<PAGE>   1

--------------------------------------------------------------------------------
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            ------------------------
                                   FORM 10-K

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

                   FOR THE FISCAL YEAR ENDED MARCH 31, 2001.

[ ]   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)

<TABLE>
<S>                                                <C>
                     DELAWARE                                          13-3387931
         (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)
</TABLE>

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

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

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

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file reports) and (2) has been subject to such
requirements for the past 90 days.  Yes  [X]     No  [ ].

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K  [X]

     As of June 8, 2001, there were 59,112,339 shares of the Registrant's common
stock issued and outstanding. The aggregate market value of the Registrant's
common stock (based on the closing price as quoted on June 8, 2001) held by
non-affiliates was approximately $905,972,557.

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

--------------------------------------------------------------------------------
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<PAGE>   2

INDEPENDENCE COMMUNITY BANK CORP.
2001 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

<TABLE>
<S>            <C>                                                             <C>
PART I
ITEM 1.        BUSINESS                                                          1
               Description of Business                                           1
               Market Area and Competition                                       1
               Lending Activities                                                2
               Asset Quality                                                    12
               Investment Activities                                            18
               Sources of Funds                                                 21
               Employees                                                        23
               Subsidiaries                                                     23
               Regulation of Savings and Loan Holding Companies                 24
               Regulation of State-Chartered Banks                              28
               Federal Taxation                                                 32
               State and Local Taxation                                         33
ITEM 2.        Properties                                                       34
ITEM 3.        Legal Proceedings                                                37
ITEM 4.        Submission of Matters to a Vote of Security Holders              38

PART II
ITEM 5.        Market for Independence Community Bank Corp.'s Common Equity     38
               and Related Stockholder Matters
ITEM 6.        Selected Consolidated Financial and Other Data                   39
ITEM 7.        Management's Discussion and Analysis of Financial Condition      41
               and Results of Operations
ITEM 7A.       Quantitative and Qualitative Disclosure About Market Risk        61
ITEM 8.        Financial Statements and Supplementary Data                      62
ITEM 9.        Changes in and Disagreements with Accountants on Accounting      94
               and Financial Disclosure

PART III
ITEM 10.       Directors and Executive Officers of Independence Community       94
               Bank Corp.
ITEM 11.       Executive Compensation                                           94
ITEM 12.       Security Ownership of Certain Beneficial Owners and              94
               Management
ITEM 13.       Certain Relationship and Related Transactions                    94

PART IV
ITEM 14.       Exhibits, Financial Statement Schedules, and Reports on Form     95
               8-K
SIGNATURES                                                                      97
</TABLE>
<PAGE>   3

1


PART I

ITEM 1. BUSINESS

INDEPENDENCE COMMUNITY BANK CORP.

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

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

INDEPENDENCE COMMUNITY BANK

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

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

MARKET AREA AND COMPETITION

     The Company has been, and intends to continue to be, a community-oriented
financial institution providing financial services and loans for housing and
commercial businesses within its market area. The Company oversees its 67 branch
office network from its headquarters located in downtown Brooklyn. The Company
operates 18 branch offices in the borough of Brooklyn, another nine in the
borough of Queens and eight more branches dispersed among Manhattan, the Bronx,
Staten Island and Nassau County. As a result of the acquisitions of Broad
National Bancorporation ("Broad"), Newark, New Jersey and Statewide Financial
Corp. ("Statewide"), Jersey City, New Jersey during fiscal 2000, the Company
also operates 32 branches in the northern New Jersey counties of Bergen, Essex,
Hudson, Middlesex and Union. The Company gathers deposits primarily from the
communities and neighborhoods in close proximity to its branches. Although the
Company lends throughout the New York City metropolitan area, the substantial
majority of its real estate loans are secured by properties located in the
boroughs of Brooklyn, Queens and Manhattan, Nassau County, Long Island, and the
counties in northern and central New Jersey. The Company's customer base, like
that of the urban neighborhoods which it serves, is racially and ethnically
diverse and is comprised of mostly middle-income households and, to a lesser
degree, low to moderate income households. The Company has sought to set itself
apart from its many competitors by tailoring its products and services to meet
the needs of its customers, by emphasizing customer service and convenience and
by being actively involved in community affairs in the neighborhoods and
communities which it serves. The Company believes that its commitment to
customer and community service has permitted it to build strong customer
identification and loyalty, which is essential to the Company's ability to
compete effectively.

     Over the past several years, despite the recent economic slowdown, the New
York City metropolitan area has benefited from the resurgence and growth in
employ-
<PAGE>   4

ITEM 1. BUSINESS (continued)


                                                                      2

ment and profitability experienced by national securities and investment banking
firms, many of which are domiciled in Manhattan, as well as the growth and
profitability of other financial service companies, such as money center banks.
Historically, the New York City metropolitan area has also benefited from being
the corporate headquarters of many large industrial and commercial companies
which have, in turn, attracted many smaller companies, particularly within the
service industry. The metropolitan area also offers well developed
transportation and communication systems and a highly skilled and educated work
force. In spite of its size and diversity, the New York City metropolitan area
economy is affected by the level of business activity and profitability within
the securities and financial services industries. During the late 1980s and
early 1990s, the securities and financial services industries experienced a
significant decline in business activity and profitability which, when combined
with a period of weakness in the national economy, resulted in higher levels of
unemployment in the New York City metropolitan area. These conditions and other
factors contributed to an overall decline in the value of commercial and
residential real estate. While real estate values have substantially recovered,
no assurance can be given that such conditions could not reoccur.

     The Company faces significant competition both in making loans and in
attracting deposits. There are numerous financial institutions located within
the Company's market area, many of which have greater financial resources than
the Company. The Company's competition for loans comes principally from
commercial banks, savings banks, savings associations, insurance companies,
financial service companies and mortgage-banking companies. Management
anticipates that competition for multi-family residential and commercial real
estate mortgage loans and commercial business loans will continue to increase in
the future. Accordingly, no assurance can be given that the Company will be able
to maintain the volume of originations of such loans at current levels. The
Company's most direct competition for deposits has historically come from
savings associations, savings banks, commercial banks and credit unions. The
Company faces additional competition for deposits from short-term money market
funds and other corporate and government securities funds, direct purchases of
government securities, equities market and from other financial institutions
such as brokerage firms and insurance companies. Competition also may increase
as a result of the elimination of restrictions on interstate operations of
financial institutions.

