INDEPENDENCE COMMUNITY BANK CORP - 10-Q Quarterly Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

OR

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-23229

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

DELAWARE 11-3387931
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)

195 MONTAGUE STREET, BROOKLYN, NEW YORK 11201
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)

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

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

Yes [X] No [ ]

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

Yes [X] No [ ]

Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. At November 7, 2002,
the registrant had 57,178,598 shares of common stock ($.01 par value per share)
outstanding.

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INDEPENDENCE COMMUNITY BANK CORP.

TABLE OF CONTENTS

1

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

See accompanying notes to consolidated financial statements.
2

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

See accompanying notes to consolidated financial statements.
3

INDEPENDENCE COMMUNITY BANK CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

See accompanying notes to consolidated financial statements.

4

INDEPENDENCE COMMUNITY BANK CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

See accompanying notes to consolidated financial statements.
5

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION/FORM OF OWNERSHIP

Independence Community Bank (the "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 to convert the Mutual
Holding Company to the stock form of organization and simultaneously merge it
with and into the Bank and all of the outstanding shares of Bank common stock
held by the Mutual Holding Company would be cancelled (the "Conversion").

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

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

Additionally, the Bank established, in accordance with the requirements of
the New York State Banking Department (the "Department"), a liquidation account
for the benefit of depositors of the Bank as of March 31, 1996 and September 30,
1997 in the amount of $319.7 million, which was equal to the Bank's total equity
as of the date of the latest consolidated statement of financial condition
(August 31, 1997) appearing in the final prospectus used in connection with the
Conversion.

The Board of Directors declared the Company's seventeenth consecutive
quarterly cash dividend on October 25, 2002. The dividend amounted to $0.14 per
share of common stock and is payable on November 21, 2002 to stockholders of
record on November 7, 2002.

On September 28, 2001 the Company announced that its Board of Directors
authorized the ninth stock repurchase plan for up to an additional three million
shares of the Company's outstanding common shares. As of September 30, 2002, a
total of 2,069,371 shares had been repurchased at an average cost of $26.76 per
share under the ninth repurchase plan. As of September 30, 2002, a total of
29,372,216 shares had been purchased pursuant to the Company's nine repurchase
programs at an aggregate cost of $441.7 million.

On October 25, 2002 the Company announced that its Board of Directors
authorized the tenth stock repurchase plan for up to an additional three million
shares of the Company's outstanding common shares. The Company's tenth
repurchase program will commence upon completion of its ninth repurchase
program, which as of October 31, 2002 had approximately 617,000 shares remaining
to be purchased. Repurchases will be made by the Company from time to time in
open-market transactions as, in the opinion of management, market and other
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
investment in Meridian Capital Group, LLC ("Meridian"), a New York-based
mortgage brokerage firm. Treasury shares also are being used to fund the
Company's stock benefit plans, in particular, the 1998 Stock Option Plan
("Option Plan"), the Directors Fee Plan and the 2002 Stock Incentive Plan
("Stock Incentive Plan") which was approved by stockholders at the May 23, 2002
annual meeting, and for general corporate purposes.

6

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Financial Statement Presentation

The accompanying financial statements 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 generally accepted accounting
principles. 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 results of operations for the nine months ended September 30,
2002 are not necessarily indicative of the results to be expected for the year
ending December 31, 2002. These interim financial statements should be read in
conjunction with the Company's consolidated audited financial statements and the
notes thereto contained in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2001.

Business

The Company's principal business is conducted through the Bank, which is a
full-service, community-oriented financial institution headquartered in
Brooklyn, New York. The Bank currently operates 72 banking offices located in
the greater New York Metropolitan area, which includes the five boroughs of New
York City, Nassau, Suffolk and Westchester Counties of New York and the northern
New Jersey counties of Essex, Union, Bergen, Hudson and Middlesex. The Company
currently expects to expand its branch network through the opening of
approximately ten branch locations, including approximately three in Manhattan,
during the next twelve to eighteen months. During the nine months ended
September 30, 2002, the Company opened three new locations, one each in
Westchester and Suffolk Counties, and one on Staten Island. The Bank's deposits
are insured by the Bank Insurance Fund and the Savings Association Insurance
Fund to the maximum extent permitted by law. The Bank is subject to examination
and regulation by the Federal Deposit Insurance Corporation, 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.

3. EARNINGS PER SHARE

Basic earnings per share ("EPS") is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted EPS is computed
using the same method as basic EPS, but reflects the potential dilution of
common stock equivalents. Shares of common stock held by the ESOP that have not
been allocated to participants' accounts or are not committed to be released for
allocation as well as non-vested shares held in the 1998 Recognition and
Retention Plan and Trust Agreement (the "Recognition Plan") are not considered
to be outstanding for the calculation of basic EPS. However, a portion of such
shares is considered in the calculation of diluted EPS as common stock
equivalents of basic EPS. Basic and diluted weighted-average common shares
outstanding were 51,477,738 and 54,416,227 shares, respectively, for the quarter
ended September 30, 2002 compared to 52,543,584 and 54,869,768 shares,
respectively for the quarter ended September 30, 2001. For the nine months ended
September 30, 2002, basic and diluted weighted-average common shares outstanding
were 51,740,661 and 54,817,721 shares, respectively, compared to 52,597,472 and
54,298,674 shares, respectively, for the nine months ended September 30, 2001.

7

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. BENEFIT PLANS

Employee Stock Ownership Plan

To fund the purchase in the open market of 5,632,870 shares of the
Company's common stock, the ESOP borrowed funds in 1998 from the Company. 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 also are utilized to repay the debt. The collateral for the
loan is the shares of common stock of the Company purchased by the ESOP.

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 payments bears
to the aggregate principal and interest payments to be made over the remaining
life of the loan, including the period involved. ESOP participants become 100%
vested in the ESOP after three years of service. Compensation expense related to
the 211,233 shares committed to be released during the nine months ended
September 30, 2002 was $5.7 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 September 30,
2002, 920,770 shares were allocated to participants' accounts.

1998 Recognition and Retention Plan

The Recognition Plan was implemented in September 1998 and may make
restricted stock awards in an aggregate amount up to 2,816,435 shares (4% of the
shares of common stock sold in the Conversion). During fiscal 1999, the
Recognition Plan purchased all 2,816,435 shares in the open market. The
Recognition Plan provides that awards may be designated as performance share
awards, subject to the achievement of performance goals, or non-performance
share awards which are subject solely to time vesting requirements. Certain
participants have been granted performance-based shares. These shares become
earned only if corporate performance targets established annually are achieved.
On September 25, 1998, the Committee administering the Recognition Plan issued
grants covering 2,188,517 shares of stock of which 844,931 were deemed
performance based. The Committee granted performance-based share awards of
200,000 and 11,000 in the fiscal year ended March 31, 2001 and the nine months
ended September 30, 2002, respectively, and non-performance share awards
covering 25,363 shares, 105,363 shares and 91,437 shares during the fiscal year
ended March 31, 2001, the nine months ended December 31, 2001 and the nine
months ended September 30, 2002, respectively. The stock awards granted to date
are generally payable over a five-year period at a rate of 20% per year,
beginning one year from the date of grant. However, certain stock awards granted
during the nine months ended September 30, 2002 will be 100% vested after four
years from the date of grant. Subject to certain exceptions, awards become 100%
vested upon termination of employment due to death, disability or retirement.
However, senior officers and non-employee directors of the Company who elect to
retire, require the approval of the Board of Directors or the Committee
administering the Recognition Plan to accelerate the vesting of these shares.
The amounts also become 100% vested upon a change in control of the Company.
Compensation expense is recognized over the vesting period at the fair market
value of the common stock on the date of grant for non-performance share awards.
The expense related to performance share awards is recognized over the vesting
period at the fair market value on the measurement date. The Company recorded
compensation expense of $7.2 million related to the Recognition Plan for the
nine months ended September 30, 2002.

