INDEPENDENCE COMMUNITY BANK CORP - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-Q

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-23229

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)

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

Yes [X] No [ ]

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12-b-2 of the Exchange Act.

Yes [X] No [ ]

Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. At August 6, 2003,
the registrant had 54,675,118 shares of common stock ($.01 par value per share)
outstanding.

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INDEPENDENCE COMMUNITY BANK CORP.

TABLE OF CONTENTS

1

INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

See accompanying notes to consolidated financial statements.
2

INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

See accompanying notes to consolidated financial statements.
3

INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

See accompanying notes to consolidated financial statements.

4

INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

See accompanying notes to consolidated financial statements.
5

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 their 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 (as defined in the Bank's
plan of conversion) have reduced their qualifying deposits as of each March
31st. Subsequent increases in deposits do not restore an eligible supplemental
account holder's interest in the liquidation account. In the event of a complete
liquidation of the Bank, each eligible account holder or supplemental eligible
account holder 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 Bank may not declare or
pay cash dividends on its shares of common stock if the effect thereof would
cause the Bank's stockholder's 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 Federal Deposit Insurance Corporation ("FDIC") and
the Department.

The Board of Directors declared the Company's twentieth consecutive
quarterly cash dividend on July 24, 2003. The dividend amounted to $0.17 per
share of common stock and is payable on August 21, 2003 to stockholders of
record on August 7, 2003.

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. As

6

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of June 30, 2003, a total of 2,336,771 shares had been repurchased at an average
cost of $25.94 per share under the tenth repurchase plan.

On July 24, 2003, the Company announced that its Board of Directors
authorized the eleventh stock repurchase plan for up to an additional three
million shares of the Company's issued and outstanding common stock. The
Company's eleventh repurchase program will commence upon completion of its
ongoing tenth repurchase program, which as of July 31, 2003 had 480,229 shares
remaining to be purchased. 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 Capital Group LLC ("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 1998 Stock Option Plan
("Option Plan"), the Directors Fee Plan and the 2002 Stock Incentive Plan
("Stock Incentive Plan").

During the six months ended June 30, 2003, the Company repurchased
1,893,000 shares of its common stock at a cost of $49.9 million, or an average
cost of $26.11 per share. The Company also issued 419,858 shares of treasury
stock in connection with the exercise of options at $5.3 million. At June 30,
2003, the Company had repurchased a total of 32,639,616 shares pursuant to the
ten repurchase programs at an aggregate cost of $525.5 million and reissued
11,322,906 shares at $164.1 million.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Financial Statement Presentation

The accompanying consolidated financial statements of the Company were
prepared in accordance with instructions to Form 10-Q and therefore do not
include all the information or footnotes necessary for a complete presentation
of financial condition, results of operations and cash flows in conformity with
accounting principles generally accepted in the United States of America. All
normal, recurring adjustments which, in the opinion of management, are necessary
for a fair presentation of the consolidated financial statements have been
included. Certain reclassifications have been made to the prior years' financial
statements to conform with the 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.

The results of operations for the six months ended June 30, 2003 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2003. These interim financial statements should be read in
conjunction with the Company's consolidated audited financial statements and the
notes thereto contained in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2002.

Critical Accounting Estimates

The Company has identified the evaluation of the allowance for loan losses,
goodwill and deferred tax assets as critical accounting estimates where amounts
are sensitive to material variation. Critical accounting estimates are
significantly affected by management judgment and uncertainties and there is a
likelihood that

7

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

materially different amounts would be reported under different, but reasonably
plausible, conditions or assumptions. A description of these policies, which
significantly affect the determination of the Company's financial condition and
results of operations are summarized in Note 2 ("Summary of Significant
Accounting Policies") of the Consolidated Financial Statements in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2002.

Stock Compensation Expense

For stock options granted prior to January 1, 2003, 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 non-employee
director must pay to acquire the stock. To date, no compensation expense has
been recorded at the time of grant for stock options granted prior to January 1,
2003, since, for all granted options, the market price on the date of grant
equaled the amount employees or directors must pay to acquire the stock.
However, compensation expense has been recognized as a result of the accelerated
vesting of options occurring upon the retirement of senior officers. Under the
terms of the Company's option plans, unvested options held by retiring senior
officers and non-employee directors of the Company only vest upon retirement if
the Board of Directors or the Committee administering the option plan allow the
acceleration of the vesting of such unvested options.

Effective January 1, 2003, the Company recognizes stock-based compensation
expense on options granted subsequent to January 1, 2003 in accordance with the
fair value-based method of accounting described in Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation,
as amended." See Note 5 hereof.

Comprehensive Income

Comprehensive income includes net income and all other changes in equity
during a period, except those resulting from investments by owners and
distributions 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.

Business

The Company's principal business is conducted through the Bank, which is a
full-service, community-oriented financial institution headquartered in
Brooklyn, New York. As of June 30, 2003, the Bank operated 78 banking offices
located in the greater New York Metropolitan area, which includes the five
boroughs of New York City, Nassau, Suffolk and Westchester counties of New York
and the northern New Jersey counties of Essex, Union, Bergen, Hudson and
Middlesex. The Company currently expects to expand its branch network through
the opening of approximately ten branch locations during the next twelve to
eighteen months. During the six months ended June 30, 2003, the Company opened
four new locations, three in Manhattan and one in northern New Jersey. In July
2003, the Company announced the expansion of its commercial real estate lending
activities to the Baltimore-Washington market. The Company expects the loans to
be referred primarily by Meridian, which already has an established presence in
that market area.

The Bank's deposits are insured by the Bank Insurance Fund and the Savings
Association Insurance Fund administered by the FDIC to the maximum extent
permitted by law. The Bank is subject to examination and regulation by the FDIC,
which is the Bank's primary federal regulator, and the Department, which is the
Bank's chartering authority and its primary state regulator. The Bank also is
subject to certain reserve
8

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

requirements established by the Board of Governors of the Federal Reserve System
and is a member of the Federal Home Loan Bank ("FHLB") of New York, which is one
of the 12 regional banks comprising the FHLB system. The Company is subject to
the examination and regulation of the OTS as a registered savings and loan
holding company.

3. IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

Obligations Associated with Disposal Activities

In July 2002, the FASB issued SFAS 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 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 effective January 1, 2003 did not have a material impact 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
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, as amended. The implementation of SFAS No. 148 did not have a material
effect on the Company's financial condition or results of operations. See Note
5.

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.

9

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Derivatives Instruments and Hedging Activities

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No. 149
amends and clarifies the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. In addition, the statement clarifies when a contract is a derivative
and when a derivative contains a financing component that warrants special
reporting in the statement of cash flows. SFAS No. 149 is generally effective
prospectively for contracts entered into or modified, and hedging relationships
designated, after June 30, 2003. The Company does not expect adoption of SFAS
No. 149 to have a material effect on the Company's financial condition or
results of operations.

Accounting for Certain Instruments with Characteristics of Both Liabilities
and Equity

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Instruments with Characteristics of Both Liabilities and Equity" ("SFAS No.
150"). SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. SFAS No. 150 requires that an issuer classify a financial instrument
that is within its scope, which may have previously been reported as equity, as
a liability (or an asset in some circumstances). This statement is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003, except for mandatory redeemable financial instruments of nonpublic
companies. The Company does not anticipate that the adoption of SFAS No. 150
will have a material impact on the Company's financial condition or results of
operations.

4. 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 unvested shares held in the 1998 Recognition and Retention Plan
and Trust Agreement (the "Recognition Plan") 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.

10

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

At June 30, 2003 and June 30, 2002, there were 838,900 and 23,516 shares
respectively, 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.