FORWARD LOOKING INFORMATION

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

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

LENDING ACTIVITIES

     GENERAL.  At March 31, 2001, the Company's net loan portfolio totaled $5.19
billion, which represented 74.0% of the Company's $7.01 billion of total assets
at such date. The single largest category of loans in the Company's portfolio is
multi-family residential mortgage loans, which totaled $2.62 billion or 49.8% of
the Company's total loan portfolio at March 31, 2001. Such loans are secured
primarily by apartment buildings located in the Company's market area. The
second and third largest categories are commercial real estate loans and single-
family residential mortgage loans which totaled $861.2 million or 16.4% and
$587.2 million or 11.1%, respectively, of the total loan portfolio at such date.
These three categories collectively accounted for 77.3% of the Company's total
loan portfolio at March 31, 2001. The remain-
<PAGE>   5

ITEM 1. BUSINESS (continued)

3


der of the loan portfolio was comprised of $436.8 million of commercial business
loans, $409.3 million of cooperative apartment loans, $206.7 million of advances
under warehouse mortgage lines of credit, $117.7 million of home equity loans
and lines of credit and $33.5 million of student and consumer and other loans.

     The types of loans that the Company may originate are subject to federal
and state laws and regulations. Interest rates charged by the Company on loans
are affected principally by the demand for such loans and the supply of money
available for lending purposes, the rates offered by its competitors and the
credit risk associated with the loan. These factors in turn, are affected by
general and economic conditions, the monetary policy of the federal government,
including the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"), legislative tax policies and governmental budgetary matters.
<PAGE>   6


                                                                      4

ITEM 1. BUSINESS (continued)

     LOAN PORTFOLIO COMPOSITION.  The following table sets forth the composition
of the Company's loans at the dates indicated.
<TABLE>
<CAPTION>
                                                                        AT MARCH 31,
                                  -----------------------------------------------------------------------------------------
                                          2001                   2000                   1999                   1998
                                  -----------------------------------------------------------------------------------------
                                               PERCENT                PERCENT                PERCENT                PERCENT
                                                 OF                     OF                     OF                     OF
(DOLLARS IN THOUSANDS)              AMOUNT      TOTAL      AMOUNT      TOTAL      AMOUNT      TOTAL      AMOUNT      TOTAL
---------------------------------------------------------------------------------------------------------------------------
<S>                               <C>          <C>       <C>          <C>       <C>          <C>       <C>          <C>
Mortgage loans on real estate:
  Single-family residential       $  587,153      11.1%  $  674,118      13.6%  $  491,523      14.0%  $  505,051      18.2%
  Cooperative apartment              409,344       7.8      462,185       9.3      458,165      13.1      380,866      13.7
  Multi-family residential(1)      2,620,888      49.8    2,731,104      55.2    2,195,879      62.6    1,605,058      57.6
  Commercial real estate             861,187      16.4      597,165      12.1      250,105       7.1      178,463       6.4
                                  ----------   -------   ----------   -------   ----------   -------   ----------   -------
  Total principal
     balance -- mortgage loans     4,478,572      85.1    4,464,572      90.2    3,395,672      96.8    2,669,438      95.9
  Less net deferred fees              10,588       0.2        8,727       0.2       10,529       0.3        9,403       0.3
                                  ----------   -------   ----------   -------   ----------   -------   ----------   -------
Total mortgage loans on real
  estate                           4,467,984      84.9    4,455,845      90.0    3,385,143      96.5    2,660,035      95.6
                                  ----------   -------   ----------   -------   ----------   -------   ----------   -------

Commercial business loans            436,751       8.3      253,606       5.1       39,362       1.1       31,550       1.1
                                  ----------   -------   ----------   -------   ----------   -------   ----------   -------

Other loans:
  Warehouse mortgage lines of
     credit                          206,707       3.9       48,175       1.0           --        --           --        --
  Home equity loans and lines of
     credit                          117,701       2.3      121,109       2.4       12,295       0.4       15,625       0.6
  Student loans                        1,200       0.0       39,260       0.8       41,633       1.2       43,946       1.6
  Consumer and other loans            32,289       0.6       34,318       0.7       28,382       0.8       30,869       1.1
                                  ----------   -------   ----------   -------   ----------   -------   ----------   -------
  Total principal
     balance -- other loans          357,897       6.8      242,862       4.9       82,310       2.4       90,440       3.3
  Less unearned discounts and
     deferred fees                     1,191       0.0        1,793       0.0          334       0.0          138       0.0
                                  ----------   -------   ----------   -------   ----------   -------   ----------   -------
Total other loans                    356,706       6.8      241,069       4.9       81,976       2.4       90,302       3.3
                                  ----------   -------   ----------   -------   ----------   -------   ----------   -------
Total loans receivable             5,261,441     100.0%   4,950,520     100.0%   3,506,481     100.0%   2,781,887     100.0%
                                  ----------   =======   ----------   =======   ----------   =======   ----------   =======
Less allowance for loan losses        71,716                 70,286                 46,823                 36,347
                                  ----------             ----------             ----------             ----------
Loans receivable, net             $5,189,725             $4,880,234             $3,459,658             $2,745,540
                                  ==========             ==========             ==========             ==========

<CAPTION>
                                      AT MARCH 31,
                                  --------------------
                                          1997
                                  --------------------
                                               PERCENT
                                                 OF
(DOLLARS IN THOUSANDS)              AMOUNT      TOTAL
--------------------------------  --------------------
<S>                               <C>          <C>
Mortgage loans on real estate:
  Single-family residential       $  552,745      21.8%
  Cooperative apartment              348,029      13.7
  Multi-family residential(1)      1,365,124      53.9
  Commercial real estate             158,336       6.3
                                  ----------   -------
  Total principal
     balance -- mortgage loans     2,424,234      95.7
  Less net deferred fees               9,645       0.4
                                  ----------   -------
Total mortgage loans on real
  estate                           2,414,589      95.3
                                  ----------   -------
Commercial business loans             25,249       1.0
                                  ----------   -------
Other loans:
  Warehouse mortgage lines of
     credit                               --        --
  Home equity loans and lines of
     credit                           19,545       0.8
  Student loans                       45,262       1.8
  Consumer and other loans            27,005       1.1
                                  ----------   -------
  Total principal
     balance -- other loans           91,812       3.7
  Less unearned discounts and
     deferred fees                       130       0.0
                                  ----------   -------
Total other loans                     91,682       3.7
                                  ----------   -------
Total loans receivable             2,531,520     100.0%
                                  ----------   =======
Less allowance for loan losses        27,024
                                  ----------
Loans receivable, net             $2,504,496
                                  ==========
</TABLE>

---------------
(1) Includes at March 31, 2001 and March 31, 2000, $674.8 million and $648.8
    million, respectively, of loans secured by mixed-use (combined residential
    and commercial use) properties.
<PAGE>   7

5


ITEM 1. BUSINESS (continued)

     CONTRACTUAL PRINCIPAL REPAYMENTS AND INTEREST RATES.  The following table
sets forth scheduled contractual amortization of the Company's loans at March
31, 2001, as well as the dollar amount of such loans which are scheduled to
mature after one year and which have fixed or adjustable interest rates. Demand
loans, overdraft loans and loans having no schedule of repayments and no stated
maturity are reported as due in one year or less.