1998 Stock Option Plan

The Option Plan was implemented in September 1998. The Option Plan may
grant options covering shares aggregating an amount equal to 7,041,088 shares
(10% of the shares of common stock sold in the Conversion). Under the Option
Plan, stock options (which expire ten years from the date of grant) have been
granted to officers, key employees and non-employee directors of the Company.
The option exercise price per share was the fair market value of the common
stock on the date of grant. Each stock option or portion thereof

8

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

is exercisable at any time on or after such option vests and is generally
exercisable until the earlier of ten years after its date of grant or six months
after the date on which the optionee's employment terminates (three years after
termination of service in the case of non-employee directors), unless extended
by the Board of Directors to a period not to exceed five years from the date of
such termination. Subject to certain exceptions, options become 100% exercisable
upon termination of employment due to death, disability or retirement. However,
senior officers and non-employee directors of the Company who elect to retire,
require the approval of the Board of Directors or the Committee administering
the Option Plan to accelerate the vesting of options. Options become 100% vested
upon a change in control of the Company. On September 25, 1998, the Board of
Directors issued options covering 6,101,608 shares of common stock vesting over
a five-year period at a rate of 20% per year, beginning one year from date of
grant. The Board of Directors granted options covering 325,000, 295,500 and
88,000 shares, respectively, during the fiscal year ended March 31, 2001, the
nine months ended December 31, 2001 and the nine months ended September 30,
2002. The granting of these options did not affect the Company's results of
operations for the nine months ended September 30, 2002 or its statement of
condition at September 30, 2002. In the first nine months of 2002, the Committee
administering the Plan approved the acceleration of 8,000 options due to the
retirement of a senior officer, resulting in $0.1 million of compensation
expense. At September 30, 2002, there were 6,004,154 options outstanding
pursuant to the 1998 Stock Option Plan.

2002 Stock Incentive 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. 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 788,650 shares during the nine months ended September
30, 2002. The granting of these options did not affect the Company's results of
operations for the nine months ended September 30, 2002 or its statement of
condition at September 30, 2002.

Other Stock Plans

Broad National Bancorporation ("Broad") and Statewide Financial Corp.
("Statewide") maintained several stock option plans for officers, directors and
other key employees. Generally, these plans granted options to individuals at a
price equivalent to the fair market value of the stock at the date of grant.
Options awarded under the plans generally vested over a five-year period and
expired ten years from the date of grant. In connection with the Broad and
Statewide acquisitions, options which were converted by election of the option
holders to options to purchase the Company's common stock totaled 602,139 and
became 100% exercisable at the effective date of the acquisitions. At September
30, 2002, there were 138,254 options outstanding related to these plans.

5. COMPREHENSIVE INCOME

Comprehensive income includes net income and all other changes in equity
during a period, except those resulting from investments by owners and
distribution to owners. Other comprehensive income includes revenues, expenses,
gains and losses that under generally accepted accounting principles are
included in comprehensive income, but excluded from net income. Comprehensive
income and accumulated other comprehensive income are reported net of related
income taxes. Accumulated other comprehensive income consists solely of
unrealized gains and losses on available-for-sale securities.

9

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. SECURITIES AVAILABLE-FOR-SALE

The amortized cost and estimated fair value of securities
available-for-sale at September 30, 2002 are as follows:

10

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The amortized cost and estimated fair value of securities
available-for-sale at December 31, 2001 are as follows:

11

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. LOAN PORTFOLIO COMPOSITION

As part of the Company's continuing enhancement of its credit
administration process, the Company redefined its criteria for classifying loans
as either commercial mortgage loans or as commercial business loans. As a result
of the application of the new criteria and in anticipation of the Company's
conversion to a new commercial loan servicing system scheduled to be effected
during the fourth quarter of 2002, the Company reviewed all of its commercial
loan relationships and redesignated as of September 30, 2002 approximately
$238.1 million of commercial business loans as either commercial mortgage loans
or as multi-family residential loans. The Company has not revised any other
current or prior period information related to this redesignation since it did
not affect the Company's net loan portfolio, total assets, results of operations
or earnings per share.

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

12

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following tables show the activity in the Company's loan portfolio
during the periods indicated.

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

(2) Excludes deferred fees of $4.9 million.

13

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. NON-PERFORMING ASSETS

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

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(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.

9. ALLOWANCE FOR LOAN LOSSES

It is management's policy to maintain an allowance for loan losses based
upon, among other things, an assessment of prior loss experience, total loans
outstanding, the volume of loan originations, the type, size and geographic
concentration of loans held by the Company, general economic conditions as well
as those existing in the Bank's market area, the level of past due and
non-accrual loans, the value of collateral securing the loans, the level of
classified loans and the number of loans requiring heightened management
oversight. Management believes that based on information currently available,
the Company's allowance for possible loan losses is sufficient to cover all
known and inherent losses in its loan portfolio that are both probable and
reasonable to estimate at this time. In the future, management may adjust the
level of its allowance for loan losses as economic and other conditions dictate.

14

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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(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, (ii) loans 90 days or
more past due as to interest or principal and (iii) other loans which have
been identified by the Company as presenting uncertainty with respect to the
collectibility of interest or principal.

10. GOODWILL AND INTANGIBLE ASSETS

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

The Company's goodwill was $185.2 million at September 30, 2002 and
December 31, 2001. The Company did not recognize an impairment loss as a result
of its annual impairment test effective October 1, 2002. The Company will test
the value of its goodwill at least annually.

15

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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

2002........................................................ $6,935
2003........................................................ $1,855
2004........................................................ $ 191
2005........................................................ $ --

Amortization expense on intangible assets was $1.7 million and $1.9 million
for the quarters ended September 30, 2002 and 2001, respectively, and $5.3
million and $5.6 million for the nine months ended September 30, 2002 and 2001,
respectively. In addition, the nine month 2001 period included $3.6 million
related to the amortization of goodwill reflecting the amortization of goodwill
occurring prior to the adoption of the Statement by the Company.

The following table discloses the effect on net income and basic and
diluted earnings per share of excluding amortization expense related to goodwill
which was recognized in the nine months ended September 30, 2001 as if such
goodwill had not been recognized in accordance with SFAS No. 142.

16

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

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

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

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

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

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

CHANGES IN FINANCIAL CONDITION

General

Total assets at September 30, 2002 were $8.06 billion, an increase of
$437.3 million, from $7.62 billion at December 31, 2001. The increase resulted
mainly from the growth of the Company's loan and available-for-sale securities
portfolios which was funded by increased deposits and borrowings. At September
30, 2002, by comparison to December 31, 2001, the Company's loan portfolio,
available-for-sale securities portfolio and cash and cash equivalents had grown
by $188.4 million, $134.4 million and $89.9 million, respectively.

17

Cash and Federal Funds Sold (Collectively "Cash and Cash Equivalents")

Cash and cash equivalents increased by $89.9 million or 43.3%, from $207.6
million at December 31, 2001 to $297.5 million at September 30, 2002. The build
up in liquidity was due to the high levels of cash flow received from loan
refinancings and accelerated prepayments of mortgage-related securities, which
funds have yet to be redeployed into other interest-earning assets. (See
"-- Securities available-for-sale" and "Loans" below).

Securities Available-for-Sale

The aggregate available-for-sale securities portfolio (which includes
investment securities and mortgage-related securities) increased $134.4 million
or 13.1% from $1.03 billion at December 31, 2001 to $1.16 billion at September
30, 2002.

The Company's mortgage-related securities portfolio increased from $902.2
million at December 31, 2001 to $943.4 million at September 30, 2002. The
portfolio was comprised of $897.5 million of AAA rated CMOs and $45.9 million of
CMOs which were issued or guaranteed by the FHLMC, the FNMA or the GNMA ("Agency
CMOs"). The $41.2 million increase in the portfolio was primarily due to
purchases of $517.3 million of AAA rated CMOs with an average yield of 6.17% and
$58.4 million of Agency CMOs with a weighted average yield of 5.65%. Partially
offsetting the purchases were proceeds totaling approximately $517.2 million
received from normal and accelerated principal repayments and a $14.7 million
sale of an Agency CMO at a loss of $0.2 million.

As of September 30, 2002 and December 31, 2001, the Company's investment
securities totaled $219.0 million and $125.8 million, respectively, all of which
were classified as available-for-sale. The $93.2 million increase was primarily
due to purchases of preferred securities and corporate bonds totaling $160.4
million which were partially offset by the proceeds from maturing securities of
$16.2 million and from sales of $50.3 million of securities with a weighted
average yield of 4.16% at a $0.5 million gain.

