by the
Treasurer, and includes the Chief Executive Officer, Chief Financial Officer,
Chief Credit Officer and the Company's senior business-unit and financial
executives. Interest rate risk management strategies are formulated and
monitored by ALCO within policies and limits approved by the Board of Directors.
These policies and limits set forth the maximum risk which the Board of
Directors deems prudent, govern permissible investment securities and
off-balance sheet instruments, and identify acceptable counterparties to
securities and off-balance sheet transactions.

ALCO risk management strategies allow for the assumption of interest rate
risk within the Board approved limits. The strategies are formulated based upon
ALCO's assessments of likely market developments and trends in the Company's
lending and consumer banking businesses. Strategies are developed with the aim
of enhancing the Company's net income and capital, while ensuring the risks to
income and capital from adverse movements in interest rates are acceptable.

The Company's strategies to manage interest rate risk include (i)
increasing the interest sensitivity of its mortgage loan portfolio through the
use of adjustable-rate loans or relatively short-term (primarily five years)
balloon loans, (ii) originating relatively short-term or variable-rate consumer
and commercial business loans as well as mortgage warehouse lines of credit,
(iii) investing in securities, primarily mortgage-related instruments with
maturities or estimated average lives of less than five years, (iv) promoting
stable savings, demand and other transaction accounts, (v)utilizing
variable-rate borrowings which have imbedded derivatives to cap the cost of
borrowings, (vi) using interest rate swaps to modify the repricing
characteristics of certain variable rate borrowings, (vii) maintaining a strong
capital position and (viii) maintaining a relatively high level of liquidity
and/or borrowing capacity.

As part of the overall interest rate risk management strategy, management
has entered into deriva-

71

tive instruments to minimize significant unplanned fluctuations in earnings and
cash flows caused by interest rate volatility. The interest rate risk management
strategy at times involves modifying the repricing characteristics of certain
borrowings so that changes in interest rates do not have a significant adverse
effect on net interest income, the net interest margin and cash flows.
Derivative instruments that management periodically uses as part of its interest
rate risk management strategy include interest rate swaps.

At December 31, 2002, the Company had forward starting interest rate swap
agreements outstanding with aggregate notional values of $200.0 million. These
agreements qualify as cash flow hedges of anticipated interest payments relating
to $200.0 million of variable-rate FHLB borrowings that the Company intends to
draw down during 2003 to replace existing FHLB borrowings that will mature in
2003. The swaps require the Company at a future date to make periodic fixed-rate
payments to the swap counterparties, while receiving periodic variable-rate
payments indexed to the three month LIBOR rate from the swap counterparties
based on a common notional amount and maturity date. As a result, the net impact
of the swap will be to convert the variable interest payments on the $200.0
million FHLB borrowings to fixed interest payments the Company will make to the
swap counterparty. These swaps have original maturities ranging up to 5 years.

The credit risk associated with these derivative instruments is the risk of
non-performance by the counterparty to the agreements. However, management does
not anticipate non-performance by the counterparties and monitors/controls the
risk through its asset/liability management procedures. See Note 17 of the
"Notes to Consolidated Financial Statements" set forth in Item 8 hereof.

Management uses a variety of analyses to monitor the sensitivity of net
interest income, primarily a dynamic simulation model complemented by a
traditional gap analysis and, to a lesser degree, a net portfolio value
analysis.

NET INTEREST INCOME SIMULATION MODEL. The simulation model measures the
sensitivity of net interest income to changes in market interest rates. The
simulation involves a degree of estimation based on certain assumptions that
management believes to be reasonable. Factors considered include contractual
maturities, prepayments, repricing characteristics, deposit retention and the
relative sensitivity of assets and liabilities to changes in market interest
rates.

The Board has established certain limits for the potential volatility of
net interest income as projected by the simulation model. Volatility is measured
from a base case where rates are assumed to be flat. Volatility is expressed as
the percentage change, from the base case, in net interest income over a
12-month period.

The model is kept static with respect to the composition of the balance
sheet and, therefore does not reflect management's ability to proactively manage
in changing market conditions. Management may choose to extend or shorten the
maturities of the Company's funding sources and redirect cash flows into assets
with shorter or longer durations.

Based on the information and assumptions in effect at December 31, 2002,
the model shows that a 200 basis point gradual increase in interest rates over
the next twelve months would decrease net interest income by $7.1 million or
2.43%, while a 100 basis point gradual decrease in interest rates would decrease
net interest income by $4.5 million or 1.55%.

GAP ANALYSIS. Gap analysis complements the income simulation model,
primarily focusing on the longer term structure of the balance sheet. The
matching of assets and liabilities may be analyzed by examining the extent to
which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's "interest rate sensitivity gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of interest-earning assets
maturing or repricing within a specific time period and the amount of
interest-bearing liabilities maturing or repricing within that same time period.
A gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. At December 31, 2002, the Company's
one-year cumulative gap position was a positive 3.68%. A positive gap will
generally result in the net interest margin increasing in a rising rate
environment and decreasing in a falling rate environment.
72

A negative gap will generally have the opposite results on the net interest
margin.

The following gap analysis table sets forth the amounts of interest-earning
assets and interest-bearing liabilities outstanding at December 31, 2002, that
are anticipated by the Company, using certain assumptions based on historical
experience and other market-based data, to reprice or mature in each of the
future time periods shown. The amount of assets and liabilities shown which
reprice or mature during a particular period was determined in accordance with
the earlier of the term to reprice or the contractual maturity of the asset or
liability.

The gap analysis is an incomplete representation of interest rate risk. The
gap analysis sets forth an approximation of the projected repricing of assets
and liabilities at December 31, 2002 on the basis of contractual maturities,
anticipated prepayments, callable features and scheduled rate adjustments for
selected time periods. The actual duration of mortgage loans and mortgage-backed
securities can be significantly affected by changes in mortgage prepayment
activity. The major factors affecting mortgage prepayment rates are prevailing
interest rates and related mortgage refinancing opportunities. Prepayment rates
will also vary due to a number of other factors, including the regional economy
in the area where underlying collateral is located, seasonal factors and
demographic variables.

In addition, the gap analysis does not account for the effect of general
interest rate movements on the Company's net interest income because the actual
repricing dates of various assets and liabilities will differ from the Company's
estimates and it does not give consideration to the yields and costs of the
assets and liabilities or the projected yields and costs to replace or retain
those assets and liabilities. Callable features of certain assets and
liabilities, in addition to the foregoing, may also cause actual experience to
vary from that indicated. The uncertainty and volatility of interest rates,
economic conditions and other markets which affect the value of these call
options, as well as the financial condition and strategies of the holders of the
options, increase the difficulty and uncertainty in predicting when they may be
exercised.

Among the factors considered in our estimates are current trends and
historical repricing experience with respect to similar products. As a result,
different assumptions may be used at different points in time. Within the one
year time period, money market accounts were assumed to decay at 55%, savings
accounts were assumed to decay at 30% and NOW accounts were assumed to decay at
40%. Deposit decay rates (estimated deposit withdrawal activity) can have a
significant effect on the Company's estimated gap. While the Company believes
such assumptions are reasonable, there can be no assurance that assumed decay
rates will approximate actual future deposit withdrawal activity.

73

The following table reflects the repricing of the balance sheet, or "gap"
position at December 31, 2002.

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

(1) Based upon contractual maturity, repricing date, if applicable, and
management's estimate of principal prepayments. Includes loans
available-for-sale.

(2) Based upon contractual maturity, repricing date, if applicable, and
projected repayments of principal based upon experience. Amounts exclude the
unrealized gains/(losses) on securities available-for-sale.

(3) Includes interest-earning cash and due from banks, overnight deposits and
FHLB stock.

74

NPV ANALYSIS. To a lesser degree, the Company also utilizes net portfolio
value ("NPV") analysis to monitor interest rate risk over a range of interest
rate scenarios.

NPV is defined as the net present value of the expected future cash flows
of an entity's assets and liabilities and, therefore, theoretically represents
the market value of the Company's net worth. Increases in the value of assets
will increase the NPV whereas decreases in value of assets will decrease the
NPV. Conversely, increases in the value of liabilities will decrease NPV whereas
decreases in the value of liabilities will increase the NPV. The changes in
value of assets and liabilities due to changes in interest rates reflect the
interest rate sensitivity of those assets and liabilities as their values are
derived from the characteristics of the asset or liability (i.e. fixed rate,
adjustable rate, caps, floors) relative to the interest rate environment. For
example, in a rising interest rate environment, the fair value of a fixed-rate
asset will decline whereas the fair value of an adjustable-rate asset, depending
on its repricing characteristics, may not decline. In a declining interest rate
environment, the converse may be true.

The NPV ratio, under any interest rate scenario, is defined as the NPV in
that scenario divided by the market value of assets in the same scenario. The
model assumes estimated loan prepayment rates and reinvestment rates similar to
the Company's historical experience. The following sets forth the Company's NPV
as of December 31, 2002.

As of December 31, 2002, the Company's NPV was $1.05 billion, or 12.80% of
the market value of assets. Following a 200 basis point assumed increase in
interest rates, the Company's "post shock" NPV was estimated to be $1.03
billion, or 13.15% of the market value of assets reflecting an increase of 0.35%
in the NPV ratio.

As of December 31, 2001, the Company's NPV was $1.03 billion, or 13.34% of
the market value of assets. Following a 200 basis point assumed increase in
interest rates, the Company's "post shock" NPV was estimated to be $990.2
million, or 13.40% of the market value of assets reflecting an increase of 0.06%
in the NPV ratio.

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

75

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT AUDITORS

THE BOARD OF DIRECTORS
INDEPENDENCE COMMUNITY BANK CORP.

We have audited the accompanying consolidated statements of financial
condition of Independence Community Bank Corp. (the "Company") as of December
31, 2002 and 2001, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the year ended December 31,
2002, the nine months ended December 31, 2001 and the year ended March 31, 2001.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Independence
Community Bank Corp. at December 31, 2002 and 2001 and the consolidated results
of its operations and its cash flows for the year ended December 31, 2002, the
nine months ended December 31, 2001 and the year ended March 31, 2001, in
conformity with accounting principles generally accepted in the United States.

As discussed in Notes 2 and 8 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 142 during the
nine months ended December 31, 2001.

/s/ ERNST & YOUNG, LLP
--------------------------------------
Ernst & Young, LLP

New York, New York
February 5, 2003

76

INDEPENDENCE COMMUNITY BANK CORP.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

See accompanying notes to consolidated financial statements.
77

INDEPENDENCE COMMUNITY BANK CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements.
78

INDEPENDENCE COMMUNITY BANK CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

See accompanying notes to consolidated financial statements.