<TABLE>
<CAPTION>
                                              PRINCIPAL REPAYMENTS CONTRACTUALLY DUE IN YEAR(S) ENDED MARCH 31,
                                 -------------------------------------------------------------------------------------------
                                  TOTAL AT
                                 MARCH 31,                                                  2006-       2012-
(IN THOUSANDS)                      2001        2002       2003       2004       2005        2011        2017     THEREAFTER
----------------------------------------------------------------------------------------------------------------------------
<S>                              <C>          <C>        <C>        <C>        <C>        <C>          <C>        <C>
Mortgage loans:
  Single-family residential(1)   $  571,476   $    951   $  2,608   $ 19,949   $  4,170   $   73,107   $ 75,472    $395,219
  Cooperative apartment             409,344        133      1,442      4,865      1,794        8,165     31,245     361,700
  Multi-family residential(2)     2,619,978    153,659    125,328    286.768    322,574    1,597,198    112,074      22,377
  Commercial real estate(3)         861,106     57,006     35,649     47,630     42,549      451,815    152,548      73,909
Commercial business loans           436,751    136,595     54,005     22,010     49,515      171,335      1,931       1,360
Other loans:
  Warehouse mortgage lines of
    credit                          206,707    206,707         --         --         --           --         --          --
  Consumer loans(4)                 151,190     21,247     23,255     23,510     13,435       60,358      9,385          --
                                 ----------   --------   --------   --------   --------   ----------   --------    --------
         Total(5)                $5,256,552   $576,298   $242,287   $404,732   $434,037   $2,361,978   $382,655    $854,565
                                 ==========   ========   ========   ========   ========   ==========   ========    ========
</TABLE>

---------------
(1) Does not include $15.7 million of single-family residential loans serviced
    by others.
(2) Does not include $1.0 million of multi-family residential loans serviced by
    others.
(3) Does not include $81,000 of commercial real estate loans serviced by others.
(4) Includes home equity loans and lines of credit, student loans, automobile
    loans and passbook loans.
(5) Of the $4.68 billion of loan principal repayments contractually due after
    March 31, 2002, $3.75 billion have fixed rates of interest and $932.6
    million have adjustable rates of interest.

     LOAN ORIGINATIONS, PURCHASES, SALES AND SERVICING. During fiscal 2001, the
Company focused on expanding its higher yielding portfolios of commercial real
estate, commercial business and mortgage warehouse lines of credit as part of
its business plan. To further expand these higher yielding portfolios, the
Company purchased in April 2001 the assets and employed the personnel of Summit
Bank's Mortgage Banking Finance Group, formerly a part of FleetBoston Financial
Corporation, a specialized lending group providing mortgage warehouse lines of
credit to mortgage bankers in the tri-state area. The acquisition increased the
Company's mortgage warehouse line of credit portfolio by $130 million in lines
with approximately $83 million in outstanding advances. The warehouse mortgage
lines of credit are secured short-term advances extended to mortgage-banking
companies primarily to fund the origination of one-to-four family mortgages. In
addition to continuing to generate mortgage loans for portfolio on multi-family
and commercial real estate, the Company also commenced a strategy to originate
and sell multi-family residential mortgage loans in the secondary market while
retaining servicing. This initiative supports the Company's ongoing strategic
objective to increase non-interest income related to lending and servicing
revenue.

     The Company originates both adjustable-rate mortgage loans and fixed-rate
mortgage loans, the relative volume of which is dependent upon customer demand
and market rates of interest. The Company generally retains all adjustable-rate
loans and fixed-rate residential mortgage loans with contractual terms of 15
years or less for its portfolio. In the past few years, the Company purchased
conventional single-family residential mortgage loans (loans not fully or
partially guaranteed by the Federal Housing Administration ("FHA") or the
Department of Veterans' Affairs ("VA")) and cooperative apartment loans
originated by a local mortgage banking firm on the Company's behalf. During
fiscal 2001, the Company did not purchase any conventional single-family
residential mortgage loans or cooperative loans from such mortgage banker in
favor of investing in higher yielding loan products.

     The Company generally sells (with servicing retained by the Company) newly
originated fixed-rate, single-family residential mortgage loans with contractual
terms of more than 15 years in the secondary market to either Fannie Mae
("FNMA") or Freddie Mac ("FHLMC"). It has also, on occasion in the past, sold
cooperative apartment loans and multi-family residential mortgage loans.
<PAGE>   8

ITEM 1. BUSINESS (continued)


                                                                      6

In fiscal 2001, the Company implemented a new program of originating
multi-family residential mortgage loans specifically for sale in the secondary
market. During fiscal 2001 the Company sold $509.9 million (of which $249.9
million were originated for sale) of multi-family loans in the secondary market
with servicing retained by the Bank. The Company realized a $3.6 million gain on
sale and $1.3 million in associated fees collected, recognizing a loan servicing
asset of $2.0 million at March 31, 2001. The Company will continue to emphasize
this program as a means of increasing non-interest income. In addition, during
fiscal 2001, the Company sold substantially its entire student loan portfolio as
part of its strategy to exit the student loan servicing business. The Company
realized a net gain of approximately $1.1 million on the sale of its portfolio.
The Company continues to offer student loans and has an agreement with a third
party which will purchase originated loans at a premium. As of March 31, 2001,
the Company serviced $658.7 million of mortgage loans for others. The Company
generally receives an annual fee equal to .05% to .375% of the outstanding
principal balance for servicing loans sold.

     In December 1998, Broad entered into an agreement with New Jersey Citizen
Action ("NJCA"), a community group, pursuant to which Broad agreed to use its
best efforts to lend a total of $20.0 million in the state of New Jersey over a
five year period beginning on January 1, 1999. Subsequent to the merger of Broad
and the Company in July 1999 and the merger of Statewide and the Company in
January 2000, the Bank entered into a modified agreement with NJCA pursuant to
which a revised target goal of extending $33.0 million in loans was established
for the five-year term of the agreement ending December 31, 2004. Such loans are
to consist primarily of affordable home mortgage products in the form of one-to-
four family mortgage loans to qualified low and moderate income borrowers,
community development financing consisting primarily of loans for the purpose of
purchasing, constructing and rehabilitating housing affordable to low and
moderate income families and economic development financing to facilitate small
business startup and expansion and job development. As of March 31, 2001, the
Company had extended approximately $27.8 million of loans in connection with the
NJCA agreement.
<PAGE>   9

ITEM 1. BUSINESS (continued)

7


     LOAN ACTIVITY.  The following table shows the activity in the Company's
loan portfolio during the periods indicated.

