INDEPENDENCE COMMUNITY BANK CORP - 10-Q Quarterly Report


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


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

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.

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. At August 3, 2004, the registrant had 83,969,141 shares of common stock ($.01 par value per share) outstanding.

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”).

In April 1997, the Board of Directors of the Bank and the Board of Trustees of the Mutual Holding Company adopted a plan of conversion (the “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, 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.

The Company increased its issued and outstanding common shares by 28,200,070 shares as part of the consideration paid in connection with the acquisition of Staten Island Bancorp, Inc. (“Staten Island”) which was effective as of the close of business on April 12, 2004. (See Note 2).

Effective July 1, 2004, the Company’s Certificate of Incorporation was amended to increase the amount of authorized common stock the Company may issue from 125 million shares to 250 million shares. The Company’s stockholders approved and authorized such amendment at the annual meeting of stockholders held on June 24, 2004.

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 or supplemental eligible 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 on the Bank’s equity 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 twenty-fourth consecutive quarterly cash dividend on July 22, 2004. The dividend amounted to $0.24 per share of common stock and is payable on August 18, 2004 to stockholders of record on August 4, 2004.

On July 24, 2003 the Company announced that its Board of Directors authorized the eleventh stock repurchase plan for up to three million shares of the Company’s outstanding common shares subject to the completion of their tenth stock repurchase program. The Company completed its tenth stock repurchase plan and commenced its eleventh stock repurchase program on August 26, 2003. 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 Capital”). Treasury shares also are being used to fund the Company’s stock benefit plans, in particular, the 1998 Stock Option Plan (the “Option Plan”), the Directors Fee Plan and the 2002 Stock Incentive Plan (the “Stock Incentive Plan”).

During the six months ended June 30, 2004, the Company did not repurchase shares of its common stock. The Company issued 716,035 shares of treasury stock in connection with the exercise of options and director fees with an aggregate value of $12.2 million at the date of issuance during the six months ended June 30, 2004. At June 30, 2004, the Company had repurchased a total of 33,512,516 shares pursuant to the eleven repurchase programs at an aggregate cost of $553.9 million and reissued 12,660,516 shares at $179.0 million. As of June 30, 2004, there were approximately 2,790,329 shares remaining to be purchased pursuant to the Company’s eleventh repurchase program.

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, 2004, the Bank operated 121 banking offices, including the 35 additional branches which resulted from the acquisition of Staten Island in April 2004 (See Note 2), located in the greater New York City metropolitan area, which includes the five boroughs of New York City, Nassau, Suffolk and Westchester counties of New York and New Jersey. At its banking offices located on Staten Island, the Bank conducts business as SI Bank & Trust, a division of the Bank. In addition, the Bank maintains one branch facility and lending office in Maryland and a lending office in Florida as a result of the expansion of the Company’s commercial real estate lending activities to the Baltimore-Washington market and the Boca Raton, Florida market as discussed below. The Company opened three new offices during the first six months of 2004 and currently expects to expand its branch network through the opening of approximately six additional branch locations during the remainder of 2004. During July 2003, the Company announced the expansion of its commercial real estate lending activities to the Baltimore-Washington market and the Boca Raton, Florida market. The loans generated in these areas are referred primarily by Meridian Capital, which already has an established presence in these market areas.

The Bank’s deposits are insured to the maximum extent permitted by law by the Bank Insurance Fund and the Savings Association Insurance Fund administered by the FDIC. 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 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.

On April 12, 2004, the Company completed its acquisition of Staten Island and the merger of Staten Island’s wholly owned subsidiary, SI Bank & Trust (“SI Bank”), with and into the Bank. SI Bank, a full service federally chartered savings bank, operated 17 full service branch offices on Staten Island, three full service branch offices in Brooklyn, and a total of 15 full service branch offices in New Jersey.

In addition to the opportunity to enhance shareholder value, the acquisition presented the Company with a number of strategic opportunities and benefits that will assist its growth as a leading community-oriented financial institution. The opportunities include expanding the Company’s asset generation capabilities through use of Staten Island’s strong core deposit funding base; increasing deposit share in the Company’s core New York City metropolitan area market and strengthening its balance sheet.

As a result of the Staten Island acquisition, the Company acquired approximately $7.15 billion in assets (including loans of $3.56 billion and securities of $2.09 billion) and assumed approximately $3.79 billion in deposits, $2.65 billion in borrowings and $84.2 million in other liabilities. The results of operations of Staten Island are included in the Consolidated Statements of Income and Comprehensive Income subsequent to April 12, 2004.

Under the terms of the Agreement and Plan of Merger between the Company and Staten Island dated November 24, 2003 (the “Staten Island Agreement”), the aggregate consideration paid in the acquisition consisted of $368.5 million in cash and 28,200,070 shares of the Company’s common stock. Holders of Staten Island common stock received cash or shares of the Company’s common stock pursuant to an election, proration and allocation procedure subject to the total consideration being comprised of approximately 75% paid in the Company’s common stock and 25% paid in cash. The value of the acquisition consideration per share of Staten Island common stock was calculated in accordance with the following formula: the sum of (i) $5.97025 and (ii) 0.4674 times the average of the closing prices of the Company’s common stock for the ten consecutive full trading days ending on the tenth business day before the completion of the acquisition. The average price of the Company’s common stock during the ten trading day measurement period was $39.26, resulting in Staten Island stockholders receiving $24.3208 per share in cash or 0.6195 share of the Company’s common stock for each share of Staten Island common stock. The Staten Island transaction had an aggregate value of approximately $1.48 billion assuming an acquisition value of $24.3208 per share.

In addition on March 1, 2004, Staten Island announced the completion of the sale of the majority of the assets and operations of Staten Island Mortgage Corp., the mortgage banking subsidiary of SI Bank, to Lehman Brothers. The remaining Staten Island Mortgage Corp. offices were sold or shut down by March 31, 2004. At June 30, 2004, Staten Island Mortgage Corp. had $70.0 million of loans available-for-sale.

The acquisition was accounted for as a purchase and the excess cost over the fair value of net assets acquired (“goodwill”) in the transaction was $946.9 million. Under the provisions of SFAS No. 142, goodwill is not being amortized in connection with this transaction and the Company estimates that the goodwill will not be deductible for income tax purposes. The Company also recorded a core deposit intangible asset of $79.7 million, which is being amortized on the interest method over 14 years.

The following table presents data with respect to the fair values of assets and liabilities acquired in the Staten Island acquisition.

The Company would have recognized a $6.0 million net loss, or ($0.07) diluted earnings per share, for the three months ended June 30, 2004 if the Staten Island acquisition had taken place on April 1, 2004 compared to net income of $58.4 million or $0.73 per diluted share for the three months ended June 30, 2003 if the acquisition had taken place on April 1, 2003. The Company’s net income would have amounted to $28.2 million, or $0.35 diluted earnings per share, for the six months ended June 30, 2004 if the acquisition had taken place on January 1, 2004 compared to net income of $116.8 million or $1.44 per diluted share for the six months ended June 30, 2003 if the acquisition had taken place on January 1, 2003. Included in the three and six months ended June 30, 2004 pro forma results of operations were $67.2 million of ESOP expense relating to the termination and final allocation of Staten Island’s ESOP and $24.7 million of severance costs which were incurred as a direct result of the acquisition. These proforma results of operations are not necessarily indicative of the results of operations that would have occurred if the acquisition had been completed on the dates indicated or which may be obtained in the future.

The following is a description of the significant accounting policies of the Company and its subsidiaries. These policies conform with accounting principles generally accepted in the United States of America.

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, 2004 are not necessarily indicative of the results to be expected for the year ending December 31, 2004. 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, as amended, for the fiscal year ended December 31, 2003 (“2003 Annual Report”).

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 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 3 (“Summary of Significant Accounting Policies”) of the Consolidated Financial Statements in the 2003 Annual Report.

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 non-employee directors must pay to acquire 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 plans 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 (“SFAS No. 123”)”.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model and is based on certain assumptions including dividend yield, stock volatility, the risk free rate of return, expected term and turnover rate. The fair value of each option is expensed over its vesting period. Because the Company recognized the fair value provisions prospectively, compensation expense related to employee stock options granted did not have a full impact during 2003. The adoption of SFAS No. 123, as amended, did not have a material effect on the Company’s financial condition or results of operations. See

Note 13 hereof. See also Note 4 hereof for a discussion of the exposure draft proposing to mandate option expensing.

Comprehensive income includes net income and all other changes in equity during a period, except those resulting from investments by owners and distribution to owners. OCI 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 OCI are reported net of related income taxes. Accumulated OCI 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.

The following is a description of new accounting pronouncements and their effect on the Company’s financial condition and results of operations.

In January 2003, the Financial Accounting Standards Board (“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. In December 2003, the FASB published a revision to FIN 46 to clarify some of the provisions of FIN 46 and to exempt certain entities from its requirements. FIN 46, as revised, applies to variable interest entities that are commonly referred to as special-purpose entities for periods ending after December 15, 2003 and for all other types of variable interest entities for periods ending after March 15, 2004. The adoption of FIN 46, as revised, did not have a material impact on the Company’s financial condition or results of operations.

In November 2003, the FASB issued Emerging Issues Task Force (“EITF”) Issue 03-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments.” The Company complied with the disclosure provisions of this rule in Note 3 to the Consolidated Financial Statements included in its 2003 Annual Report. In March 2004, the FASB reached a consensus regarding the application of a three-step impairment model to determine whether cost method investments are other-than-temporarily impaired. The Company is currently evaluating the impact of adopting the provisions of this rule, which are required to be applied prospectively to all current and future investments accounted for in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and other cost method investments for reporting periods beginning after June 15, 2004.

In December 2003, the FASB issued SFAS No. 132 (Revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” This statement amends the disclosure requirements of SFAS No. 87, “Employers’ Accounting for Pensions,” No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” and No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” The Statement requires interim disclosure that is addressed in Note 12 but did not change the recognition and measurement requirements of the amended Statements.

In January 2004, the FASB issued FASB Staff Position (“FSP”) FAS 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP FAS 106-1”), in response to the signing into law in December 2003 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”). The Act provides for a federal subsidy equal to 28% of prescription drug claims for sponsors of retiree health care plans with drug benefits that are at least actuarially equivalent to those to be offered under Medicare Part D. FSP FAS 106-1 allows plan sponsors the option of accounting for the effects of the Act in financial statements for periods that cover the date of enactment or making a one-time election to defer the accounting for the effects of the Act until final guidance is issued by the FASB. The Company had decided to make the one-time election to defer recognizing the effects of the Act until final guidance is issued. Therefore, the expense amounts shown in Note 12 do not reflect the potential effects of the Act, which are not expected to have a material effect on the Company’s Consolidated Financial Statements.

On March 31, 2004, the FASB published an Exposure Draft, Share-Based Payment, an Amendment of FASB Statements No. 123 and 95 (the “Exposure Draft”). FASB is proposing, among other things, amendments to SFAS No. 123 and thus, the manner in which share-based compensation, such as stock options, will be accounted for by both public and non-public companies. For public companies, the cost of employee services received in exchange for equity instruments including options and restricted stock awards generally would be measured at fair value at the grant date. The grant-date fair value would be estimated using option-pricing models adjusted for the unique characteristics of those options and instruments (unless observable market prices for the same or similar options are available). The cost would be recognized over the requisite service period (often the vesting period). The cost of employee services received in exchange for liabilities would be measured initially at the fair value (rather than the previously allowed intrinsic value under APB Opinion No. 25, Accounting for Stock Issued to Employees) of the liabilities and would be remeasured subsequently at each reporting date through settlement date.

The proposed changes in accounting would replace existing requirements under SFAS No. 123, Accounting for Stock-Based Compensation, and would eliminate the ability to account for share-based compensation transactions using APB Opinion No 25 which did not require companies to expense options. Under the terms of the Exposure Draft, the accounting for similar transactions involving parties other than employees or the accounting for employee stock ownership plans that are subject to American Institute of Certified Public Accountants (“AICPA”) Statement of Position 93-6, Employers’ Accounting for Employee Stock Ownership Plans, would remain unchanged.

The Exposure Draft provides that the proposed statement would be applied to public entities prospectively for fiscal years beginning after December 15, 2004, as if all share-based compensation awards vesting, granted, modified, or settled after December 15, 1994 had been accounted for using the fair value-based method of accounting.

The FASB solicited comments on the Exposure Draft through June 30, 2004 and initially indicated that it expected to issue the final statement in the fourth quarter of 2004.

The amortized cost and estimated fair value of securities available-for-sale at June 30, 2004 are as follows:

The amortized cost and estimated fair value of securities available-for-sale at December 31, 2003 are as follows:

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, 2004, the Company originated for sale

$647.0 million and sold $974.3 million of fixed-rate multi-family loans in the secondary market to Fannie Mae with servicing retained by the Company. Included in the $974.3 million of loans sold in the six months ended June 30, 2004 were $329.9 million of loans that were originally held in portfolio. Under the terms of the sales program, the Company retains a portion of the associated credit risk. The Company has a 100% first loss position on each multi-family residential loan sold to Fannie Mae under such program until the earlier to occur of (i) the aggregate losses on the multi-family residential loans sold to Fannie Mae reach the maximum loss exposure for the portfolio as a whole 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, 2004, the Company serviced $4.24 billion of loans sold to Fannie Mae pursuant to this program with a maximum potential loss exposure of $127.2 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 ongoing review of loan performance and are subject to adjustment. The recourse balances for each of the loans are 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. Neither condition has occurred to date.

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 an industry based default curve with a range of estimated losses. At June 30, 2004 the Company had an $8.6 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 $4.32 billion of multi-family loans sold to Fannie Mae, which includes both loans originated for sale and loans sold from portfolio, the Company had an $11.4 million servicing asset at June 30, 2004.