79

INDEPENDENCE COMMUNITY BANK CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to consolidated financial statements.
80

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, DECEMBER 31, 2001 AND MARCH 31, 2001

1. ORGANIZATION/FORM OF OWNERSHIP

Independence Community Bank was originally founded as a New York-chartered
savings bank in 1850. In April 1992, the Bank reorganized into the mutual
holding company form of organization pursuant to which the Bank became a wholly
owned stock savings bank subsidiary of a newly formed mutual holding company
(the "Mutual Holding Company").

On April 18, 1997, the Board of Directors of the Bank and the Board of
Trustees of the Mutual Holding Company adopted a Plan of Conversion to convert
the Mutual Holding Company to the stock form of organization and simultaneously
merge it with and into the Bank and all of the outstanding shares of Bank common
stock held by the Mutual Holding Company would be cancelled (the "Conversion").

As part of the conversion and reorganization, Independence Community Bank
Corp. (the "Company") was incorporated under Delaware law in June 1997. The
Company is regulated by the Office of Thrift Supervision ("OTS") as a registered
savings and loan holding company. The Company completed its initial public
offering on March 13, 1998, issuing 70,410,880 shares of common stock resulting
in proceeds of $685.7 million, net of $18.4 million of expenses. The Company
used $343.0 million, or approximately 50% of the net proceeds, to purchase all
of the outstanding stock of the Bank. The Company also loaned $98.9 million to
the Company's Employee Stock Ownership Plan (the "ESOP") which used such funds
to purchase 5,632,870 shares of the Company's common stock in the open market
subsequent to completion of the initial public offering.

As part of the Plan of Conversion, the Company formed the Independence
Community Foundation (the "Foundation") and concurrently with the completion of
the initial public offering donated 5,632,870 shares of common stock of the
Company valued at the time of its contribution at $56.3 million. The Foundation
was established in order to further the Company's and the Bank's commitment to
the communities they serve.

Additionally, the Bank established, in accordance with the requirements of
the New York State Banking Department (the "Department"), a liquidation account
for the benefit of depositors of the Bank as of March 31, 1996 and September 30,
1997 in the amount of $319.7 million, which was equal to the Bank's total equity
as of the date of the latest consolidated statement of financial condition
(August 31, 1997) appearing in the final prospectus used in connection with the
Conversion. The liquidation account is reduced as, and to the extent that,
eligible and supplemental eligible account holders have reduced their qualifying
deposits as of each March 31st. Subsequent increases in deposits do not restore
an eligible account holder's interest in the liquidation account. In the event
of a complete liquidation of the Bank, each eligible account holder or a
supplemental eligible account holder's will be entitled to receive a
distribution from the liquidation account in an amount proportionate to the
adjusted qualifying balances for accounts then held.

In addition to the restriction described above, the Company may not declare
or pay cash dividends on or repurchase any of its shares of common stock if the
effect thereof would cause stockholders' equity to be reduced below applicable
regulatory capital maintenance requirements or if such declaration and payment
would otherwise violate regulatory requirements.

The Bank provides financial services primarily to individuals and small to
medium-sized businesses within the New York City metropolitan area. The Bank is
subject to regulation by the FDIC and the Department.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a description of the significant accounting policies of
the Company and its subsidiaries. These policies conform to generally accepted
accounting principles.

81

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

The consolidated financial statements of the Company have been prepared in
conformity with accounting principles generally accepted in the United States of
America and include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation. Certain reclassifications have been made to the
prior years' financial statements to conform to current year's presentation. The
Company uses the equity method of accounting for investments in less than
majority-owned entities.

The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires that
management make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.

SECURITIES AVAILABLE-FOR-SALE

Securities available-for-sale are carried at fair value. Unrealized gains
or losses on securities available-for-sale are included in other comprehensive
income ("OCI") within stockholders' equity, net of tax. Gains or losses on the
sale of such securities are recognized using the specific identification method
and are recorded in gain on sales of loans and securities on the Statement of
Operations.

LOANS AND LOANS AVAILABLE-FOR-SALE

Loans are stated at unpaid principal balances, net of deferred loan fees.
Loans available-for-sale are stated at the aggregate of lower of cost or fair
value.

Interest income on loans is recognized on an accrual basis. Loan
origination and commitment fees and certain direct costs incurred in connection
with loan originations are deferred and amortized to interest income, using a
method which approximates the interest method, over the life of the related
loans as an adjustment to yield.

The Company generally places loans on non-accrual status when principal or
interest payments become 90 days past due, except those loans reported as 90
days past maturity within the overall total of non-performing loans. However,
student, FHA or VA loans continue to accrue interest because their interest
payments are guaranteed by various government programs and agencies. Loans may
be placed on non-accrual status earlier if management believes that collection
of interest or principal is doubtful or when such loans have such well defined
weaknesses that collection in full of principal or interest may not be probable.
When a loan is placed on non-accrual status, accrual of interest income is
discontinued and uncollected interest is reversed against current interest
income. Interest income on non-accrual loans is recorded only when received in
cash. A loan is returned to accrual status when the principal and interest are
no longer past due and the borrower's ability to make periodic principal and
interest payments is reasonably assured.

The Company considers a loan impaired when, based upon current information
and events, it is probable that it will be unable to collect all amounts due for
both principal and interest, according to the contractual terms of the loan
agreement. The Company's evaluation of impaired loans includes a review of
non-accrual commercial business, commercial real estate and multi-family
residential loans as well as a review of other performing loans that may meet
the definition of loan impairment. The Company identifies and measures impaired
loans in conjunction with its assessment of the allowance for loan losses. An
allowance for impaired loans is a component of the allowance for loan losses
when it is probable all amounts due will not be collected pursuant to the
contractual terms of the loan and the recorded investment in the loan exceeds
its fair value.

82

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Fair value is measured using either the present value of expected future cash
flows discounted at the loan's effective interest rate, the observable market
price of the loan, or the fair value of the underlying collateral if the loan is
collateral dependent. All loans subject to evaluation and considered impaired
are included in non-performing assets. Interest income on impaired loans is
recognized on a cash basis.

Commercial real estate loans and commercial business loans are generally
charged-off to the extent principal and interest due exceed the net realizable
value of the collateral, with the charge-off occurring when the loss is
reasonably quantifiable. Loans secured by residential real estate are generally
charged-off to the extent principal and interest due exceed the current
appraised value of the collateral.

Consumer loans are subject to charge-off at a specified delinquency date.
Closed end consumer loans, which include installment and automobile loans, are
generally charged-off in full when the loan becomes 120 days past due. Open-end,
unsecured consumer loans are generally charged-off in full when the loan becomes
180 days past due. Home equity loans and lines of credit are written down to the
appraised value of the underlying property when the loan becomes 120 days and
180 days past due, respectively.

ALLOWANCE FOR LOAN LOSSES

The determination of the level of the allowance for loan losses and the
periodic provisions to the allowance charged to income is the responsibility of
management. The formalized process for assessing the level of the allowance for
loan losses is performed on a quarterly basis. Individual loans are specifically
identified by loan officers as meeting the criteria of criticized or classified
loans. Such criteria include, but are not limited to, non-accrual loans, past
maturity loans, impaired loans, chronic delinquencies and loans requiring
heightened management oversight. Each loan is assigned to a risk level of
special mention, substandard, doubtful and loss. Loans that do not meet the
criteria of criticized or classified are categorized as pass loans. Each risk
level, including pass loans, have an associated reserve factor that increases as
the risk level category increases. The reserve factor for pass loans differs
based upon the loan and collateral type. The reserve factor is applied to the
aggregate balance of loans designated to each risk level to compute the reserve
requirement. This method of analysis is performed on the entire loan portfolio.
Other considerations used to support the balance of the allowance for loan
losses and its components include regulatory examinations and national and local
economic data associated with the real estate market in the Company's market
area. The Company has identified the evaluation of the allowance for loan losses
as a critical accounting estimate.

LOAN SERVICING ASSETS AND RETAINED RECOURSE

The cost of mortgage loans sold, with servicing rights and recourse
retained, is allocated between the loans, the servicing rights and the retained
recourse based on their estimated fair values at the time of loan sale.
Servicing assets are carried at the lower of cost or fair value and are
amortized in proportion to, and over the period of, net servicing income. The
estimated fair value of loan servicing assets is determined by calculating the
present value of estimated future net servicing cash flows, using assumptions of
prepayments, defaults, servicing costs and discount rates that the Company
believes market participants would use for similar assets. Capitalized loan
servicing assets are stratified based on predominant risk characteristics of
underlying loans for the purpose of evaluating impairment. A valuation allowance
is then established in the event the recorded value of an individual stratum
exceeds fair value.

Under the terms of the sales agreements with Fannie Mae, the Company
retains a portion of the associated credit risk. The Company has a 100% first
loss position on each multi-family residential loan sold to Fannie Mae under
such program until the earlier to occur of (i) the aggregate losses on the
multi-family residential loans sold to Fannie Mae reaching the maximum loss
exposure for the portfolio or (ii) until all of the loans sold to Fannie Mae
under this program are fully paid off. The maximum loss exposure is available to
satisfy any losses on loans sold in the program subject to the foregoing
limitations. The Company has established a liability of $4.5 million which
represents the amount that the Company would have to pay a third
83

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

party to assume the liability of the retained recourse. The valuation calculates
the present value of the estimated losses that the portfolio is projected to
incur based upon a standard Department of Housing and Urban Development default
curve.

PREMISES, FURNITURE AND EQUIPMENT

Land is carried at cost. Buildings and improvements, leasehold
improvements, furniture, automobiles and equipment are carried at cost less
accumulated depreciation and amortization. Depreciation is computed on a
straight-line basis over the estimated useful lives of the assets. The estimated
useful lives of the assets are as follows:

Buildings............................................. 10 to 30 years
Furniture and equipment............................... 3 to 10 years
Automobiles........................................... 3 years

Leasehold improvements are amortized on a straight-line basis over the
lives of the respective leases or the estimated useful lives of the
improvements, whichever is shorter.

GOODWILL AND INTANGIBLE ASSETS

Effective April 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142"), which resulted in discontinuing the amortization of goodwill. Under the
Statement, goodwill is instead carried at its book value as of April 1, 2001 and
any future impairment of goodwill will generally be recognized as non-interest
expense in the period of impairment. However, under the terms of the Statement,
identifiable intangibles (such as core deposit premiums) with identifiable lives
continue to be amortized. Core deposit intangibles are amortized on a
straight-line basis over seven years.

The Company's goodwill was $185.2 million at December 31, 2002 and December
31, 2001. The Company did not recognize an impairment loss as a result of its
annual impairment test effective October 1, 2002. The Company tests the value of
its goodwill at least annually. The Company has identified the goodwill
impairment test as a critical accounting estimate.

BANK OWNED LIFE INSURANCE

The Bank has purchased Bank Owned Life Insurance ("BOLI") policies to fund
certain future employee benefit costs. The BOLI is recorded at its cash
surrender value and changes in the cash surrender value of the insurance are
recorded in other non-interest income.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company enters into derivative transactions to protect against the risk
of adverse interest rate movements on the value of certain borrowings and on
future cash flows.