5. BENEFIT PLANS

Employee Stock Ownership Plan

The Company established the ESOP for full-time employees in connection with
the Bank's Conversion. 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 $3.5 million and $3.9 million to the ESOP during the six months
ended June 30, 2003 and 2002, respectively. Dividends paid on ESOP shares, which
reduced the Bank's contribution to the ESOP and were utilized to repay the ESOP
loan, totaled $1.7 million and $1.3 million for the six months ended June 30,
2003 and 2002, respectively. The loan from the Company had an outstanding
principal balance of $85.6 million and $87.0 million at June 30, 2003 and
December 31, 2002, 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 aggregate principal and interest payments to be made. ESOP
participants become 100% vested in the ESOP after three years of service. Shares
allocated are first used to satisfy the employer matching contribution for the
401(k) Plan with the remaining shares allocated to the ESOP participants based
upon includable compensation in the year of allocation. Forfeitures from the
401(k) Plan match portions are used to reduce the employer 401(k) Plan match
while forfeitures from shares allocated to the ESOP participants will be
allocated among the participants. Compensation expense related to the 140,822
shares committed to be released during the six months ended June 30, 2003 was
$3.4 million, which was equal to the shares committed to be released by the ESOP
multiplied by the average fair value of the common stock

11

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

during the period in which they were committed to be released. At June 30, 2003,
there were 1,144,830 shares allocated, 4,224,653 shares unallocated and 263,387
shares that had been distributed to participants in connection with their
withdrawal from the ESOP. At June 30, 2003, the 4,224,653 unallocated shares had
a fair value of $118.9 million.

Recognition Plan

The Recognition Plan was implemented in September 1998, was approved by
stockholders 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 excluding shares contributed to the Foundation). The 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
open market transactions. 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 11,000 performance-based shares in the year ended December 31,
2002 and non-performance share awards covering 105,363 shares, 91,637 shares and
23,492 shares during the nine months ended December 31, 2001, the year ended
December 31, 2002 and the six months ended June 30, 2003, 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 $5.2 million and $4.7 million related to the
Recognition Plan for the six months ended June 30, 2003 and 2002, respectively.

Stock Option Plans

The Company accounts for stock-based compensation on awards granted prior
to January 1, 2003 using the intrinsic value method. Since each option granted
to date 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.

Beginning in 2003, the Company recognizes 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. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option pricing model. There were 11,000 options granted during the quarter ended
June 30, 2003 and approximately $4,000 in compensation expense was recognized
under this statement.

12

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1998 Stock Option Plan

The 1998 Stock Option Plan (the "Option Plan") was implemented in September
1998 and was approved by stockholders in September 1998. The Option Plan may
grant options covering shares aggregating in total 7,041,088 shares (10% of the
shares of common stock sold in the Conversion excluding the shares contributed
to the Foundation). 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 to occur 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 93,000 and 300,500 shares, respectively, during the
year ended December 31, 2002 and the nine months ended December 31, 2001. There
were 11,000 shares granted from the Option Plan during the six months ended June
30, 2003. The granting of the options during the six months ended June 30, 2003
resulted in the recognition of approximately $4,000 of compensation expense
during such period. 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 June 30, 2003, there were options covering 5,485,546 shares
outstanding pursuant to the 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.
The Stock Incentive Plan also provides for the ability to issue restricted stock
awards which cannot exceed 560,000 shares and which are part of the 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. There were no options granted from the
Stock Incentive Plan during the six months ended June 30, 2003. The granting of
these options did not affect the Company's results of operations for the six
months ended June 30, 2003 or its statement of condition at June 30, 2003. At
June 30, 2003, there were 778,900 options and no restricted share awards
outstanding related to this plan.

Other Stock Plans

Broad National Bancorporation ("Broad") and Statewide Financial Corp.
("Statewide")(companies the Company acquired in 1999 and 2000, respectively)
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

13

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company's common stock totaled 602,139 and became 100% exercisable at the
effective date of the acquisitions. At June 30, 2003, there were 128,784 options
outstanding related to these plans.

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.

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

(1) Includes costs associated with restricted stock awards granted pursuant to
the Recognition Plan and stock option grants awarded under the various stock
option plans.

14

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. SECURITIES AVAILABLE-FOR-SALE

The amortized cost and estimated fair value of securities
available-for-sale at June 30, 2003 are as follows:

15

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The amortized cost and estimated fair value of securities
available-for-sale at December 31, 2002 are as follows:

7. LOANS AVAILABLE-FOR-SALE

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

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 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 six months ended June 30, 2003, the Company originated for sale $1.01
billion and sold $1.07 billion of fixed-rate multi-family loans in the secondary
market with servicing retained by the Company. Under the terms of the sales
program, the Company retains a portion of the

16

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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. Substantially all the loans
sold to Fannie Mae under this program are newly originated using the Company's
underwriting guidelines. At June 30, 2003, the Company serviced $2.88 billion of
loans sold to Fannie Mae pursuant to this program with a maximum potential loss
exposure of $196.0 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 sales program
began does not exceed 10% of the aggregate loans sold to Fannie Mae under the
program and (ii) the average principal balance per loan of all mortgage loans
delivered to Fannie Mae since the sales program began continues to be $4.0
million or less.

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 June
30, 2003 the Company had a $6.2 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 $3.09 billion of loans sold to Fannie
Mae, which include both loans originated for sale and loans sold from portfolio,
the Company had an $8.3 million servicing asset at June 30, 2003.

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

17

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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 six months ended June 30, 2003, the Company
originated for sale $79.4 million and sold $77.7 million of single-family
residential mortgage loans through the program. 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.

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

Mortgage loan commitments to borrowers related to loans originated for sale
are considered a derivative instrument under SFAS No. 149. In addition, forward
loan sale agreements with Fannie Mae and Cendant also meet the definition of a
derivative instrument under SFAS No. 133. See Note 12 hereof.

18

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. LOANS RECEIVABLE, NET

The following table sets forth the composition of the Company's loan
portfolio at the dates indicated.

The loan portfolio is concentrated primarily in loans secured by real
estate located in the New York City 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.

In July 2003, the Company announced the expansion of its commercial real
estate lending activities to the Baltimore-Washington market. The Company
expects the loans to be referred primarily by Meridian, which already has an
established presence in that market area. The Company currently expects to
originate (for both portfolio and for sale) between $300.0 million and $500.0
million of loans in the first year. The Company will review this expansion
program periodically and adjust its origination target based on market
acceptance, credit performance, profitability and other relevant factors. The
Company's current exposure to this market area consists primarily of $79.0
million of mortgage warehouse lines of credit.

19

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. NON-PERFORMING ASSETS

The following table sets forth information with respect to non-performing
assets identified by the Company, including non-performing loans and other real
estate owned at the dates indicated. Non-performing loans consist of non-accrual
loans and loans 90 days or more past due as to interest and principal.

- ---------------
(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.

10. 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

20

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 and/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.

Management believes that, based on information currently available, the
Company's allowance for loan losses at June 30, 2003 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.

21

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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

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

11. GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

Effective April 1, 2001, the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets" ("SFAS No. 142"), which resulted in discontinuing the
amortization of goodwill. Under SFAS No. 142, 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 SFAS No. 142, identifiable intangibles (such as core
deposit premiums) with identifiable lives will continue to be amortized. Core
deposit intangibles held by the Company are amortized on a straight-line basis
over seven years.

The Company's goodwill was $185.2 million at June 30, 2003 and December 31,
2002. 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 SFAS
No. 142, the Company tests the value of its goodwill at least annually.

22

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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

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

Amortization expense related to identifiable intangible assets was $0.1
million and $1.7 million for the quarters ended June 30, 2003 and 2002,
respectively, and $1.6 million and $3.6 million for the six months ended June
30, 2003 and 2002, respectively.

12. DERIVATIVE FINANCIAL INSTRUMENTS

The Company concurrently adopted the provisions of SFAS No. 133, and SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities -- an amendment of FASB Statement No. 133" on January 1, 2001. The
Company adopted the provisions of SFAS No. 149 effective July 1, 2003. The
Company's derivative instruments at June 30, 2003, included interest rate swap
agreements designated as cash flow hedges of variable-rate FHLB borrowings,
commitments to fund loans available-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 both June 30,
2003 and 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 expects 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.