At June 30, 2004, the Company had a $7.3 million loan servicing asset related to $461.5 million of single-family loans that were sold in the secondary market with servicing retained as a result of the Staten Island acquisition.

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

During the third quarter of 2003, the Company announced that ICM Capital, L.L.C. (“ICM Capital”), a newly formed subsidiary of the Bank, was approved as a Delegated Underwriting and Servicing (“DUS”) mortgage lender by Fannie Mae. Under the Fannie Mae DUS program, ICM Capital will underwrite, fund and sell mortgages on multi-family residential properties to Fannie Mae, with servicing retained. Participation in the DUS program requires ICM Capital to share the risk of loan losses with Fannie Mae with one-third of all losses assumed by ICM Capital and the remaining two-thirds of all losses being assumed by Fannie Mae. There were no loans originated under this DUS program during the six months ended June 30, 2004 and ICM Capital did not effect the Company’s statement of condition or results of operations for the six months ended June 30, 2004.

The Bank has a two-thirds ownership interest in ICM Capital and Meridian Company, LLC (“Meridian Company”), a Delaware limited liability company, has a one-third ownership interest. ICM Capital is an integral part of the expansion of the Company’s multi-family lending activities along the East Coast and its operations will be coordinated with those of Meridian Capital. Meridian Capital is 65% owned by Meridian Capital Funding, Inc. (“Meridian Funding”), a New York-based mortgage brokerage firm, with the remaining 35% minority equity investment held by the Company. Meridian Funding and Meridian Company have the same principal owners. See Note 15 hereof.

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, 2004, the Company originated for sale $56.3 million and sold $51.2 million of single-family residential mortgage loans through the program. At June 30, 2004, the Company had $7.6 million of loans for sale under this program. Included in the $77.2 million of single-family residential loans available-for-sale are $69.6 million of loans acquired in the Staten Island transaction.

Over the past few years the Company has deemphasized the origination of single-family residential mortgage loans in favor of higher yielding commercial real estate and business loans. However, Staten Island had a significant single-family residential loan portfolio and as a result, the Company originated, for portfolio, approximately $100.3 million of such loans during 2004. 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, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”). See Note 14 hereof.

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 condition and creditworthiness of the borrowers.

During the third quarter of 2003, the Company announced the expansion of its commercial real estate lending activities to the Baltimore-Washington and the Boca Raton, Florida markets. The loans are referred primarily by Meridian Capital, which already has an established presence in these markets. During the six months ended June 30, 2004, the Company originated for portfolio $72.5 million of multi-family residential loans and $6.9 million of commercial real estate loans and originated for sale $49.6 million of multi-family residential loans in the Baltimore-Washington market. During the six months ended June 30, 2004, the Company also originated $85.9 million of loans for portfolio retention in the Florida market. Of such loans, $44.1 million were commercial real estate loans and $41.8 million were multi-family residential loans. The Company will review this expansion program periodically and establish and adjust its targets based on market acceptance, credit performance, profitability and other relevant factors. At June 30, 2004, the Company’s exposure to the Baltimore-Washington market area consisted primarily of $94.0 million of mortgage

warehouse lines of credit, $16.2 million of commercial real estate loans and $108.2 million of multi-family residential loans. The Company’s exposure to the Florida market consisted primarily of $66.1 million of commercial real estate loans and $56.8 million of multi-family residential loans at June 30, 2004.

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 or 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.

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

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 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 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 to be characterized as 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.

The Company will continue to monitor and modify its allowance for loan losses as conditions dictate. Management believes that, based on information currently available, the Company’s allowance for loan losses at June 30, 2004 was at a level to cover all known and inherent losses in its loan portfolio at such date that were both probable and reasonable to estimate. In the future, management may adjust the level of its allowance for loan losses as economic and other conditions dictate. In addition, the FDIC and the Department as an integral part of their examination process periodically review the Company’s allowance for possible loan losses. Such agencies may require the Company to adjust the allowance based upon their judgment.

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.

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 be recognized as non-interest expense in the period of impairment. However, under SFAS No. 142, identifiable intangible assets (such as core deposit premiums) with identifiable lives will continue to be amortized.

The Company’s goodwill was $1.13 billion and $185.2 million at June 30, 2004 and December 31, 2003, respectively. The $946.9 million increase in goodwill during the six months ended June 30, 2004 was a result of the Staten Island transaction which became effective on the close of business on April 12, 2004 (See Note 2).

The Company did not recognize an impairment loss as a result of its most recent annual impairment test effective October 1, 2003. In accordance with SFAS No. 142, the Company tests the value of its goodwill at least annually.

The Company’s identifiable intangible assets were $77.1 million and $0.2 million at June 30, 2004 and December 31, 2003, respectively. The $76.9 million increase was a result of the $79.7 million core deposit intangible recognized as a result of the Staten Island acquisition and the associated amortization of such asset. Core deposit intangibles currently held by the Company are amortized on the interest method over fourteen years.

The following table sets forth the Company’s identifiable intangible assets at the dates indicated which consist solely of deposit intangibles:

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

Amortization expense related to identifiable intangible assets was $2.6 million and $0.1 million for the quarters ended June 30, 2004 and 2003, respectively, and $2.7 million and $1.6 million for the six months ended June 30, 2004 and 2003, respectively.

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 1998 Recognition and Retention Plan and Trust Agreement (the “Recognition Plan”) shares are not considered to be outstanding for the calculation of basic EPS. However, a portion of such shares is considered in the calculation of diluted EPS as common stock equivalents of basic EPS. Diluted EPS also reflects the potential dilution that would occur if stock options were exercised and converted into common stock. The dilutive effect of unexercised stock options is calculated using the treasury stock method.

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

At June 30, 2004 and June 30, 2003, there were 375,626 and 838,900 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.

The Company has a noncontributory defined benefit pension plan (the “Pension Plan”) covering substantially all of its full-time employees and certain part-time employees who qualify. Employees first hired on or after August 1, 2000 are not eligible to participate in the Pension Plan. The Company makes annual contributions to the Pension Plan equal to the amount necessary to satisfy the funding requirements of the Employee Retirement Income Security Act (“ERISA”).

The Company also has a Supplemental Executive Retirement Plan (the “Supplemental Plan”). The Supplemental Plan is a nonqualified, unfunded plan of deferred compensation covering those senior officers of the Company whose benefits under the Pension Plan would be limited by Sections 415 and 401(a)(17) of the Internal Revenue Code of 1986, as amended.

In connection with the Staten Island acquisition on April 12, 2004, the Company acquired the Staten Island Bank and Trust Plan (“Staten Island Plan”), a noncontributory defined benefit pension plan, which was

frozen effective as of December 31, 1999. The Company’s Plan and the Staten Island Plan are presented on a consolidated basis (since April 12, 2004 for the Staten Island Plan) in the following table.

Net pension expense of the Pension Plan, Supplemental Plan and Staten Island Plan are included the following components:

The Company contributed $0.1 million to the Pension Plan during the six months ended June 30, 2004 and expects to contribute an additional $0.2 million for the remainder of the year ended December 31, 2004.

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

Net postretirement benefit cost, which includes costs for Staten Island’s post-retirement benefit plans since April 12, 2004, included the following components:

The Company also sponsors an incentive savings plan (“401(k) Plan”) whereby eligible employees may make tax deferred contributions up to certain limits. The Company makes matching contributions up to the

lesser of 6% of employee compensation, or $3,000. Beginning in fiscal 1999, the matching contribution for full-time employees was in the form of shares of Company common stock held in the ESOP while the contribution for part-time employees remained a cash contribution. However, beginning January 1, 2001, the matching contribution for all employees, full- and part-time, is in the form of shares of Company common stock held in the ESOP. The Company may reduce or cease matching contributions if it is determined that the current or accumulated net earnings or undivided profits of the Company are insufficient to pay the full amount of contributions in a plan year.

As a result of the Staten Island acquisition, effective June 22, 2004, the SI Bank & Trust 401(k) Savings Plan was transferred into the 401(k) Plan, at which time the SI Bank & Trust 401(k) Savings Plan was merged out of existence.

The Company established the ESOP for full-time employees in March 1998 in connection with the 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 $2.8 million and $3.5 million to the ESOP during the six months ended June 30, 2004 and 2003, respectively. Dividends paid on ESOP shares, which reduced the Bank’s contribution to the ESOP and were utilized to repay the ESOP loan, totaled $2.4 million and $1.7 million for the six months ended June 30, 2004 and 2003, respectively. The loan from the Company had an outstanding principal balance of $82.4 million and $84.0 million at June 30, 2004 and December 31, 2003, 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 total 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 are allocated among the participants.

Compensation expense related to the 140,822 shares committed to be released during the six months ended June 30, 2004 was $4.7 million, which was equal to the shares committed to be released by the ESOP multiplied by the average fair value of the common stock during the period in which they were committed to be released. At June 30, 2004, there were 1,350,933 shares allocated, 3,943,009 shares unallocated and 338,928 shares that had been distributed to participants in connection with their withdrawal from the ESOP. At June 30, 2004, the 3,943,009 unallocated shares had a fair value of $143.5 million.

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. These awards were fully vested as of September 30, 2003. The Committee granted 11,000 performance-based shares in the year ended December 31, 2002 and non-performance-based share awards covering 52,407 shares, 123,522 shares and 91,637 shares during the six months ended June 30, 2004, the year ended December 31, 2003 and the year ended December 31, 2002, respectively.

The stock awards granted to date generally vest on a straight-line basis over a three, four or five-year period beginning one year from the date of grant. However, certain stock awards granted during the year ended December 31, 2002 will fully vest 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(s). The Company recorded compensation expense of $2.3 million and $5.2 million related to the Recognition Plan for the six months ended June 30, 2004 and 2003, respectively.

The Company accounts for stock-based compensation on awards granted prior to January 1, 2003 using the intrinsic value method. Since each option granted prior to January 1, 2003 had 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 and is based on certain assumptions including dividend yield, stock volatility, the risk free rate of return, expected term and turnover rate. The fair value of each option is expensed over its vesting period. There have been a total of 706,790 options granted since January 1, 2003. There were 471,040 options granted during the six months ended June 30, 2004 and approximately $543,000 in compensation expense recognized under this statement. There were 11,000 options granted during the six months ended June 30, 2003 and approximately $4,000 in compensation expense was recognized under this statement during such period.

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. These options were fully vested as of September 30, 2003. During the six months ended June 30, 2004, the year ended December 31, 2003 and the year ended December 31, 2002, the Board of Directors granted options covering 5,000, 220,750 and 93,000 shares, respectively. During the year ended December 31, 2003 and the year ended December 31, 2002, the Committee administering the Plan approved the accelerated vesting of 30,000 and 8,000 options due to the retirement of senior officers, resulting in $0.2 million and $0.1 million of compensation expense, respectively. There was no accelerated vesting of options due to the retirement of senior officers during the six months ended June 30, 2004. At June 30, 2004, there were options covering 4,748,917 shares outstanding pursuant to the Option Plan.

The 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 466,040, 15,000 and 789,650 shares during the six months ended June 30, 2004, the year ended December 31, 2003 and the year ended December 31, 2002, respectively. During the six months ended June 30, 2004, the Board of Directors granted restricted stock awards of 112,972 shares which awards generally vest over a three, four or five-year four year period beginning one year from the date of grant. At June 30, 2004, there were 1,209,240 options and 112,972 restricted share awards outstanding related to this plan.

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 Company’s common stock totaled 602,139 and became 100% exercisable at the effective date of the acquisitions. At June 30, 2004, there were 125,757 options outstanding related to these plans.

In connection with the Staten Island acquisition in April 2004, options which were converted by election of the option holders to options to purchase the Company’s common stock totaled 2,762,184 and became 100% exercisable at the effective date of the acquisition. At June 30, 2004, there were 2,183,746 options outstanding related to this plan.

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 Incentive Plan and stock option grants awarded under the various stock option plans.

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 outstanding at June 30, 2004 included commitments to fund loans available-for-sale and forward loan sale agreements.

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

The 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 originates 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 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, 2004, the Company had $212.6 million of loan commitments outstanding related to loans being originated for sale. Of such amount, $137.3 million related to loan commitments for which the borrowers had not entered into interest rate locks and $75.3 million which were subject to interest rate locks. At June 30, 2004, the Company had $75.3 million of forward loan sale agreements. The fair market value of the loan commitments with interest rate locks was a gain of $0.8 million and the fair market value of the related forward loan sale agreements was a loss of $0.8 million at June 30, 2004.

The Company is engaged in certain activities with Meridian Capital. Meridian Capital is deemed to be a “related party” of the Company as such term is defined in SFAS No. 57. Such treatment is triggered due to the Company’s accounting for the investment in Meridian Capital using the equity method. The Company has a 35% minority equity investment in Meridian Capital, which is 65% owned by Meridian Funding, a New York-based mortgage brokerage firm. Meridian Capital refers borrowers seeking financing of their multi-family residential and/or commercial real estate loans to the Company as well as to several other financial institutions.

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

The loans originated by the Company resulting from referrals by Meridian Capital account for a significant portion of the Company’s total loan originations. In addition, referrals from Meridian Capital accounted for the substantial majority of the loans originated for sale in 2003 and the six months ended June 30, 2004. 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 Capital relationship.

During the third quarter of 2003, the Company announced that ICM Capital, a newly formed subsidiary of the Bank, was approved as a DUS mortgage lender by Fannie Mae. The Bank has a two-thirds ownership interest in ICM Capital and the Meridian Company has a one-third ownership interest. Meridian Funding and Meridian Company have the same principal owners.