All derivative financial instruments are recorded at fair value in the
consolidated Statement of Financial Condition. Derivative transactions
qualifying as hedges are subject to special accounting treatment, depending on
the relationship between the derivative instrument and the hedged item. Hedges
of the changes in the fair value of a recognized asset, liability, or firm
commitment are classified as fair value hedges. Hedges of the exposure to
variable cash flows of forecasted transactions are classified as cash flow
hedges. All of the Company's derivatives have been designated as cash flow
hedges of anticipated interest payments on variable-rate borrowings.

84

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Cash flow hedges are accounted for by recording the fair value of the
derivative instrument on the consolidated Statement of Financial Condition as
either a freestanding asset or liability, with a corresponding offset recorded
in OCI within stockholders' equity, net of tax. Amounts are reclassified from
OCI to the Statement of Operations in the period or periods the hedged
forecasted transaction affects earnings. No adjustment is made to the carrying
amount of the hedged item.

Under the cash flow hedge method, derivative gains and losses not effective
in hedging the expected cash flows of the hedged item are recognized immediately
in the Statement of Operations. At the hedge's inception and at least quarterly
thereafter, a formal assessment is performed to determine whether changes in the
cash flows of the derivative instruments have been highly effective in
offsetting changes in the cash flows of the hedged items and whether they are
expected to be highly effective in the future. If it is determined a derivative
instrument has not been or will not continue to be highly effective as a hedge,
hedge accounting is discontinued prospectively.

In the event of early termination of a derivative financial instrument
contract, any resulting gain or loss is deferred as an adjustment of the
carrying value of the designated assets or liabilities, with a corresponding
offset to OCI, and such amounts are recognized in earnings over the remaining
life of the designated assets or liabilities or the derivative financial
instrument contract, whichever period is shorter.

INCOME TAXES

The Company uses the liability method to account for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and liabilities
and are measured using the enacted tax rates and laws expected to be in effect
when the differences are expected to reverse. A valuation allowance is provided
for deferred tax assets where realization is not considered "more likely than
not." The Company has identified the evaluation of deferred tax assets as a
critical accounting estimate.

EARNINGS PER SHARE

Basic earnings per share ("EPS") is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted EPS is computed
using the same method as basic EPS, but reflects the potential dilution of
common stock equivalents. Shares of common stock held by the ESOP that have not
been allocated to participants' accounts or are not committed to be released for
allocation and un-vested 1998 Recognition and Retention Plan and Trust Agreement
(the "Recognition Plan") shares are not considered to be outstanding for the
calculation of basic EPS. However, a portion of such shares is considered in the
calculation of diluted EPS as common stock equivalents of basic EPS.

EMPLOYEE BENEFITS

Compensation expense related to the ESOP is recognized in an amount equal
to the shares committed to be released by the ESOP multiplied by the average
fair value of the common stock during the period in which they were released.
The difference between the average fair value and the weighted average per share
cost of shares committed to be released by the ESOP is recorded as an adjustment
to additional paid-in-capital.

Compensation expense related to the Recognition Plan is recognized over the
vesting period at the fair market value of the common stock on the date of grant
for share awards that are not subject to performance criteria. The expense
related to performance share awards is recognized over the vesting period based
at the fair market value on the measurement date.

For stock options, the Company uses the intrinsic value based methodology
which measures compensation cost for such stock options as the excess, if any,
of the quoted market price of the Company's stock at the date of the grant over
the amount an employee or director must pay to acquire the stock. To date, no
85

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

compensation expense has been recorded at the time of grant for stock options,
since, for all granted options, the market price on date of grant equaled the
amount employees or directors must pay to acquire stock. However, compensation
expense has been recognized for the accelerated vesting of options due to the
retirement of senior officers. Senior officers and non-employee directors of the
Company who elect to retire, require the approval of the Board of Directors or
the Committee administering the Option Plan to accelerate the vesting of
options.

Beginning in 2003, the Company will recognize stock-based compensation
expense, on options granted in 2003 and in subsequent years, in accordance with
the fair value-based method of accounting described in SFAS No. 123, "Accounting
for Stock-Based Compensation, as amended."

COMPREHENSIVE INCOME

Comprehensive income includes net income and all other changes in equity
during a period, except those resulting from investments by owners and
distribution to owners. Other comprehensive income includes revenues, expenses,
gains and losses that under generally accepted accounting principles are
included in comprehensive income, but excluded from net income. Comprehensive
income and accumulated other comprehensive income are reported net of related
income taxes. Accumulated other comprehensive income consists of unrealized
gains and losses on available-for-sale securities, net of related income taxes
and the change in fair value of interest rate swap agreements, net of related
income taxes, designated as cash flow hedges.

SEGMENT REPORTING

SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS No. 131"), requires disclosures for each segment including
quarterly disclosure requirements and a partitioning of geographic disclosures,
including geographic information by country. As a community-oriented financial
institution, substantially all of the Company's operations (which comprise
substantially all of the consolidated group's activities) involve the delivery
of loan and deposit products to customers primarily located in its market area.
The Bank's three key business divisions (the Commercial Real Estate Division,
the Consumer Business Banking Division and the Business Banking Division) are
codependent upon each other for both their source of funds as well as the
utilization of such funds. Currently, business divisions are judged and analyzed
using traditional criteria including loan origination levels, deposit
origination levels, credit quality, adherence to expense budgets and other
similar criteria, which data exists in a form deemed accurate and reliable by
management. The President and Chief Executive Officer, the Company's chief
decision maker, has and continues to use these traditional criteria to make
decisions regarding an individual division's operations as well as the Company's
operations as a whole.

TREASURY STOCK

Repurchases of common stock are recorded as treasury stock at cost.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For purposes of the consolidated statements of cash flows, the Company
defines cash and cash equivalents as highly liquid investments with original
maturities of three months or less.

86

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. SECURITIES AVAILABLE-FOR-SALE

The amortized cost and estimated fair value of securities
available-for-sale are as follows:

87

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The strategy for the securities portfolio is to maintain a short duration,
minimizing exposure to sustained increases in interest rates. This is achieved
through investments in securities with predictable cash flows and short average
lives, and the purchase of certain adjustable-rate instruments.

The amortizing securities are almost exclusively mortgage-backed securities
("MBS"). These instruments provide a relatively stable source of cash flows,
although they may be impacted by changes in interest rates. Such MBS securities
are either guaranteed by FHLMC, GNMA or Fannie Mae, or represent collateralized
mortgage-backed obligations ("CMOs") backed by government agency securities or
private issuances securities. These CMOs, by virtue of the underlying collateral
or structure, are principally AAA rated and are current pay sequentials or
planned amortization class structures.

Equity securities were comprised principally of common and preferred stock
of certain publicly traded companies. Other securities maintained in the
portfolio consist of corporate bonds and U.S. Government and agencies.

At December 31, 2002, securities with a fair value of $612.6 million were
pledged to secure securities sold under agreements to repurchase, other
borrowings and for other purposes required by law.

Sales of available-for-sale securities are summarized as follows:

The amortized cost and estimated fair value of debt securities by
contractual maturity are as follows:

The amortized cost and estimated fair value of mortgage-related securities
by contractual maturity are as follows:

88

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. LOANS AVAILABLE-FOR-SALE AND LOAN SERVICING ASSETS

Loans available-for-sale are carried at the lower of aggregate cost or fair
value and are summarized as follows:

At December 31, 2002 and 2001 and March 31, 2001, the Company was servicing
loans on behalf of others which are not included in the consolidated financial
statements of $2.35 billion, $1.19 billion and $658.7 million, respectively. The
right to service loans for others is generally obtained by the sale of loans
with servicing retained.

A summary of changes in loan servicing assets, which is included in other
assets, is summarized as follows:

A summary of mortgage-banking activity income is as follows for the periods
indicated:

89

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. LOANS RECEIVABLE, NET

Loans are summarized as follows:

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

(1) Reflects redesignation of loans at September 30, 2002 reflecting application
of new criteria.

The loan portfolio is concentrated primarily in loans secured by real
estate located in the New York metropolitan area. The real estate loan portfolio
is diversified in terms of risk and repayment sources. The underlying collateral
consists of multi-family residential apartment buildings, single-family
residential properties and owner occupied/non-owner occupied commercial
properties. The risks inherent in these portfolios are dependent not only upon
regional and general economic stability, which affects property values, but also
the financial well being and creditworthiness of the borrowers.

To minimize the risk inherent in the real estate portfolio, the Company
utilizes standard underwriting procedures and diversifies the type and
geographic locations of loan collateral. Multi-family residential mortgage loans
generally range in size from $0.5 million to $4.0 million and include loans on
various types and geographically diverse apartment complexes located in the New
York City metropolitan area. Multi-family residential mortgages are dependent
largely on sufficient rental income to cover operating expenses and may be
affected by government regulation, such as rent control regulations, which could
impact the future cash flows of the property. Most multi-family loans do not
fully amortize; therefore, the principal balance outstanding is not
significantly reduced prior to contractual maturity. The residential mortgage
portfolio is comprised primarily of first mortgage loans on owner occupied
one-to-four family residences located in the Company's primary market area. The
commercial real estate portfolio contains loans secured by commercial and
industrial properties, professional office buildings and small shopping centers.
Commercial business loans

90

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

consist primarily of loans to small- and medium-size businesses and are
generally secured by real estate, receivables, inventory, equipment and
machinery and are further enhanced by the personal guarantees of the principals
of the borrower. The commercial real estate and commercial business loan
portfolios do not contain any shared national credit loans. Mortgage warehouse
lines of credit are revolving lines of credit to small-and medium-sized
mortgage-banking companies. The lines are drawn to fund the origination of
mortgages, primarily one-to-four family loans. Consumer loans consist primarily
of home equity loans and lines of credit which are secured by the underlying
equity in the borrower's primary or secondary residence.

The Company does not have any significant loan exposure to industry
segments that have been adversely affected by the events of September 11, 2001,
such as travel, hospitality and tourism. Similarly, there has been a minimal
impact on the multi-family and single-family residential loan portfolios
stemming from these events.

Real estate underwriting standards include various limits on the
loan-to-value ratios based on the type of property, and the Company considers
among other things, the creditworthiness of the borrower, the location of the
real estate, the condition and value of the security property, the quality of
the organization managing the property and the viability of the project
including occupancy rates, tenants and lease terms. Additionally, the
underwriting standards require appraisals and periodic inspections of the
properties as well as ongoing monitoring of operating results.

As part of the Company's continuing enhancement of its credit
administration process, the Company redefined its criteria for classifying loans
as either commercial real estate loans or as commercial business loans. As a
result of the application of the new criteria and the Company's conversion to a
new commercial loan servicing system completed during the fourth quarter of
2002, the Company reviewed all of its commercial loan relationships and
redesignated as of September 30, 2002 approximately $238.0 million of commercial
business loans as commercial real estate or multi-family residential loans. The
Company has not revised any other current or prior period information related to
this redesignation since it did not affect the Company's net loan portfolio,
total assets, results of operations or earnings per share.