23

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table details the interest rate swaps outstanding as of June
30, 2003:

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 London Inter-Bank Offered Rate
("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 June 30,
2003, had an unrealized loss of $10.6 million and were reflected as a component
of other liabilities and other comprehensive income within stockholders' equity,
net of tax.

Loan Commitments for Loans Originated for Sale and Forward Loan Sale
Agreements

The Company adopted new accounting requirements relating to SFAS No. 149
which requires that mortgage loan commitments related to loans originated for
sale be accounted for as derivative instruments. In accordance with SFAS No. 133
and SFAS No. 149, 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 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 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 June 30, 2003, the Company had $495.9 million of loan commitments
outstanding related to loans being originated for sale. Of such amount, $172.5
million related to loan commitments for which the borrowers had not entered into
interest rate locks and $323.4 million which were subject to interest rate
locks. At June 30, 2003, the Company had $323.4 million of forward loan sale
agreements. The fair market value of the loan commitments with interest rate
lock was a loss of $1.7 million and the fair market value of the related forward
loan sale agreements was a gain of $1.7 million at June 30, 2003.

24

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. 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. In
addition, referrals from Meridian accounted for the substantial majority of the
loans originated for sale in 2003. 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.

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.

25

ITEM 2. 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 (a) the provision
for loan losses resulting from management's assessment of the level of the
allowance for loan losses, (b) its non-interest income, including service fees
and related income, mortgage-banking activities and gains and losses from the
sales of loans and securities, (c) its non-interest expense, including
compensation and employee benefits, occupancy expense, data processing services,
amortization of intangibles, and (d) 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.

FORWARD LOOKING INFORMATION

In addition to historical information, this Quarterly Report on Form 10-Q
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, (the
"Exchange Act") 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

26

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-Q. 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.

CHANGES IN FINANCIAL CONDITION

General

Total assets increased by $988.7 million from $8.02 billion at December 31,
2002 to $9.01 billion at June 30, 2003 primarily due to increases of $1.24
billion in the securities available-for-sale portfolio and $40.3 million in cash
and cash equivalents, partially offset by a $259.7 million decline in the loan
portfolio and a $52.3 million decrease in loans available-for-sale. This
increase was funded primarily through the use of borrowings, the growth in
deposits and the issuance of 3.5% Fixed Rate/Floating Rate Subordinated Notes
Due 2013 ("Notes").

Cash and Cash Equivalents

Cash and cash equivalents increased from $199.1 million at December 31,
2002 to $239.4 million at June 30, 2003. The $40.3 million increase in liquidity
was primarily due to funds received from the issuance of the $148.4 million
Notes in June 2003, which funds had yet to be fully redeployed into other
interest-earning assets.

Securities Available-for-Sale

The aggregate securities available-for-sale portfolio (which includes
investment securities and mortgage-related securities) increased $1.24 billion,
or 98.2%, from $1.26 billion at December 31, 2002 to $2.50 billion at June 30,
2003. The increase was funded primarily through the use of borrowings, the
growth in deposits and from the reinvestment of funds from accelerated loan
repayments into such assets.

The Company's mortgage-related securities portfolio increased $1.16 billion
to $2.20 billion at June 30, 2003 compared to $1.04 billion at December 31,
2002. The securities were comprised of $1.72 billion of AAA rated CMOs, $213.2
million of CMOs which were issued or guaranteed by Freddie Mac, Fannie Mae or
GNMA ("Agency CMOs") and $259.8 million of mortgage-backed pass through
certificates which were also issued or guaranteed by Freddie Mac, Fannie Mae or
GNMA. The increase in the portfolio was primarily due to purchases of $1.70
billion of AAA rated CMOs with a weighted average yield of 4.99% and $228.0
million of Agency CMOs with a weighted average yield of 4.77%. Partially
offsetting these increases were proceeds totaling approximately $766.8 million
received from normal and accelerated principal repayments.

The Company's investment securities portfolio increased $81.6 million to
$306.5 million at June 30, 2003 compared to $224.9 million at December 31, 2002.
The increase was primarily due to $171.2 million of purchases, primarily $75.0
million of federal agency securities with a 4.68% weighted average yield and
$73.0 million of preferred securities with a weighted average yield of 4.48%.

At June 30, 2003, the Company had a $12.7 million net unrealized gain, net
of tax, on available-for-sale investment and mortgage-related securities as
compared to a $7.6 million net unrealized gain at December 31, 2002.

Loans Available-for-Sale

Loans available-for-sale decreased by $52.3 million to $62.1 million at
June 30, 2003 from $114.4 million at December 31, 2002. The decrease in
multi-family loans available-for-sale was a result of significant loan volume at
the end of the fourth quarter of 2002 and the time delay between the date of
origination and the
27

date of sale to Fannie Mae, which usually occurs within seven days. The Company
originates and sells 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 six
months ended June 30, 2003, the Company originated $1.01 billion and sold $1.07
billion of loans to Fannie Mae under this program and as a result serviced $2.88
billion of loans with a maximum potential loss exposure of $196.0 million.
Multi-family loans available for sale at June 30, 2003 totaled $54.6 million
compared to $106.8 million at December 31, 2002.

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 $79.4 million and sold $77.7 million of such
loans during the six months ended June 30, 2003. Single-family residential
mortgage loans available for sale totaled $7.4 million and $7.6 million at June
30, 2003 and December 31, 2002, respectively.

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 $257.7 million or 4.5% to $5.48 billion at June 30,
2003 from $5.74 billion at December 31, 2002. The Company continues to focus on
expanding its higher yielding portfolios of commercial real estate and
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 six months ended June 30, 2003 approximately $409.2 million
of mortgage loans compared to $470.7 million for the six months ended June 30,
2002. Although the Company continues to originate for portfolio, total loans
decreased due to the combination of the heavy run off in the single-family
residential portfolio, the accelerated rate of repayments in the multi-family
residential portfolio and an increase in originating assets for sale as opposed
to portfolio retention due to the yields available on such assets in the current
interest rate environment.

Multi-family residential loans decreased $223.5 million to $2.21 billion at
June 30, 2003 compared to $2.44 billion at December 31, 2002. The decrease was
primarily due to repayments of $444.9 million which were partially offset by
$221.4 million of originations for portfolio retention. The Company has put a
greater emphasis on originating multi-family residential loans for sale due to
the low interest rate environment. When interest rates begin to rise, the
Company expects to increase the percent of loans originated for portfolio. As a
result of these activities, multi-family residential loans comprised 39.8% of
the total loan portfolio at June 30, 2003 compared to 41.9% at December 31,
2002.

Commercial real estate loans increased to $1.33 billion at June 30, 2003
from $1.31 billion at December 31, 2002. The increase of $16.2 million was
primarily due to $181.5 million of originations partially offset by $159.4
million of loan repayments and $5.9 million of loan charge-offs for the six
months ended June 30, 2003. As a result of these activities, commercial real
estate loans comprised 23.9% of the total loan portfolio at June 30, 2003
compared to 22.6% at December 31, 2002.

Commercial business loans decreased $43.4 million, or 7.2%, from $598.3
million at December 31, 2002 to $554.9 million at June 30, 2003. The decrease
was primarily due to $168.7 million of repayments partially offset by $125.6
million of originations and advances during the six months ended June 30, 2003.
Based upon our customers' view of the current economic environment, the Company
has experienced a slowdown in commercial business loan activity in the current
year. Commercial business loans comprised 10.0% of the total loan portfolio at
June 30, 2003 compared to 10.3% 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 $94.2
million from $692.4 million at December 31, 2002 to $786.6 million at June 30,
2003. The increase was due to the current interest cycle and resultant refinance
market. At June 30, 2003, there were $346.8 million of unused lines of credit
related to mortgage warehouse lines of credit. The Company

28

anticipates a decline in this portfolio when interest rates rise and the current
refinance market slows down. Mortgage warehouse lines of credit comprised 14.1%
of the total loan portfolio at June 30, 2003 compared to 11.9% at December 31,
2002.