Under the DUS program, ICM Capital will underwrite, fund and sell mortgages on multi-family residential properties to Fannie Mae, with servicing retained. Participation in the DUS program requires ICM

Capital to share the risk of loan losses with Fannie Mae with one-third of all losses assumed by ICM Capital and two-thirds of all losses assumed by Fannie Mae. ICM Capital is an integral part of the expansion of the Company’s multi-family lending activities along the East Coast and will work closely with Meridian Capital. There were no loans originated under the DUS program by ICM Capital during the six months ended June 30, 2004.

The Company has also entered into other transactions with Meridian Capital, Meridian Company, Meridian Funding and several of their executive officers in the normal course of business. Such relationships include depository relationships with the Bank and six residential mortgage loans made in the ordinary course of the Bank’s business.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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, borrowings and subordinated debt. 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 combined with 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.

Statements contained in this Quarterly Report on Form 10-Q which are not historical facts are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors. Included in such forward-looking statements are statements regarding the merger of the Company and Staten Island. See Note 2 of the “Notes to Consolidated Financial Statements” set forth in Item 1 hereof.

Words such as “expect”, “feel”, “believe”, “will”, “may”, “anticipate”, “plan”, “estimate”, “intend”, “should”, and similar expressions are intended to identify forward-looking statements. These statements include, but are not limited to, financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements regarding future performance. Such statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of the Company, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: (1) the growth opportunities and cost savings from the merger of the Company and Staten Island may not be fully realized or may take longer to realize than expected; (2) operating costs and business disruption resulting from the acquisition, including adverse effects on relationships with employees, may be greater than expected; (3) competitive factors which could affect net interest income and non-interest income, general economic conditions which could affect the volume of loan originations, deposit flows and real estate values; (4) the levels of non-interest income and the amount of loan losses as well as other factors discussed in the documents filed by the Company with the Securities and Exchange Commission (“SEC”) from time to time. The Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

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

Total assets increased by $8.47 billion, or 88.7%, from $9.55 billion at December 31, 2003 to $18.02 billion at June 30, 2004 resulting primarily from the Staten Island acquisition combined with internal growth of the Company’s loan portfolios. Assets acquired in the Staten Island transaction totaled $7.15 billion while deposits and borrowings assumed totaled $3.79 billion and $2.65 billion, respectively. The Company’s loan portfolio grew by $1.37 billion during the six months ended June 30, 2004, excluding the $3.56 billion of loans acquired in the acquisition.

The internal loan growth was primarily funded by increases of $265.0 million in deposits and $312.4 million in longer term borrowings, including the issuance in March 2004 of $250.0 million of 3.75% Fixed Rate/ Floating Rate Subordinated Notes Due 2014 (“Notes”), to more closely match the anticipated duration of the Company’s loan portfolio. As the Company’s loan originations for portfolio retention increased, it proactively reduced its investment in securities. The $451.0 million decline in the securities portfolio (excluding the effects of the acquisition of Staten Island) was redeployed into higher yielding loans.

Cash and cash equivalents increased from $172.0 million at December 31, 2003 to $407.4 million at June 30, 2004. The $235.4 million increase in cash and cash equivalents was primarily due to the $671.2 million of cash and cash equivalents acquired from Staten Island, which was partially offset by the $368.5 million of cash consideration paid in the Staten Island acquisition as well as the redeployment of funds in to higher yielding assets.

The aggregate securities available-for-sale portfolio (which includes investment securities and mortgage-related securities) increased $1.64 billion, or 65.3%, from $2.51 billion at December 31, 2003 to $4.15 billion at June 30, 2004. The increase in securities available-for-sale was due to $2.09 billion of securities acquired from Staten Island and $424.7 million of purchases. These increases were partially offset by $186.3 million of sales and $627.3 million of repayments, the proceeds of which were redeployed to fund the growth in the Company’s loan portfolios. Securities available-for-sale had a net unrealized loss of $39.8 million at June 30, 2004 compared to a net unrealized gain of $10.4 million at December 31, 2003. The Company continues to actively manage the size of its securities portfolio in relation to total assets and as such had a 23.0% securities to asset ratio as of June 30, 2004.

The Company’s mortgage-related securities portfolio increased $1.28 billion to $3.49 billion at June 30, 2004 compared to $2.21 billion at December 31, 2003. The securities were comprised of $1.80 billion of

AAA-rated CMOs and $93.7 million of CMOs which were issued or guaranteed by Freddie Mac, Fannie Mae or GNMA (“Agency CMOs”) and $1.60 billion of mortgage-backed pass through certificates which were issued or guaranteed by Freddie Mac, Fannie Mae or GNMA. The $1.28 billion increase in the portfolio was primarily due to $1.62 billion of mortgage-related securities acquired from Staten Island and purchases of $301.5 million of AAA-rated CMOs with an average yield of 4.67% and $98.6 million of Agency CMOs with a weighted average yield of 4.40%. Partially offsetting these increases were $627.2 million of principal repayments received combined with sales of $61.7 million. The net unrealized gain on this portfolio decreased $41.4 million during the six months ended June 30, 2004 to a net unrealized loss of $30.3 million at June 30, 2004.

The Company’s investment securities portfolio increased $358.4 million to $655.3 million at June 30, 2004 compared to December 31, 2003. The increase was primarily due to $469.9 million of securities acquired from Staten Island and $24.6 million of purchases, primarily $10.0 million of preferred securities with a weighted average yield of 7.00% and $14.6 million of U.S. Treasury securities with a weighted average yield of 1.22%. Partially offsetting the purchases were sales of $124.6 million of securities, primarily corporate bonds and preferred securities. The unrealized loss on this portfolio was $9.5 million at June 30, 2004 compared to a net unrealized loss of $0.7 million at December 31, 2003.

At June 30, 2004, the Company had a $25.3 million net unrealized loss, net of tax, on available-for-sale investment and mortgage-related securities as compared to a net unrealized gain, net of tax, of $7.0 million at December 31, 2003.

Loans available-for-sale increased by $226.3 million to $232.3 million at June 30, 2004 compared to December 31, 2003. The increase was primarily due to an increase in multi-family loans available-for-sale as a result of the time delay between the date of origination and the date of sale to Fannie Mae, which usually occurs within seven days. The increase was also due to loans available-for-sale acquired from Staten Island.

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, 2004, the Company originated $647.0 million and sold $974.3 million of loans to Fannie Mae under this program and as a result serviced $4.24 billion of loans with a maximum potential loss exposure of $127.2 million. Multi-family loans available-for-sale at June 30, 2004 totaled $155.1 million compared to $3.2 million at December 31, 2003. Included in the $974.3 million of loans sold in the first six months of 2004 were $329.9 million of loans that were originally held in portfolio at a weighted average yield of 4.98%.

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 $56.3 million and sold $51.2 million of such loans during the six months ended June 30, 2004. Single-family residential mortgage loans available-for-sale totaled $7.6 million at June 30, 2004 compared to $2.7 million at December 31, 2003.

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

Included in the $232.3 million of loans available-for-sale at June 30, 2004 were $69.6 million of loans available-for-sale acquired from Staten Island. The Company determined to exit the operations of Staten Island Mortgage Corp., the mortgage banking subsidiary of Staten Island. The Company has reduced the balance of such loans from $298.7 million as of April 12, 2004 down to $70.0 million at June 30, 2004.

Loans, net, increased by $4.90 billion, or 80.5%, to $10.99 billion at June 30, 2004 from $6.09 billion at December 31, 2003 primarily due to $3.56 billion of loans acquired in the Staten Island acquisition. The Company continues to focus on expanding its higher yielding loan portfolios of commercial real estate,

commercial business and variable-rate mortgage warehouse lines of credit as part of its business plan. The Company is also committed to remaining a leader in the multi-family residential loan market. However, these portfolios as a percent of total loans have declined due to the increase in the size of the residential loan portfolio as a result of the Staten Island acquisition.

The Company originated for its own portfolio approximately $2.15 billion of mortgage loans during the six months ended June 30, 2004 compared to $409.2 million for the six months ended June 30, 2003. During the first three quarters of 2003, the Company placed a greater emphasis on selling the majority of the multi-family residential loans it originated due to the low interest rate environment. During the fourth quarter of 2003, as interest rates began to rise, the Company retained for portfolio 75% of the multi-family residential loans it originated as compared to 44% in the third quarter, 22% during the second quarter and 14% during the first quarter of 2003. During the first six months of 2004, as rates have been in transition, the Company has been able to maintain a balanced program of loans for portfolio and for sale to effectively manage the size of the Company’s balance sheet. As such, during the first half of 2004, the Company retained for portfolio 67% of the multi-family residential loans it originated.

Multi-family residential loans increased $767.0 million to $3.59 billion at June 30, 2004 compared to $2.82 billion at December 31, 2003. The increase was primarily due to originations for portfolio retention of $1.31 billion and $70.2 million of loans acquired from Staten Island which was partially offset by repayments of $278.5 million combined with and $329.9 million of loans sold to Fannie Mae at a weighted average yield of 4.98%. Multi-family residential loans comprised 32.4% of the total loan portfolio at June 30, 2004 compared to 45.7% at December 31, 2003.

Commercial real estate loans increased $1.02 billion or 63.3% to $2.63 billion at June 30, 2004 compared to $1.61 billion at December 31, 2003. The increase was primarily due to $742.5 million of originations and $507.9 million of loans acquired from Staten Island partially offset by $229.3 million of loan repayments. Commercial real estate loans comprised 23.7% of the total loan portfolio at June 30, 2004 compared to 26.2% at December 31, 2003.

Commercial business loans increased $275.3 million, or 45.4%, from $606.2 million at December 31, 2003 to $881.5 million at June 30, 2004. The increase was primarily due to $246.6 million of loans acquired from Staten Island and originations and advances of $138.1 million partially offset by $110.1 million of repayments and $0.4 million of charge-offs during the six months ended June 30, 2004. Commercial business loans comprised 7.9% of the total loan portfolio at June 30, 2004 compared to 9.8% at December 31, 2003.

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 $124.7 million, or 23.7%, from $527.3 million at December 31, 2003 to $652.0 million at June 30, 2004. At June 30, 2004, there were $814.7 million of unused lines of credit related to mortgage warehouse lines of credit. Mortgage warehouse lines of credit comprised 5.9% of the total loan portfolio at June 30, 2004 compared to 8.5% at December 31, 2003.

The single-family residential and cooperative apartment loan portfolio increased $2.65 billion from $284.4 million at December 31, 2003 to $2.93 billion at June 30, 2004. The increase was primarily due to $2.67 billion of loans acquired from Staten Island and $100.3 million of originations partially offset by repayments of $127.8 million. As a result, single-family and cooperative apartment loans comprised 26.4% of the total loan portfolio at June 30, 2004 compared to 4.6 % at December 31, 2003. The Company also originates and sells single-family residential mortgage loans to Cendant as previously discussed.

Non-performing assets as a percentage of total assets amounted to 0.36% at June 30, 2004 compared to 0.38% at December 31, 2003. 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 $28.3 million, or 77.3%, to $64.9 million at June 30, 2004 from $36.6 million at December 31, 2003. The increase in non-performing assets was primarily due to

$23.5 million of non-performing assets obtained from the Staten Island acquisition. Non-accrual loans were $62.4 million at June 30, 2004 and primarily consisted of $27.7 million of commercial real estate loans, $21.5 million of commercial business loans, $11.3 million of single-family residential and cooperative apartment loans and $1.3 million of multi-family residential loans.

The Company’s allowance for loan losses amounted to $105.1 million at June 30, 2004, as compared to $79.5 million at December 31, 2003. At June 30, 2004, the Company’s allowance amounted to 0.95% of total loans and 165.1% of total non-performing loans compared to 1.29% and 217.3% at December 31, 2003, respectively.

The Company’s allowance increased $25.6 million during the six months ended June 30, 2004 due to a $24.0 million allowance for loan losses acquired in the Staten Island transaction and the $2.0 million provision for loan losses, partially offset by $0.4 million in net charge-offs, or 0.005% 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. The allowance for loan losses is considered a critical accounting estimate because there is a large degree of judgment in (i) assigning individual loans to specific risk levels (pass, special mention, substandard, doubtful and loss), (ii) valuing the underlying collateral securing the loans, (iii) determining the appropriate reserve factor to be applied to specific risk levels for criticized and classified loans (special mention, substandard, doubtful and loss) and (iv) determining reserve factors to be applied to pass loans based upon loan type. To the extent that loans change risk levels, collateral values change or reserve factors change, the Company may need to adjust its provision for loan losses which would impact earnings.

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

Management believes the allowance for loan losses at June 30, 2004 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.

Effective April 1, 2001, the Company adopted SFAS No. 142, which resulted in discontinuing the amortization of goodwill. However, under the terms of SFAS No. 142, identifiable intangibles with identifiable lives continue to be amortized.

The Company’s goodwill, which aggregated $1.13 billion at June 30, 2004, resulted from the acquisitions of Staten Island, Broad and Statewide as well as the acquisition in January 1996 of Bay Ridge Bancorp, Inc. The $946.9 million increase in goodwill during the six months ended June 30, 2004 was attributable to the Staten Island acquisition. (See Notes 2 and 10).

The Company’s identifiable intangible assets increased by $76.9 million at June 30, 2004 from $0.2 million at December 31, 2003 which was primarily the a result of the recognition of a $79.7 million core deposit intangible associated with the Staten Island transaction. This was partially offset by amortization of $2.6 million related to such asset as well as $0.2 million of amortization related to fully amortizing one branch office purchase transaction effected in fiscal 1996. The core deposit intangible is being amortized on the interest method over 14 years. The amortization of identified intangible assets will continue to reduce net income until such intangible assets are fully amortized.

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, 2003. 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 while conversely, 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 the marketplace participants would use in their estimates of fair value. If that information is not available without undue cost and effort, an entity may use its own assumptions. A third method of estimating the fair value of a reporting unit, is a valuation technique based on multiples of earnings or revenue.