The following tables show the activity in certain of the Company's loan
portfolios during the period indicated.

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

(1) Reflects redesignation of loans at September 30, 2002 reflecting application
of new criteria.

(2) Includes $106.8 million of multi-family residential loans
available-for-sale.

(3) Excludes deferred fees of $5.3 million.

During 2002, the Company sold from portfolio, at par, $257.6 million of
fully performing multi-family residential loans in exchange for Fannie Mae
mortgage-backed securities representing a 100% interest in these loans. Such
loans were sold at full recourse with the Company retaining servicing. This
transaction supported the Company's efforts to continue to build and strengthen
its relationship with Fannie Mae, had no impact on

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INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2002 earnings and had a positive impact on the Company's risk-based capital
ratios since the risk weighting factor on the mortgage-backed securities is
lower than on the underlying loans.

At December 31, 2002 and 2001 and March 31, 2001, included in mortgage
loans on real estate were $18.4 million, $31.4 million and $27.0 million,
respectively, of non-performing loans. If interest on the non-accrual mortgage
loans had been accrued, such income would have approximated $0.6 million, $0.7
million and $0.6 million for the year ended December 31, 2002, nine months ended
December 31, 2001 and the year ended March 31, 2001, respectively.

At December 31, 2002 and 2001 and March 31, 2001, included in commercial
business and other loans were $23.2 million, $14.7 million and $8.7 million,
respectively, of non-performing loans. If interest on the non-accrual commercial
business and other loans had been accrued, such income would have approximated
$0.7 million, $0.4 million and $0.4 million for the year ended December 31,
2002, nine months ended December 31, 2001 and the year ended March 31, 2001,
respectively.

The Company considers a loan impaired when, based upon current information
and events, it is probable that it will be unable to collect all amounts due for
both principal and interest, according to the contractual terms of the loan
agreement. The Company's evaluation of impaired loans includes a review of
non-accrual commercial business, commercial real estate and multi-family
residential loans as well as a review of other performing loans that may meet
the definition of loan impairment. As permitted, all homogenous smaller balance
consumer and residential mortgage loans are excluded from individual review for
impairment. Impaired loans totaled $39.9 million, $27.0 million and $10.8
million at December 31, 2002 and 2001 and March 31, 2001, respectively. At
December 31, 2002, $39.9 million of impaired loans had an associated allowance
of $7.1 million. Impaired loans averaged approximately $33.4 million and $18.9
million during the year ended December 31, 2002 and the nine months ended
December 31, 2001, respectively. Interest income on impaired loans is recognized
on a cash basis. Interest income recorded on impaired loans was $1.5 million,
$0.8 million and $0.4 million during the year ended December 31, 2002, the nine
months ended December 31, 2001 and the year ended March 31, 2001, respectively.

6. ALLOWANCE FOR LOAN LOSSES

A summary of the changes in the allowance for loan losses is as follows:

The Company's loan portfolio is primarily comprised of secured loans made
to individuals and businesses located in the New York City metropolitan area.

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INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. PREMISES, FURNITURE AND EQUIPMENT

A summary of premises, furniture and equipment is as follows:

Depreciation and amortization expense amounted to $11.5 million, $9.0
million and $12.0 million for the year ended December 31, 2002, nine months
ended December 31, 2001 and the year ended March 31, 2001, respectively.

8. GOODWILL AND INTANGIBLE ASSETS

Effective April 1, 2001, the Company adopted SFAS No. 142, which resulted
in discontinuing the amortization of goodwill. Under the Statement, goodwill is
instead carried at its book value as of April 1, 2001 and any future impairment
of goodwill will generally be recognized as non-interest expense in the period
of impairment. However, under the terms of the Statement, identifiable
intangibles (such as core deposit premiums) with identifiable lives will
continue to be amortized.

The Company's goodwill was $185.2 million at December 31, 2002 and December
31, 2001. The Company did not recognize an impairment loss as a result of its
most recent annual impairment test effective October 1, 2002. In accordance with
the Statement, the Company tests the value of its goodwill at least annually.

The following table sets forth the Company's identifiable intangible assets
at the periods indicated:

The following sets forth the estimated amortization expense for the years
ended December 31:

2003................................................ $1,855
2004................................................ $ 191
2005................................................ $ --

Amortization expense on intangible assets was $7.0 million, $5.8 million
and $6.9 million for the year ended December 31, 2002, nine months ended
December 31, 2001 and the twelve months ended March 31,

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INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2001, respectively. In addition, the twelve month period ended March 31, 2001
included $14.3 million related to the amortization of goodwill, reflecting the
amortization of goodwill occurring prior to the adoption of the SFAS No. 142 by
the Company.

The following table discloses the effect on net income and basic and
diluted earnings per share of excluding amortization expense related to goodwill
which was recognized in the year ended March 31, 2001 as if such goodwill had
not been recognized in accordance with SFAS No. 142.

9. OTHER ASSETS

A summary of other assets is as follows:

The Bank is a member of the Federal Home Loan Bank ("FHLB") of New York,
and owns FHLB stock with a carrying value of $101.6 million and $85.4 million at
December 31, 2002 and 2001, respectively. As a member, the Bank is able to
borrow on a secured basis up to twenty times the amount of its capital stock
investment at either fixed or variable interest rates for terms ranging from
overnight to fifteen years (see Note 11). The borrowings are limited to 30% of
total assets except for borrowings to fund deposit outflows.

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INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In furtherance of its business strategy regarding commercial real estate
and multi-family loan originations and sales, the Company has a minority equity
investment in Meridian Capital Group, LLC ("Meridian"). Meridian is a New
York-based mortgage brokerage firm primarily engaged in the origination of
commercial real estate and multi-family residential mortgage loans.

Prepaid expenses include $11.1 million of prepaid pension costs. At the end
of the fourth quarter of 2002, the Company made a cash contribution of
approximately $10.0 million to restore the Company's pension plan to fully
funded status. The contribution did not reduce 2002 earnings.

10. DEPOSITS

The amounts due to depositors and the weighted average interest rates at
December 31, 2002 and December 31, 2001 are as follows:

Scheduled maturities of certificates of deposit are as follows:

Certificates of deposit accounts in denominations of $100,000 or more
totaled approximately $315.4 million and $327.6 million at December 31, 2002 and
December 31, 2001, respectively.

95

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. BORROWINGS

A summary of borrowings is as follows:

Advances from the FHLB are made at fixed rates with remaining maturities
between less than one year and ten years, summarized as follows:

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

(1) Although the contractual maturities of these borrowings are between five and
ten years, the FHLB has the right to call these advances beginning in the
third year after the advance was made. Such advances callable by the FHLB
total $200.0 million in 2004, $125.0 million in 2006 and $50.0 million in
2007.

Advances from the FHLB are collateralized by all FHLB stock owned by the
Bank in addition to a blanket pledge of eligible assets in an amount required to
be maintained so that the estimated fair value of such eligible assets exceeds,
at all times, 110% of the outstanding advances (see Note 9).

The average balance of FHLB advances was $1.22 billion with an average cost
of 4.6% for the year ended December 31, 2002. The maximum amount outstanding at
any month end during the year ended December 31, 2002 was $1.28 billion. The
average balance of FHLB advances during the nine months ended December 31, 2001
was $783.6 million with an average cost of 5.9%. At December 31, 2002, the
Company had the ability to borrow from the FHLB an additional $1.0 billion on a
secured basis, utilizing mortgage-related loans and securities as collateral.

The Company enters into sales of securities under agreements to repurchase.
These agreements are recorded as financing transactions, and the obligation to
repurchase is reflected as a liability in the consolidated statements of
financial condition. The securities underlying the agreements are delivered to
the dealer with whom each transaction is executed. The dealers, who may sell,
loan or otherwise dispose of such securities to other parties in the normal
course of their operations, agree to resell to the Company substantially the
same securities at the maturities of the agreements. The Company retains the
right of substitution of collateral throughout the terms of the agreements.

96

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Repurchase agreements with the FHLB are made at fixed rates with remaining
maturities between less than one year and ten years, summarized as follows:

At December 31, 2002, all of the outstanding FHLB repurchase agreements
were secured by collateralized mortgage obligations or U.S. Government and
agency securities. The average balance of FHLB repurchase agreements during the
year ended December 31, 2002 was $679.1 million with an average cost of 5.5%.
The maximum amount outstanding at any month end during the year ended December
31, 2002 was $705.0 million. The average balance of FHLB repurchase agreements
during the nine months ended December 31, 2001 was $696.0 million with an
average cost of 5.2%. The maximum amount outstanding at any month end during the
nine months ended December 31, 2001 $955.0 million.

12. COMPANY-OBLIGATED MANDATORILY REDEEMABLE CUMULATIVE TRUST PREFERRED
SECURITIES

On June 30, 1997, $11.5 million of 9.5% Cumulative Trust Preferred
Securities (the "Trust Preferred Securities") were issued by BNB Capital Trust
(the "Trust"), a Delaware statutory business trust formed by Broad National
Bancorporation ("Broad"). The net proceeds from the issuance were invested in
Broad in exchange for its junior subordinated debentures. The sole asset of the
Trust, the obligor on the Trust Preferred Securities, was $11.9 million
principal amount of 9.5% Junior Subordinated Debentures (the "Junior
Subordinated Debentures") due June 30, 2027. Broad entered into several
contractual arrangements (which the Company assumed as part of the Broad
acquisition) for the purpose of guaranteeing the Trust's payment of
distributions on, payments on any redemptions of, and any liquidation
distribution with respect to, the Trust Preferred Securities. As a result of the
Broad acquisition, all the assets, liabilities and obligations of Broad with
respect to such securities became assets, liabilities and obligations of the
Company.

Cash distributions on both the Trust Preferred Securities and the Junior
Subordinated Debentures were payable quarterly in arrears on the last day of
March, June, September and December of each year.

The Trust Preferred Securities were subject to mandatory redemption (i) in
whole, but not in part, upon repayment of the Junior Subordinated Debentures at
stated maturity or, at the option of the Company, their earlier redemption in
whole upon the occurrence of certain changes in the tax treatment or capital
treatment of the Trust Preferred Securities, or a change in the law such that
the Trust would be considered an investment company and (ii) in whole or in part
at any time on or after June 30, 2002 contemporaneously with the optional
redemption by the Company of the Junior Subordinated Debentures in whole or in
part. The Junior Subordinated Debentures were redeemable prior to maturity at
the option of the Company (i) on or after June 30, 2002, in whole at any time or
in part from time to time, or (ii) in whole, but not in part, at any time within
90 days following the occurrence and continuation of certain changes in the tax
treatment or capital treatment of the Trust Preferred Securities, or a change in
law such that the Trust would be considered an investment company.