Single-family residential and cooperative apartment loans decreased $149.4
million from an aggregate of $556.3 million at December 31, 2002 to an aggregate
of $406.9 million at June 30, 2003. 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 June 30, 2003
amounted to 0.55% compared to 0.52% at December 31, 2002. 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, increased by $8.1
million or 19.4% to $49.7 million at June 30, 2003 from $41.6 million at
December 31, 2002. The increase in non-performing assets was primarily due to a
$10.2 million increase in non-accrual loans, primarily commercial real estate
loans, which was partially offset by a decrease of $2.1 million in loans
contractually past maturity but which are continuing to pay in accordance with
their original repayment schedule. At June 30, 2003, the Company's
non-performing assets consisted of $49.1 million of non-accrual loans (including
$23.5 million of commercial real estate loans, $21.8 million of commercial
business loans, $2.4 million of single-family residential loans and $1.3 million
of multi-family residential loans), $0.5 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 $78.5 million at June
30, 2003, as compared to $80.5 million at December 31, 2002. At June 30, 2003,
the Company's allowance amounted to 1.41% of total loans and 158.0% of total
non-performing loans compared to 1.38% and 193.6%, respectively at December 31,
2002. The Company's allowance decreased $2.0 million during the six months ended
June 30, 2003 primarily due to a $3.5 million provision for loan losses offset
by net charge-offs of $5.5 million or 0.1% of average total loans.

In assessing the level of the allowance for loan losses and the periodic
provisions to the allowance charged to income, the Company considers the
composition and outstanding balance of its loan portfolio, the growth or decline
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,

29

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 June 30, 2003 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 SFAS No. 142, 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 SFAS No. 142, identifiable intangible assets with
identifiable lives continue to be amortized.

The Company's goodwill, which aggregated $185.2 million at June 30, 2003,
resulted from the acquisitions of Broad and Statewide as well as the acquisition
in January 1996 of Bay Ridge Bancorp, Inc.. The Company's $0.5 million of
identifiable intangible assets at June 30, 2003 resulted primarily from one
branch office purchase transaction effected in fiscal 1996. The Company's
intangible assets decreased by $1.5 million to $0.5 million at June 30, 2003
from $2.0 million at December 31, 2002. The decrease was a result of
amortization of the identifiable intangible assets. The amortization of
identified intangible assets will continue to reduce net income until such
intangible assets are fully amortized. However, the remaining identified
intangibles as of June 30, 2003 will be amortized by April 2004.

The Company performs a goodwill impairment test on an annual basis. The
Company did not recognize an impairment loss as a result of its annual
impairment test effective October 1, 2002. 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 an entity with goodwill 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 are to 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

30

judgment involved in determining the fair value of an entity. 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 such value are recorded in
non-interest income. BOLI increased $3.7 million to $172.1 million at June 30,
2003 compared to $168.4 million at December 31, 2002 as a result of an increase
in the cash surrender value of the BOLI.

Other Assets

Other assets increased $10.8 million from $232.2 million at December 31,
2002 to $243.0 million at June 30, 2003. The increase was primarily due to a
$20.0 million increase in FHLB stock which was partially offset by a $3.9
million decrease in net deferred tax assets.

Net deferred tax assets decreased by $3.9 million to $65.3 million at June
30, 2003 compared to $69.2 million at December 31, 2002. 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 are expected to be fully realized, except for the deferred tax asset
reflecting the fair market value of Holding Company common stock contributed to
the Foundation at its inception in March 1998. A valuation allowance was
established due to the possibility that the deferred tax asset would not be
fully utilized. The effect of the valuation allowance was to decrease paid-
in-capital.

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 management's judgments and
estimates 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.

Deposits

Deposits increased $213.6 million or 4.3% to $5.15 billion at June 30, 2003
compared to $4.94 billion at December 31, 2002. The increase was due to net
deposit inflows totaling $185.3 million as well as interest credited of $28.3
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 $315.6 million, or 9.4%, to $3.67
billion at June 30, 2003 compared to $3.35 billion at December 31, 2002. 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

31

evidenced by the increase in core deposits to approximately 71.1% of total
deposits at June 30, 2003 compared to 67.8% of total deposits at December 31,
2002.

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 paid on core
deposits was 0.52% compared to 2.28% for certificates of deposit and 4.23% for
borrowings for the quarter ended June 30, 2003.

Borrowings

Borrowings increased $500.0 million to $2.43 billion at June 30, 2003
compared to $1.93 billion at December 31, 2002 due to a $500.0 million increase
in FHLB repurchase agreements. During the second quarter of 2003, the Company
strategically determined to borrow $500.0 million of short-term low costing
floating-rate FHLB borrowings, investing the funds primarily in mortgage-backed
securities with characteristics designed to minimize both interest rate risk and
extension risk while maximizing yield. The repurchase agreements mature within
30 days and have a weighted average interest rate of 1.07%. The Company
anticipates replacing a portion of these short-term borrowings with lower
costing core deposits.

The Company is managing its leverage position and has a borrowing to asset
ratio of 27.0% at June 30, 2003 and 24.1% at December 31, 2002.

Subordinated Notes

On June 20, 2003, the Bank issued $150.0 million aggregate principal amount
of 3.5% Fixed Rate/ Floating Rate Subordinated Notes Due 2013 ("Notes"). The
Notes bear interest at a fixed rate of 3.5% per annum for the first five years,
and convert to a floating rate thereafter until maturity based on the US Dollar
three-month LIBOR plus 2.06%. Beginning on June 20, 2008 the Bank has the right
to redeem the Notes at par plus accrued interest. The net proceeds of $148.4
million were used for general corporate purposes. The Notes qualify as Tier 2
capital of the Bank under the capital guidelines of the FDIC.

Equity

The Holding Company's stockholders' equity totaled $936.3 million at June
30, 2003, compared to $920.3 million at December 31, 2002. The $16.0 million
increase was primarily due to net income of $67.1 million, amortization of the
earned portion of restricted stock grants of $5.1 million, $3.7 million related
to the ESOP shares committed to be released for the six months ended June 30,
2003. In addition, increases were also attributable to $5.4 million related to
the exercise of stock options and the issuance of shares in payment of director
fees and a $5.2 million increase in the net unrealized gain on securities
available-for-sale. These increases were partially offset by a $49.6 million
reduction in capital resulting from the purchase during the six months ended
June 30, 2003 of 1,893,000 shares of common stock in connection with the Holding
Company's open market repurchase program, a $15.9 million decrease due to
dividends declared and a $5.0 million decrease in the fair value of interest
rate swaps, net of tax.

32

Average Balances, Net Interest Income, Yields Earned and Rates Paid

The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest income 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 and is annualized where appropriate.

- ---------------
(1) The average balance of loans receivable includes loans available-for-sale.
Also 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.

33

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 attributable to changes in volume (changes in volume
multiplied by prior rate) and (ii) effects on interest income 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.

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2003 AND
2002

General

The Company reported a 14.0% increase in diluted earnings per share to
$0.65 for the quarter ended June 30, 2003 compared to $0.57 for the quarter
ended June 30, 2002. Net income increased 7.6% to $34.1 million for the quarter
ended June 30, 2003 compared to $31.7 million for the quarter ended June 30,
2002.

34

On a linked quarter basis, net income increased $1.1 million, or 3.4%, from
$33.0 million for the quarter ended March 31, 2003 while diluted earnings per
share increased 4.8% from $ 0.62 for the quarter ended March 31, 2003.