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

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

The Company holds BOLI policies to fund certain future employee benefit costs and to provide tax-exempt returns to the Company. The BOLI is recorded at its cash surrender value and changes in value are recorded in non-interest income. BOLI increased $137.9 million to $313.7 million at June 30, 2004 compared to $175.8 million at December 31, 2003. The increase was primarily due to $134.1 million of BOLI acquired from Staten Island.

Other assets increased $230.8 million from $267.6 million at December 31, 2003 to $498.4 million at June 30, 2004. The increase was primarily due to $306.1 million of other assets acquired from Staten Island partially offset by a $38.8 million decrease in FHLB stock.

The Company had a net deferred tax asset of $111.7 million at June 30, 2004 compared to $55.7 million at December 31, 2003. The $56.0 million increase was primarily due to $34.6 million acquired from Staten Island and an $18.2 million increase in the deferred tax asset associated with the net unrealized losses on securities available-for-sale.

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.

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.

Deposits increased $4.05 billion or 76.4% to $9.36 billion at June 30, 2004 compared to $5.30 billion at December 31, 2003. One of the primary benefits of the Staten Island acquisition was the addition of its branch franchise and the associated deposit base of $3.79 billion. The remainder of the increase was due to deposits inflows totaling $230.4 million as well as interest credited of $34.6 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 $3.20 billion, or 81.4%, to $7.12 billion at June 30, 2004 compared to $3.93 billion at December 31, 2003. Excluding the $2.66 billion of core deposits acquired in the acquisition of Staten Island, core deposits grew by $539.8 million, or 13.8%, during the six months ended June 30, 2004. This increase reflected both the continued successful implementation of the Company’s business strategy of increasing core deposits as well as the current interest rate environment. Successful continued execution of this strategy was evidenced by the increase in core deposits to 76.1% of total deposits at June 30, 2004 compared to 74.0% of total deposits at December 31, 2003.

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 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 0.56% compared to 1.68% for certificates of deposit and 2.75% for borrowings (including subordinated notes) for the six months ended June 30, 2004.

In the future, the Company may choose to use longer term certificates of deposits as part of its asset/liability strategy to match the term and duration of its longer term loan portfolio.

Borrowings (not including subordinated notes) increased $2.72 billion to $5.63 billion at June 30, 2004 compared to $2.92 billion at December 31, 2003. The increase was principally due to $2.65 billion of borrowings acquired from Staten Island.

Due to the anticipated rise in interest rates and to more closely match the anticipated duration of the Company’s loan portfolios, the Company strategically determined to increase its longer term borrowings. As a result, during the first half of 2004, the Company borrowed approximately $950.0 million of three to four year fixed-rate borrowings at a weighted average interest rate of 3.34%. The Company also borrowed $515.0 million of short-term low costing floating-rate borrowings. These borrowings generally mature within 30 days and have a weighted average interest rate of 1.41%. The Company anticipates replacing a portion of these short-term borrowings with lower costing core deposits. During the six months ended June 30, 2004, the Company also paid-off $1.47 billion of primarily short-term borrowings that matured at a weighted average interest rate of 1.54%.

The Company is managing its leverage position and had a borrowings (including subordinated notes) to asset ratio of 33.5% at June 30, 2004 and 32.1% at December 31, 2003.

Subordinated notes increased $247.4 million to $395.8 million at June 30, 2004 compared to $148.4 million at December 31, 2003. On March 22, 2004, the Bank issued $250.0 million aggregate principal amount of Notes. The Notes bear interest at a fixed rate of 3.75% 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 1.82%. Beginning on April 1, 2009 the Bank has the right to redeem the Notes at par plus accrued interest. The net proceeds of $247.4 million were used for general corporate purposes. The Notes qualify as Tier 2 capital of the Bank under the capital guidelines of the FDIC.

The Holding Company’s stockholders’ equity totaled $2.15 billion at June 30, 2004 compared to $991.1 million at December 31, 2003. The $1.16 billion increase was primarily due to $1.11 billion of shares issued in connection with the Staten Island acquisition and net income of $96.4 million. In addition, $12.0 million of the increase was related to the exercise of stock options and related tax benefit, $5.3 million related to the ESOP shares committed to be released with respect to the six months ended June 30, 2004 and $0.5 million of stock compensation costs. These increases were partially offset by a $29.3 million decrease due to dividends declared, a $31.9 million decrease in the net unrealized gain in securities available-for-sale and $1.3 million of awards and amortization of restricted stock grants.

Book value per share and tangible book value per share were $25.78 and $11.28 at June 30, 2004, respectively, compared to $18.19 and $14.79 at December 31, 2003, respectively. Return on average equity and return on average tangible equity were 12.7% and 20.7% for the six months ended June 30, 2004, respectively, compared to 14.5% and 18.1% for the six months ended June 30, 2003, respectively.

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 and 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, 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.

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


(1)	Includes loans available-for-sale.

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

Comparison of Results of Operations for the Three Months Ended June 30, 2004 and 2003

The Company reported a 13.8% increase in diluted earnings per share to $0.74 for the quarter ended June 30, 2004 compared to $0.65 for the quarter ended June 30, 2003. Net income increased $24.1 million, or 70.9% to $58.2 million for the quarter ended June 30, 2004 compared to $34.1 million for the quarter ended June 30, 2003.

On a linked quarter basis, net income increased $20.1 million, or 52.7%, from $38.1 million for the quarter ended March 31, 2004 while diluted earnings per share increased 2.8% from $0.72 for the quarter ended March 31, 2004.

The Company’s earnings growth was driven primarily by the benefit of the Staten Island acquisition, which was effective as of the close of business on April 12, 2004 as well as the continued growth in the Company’s loan portfolios and core deposit base.

Net interest income increased by $57.0 million or 77.1% to $131.0 million for the quarter ended June 30, 2004 as compared to $74.0 million for the quarter ended June 30, 2003. The increase was due to a $71.5 million increase in interest income partially offset by a $14.4 million increase in interest expense. The increase in net interest income primarily reflected a $6.87 billion increase in average interest-earning assets during the quarter ended June 30, 2004 as compared to the same period in the prior year resulting in large part from the Staten Island acquisition. This growth was partially offset by the 21 basis point decrease in net interest margin between the periods.

Purchase accounting adjustments arising from the Staten Island transaction increased net interest margin 33 basis points during the quarter ended June 30, 2004. Purchase accounting adjustments relate to recording acquired assets and liabilities at fair value and amortizing/accreting the adjustment into net interest income over the average life of the corresponding asset or liability.

For the quarter ended June 30, 2004, the Company’s net interest margin decreased 21 basis points to 3.56% compared to 3.77% for the quarter ended June 30, 2003. The average yield on interest-earning assets declined 71 basis points for the quarter ended June 30, 2004 compared to the quarter ended June 30, 2003 which was partially offset by a decline of 56 basis points in the cost of average interest-bearing liabilities.

On a linked quarter basis, net interest margin declined by 8 basis points for the quarter ended June 30, 2004 from 3.64% for the quarter ended March 31, 2004. For the quarter ended June 30, 2004, the weighted average interest rate earned on interest-earning assets declined 29 basis points compared to the quarter ended March 31, 2004. By comparison, the weighted average interest rate paid on interest-bearing liabilities declined 25 basis points compared to the quarter ended March 31, 2004. The compression in net interest margin was primarily attributable to the addition of the lower yielding Staten Island portfolios as well as new assets for portfolio retention being originated at lower yields.

Interest income increased by $71.5 million to $182.7 million for the quarter ended June 30, 2004 compared to $111.2 million for the quarter ended June 30, 2003. Interest income on loans increased $47.6 million due primarily to a higher average outstanding loan balances of $4.63 billion compared to the same quarter in the prior year partially offset by a decrease in the weighted average yield on the loan portfolio of 99 basis points to 5.47% for the quarter ended June 30, 2004 from 6.46% for the quarter ended June 30, 2003.

The $4.63 billion increase in the average balance of loans was primarily attributable to the $3.56 billion of loans acquired as a result of the Staten Island acquisition as well as internal loan growth. The Company realized average balance increases of $2.29 billion in single-family and cooperative loans, $920.8 million in multi-family residential loans, $1.01 billion in commercial real estate loans, $281.7 million in commercial business loans and $149.5 million in other loans for the three months ended June 30, 2004 compared to the three months ended June 30, 2003. Partially offsetting the increases in the average balance of loans was a decline in the average balance of mortgage warehouse lines of credit of $17.9 million due, in part, to the softening of demand for mortgage warehouse funding which began in the fourth quarter of 2003 as the refinance market began to contract and which continued during the first six months of 2004.

Income on investment securities increased $2.2 million due to an increase in the average outstanding balance of investment securities of $316.0 million, primarily due to the $469.9 million of investment securities acquired from Staten Island, partially offset by a decrease in the average yield of 96 basis points to 3.86% for the quarter ended June 30, 2004 compared to the same period in 2003.

Interest income on mortgage-related securities increased $19.9 million during the quarter ended June 30, 2004 compared to the quarter ended June 30, 2003 as a result of an $1.84 billion increase in the average balance combined with a 29 basis point increase in the yield earned from 3.77% for the quarter ended June 30, 2003 to 4.06% for the quarter ended June 30, 2004. The increase in average balance was primarily due to the acquisition of $1.62 billion of mortgage-related securities as a result of the Staten Island acquisition.

Income on other interest-earning assets decreased $0.2 million in the current quarter compared to the prior year quarter primarily due to a decrease in the dividends received on FHLB stock of $0.3 million. As of June 30, 2004, the Company had $207.2 million of FHLB stock. The FHLB of New York decreased the amount of dividends paid to its stockholders in the first six months of 2004 compared to the first six months of 2003. The FHLB of New York did not pay a dividend in the fourth quarter of 2003.

Interest expense increased $14.4 million or 38.7% to $51.7 million for the quarter ended June 30, 2004 as compared to the quarter ended June 30, 2003. This increase primarily reflected a $3.82 billion increase in the average balance of deposits which was partially offset by a 26 basis point decrease in the average rate paid on deposits to 0.78% for the quarter ended June 30, 2004 compared to 1.04% for the quarter ended June 30, 2003. The increase in average balance was the result of the $3.79 billion of deposits acquired from Staten Island and, to a lesser degree, the continued deposit growth through the de novo branch expansion program.

The average balance of core deposits increased $3.14 billion or 85.8%, to $6.80 billion for the quarter ended June 30, 2004 compared to $3.66 billion for the quarter ended June 30, 2003. Core deposits are defined as all deposits other than certificates of deposit. Lower costing core deposits represented approximately 76.1% of total deposits at June 30, 2004 compared to 71.1% at June 30, 2003. This increase reflects the $2.66 billion of core deposits acquired from Staten Island as well as the success of the Company’s strategy of lowering its overall cost of funds while emphasizing the expansion of its commercial and consumer relationships.

Interest expense on borrowings increased $6.4 million due to an increase of $2.70 billion in the average balance of borrowings (excluding subordinated notes) which was partially offset by a decline in the average rate paid on such borrowings of 178 basis points from 4.23% in the quarter ended June 30, 2003 to 2.45% in the quarter ended June 30, 2004. The increase in average balance was primarily due to the $2.65 billion of borrowings assumed in the Staten Island acquisition. The Company utilized borrowings as a funding source pending replacement of a portion of such funding with core deposits. During 2004, the Company borrowed $950.0 million of longer term fixed-rate borrowings and $515.0 million of short-term low costing floating-rate borrowings, and invested the funds primarily in multi-family mortgage and commercial real estate loans. During the six months ended June 30, 2004, the Company repaid $1.47 billion of short-term borrowings.

Interest expense on subordinated notes was $4.0 million during the quarter ended June 30, 2004. The Bank issued $250.0 million aggregate principal amount of Notes (as previously discussed) on March 22, 2004 and issued $150.0 million in 3.5% Fixed Rate/ Floating Rate Subordinated Notes Due 2013 at the end of the second quarter of 2003.

The Company continues to emphasize asset quality as a key component to achieving consistent earnings. The Company’s provision for loan losses increased $0.5 million for the quarter ended June 30, 2004 compared to the quarter ended June 30, 2003. Based on the continued growth in the Company’s commercial real estate and business loan portfolios, the Company recorded a $2.0 million provision for loan losses in the second quarter of 2004.

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.

Non-performing assets as a percentage of total assets was 36 basis points at June 30, 2004 compared to 55 basis points at June 30, 2003. Non-performing assets increased $15.2 million or 30.6% to $64.9 million at June 30, 2004 compared to $49.7 million at June 30, 2003. Included in non-performing assets at June 30, 2004 were $23.5 million of non-performing assets obtained from the Staten Island acquisition. The increase was primarily due to an increase of $13.2 million in non-accrual loans, a $0.8 million increase in loans that are contractually past due 90 days or more as to maturity although current as to monthly principal and interest payments and a $1.2 million increase in other real estate owned. The $13.2 million increase in non-accrual loans was primarily due to increases of $8.9 million in single-family residential and cooperative loans and $4.3 million in commercial real estate loans. The Company’s allowance for loan losses to total loans amounted to 0.95% and 1.41% of total loans at June 30, 2004 and June 30, 2003, respectively.

The Company continues to stress and emphasize the development of fee-based income throughout its operations. As a result of a variety of initiatives, including the acquisition of Staten Island, the Company experienced a $7.4 million, or 26.5% increase in non-interest income, from $27.9 million for the quarter ended June 30, 2003 to $35.3 million for quarter ended June 30, 2004.