As a result of favorable market conditions during fiscal 2001, the Company
purchased $0.4 million of the Trust Preferred Securities through an open market
transaction. In accordance with the terms of the trust indenture, the Trust
redeemed all of its outstanding Trust Preferred Securities of $11.5 million, at
$10.00 per share, effective June 30, 2002. The redemption was effected due to
the high interest rate paid on the Trust Preferred Securities in relation to the
current interest rate environment.

97

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. EARNINGS PER SHARE

EPS is computed by dividing net income by the weighted average number of
common shares outstanding. Diluted EPS is computed using the same method as
basic EPS, but reflects the potential dilution of common stock equivalents.
Shares of common stock held by the ESOP that have not been allocated to
participants' accounts or are not committed to be released for allocation and
un-vested Recognition Plan shares are not considered to be outstanding for the
calculation of basic EPS. However, a portion of such shares is considered in the
calculation of diluted EPS as common stock equivalents of basic EPS.

The following table is a reconciliation of basic and diluted
weighted-average common shares outstanding for the periods indicated.

At December 31, 2002, there were 875,693 shares that could potentially
dilute EPS in the future that were not included in the computation of diluted
EPS because to do so would have been antidilutive. For additional disclosures
regarding outstanding stock options and the Recognition Plan shares, see Note
15.

14. BENEFIT PLANS

PENSION PLAN

The Company has a noncontributory defined benefit pension plan (the
"Pension Plan") covering substantially all of its full-time employees and
certain part-time employees who qualify. The Company makes annual contributions
to the Pension Plan equal to the amount necessary to satisfy the funding
requirements of the Employee Retirement Income Security Act (ERISA).

The Company also has a Supplemental Executive Retirement Plan (the
"Supplemental Plan"). The Supplemental Plan is a nonqualified, unfunded plan of
deferred compensation covering those senior officers of the Company whose
benefits under the Pension Plan would be limited by Internal Revenue Code
Sections 415 and 401(a)(17).

98

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the Pension Plan's and the Supplemental
Plan's (collectively, the "Plan") aggregate change in benefit obligation:

The following table sets forth the aggregate change in Plan assets:

99

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Plan assets consist mainly of investments in equity mutual funds and
fixed-income mutual funds.

Net pension benefit of the Plan included the following components:

During the fiscal year ended March 31, 2001, the Company amended the Plan
to reduce future benefit accruals and freeze the Pension Plan as to new
participants effective August 1, 2000. In connection with the Plan amendment and
the Plan's new measurement date of August 1, 2000, the Company reduced its
future benefit obligation by approximately $8.8 million.

The Bank amended the Plan to adopt the provisions of the Economic Growth
and Tax Relief Reconciliation Act of 2001 ("EGTRRA"). Effective January 1, 2002
EGTRRA increased the maximum compensation for pension plan purposes to $200,000.

POSTRETIREMENT BENEFITS

The Company currently provides certain health care and life insurance
benefits to eligible retired employees and their spouses. The coverage provided
depends upon the employee's date of retirement and years of service with the
Company. The Company's plan for its postretirement benefit obligation is
unfunded. Effective April 1, 1995, the Company adopted SFAS No. 106 "Employer's
Accounting for Postretirement Benefits Other Than Pensions" ("SFAS No. 106"). In
accordance with SFAS No. 106, the Company elected to recognize the cumulative
effect of this change in accounting principle over future accounting periods.

100

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Status of the postretirement benefit obligation is as follows:

Net postretirement benefit cost included the following components:

The assumptions used in arriving at the above include the initial rate of
annual increase in health care costs of 9.0% decreasing by 1.0% per year to
4.50% and remaining at that level thereafter. At December 31, 2002, 2001 and
2000, discount rates of 6.50%, 7.25% and 7.50%, respectively, were used.

The health care cost trend rate assumption has a significant effect on the
amounts reported. A 1.0% increase in each year would increase the accumulated
postretirement benefit obligation as of December 31, 2002 by $2.6 million and
the aggregate of the service and interest cost components of the net periodic
postretirement benefits cost for the year then ended by $242,000.

101

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

401(k) PLAN

The Company also sponsors an incentive savings plan ("401(k) Plan") whereby
eligible employees may make tax deferred contributions up to certain limits. The
Company makes matching contributions up to the lesser of 6% of employee
compensation, or $3,000. Beginning in fiscal 1999, the matching contribution for
full-time employees is in the form of shares held in the ESOP while the
contribution for part-time employees remained a cash contribution. However,
beginning January 1, 2001, the matching contribution for all employees, full-
and part-time, is in the form of shares held in the ESOP. The Company may reduce
or cease matching contributions if it is determined that the current or
accumulated net earnings or undivided profits of the Company are insufficient to
pay the full amount of contributions in a plan year. There were no cash
contributions to the 401(k) Plan by the Company for the year ended December 31,
2002 and nine months ended December 31, 2001. Cash contributions aggregated
approximately $33,000 for the year ended March 31, 2001.

EMPLOYEE STOCK OWNERSHIP PLAN

The Company established the ESOP for full-time employees in March 1998 in
connection with the Bank's conversion to stock form. To fund the purchase in the
open market of 5,632,870 shares of the Company's common stock, the ESOP borrowed
funds from the Company. The collateral for the loan is the common stock of the
Company purchased by the ESOP. The loan to the ESOP is being repaid principally
from the Bank's contributions to the ESOP over a period of 20 years. Dividends
paid by the Company on shares owned by the ESOP are also utilized to repay the
debt. The Bank contributed $7.6 million and $8.4 million to the ESOP during the
years ended December 31, 2002 and 2001, respectively. Dividends paid on ESOP
shares, which reduced the Bank's contribution to the ESOP and were utilized to
repay the ESOP loan, totaled $2.7 million and $1.9 million for the years ended
December 31, 2002 and 2001, respectively. The loan from the Company had an
outstanding principal balance of $87.0 million and $89.8 million at December 31,
2002 and 2001, respectively.

Shares held by the ESOP are held by an independent trustee for allocation
among participants as the loan is repaid. The number of shares released annually
is based upon the ratio that the current principal and interest payment bears to
the original principal and interest payments to be made. ESOP participants
become 100% vested in the ESOP after three years of service. Shares allocated
will first be used to satisfy the employer matching contribution for the 401(k)
Plan with the remaining shares allocated to the ESOP participants based upon
compensation in the year of allocation. Forfeitures from the 401(k) Plan match
portions will be used to reduce the employer 401(k) Plan match while forfeitures
from shares allocated to the ESOP participants will be allocated among the
participants. There were 281,644 shares allocated in each of the twelve months
ended December 31, 2002 and December 31, 2001. At December 31, 2002 there were
1,200,127 shares allocated, 4,224,653 shares unallocated and 208,090 shares that
had been distributed to participants in connection with their withdrawal from
the ESOP. At December 31, 2002, the 4,224,653 unallocated shares had a fair
value of $107.2 million.

The Company recorded compensation expense of $7.3 million, $4.2 million and
$3.8 million for the year ended December 31, 2002, nine months ended December
31, 2001 and the year ended March 31, 2001, respectively, which was equal to the
shares committed to be released by the ESOP multiplied by the average fair value
of the common stock during the period in which they were released.

15. STOCK BENEFIT PLANS

RECOGNITION PLAN

The Recognition Plan was implemented in September 1998 and may make
restricted stock awards in an aggregate amount up to 2,816,435 shares (4% of the
shares of common stock sold in the Conversion). The

102

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

objective of the Recognition Plan is to enable the Company to provide officers,
key employees and non-employee directors of the Company with a proprietary
interest in the Company as an incentive to contribute to its success. During the
year ended March 31, 1999, the Recognition Plan purchased all 2,816,435 shares
in the open market. The Recognition Plan provides that awards may be designated
as performance share awards, subject to the achievement of performance goals, or
non-performance share awards which are subject solely to time vesting
requirements. Certain key executive officers have been granted performance-based
shares. These shares become earned only if annually established corporate
performance targets are achieved. On September 25, 1998, the Committee
administering the Recognition Plan issued grants covering 2,188,517 shares of
stock of which 844,931 were deemed performance based. The Committee granted
performance-based share awards of 200,000 and 11,000 in the fiscal year ended
March 31, 2001 and the year ended December 31, 2002, respectively, and
non-performance share awards covering 25,363 shares, 105,363 shares and 91,637
shares during the fiscal year ended March 31, 2001, the nine months ended
December 31, 2001 and the year ended December 31, 2002, respectively.

The stock awards granted to date are generally payable over a five-year
period at a rate of 20% per year, beginning one year from the date of grant.
However, certain stock awards granted during the year ended December 31, 2002
will be 100% vested on the fourth anniversary of the date of grant. Subject to
certain exceptions, awards become 100% vested upon termination of employment due
to death, disability or retirement. However, senior officers and non-employee
directors of the Company who elect to retire, require the approval of the Board
of Directors or the Committee administering the Recognition Plan to accelerate
the vesting of these shares. The amounts also become 100% vested upon a change
in control of the Company.

Compensation expense is recognized over the vesting period at the fair
market value of the common stock on the date of grant for non-performance share
awards. The expense related to performance share awards is recognized over the
vesting period at the fair market value on the measurement date. The Company
recorded compensation expense of $9.7 million, $7.0 million and $6.3 million
related to the Recognition Plan for the year ended December 31, 2002, nine
months ended December 31, 2001 and the year ended March 31, 2001, respectively.
The expense for the year ended December 31, 2002 included $0.1 million related
to the accelerated vesting of 4,400 shares due to the retirement of senior
officers. The expense for the nine month period ended December 31, 2001 included
$0.7 million related to the accelerated vesting of 42,247 shares due to the
retirement of a senior officer.

The following table sets forth the activity in the Company's Recognition
Plan during the periods indicated.

103

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

STOCK OPTION PLANS

1998 Stock Option Plan

The 1998 Stock Option Plan (the "Option Plan") was implemented in September
1998. The Option Plan may grant options covering shares aggregating an amount
equal 7,041,088 shares (10% of the shares of common stock sold in the
Conversion). Under the Option Plan, stock options (which expire ten years from
the date of grant) have been granted to officers, key employees and non-employee
directors of the Company. The option exercise price per share was the fair
market value of the common stock on the date of grant. Each stock option or
portion thereof is exercisable at any time on or after such option vests and is
generally exercisable until the earlier of ten years after its date of grant or
six months after the date on which the optionee's employment terminates (three
years after termination of service in the case of non-employee directors),
unless extended by the Board of Directors to a period not to exceed five years
from the date of such termination. Subject to certain exceptions, options become
100% exercisable upon termination of employment due to death, disability or
retirement. However, senior officers and non-employee directors of the Company
who elect to retire, require the approval of the Board of Directors or the
Committee administering the Option Plan to accelerate the vesting of options.
Options become 100% vested upon a change in control of the Company. On September
25, 1998, the Board of Directors issued options covering 6,103,008 shares of
common stock vesting over a five-year period at a rate of 20% per year,
beginning one year from date of grant. The Board of Directors granted options
covering 325,000, 295,500 and 93,000 shares, respectively, during the fiscal
year ended March 31, 2001, the nine months ended December 31, 2001 and the year
ended December 31, 2002. The granting of these options did not affect the
Company's results of operations for the year ended December 31, 2002 or its
statement of condition at December 31, 2002. In the year ended December 31, 2002
and the nine months ended December 31, 2001, the Committee administering the
Plan approved the acceleration of 8,000 and 105,617 options due to the
retirement of senior officers, resulting in $0.1 million and $0.6 million of
compensation expense, respectively. At December 31, 2002, there were 5,900,534
options outstanding pursuant to the 1998 Stock Option Plan.