Net Interest Income

Net interest income decreased by $5.8 million or 7.3% to $74.0 million for
the quarter ended June 30, 2003 as compared to $79.8 million for the quarter
ended June 30, 2002. The decrease was due to a $12.8 million decrease in
interest income partially offset by a $7.0 million decrease in interest expense.
The decline in net interest income primarily reflected the 58 basis point
decrease in net interest margin, offset in part, by a $499.1 million increase in
average interest-earning assets during the quarter ended June 30, 2003, as
compared to the same period in the prior year.

The Company's net interest margin decreased 58 basis points to 3.77% for
the quarter ended June 30, 2003 compared to 4.35% for the quarter ended June 30,
2002. The average yield on interest-earning assets declined 109 basis points for
the quarter ended June 30, 2003 compared to the quarter ended June 30, 2002
which was partially offset by a decline of 57 basis points in the cost of
average interest-bearing liabilities. A portion of the decrease in the net
interest margin was attributable to the current low interest rate environment
and the resultant active refinance market. The Company has experienced continued
acceleration of repayment in its mortgage-backed securities, multi-family
residential mortgage loans and single-family and cooperative loan portfolios. As
a result, new assets for portfolio retention are being originated at
significantly lower yields than existing portfolio rates. In order to minimize
the impact of the decline in asset yields, the Company has continued its
strategy of increasing the portion of its deposit base comprised of lower
costing core deposits. Overall, based upon the current yield curve, the yield on
interest-earning assets has declined to a greater degree than the cost of
interest-bearing liabilities.

Management believes that it is reasonable to assume further compression in
the net interest margin during the remainder of 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
shift 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.

Interest income decreased by $12.9 million to $111.2 million for the
quarter ended June 30, 2003 compared to $124.1 million for the quarter ended
June 30, 2002. Interest income on loans declined $13.9 million due primarily to
a decrease in the yield on the average loan portfolio of 65 basis points to
6.46% from 7.11% for the quarter ended June 30, 2003 and June 30, 2002,
respectively. Contributing to the unfavorable variance, were lower average
outstanding loan balances of $220.2 million compared to the prior year quarter.

The decrease in the average balance of loans is partially attributable to a
$291.0 million decline in the average balance of the single-family and
cooperative loan portfolios of which management has decided to let run-off as
they do not coincide with the Company's overall business model. The Company
does, however, originate single-family loans for sale through its private label
program with Cendant. Also contributing to the decline in average loans was a
decrease in the average balance of multi-family residential mortgage loans of
$420.3 million due, in part, to the sale of $257.6 million of multi-family
residential mortgage loans in the fourth quarter of 2002. In addition, the
average balance of commercial business loans decreased by $195.9 million from
$762.2 million to $566.3 million for the quarters ended June 30, 2002 and June
30, 2003, respectively. Partially offsetting the above decreases in the average
balance of loans was an increase in the commercial real estate portfolio which
increased by $280.5 million due to management's strategy of shifting to higher
yielding loan products. In addition, the average balance of mortgage warehouse
lines of credit increased $355.8 million, in part, due to the additional
utilization of the lines of credit. This increase absorbed a portion of the
excess liquidity from the accelerated prepayment of loans arising from the
current low interest rate environment.

Income on investment securities increased $2.0 million due to an increase
in the average outstanding balance of investment securities of $190.1 million
partially offset by a decline in the average yield of 72 basis

35

points to 4.82% from 5.54% for the quarters ended June 30, 2003 and June 30,
2002, respectively. Interest income on mortgage-related securities decreased
$2.3 million during the quarter ended June 30, 2003 compared to the quarter
ended June 30, 2002 as a result of a 218 basis point decrease in the yield
earned from 5.95% for the quarter ended June 30, 2002 to 3.77% for the quarter
ended June 30, 2003. Partially offsetting this decrease was a $457.3 million
increase in the average balance of these securities. The increase in the average
balance was funded by the use of borrowings, the growth in deposits and from the
reinvestment of funds from accelerated loan payments.

Income on other interest-earning assets increased $0.3 million in the
current quarter compared to the prior year quarter primarily due to an increase
in the dividend received from FHLB stock of $0.3 million.

Interest expense decreased $7.0 million or 15.9% to $37.3 million for the
quarter ended June 30, 2003 as compared to the quarter ended June 30, 2002. This
decrease primarily reflects a 65 basis point decrease in the average rate paid
on deposits to 1.04% for the quarter ended June 30, 2003 compared to 1.69% for
the quarter ended June 30, 2002. This decrease was partially offset by a $187.5
million increase in the average balance of deposits. The average balance of core
deposits increased $392.7 million, or 12.0%, to $3.66 billion for the quarter
ended June 30, 2003 compared to $3.26 billion for the quarter ended June 30,
2002. Core deposits are defined as all deposits other than certificates of
deposit. Lower costing core deposits represented approximately 71.1% of total
deposits at June 30, 2003 compared to 65.3% at June 30, 2002. This increase
reflects the success of the Company's strategy of lowering its overall cost of
funds while emphasizing the expansion of its commercial and consumer
relationships.

On a linked quarter basis, the average balance of deposits increased in
total by $163.1 million. The average balance of lower costing core deposits grew
by $217.0 million while higher costing certificates of deposit decreased by
$53.9 million in the quarter ended June 30, 2003 compared with the quarter ended
March 31, 2003.

Interest expense on borrowings increased $0.7 million due to an increase of
$363.6 million in the average balance of FHLB borrowings as the Company utilized
borrowings as an interim funding source. Partially offsetting the increase in
average balance was a decline in the average rate paid on such borrowings of 66
basis points from 4.89% in the quarter ended June 30, 2002 to 4.23% in the
quarter ended June 30, 2003. During the second quarter of 2003, the Company
borrowed $500.0 million of short-term low costing floating-rate FHLB borrowings,
and invested the funds primarily in mortgage-backed securities with
characteristics designed to minimize both interest rate risk and extension risk
while maximizing yield. The Company anticipates replacing a portion of these
short-term borrowings with lower costing core deposits.

Interest expense on subordinated notes was $0.2 million during the quarter
ended June 30, 2003. At the end of the second quarter of 2003, the Company
issued $150.0 million in Notes (as previously discussed).

Interest expense on trust preferred securities decreased $0.3 million
compared to the prior year quarter. The trust preferred securities were assumed
as part of the Broad acquisition in July 1999. In accordance with the terms of
the trust indenture, all of the outstanding trust preferred securities totaling
$11.5 million, were redeemed at $10.00 per share, effective June 30, 2002. The
redemption was effected due to the high interest rate being 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 $0.5 million to $1.5
million for the quarter ended June 30, 2003 compared to the quarter ended June
30, 2002. In assessing the level of the allowance for loan losses and the
periodic provision charged to income, 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

36

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.

Non-performing assets as a percentage of total assets totaled 55 basis
points at June 30, 2003 compared to 47 basis points at June 30, 2002.
Non-performing assets increased 33.1% to $49.7 million at June 30, 2003 compared
to $37.3 million at June 30, 2002. The $12.4 million increase was primarily due
to an increase of $14.2 million in non-accrual loans which was partially offset
by a $1.8 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. The $14.2 million increase in non-accrual loans was primarily due to a
$14.3 million increase in non-accrual commercial real estate loans (primarily
attributable to a $12.4 million loan) together with a $2.6 million increase in
non-accrual commercial business loans, partially offset by a decrease of $1.4
million in non-accrual single-family residential and cooperative loans. The
Company's allowance for loan losses to total loans amounted to 1.41% and 1.35%
of total loans at June 30, 2003 and June 30, 2002, respectively.

Non-Interest Income

The Company continues to stress and emphasize fee-based income throughout
its operations. As a result of a variety of initiatives, the Company experienced
a 66.4% increase in non-interest income, from $16.8 million for the quarter
ended June 30, 2002 to $27.9 million for quarter ended June 30, 2003.