<TABLE>
<CAPTION>
                                                                       YEAR ENDED MARCH 31,
                                                              --------------------------------------
(IN THOUSANDS)                                                   2001          2000          1999
----------------------------------------------------------------------------------------------------
<S>                                                           <C>           <C>           <C>
Total principal balance of loans held at the beginning of
  period                                                      $4,961,040    $3,517,344    $2,791,428
Acquired from Broad acquisition                                       --       362,514            --
Acquired from Statewide acquisition                                   --       398,974            --
                                                              ----------    ----------    ----------
          Total acquired from acquisitions                            --       761,488            --
                                                              ----------    ----------    ----------
Originations of loans for portfolio:
  Single-family residential                                       14,663        33,828       109,477
  Cooperative apartment                                            5,507        74,868       164,062
  Multi-family residential                                       288,328       784,788       789,253
  Commercial real estate                                         332,860       237,389       105,816
  Commercial business loans                                      345,702       142,257        21,799
  Warehouse mortgage lines of credit(1)                        1,821,622       194,994            --
  Consumer(2)                                                     57,167        47,252        28,023
                                                              ----------    ----------    ----------
          Total originations for portfolio                     2,865,849     1,515,376     1,218,430
                                                              ----------    ----------    ----------
Multi-family residential loans originated for sale               253,031            --            --
Purchases of loans:
  Single-family residential                                           --         2,138         3,738
  Cooperative apartment loans                                         --         6,266        13,747
  Multi-family residential                                            --            --        43,126
                                                              ----------    ----------    ----------
          Total purchases                                             --         8,404        60,611
                                                              ----------    ----------    ----------
          Total originations and purchases                     3,118,880     1,523,780     1,279,041
Loans sold:
  Single-family residential                                           --         1,867        28,162
  Cooperative apartment loans                                         --           675        11,761
  Multi-family residential                                       509,930            --            --
  Consumer(2)                                                     35,710            --            --
                                                              ----------    ----------    ----------
          Total sold                                             545,640         2,542        39,923
Repayments(3)                                                  2,261,060       839,030       513,202
                                                              ----------    ----------    ----------
Net loan activity                                                312,180     1,443,696       725,916
                                                              ----------    ----------    ----------
          Total principal balance of loans held at the end
            of period                                          5,273,220     4,961,040     3,517,344
Less:
  Discounts on loans purchased and net deferred fees at end
     of period                                                   (11,779)      (10,520)      (10,863)
                                                              ----------    ----------    ----------
          Total loans receivable at end of period             $5,261,441    $4,950,520    $3,506,481
                                                              ==========    ==========    ==========
</TABLE>

---------------
(1) Represents primarily advances on the lines.
(2) Includes home equity loans and lines of credit, student loans, automobile
    loans, passbook loans, personal loans and credit card loans.
(3) Includes repayment of line advances ($1.66 billion for warehouse mortgage
    lines of credit) and loans charged-off or transferred to other real estate
    owned.

     MULTI-FAMILY RESIDENTIAL AND COMMERCIAL REAL ESTATE LENDING.  The Company
originates multi-family (five or more units) residential mortgage loans which
are secured primarily by apartment buildings, cooperative apartment buildings
and mixed-use (combined residential and commercial) properties located primarily
in the Company's market area. At March 31, 2001, multi-family residential
mortgage loans totaled $2.62 billion, or 49.8% of the Company's total loan
portfolio. Historically, the Company has been an active multi-family residential
mortgage lender and this portion of the Company's loan portfolio has grown
substantially during the last several years, reflecting the Company's emphasis
on such lending. However, during fiscal 2001, the Company put a greater emphasis
on the origination of higher yielding loan products, such as commercial real
estate and commercial business loans. In addition to continuing to generate
mortgage loans on multi-family and commercial real es-
<PAGE>   10

ITEM 1. BUSINESS (continued)


                                                                      8

tate, the Company also commenced a strategy to originate and sell multi-family
residential mortgage loans in the secondary market while retaining servicing.
The main competitors for loans in the Company's market area tend to be local
banks and savings institutions as well as insurance companies. Multi-family
residential mortgage loans in the Company's portfolio generally range in amount
from $500,000 to $4.0 million and have an average size of approximately $2.0
million. The Company's multi-family residential mortgage loans are comprised
primarily of middle-income housing located in the boroughs of Brooklyn, Queens,
Manhattan and the Bronx.

     In connection with the implementation of the Company's business plan to
increase the volume of multi-family residential loan originations, originally
for portfolio retention and now as well for sale in the secondary market, the
Company has developed during the past several years working relationships with
several mortgage brokers. Under the terms of the arrangements with such brokers,
the brokers refer potential loans to the Company. The loans are originated and
underwritten by the Company utilizing its usual underwriting policies and
standards. The mortgage brokers receive a fee from the borrower upon the funding
of the loans by the Company. In recent years, mortgage brokers have been the
source of a substantial majority of the multi-family residential loans
originated by the Company.

     When approving new multi-family residential mortgage loans, the Company
follows a set of underwriting standards which it believes are conservative, and
which generally permit a maximum loan-to-value ratio of 75% based on an
appraisal performed by either one of the Company's in-house licensed and
certified appraisers or by a Company-approved licensed and certified independent
appraiser (whose appraisal is reviewed by a Company licensed and certified
appraiser), and sufficient cash flow from the underlying property to adequately
service the debt. A minimum debt service ratio of 1.3 generally is required on
multi-family residential mortgage loans. The Company also considers the
financial resources of the borrower, the borrower's experience in owning or
managing similar properties, the market value of the property and the Company's
lending experience with the borrower. The Company's current lending policy
requires that loans in excess of $500,000 be approved by two non-officer
directors of the Credit Committee of the Board of Directors.

     The Company's multi-family residential mortgage loans include loans secured
by cooperative apartment buildings. In underwriting these loans, the Company
applies the normal underwriting criteria used with other multi-family
properties. In addition, the Company generally will not make a loan on a
cooperative apartment building unless at least 65% of the total units in the
building are owner-occupied. However, the Company will consider making a loan
secured by a cooperative apartment building if it has a large positive rental
income which significantly exceeds maintenance expense. At March 31, 2001, the
Company had $549.3 million of loans secured by cooperative apartment buildings
located primarily in Manhattan.

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

     In addition to multi-family residential mortgage loans, the Company
originates commercial real estate loans which, at March 31, 2001, amounted to
$861.2 million or 16.4% of total loans. This portfolio increased $264.0 million,
or 44.2%, during fiscal 2001 due to the Company's increased emphasis on
originating higher yielding commercial business loans in connection with
changing the composition of its loan portfolio to be more commercial bank-like.
This growing portfolio is comprised primarily of loans secured by commercial and
industrial properties, as well as nursing homes, funeral homes, office
buildings, schools and small shopping centers located primarily within the
Company's market area. The Company intends to continue to emphasize these higher
yielding loan products. The Company's commercial real estate loans generally
range in amount from $50,000 to $4.0 million, and have an average size of
approximately $750,000. The Company originates commercial real estate loans
using similar underwriting standards as applied to multi-family residential
mortgage loans. In addition, the Company reviews rent or lease income, rent
rolls, business receipts, the borrower's credit history and business experience,
and comparable values of similar properties when underwriting commercial real
estate loans.