At September 30, 2002, the Company had a $12.9 million net unrealized gain
on available-for-sale investment and mortgage-related securities as compared to
a $13.7 million net unrealized gain at December 31, 2001.

Loans

Loans increased by $188.4 million or 3.2% to $6.07 billion at September 30,
2002 from $5.88 billion at December 31, 2001. The Company continued its focus on
expanding its higher yielding portfolios of commercial real estate and
commercial business loans as part of its business plan. The Company originated
for its own portfolio during the nine months ended September 30, 2002
approximately $679.8 million of mortgage loans.

As part of the Company's continuing enhancement of its credit
administration process, the Company redefined its criteria for classifying loans
as either commercial mortgages or commercial business loans. As a result of the
application of the new criteria and in anticipation of the Company's conversion
to a new commercial loan servicing system scheduled to be effected during the
fourth quarter of 2002, the Company reviewed all of its commercial loan
relationships and redesignated as of September 30, 2002 approximately $238.1
million of commercial business loans to commercial mortgage and multi-family
residential loans. The Company has not revised any other current or prior period
information related to this redesignation since it did not affect the Company's
net loan portfolio, total assets, results of operations or earnings per share.

Multi-family residential loans increased $145.2 million to $2.88 billion at
September 30, 2002 compared to $2.73 billion at December 31, 2001. The increase
was primarily due to approximately $435.9 million of originations for portfolio
retention and $59.6 million of loans redesignated as discussed above, partially
offset by $339.0 million of repayments. Commercial real estate loans increased
by $261.5 million during the nine months ended September 30, 2002. The Company
originated $235.5 million of commercial real estate loans during the nine months
ended September 30, 2002 and redesignated $178.5 million to commercial real
estate, but experienced $152.3 million of repayments during the period. As a
result of these activities, multi-family
18

residential mortgage loans comprised 47.4% and commercial real estate loans
comprised 21.1% of the loan portfolio at September 30, 2002 as compared to 46.5%
and 17.3% at December 31, 2001.

In addition to continuing to generate mortgage loans for portfolio secured
by multi-family and commercial real estate, the Company also originates and
sells multi-family residential mortgage loans in the secondary market to Fannie
Mae while retaining servicing in order to further the Company's ongoing
strategic objective of increasing non-interest income related to lending and
servicing revenue. During the nine months ended September 30, 2002, the Company
sold $624.5 million of loans to Fannie Mae. As a result of this sales activity,
at September 30, 2002, the Company serviced $1.53 billion of multi-family loans
for Fannie Mae. The Company had a $5.1 million capitalized servicing asset as of
September 30, 2002. In October 2002, in furtherance of its business strategy
regarding commercial real estate and multi-family loan originations and sales,
the Company increased its minority investment in Meridian, a New York-based
mortgage brokerage firm. Meridian is primarily engaged in the origination of
commercial real estate and multi-family mortgage loans. As consideration for
such additional interest, the Company paid $0.6 million in cash and 520,716
shares of common stock for total consideration of approximately $12.5 million.

Commercial business loans decreased $107.6 million to $558.2 million at
September 30, 2002 primarily due to $238.1 million of loans being redesignated
as commercial real estate loans or multi-family residential loans. Originations
and advances during the nine months ended September 30, 2002 totaled $346.0
million and loan repayments totaled $207.2 million. Mortgage warehouse lines of
credit are short-term secured advances extended to mortgage-banking companies
primarily to fund the origination of one-to-four family mortgages. Mortgage
warehouse lines of credit increased $39.9 million from $446.5 million at
December 31, 2001 to $486.4 million at September 30, 2002, due to the current
refinance market.

Partially offsetting the growth in the multi-family, commercial real estate
and business loan and mortgage warehouse lines of credit portfolios was the
run-off of the Company's residential mortgage portfolio. Single-family
residential and cooperative apartment loans decreased $204.6 million from an
aggregate of $852.8 million at December 31, 2001 to an aggregate of $648.2
million at September 30, 2002. The decline was due to increased repayments as a
result of the current interest rate environment combined with the decreased
emphasis on originating these loans for portfolio in favor of higher yielding
commercial real estate and business loans. The Company originates and sells
single-family residential mortgage loans under a mortgage origination assistance
agreement with Cendant Mortgage Corporation ("Cendant"). The Company funds the
loans directly and sells the loans and related servicing to Cendant. The Company
sold $96.3 million of such loans during the nine months ended September 30,
2002.

Non-Performing Assets

The overall quality of the Company's assets remained strong with
non-performing assets as a percentage of total assets amounting to 44 basis
points (0.44%) at September 30, 2002 compared to 61 basis points (0.61%) at
December 31, 2001. At September 30, 2002, the Company's non-performing assets
consisted of $33.6 million of non-accrual loans, $148,000 of loans past due 90
days or more as to interest and accruing, $1.6 million of loans past due 90 days
or more as to principal and accruing and $7,000 of other real estate acquired
through foreclosure or deed-in-lieu thereof. Non-performing assets decreased by
$10.8 million to $35.3 million at September 30, 2002 from $46.2 million at
December 31, 2001. The $10.8 million decrease was primarily due to a $16.5
million decrease in loans past due 90 days or more as to principal but still
accruing interest, partially offset by a $5.8 million increase in non-accrual
loans, primarily commercial real estate and commercial business loans.

Allowance for Loan Losses

The Company's allowance for loan losses amounted to $81.8 million at
September 30, 2002 as compared to $78.2 million at December 31, 2001. At
September 30, 2002, the Company's allowance amounted to 1.35% of total loans and
231.7% of total non-performing loans compared to 1.33% and 170.0% at December
31, 2001, respectively.

19

The Company's allowance for loan losses increased $3.6 million from
December 31, 2001 to September 30, 2002 due to a $6.0 million provision for loan
losses partially offset by $2.4 million of net charge-offs. The provision
recorded reflected the Company's increase in non-accrual loans, increase in
classified loans, the continued emphasis on commercial real estate and business
loan originations, which are generally considered to have greater risk of loss,
as well as the recognition of the current economic conditions.

The Company does not participate in any shared national credit loans.

The Company has identified the evaluation of the allowance for loan losses
as a critical accounting policy where amounts are sensitive to material
variation. This policy is significantly affected by management judgement and
uncertainties and there is a likelihood that materially different amounts would
be reported under different, but reasonably plausible, conditions or
assumptions. It is management's policy to maintain an allowance for loan losses
based upon, among other things, an assessment of prior loss experience, total
loans outstanding, the volume of loan originations, the type, size and
geographic concentration of loans held by the Company, general economic
conditions, the level of past due and non-accrual loans, the value of collateral
securing the loan, the level of classified loans and the number of loans
requiring heightened management oversight.

Management believes that, based on information currently available, the
allowance for possible loan losses at September 30, 2002 was sufficient to cover
losses inherent in its loan portfolio. Management will continue to evaluate the
adequacy of the allowance for loan losses as changes in loan portfolio
composition, the level of non-performing loans, the level of classified loans,
the level of delinquencies and charge-offs, changes in economic conditions and
other factors may result in the need for adjustments to the allowance.

Goodwill and Intangible Assets

Effective April 1, 2001, the Company adopted SFAS No. 142, which resulted
in discontinuing the amortization of goodwill. The Company's goodwill, which
aggregated $185.2 million at September 30, 2002, resulted from the acquisitions
of Broad and Statewide as well as the acquisition of Bay Ridge Bancorp, Inc. in
January 1996. The Company's $3.7 million of identifiable intangible assets at
September 30, 2002 resulted primarily from two branch purchase transactions
effected in fiscal 1996. The Company's intangible assets decreased by $5.3
million to $3.7 million at September 30, 2002 from $9.0 million at December 31,
2001 primarily as a result of the amortization of the intangible assets. The
amortization of identified intangible assets will continue to reduce net income
until such intangible assets are fully amortized. Most of the remaining
identified intangibles existing as of September 30, 2002 will be amortized by
the end of September 2003.