2002 Stock Incentive Plan

The 2002 Stock Incentive Plan ("Stock Incentive Plan") was approved by
stockholders at the May 23, 2002 annual meeting. The Stock Incentive Plan may
grant options covering shares aggregating an amount equal to 2,800,000 shares.
Options awarded to date under the Stock Incentive Plan generally vest over a
four-year period at a rate of 25% per year and expire ten years from the date of
grant. The Board of Directors granted options covering 789,650 shares during the
year ended December 31, 2002. The granting of these options did not affect the
Company's results of operations for the year ended December 31, 2002 or its
statement of condition at December 31, 2002.

Other Stock Plans

Broad and Statewide Financial Corp. ("Statewide") maintained several stock
option plans for officers, directors and other key employees. Generally, these
plans granted options to individuals at a price equivalent to the fair market
value of the stock at the date of grant. Options awarded under the plans
generally vested over a five-year period and expired ten years from the date of
grant. In connection with the Broad and Statewide acquisitions, options which
were converted by election of the option holders to options to purchase the
Company's common stock totaled 602,139 and became 100% exercisable at the
effective date of the acquisitions. At December 31, 2002, there were 138,254
options outstanding related to these plans.

The Company accounts for stock-based compensation granted prior to January
1, 2003 using the intrinsic value method. Since each option granted has an
exercise price equal to the fair market value of one share of the Company's
stock on the date of the grant, no compensation cost at date of grant has been
recognized.

104

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Beginning in 2003, the Company will recognize stock-based compensation
expense, on options granted in 2003 and in subsequent years, in accordance with
the fair value-based method of accounting described in SFAS No. 123, "Accounting
for Stock-Based Compensation."

The following table compares reported net income and earnings per share to
net income and earnings per share on a pro forma basis for the periods
indicated, assuming that the Company accounted for stock-based compensation
based on the fair value of each option grant as required by SFAS No. 123. The
effects of applying SFAS No. 123 in this pro forma disclosure are not indicative
of future amounts.

The following table sets forth stock option activity and the
weighted-average fair value of options granted for the periods indicated.

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model using the following weighted-average
assumptions for the periods indicated.

105

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table is a summary of the information concerning currently
outstanding and exercisable options as of December 31, 2002.

16. STOCKHOLDERS' EQUITY

On September 28, 2001 the Company announced that its Board of Directors
authorized the ninth stock repurchase plan for up to three million shares of the
Company's outstanding common shares. On October 25, 2002 the Company announced
that its Board of Directors authorized the tenth stock repurchase plan for up to
an additional three million shares of the Company's outstanding common shares.
The Company commenced its ninth stock repurchase plan on January 3, 2002 and
completed its ninth repurchase program and commenced its tenth repurchase
program on December 2, 2002. Repurchases will be made by the Company from time
to time in open-market transactions as, in the opinion of management, market
conditions warrant.

The repurchased shares are held as treasury stock. A portion of such shares
was utilized to fund the stock portion of the merger consideration paid in two
acquisitions of other financial institutions by the Company in prior years as
well as consideration paid in October 2002 to increase the Company's minority
equity investment in Meridian, a New York-based mortgage brokerage firm.
Treasury shares also are being used to fund the Company's stock benefit plans,
in particular, the Option Plan, the Directors Fee Plan and the Stock Incentive
Plan which was approved by stockholders at the May 23, 2002 annual meeting, and
for general corporate purposes.

During the year ended December 31, 2002, the Company repurchased 3,538,650
shares of its common stock at a cost of $92.1 million. The Company also issued
1,414,988 shares of treasury stock, at a cost of $21.1 million, in connection
with the exercise of options, the Directors Fee Plan and the consideration paid
to increase the Company's minority equity investment in Meridian. At December
31, 2002, the Company had repurchased a total of 30,746,616 shares, or 40.4% of
its common stock at a cost of $476.1 million and reissued 10,951,764 shares at a
cost of $158.6 million.

17. DERIVATIVE FINANCIAL INSTRUMENTS

The Company concurrently adopted the provisions of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133")
and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities -- an amendment of FASB Statement No. 133" on

106

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

January 1, 2001. The Company's derivative instruments at December 31, 2002,
included interest rate swap agreements designated as cash flow hedges of
variable-rate FHLB borrowings, commitments to fund loans held-for-sale and
forward loan sale agreements.

INTEREST RATE SWAP AGREEMENTS

During 2002, the Company, entered into forward starting interest rate swap
agreements as part of its interest rate risk management process to change the
repricing characteristics of certain variable-rate borrowings. At December 31,
2002, the Company had forward starting interest rate swap agreements outstanding
with aggregate notional values of $200.0 million. These agreements qualify as
cash flow hedges of anticipated interest payments relating to $200.0 million
variable-rate FHLB borrowings that the Company intends to draw down during 2003
to replace existing FHLB borrowings that will mature during 2003.

The Company's use of derivative financial instruments creates exposure to
credit risk. This credit exposure relates to losses that would be recognized if
the counterparties fail to perform their obligations under the contracts. To
mitigate its exposure to non-performance by the counterparties, the Company
deals only with counterparties of good credit standing and establishes
counterparty credit limits.

The following table details the interest rate swaps outstanding as of
December 31, 2002:

These interest rate swap agreements require the Company to make periodic
fixed-rate payments to the swap counterparties, while receiving periodic
variable-rate payments indexed to the three month LIBOR from the swap
counterparties based on a common notional amount and maturity date. As a result,
the net impact of the swaps will be to convert the variable interest payments on
the $200.0 million FHLB borrowings to fixed interest payments the Company will
make to the swap counterparties. The notional amounts of derivatives do not
represent amounts exchanged by the parties and, thus, are not a measure of the
Company's exposure through its use of derivatives. The amounts exchanged are
determined by reference to the notional amounts and the other terms of the
derivatives.

These swaps have original maturities of up to 5 years and, as of December
31, 2002, had an unrealized loss of $2.9 million and were reflected as a
component of other liabilities and OCI within stockholders' equity, net of tax.
The Company did not recognize any ineffective cash flow gains/(losses) during
2002 and did not reclassify any gains/(losses) from OCI to current period
earnings. These transactions did not affect the Company's Statement of
Operations during 2002.

LOAN COMMITMENTS FOR LOANS ORIGINATED FOR SALE AND FORWARD LOAN SALE
AGREEMENTS

In the third quarter of 2002, the Company adopted new accounting
requirements relating to SFAS No. 133 Implementation Issue C13 ("Issue C13")
issued by the Derivatives Implementation Group of the Financial Accounting
Standards Board. Issue C13 requires that mortgage loan commitments related to
loans originated for sale be accounted for as derivative instruments. In
accordance with SFAS No. 133, derivative instruments are recognized in the
statement of financial condition at fair value and changes in the fair value
thereof are recognized in the statement of operations. The Company during fiscal
2002 originated single-family and multi-family residential loans for sale
pursuant to programs with Cendant and Fannie Mae. Under the structure of the
programs, at the time the Company initially issues a loan commitment in

107

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

connection with such programs, it does not lock in a specific interest rate. At
the time the interest rate is locked in by the borrower, the Company
concurrently enters into a forward loan sale agreement with respect to the sale
of such loan at a set price in an effort to manage the interest rate risk
inherent in the locked loan commitment. The forward loan sale agreement also
meets the definition of a derivative instrument under SFAS No. 133. Any change
in the fair value of the loan commitment after the borrower locks in the
interest rate is substantially offset by the corresponding change in the fair
value of the forward loan sale agreement related to such loan. The period from
the time the borrower locks in the interest rate to the time the Company funds
the loan and sells it to Fannie Mae or Cendant is generally 30 days. The fair
value of each instrument will rise or fall in response to changes in market
interest rates subsequent to the dates the interest rate locks and forward loan
sale agreements are entered into. In the event that interest rates rise after
the Company enters into an interest rate lock, the fair value of the loan
commitment will decline. However, the fair value of the forward loan sale
agreement related to such loan commitment should increase by substantially the
same amount, effectively eliminating the Company's interest rate and price risk.

At December 31, 2002, the Company had $311.0 million of loan commitments
outstanding related to loans being originated for sale. Of such amount, $78.5
million related to loan commitments for which the borrowers had not entered into
interest rate locks and $232.5 million which were subject to interest rate
locks. Due to the structure of these transactions, the Company concluded that
the derivative instruments involving its loans held for sale were not material
to the consolidated statements of financial condition and operations of the
Company as of and for the year ended December 31, 2002 since the Company does
not bear any interest rate or price risk with respect to such transactions.

18. COMMITMENTS AND CONTINGENCIES

OFF-BALANCE SHEET RISKS

The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Such financial instruments are reflected in the consolidated
financial statements when and if proceeds associated with the commitments are
disbursed. The exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
those instruments. Management uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
financial instruments.

Commitments to extend credit generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
Management evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary, upon extension of
credit, is based on management's credit evaluation of the counterparty.

Standby and commercial letters of credit are conditional commitments issued
to guarantee the performance of a customer to a third party. Standby letters of
credit generally are contingent upon the failure of the customer to perform
according to the terms of the underlying contract with the third party, while
commercial letters of credit are issued specifically to facilitate commerce and
typically result in the commitment being drawn on when the underlying
transaction is consummated between the customer and the third party. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.

108

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The notional principal amount of the off-balance sheet financial
instruments at December 31, 2002 and December 31, 2001 are as follows:

RETAINED CREDIT EXPOSURE

The Company originates and sells multi-family residential mortgage loans in
the secondary market to Fannie Mae while retaining servicing. The Company
underwrites these loans using its customary underwriting standards, funds the
loans, and sells the loans to Fannie Mae at agreed upon pricing. During the year
ended December 31, 2002, the Company originated for sale $1.17 billion and sold
$1.07 billion of fixed-rate multi-family residential loans in the secondary
market with servicing retained by the Bank. Under the terms of the sales
program, the Company retains a portion of the associated credit risk. The
Company has a 100% first loss position on each multi-family residential loan
sold to Fannie Mae under such program until the earlier to occur of (i) the
losses on the multi-family residential loans sold to Fannie Mae reaching the
maximum loss exposure for the portfolio or (ii) until all of the loans sold to
Fannie Mae under this program are fully paid off. The maximum loss exposure is
available to satisfy any losses on loans sold in the program subject to the
foregoing limitations. Substantially all the loans sold to Fannie Mae under this
program are newly originated using the Company's underwriting guidelines. At
December 31, 2002, the Company serviced $1.97 billion of loans for Fannie Mae
under this program with a maximum potential loss exposure of $113.7 million.