     Loans secured by apartment buildings and other multi-family residential and
commercial properties generally are larger and considered to involve a greater
degree of risk than single-family residential mortgage loans. Pay-
<PAGE>   11

ITEM 1. BUSINESS (continued)

9


ments on loans secured by multi-family residential and commercial properties are
often dependent on the successful operation or management of the properties and
are subject, to a greater extent, to adverse conditions in the real estate
market or the economy. The Company seeks to minimize these risks through its
underwriting policies, which generally limit the origination of such loans to
loans secured by properties located in the Company's market area and require
such loans to be qualified on, among other things, the basis of the property's
income and debt service ratio. In addition to the credit risks involved in
multi-family residential lending, the ability of the Company to continue to
originate such loans at the levels experienced in the past may be a function of,
among other things, maintaining the mortgage broker relationships discussed
above.

     SINGLE-FAMILY RESIDENTIAL AND COOPERATIVE APARTMENT LENDING.  The Company
offers residential first mortgage loans secured primarily by owner-occupied
single-family (one to four units) residences. The Company also originates loans
to individuals secured by shares of individual cooperative apartments. Over the
past few years, the Company reduced its emphasis on originating both
single-family residential and cooperative apartment loans in favor of higher
yielding, commercial real estate and business loans. At March 31, 2001, $587.2
million or 11.1% and $409.3 million or 7.8% of the Company's total loan
portfolio consisted of single-family residential mortgage loans and cooperative
apartment loans, respectively. The substantial majority of these loans are
secured by properties located in the New York boroughs of Brooklyn, Queens,
Manhattan and various counties in central and northern New Jersey. The Company
offers conforming and non-conforming fixed-rate and adjustable-rate mortgage
loans ("ARMs") with maturities of up to 30 years and a maximum loan amount
generally not exceeding $1.0 million. At March 31, 2001, ARMs represented $708.4
million of the aggregate total of single-family residential mortgage loans and
cooperative apartment loans.

     The Company's residential loan originations are generally obtained from
existing or past loan customers, depositors of the Company, members of the local
community and referrals from attorneys, branch referrals, realtors and
independent mortgage brokers who refer members of the communities located in the
Company's market area. The Company is a participating seller/servicer with the
FNMA and the FHLMC, and generally underwrites its fixed-rate single-family
residential mortgage loans to conform with standards required by these agencies.
Included in single-family residential loans is a modest amount of loans
partially or fully guaranteed by the FHA or the VA.

     The Company continues to originate cooperative apartment loans although at
a substantially reduced level of activity. Although the collateral for
cooperative apartment loans consists of shares in a cooperative housing
corporation (a corporation whose primary asset is the underlying real estate),
cooperative apartment loans generally are treated as single-family residential
mortgage loans. At March 31, 2001, such loans amounted to $409.3 million or 7.8%
of the Company's total loan portfolio. Although the Company's cooperative
apartment loans in the past have related to properties located in the boroughs
of Manhattan, Brooklyn and Queens, in recent periods substantially all of such
loans originated or purchased have related to properties located in Manhattan,
with a significant number of such loans having original loan balances in excess
of $300,000.

     The Company's single-family residential mortgage loans and cooperative
apartment loans include ARMs and fixed-rate loans. The Company currently offers
a variety of ARMs, including one which permits the borrowers to convert the loan
to a fixed interest rate. The Company's ARMs also currently include loans which
adjust every one or three years as well as loans with an established rate for
the initial five or seven years of the loan and which adjust every three years
thereafter. All of the Company's ARMs have a 30 year term to maturity. The
interest rate on the Company's ARMs fluctuates based upon a spread above the
average yield on United States Treasury securities, adjusted to a constant
maturity which corresponds to the adjustment period of the loan (the "U.S.
Treasury constant maturity index") as published weekly by the Federal Reserve
Board. In addition, ARMs generally are subject to limitations on interest
increases or decreases of 2% per adjustment period and an interest rate cap
during the life of the loan established at the time of origination.

     The retention of ARMs in the Company's loan portfolio helps reduce the
Company's exposure to increases in interest rates. However, ARMs generally pose
credit risks different from the risks inherent in fixed-rate loans, primarily
because as interest rates rise, the underlying payments of the borrower rise,
thereby increasing the potential for defaults. At the same time, the
marketability of the underlying property may be adversely affected. In order to
minimize risks, ARM borrowers are qualified at the rate which would be in effect
after the first interest rate adjustment, if that rate is higher than the
initial rate. These loans could negatively impact interest income in a declining
interest rate environment. The Company has not in the past, nor does it
currently, originate ARMs with negative amortization.
<PAGE>   12

ITEM 1. BUSINESS (continued)


                                                                     10

     The Company's fixed-rate, single-family residential mortgage loans and
cooperative apartment loans have terms of up to 30 years. Interest rates charged
on fixed-rate loans are competitively priced based on market conditions. The
Company generally originates fixed-rate loans with terms and in amounts
conforming to the maximum guidelines of the FNMA and the FHLMC.

     Under the Company's underwriting guidelines, ARMS can be originated with
loan-to-value ratios of up to 80%. Fixed-rate, single-family residential
mortgage loans can be originated with loan-to-value ratios of up to 95%;
provided, however, that private mortgage insurance is required for loans with
loan-to-value ratios in excess of 80%.

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

     Substantially all of the Company's mortgage loans include due-on-sale
clauses which provide the Company with the contractual right to deem the loan
immediately due and payable in the event the borrower transfers ownership of the
property without the Company's consent. It is the Company's policy to enforce
due-on-sale provisions within the applicable regulations and guidelines imposed
by New York law.

     COMMERCIAL BUSINESS LENDING ACTIVITIES.  The Company's strategy to shift
its portfolio to a more commercial bank-like composition has resulted in
significantly expanding its commercial business loan portfolio. The Company
makes commercial business loans directly to businesses located in its market
area and targets small- and medium-sized businesses with the bulk of the loans
being originated for amounts less than $1.0 million. Applications for commercial
business loans are obtained primarily from existing customers, branch referrals
and direct inquiry. As of March 31, 2001, commercial business loans totaled
$436.8 million, or 8.3%, of the Company's total loan portfolio.

     Commercial business loans originated by the Company generally have terms of
five years or less and adjustable interest rates tied to prime rate plus a
margin. Such loans are generally secured by real estate, receivables, inventory,
equipment, machinery and vehicles and are further enhanced by the personal
guarantees of the principals of the borrower. Commercial business loans
generally have shorter terms to maturity and provide higher yields than
residential mortgage loans. Although commercial business loans generally are
considered to involve greater credit risk, and generally a corresponding higher
yield, than certain other types of loans, management intends to continue
emphasizing the origination of commercial business loans to small- and
medium-sized businesses in its market area.