The Company recorded losses on sales of loans and securities of $2.1 million primarily from the sales of $107.2 million of securities during the quarter ended June 30, 2004, compared to a gain of $61,000 for the 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, 2004, revenue from the Company’s mortgage-banking business amounted to $13.3 million compared to $7.0 million in the quarter ended June 30, 2003. The Company originates multi-family residential loans for sale 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, 2004, the Company’s maximum potential exposure related to secondary market sales to Fannie Mae under this program was $127.2 million. The Company also has a program with Cendant to originate and sell single-family residential mortgage loans and servicing in the secondary market. See Note 6 to Notes to Consolidated Financial Statements included herein.

As a result of the interest rate environment in effect during the first three quarters of 2003, and as part of the Company’s business model, the majority of the multi-family residential loans the Company originated during 2003 were sold in the secondary market to Fannie Mae. During the fourth quarter of 2003, as interest rates began to rise, the Company retained the majority of the multi-family residential loans it originated for portfolio retention. The Company sold multi-family residential mortgage loans totaling $729.5 million during the quarter ended June 30, 2004 compared to $496.0 million during the quarter ended June 30, 2003. Included in the $729.5 million of loans sold in the second quarter of 2004 were $213.3 million of loans that were originally held in portfolio. On a linked quarter basis, the Company sold $244.8 million of multi-family residential mortgage loans to Fannie Mae in the quarter ended March 31, 2004. In addition, the Company sold $29.2 million of single-family residential loans during the quarter ended June 30, 2004 compared to $41.5 million during the quarter ended June 30, 2003.

Mortgage-banking activities for the quarter ended June 30, 2004 reflected $12.9 million in gains, $1.7 million in servicing fees and $0.4 million of origination fees partially offset by $1.9 million of amortization of servicing assets. Included in the $12.9 million of gains were $1.2 million of provisions recorded related to the retained credit exposure on multi-family residential loans sold to Fannie Mae. This category also included a $20.8 million increase in the fair value of loan commitments for loans originated for sale and a $20.8 million decrease in the fair value of forward loan sale agreements which were entered into with respect to the sale of such loans. The $6.2 million increase in revenue from mortgage-banking activities for the quarter ended June 30, 2004 compared to the prior year quarter was primarily due to an increase in the gain on sales of loans to Fannie Mae of $7.4 million combined with a $1.2 million increase in service fees partially offset by a $2.0 million decrease in origination fees and $0.4 million increase in amortization of servicing rights. The

Service fee income increased by $0.7 million, or 3.8% for the quarter ended June 30, 2004 compared to the quarter ended June 30, 2003. The increase in service fee income was primarily due to additional fee income generated by the Staten Island branch network which was partially offset by a decrease in prepayment and modification fees on loans due to the decline in refinancing activity.

Prepayment and modification fees are effectively a partial offset to the decreases realized in net interest margin. Prepayment fees decreased $2.5 million to $3.6 million for the quarter ended June 30, 2004 compared to $6.1 million for the quarter ended June 30, 2003. Modification and extension fees decreased $0.8 million to $1.0 million for the quarter ended June 30, 2004 compared to $1.8 million for the quarter ended June 30, 2003. On a linked quarter basis, the total of these combined fees increased by $0.3 million from $4.3 million for the quarter ended March 31, 2004 compared to $4.6 million for the quarter ended June 30, 2004.

Another component of service fees are revenues generated from the branch system which increased by $3.2 million, or 36.8%, to $12.0 million for the quarter ended June 30, 2004 compared to the quarter ended June 30, 2003. The increase was primarily due to additional fee income generated by the Staten Island branch network.

In addition, the Company also recorded an increase for the quarter ended June 30, 2004 of approximately $1.5 million in the cash surrender value of BOLI compared to the quarter ended June 30, 2003. On a linked quarter basis, income related to BOLI increased by $1.0 million to $3.7 million for the quarter ended June 30, 2004 as compared to the quarter ended March 31, 2004. The increase in both comparisons was also due to the Staten Island acquisition.

Other non-interest income increased $1.2 million to $2.1 million for the three months ended June 30, 2004 compared to $0.9 million for the three months ended June 30, 2003. The increase was primarily attributable to increased income from the Company’s equity investment in Meridian Capital of $1.0 million.

Non-interest expense increased $25.3 million, or 53.4%, to $72.7 million for the quarter ended June 30, 2004 compared to the quarter ended June 30, 2003. This increase was attributable to increases of $7.9 million in compensation and employee benefits, $5.1 million in occupancy costs, $2.7 million of data processing fees, $0.7 million in advertising costs, $2.5 million in the amortization of identifiable intangible assets and $6.4 million in other expenses.

Total compensation and benefits expense increased $7.9 million or 29.4% to $34.6 million for the quarter ended June 30, 2004 as compared to $26.7 million for the same period in the prior year. This increase was comprised of increases in salaries of $6.9 million, $0.5 million in management incentive expenses, ESOP costs of $0.5 million, $0.8 million in FICA and $0.5 million in medical insurance costs. Partially offsetting these increases were lower Recognition Plan costs of $1.3 million. The increase in compensation and benefit expense in the 2004 period was primarily attributable to staff additions relating to the Staten Island acquisition as well as the expansion of the Company’s commercial and retail lending operations during the past year.

Occupancy costs increased $5.1 million, or 84.5%, to $11.2 million for the quarter ended June 30, 2004 as compared to the quarter ended June 30, 2003. Data processing fees increased $2.7 million to $5.3 million for the quarter ended June 30, 2004 as compared to $2.6 million for the quarter ended June 30, 2003. The increase in both occupancy and data processing fees was a direct result of operating the expanded branch franchise resulting from the Staten Island acquisition and the increased number of branch facilities resulting from the continuation of the Bank’s de novo branch expansion program as well as the expansion of the commercial real estate lending activities to the Baltimore-Washington and Florida markets through the establishment of loan production offices in these areas.

Advertising expenses increased by $0.7 million from $1.7 million in the quarter ended June 30, 2003 to $2.4 million in the quarter ended June 30, 2004. The cost reflects the Company’s continued focus on brand

Amortization of identifiable intangible assets increased by $2.5 million to $2.6 million for the quarter ended June 30, 2004 compared to the quarter ended June 30, 2003. The increase was primarily due to the amortization of the $79.7 million core deposit intangible associated with the Staten Island transaction. The core deposit intangible is being amortized on the interest method over 14 years.

Other non-interest expenses increased $6.4 million to $16.5 million from $10.1 million for the quarter ended June 30, 2004 compared to the same period in the prior year. The increase was primarily due to additional expenses associated with the expansion of operations resulting from the acquisition of Staten Island. 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.

On a linked quarter basis, non-interest expense increased $23.1 million to $72.7 million for the quarter ended June 30, 2004 from $49.6 million for the quarter ended March 31, 2004. The increase was due to increases of $7.6 million in compensation and benefits expense, $3.3 million in occupancy costs, $2.2 million in data processing costs, $0.6 million in advertising costs, $7.0 million in other non-interest expenses and $2.5 million in amortization of intangible assets. Increases in non-interest expense are attributable to operating the expanded franchise resulting from the Staten Island acquisition.

Overall, the Company expects certain expenses in compensation and employee benefits and data processing costs to decrease over the next two quarters because the integration process was completed during the early part of the third quarter of 2004 and transitional Staten Island employees will complete their term of temporary employment.

Although the Company experienced an increase in non-interest expense, the efficiency ratio improved to 41.6% for the second quarter of 2004 compared with 46.6% for the first quarter of 2004 resulting primarily from the cost reductions associated with the integration of Staten Island. The efficiency ratio, which is defined as adjusted operating expense (excluding amortization of identifiable assets) as a percent of the aggregate of net interest income and adjusted non-interest income (excluding gains and losses in the sales of loans and securities), measures the relationship of operating expenses to revenues. Amortization of identifiable intangible assets is excluded from the calculation since it is a non-cash expense and gains and losses on the sales of loans and securities are excluded since they are generally considered by the Company’s management to be non-recurring in nature. The operating efficiency ratio is not a financial measurement required by generally accepted accounting principles in the United States of America. However, the Company believes such information is useful to investors in evaluating the Company’s operations.

Compliance with changing regulation of corporate governance and public disclosure has resulted in additional expenses. Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and recently adopted 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 resulting in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

Income tax expense amounted to $33.4 million and $19.0 million for the quarter ended June 30, 2004 and 2003, respectively. The increase recorded in the 2004 period reflected the $38.6 million increase in the Company’s income before provision for income taxes as well as an increase in the effective tax rate to 36.5% for the quarter ended June 30, 2004 compared to 35.7% for the prior year quarter. As of June 30, 2004, the Company had a net deferred tax asset of $111.7 million compared to $65.3 million at June 30, 2003. The increase in deferred tax assets was primarily due to the Staten Island acquisition and the increased net unrealized losses on securities available-for-sale.

Comparison of Results of Operations for the Six Months Ended June 30, 2004 and 2003

The Company reported a 15.7% increase in diluted earnings per share to $1.47 for the six months ended June 30, 2004 compared to $1.27 for the six months ended June 30, 2003. Net income increased $29.3 million or 43.7% to $96.4 million for the six months ended June 30, 2004 compared to $67.1 million for the six months ended June 30, 2003.

Net interest income increased by $65.5 million or 44.6% to $212.5 million for the six months ended June 30, 2004 as compared to $147.0 million for the six months ended June 30, 2003. The increase was due to a $78.4 million increase in interest income partially offset by a $12.9 million increase in interest expense. The increase in net interest income primarily reflects the $4.25 billion increase in average interest-earning assets during the six months ended June 30, 2004, as compared to the same period in the prior year, resulting in large part from the Staten Island acquisition, partially offset by the 28 basis point decrease in net interest margin.

The Company’s net interest margin decreased 28 basis points to 3.59% for the six months ended June 30, 2004 compared to 3.87% for the six months ended June 30, 2003. Purchase accounting adjustments contributed 20 basis points to net interest margin during the six months ended June 30, 2004. The average yield on interest-earning assets declined 78 basis points for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 which was partially offset by a decline of 55 basis points in the cost of average interest-bearing liabilities.

The compression in net interest margin was primarily attributable to the addition of the lower yielding Staten Island portfolios as well as new assets for portfolio retention being originated at lower yields.

Interest income increased by $78.4 million to $300.3 million for the six months ended June 30, 2004 compared to $221.9 million for the six months ended June 30, 2003. Interest income on loans increased $45.7 million due primarily to higher average outstanding loan balances of $2.64 billion compared to the prior year. Partially offsetting the increase in average balance was a decrease in the yield on the average loan portfolio of 97 basis points to 5.59% from 6.56% for the six months ended June 30, 2004 and June 30, 2003, respectively.

The increase in the average balance of loans was primarily attributable to the $3.56 billion of loans acquired as a result of the Staten Island acquisition as well as internal loan growth. The Company realized average balance increases of $1.02 billion in the single-family and cooperative loan portfolios, $714.9 million in the multi-family residential mortgage loan portfolio, $707.4 million in the commercial real estate portfolio and $156.1 million in the commercial business loan portfolio. However, partially offsetting such growth was the $88.6 million decline in the average balance of mortgage warehouse lines of credit, in part, due to the softening of demand for warehouse funding which began in the fourth quarter of 2003 as the refinance market began to contract.

Income on investment securities increased $3.1 million due to an increase in the average outstanding balance of investment securities of $191.2 million, primarily due to securities acquired from Staten Island, partially offset by a decline in the average yield of 56 basis points to 4.08% from 4.64% for the six months ended June 30, 2004 compared to the same period in the prior year.

Interest income on mortgage-related securities increased $30.6 million during the six months ended June 30, 2004 compared to the six months ended June 30, 2003 as a result of a $1.43 billion increase in the average balance of such assets, primarily due to securities acquired from Staten Island, combined with a 14 basis point increase in the yield earned from 3.99% for the six months ended June 30, 2003 to 4.13% for the six months ended June 30, 2004.

Income on other interest-earning assets decreased $1.7 million in the current six-month period compared to the prior year period primarily due to a $1.3 million decrease in dividends received on FHLB stock held by the Company.

Interest expense increased $12.9 million or 17.2% to $87.8 million for the six months ended June 30, 2004 as compared to the six months ended June 30, 2003. This increase primarily reflects a $2.13 billion increase in the average balance of deposits. The increase in average balance was primarily the result of the $3.79 billion of deposits assumed in connection with the acquisition of Staten Island as well as the continued deposit growth through de novo branches. The average balance of core deposits increased $1.90 billion, or 53.5%, to $5.45 billion for the six months ended June 30, 2004 compared to $3.55 billion for the six months ended June 30, 2003, which was partially offset by a 28 basis point decrease in the average rate paid on deposits to 0.84% for the six months ended June 30, 2004 compared to 1.12% for the six months ended June 30, 2003. Lower costing core deposits represented approximately 76.1% of total deposits at June 30, 2004 compared to 71.1% at June 30, 2003. This increase reflects the $2.66 billion of core deposits acquired from Staten Island as well as 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 (excluding subordinated notes) increased $5.6 million due to an increase of $1.83 billion in the average balance of borrowings partially offset by a decline in the average rate paid on such borrowings of 180 basis points from 4.47% in the six months ended June 30, 2003 to 2.67% in the six months ended June 30, 2004. The increase in the average balance was the result of the $2.65 billion of borrowings assumed in the Staten Island transaction. During the first half of 2004, the Company borrowed $515.0 million of short-term low costing floating-rate FHLB borrowings and $950.0 million of longer term fixed-rate borrowings which were partially offset by repayments of $1.47 billion of borrowings that matured in 2004. The funds were invested primarily in multi-family and commercial real estate loans. The Company anticipates replacing a portion of these short-term borrowings with lower costing core deposits.

Interest expense on subordinated notes was $5.7 million during the six months ended June 30, 2004. The Bank issued $250.0 million aggregate principal amount of Notes (as previously discussed) on March 22, 2004 and also issued $150.0 million in 3.5% Fixed Rate/ Floating Rate Subordinated Notes Due 2013 at the end of the second quarter of 2003.