The Company has identified the goodwill impairment test as a critical
accounting policy. The goodwill impairment test compares the fair value of a
reporting unit with its carrying amount, including goodwill. If the fair value
of a reporting unit exceeds its carrying amount, goodwill of the reporting unit
is considered not impaired. If the carrying amount of a reporting unit exceeds
its fair value, goodwill is considered impaired and the Company must measure the
amount of impairment loss, if any. The Company did not recognize an impairment
loss as a result of its annual impairment test effective October 1, 2002. The
Company is required to test the value of its goodwill at least annually.

Deposits

Deposits increased $136.4 million or 2.8% to $4.93 billion at September 30,
2002 compared to $4.79 billion at December 31, 2001. The increase was due to
deposit inflows totaling $72.1 million and interest credited of $64.3 million.
Complimenting the increased emphasis on expanding commercial and consumer
relationships, lower costing core deposits grew by $327.9 million, or 11.1%, to
$3.27 billion at September 30, 2002 compared to $2.94 billion at December 31,
2001 and increased $566.9 million, or 21.0%, from September 30, 2001. The
increase reflects both the continued successful implementation of the Company's
business strategy of increasing core deposits as well as the current interest
rate environment. Execution of this strategy is evidenced by the increase in
core deposits to approximately 66.3% of total deposits at September 30, 2002
compared to 61.3% and 56.7% of total deposits at December 31, 2001 and September
30, 2001, respectively.

20

Borrowings

Borrowings increased $298.8 million or 17.8% to $1.98 billion at September
30, 2002 compared to $1.68 billion at December 31, 2001. During the nine months
ended September 30, 2002, the Company took advantage of favorable rates by
locking in $350.0 million of adjustable-rate four-year borrowings from the FHLB
of New York. These borrowings have a weighted average interest rate of 2.70% and
are indexed to the London Inter-Bank Offered Rate (LIBOR). The Company also
replaced $100.0 million of borrowings that matured during the quarter ended
September 30, 2002 with fixed rate ten-year borrowings, callable in five years,
at a weighted average interest rate of 4.12%. This increase was primarily used
to fund the growth in the available-for-sale securities portfolio and to fund
loan originations.

Company-Obligated Mandatorily Redeemable Cumulative Trust Preferred
Securities

On June 30, 1997, $11.5 million of 9.5% Cumulative Trust Preferred
Securities (the "Trust Preferred Securities") were issued by BNB Capital Trust
(the "Trust"), a Delaware statutory business trust formed by Broad. The net
proceeds from the issuance were invested in Broad in exchange for its junior
subordinated debentures. The sole asset of the Trust, the obligor on the Trust
Preferred Securities, was $11.9 million principal amount of 9.5% Junior
Subordinated Debentures (the "Junior Subordinated Debentures") due June 30,
2027. As a result of the Broad acquisition, all the assets, liabilities and
obligations of Broad as to securities became assets, liabilities and obligations
of the Company.

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

Equity

At September 30, 2002, total stockholders' equity totaled $919.0 million,
or $16.12 per share, compared to $880.5 million, or $15.08 per share at December
31, 2001. This $38.5 million increase was primarily due to net income of $92.3
million, amortization of the earned portion of restricted stock grants of $7.2
million, $0.1 million related to accelerated vesting of stock options, $10.6
million related to the exercise of stock options and the issuance of shares in
payment of directors' fees and $6.0 million related to ESOP shares committed to
be released for the nine months ended September 30, 2002. Partially offsetting
the increases were a $57.8 million reduction in capital due to the purchase of
shares in connection with the Company's ongoing ninth stock repurchase program
and $19.2 million of dividends declared. Tangible book value per share was
$12.81 and the tangible equity to tangible assets ratio was 9.27% at September
30, 2002.

21

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

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

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

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

(3) Includes federal funds sold, interest-earning bank deposits, FHLB stock,
overnight commercial paper and certificates of deposit.

(4) Includes NOW, money market and checking accounts.

22

RATE/VOLUME ANALYSIS

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

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

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2002 AND 2001

General

The Company reported a 47.5% increase in diluted earnings per share to
$0.59 for the quarter ended September 30, 2002 compared to $0.40 for the quarter
ended September 30, 2001. Net income increased $9.8 million or 44.7% to $31.9
million for the quarter ended September 30, 2002 compared to $22.1 million for
the quarter ended September 30, 2001.

Cash earnings for the quarter ended September 30, 2002 increased 38.0% to
$36.4 million and increased 39.6% per diluted share to $0.67 compared to the
same period in the prior year. Cash earnings include net

23

income adjusted for the amortization of intangibles and certain charges related
to the Company's stock benefit plans, net of tax. The Company believes the
reporting of cash earnings along with earnings calculated in accordance with
generally accepted accounting principles (GAAP) provides further insight into
the Company's operating performance.

On a linked quarter basis, the Company reported a 3.5% increase in diluted
earnings per share from $0.57 for the quarter ended June 30, 2002 compared to
$0.59 for the quarter ended September 30, 2002. Net income increased $264,000 to
$31.9 million for the quarter ended September 30, 2002 compared to $31.7 million
for the quarter ended June 30, 2002.

Net Interest Income

Net interest income increased by $15.9 million or 25.7% to $77.7 million
for the three months ended September 30, 2002 as compared to $61.8 million for
the three months ended September 30, 2001. The increase was due to a $15.1
million decrease in interest expense combined with a $0.8 million increase in
interest income. The growth in net interest income primarily reflects the 52
basis point increase in net interest margin as well as a $666.0 million increase
in average interest-earning assets during the three months ended September 30,
2002 as compared to the same period in the prior year. The increase in average
interest-earning assets was primarily attributable to growth in mortgage-related
securities, commercial mortgage and business loans and mortgage warehouse lines
of credit, funded largely by increases in deposits and borrowings.

The Company's net interest margin increased 52 basis points to 4.21% for
the three months ended September 30, 2002 compared to 3.69% for the three months
ended September 30, 2001. The improvement in net interest margin was directly
attributable to the Company's strategy to reduce the cost of interest-bearing
liabilities in order to offset the decline in the yield earned on
interest-earning assets resulting from the current interest rate environment.
For the three months ended September 30, 2002 as compared to the three months
ended September 30, 2001, the average rate paid on interest-bearing liabilities
decreased 120 basis points, more than offsetting the 60 basis point decline in
the average yield earned on interest-earning assets. This decline mirrored the
movement in the yield curve with short-term rates declining more rapidly than
longer term rates. Complementing the movement in the yield curve, the Company
contributed to the improvement in net interest margin by originating higher
yielding commercial loan products through its expanded presence in the New York
metropolitan market and the continuing evolution of a retail banking sales
culture focused on delivering core deposits. In addition, the Company continued
a disciplined pricing strategy for deposits, which was effective in addressing
the current interest rate yield curve. Management expects that favorable
repricing of deposits should level off during the remainder of the calendar
year.

Interest income increased by $0.8 million to $121.7 million for the quarter
ended September 30, 2002 compared to $120.9 million for the quarter ended
September 30, 2001. Interest income on loans decreased $0.4 million due to a 57
basis point decrease in the yield earned on loans from 7.55% for the three
months ended September 30, 2001 to 6.98% for the three months ended September
30, 2002. Partially offsetting the decline in yield was a $725.0 million
increase in the average balance of loans during the same period. The increase in
the average balance is primarily due to a $425.9 million increase in the average
balance of commercial mortgage and business loans and a $77.8 million increase
in the average balance of mortgage warehouse lines of credit. In addition, the
Company is committed to maintaining its leadership position in the multi-family
residential origination market. As a consequence, the average balance of such
loans increased by $153.2 million for the three months ended September 30, 2002
compared to the 2001 period. Partially offsetting the growth in these four
portfolios was a $280.1 million decrease in the aggregate average balance of the
Company's single-family and cooperative apartment loans due to both increased
repayments as a result of the current interest rate environment as well as
decreased emphasis on originations. The Company primarily originates
single-family loans for sale through its previously discussed private label
program with Cendant. The decrease in yield is due to the current interest rate
yield curve and the Company's investment in commercial business loans and
mortgage warehouse lines of credit which are primarily variable-rate loans and
thus, are repricing downward in the current interest rate environment.