     WAREHOUSE MORTGAGE LINES OF CREDIT.  The Mortgage Funding group, acquired
as a result of the Statewide acquisition, originates revolving lines of credit
to small-and medium-sized mortgage banking companies at interest rates
approximating the prime rate. The lines are drawn upon by such companies to fund
the origination of mortgages, primarily one-to-four family loans, where the
amount of the draw is generally no higher than 97% of the loan amount, which, in
turn, is no higher than 80% of the appraised value of the property. Generally,
prior to funding the advance, the mortgage broker has an approved commitment for
the sale of the loan which in turn reduces credit exposure associated with the
line. The lines are repaid upon completion of the sale of the mortgage loan to
third parties which usually occurs within 90 days of origination of the loan.
During the period between the origination and sale of the loan, the Company
maintains possession of the original mortgage note. The customers of the
Mortgage Funding group are located primarily in New Jersey and surrounding
states. These loans are of short duration and are made to a customer base whose
primary business is mortgage refinancing. In the event of rising interest rates,
the Company expects that utilization of these lines of credit would be
substantially reduced and replaced only to the extent of strength in the general
housing markets. As of March 31, 2001, advances under warehouse mortgage lines
of credit totaled $206.7 million, or 3.9% of the Company's total loan portfolio.

     To further expand this product line, the Company, in April 2001, purchased
the assets and employed the personnel of the Summit Group, a specialized lending
group providing mortgage warehouse lines of credit to mortgage bankers in New
York, New Jersey and Connecticut. The acquisition increased the mortgage
warehouse line of credit portfolio by $130 million in lines with approximately
$83 million in outstanding advances at the time of acquisition.

     CONSUMER LENDING ACTIVITIES.  The Company offers a variety of consumer
loans including home equity loans
<PAGE>   13

ITEM 1. BUSINESS (continued)

11


and lines of credit, automobile loans, student loans and passbook loans in order
to provide a full range of financial services to its customers. Such loans are
obtained primarily through existing and walk-in customers and direct
advertising. At March 31, 2001, $151.2 million or 2.9% of the Company's total
loan portfolio was comprised of consumer loans.

     The largest component of the Company's consumer loan portfolio is home
equity loans and lines of credit. Home equity lines of credit are a form of
revolving credit and are secured by the underlying equity in the borrower's
primary or secondary residence. The Company's home equity lines of credit have
interest rates that adjust or float based on the prime rate, loan-to-value
ratios of 80% or less, and are generally for amounts of less than $100,000 but
can be as high as $300,000. The loan repayment is based on a 15 year term
primarily consisting of level principal amortization plus accrued interest. At
March 31, 2001, home equity loans and lines of credit amounted to $117.7
million, or 2.3%, of the Company's total loan portfolio. The Company had an
additional $48.3 million of unused commitments pursuant to such equity lines of
credit. At March 31, 2001, the Company's consumer loan portfolio included $11.2
million of FHA Title 1 home improvement loans acquired in connection with the
Statewide acquisition. Based on the Company's strategy to build customer
relationships through more direct sales efforts within its branch network,
indirect lending originations such as FHA Title 1 home improvement loans have
been curtailed.

     The second largest component of the Company's consumer loan portfolio is
automobile loans which totaled $14.3 million at March 31, 2001, of which 61.2%
were originated directly with the Company's customers, rather than indirectly
through automobile dealers. The car collateralizes the loan, with the Company
lending up to 90% of the value of the car. The loans generally amortize over a
two to five year period and can be used to purchase either a new or used car.
The Company also participated in indirect automobile lending through an
agreement with an independent finance company. Under the terms of the lending
program, the finance company granted the Company full recourse throughout the
lives of the loans the Company purchased. Based on the Company's strategy to
build customer relationships through direct sales efforts, indirect automobile
lending has been discontinued.

     During fiscal 2001, the Company sold substantially all of its student loan
portfolio as part of its strategy to exit the student loan servicing business.
The Company continues to offer this product and has an agreement with a third
party which will purchase the loans at a premium. These loans are originated
under the auspices of either the New York State Higher Education Service
Corporation ("NYSHESC") or the New Jersey Higher Education Assistance Authority
("NJHEAA").

     At March 31, 2001, the remaining $18.0 million of the Company's consumer
loan portfolio was comprised primarily of passbook loans, which are secured by
the borrowers' deposits at the Bank, and other unsecured loans. During fiscal
2000 the Company sold its entire credit card portfolio. The Company has an
agreement with another financial institution to act as their agent and offer
credit cards in the Company's market area for which the Company receives a per
unit fee, but the Company does not record an asset or assume any related credit
risk.

     Consumer loans generally have shorter terms and higher interest rates than
residential mortgage loans but generally involve more credit risk than
residential mortgage loans because of the type and nature of the collateral and,
in certain cases, the absence of collateral. These risks are not as prevalent in
the case of the Company's consumer loan portfolio, however, because a majority
of the portfolio is comprised of home equity loans and lines of credit which are
secured by real estate. The loans are underwritten in a manner such that they
result in a lending risk which is similar to that of single-family residential
mortgage loans.

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

     The Company's policy limits the amount of credit related to mortgage loans
and cooperative share loans that can be extended to any one borrower to 15% of
the Bank's stockholder's equity. With certain exceptions, the Com-
<PAGE>   14

ITEM 1. BUSINESS (continued)


                                                                     12

pany's policy also limits the amount of commercial business loans that can be
extended to any one borrower to $6.0 million and to any affiliated borrowing
group to 5% of the Bank's aggregate capital. With certain limited exceptions, a
New York chartered-savings bank may not make loans or extend credit for
commercial, corporate or business purposes (including lease financing) to a
single borrower, the aggregate amount of which would exceed (i) 15% of the
Bank's net worth if the loan is unsecured, or (ii) 25% of net worth if the loan
is secured.

     For all single-family residential mortgage loans and cooperative apartment
loans originated by the Company, upon receipt of a completed loan application
from a prospective borrower, a credit report is ordered, income, assets and
certain other information are verified by an independent credit agency, and if
necessary, additional financial information is required to be submitted by the
borrower. An appraisal of the real estate securing single-family residential
mortgage and cooperative apartment loans is required, which is performed by an
independent appraiser. With respect to multi-family residential and commercial
real estate loans, the appraisals are conducted by licensed and certified
appraisers. In addition, the appraisals conducted by independent appraisers on
multi-family residential and commercial real estate properties are internally
reviewed by the Company. It is the Company's policy to require appropriate
insurance protection, including title and hazard insurance, on all mortgage
loans prior to closing. Other than cooperative apartment loans, mortgage loan
borrowers generally are required to advance funds for certain items such as real
estate taxes, flood insurance and private mortgage insurance, when applicable.

     LOAN ORIGINATION AND LOAN FEES.  In addition to interest earned on loans,
the Company receives loan origination fees or "points" for many of the loans it
originates. Loan points are a percentage of the principal amount of the mortgage
loan and are charged to the borrower in connection with the origination of the
loan. During fiscal 2001, the Company offered a number of residential loan
products on which no points were charged.