The Company’s provision for loan losses decreased $1.5 million to $2.0 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003. The decrease was primarily due to the improved quality in the characteristics of the loan portfolio.

The Company experienced a $8.6 million or 15.9% increase in non-interest income, from $54.2 million for the six months ended June 30, 2003 to $62.8 million for six months ended June 30, 2004.

The Company recorded net gains on sales of loans and securities of $0.7 million primarily on the sales of $186.3 million of securities during the six months ended June 30, 2004, compared to a gain of $88,000 for the six months ended June 30, 2003.

In the six months ended June 30, 2004, revenue from the Company’s mortgage-banking business amounted to $17.8 million compared to $15.7 million in the six months ended June 30, 2003. The Company sells multi-family residential loans (both loans originated for sale and from portfolio) in the secondary market to Fannie Mae with the Company retaining servicing on all loans sold. See Note 6 hereof.

The Company sold multi-family residential mortgage loans totaling $974.3 million during the six months ended June 30, 2004 compared to $1.07 billion during the six months ended June 30, 2003. In addition, the Company sold $51.2 million of single-family residential loans during the six months ended June 30, 2004 compared to $77.7 million during the six months ended June 30, 2003.

Mortgage-banking activities for the six months ended June 30, 2004 reflected $16.9 million in gains, $1.0 million of origination fees and $3.0 million in servicing fees partially offset by $3.1 million of amortization of servicing assets. Included in the $16.9 million of gains were $1.6 million of provisions recorded related to the retained credit exposure on multi-family residential loans sold. This category also included a $3.6 million increase in the fair value of loan commitments for loans originated for sale and a $3.6 million decrease in the fair value of forward loan sale agreements which were entered into with respect to the sale of such loans. The $2.1 million increase in revenue from mortgage-banking activities for the six months ended June 30, 2004 compared to the six months in the prior year was primarily due to an aggregate increase in the gain on sales of loans to Fannie Mae and Cendant of $5.5 million combined with a $2.0 million increase in servicing fees partially offset by a $5.1 million decrease in origination fees.

Service fee income decreased by $0.4 million, or 1.3% for the six months ended June 30, 2004 compared to the six months ended June 30, 2003. Included in service fee income are prepayment and modification fees on loans which are a partial offset to the decreases realized in net interest margin. Prepayment and modification and extension fees decreased $4.0 million to $8.9 million for the six months ended June 30, 2004 compared to $12.9 million for the six months ended June 30, 2003.

Another component of service fees are revenues generated from the branch system which grew by $2.9 million, or 16.9%, to $20.0 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003. The increase was primarily due to additional fee income generated by the Staten Island branch network and the continuation of the de novo branch expansion program.

In addition, the Company also recorded an increase for the six months ended June 30, 2004 of approximately $1.9 million in the cash surrender value of BOLI compared to the six months ended June 30, 2003. The increase is due to the $134.1 million of BOLI acquired from Staten Island.

Other non-interest income increased $4.4 million to $5.9 million for the six months ended June 30, 2004 compared to $1.5 million for the six months ended June 30, 2003. The increase was primarily attributable to income from the Company’s equity investment in Meridian Capital of $3.5 million combined with a tax refund of $0.6 million related to the Company’s acquisition of Statewide in January 2000.

Non-interest expense increased $28.9 million, or 31.0%, to $122.2 million for the six months ended June 30, 2004 compared to $93.3 million for the six months ended June 30, 2003. This increase was attributable to increases of $11.1 million in compensation and employee benefits, $7.1 million in occupancy costs, $5.5 million in other non-interest expense, $3.3 million in data processing costs, $1.2 million in amortization of identifiable intangible assets and $0.8 million in advertising costs.

Compensation and employee benefits expense increased $11.1 million or 21.8% to $61.6 million for the six months ended June 30, 2004 as compared to $50.5 million for the same period in the prior year. The increase in compensation and benefits expense for the comparable periods was primarily attributable to staff additions relating to the Staten Island acquisition as well as the 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 $9.0 million in compensation expenses, $1.4 million in management incentive expenses, $1.3 million in ESOP expense, $1.0 million in FICA, $0.5 million in stock-related benefit plan costs. Partially offsetting these increases were lower Recognition Plan costs of $2.9 million.

Occupancy costs increased $7.1 million for the six months ended June 30, 2004 compared with the six months ended June 30, 2003. Data processing fees increased $3.3 million to $8.4 million for the six months ended June 30, 2004 as compared to the same period in the prior year. The increase in both occupancy and data processing fees was due to of operating the expanded branch franchise resulting from the Staten Island acquisition combined with the increased number of branch facilities resulting from the continuation of the de novo branch expansion program as well as the expansion of the commercial real estate lending activities to the Baltimore-Washington and Florida markets through the establishment of loan production offices in these areas.

Other non-interest expenses increased $5.5 million to $26.1 million for the six months ended June 30, 2004 compared to $20.6 million for 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. Increases in non-interest expense are primarily attributable to operating the expanded franchise resulting from the Staten Island acquisition. The Company expects certain expenses in compensation and employee benefits and data processing fees to decrease over the next two quarters because the data processing conversion of Staten Island Systems was completed during the early part of the third quarter of 2004 and transitional Staten Island employees will complete their term of temporary employment.

Although the Company experienced an increase in non-interest expense, the efficiency ratio improved to 43.5% for the six months ended June 30, 2004 compared to 45.6% for the six months ended June 30, 2003 resulting primarily from the cost reductions associated with the integration of Staten Island.

Amortization of identifiable intangible assets increased by $1.2 million to $2.7 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003. The increase was due to the amortization of the $79.7 million core deposit intangible associated with the Staten Island transaction which was partially offset by the intangible assets from a branch purchase transaction effected in fiscal 1996 being fully amortized during the three months ended March 31, 2003.

Advertising expenses increased by $0.8 million from $4.3 million in the six months ended June 30, 2003 to $3.5 million in the six months ended June 30, 2004.

Income tax expense amounted to $54.7 million and $37.3 million for the six months ended June 30, 2004 and 2003, respectively. The increase recorded in the 2004 period reflected the $46.7 million increase in the Company’s income before provision for income taxes accompanied with an increase in the Company’s effective tax rate for the six months ended June 30, 2004 to 36.2% compared to 35.7% for the six months ended June 30, 2003. As of June 30, 2004, the Company had a net deferred tax asset of $111.7 million compared to $65.3 million at June 30, 2003.

The following table sets forth the Bank’s compliance with applicable regulatory capital requirements at June 30, 2004.

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 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 has increased its use of borrowings. The Company’s total borrowings (including subordinated notes) were $6.02 billion at June 30, 2004 as compared to $3.06 billion at December 31, 2003. The $2.96 billion increase in borrowings was primarily due to the $2.65 billion of borrowings assumed in the Staten Island acquisition as well as the $250.0 million subordinated notes issued by the Bank at the end of the first quarter of 2004. At June 30, 2004, the Company had the ability to borrow from the FHLB an additional $616.2 million on a secured basis, utilizing mortgage 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 scheduled to mature in one year or less at June 30, 2004 totaled $1.60 billion or 71.0% 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.

The notional principal amount of the off-balance sheet financial instruments at June 30, 2004 and December 31, 2003 are as follows:

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 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 Chief Financial Officer, and includes the Chief Executive Officer, the 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, but are not limited to, (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 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 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, 2004, the Company had $212.6 million of loan commitments outstanding related to loans being originated for sale. Of such amount, $137.3 million related to loan commitments for which the borrowers had not entered into interest rate locks and $75.3 million which were subject to interest rate locks. At June 30, 2004, the Company had $75.3 million of forward loan sale agreements. The fair market value of the loan commitments with interest rate lock was a gain of $0.8 million and the fair market value of the related forward loan sale agreements was a loss of $0.8 million at June 30, 2004.

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

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

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.

Based on the information and assumptions in effect at June 30, 2004, the model shows that a 200 basis point gradual increase in interest rates over the next twelve months would decrease net interest income by $13.5 million or 2.7%, while a 100 basis point gradual decrease in interest rates would decrease net interest income by $3.9 million or 0.8%.

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, 2004, the Company’s one-year cumulative gap position was a negative 0.84% compared to a negative 2.24% at December 31, 2003. A positive gap will generally result in 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 net interest margin.

The following gap analysis table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at June 30, 2004, 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, however, is an incomplete representation of interest rate risk and has certain limitations. The gap analysis sets forth an approximation of the projected repricing of assets and liabilities at June 30, 2004 on the basis of contractual maturities, anticipated prepayments, callable features and scheduled rate adjustments for selected time periods. The actual duration of mortgage loans and mortgage-backed securities can be significantly affected by changes in mortgage prepayment activity. The major factors affecting mortgage prepayment rates are prevailing interest rates and related mortgage refinancing opportunities. Prepayment rates will also vary due to a number of other factors, including the regional economy in the area where underlying collateral is located, seasonal factors and demographic variables.

In addition, the gap analysis does not account for the effect of general interest rate movements on the Company’s net interest income because the actual repricing dates of various assets and liabilities will differ from the Company’s estimates and it does not give consideration to the yields and costs of the assets and liabilities or the projected yields and costs to replace or retain those assets and liabilities. Callable features of certain assets and liabilities, in addition to the foregoing, may also cause actual experience to vary from that indicated. The uncertainty and volatility of interest rates, economic conditions and other markets which affect

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 these assumed decay rates will approximate actual future deposit withdrawal activity.

The following table reflects the repricing of the balance sheet, or “gap” position at June 30, 2004.


(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.

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) or 15d-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.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

The following table contains information about our purchases of equity securities during the second quarter of 2004.

On July 24, 2003 the Company announced that its Board of Directors authorized the eleventh stock repurchase plan for up to three million shares of the Company’s outstanding common shares. Since that announcement, the Company has purchased 209,671 shares for an aggregate cost of $6.9 million at an average price per share of $32.82.


	(a)	The Company held its Annual Meeting of Stockholders on June 24, 2004. Proxies were solicited with respect to such meeting under Regulation 14A of the Securities Exchange Act of 1934 pursuant to proxy materials dated May 18, 2004. Of the 83,465,014 shares eligible to vote at the meeting, 65,321,385 were represented in person or by proxy.

	(b)	There was no solicitation in opposition to the Board’s nominees for director. Five nominees were elected for a three-year term expiring in 2007, one nominee was elected for a two-year term expiring in 2006 and two nominees were elected for a one-year term expiring in 2005.


	(c)	Two additional proposals were submitted for a vote, with the following result:

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.


Delaware		11-3387931
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
195 Montague Street, Brooklyn, New York		11201
(Address of principal executive office)		(Zip Code)


			Page

Part I Financial Information
	Item 1	Financial Statements
		Consolidated Statements of Financial Condition as of June 30, 2004 (unaudited) and December 31, 2003		2
		Consolidated Statements of Income for the three and six months ended June 30, 2004 and 2003 (unaudited)		3
		Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2004 and 2003 (unaudited)		4
		Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003 (unaudited)		5
		Notes to Consolidated Financial Statements (unaudited)		6
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		31
	Item 3	Quantitative and Qualitative Disclosures About Market Risk		50
	Item 4	Controls and Procedures		53
Part II Other Information
	Item 1	Legal Proceedings		54
	Item 2	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities		54
	Item 3	Defaults upon Senior Securities		54
	Item 4	Submission of Matters to a Vote of Security Holders		54
	Item 5	Other Information		55
	Item 6	Exhibits and Reports on Form 8-K		55
Signatures				56
CERTIFICATION
CERTIFICATION
CERTIFICATION
CERTIFICATION


			June 30,			December 31,
			2004			2003

			(Unaudited)			(Audited)
ASSETS:
Cash and due from banks — interest-bearing			$	89,409		$	43,950
Cash and due from banks — non-interest-bearing				317,990			128,078

		Total cash and cash equivalents		407,399			172,028

Securities available-for-sale:
	Investment securities ($15,993 and $14,593 pledged to creditors, respectively)			655,349			296,945
	Mortgage-related securities ($2,874,465 and $1,872,549 pledged to creditors, respectively)			3,492,192			2,211,755

		Total securities available-for-sale		4,147,541			2,508,700

Loans available-for-sale				232,255			5,922

Mortgage loans on real estate				9,144,891			4,714,388
Other loans				1,955,082			1,457,843

		Total loans		11,099,973			6,172,231
		Less: allowance for possible loan losses		(105,141	)		(79,503	)

		Total loans, net		10,994,832			6,092,728

Premises, furniture and equipment, net				150,247			101,383
Accrued interest receivable				64,072			37,046
Goodwill				1,132,075			185,161
Identifiable intangible assets, net				77,140			190
Bank owned life insurance (“BOLI”)				313,734			175,800
Other assets				498,459			267,649

		Total assets	$	18,017,754		$	9,546,607

LIABILITIES AND STOCKHOLDERS’ EQUITY:
Deposits
	Savings deposits		$	2,791,746		$	1,613,161
	Money market deposits			1,344,872			401,024
	Active management accounts (“AMA”) deposits			451,886			475,647
	Interest-bearing demand deposits			1,006,505			694,102
	Non-interest-bearing demand deposits			1,526,459			741,261
	Certificates of deposit			2,233,648			1,378,902

		Total deposits		9,355,116			5,304,097

Borrowings				5,633,320			2,916,300
Subordinated notes				395,867			148,429
Escrow and other deposits				214,640			76,260
Accrued expenses and other liabilities				269,204			110,410