One revenue channel that the Company stresses and which is a primary driver
of non-interest income, is earnings from the Company's mortgage-banking
activities. In the quarter ended June 30, 2003, revenue from the Company's
mortgage-banking business amounted to $7.0 million compared to $2.6 million in
the quarter ended June 30, 2002. The Company originates for sale multi-family
residential loans in the secondary market to Fannie Mae with the Company
retaining servicing on all loans sold. Under the terms of the sales program, the
Company also retains a portion of the associated credit risk. At June 30, 2003,
the Company's maximum potential exposure related to secondary market sales to
Fannie Mae under this program was $196.0 million. The Company also has a program
with Cendant to originate and sell single-family residential mortgage loans and
servicing in the secondary market.

As a result of the current interest rate environment and as part of the
Company's business model, the Company has aggressively originated multi-family
residential loans for sale, servicing retained, in the secondary market to
Fannie Mae. The Company sold multi-family residential mortgage loans totaling
$496.0 million during the quarter ended June 30, 2003 compared to $216.7 million
during the quarter ended June 30, 2002. On a linked quarter basis, the Company
sold $570.5 million of multi-family residential mortgage loans to Fannie Mae in
the quarter ended March 31, 2003. In addition, the Company sold $41.5 million of
single-family residential loans during the quarter ended June 30, 2003 compared
to $38.8 million during the quarter ended June 30, 2002.

Mortgage-banking activities for the quarter ended June 30, 2003 reflected
$5.6 million in gains, $2.4 million of origination fees and $0.5 million in
servicing fees partially offset by $1.5 million of amortization of servicing
assets. Included in the $5.6 million of gains were $0.8 million of provisions
recorded related to the retained credit exposure on multi-family residential
loans sold to Fannie Mae. This category also included a $7.4 million decrease in
the fair value of loan commitments for loans originated for sale and a $7.4
million increase in the fair value of forward loan sale agreements which are
entered into with respect to the sale of such loans. The $4.5 million increase
in revenue from mortgage-banking activities for the quarter ended June 30, 2003
compared to the prior year quarter was primarily due to an increase on the gain
on sales of loans to Fannie Mae of $4.0 million. The Company recorded $8.6
million of income from mortgage-banking activities in the quarter ended March
31, 2003.

Service fee income increased by $6.2 million, or 52.9% for the quarter
ended June 30, 2003 compared to the quarter ended June 30, 2002. Included in
service fee income are prepayment and modification fees on loans. These fees are
effectively a partial offset to the decreases realized in the net interest
margin. Prepayment fees increased $3.9 million to $6.1 million for the quarter
ended June 30, 2003 compared to $2.2 million for the quarter ended June 30,
2002. Modification and extension fees increased $1.2 million to $1.8 million for
the quarter ended June 30, 2003 compared to $0.6 million for the quarter ended
June 30, 2002.

37

On a linked quarter basis, the total of these combined fees increased by $2.9
million from $5.0 million for the quarter ended March 31, 2003 compared to $7.9
million for the quarter ended June 30, 2003.

Another component of service fees are revenues generated from the branch
system which grew by $1.2 million, or 15.4%, to $8.8 million for the quarter
ended June 30, 2003 compared to the quarter ended June 30, 2002. The increase
was primarily due to increased service fees on deposit accounts resulting from
the growth in core deposits together with fees from expanded products and
services.

In addition, the Company also recorded an increase for the quarter ended
June 30, 2003 of approximately $0.5 million in the cash surrender value of BOLI
compared to the quarter ended June 30, 2002. During the latter part of the
fourth quarter of 2002, the Company increased its holdings in BOLI by $50.0
million. On a linked quarter basis, income related to BOLI remained level at
$2.2 million for both the quarter ended June 30, 2003 and the quarter ended
March 31, 2003.

Other non-interest income increased $0.3 million to $0.9 million for the
three months ended June 30, 2003 compared to $0.6 million for the three months
ended June 30, 2002. The increase is primarily attributable to income from the
Company's equity investment in Meridian, which increased to 35% in the fourth
quarter of 2002.

Non-Interest Expenses

Non-interest expense increased $2.2 million, or 5.0%, to $47.3 million for
the quarter ended June 30, 2003 compared to $45.1 million for the quarter ended
June 30, 2002. This increase was primarily attributable to increases of $3.0
million in compensation and benefits and $0.6 million in other non-interest
expense which were partially offset by a $1.5 million decrease in the
amortization of identifiable intangible assets.

Compensation and employee benefits expense increased $3.0 million or 12.8%
to $26.7 million for the quarter ended June 30, 2003 as compared to $23.7
million for the same period in the prior year. The increase in compensation and
benefits expense for the comparable periods was primarily attributable to
expansion of the Company's commercial and retail banking and lending operations
during the past year. In particular, the increase was due to increases of $2.9
million in compensation expenses, $0.7 million in retirement expenses and $0.6
million in post-retirement benefits. Partially offsetting these increases were
lower management incentive costs of $1.3 million.

Occupancy costs remained level at $6.1 million for both the quarters ended
June 30, 2003 and June 30, 2002. Advertising expenses increased by $0.1 million
from $1.6 million in the quarter ended June 30, 2002 to $1.7 million in the
quarter ended June 30, 2003.

Amortization of identifiable intangible assets decreased by $1.5 million to
$0.1 million for the quarter ended June 30, 2003 compared to the quarter ended
June 30, 2002. The decrease was due to intangible assets from a branch purchase
transaction effected in fiscal 1996 being fully amortized during the quarter
ended March 31, 2003.

Other non-interest expenses increased $0.6 million to $10.1 million from
$9.5 million for the quarter ended June 30, 2003 compared to the same period in
the prior year. Other non-interest expenses include such items as professional
services, business development expenses, equipment expenses, recruitment costs,
office supplies, commercial bank fees, postage, insurance, telephone expenses
and maintenance and security. The aforementioned increases are attributable, in
part, 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.

On a linked quarter basis, non-interest expense increased $1.4 million to
$47.3 million for the quarter ended June 30, 2003 from $45.6 million for the
quarter ended March 31, 2003. The increase was due in large part to a $2.9
million increase in compensation and benefits partially offset by a $1.3 million
reduction in amortization of intangible assets and a $0.4 million reduction in
other non-interest expense. The increase in compensation and benefits of $2.9
million primarily consisted of increases of $0.7 million in deferred

38

compensation, $0.7 million in management incentive costs, $0.4 million of
severance costs, $0.4 million of annual merit increases and $0.3 million of
post-retirement benefit costs.

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 amounted to $19.0 million and $17.8 million for the
quarter ended June 30, 2003 and 2002, respectively. The increase recorded in the
2003 period reflected the $3.6 million increase in the Company's income before
provision for income taxes partially offset by a decrease in the Company's
effective tax rate for the quarter ended June 30, 2003 to 35.7% compared to
36.0% for the quarter ended June 30, 2002. As of June 30, 2003, the Company had
a net deferred tax asset of $65.3 million compared to $55.5 million at June 30,
2002.

COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND
2002

General

The Company reported a 15.5% increase in diluted earnings per share to
$1.27 for the six months ended June 30, 2003 compared to $1.10 for the six
months ended June 30, 2002. Net income increased 11.0% to $67.1 million for the
six months ended June 30, 2003 compared to $60.4 million for the six months
ended June 30, 2002.

Net Interest Income

Net interest income decreased by $7.6 million or 4.9% to $147.0 million for
the six months ended June 30, 2003 as compared to $154.6 million for the six
months ended June 30, 2002. The decrease was due to a $23.0 million decrease in
interest income partially offset by a $15.4 million decrease in interest
expense. The decline in net interest income primarily reflects the 40 basis
point decrease in net interest margin, offset in part, by a $362.8 million
increase in average interest-earning assets during the six months ended June 30,
2003, as compared to the same period in the prior year.