The maximum loss exposure of the associated credit risk related to the
loans sold to Fannie Mae under this program is calculated pursuant to a review
of each loan sold to Fannie Mae. A risk level is assigned to each such loan
based upon the loan product, debt service coverage ratio and loan to value ratio
of the loan. Each risk level has a corresponding sizing factor which, when
applied to the original principal balance of the loan sold, equates to a
recourse balance for the loan. The sizing factors are periodically reviewed by
Fannie Mae based upon its continuing review of the performance of the loans sold
to it pursuant to this special program and are subject to adjustment as a result
thereof. The total of the recourse balance per loan is aggregated to create a
maximum loss exposure for the entire portfolio at any given point in time. The
Company's maximum loss exposure for the entire portfolio of sold loans is
periodically reviewed and, based upon factors such as amount, size, types of
loans and loan performance, may be adjusted downward. Fannie Mae is restricted
from increasing the maximum loss exposure on loans previously sold to it under
this program as long as (i) the total borrower concentration (i.e., the total
amount of loans extended to a particular borrower or a group of related
borrowers) as applied to all mortgage loans delivered to Fannie Mae since the
effective date of the sales program does not exceed 10% and (ii) the average
principal balance per loan of all mortgage loans delivered to Fannie Mae since
the effective date of the sales program continues to be $4.0 million or less.

During 2002, in a separate transaction, the Company sold from portfolio at
par $257.6 million of fully performing multi-family loans in exchange for Fannie
Mae mortgage-backed securities representing a 100% interest in these loans. Such
loans were sold with full recourse with the Company retaining servicing.

109

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Although all of the loans serviced for Fannie Mae (both loans originated
for sale and loans sold from portfolio) are currently fully performing, the
Company has recorded a $4.5 million liability related to the fair value of the
retained credit exposure. This liability represents the amount that the Company
would have to pay a third party to assume the retained recourse obligation. The
liability is based upon the present value of the estimated losses that the
portfolio is projected to incur based upon a standard Department of Housing and
Urban Development default curve using both low and high severity percentages of
loss.

LEASE COMMITMENTS

The Company has entered into noncancellable lease agreements with respect
to Bank premises. The minimum annual rental commitments under these operating
leases, exclusive of taxes and other charges, are summarized as follows:

The rent expense for the year ended December 31, 2002, nine months ended
December 31, 2001 and the year ended March 31, 2001 was $4.8 million, $3.3
million and $3.7 million, respectively.

OTHER COMMITMENTS AND CONTINGENCIES

In the normal course of business, there are outstanding various legal
proceedings, claims, commitments and contingent liabilities. In the opinion of
management, the financial position and results of operations of the Company will
not be affected materially by the outcome of such legal proceedings and claims.

19. RELATED PARTY TRANSACTIONS

The Company engaged in certain activities with Meridian. Meridian is deemed
to be a "related party" of the Company as such term is defined in Statement of
Financial Accounting Standards No. 57. Such treatment is triggered due to the
Company's accounting for the investment in Meridian using the equity method. The
Company has a 35% minority equity investment in Meridian, a New York-based
mortgage brokerage firm. Meridian refers borrowers seeking financing of their
multi-family residential and/or commercial real estate loans to the Company as
well as to numerous other financial institutions.

All loans resulting from referrals from Meridian are underwritten by the
Company using its loan underwriting standards and procedures. Meridian receives
a fee from the borrower upon the funding of the loans by the Company. The
Company generally has not paid any referral fees to Meridian. In the future, the
Company may consider paying such fees if it is deemed necessary for competitive
reasons.

The loans originated by the Company resulting from referrals by Meridian
account for a significant portion of the Company's total loan originations. For
the year ended December 31, 2002, such loans accounted for approximately 17.8%
of the aggregate amount of loans originated for portfolio and for sale. With
respect to the loans which were originated for portfolio in 2002 (excluding
mortgage warehouse lines of credit), loans resulting from referrals from
Meridian amounted to approximately 39.9% of such loans. In addition, referrals
from Meridian accounted for the majority of the loans originated for sale in
2002. The ability of the Company to continue to originate multi-family
residential and commercial real estate loans at the levels experienced in the
past may be a function of, among other things, maintaining the Meridian
relationship.

110

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has also entered into other transactions with Meridian in the
normal course of business. Meridian and several of its executive officers have
depository relationships with the Bank. In addition, the Bank has made five
residential mortgage loans in the ordinary course of the Bank's business to
certain of the individual executive officers of Meridian.

Meridian's stock ownership in the Company amounted to approximately 0.96%
of the issued and outstanding shares of the Company's stock at December 31,
2002.

20. INCOME TAXES

The components of deferred tax assets and liabilities are summarized as
follows:

The Company has reported taxable income for federal, state and local income
tax purposes in each of the past two years and in management's opinion, in view
of the Company's previous, current and projected future earnings, such net
deferred tax asset is expected to be fully realized with the exception of a
portion related to the Company's contribution to the Foundation. Accordingly, no
other valuation allowance was deemed necessary for the net deferred tax asset at
December 31, 2002 and December 31, 2001.

For federal, state and local income tax purposes, a subsidiary of the
Company elected to change its calendar tax year to a 52 - 53 week taxable year
in 2001, as allowed under Federal statute and regulations. As a result of this
election, the Company had established a deferred tax liability of $29.8 million
with respect to income of the subsidiary that would be taxed in 2002. Due to
Federal legislation enacted in 2002, the subsidiary has reverted to a calendar
tax year and therefore the deferred tax liability was fully recognized.

111

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Significant components of the provision for income taxes attributable to
continuing operations are as follows:

The table below presents a reconciliation between the reported tax
provision and the tax provision computed by applying the statutory Federal
income tax rate to income before provision for income taxes:

At December 31, 2002, the base year bad debt reserve for federal income tax
purposes which is subject to recapture as taxable income was approximately $30
million, for which deferred taxes are not required to be recognized. Bad debt
reserves maintained for New York State and New York City tax purposes as of
December 31, 2002 for which deferred taxes are not required to be recognized,
amounted to approximately $130 million. Accordingly, deferred tax liabilities of
approximately $15.9 million have not been recognized as of December 31, 2002.

21. REGULATORY REQUIREMENTS

As a New York State-chartered stock form savings bank, the deposits of
which are insured by the FDIC, the Bank is subject to certain FDIC capital
requirements. Failure to meet minimum capital requirements can initiate certain
mandatory and possible discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities and certain off-balance sheet items
as calculated under regulatory accounting practices. The Bank's capital amounts
and classifications are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.

112

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Based on its regulatory capital ratios at December 31, 2002 and December
31, 2001, the Bank is categorized as "well capitalized" under the regulatory
framework for prompt corrective action. To be categorized as "well capitalized"
the Bank must maintain Tier I leverage, Tier I risk-based and minimum total
risk-based ratios as set forth in the following table.

The Bank's actual capital amounts and ratios are presented in the tables
below as of December 31, 2002 and December 31, 2001:

22. FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"
("SFAS No. 107") requires disclosure of fair value information about financial
instruments, whether or not recognized in the statements of financial condition,
for which it is practicable to estimate fair value. In cases where quoted market
prices are not available, fair values are based on estimates using present value
or other valuation techniques. Those techniques are significantly affected by
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS No. 107 requirements exclude
certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Additionally, tax consequences related to the
realization of the unrealized gains and losses can have a potential effect on
fair value estimates and have not been considered in the estimates. Accordingly,
the aggregate fair value amounts presented do not represent the underlying value
of the Company.

113

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The book values and estimated fair values of the Company's financial
instruments are summarized as follows:

The following methods and assumptions were used by the Company in
estimating the fair values of financial instruments:

The carrying values of cash and due from banks, loans available-for sale,
federal funds sold, other loans, mortgage warehouse lines of credit, accrued
interest receivable, deposits and escrow and other deposits all approximate
their fair values primarily due to their liquidity and short-term nature.

Securities available-for-sale: The estimated fair values are based on
quoted market prices.

Mortgage loans on real estate: The Company's mortgage loans on real estate
were segregated into two categories, residential and cooperative loans and
commercial/multi-family loans. These were stratified further based upon
historical delinquency and loan to value ratios. The fair value for each loan
was then calculated by discounting the projected mortgage cash flow to a yield
target equal to a spread, which is commensurate with the loan quality and type,
over the U.S. Treasury curve at the average life of the cash flow.

Commercial business loans: The commercial business loan portfolio was
priced using the same methodology as the mortgage loans on real estate.

FHLB stock: The carrying amount approximates fair value because it is
redeemable at cost, with the issuer only.

Loan servicing assets: The fair value is estimated by discounting the
future cash flows using current market rates for mortgage loan servicing with
adjustments for market and credit risks.

114

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Certificates of deposit accounts: The estimated fair value for
certificates of deposit is based on a discounted cash flow calculation that
applies interest rates currently being offered by the Company to its current
deposit portfolio.

Borrowings: The estimated fair value of FHLB borrowings is based on the
discounted value of their contractual cash flows. The discount rate used in the
present value computation is estimated by comparison to the current interest
rates charged by the FHLB for advances of similar remaining maturities.

Trust Preferred Securities: The estimated fair value for Trust Preferred
Securities is based on a discounted cash flow calculation that applies current
interest rates for similar trust preferred securities.

Retained Credit Exposure: The fair value is based upon the present value
of the estimated losses that the portfolio is projected to incur based upon a
standard Department of Housing and Urban Development default curve.

Interest Rate Swaps: Fair values for interest rate swaps are based on
securities dealers' estimated market values.

23. ASSET AND DIVIDEND RESTRICTIONS

The Bank is required to maintain a reserve balance with the Federal Reserve
Bank of New York. The required reserve balance was $9.5 million, $9.5 million
and $6.0 million at December 31, 2002, December 31, 2001 and March 31, 2001,
respectively.

Limitations exist on the availability of the Bank's undistributed earnings
for the payment of dividends to the Company without prior approval of the Bank's
regulatory authorities.

During 2002, the Bank requested and received approval of the distribution
to the Company of an aggregate of $100.0 million, of which $75.0 million was
declared by the Bank and was funded during 2002 with the remaining $25.0 million
declared and funded in 2003. In December 2000, the Bank requested and received
approval of the distribution to the Company of an aggregate of $25.0 million, of
which $6.0 million had been distributed as of December 31, 2001, with the
remainder distributed in 2002. The distributions were primarily used by the
Company to fund the Company's open market stock repurchase programs, dividend
payments and the consideration paid in October 2002 to increase the Company's
minority investment in Meridian.