		Total liabilities		15,868,147			8,555,496

Stockholders’ equity:
	Common stock, $.01 par value: 125,000,000 shares authorized at June 30, 2004 and December 31, 2003, 104,243,820 and 76,043,750 shares issued at June 30, 2004 and December 31, 2003, respectively; 83,391,820 and 54,475,715 shares outstanding at June 30, 2004 and December 31, 2003, respectively			1,042			760
	Additional paid-in-capital			1,874,021			761,880
	Treasury stock at cost: 20,852,000 and 21,568,035 shares at June 30, 2004 and December 31, 2003, respectively			(368,125	)		(380,088	)
	Unallocated common stock held by ESOP			(66,739	)		(69,211	)
	Unvested restricted stock awards under stock benefit plans			(10,696	)		(7,598	)
	Retained earnings, partially restricted			745,410			678,353
	Accumulated other comprehensive (loss) income:
		Net unrealized (loss) gain on securities available-for-sale, net of tax		(25,306	)		7,015

		Total stockholders’ equity		2,149,607			991,111

		Total liabilities and stockholders’ equity	$	18,017,754		$	9,546,607



		Three Months Ended					Six Months Ended
		June 30,					June 30,

		2004			2003		2004		2003

INTEREST INCOME:
Mortgage loans on real estate		$	110,999		$	68,362	$	183,123	$	140,874
Other loans			24,900			19,972		43,330		39,859
Loans available-for-sale			3,421			1,446		3,604		2,952
Investment securities			6,248			4,003		9,709		6,595
Mortgage-related securities			35,699			15,789		58,548		27,979
Other			1,456			1,673		2,024		3,682

	Total interest income		182,723			111,245		300,338		221,941

INTEREST EXPENSE:
Deposits			17,534			13,370		30,060		28,360
Borrowings			30,164			23,739		52,054		46,420
Subordinated notes			4,020			170		5,710		170

	Total interest expense		51,718			37,279		87,824		74,950

Net interest income			131,005			73,966		212,514		146,991
Provision for loan losses			2,000			1,500		2,000		3,500

	Net interest income after provision for loan losses		129,005			72,466		210,514		143,491
NON-INTEREST INCOME:
Net (loss) gain on sales of loans and securities			(2,121	)		61		744		88
Mortgage-banking activities			13,266			7,039		17,758		15,688
Service fees			18,481			17,811		32,076		32,492
BOLI			3,666			2,173		6,302		4,370
Other			2,051			853		5,916		1,536

	Total non-interest income		35,343			27,937		62,796		54,174

NON-INTEREST EXPENSE:
Compensation and employee benefits			34,590			26,728		61,565		50,547
Occupancy costs			11,186			6,062		19,119		11,992
Data processing fees			5,312			2,580		8,443		5,160
Advertising			2,444			1,743		4,291		3,463
Amortization of identifiable intangible assets			2,602			143		2,745		1,570
Other			16,519			10,091		26,086		20,566

	Total non-interest expense		72,653			47,347		122,249		93,298

Income before provision for income taxes			91,695			53,056		151,061		104,367
Provision for income taxes			33,447			18,967		54,670		37,310

	Net income	$	58,248		$	34,089	$	96,391	$	67,057

Basic earnings per share		$	0.77		$	0.68	$	1.53	$	1.33

Diluted earnings per share		$	0.74		$	0.65	$	1.47	$	1.27


														Unearned
											Unallocated			Common						Accumulated
					Additional						Common			Stock Held by						Other
					Paid-in						Stock Held			Recognition			Retained			Comprehensive
			Common Stock		Capital			Treasury Stock			by ESOP			Plan			Earnings			Income/(Loss)			Total

Balance — December 31, 2003			$	760	$	761,880		$	(380,088	)	$	(69,211	)	$	(7,598	)	$	678,353		$	7,015		$	991,111
Comprehensive income:
	Net income for the six months ended June 30, 2004			—		—			—			—			—			96,391			—			96,391
	Other comprehensive income, net of tax benefit of $14.4 million
		Change in net unrealized gains on securities available- for-sale, net of tax of $17.1 million		—		—			—			—			—			—			(34,493	)		(34,493	)
		Less: reclassification adjustment of net losses realized in net income, net of tax		—		—			—			—			—			—			2,172			2,172

Comprehensive income				—		—			—			—			—			96,391			(32,321	)		64,070
Treasury stock issued for options exercised and director fees (716,035 shares)				—		65			11,963			—			—			—			—			12,028
Common stock issued in connection with Staten Island Bancorp, Inc. acquisition (28,200,070 shares)				282		1,106,853			—			—			—			—			—			1,107,135
Dividends declared				—		—			—			—			—			(29,334	)		—			(29,334	)
Stock compensation expense				—		543			—			—			—			—			—			543
ESOP shares committed to be released				—		2,846			—			2,472			—			—			—			5,318
Issuance of grants and amortization of earned portion of restricted stock awards				—		1,834			—			—			(3,098	)		—			—			(1,264	)

Balance — June 30, 2004			$	1,042	$	1,874,021		$	(368,125	)	$	(66,739	)	$	(10,696	)	$	745,410		$	(25,306	)	$	2,149,607

Balance — December 31, 2002			$	760	$	742,006		$	(318,182	)	$	(74,154	)	$	(11,782	)	$	575,927		$	5,693		$	920,268
Comprehensive income:
	Net income for the six months ended June 30, 2003			—		—			—			—			—			67,057			—			67,057
	Other comprehensive income, net of tax of $3.7 million
		Change in net unrealized losses on cash flow hedges, net of tax of $1.8 million		—		—			—			—			—			—			(4,959	)		(4,959	)
		Change in net unrealized gains on securities available- for-sale, net of tax of $1.9 million		—		—			—			—			—			—			5,217			5,217

Comprehensive income				—		—			—			—			—			67,057			258			67,315
Repurchase of common stock (1,893,000 shares)				—		—			(49,618	)		—			—			—			—			(49,618	)
Treasury stock issued for options exercised and director fees (371,142 shares)				—		(101	)		5,477			—			—			—			—			5,376
Dividends declared				—		—			—			—			—			(15,917	)		—			(15,917	)
Stock compensation expense				—		4			—			—			—			—			—			4
ESOP shares committed to be released				—		1,270			—			2,472			—			—			—			3,742
Amortization of earned portion of restricted stock awards				—		1,475			—			—			3,686			—			—			5,161

Balance — June 30, 2003			$	760	$	744,654		$	(362,323	)	$	(71,682	)	$	(8,096	)	$	627,067		$	5,951		$	936,331



		Six Months Ended June 30,

		2004			2003

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	96,391		$	67,057
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			2,000			3,500
Net gain on sales of loans and securities			(744	)		(88	)
Originations of loans available-for-sale			(705,485	)		(1,093,806	)
Proceeds from sales of loans available-for-sale			1,268,042			1,152,690
Amortization of deferred income and premiums			(3,999	)		5,572
Amortization of identifiable intangibles			2,745			1,570
Amortization of unearned compensation of ESOP and restricted stock awards			6,988			8,547
Depreciation and amortization			7,837			5,519
Deferred income tax provision			16,220			1,075
Increase in accrued interest receivable			(3,015	)		(2,939	)
Decrease in accounts receivable-securities transactions			4,086			1,957
Increase in accrued expenses and other liabilities			55,515			66,792
Other, net			32,435			373

Net cash provided by operating activities			779,016			217,819

CASH FLOWS FROM INVESTING ACTIVITIES:
Loan originations and purchases			(2,394,969	)		(641,870	)
Principal payments on loans			667,465			992,145
Advances on mortgage warehouse lines of credit			(5,003,246	)		(5,287,687	)
Repayments on mortgage warehouse lines of credit			4,878,460			5,193,540
Proceeds from sale of securities available-for-sale			186,949			8,497
Proceeds from maturities of securities available-for-sale			2,350			84,414
Principal collected on securities available-for-sale			627,336			766,842
Purchases of securities available-for-sale			(424,650	)		(2,100,431	)
Redemption (Purchase) of Federal Home Loan Bank stock			38,915			(20,000	)
Cash consideration paid to acquire Staten Island Bancorp			(368,500	)		—
Cash and cash equivalents acquired from Staten Island Bancorp acquisition			669,614			—
Proceeds from sale of other real estate			30			1
Net additions to premises, furniture and equipment			(13,952	)		(7,810	)

Net cash used in investing activities			(1,134,198	)		(1,012,359	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits			539,780			315,568
Net decrease in time deposits			(289,881	)		(101,962	)
Net (decrease) increase in borrowings			(5,251	)		500,000
Net increase in subordinated notes			247,438			148,377
Net increase in escrow and other deposits			116,020			34,426
Proceeds from exercise of stock options			11,781			3,997
Repurchase of common stock			—			(49,618	)
Dividends paid			(29,334	)		(15,917	)

Net cash provided by financing activities			590,553			834,871

Net increase in cash and cash equivalents			235,371			40,331
Cash and cash equivalents at beginning of period			172,028			199,057

Cash and cash equivalents at end of period		$	407,399		$	239,388

SUPPLEMENTAL INFORMATION
	Income taxes paid	$	40,706		$	37,149

	Interest paid	$	69,048		$	75,441

	Income tax benefit realized from exercise of stock options	$	6,044		$	1,662

NON-CASH INVESTING ACTIVITIES
	Common Stock issued for Staten Island Bancorp, Inc. acquisition	$	1,107,135		$	—


		At April 12,
		2004

		(Dollars in
		Thousands)
ASSETS:
	Cash and due from banks	$	671,213
	Securities		2,089,962
	Loans, net of the allowance for loan losses		3,879,448
	FHLB-NY stock		110,150
	Fixed assets		40,537
	Other assets		354,071
	Core deposit intangible		79,695
	Goodwill		946,914

Total assets		$	8,171,990

LIABILITIES:
	Deposits	$	3,805,094
	Borrowings		2,733,603
	Other liabilities		84,244

Total liabilities			6,622,941

Net assets acquired		$	1,549,049


	The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments


	Employers’ Disclosures about Pensions and Other Postretirement Benefits


	Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003


					Gross		Gross
			Amortized		Unrealized		Unrealized			Estimated
			Cost		Gains		Losses			Fair Value


			(In Thousands)
Investment securities:
	Debt securities:
		U.S. government and agencies	$	399,908	$	1,032	$	(668	)	$	400,272
		Corporate		77,689		1,947		(216	)		79,420
		Municipal		2,349		234		—			2,583

	Total debt securities			479,946		3,213		(884	)		482,275

	Equity securities:
		Preferred		184,368		479		(13,171	)		171,676
		Common		487		961		(50	)		1,398

	Total equity securities			184,855		1,440		(13,221	)		173,074

Total investment securities				664,801		4,653		(14,105	)		655,349

Mortgage-related securities:
	Fannie Mae pass through certificates			528,029		3,863		(6,464	)		525,428
	Government National Mortgage Association (“GNMA”) pass through certificates			8,633		454		(32	)		9,055
	Freddie Mac pass through certificates			1,072,151		193		(10,077	)		1,062,267
	Collateralized mortgage obligation bonds			1,913,700		5,151		(23,409	)		1,895,442

Total mortgage-related securities				3,522,513		9,661		(39,982	)		3,492,192

Total securities available-for-sale			$	4,187,314	$	14,314	$	(54,087	)	$	4,147,541



		At or for the
		Six Months Ended
		June 30,

		2004			2003


		(Dollars in Thousands)
Balance at beginning of period		$	7,772		$	6,445
	Loan servicing asset of acquired institution		7,687			—
	Capitalized servicing asset		6,570			4,885
	Reduction of servicing asset		(3,292	)		(3,023	)

Balance at end of period		$	18,737		$	8,307



	For the Six Months
	Ended June 30,

	2004			2003


	(Dollars in Thousands)
Origination fees	$	966		$	6,108
Servicing fees		3,034			1,040
Gain on sales		16,882			11,395
Change in fair value of loan commitments		(3,605	)		(2,836	)
Change in fair value of forward loan sale agreements		3,605			2,836
Amortization of loan servicing asset		(3,124	)		(2,855	)

Total mortgage-banking activity income	$	17,758		$	15,688



		June 30, 2004					December 31, 2003

				Percent					Percent
		Amount		of Total			Amount		of Total


		(Dollars in Thousands)
Mortgage loans:
	Single-family residential and cooperative apartment	$	2,930,147		26.4	%	$	284,367		4.6	%
	Multi-family residential		3,588,727		32.4			2,821,706		45.7
	Commercial real estate		2,633,817		23.7			1,612,711		26.2

	Total principal balance — mortgage loans		9,152,691		82.5			4,718,784		76.5
	Less net deferred fees		7,800		0.1			4,396		0.1

Total mortgage loans			9,144,891		82.4			4,714,388		76.4

Commercial business loans, net of deferred fees			881,512		7.9			606,204		9.8

Other loans:
	Mortgage warehouse lines of credit		652,040		5.9			527,254		8.5
	Home equity loans and lines of credit		365,818		3.3			296,986		4.8
	Consumer and other loans		55,904		0.5			27,538		0.5

	Total principal balance — other loans		1,073,762		9.7			851,778		13.8
	Less unearned discounts and deferred fees		192		0.0			139		0.0

Total other loans			1,073,570		9.7			851,639		13.8

Total loans receivable			11,099,973		100.0	%		6,172,231		100.0	%

Less allowance for loan losses			105,141					79,503

Loans receivable, net		$	10,994,832				$	6,092,728


2004	$	7,578
2005	$	10,408
2006	$	9,600
2007	$	8,791
2008	$	7,983
2009 and thereafter	$	35,525


1.	Organization/ Form of Ownership


	Comprehensive Income


	Consolidation of Variable Interest Entities


	FASB Exposure Draft



		For the Three Months				For the Six Months
		Ended June 30,				Ended June 30,

		2004		2003		2004		2003


		(In Thousands, Except Per Share Amounts)
Numerator:
	Net income	$	58,248	$	34,089	$	96,391	$	67,057