The Company's net interest margin decreased 40 basis points to 3.87% for
the six months ended June 30, 2003 compared to 4.27% for the six months ended
June 30, 2002. The average yield on interest-earning assets declined 94 basis
points for the six months ended June 30, 2003 compared to the six months ended
June 30, 2002 which was partially offset by a decline of 59 basis points in the
cost of average interest-bearing liabilities. A portion of the decrease in the
net interest margin was attributable to the current low interest rate
environment and the resultant active refinance market. The Company has
experienced a continued accelerated rate of repayment in its mortgage-backed
securities, multi-family residential mortgage loans and single-family and
cooperative loan portfolios. As a result, new assets for portfolio retention are
being originated at significantly lower yields. In order to minimize the impact
of the decline in asset yields, the Company has continued its strategy of
increasing the portion of its deposit base comprised of lower costing core
deposits. Overall, based upon the current yield curve, the yield on
interest-earning assets has declined to a greater degree than the cost of
interest-bearing liabilities.

Management believes that it is reasonable to assume further compression in
the net interest margin during 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 shift 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.

39

Interest income decreased by $23.0 million to $221.9 million for the six
months ended June 30, 2003 compared to $244.9 million for the six months ended
June 30, 2002. Interest income on loans declined $24.5 million due primarily to
a decrease in the yield on the average loan portfolio of 59 basis points to
6.56% from 7.15% for the six months ended June 30, 2003 and June 30, 2002,
respectively. Contributing to the unfavorable variance, were lower average
outstanding loan balances of $163.4 million compared to the prior year.

The decrease in the average balance of loans is partially attributable to a
decline in the average balance of the single-family and cooperative loan
portfolios of $290.0 million which management has decided to let run-off as they
do not coincide with the Company's overall business model. The Company does,
however, originate single-family loans for sale through its private label
program with Cendant. Also contributing to the decline in average loans was a
decrease in the average balance of multi-family residential mortgage loans of
$350.0 million due, in part, to the sale of $257.6 million of multi-family
residential mortgage loans in the fourth quarter of 2002. In addition, the
average balance of commercial business loans decreased by $162.2 million from
$726.0 million to $563.8 million for the six months ended June 30, 2002 and June
30, 2003, respectively. Partially offsetting the above decreases in the average
balance of loans was an increase in the commercial real estate portfolio which
increased by $282.2 million due to management's strategy of shifting to higher
yielding loan products. In addition, the average balance of mortgage warehouse
lines of credit increased $308.0 million, in part, due to the additional
utilization of the lines of credit which resulted in absorbing a portion of the
excess liquidity from the accelerated prepayment of loans arising from the
current low interest rate environment.

Income on investment securities increased $2.8 million due to an increase
in the average outstanding balance of investment securities of $144.4 million
partially offset by a decline in the average yield of 81 basis points to 4.64%
from 5.45% for the six months ended June 30, 2003 and June 30, 2002,
respectively. Interest income on mortgage-related securities decreased $4.3
million during the six months ended June 30, 2003 compared to the six months
ended June 30, 2002 as a result of a 200 basis point decrease in the yield
earned from 5.99% for the six months ended June 30, 2002 to 3.99% for the six
months ended June 30, 2003. Partially offsetting this decrease was a $326.7
million increase in the average balance of these securities. The increase in the
average balance was funded by the use of borrowings, the growth in deposits and
from the reinvestment of funds from accelerated loan payments.

Income on other interest-earning assets increased $0.6 million in the
current six month period compared to the prior year period primarily due to an
increase in the dividend received from FHLB stock of $0.8 million.

Interest expense decreased $15.4 million or 17.0% to $75.0 million for the
six months ended June 30, 2003 as compared to the six months ended June 30,
2002. This decrease primarily reflects a 69 basis point decrease in the average
rate paid on deposits to 1.12% for the six months ended June 30, 2003 compared
to 1.81% for the six months ended June 30, 2002. This decrease was partially
offset by a $157.1 million increase in the average balance of deposits. The
average balance of core deposits increased $375.5 million, or 11.8%, to $3.55
billion for the six months ended June 30, 2003 compared to $3.17 billion for the
six months ended June 30, 2002. Lower costing core deposits represented
approximately 71.1% of total deposits at June 30, 2003 compared to 65.3% at June
30, 2002. This increase reflects the success of the Company's strategy to lower
its overall cost of funds and emphasize its expanding commercial and consumer
relationships.

Interest expense on borrowings increased $1.0 million due to an increase of
$262.0 million in the average balance of FHLB borrowings partially offset by a
decline in the average rate paid on such borrowings of 53 basis points from
5.00% in the six months ended June 30, 2002 to 4.47% in the six months ended
June 30, 2003. The increase in average balances was the result of the Company
borrowing $500.0 million of short-term low costing floating-rate FHLB borrowings
during the quarter ended June 30, 2003. The funds were invested primarily in
mortgage-backed securities. The Company anticipates replacing a portion of these
short-term borrowings with lower costing core deposits.

Interest expense on subordinated notes was $0.2 million during the six
months ended June 30, 2003. At the end of the second quarter of 2003, the
Company issued $150.0 million of Notes.

40

Interest expense on trust preferred securities decreased $0.5 million
compared to the prior year six month period. The trust preferred securities were
assumed as part of the Broad acquisition in July 1999. In accordance with the
terms of the trust indenture, all of the outstanding trust preferred securities
totaling $11.5 million, were redeemed 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 $0.5 million to $3.5
million for the six months ended June 30, 2003 compared to the six months ended
June 30, 2002.

Non-performing assets as a percentage of total assets totaled 55 basis
points at June 30, 2003 compared to 47 basis points at June 30, 2002.
Non-performing assets increased 33.1% to $49.7 million at June 30, 2003 compared
to $37.3 million at June 30, 2002. The $12.4 million increase was primarily due
to an increase of $14.2 million in non-accrual loans which was partially offset
by a $1.8 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. The $14.2 million increase in non-accrual loans was primarily due to a
$14.3 million increase in non-accrual commercial real estate loans (primarily
attributable to a $12.4 million loan previously discussed) together with a $2.6
million increase in non-accrual commercial business loans. The Company's
allowance for loan losses to total loans amounted to 1.41% and 1.35% of total
loans at June 30, 2003 and June 30, 2002, respectively.

Non-Interest Income

The Company experienced a 64.3% increase in non-interest income, from $33.0
million for the six months ended June 30, 2002 to $54.2 million for six months
ended June 30, 2003.

In the six months ended June 30, 2003, revenue from the Company's
mortgage-banking business amounted to $15.7 million compared to $4.7 million in
the six months ended June 30, 2002. The Company originates for sale multi-family
residential loans in the secondary market to Fannie Mae with the Company
retaining servicing on all loans sold. Under the terms of the sales program, the
Company also retains a portion of the associated credit risk. At June 30, 2003,
the Company's maximum potential exposure related to sales to Fannie Mae under
this program was $196.0 million. The Company also has a program with Cendant to
originate and sell single-family residential mortgage loans and servicing in the
secondary market.

The Company sold multi-family residential mortgage loans totaling $1.07
billion during the six months ended June 30, 2003 compared to $423.0 million
during the six months ended June 30, 2002. In addition, the Company sold $77.7
million of single-family residential loans during the six months ended June 30,
2003 compared to $64.8 million during the six months ended June 30, 2002.

Mortgage-banking activities for the six months ended June 30, 2003
reflected $11.4 million in gains, $6.1 million of origination fees and $1.0
million in servicing fees partially offset by $2.9 million of amortization of
servicing assets. Included in the $11.4 million of gains were $1.8 million of
provisions recorded related to the retained credit exposure on multi-family
residential loans sold. This category also included a $2.8 million decrease in
the fair value of loan commitments for loans originated for sale and a $2.8
million increase in the fair value of forward loan sale agreements which are
entered into with respect to the sale of such loans. The $10.9 million increase
in revenue from mortgage-banking activities for the six months ended June 30,
2003 compared to the six months in the prior year was primarily due to an
aggregate increase on the gain on sales of loans to Fannie Mae and Cendant of
$8.5 million combined with $2.5 million of higher origination fees.