24

Income on investment securities declined $0.7 million due to a $22.6
million decrease in the average balance of investment securities for the quarter
ended September 30, 2002 compared to the same period in the prior year and a 93
basis point decrease in the yield earned from 4.76% for the quarter ended
September 30, 2001 to 3.83% for the quarter ended September 30, 2002. Interest
income on mortgage-related securities increased $3.2 million during the three
months ended September 30, 2002 compared to the three months ended September 30,
2001 as a result of a $339.3 million increase in the average balance of these
securities partially offset by a 79 basis point decrease in the yield earned
from 6.30% for the quarter ended September 30, 2001 to 5.51% for the quarter
ended September 30, 2002. The increase in the average balance was primarily due
to an increase in borrowings which were invested in mortgage-related securities.
The overall decline in the yields on securities reflected the decline in general
market rates of interest experienced during calendar 2002.

Income on other interest-earning assets (consisting primarily of interest
on federal funds and dividends on FHLB stock in the current period) decreased
$1.4 million in the current quarter compared to the prior year quarter due to a
decrease of $1.1 million in interest on short-term investments and a decrease of
$0.3 million in dividends on FHLB stock.

Interest expense decreased $15.1 million to $44.0 million or 25.6% for the
three months ended September 30, 2002 as compared to the three months ended
September 30, 2001. This decrease primarily reflects a 155 basis point decrease
in the average rate paid on deposits to 1.59% for the quarter ended September
30, 2002 compared to 3.14% for the quarter ended September 30, 2001. The
decrease in rates was attributable to the continued disciplined pricing strategy
which was effective in addressing the current interest rate yield curve. This
decrease was partially offset by a $197.0 million increase in the average
balance of deposits as a result of the Company's continuing evolution of a
retail banking sales culture focused on increasing the amount of lower costing
core deposits. The average balance of core deposits increased $620.2 million for
the three months ended September 30, 2002 compared to the three months ended
September 30, 2001 as the Company was able to continue to shift the composition
of the deposit portfolio from higher costing time deposits to core deposits. The
$442.6 million increase in the average balance of FHLB borrowings, which have
primarily been used to fund the purchase of mortgage-related securities and
commercial mortgage and business loan originations, resulted in additional
interest expense of $3.1 million.

On a linked quarter basis, net interest income decreased $2.1 million from
$77.8 million for the three months ended June 30, 2002 to $75.7 million for the
three months ended September 30, 2002. Net interest margin decreased 14 basis
points from 4.35% for the three months ended June 30, 2002 to 4.21% for the
three months ended September 30, 2002. The Company experienced a 20 basis point
decrease in the yield earned on average interest-earning assets during the
quarter from 6.77% for the June 2002 quarter compared to 6.57% for the September
2002 quarter. This decrease was only partially offset by a 7 basis point decline
in the rate paid on average interest-bearing liabilities from 2.58% for the June
2002 quarter compared to 2.51% for the September 2002 quarter. The net interest
margin compression was primarily the result of the high levels of cash flow
received from loan refinancings as well as accelerated prepayments of
mortgage-backed securities, the proceeds of which were being reinvested in lower
yielding interest-earning assets due to the current interest rate environment.
The Company, based upon the current interest rate and refinance environment,
expects the compression in net interest margin to continue through at least the
last quarter of 2002.

Average interest-earning assets increased by $72.2 million to $7.40 billion
for the three months ended September 30, 2002 compared to $7.33 billion for the
three months ended June 30, 2002. This increase was primarily due to growth of
$162.5 million in the loan portfolio and $37.3 million in the investment
securities portfolio partially offset by a $137.8 million decline in the
mortgage-related securities portfolio as a result of accelerated repayments on
the underlying loans collateralizing the securities due to the current
refinancing market.

Mortgage warehouse lines of credit increased $122.3 million during the
quarter to $486.4 million at September 30, 2002 compared to $364.1 million at
June 30, 2002 as a result of the current refinance market. Excluding mortgage
warehouse lines of credit, the Company originated loans totaling $580.4 million,
of which $340.8 million were retained for portfolio, during the three months
ended September 30, 2002 compared to

25

originations of $748.4 million, of which $535.2 million were retained for
portfolio, during the three months ended June 30, 2002. Partially offsetting the
originations were repayments totaling $340.4 million during the three months
ended September 30, 2002 compared to $377.4 million for the three months ended
June 30, 2002.

Provision for Loan Losses

The Company's provision for loan losses decreased by $1.0 million for the
three months ended September 30, 2002 compared to the three months ended
September 30, 2001. Non-performing assets as a percentage of total assets
totaled 44 basis points at September 30, 2002 compared to 66 basis points at
September 30, 2001. Non-performing assets decreased 29.7% to $35.3 million at
September 30, 2002 compared to $50.3 million at September 30, 2001. The $15.0
million decrease was primarily due to a $21.9 million decrease on loans that are
contractually past due 90 days or more as to maturity, although current as to
monthly principal and interest payments which was partially offset by an
increase of $7.1 million in non-accrual loans, primarily commercial mortgage and
business loans. The Company's allowance amounted to 1.35% and 1.34% of total
loans at September 30, 2002 and 2001, respectively.

Non-Interest Income

Emphasis on fee-based income continues to gain momentum throughout the
various divisions within the Company. As a result of a variety of initiatives,
the Company experienced a 28.8% increase in non-interest income, from $13.8
million for the quarter ended September 30, 2001 to $17.8 million for quarter
ended September 30, 2002.

During the quarter ended September 30, 2002, the Company recognized net
gains of $39,000 on the sales of loans and securities, compared to a $4,000 gain
during the quarter ended September 30, 2001.

In the quarter ended September 30, 2002, the Company's mortgage-banking
activities resulted in total revenue of $2.8 million compared to $2.5 million in
the quarter ended September 30, 2001. The Company continues to originate
multi-family residential loans for sale in the secondary market to Fannie Mae
with the Company retaining servicing on all loans sold. As part of these
transactions, the Company retains a portion of the associated credit risk. At
September 30, 2002, the Company's maximum potential exposure related to
secondary market sales to Fannie Mae under this program was $108.4 million. Such
amount will continue to increase as long as the Company continues to sell loans
under this program to Fannie Mae. The Company retains exposure until the
portfolio of loans sold to Fannie Mae are paid in entirety or the Company funds
claims by Fannie Mae for the maximum loss exposure. Although all of the loans in
the portfolio are currently fully performing, the Company has established a
liability related to the fair value of the retained credit exposure. At
September 30, 2002, the liability totaled $3.1 million. Also included in
mortgage-banking activities is the gain realized on the sales of single-family
residential mortgage loans and related servicing to Cendant.

The $0.3 million increase in mortgage-banking activities for the quarter
ended September 30, 2002 compared to the prior year quarter was primarily due to
$0.4 million higher gains on sales and $0.7 million of higher origination and
servicing fees partially offset by $0.9 million of amortization of capitalized
servicing rights. During the quarter ended September 30, 2002, the Company sold
$201.5 million of multi-family residential loans compared to $113.9 million
during the quarter ended September 30, 2001. The Company also sold $31.5 million
of single-family residential mortgage loans to Cendant in the quarter ended
September 30, 2002. The Company had a $5.1 million capitalized servicing asset
as of September 30, 2002.

Service fee income increased by $3.1 million, or 36.7% for the quarter
ended September 30, 2002 compared to the quarter ended September 30, 2001. The
increase was principally due to approximately $1.5 million in mortgage
prepayment fees combined with a $0.6 million increase in the Company's
modification and extension fees on mortgage loans due to the current interest
rate environment and resulting refinance market. In addition, banking fees
increased $0.7 million, or 10.3% related primarily to increased service fees on
deposit accounts resulting from the growth in core deposits, particularly
commercial demand deposits, as well as an increase in per unit charges and the
debit card program. The increase in fee income is

26

also partly due to increased fees of $0.1 million on the sales of mutual funds
and annuity products as investors seek investment opportunities providing
potentially higher returns than deposits.