Denominator:
	Weighted average number of common shares outstanding — basic		75,357		49,787		62,806		50,238
	Weighted average number of common stock equivalents (restricted stock and options)		3,255		2,490		2,940		2,504

	Weighted average number of common shares and common stock equivalents — diluted		78,612		52,277		65,746		52,742

Basic earning per share		$	.77	$	.68	$	1.53	$	1.33

Diluted earnings per share		$	.74	$	.65	$	1.47	$	1.27



	For the Three						For the Six
	Months Ended						Months Ended
	June 30,						June 30,

	2004			2003			2004			2003


	(In Thousands)
Service cost-benefits earned during the period	$	370		$	355		$	740		$	710
Interest cost on projected benefit obligation		1,160			743			1,938			1,486
Expected return on Pension Plan assets		(1,554	)		(854	)		(2,550	)		(1,707	)
Amortization of net asset		(50	)		(50	)		(101	)		(101	)
Amortization of prior service cost		(273	)		(273	)		(545	)		(545	)
Recognized net actuarial loss		304			366			476			731

Pension expense	$	(43	)	$	287		$	(42	)	$	574


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


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



				For the three months ended														For the six months ended


				June 30, 2004							June 30, 2003							June 30, 2004							June 30, 2003

								Average							Average							Average							Average
				Average				Yield/			Average				Yield/			Average				Yield/			Average				Yield/
				Balance		Interest		Cost			Balance		Interest		Cost			Balance		Interest		Cost			Balance		Interest		Cost


				(Dollars in Thousands)
Interest-earning assets:
	Loans receivable ⁽¹⁾:
		Mortgage loans		$	8,304,133	$	114,420		5.51	%	$	4,086,979	$	69,808		6.83%		$	6,611,660	$	186,727		5.65%		$	4,167,628	$	143,826		6.90%
		Commercial business loans			848,015		12,768		6.06			566,310		8,844		6.26			719,876		22,080		6.17			563,767		18,569		6.64
		Mortgage warehouse lines of credit			639,842		6,790		4.20			657,749		7,448		4.48			541,867		11,605		4.24			630,508		14,105		4.45
		Other loans⁽²⁾			398,066		5,342		5.40			248,530		3,680		5.94			363,825		9,645		5.33			238,382		7,185		6.08

	Total loans				10,190,056		139,320		5.47			5,559,568		89,780		6.46			8,237,228		230,057		5.59			5,600,285		183,685		6.56
	Investment securities				647,907		6,248		3.86			331,884		4,003		4.82			475,361		9,709		4.08			284,118		6,595		4.64
	Mortgage-related securities				3,516,383		35,699		4.06			1,673,525		15,789		3.77			2,835,768		58,548		4.13			1,403,603		27,979		3.99
	Other interest- earning assets⁽³⁾				339,864		1,456		1.72			261,536		1,673		2.57			273,128		2,024		1.49			286,388		3,682		2.59

Total interest- earning assets					14,694,210		182,723		4.97			7,826,513		111,245		5.68			11,821,485		300,338		5.08			7,574,394		221,941		5.86

Non-interest- earning assets					1,911,124							709,540							1,328,812							702,936

	Total assets			$	16,605,334						$	8,536,053						$	13,150,297						$	8,277,330

Interest-bearing liabilities:
	Deposits:
		Savings		$	2,660,686	$	2,277		0.34	%	$	1,601,834	$	2,104		0.53%		$	2,141,544		3,680		0.35%		$	1,582,438		4,762		0.61%
		Money market			1,210,351		4,639		1.54			207,470		356		0.69			831,515		6,166		1.49			198,929		694		0.70
		Active management accounts (“AMA”)			462,266		869		0.76			507,608		1,207		0.95			466,397		1,787		0.77			509,572		2,797		1.11
		Interest-bearing demand⁽⁴⁾			1,096,287		2,061		0.76			689,250		1,103		0.64			952,394		3,660		0.77			627,805		2,132		0.68
		Certificates of deposit			2,196,162		7,688		1.41			1,513,495		8,600		2.28			1,771,899		14,767		1.68			1,540,279		17,975		2.35

			Total interest- bearing deposits		7,625,752		17,534		0.92			4,519,657		13,370		1.19			6,163,749		30,060		0.98			4,459,023		28,360		1.28
			Non interest- bearing deposits		1,365,590		—		—			651,425		—		—			1,057,946		—		—			630,950		—		—

			Total deposits		8,991,342		17,534		0.78			5,171,082		13,370		1.04			7,221,695		30,060		0.84			5,089,973		28,360		1.12
Subordinated notes					395,814		4,020		4.08			17,936		170		3.81			285,734		5,710		4.02			9,018		170		3.81
Borrowings					4,949,415		30,164		2.45			2,250,242		23,739		4.23			3,919,926		52,054		2.67			2,092,522		46,420		4.47

	Total interest- bearing liabilities				14,336,571		51,718		1.45			7,439,260		37,279		2.01			11,427,355		87,824		1.55			7,191,513		74,950		2.10

Non-interest- bearing liabilities					252,096							170,449							205,546							158,813

	Total liabilities				14,588,667							7,609,709							11,632,901							7,350,326
	Total stockholders’ equity				2,016,667							926,344							1,517,396							927,004

	Total liabilities and stockholders’ equity			$	16,605,334						$	8,536,053						$	13,150,297						$	8,277,330

Net interest- earning assets				$	357,639						$	387,253						$	394,130						$	382,881

Net interest income/interest rate spread						$	131,005		3.52	%			$	73,966		3.67%				$	212,514		3.53%				$	146,991		3.76%

Net interest margin									3.56	%						3.77%							3.59%							3.87%

Ratio of average interest-earning assets to average interest-bearing liabilities									1.02	x						1.05	x						1.03	x						1.05	x



			Three months ended June 30, 2004									Six months ended June 30, 2004
			compared to three months ended									compared to six months ended
			June 30, 2003									June 30, 2003


			Increase (Decrease)									Increase (Decrease)
			due to						Total Net			due to						Total Net
									Increase									Increase
			Rate			Volume			(Decrease)			Rate			Volume			(Decrease)


			(In Thousands)
Interest-earning assets:
Loans receivable:
	Mortgage loans⁽¹⁾		$	(14,466	)	$	59,078		$	44,612		$	(28,496	)	$	71,397		$	42,901
	Commercial business loans			(306	)		4,230			3,924			(1,384	)		4,895			3,511
	Mortgage warehouse lines of credit			(458	)		(200	)		(658	)		(628	)		(1,872	)		(2,500	)
	Other loans⁽²⁾			(361	)		2,023			1,662			(973	)		3,433			2,460

Total loans receivable				(15,591	)		65,131			49,540			(31,481	)		77,853			46,372
Investment securities				(938	)		3,183			2,245			(876	)		3,990			3,114
Mortgage-related securities				1,298			18,612			19,910			1,017			29,552			30,569
Other interest-earning assets				(636	)		419			(217	)		(1,495	)		(163	)		(1,658	)

Total net change in income from interest-earning assets				(15,867	)		87,345			71,478			(32,835	)		111,232			78,397
Interest-bearing liabilities:
	Deposits:
		Savings		(886	)		1,059			173			(2,441	)		1,359			(1,082	)
		Money market		872			3,411			4,283			1,431			4,041			5,472
		AMA deposits		(237	)		(101	)		(338	)		(787	)		(223	)		(1,010	)
		Interest-bearing demand		215			743			958			311			1,217			1,528
		Certificates of deposit		(3,964	)		3,052			(912	)		(5,642	)		2,434			(3,208	)

Total deposits				(4,000	)		8,164			4,164			(7,128	)		8,828			1,700
Borrowings				(13,078	)		19,503			6,425			(23,751	)		29,385			5,634
Subordinated notes				2,160			1,690			3,850			11			5,529			5,540

Total net change in expense of interest-bearing liabilities				(14,918	)		29,357			14,439			(30,868	)		43,742			12,874

Net change in net interest income			$	(949	)	$	57,988		$	57,039		$	(1,967	)	$	67,490		$	65,523



		Required					Actual					Excess

		Percent			Amount		Percent			Amount		Percent			Amount


		(Dollars in Thousands)
Tier I leverage capital ratio⁽¹⁾⁽²⁾			4.0	%	$	613,540		5.4	%	$	823,946		1.4	%	$	210,406
Risk-based capital ratios:⁽²⁾
	Tier I		4.0			498,494		6.6			823,946		2.6			325,452
	Total		8.0			996,989		10.7			1,333,999		2.7			337,010


(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%.



		Contract or Amount

		June 30, 2004		December 31, 2003


		(In Thousands)
Financial instruments whose contract amounts represent credit risk:
	Commitments to extend credit — mortgage loans	$	1,103,018	$	563,049
	Commitments to extend credit — commercial business loans		328,200		426,883
	Commitments to extend credit — mortgage warehouse lines of credit		828,693		952,615
	Commitments to extend credit — other loans		160,274		111,736
	Standby letters of credit		35,906		28,049
	Commercial letters of credit		358		363

Total		$	2,456,449	$	2,082,695


Item 3.	Quantitative and Qualitative Disclosures About Market Risk


		0 – 90			91 – 180			181 – 365			1 – 5			Over
		Days			Days			Days			Years			5 Years			Total


		(In Thousands)
Interest-earning assets:
	Mortgage loans⁽¹⁾	$	1,373,932		$	780,937		$	1,324,651		$	4,336,408		$	1,558,418		$	9,374,346
	Commercial business and other loans		1,106,070			86,607			163,183			570,449			28,773			1,955,082
	Securities available-for-sale ⁽²⁾		472,267			239,067			464,728			2,055,945			955,657			4,187,664
	Other interest-earning assets ⁽³⁾		95,812			—			—			—			207,150			302,962

Total interest-earning assets			3,048,081			1,106,611			1,952,562			6,962,802			2,749,998			15,820,054
Interest-bearing liabilities:
	Savings, NOW and money market deposits		569,485			569,485			1,138,971			1,162,272			2,369,436			5,809,649
	Certificates of deposit		832,216			412,328			368,565			605,332			15,207			2,233,648
	Borrowings		1,496,725			672,450			200,000			2,333,890			930,255			5,633,320
	Subordinated notes		(219	)		(219	)		(438	)		396,743			—			395,867

Total interest-bearing liabilities			2,898,207			1,654,044			1,707,098			4,498,237			3,314,898			14,072,484
Interest sensitivity gap			149,874			(547,433	)		245,464			2,464,565			(564,900	)

Cumulative interest sensitivity gap		$	149,874		$	(397,559	)	$	(152,095	)	$	2,312,470		$	1,747,570

Cumulative interest sensitivity gap as a percentage of total assets			(0.83	)%		(2.21	)%		(0.84	)%		12.83	%		9.70	%


					Total Number of		Maximum Number
					Shares Purchased		of Remaining
					as Part of a		Shares that May
	Total Number of		Average Price		Publicly		Be Purchased
Period	Shares Purchased		Paid per Share		Announced Plan		Under the Plan

April 1-30, 2004		—	$	—		—		2,790,329
May 1-31, 2004		—		—		—		2,790,329
June 1-30, 2004		—		—		—		2,790,329

Total		—	$	—		—


	No. of Votes		No. of Votes
	For		Withheld

1. Rohit M. Desai		63,502,645		1,818,737
2. Charles J. Hamm		64,053,634		1,267,749
3. Scott M. Hand		63,324,966		1,996,414
4. David L. Hinds		64,242,366		1,079,017
5. Maria Fiorini Ramirez		64,228,072		1,093,310
6. Donald M. Karp		64,097,742		1,223,639
7. Robert B. Catell		62,510,065		2,811,316
8. Robert W. Gelfman		63,563,481		1,757,900


		No. of		No. of		No. of
		Votes		Votes		Votes
		For		Against		Abstaining

(1)	Approval to amend the Company’s certificate of incorporation to increase the number of authorized shares of common stock.		61,132,265		4,007,369		181,734
(2)	Ratification of the appointment of Ernst & Young LLP as independent auditors for the fiscal year ending December 31, 2004.		60,969,928		4,189,467		161,974


No.		Description

31.1		Certification pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


Date		Item and Description

June 17, 2004		7 — On June 17, 2004, the Company filed a Current Report on Form 8-K/A to amend the Form 8-K filed on April 14, 2004 which announced that effective April 12, 2004, Staten Island Bancorp, Inc. merged into the Company. The merger was consummated pursuant to an Agreement and Plan of Merger, dated as of November 24, 2003, by and between the Company and Staten Island.
April 21, 2004		5 & 7 — On April 20, 2004, the Company issued a press release announcing the allocations of cash and Independence common stock to be paid to shareholders of the Staten Island Bancorp, Inc., which was recently merged into the Company, as the merger consideration in such transaction.
April 20, 2004		12 — On April 19, 2004, the Company issued a press release reporting its earnings for the quarter ended March 31, 2004.
April 14, 2004		2, 5 & 7 — On April 12, 2004, the Company announced that effective April 12, 2004, Staten Island Bancorp, Inc. was merged into the Company. The merger was consummated pursuant to an Agreement and Plan of Merger, dated as of November 24, 2003, by and between the Company and Staten Island.
April 8, 2004		5 & 7 — On April 7, 2004, the Company issued a joint press release with Staten Island Bancorp, Inc. announcing the receipt of regulatory approvals required in connection with the completion of the merger of Staten Island with and into the Company.


Date: August 9, 2004		/s/ ALAN H. FISHMAN Alan H. Fishman President and Chief Executive Officer

Date: August 9, 2004		/s/ FRANK W. BAIER Frank W. Baier Executive Vice President, Chief Financial Officer, Treasurer and Principal Accounting Officer