Service fee income increased by $9.2 million, or 39.8% for the six months
ended June 30, 2003 compared to the six months ended June 30, 2002. Included in
service fee income are prepayment and modification fees on loans. These fees are
a partial offset to the decreases realized in the net interest margin.
Prepayment fees increased $6.4 million to $10.6 million for the six months ended
June 30, 2003 compared to $4.2 million for the six months ended June 30, 2002.
Modification and extension fees increased $0.6 million to $2.3 million for the
six months ended June 30, 2003 compared to $1.7 million for the six months ended
June 30, 2002.

41

Another component of service fees are revenues generated from the branch
system which grew by $2.2 million, or 14.9%, to $17.1 million for the six months
ended June 30, 2003 compared to the six months ended June 30, 2002. The increase
was primarily due to increased service fees on deposit accounts resulting from
the growth in core deposits together with fees from expanded products and
services.

In addition, the Company also recorded an increase for the six months ended
June 30, 2003 of approximately $1.0 million in the cash surrender value of BOLI
compared to the six months ended June 30, 2002. During the latter part of the
fourth quarter of 2002, the Company increased its holdings in BOLI by $50.0
million.

Other non-interest income increased $0.4 million to $1.5 million for the
six months ended June 30, 2003 compared to $1.1 million for the six months ended
June 30, 2002. The increase was primarily attributable to income from the
Company's equity investment in Meridian, which increased to 35% in the fourth
quarter of 2002.

Non-Interest Expenses

Non-interest expense increased $4.4 million, or 5.0%, to $93.3 million for
the six months ended June 30, 2003 compared to $88.9 million for the six months
ended June 30, 2002. This increase was primarily attributable to increases of
$4.4 million in compensation and benefits and $1.6 million in other non-interest
expense which were partially offset by a $2.0 million decrease in the
amortization of identifiable intangible assets.

Compensation and employee benefits expense increased $4.4 million or 9.6%
to $50.5 million for the six months ended June 30, 2003 as compared to $46.1
million for the same period in the prior year. The increase in compensation and
benefits expense for the comparable periods was primarily attributable to
expansion of the Company's commercial and retail banking and lending operations
during the past year. The Company established a private banking/wealth
management group during the first quarter of 2002 to broaden and diversify its
customer base and continued its de novo branch expansion through the opening of
several facilities during 2002. In particular, the increase was due to increases
of $5.0 million in compensation expenses, $1.4 million in retirement expenses
and $0.7 million in health related benefit costs. Partially offsetting these
increases were lower management incentive costs of $2.7 million.

Occupancy costs increased $0.1 million for the six months ended June 30,
2003 compared with the six months ended June 30, 2002. Advertising expenses
increased by $0.4 million from $3.1 million in the six months ended June 30,
2002 to $3.5 million in the six months ended June 30, 2003.

Amortization of identifiable intangible assets decreased by $2.0 million to
$1.6 million for the six months ended June 30, 2003 compared to the six months
ended June 30, 2002. The decrease was due to intangible assets from a branch
purchase transaction effected in fiscal 1996 being fully amortized during the
quarter ended March 31, 2003.

Other non-interest expenses increased $1.6 million to $20.6 million from
$19.0 million for the six months ended June 30, 2003 compared to the same period
in the prior year. Other non-interest expenses include such items as
professional services, business development expenses, equipment expenses,
recruitment costs, office supplies, commercial bank fees, postage, insurance,
telephone expenses and maintenance and security. The aforementioned increases
were attributable, in part, 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.

Income Taxes

Income tax expense amounted to $37.3 million and $34.3 million for the six
months ended June 30, 2003 and 2002, respectively. The increase recorded in the
2003 period reflected the $9.6 million increase in the Company's income before
provision for income taxes partially offset by a decrease in the Company's
effective tax rate for the six months ended June 30, 2003 to 35.7% compared to
36.2% for the six months ended

42

June 30, 2002. As of June 30, 2003, the Company had a net deferred tax asset of
$65.3 million compared to $55.5 million at June 30, 2002.

REGULATORY CAPITAL REQUIREMENTS

The following table sets forth the Bank's compliance with applicable
regulatory capital requirements at June 30, 2003.

- ---------------
(1) Reflects the 4.0% requirement to be met in order for an institution to be
"adequately capitalized" under applicable laws and regulations.

(2) The Bank is categorized as "well capitalized" under the regulatory framework
for prompt corrective action. To be categorized "well capitalized", the Bank
must maintain Tier 1 leverage capital of 5%, Tier 1 risk-based capital of 6%
and total risk-based capital of 10%.

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 continued focus on expanding its commercial real estate and
business loan portfolios, the Company increased its FHLB borrowings to $2.43
billion at June 30, 2003. At June 30, 2003, the Company had the ability to
borrow from the FHLB up to an additional $393.2 million on a secured basis,
utilizing mortgage-related loans and securities as collateral.

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. Certificates of deposit at June
30, 2003 scheduled to mature in one year or less totaled $1.12 billion, or 75.0%
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.

43

The following table sets forth the Company's off-balance sheet financial
instruments at June 30, 2003 and December 31, 2002.

ITEM 3. 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 available-for-sale, primarily mortgage-related
instruments with maturities or estimated average lives of less than five years,
(iv) promoting

44

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) entering into forward
loan sale agreements to offset rate risk on rate-locked loan commitments
originated for sale, (viii) maintaining a strong capital position and (ix)
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 derivative 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 and entering into forward loan sale
agreements to offset rate risk on rate locked loan commitments on loans being
originated for sale so that changes in interest rates do not have a significant
adverse effect on net interest income, 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 and forward loan sale
agreements.

At June 30, 2003, 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
and had an unrealized loss of $10.6 million at June 30, 2003.

At June 30, 2003, the Company had $495.9 million of loan commitments
outstanding related to loans being originated for sale. Of such amount, $172.5
million related to loan commitments for which the borrowers had not entered into
interest rate locks and $323.4 million which were subject to interest rate
locks. At June 30, 2003, the Company had $323.4 million of forward loan sale
agreements. The fair market value of the interest rate lock loan commitment was
a loss of $1.7 million and the fair value of the forward loan sale agreement was
a gain of $1.7 million at June 30, 2003.

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.

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.

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
asset composition 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.

45

Based on the information and assumptions in effect at June 30, 2003, the
model shows that a 200 basis point gradual increase in interest rates over the
next twelve months would decrease net interest income by $10.1 million or 3.27%.

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 June 30, 2003, the Company's one-year cumulative gap position was a positive
11.10%, compared to a positive 3.68% at December 31, 2002. A positive gap will
generally result in the net interest margin increasing in a rising rate
environment and decreasing in a falling rate environment. 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 June 30, 2003, 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 June 30, 2003 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-related 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.

46

The following table reflects the repricing of the balance sheet, or "gap"
position at June 30, 2003.

- ---------------
(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.

ITEM 4. CONTROLS AND PROCEDURES

Our management evaluated, with the participation of our Chief Executive
Officer and Chief Financial Officer, the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this report. Based
on such evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are designed to ensure
that information required to be disclosed by us in the reports that we file or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
regulations and are operating in an effective manner.

No change in our internal control over financial reporting (as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.

47

OTHER INFORMATION

ITEM 5.
OTHER INFORMATION
Not applicable
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits on Form 8-K

b) Reports on Form 8-K

48

SIGNATURES

Pursuant to the requirements 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.

Date: August 8, 2003 By: /s/ ALAN H. FISHMAN
----------------------------------------------
Alan H. Fishman
President and
Chief Executive Officer

Date: August 8, 2003 By: /s/ JOHN B. ZURELL
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John B. Zurell
Executive Vice President
Chief Financial Officer and
Principal Accounting Officer