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
91, which addresses the accounting for non-refundable fees and costs associated
which originating or acquiring loans, the Company's loan origination fees and
certain related direct loan origination costs are offset, and the resulting net
amount is deferred and amortized over the contractual life of the related loans
as an adjustment to the yield of such loans. At March 31, 2001, the Company had
$11.8 million of net deferred loan fees.

ASSET QUALITY

     The Company generally places loans on non-accrual status when interest
payments become more than 90 days past due. However, student, FHA or VA loans
continue to accrue interest because their interest payments are guaranteed by
various government programs and agencies. Loans may be placed on non-accrual
status earlier if management believes that collection of interest is doubtful.
When a loan is placed on non-accrual status, previously accrued but unpaid
interest is deducted from interest income.

     Real estate acquired by the Company as a result of foreclosure or by
deed-in-lieu of foreclosure is classified as other real estate owned ("OREO")
until sold. Such assets are carried at the lower of fair value minus estimated
costs to sell the property, or cost (generally the balance of the loan on the
property at the date of acquisition). After the date of acquisition, all costs
incurred in maintaining the property are expensed and costs incurred for the
improvement or development of such property are capitalized up to the extent of
their net realizable value.
<PAGE>   15

13


ITEM 1. BUSINESS (continued)

     DELINQUENT LOANS.  The following table sets forth delinquencies in the
Company's loan portfolio as of the dates indicated:
<TABLE>
<CAPTION>
                                   AT MARCH 31, 2001                         AT MARCH 31, 2000              AT MARCH 31, 1999
                        ------------------------------------------------------------------------------------------------------
                            60-89 DAYS        90 DAYS OR MORE         60-89 DAYS        90 DAYS OR MORE         60-89 DAYS
                        ------------------------------------------------------------------------------------------------------
                        NUMBER   PRINCIPAL   NUMBER   PRINCIPAL   NUMBER   PRINCIPAL   NUMBER   PRINCIPAL   NUMBER   PRINCIPAL
                          OF      BALANCE      OF      BALANCE      OF      BALANCE      OF      BALANCE      OF      BALANCE
(DOLLARS IN THOUSANDS)  LOANS    OF LOANS    LOANS    OF LOANS    LOANS    OF LOANS    LOANS    OF LOANS    LOANS    OF LOANS
------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>      <C>         <C>      <C>         <C>      <C>         <C>      <C>         <C>      <C>
Mortgage loans:
  Single-family
     residential          20      $  935       68      $ 5,035      29      $1,373       71      $ 3,712      35      $1,665
  Cooperative
     apartment             2         102        9          211       3         219       11          243       7         365
  Multi-family
     residential           2         288        3          524       3         357        6        1,128       3         845
  Commercial real
     estate                4       1,048       11        3,477      --          --       14        3,281      --          --
Commercial business
  loans                   11       2,453       19        6,795       7         227       13        3,821      --          --
Consumer loans(1)         84         778       84        1,573     319       1,618      611        2,649     190         767
                         ---      ------      ---      -------     ---      ------      ---      -------     ---      ------
          Total          123      $5,604      194      $17,615     361      $3,794      726      $14,834     235      $3,642
                         ===      ======      ===      =======     ===      ======      ===      =======     ===      ======
Delinquent loans to
  total loans(2)                    0.11%                 0.33%               0.08%                 0.30%               0.10%
                                  ======               =======              ======               =======              ======

<CAPTION>
                        AT MARCH 31, 1999
                        ------------------
                         90 DAYS OR MORE
                        ------------------
                        NUMBER   PRINCIPAL
                          OF      BALANCE
(DOLLARS IN THOUSANDS)  LOANS    OF LOANS
----------------------  ------------------
<S>                     <C>      <C>
Mortgage loans:
  Single-family
     residential          54      $2,684
  Cooperative
     apartment            12         381
  Multi-family
     residential           4         830
  Commercial real
     estate                3         962
Commercial business
  loans                    1         367
Consumer loans(1)        419       1,230
                         ---      ------
          Total          493      $6,454
                         ===      ======
Delinquent loans to
  total loans(2)                    0.18%
                                  ======
</TABLE>

---------------
(1) Includes home equity loans and lines of credit, student loans, automobile
    loans, passbook loans, personal loans and credit card loans.
(2) Total loans includes loans receivable less deferred loan fees and
    unamortized discounts, net.
<PAGE>   16


                                                                     14

ITEM 1. BUSINESS (continued)

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

<TABLE>
<CAPTION>
                                                                    AT MARCH 31,
                                                 ---------------------------------------------------
(DOLLARS IN THOUSANDS)                            2001       2000       1999       1998       1997
----------------------------------------------------------------------------------------------------
<S>                                              <C>        <C>        <C>        <C>        <C>
Non-accrual loans:
  Mortgage loans:
     Single-family residential                   $ 5,035    $ 3,712    $ 2,809    $ 4,423    $ 2,474
     Cooperative apartment                           211        243        381        509        427
     Multi-family residential                        524      1,128        830      1,190      1,918
     Commercial real estate                        3,477      3,281      2,687      4,782     11,155
  Commercial business loans                        6,795      3,821        367        349        790
  Other loans                                        151         33         33         82        166
                                                 -------    -------    -------    -------    -------
          Total non-accrual loans                 16,193     12,218(1)   7,107     11,335     16,930
                                                 -------    -------    -------    -------    -------
Loans past due 90 days or more as to:
  Interest and accruing(2)                         1,422      2,616      1,197      1,607      1,718
  Principal and accruing(3)                       17,750     11,516     30,805     16,804      8,442
                                                 -------    -------    -------    -------    -------
          Total past due loans and accruing       19,172     14,132     32,002     18,411     10,160
                                                 -------    -------    -------    -------    -------
          Total non-performing loans              35,365     26,350     39,109     29,746     27,090
                                                 -------    -------    -------    -------    -------
Other real estate owned, net(4)                      235         68        273        192        540
                                                 -------    -------    -------    -------    -------
Total non-performing assets(5)                   $35,600    $26,418    $39,382    $29,938    $27,630
                                                 =======    =======    =======    =======    =======
Non-performing loans as a percent of total
  loans                                             0.67%      0.53%      1.12%      1.07%      1.07%
Non-performing assets as a percent of total
  assets                                            0.51%      0.40%      0.71%      0.57%      0.74%
Allowance for loan losses as a percent of total
  loans                                             1.36%      1.42%      1.34%      1.31%      1.07%
Allowance for loan losses as a percent of non-
  performing loans                                202.79%    266.74%    119.72%    122.19%     99.76%
</TABLE>

---------------
(1) Includes $2.0 million of loans acquired in the Broad acquisition and $1.3
    million of loans acquired in the Statewide acquisition.
(2) Consists primarily of home equity loans and lines of credit.
(3) Reflects loans more than 90 days or more past maturity which continue to
    make payments on a basis consistent with the original repayment schedule.
(4) Net of related loss allowances.
(5) Non-performing assets consist of non-performing loans and OREO.
    Non-performing loans consist of non-accrual loans and loans 90 days or more
    past due as to interest or principal and accruing.