115

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

24. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

116

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

117

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

25. PARENT COMPANY DISCLOSURE

The following Condensed Statement of Financial Condition, as of December
31, 2002 and December 31, 2001 and Condensed Statement of Operations and Cash
Flows for the year ended December 31, 2002, nine months ended December 31, 2001
and the year ended March 31, 2001 should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto.

CONDENSED STATEMENT OF FINANCIAL CONDITION

CONDENSED STATEMENT OF OPERATIONS

118

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED STATEMENT OF CASH FLOWS

119

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required herein is incorporated by reference to
"Information With Respect to Nominees for Director, Continuing Directors and
Executive Officers" in the definitive proxy statement of the Company for the
Annual Meeting of Stockholders to be held on May 30, 2003, which will be filed
with the SEC prior to April 30, 2003 ("Definitive Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION

The information required herein is incorporated by reference to "Executive
Compensation" in the Definitive Proxy Statement. The reports of the Audit
Committee and Compensation Committee included in the Definitive Proxy Statement
should not be deemed filed or incorporated by reference into this filing or any
other filing by the Company under the Exchange Act or Securities Act of 1933
except to the extent the Company specifically incorporates said reports herein
or therein by reference thereto.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The information required herein is incorporated by reference to "Beneficial
Ownership of Common Stock by Certain Owners and Management" in the Definitive
Proxy Statement.

The following table provides information as of December 31, 2002 with
respect to shares of Common Stock that may be issued under the Company's
existing equity compensation plans which include the 1998 Stock Option Plan,
1998 Recognition and Retention Plan and Trust Agreement and the 2002 Stock
Incentive Plan (collectively, the "Plans"). Each of the Plans have been approved
by the Company's stockholders.

The table does not include information with respect to shares of Common
Stock subject to outstanding options granted under equity compensation plans
assumed by the Company in connection with mergers and acquisitions of the
companies which originally granted those options. Note 3 to the table sets forth
the total number of shares of Common Stock issuable upon the exercise of assumed
options as of December 31, 2002 and the weighted average exercise price of those
options. No additional options may be granted under those assumed plans.

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

(1) Included in such number are 747,205 shares which are subject to restricted
stock grants which were not vested as of December 31, 2002. The weighted
average exercise price excludes restricted stock grants.

(2) Does not take into account shares available for future issuance under the
Directors' Fee Plan, under which the $20,000 annual retainer payable to each
of the Company's non-employee directors is payable in shares of Common
Stock. Because the number of shares of Common Stock issuable under the
Directors' Fee Plan is based on a formula and not a specific reserve amount,
the number

120

of shares which may be issued pursuant to this plan in the future is not
determinable. This plan was approved by stockholders in May 2001. During the
year ended December 31, 2002, a total of 9,728 shares were issued under this
plan.

(3) The table does not include information for equity compensation plans assumed
by the Company in connection with mergers and acquisitions of the companies
which originally established those plans. As of December 31, 2002, a total
of 138,254 shares of Common Stock were issuable upon exercise of outstanding
options under those assumed plans and the weighted average exercise price of
those outstanding options was $8.99 per share.

(4) Consists of a single grant of options to a non-employee director upon
appointment to the Board of Directors of the Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required herein is incorporated by reference to "Executive
Compensation -- Certain Relationships and Related Transactions" in the
Definitive Proxy Statement.

ITEM 14. CONTROLS AND PROCEDURES

Evaluation of the Company's Disclosure Controls and Internal
Controls. Within the 90 days prior to the date of this Annual Report on Form
10-K, the Company evaluated the effectiveness of the design and operation of its
"disclosure controls and procedures" ("Disclosure Controls") in accordance with
the provisions of Rules 13a-14 and 13a-15 of the Securities Exchange Act of 1934
(the "Exchange Act"). This evaluation ("Controls Evaluation") was done under the
supervision and with the participation of management, including the Chief
Executive Officer ("CEO") and Chief Financial Officer ("CFO").

Disclosure Controls are the Company's controls and other procedures that
are designed to ensure that information required to be disclosed by the Company
in the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
SEC's rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files under the Exchange
Act is accumulated and communicated to the Company's management, including its
CEO and CFO, as appropriate to allow timely decisions regarding required
disclosure.

Limitations on the Effectiveness of Controls. The Company's management,
including the CEO and CFO, does not expect that its Disclosure Controls or its
"internal controls and procedures for financial reporting" ("Internal Controls")
will prevent all error and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions;
over time, control may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.

Conclusions. Based upon the Controls Evaluation, the CEO and CFO have
concluded that, subject to the limitations noted above, the Disclosure Controls
are effective to timely alert management to material information relating to the
Company, including its consolidated subsidiaries, during the period for which
its periodic reports are being prepared.

In accordance with SEC requirements, the CEO and CFO note that, since the
date of the Controls Evaluation to the date of this Annual Report, there have
been no significant changes in Internal Controls or in other factors that could
significantly affect Internal Controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.

121

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Documents Filed as Part of this Report

(1) The following financial statements are incorporated by reference from
Item 8 hereof:

Report of Independent Auditors

Consolidated Statements of Financial Condition as of December 31, 2002
and December 31, 2001.

Consolidated Statements of Operations for the Year Ended December 31,
2002, Nine Months Ended December 31, 2001 and the Year Ended March 31,
2001.

Consolidated Statements of Changes in Stockholders' Equity for the Year
Ended December 31, 2002, Nine Months Ended December 31, 2001 and the
Year Ended March 31, 2001.

Consolidated Statements of Cash Flows for the Year Ended December 31,
2002, Nine Months Ended December 31, 2001 and the Year Ended March 31,
2001.

Notes to Consolidated Financial Statements.

(2) All schedules for which provision is made in the applicable accounting
regulations of the SEC are omitted because of the absence of conditions
under which they are required or because the required information is
included in the consolidated financial statements and related notes
thereto.

(3) The following exhibits are filed as part of this Form 10-K, and this
list includes the Exhibit Index.

EXHIBIT INDEX

3.1(1) Certificate of Incorporation of Independence Community Bank
Corp.
3.2(2) Bylaws, as amended, of Independence Community Bank Corp.
4.0(1) Specimen Stock Certificate of Independence Community Bank
Corp.
10.1(1) Form of Change of Control Agreement entered into among
Independence Community Bank Corp., Independence Community
Bank and certain senior executive officers of the Company
and the Bank.
10.2(1) Form of Change in Control Agreement entered into between
Independence Community Bank and certain officers thereof.
10.3(1) Form of Change of Control Agreement entered into among
Independence Community Bank Corp., Independence Community
Bank and certain executive officers of the Company and the
Bank.
10.4(1) Form of Change of Control Agreement to be entered into
between Independence Community Bank and certain executive
officers thereof.
10.5(3) Independence Community Bank Severance Plan.
10.6(4) 1998 Stock Option Plan.
10.7(4) 1998 Recognition and Retention Plan and Trust Agreement.
10.8(5) Broad National Bancorporation Incentive Stock Option Plan.
10.9(5) 1993 Broad National Incentive Stock Option Plan.
10.10(5) 1993 Broad National Directors Non-Statutory Stock Option
Plan.
10.11(5) 1996 Broad National Incentive Stock Option Plan.
10.12(5) 1996 Broad National Bancorporation Directors Non-Statutory
Stock Option Plan.
10.13(6) 1996 Statewide Financial Corporation Incentive Stock Option
Plan.
10.14(7) Deferred Compensation Plan.
10.15(7) Directors Fiscal 2002 Stock Retainer Plan.
10.16(8) Directors Fee Plan.
10.17(9) Independence Community Bank Executive Management Incentive
Compensation Plan (April 1, 2001 -- December 31, 2001).
10.18 Independence Community Bank Executive Management Incentive
Compensation Plan, as amended (January 1, 2002 -- December
31, 2002), filed herein.

122

10.19(10) 2002 Stock Incentive Plan
11.0 Statement re computation of per share earnings -- Reference
is made to Item 8. "Financial Statements and Supplementary
Data" for the required information.
21.0 Subsidiaries of the Registrant -- Reference is made to Item
2. "Business" for the required information.
23.1 Consent of Ernst & Young LLP
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

- ---------------
(1) Incorporated herein by reference from the Company's Registration Statement
on Form S-1 (Registration No. 333-30757) filed by the Company with the SEC
on July 3, 1997.

(2) Incorporated herein by reference from the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2002 filed by the Company
with the SEC on November 14, 2002.

(3) Incorporated herein by reference from the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1999 filed by the Company with the
SEC on June 28, 1999.

(4) Incorporated herein by reference from the Company's definitive proxy
statement filed by the Company with the SEC on August 17, 1998.

(5) Incorporated herein by reference from the Company's registration statement
on Form S-8 (Registration No. 333-85981) filed by the Company with the SEC
on August 26, 1999.

(6) Incorporated herein by reference from the Company's registration statement
on Form S-8 (Registration No. 333-95767) filed by the Company with the SEC
on January 31, 2000.

(7) Incorporated herein by reference from the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 2001 filed by the Company with the
SEC on June 22, 2001.

(8) Incorporated herein by reference from the Company's definitive proxy
statement filed by the Company with the SEC on June 22, 2001.

(9) Incorporated herein by reference from the Company's Annual Report on Form
10-KT for the transition period from April 1, 2001 to December 31, 2001
filed by the Company with the SEC on March 28, 2002.

(10) Incorporated herein by reference from the Company's definitive proxy
statement filed by the Company with the SEC on April 10, 2002.

(b) Reports on Form 8-K

The following Current Report on Form 8-K was filed during the quarter ended
December 31, 2002.

(c) The exhibits listed under (a)(3) of this Item 14 are filed herewith.

(d) Not applicable.

123

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.

INDEPENDENCE COMMUNITY BANK CORP.

/s/ ALAN H. FISHMAN
--------------------------------------
Alan H. Fishman
President and Chief Executive Officer

Date: March 31, 2003

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 the capacities and on the dates indicated:

124

125

CERTIFICATION PURSUANT TO RULE 13A-14
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Alan H. Fishman, the President and Chief Executive Officer of Independence
Community Bank Corp., certify that:

1. I have reviewed this annual report on Form 10-K of Independence
Community Bank Corp.;

2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;

4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent functions):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

/s/ ALAN H. FISHMAN
--------------------------------------
Alan H. Fishman
President and Chief Executive Officer

Date: March 31, 2003

126

CERTIFICATION PURSUANT TO RULE 13A-14
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John B. Zurell, the Executive Vice President, Chief Financial Officer and
Principal Accounting Officer of Independence Community Bank Corp., certify that:

1. I have reviewed this annual report on Form 10-K of Independence
Community Bank Corp.;

2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;

4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent functions):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

/s/ JOHN B. ZURELL
--------------------------------------
John B. Zurell
Executive Vice President, Chief
Financial Officer & Principal
Accounting Officer

Date: March 31, 2003

127