Other non-interest income increased $0.6 million for the quarter ended
September 30, 2002 compared to the quarter ended September 30, 2001. The
increase was primarily attributable to gains of $1.3 million on the sale of two
surplus bank facilities sold in the normal course of business during the quarter
ended September 30, 2002. The increase was partially offset by a $0.6 million
refund from the FDIC on the overassessment of 1992 deposit insurance premiums
received during the quarter ended September 30, 2001.

Non-Interest Expenses

Non-interest expense increased $5.5 million to $43.4 million for the
quarter ended September 30, 2002 compared to the quarter ended September 30,
2001. This increase was primarily attributable to a $4.7 million increase in
compensation and benefits and a $1.5 million increase in other non-interest
expense. The Company currently expects to open approximately ten de novo branch
locations during the next twelve to eighteen months and as a result anticipates
experiencing higher annual operating costs. Effective April 1, 2001, the Company
adopted SFAS No. 142 which resulted in discontinuing the amortization of
goodwill. As a result, there was no amortization of goodwill for the comparative
quarters.

Compensation and employee benefits expense increased $4.7 million or 25.7%
to $23.0 million for the three months ended September 30, 2002 as compared to
the same period in the prior year. The increase was due to increases in
compensation of $2.7 million, incentive pay of $1.2 million, stock-benefit plan
costs of $0.6 million, $0.5 million of additional pension costs partially offset
by $0.5 million of lower post-retirement health care benefit costs. The
additional compensation and incentive pay was primarily the result of the
continuing build-up and expansion of the Company's infrastructure. During
calendar 2001 and 2002, the Company recruited several senior executives,
including a Chief Credit Officer and Chief Information Officer, to add to senior
management. In addition, the Company increased the number of highly experienced
senior lenders to serve pre-existing markets and to expand into neighboring
geographical areas. The Company also experienced increases as a result of the
expansion of retail banking initiatives, such as the addition of a
private/banking wealth management group in 2002.

Occupancy costs decreased $0.2 million or 4.3% to $5.5 million during the
three months ended September 30, 2002 as compared to the three months ended
September 30, 2001. Data processing service expenses decreased by $0.1 million
or 4.8% to $2.2 million during the three months ended September 30, 2002 as
compared to the three months ended September 30, 2001.

Amortization of intangible assets will continue under SFAS No. 142. The
Company's intangible assets consist primarily of core deposit intangibles
recorded as the result of premiums paid on deposits acquired from two branch
purchase transactions. Amortization of intangible assets decreased $0.2 million
during the quarter ended September 30, 2002 compared to the quarter ended
September 30, 2001. The decrease was due to the completion in April 2002 of the
amortization of the premium incurred in the acquisition in April 2001 of Summit
Bank's Mortgage-Banking Finance Group.

Other non-interest expenses increased $1.5 million or 19.3% to $9.5 million
for the three months ended September 30, 2002 compared to the same period in the
prior year. These costs primarily relate to branch facilities and back office
support associated with business initiatives. These expenses also include items
such as professional services, equipment expenses, office supplies, postage,
telephone expenses and maintenance and security.

On a linked quarter basis, non-interest expense decreased $1.7 million to
$43.4 million for the quarter ended September 30, 2002 compared to $45.1 million
the quarter ended June 30, 2002. The decreases were primarily due to a $0.7
million decrease in compensation and benefits, a $0.6 million decrease in
occupancy costs and a $0.4 million decrease in data processing fees. The
decrease in compensation and benefits was primarily due to a decrease in
incentive pay and postretirement health care benefits partially offset by an
increase in pension costs. The decrease in occupancy costs was primarily due to
a decrease in equipment amortization expense as certain assets became fully
amortized.

27

INCOME TAXES

Income tax expense amounted to $18.2 million and $12.7 million for the
three months ended September 30, 2002 and 2001, respectively. The increase
experienced in the 2002 period reflected the $15.3 million increase in the
Company's income before provision for income taxes partially offset by a
decrease in the Company's effective tax rate for the three months ended
September 30, 2002 to 36.3% compared to 36.5% for the three months ended
September 30, 2001.

As of September 30, 2002, the Company had a net deferred tax asset of $65.6
million including a $4.1 million valuation allowance. During fiscal 2001, the
Company recorded a $17.2 million adjustment of the deferred tax asset reflecting
the fair market value of stock contributed to the Foundation at its inception in
March 1998. The valuation allowance was also established during fiscal 2001 due
to the possibility that the deferred tax asset would not be fully utilized. The
valuation allowance relates to management's expectation that a portion of such
deferred tax asset may not be fully realized based on current projections of the
Company's future net income. The Company has identified the valuation of
deferred tax assets as a critical accounting policy.

COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
AND 2001

General

The Company reported a 55.6% increase in diluted earnings per share to
$1.68 for the nine months ended September 30, 2002 compared to $1.08 for the
nine months ended September 30, 2001. Net income increased 57.3% to $92.3
million for the nine months ended September 30, 2002 compared to $58.7 million
for the nine months ended September 30, 2001. Effective April 1, 2001, the
Company adopted SFAS No. 142, which resulted in discontinuing the amortization
of goodwill, which totaled $185.2 million at such date. As a result of the
adoption, net income increased by $3.6 million and diluted earnings per share
increased by $0.07 for the nine months ended September 30, 2002.

Cash earnings for the nine months ended September 30, 2002 increased 42.3%
to $105.9 million and increased 40.9% per diluted share to $1.93 compared to the
same period in the prior year. Cash earnings include net income adjusted for the
amortization of goodwill and intangibles and certain charges related to the
Company's stock benefit plans, net of tax.

Net Interest Income

Net interest income increased by $55.6 million or 31.5% to $232.3 million
for the nine months ended September 30, 2002 as compared $176.7 million for the
nine months ended September 30, 2001. The increase was due to a $49.7 million
decrease in interest expense combined with a $5.9 million increase in interest
income. The growth in net interest income primarily reflects the 68 basis point
increase in net interest margin as well as a $701.7 million increase in average
interest-earning assets during the nine months ended September 30, 2002 as
compared to the same period in the prior year. The increase in average
interest-earning assets was primarily attributable to growth in commercial
mortgage and business loans and mortgage-related securities.

The Company's net interest margin increased 68 basis points to 4.25% for
the nine months ended September 30, 2002 compared to 3.57% for the nine months
ended September 30, 2001. The improvement in net interest margin was directly
attributable to the Company's strategy to reduce the cost of interest-bearing
liabilities in order to offset the decline in the yield earned on
interest-earning assets resulting from the current interest rate environment.
For the nine months ended September 30, 2002 as compared to the nine months
ended September 30, 2001, the average rate paid on interest-bearing liabilities
decreased 135 basis points, more than offsetting the 60 basis point decline in
the average yield earned on interest-earning assets. This decline mirrored the
movement in the yield curve with short-term rates declining more rapidly than
longer term rates. Complementing the movement in the yield curve, the Company
contributed to the improvement in net interest margin by originating higher
yielding commercial loan products through its expanded presence in the New York
metropolitan market and the continuing evolution of a retail banking sales
culture focused on

28

delivering core deposits. In addition, the Company continued a disciplined
pricing strategy for deposits, which was effective in addressing the current
interest rate yield curve. Management expects that favorable repricing of
deposits should level off during the remainder of the calendar year.

Interest income increased by $5.9 million to $366.6 million for the nine
months ended September 30, 2002 compared to $360.7 million for the nine months
ended September 30, 2001. Interest income on loans increased $0.3 million due to
a $420.8 million increase in the average balance of loans largely offset by a 54
basis point decrease in the yield earned on loans from 7.63% for the nine months
ended September 30, 2001 to 7.09% for the nine months ended September 30, 2002.
The increase in the average balance is primarily due to a $484.7 million
increase in the average balance of commercial mortgage and business loans,
accompanied by a $103.5 million increase in the average balance of mortgage
warehouse lines of credit. The increase in the mortgage warehouse lines of
credit was due to internal growth of $20.0 million fueled by a robust
residential mortgage refinance market and the acquisition in April 2001 of $83.5
million of outstanding mortgage warehouse advances. In addition, the Company is
committed to maintaining its leadership position in the multi-family residential
origination market. As a consequence, increased the average balance of such
loans increased by $53.2 million for the nine months ended September 30, 2002
compared to the 2001 period. Partially offsetting the growth in these four
portfolios was a $258.5 million decrease in the aggregate average balance of the
Company's single-family and cooperative apartment loans due to both increased
prepayments as a result of the current interest rate environment as well as
decreased emphasis on originations. The Company primarily originates
single-family loans for sale through its previously discussed private label
program with Cendant. The decrease in yield is due to the current interest rate
yield curve and the Company's investment in commercial business loans and
mortgage warehouse lines of credit which are primarily variable-rate loans and
thus, are repricing downward in the current interest rate environment.

Income on investment securities declined $3.7 million due to a 68 basis
point decrease in the yield earned from 5.49% for the nine months ended
September 30, 2001 to 4.81% for the nine months ended September 30, 2002 and a
$70.9 million decrease in the average balance of investment securities for the
nine months ended September 30, 2002 compared to the same period in the prior
year. Interest income on mortgage-related securities increased $12.6 million
during the nine months ended September 30, 2002 compared to the nine months
ended September 30, 2001 as a result of a $352.7 million increase in the average
balance of these securities partially offset by a 51 basis point decrease in the
yield earned from 6.34% for the nine months ended September 30, 2001 to 5.83%
for the nine months ended September 30, 2002. The increase in the average
balance was primarily due to an increase of borrowings, the proceeds of which
were invested in mortgage-related securities. The declines in the yields on
securities reflected the decline in general market rates of interest experienced
during calendar 2002.

Income on other interest-earning assets (consisting primarily of interest
on federal funds and dividends on FHLB stock in the current period) decreased
$3.4 million in the current nine months compared to the same period in the prior
year due to a decrease of $2.1 million in interest on short-term investments and
a decrease of $1.3 million in dividends on FHLB stock.

Interest expense decreased $49.8 million or 27.0% to $134.3 million for the
nine months ended September 30, 2002 as compared to the nine months ended
September 30, 2001. This decrease primarily reflects a 175 basis point decrease
in the average rate paid on deposits to 1.74% for the nine months ended
September 30, 2002 compared to 3.49% for the nine months ended September 30,
2001. The decrease in rates was attributable to the continued disciplined
pricing strategy which was effective in addressing the current interest rate
yield curve. This decrease was partially offset by a $229.7 million increase in
the average balance of deposits as a result of the Company's continuing
evolution of a retail banking sales culture focused on increasing the amount of
lower costing core deposits. The average balance of core deposits increased
$683.2 million for the nine months ended September 30, 2002 compared to the nine
months ended September 30, 2001 as the Company was able to continue to shift the
composition of the deposit portfolio from higher costing time deposits to core
deposits. The $427.4 million increase in the average balance of FHLB borrowings,
which have primarily been used to fund the purchase of mortgage-related
securities and commercial mortgage and business loan originations, resulted in
additional interest expense of $9.3 million.

29

Provision for Loan Losses

The Company's provision for loan losses increased by $0.5 million to $6.0
million for the nine months ended September 30, 2002 compared to the nine months
ended September 30, 2001. The provision recorded reflected the Company's
increase in non-accrual loans, the increase in classified loans, increase in
delinquencies and charge-offs, the increase in mortgage warehouse advances, the
continued emphasis on commercial mortgage and business loan originations as well
as the recognition of current economic conditions.

Non-Interest Income

As a result of a variety of initiatives, the Company experienced a 26.7%
increase in non-interest income, from $40.0 million for the nine months ended
September 30, 2001 to $50.7 million for nine months ended September 30, 2002.

During the nine months ended September 30, 2002, the Company recognized net
gains of $0.6 million on the sales of loans and securities, substantially all of
which relates to the gain on the sale of equity securities. During the nine
months ended September 30, 2001, the Company recognized a net gain of $1.1
million primarily on the sale of $250.4 million of primarily preferred
securities.

In the nine months ended September 30, 2002, the Company's mortgage-banking
activities resulted in total revenue of $7.5 million compared to $9.6 million in
the nine months ended September 30, 2001. The Company continues to originate for
sale multi-family residential loans in the secondary market to Fannie Mae with
the Company retaining servicing on all loans sold. The Company also originates
and sells single-family residential mortgage loans and related servicing to
Cendant.

The $2.1 million decrease in mortgage-banking activities for the nine
months ended September 30, 2002 compared to the same period in the prior year
was primarily due to the establishment of the $3.1 million liability related to
the retained credit exposure and the $1.9 million additional amortization of
capitalized servicing rights partially offset by increases of $0.7 million of
gains on sales and $2.2 million of higher origination and servicing fees. During
the nine months ended September 30, 2002, the Company sold $624.5 million of
multi-family loans and $96.3 million of single-family loans. During the nine
months ended September 30, 2001, the Company sold $669.6 million, of which
$409.5 million were originated for sale and $260.1 million were sold from
portfolio.

Service fee income increased by $12.2 million, or 53.5% for the nine months
ended September 30, 2002 compared to the nine months ended September 30, 2001.
The increase was principally due to approximately $4.9 million in mortgage
prepayment fees combined with a $2.2 million increase in the Company's
modification and extension fees on mortgage loans due to the current interest
rate environment and resulting refinance market. In addition, other loan fees
increased $1.2 million and banking fees increased $2.1 million, or 12.3% related
primarily to increased service fees on deposit accounts resulting from the
growth in core deposits, particularly commercial demand deposits as well as an
increase in per unit charges and the debit card program. The increase in fee
income is also partly due to increased fees of $1.5 million on the sales of
mutual funds and annuity products as investors seek higher yielding investment
opportunities.

Income on BOLI increased $0.7 million, or 17.8% to $4.8 million for the
nine months ended September 30, 2002 compared to the nine months ended September
30, 2001 due to an increase in the cash surrender value of BOLI.

Non-Interest Expenses

Non-interest expense, excluding amortization of goodwill, increased $20.0
million to $132.2 million for the nine months ended September 30, 2002 compared
to the nine months ended September 30, 2001. This increase was primarily
attributable to a $15.3 million increase in compensation and benefits, $1.1
million increase in data processing fees and $4.0 million in other non-interest
expense. The Company currently expects to open approximately ten locations
during the next twelve to eighteen months and as a result anticipates higher
annual operating costs. Effective April 1, 2001, the Company adopted SFAS No.
142 which

30

resulted in discontinuing the amortization of goodwill. As a result,
amortization of goodwill decreased by $3.6 million for the nine months ended
September 30, 2002 compared to September 30, 2001.

Compensation and employee benefits expense increased $15.3 million or 28.5%
to $69.1 million for the nine months ended September 30, 2002 as compared to the
same period in the prior year. The increase was due to increases in compensation
of $7.4 million, incentive pay of $4.3 million, stock benefit plan costs of $2.3
million, medical costs of $0.9 million and pension costs of $0.2 million. The
additional compensation and incentive pay was primarily the result of the
continuation of building and expanding the Company's infrastructure. During
calendar 2001 and 2002, the Company recruited several senior executives,
including a Chief Credit Officer and Chief Information Officer, to add to senior
management. In addition, the Company increased the number of highly experienced
senior lenders to serve its pre-existing markets and to expand into neighboring
geographical areas. The Company also realized increases as a result of the
expansion of retail banking initiatives, such as the addition of a
private/banking wealth management group in 2002.

Occupancy costs remained level at $17.3 million for both the nine months
ended September 30, 2002 and 2001. The increase in occupancy expense as a result
of the expansion of operations resulting from the opening of five de novo
branches during the twelve months ended September 30, 2002 was offset by lower
equipment depreciation costs.

Data processing service expenses increased by $1.1 million or 17.6% to $7.3
million during the nine months ended September 30, 2002 as compared to the nine
months ended September 30, 2001. The increase was primarily the result of
additional costs associated with the expansion of operations resulting from the
five de novo branches opened during the twelve months ended September 30, 2002.

Amortization of intangible assets will continue under SFAS No. 142. The
Company's intangible assets consist primarily of core deposit intangibles
recorded as the result of premiums paid on deposits acquired from two branch
purchase transactions. Amortization of intangible assets decreased $0.3 million
during the nine months ended September 30, 2002 compared to the nine months
ended September 30, 2001. The decrease was due to the completion in April 2002
of the amortization of the premium incurred in the acquisition in April 2001 of
Summit Bank's Mortgage-Banking Finance Group.

Other non-interest expenses increased $4.0 million, or 16.2%, to $28.5
million for the nine months ended September 30, 2002 compared to $24.5 million
for the same period in the prior year. These costs primarily relate to branch
facilities and back office support associated with business initiatives. These
expenses also include items such as professional services, equipment expenses,
office supplies, postage, telephone expenses and maintenance and security.

Income Taxes

Income tax expense amounted to $52.5 million and $36.7 million for the nine
months ended September 30, 2002 and 2001, respectively. The increase experienced
in the 2002 period reflected the $49.4 million increase in the Company's income
before income taxes partially offset by a decrease in the Company's effective
tax rate for the nine months ended September 30, 2002 to 36.2% compared to 38.5%
for the nine months ended September 30, 2001. The decrease in effective tax rate
was primarily due to the adoption of SFAS No. 142, effective April 1, 2001,
which discontinues the amortization of non-tax-deductible goodwill for book
purposes.

31

REGULATORY CAPITAL REQUIREMENTS

The following table sets forth the Bank's compliance with applicable
regulatory capital requirements at September 30, 2002.

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

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

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

LIQUIDITY AND COMMITMENTS

The Company's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. The Company's
primary sources of funds are deposits, the amortization, prepayment and maturity
of outstanding loans, mortgage-related securities, the maturity of debt
securities and other short-term investments and funds provided from operations.
While scheduled payments from the amortization of loans, mortgage-related
securities and maturing debt securities and short-term investments are
relatively predictable sources of funds, deposit flows and loan prepayments are
greatly influenced by general interest rates, economic conditions and
competition. In addition, the Company invests excess funds in federal funds sold
and other short-term interest-earning assets that provide liquidity to meet
lending requirements. Prior to fiscal 1999, the Company generated sufficient
cash through its deposits to fund its asset generation, using borrowings from
the FHLB of New York only to a limited degree as a source of funds. However, due
to the Company's increased focus on expanding its commercial mortgage and
business loan portfolios, the Company increased its FHLB borrowings to $1.98
billion at September 30, 2002.

Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as federal funds sold, U.S. Treasury securities or preferred securities. On
a longer term basis, the Company maintains a strategy of investing in its
various lending products. The Company uses its sources of funds primarily to
meet its ongoing commitments, to pay maturing certificates of deposit and
savings withdrawals, fund loan commitments and maintain a portfolio of mortgage-
related securities and investment securities. At September 30, 2002, there were
outstanding commitments and unused lines of credit issued by the Company to
originate or acquire mortgage loans aggregating $383.2 million consisting
primarily of fixed and adjustable-rate multi-family residential loans and
fixed-rate commercial real estate loans, which are expected to close during the
twelve months ended September 30, 2003. In addition, at September 30, 2002,
unused commercial business lines of credit and mortgage warehouse lines of
credit outstanding were $171.8 million and $225.2 million, respectively. At
September 30, 2002 outstanding commitments for other loans totaled $85.4
million, primarily comprised of home equity loans and lines of credit.
Certificates of deposit at September 30, 2002 scheduled to mature in one year or
less totaled $1.22 billion. 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.

32

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

ALCO risk management strategies allow for the assumption of interest rate
risk within the Board approved limits. The strategies are formulated based upon
ALCO's assessments of likely market developments and trends in the Company's
lending and consumer banking businesses. Strategies are developed with the aim
of enhancing the Company's net income and capital, while ensuring the risks to
income and capital from adverse movements in interest rates are acceptable.
Management monitors the sensitivity of net interest income by utilizing a
dynamic simulation model complemented by a traditional GAP 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 reasonable. Factors
considered include contractual maturities, prepayments, repricing
characteristics, deposit retention and the relative sensitivity of assets and
liabilities to changes in market interest rates.

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

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

Based on the information and assumptions in effect at September 30, 2002,
the model shows that a 200 basis point gradual increase in interest rates over
the next twelve months would decrease net interest income by $5.6 million or
1.75%, while a 100 basis point gradual decrease in interest rates would decrease
net interest income by $5.3 million or 1.67%.

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 September 30, 2002, the Company's
one-year cumulative gap position improved to a negative 5.20%, compared to
negative 7.93% at June 30, 2002. A positive gap will generally result in the net
interest margin increasing in a rising rate environment and decreasing in a
falling rate environment. A negative gap will generally have the opposite
results on the net interest margin.

The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at September 30, 2002, that are
anticipated by the Company, using certain assumptions based on

33

historical experience and other market-based data, to reprice or mature in each
of the future time periods shown (the Gap Table). 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 Table sets forth an
approximation of the projected repricing of assets and liabilities at September
30, 2002 on the basis of contractual maturities, anticipated prepayments,
callable features and scheduled rate adjustments for selected time periods. The
actual duration of mortgage loans and mortgage-backed securities can be
significantly affected by changes in mortgage prepayment activity. The major
factors affecting mortgage prepayment rates are prevailing interest rates and
related mortgage refinancing opportunities. Prepayment rates will also vary due
to a number of other factors, including the regional economy in the area where
underlying collateral is located, seasonal factors and demographic variables.

The Gap Table does not indicate the effect of general interest rate
movements on the Company's net interest income because the actual repricing
dates of various assets and liabilities will differ from the Company's estimates
and it does not give consideration to the yields and costs of the assets and
liabilities or the projected yields and costs to replace or retain those assets
and liabilities. Callable features of certain assets and liabilities, in
addition to the foregoing, may also cause actual experience to vary from that
indicated. The uncertainty and volatility of interest rates, economic conditions
and other markets which affect the value of these call options, as well as the
financial condition and strategies of the holders of the options, increase the
difficulty and uncertainty in predicting when they may be exercised. Among the
factors considered in our estimates are current trends and historical repricing
experience with respect to similar products. As a result, different assumptions
may be used at different points in time. Within the one year time period, money
market accounts were assumed to decay at 55%, savings accounts were assumed to
decay at 30% and NOW accounts were assumed to decay at 40%. Deposit decay rates
(estimated deposit withdrawal activity) can have a significant effect on the
Company's estimated gap. While the Company believes such assumptions are
reasonable, there can be no assurance that assumed decay rates will approximate
actual future deposit withdrawal activity.

The following table reflects the repricing of the balance sheet, or "gap"
position at September 30, 2002.

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

(1) Based upon contractual maturity, repricing date, if applicable, and
management's estimate of principal prepayments.

(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 federal funds sold, overnight deposits and FHLB stock.

34

ITEM 4. CONTROLS AND PROCEDURES.

Under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, we have
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures within 90 days of the filing date of this quarterly
report, and based on their evaluation, our chief executive officer and chief
financial officer have concluded that these controls and procedures are
effective. There were no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.

Disclosure controls and procedures are our controls and other procedures
that 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
(the "Exchange Act") is recorded, processed, summarized and reported, within the
time periods specified in the Securities and Exchange Commission's rules and
forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by
us in the reports that we file under the Exchange Act is accumulated and
communicated to our management, including our chief executive officer and chief
financial officer, as appropriate to allow timely decisions regarding required
disclosure.

35

OTHER INFORMATION

b) Reports on Form 8-K

36

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

INDEPENDENCE COMMUNITY BANK CORP.

Date: November 13, 2002 By: /s/ ALAN H. FISHMAN
----------------------------------------------
Alan H. Fishman
President and
Chief Executive Officer

Date: November 13, 2002 By: /s/ JOHN B. ZURELL
----------------------------------------------
John B. Zurell
Executive Vice President and
Chief Financial Officer

37

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Date: November 13, 2002

38

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

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

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

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

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

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

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

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

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

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

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

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

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

/s/ JOHN B. ZURELL
--------------------------------------
John B. Zurell
Executive Vice President and Chief
Financial Officer

Date: November 13, 2002

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