     Non-performing assets increased 34.8% to $35.6 million at March 31, 2001,
compared to $26.4 million at March 31, 2000. The increase of $9.2 million
reflects increases of $3.0 million in non-accrual commercial business loans and
$6.2 million of loans 90 days or more past maturity which continued to make
payments on a basis consistent with the original repayment schedule. Such loans
amounted to $17.8 million at March 31, 2001 and consisted primarily of $10.4
million of multi-family residential loans and $7.0 million of commercial real
estate loans. At March 31, 2001, the $10.4 million of contractually past due
multi-family residential loans consisted of 16 loans with an average principal
balance of approximately $653,000, while the $7.0 million of contractually past
due commercial real estate loans consisted of 35 loans with an average principal
balance of approximately $201,000.

     The Company's multi-family residential and commercial real estate loans are
generally structured as a five or ten year balloon loan with the ability of the
borrower to extend the term of the loan for an additional five years. At the
contractual maturity date of these particular loans, the borrowers failed to
repay in full the principal due. The borrowers, however, have continued to make
payments on the loans consistent with the loans' payment terms based on the
original amortization schedule. Although the Company has contacted the borrowers
requesting that they refinance their loans, the borrowers have not yet taken
such step. The majority of such loans bear interest rates that are above those
being charged currently on newly originated multi-family residential and
commercial real estate loans. Furthermore, the Company inspects each of such
properties at least annually. The Company is contin-
<PAGE>   17

ITEM 1. BUSINESS (continued)

15


uing its efforts to have the borrowers refinance or extend the term of such
loans.

     The interest income that would have been recorded during the years ended
March 31, 2001 and March 31, 2000 if all of the Bank's non-performing loans at
the end of such period had been current in accordance with their terms during
such periods was $942,000 and $572,000, respectively.

     A New York-chartered savings institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the Federal Deposit Insurance Corporation ("FDIC") and the
New York State Banking Department ("Department"), which can order the
establishment of additional general or specific loss allowances. The FDIC, in
conjunction with the other federal banking agencies, has adopted an interagency
policy statement on the allowance for loan and lease losses. The policy
statement provides guidance for financial institutions on both the
responsibilities of management for the assessment and establishment of adequate
allowances and guidance for banking agency examiners to use in determining the
adequacy of general valuation guidelines. Generally the policy statement
recommends that institutions have effective systems and controls to identify,
monitor and address asset quality problems; that management has analyzed all
significant factors that affect the collectibility of the portfolio in a
reasonable manner, and that management has established acceptable allowance
evaluation processes that meet the objectives set forth in the policy statement.
While the Company believes that it has established an adequate allowance for
possible loan losses, there can be no assurance that the regulators, in
reviewing the Company's loan portfolio, will not request the Company to
materially increase its allowance for possible loan losses, thereby adversely
affecting the Company's financial condition and results of operations at that
time. Although management believes that adequate specific and general loan loss
allowances have been established, actual losses depend upon future events and,
as such, further additions to the allowances for loan losses may become
necessary. In addition, if the Company's involvement in multi-family residential
and commercial real estate lending and commercial business lending continues to
increase (which is expected), additional provisions may be required due to the
generally greater inherent risk involved in such lending.

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

     At March 31, 2001, the Company had classified an aggregate of $22.3 million
of assets (a portion of which consisted of non-accrual loans). In addition, at
such date the Company had $63.9 million of assets that were designated by the
Company as special mention. At March 31, 2001 included in assets deemed special
mention was a $14.3 million loan to the partnership which owns the building in
which the Company's executive offices are located. The loan was originated in
1993 in the amount of $5.0 million to help fund the partnership's purchase of
the building. As a result of a variety of factors, there were delays in fully
leasing out the building due in part to the need to effect extensive renovations
and tenant improvements, including asbestos removal. As a consequence, payments
on the initial loan were not made and the loan was placed on non-accrual status
in fiscal 1996. The Company refinanced the loan in early 1997 and increased the
principal balance to $15.0 million. The $10.0 million of additional funds were
used in part to repay advances (plus interest) made to the partnership by Wiljo
Development Corporation ("Wiljo"), a wholly owned subsidiary of the Bank, for
construction costs and other expenses. The Company's executive offices and a
branch office occupy approximately 40% of the building. As of March 31, 2001,
all the remaining space in the building is leased with lease terms generally of
ten years or more, and the loan is performing in accordance with its terms. Also
included in assets deemed special mention were an aggregate of $15.9 million of
loans which were 90 days or more past due maturity which continued to make
payments on a basis consistent with the original repayment schedule.

     ALLOWANCE FOR LOAN LOSSES.  The determination of the adequacy of the
allowance for loan losses and the
<PAGE>   18

ITEM 1. BUSINESS (continued)


                                                                     16

periodic provisions to the allowance charged to income is the responsibility of
management. The formalized process for assessing the adequacy of the allowance
for loan losses is performed on a quarterly basis. Individual loans are
specifically identified by loan officers as meeting the criteria of classified
or criticized loans. Such criteria include, but are not limited to, non-accrual
loans, past maturity loans, impaired loans, chronic delinquencies and loans
requiring heightened management oversight. Each loan is assigned to a risk level
of special mention, substandard, doubtful and loss. Loans that do not meet the
criteria of classified or criticized are categorized as pass loans. Each risk
level, including pass loans, have an associated reserve ratio that increases as
the risk level category increases. The reserve ratio is applied to the aggregate
balance of loans designated to each risk level to compute the reserve
requirement. This method of analysis is performed on the entire loan portfolio.

     The Company's overall allowance includes the required balance as a result
of the calculation discussed above as well as a supplemental balance. The
supplemental balance takes into consideration increases in total loans
outstanding, the volume of loan originations, the type, size and geographic
concentration of loans held by the Company, number of loans requiring heightened
management oversight and general economic conditions. Recognition is also given
to the changed risk profile of the portfolio since the Broad and Statewide
acquisitions. During fiscal 2000 and 2001, the Company significantly increased
its portfolio of commercial real estate and business loans, which loans, in
management's view are considered to have a greater risk of loss. In addition,
both of the acquired institutions' loan underwriting standards were not as
conservative as those of the Company's, which may increase the potential risk of
loss on these loans.

     Other factors used to support the balance of the allowance for loan losses
and its components include regulatory examinations and economic data associated
with the real estate market in the Company's market area, which expanded due to
the Broad and Statewide acquisitions.

     The Company considers a loan impaired when, based upon current information
and events, it is probable that it will be unable to collect all amounts due for
both principal and interest, according to the contractual terms of the loan
agreement. The measurement value of the Company's impaired loans is based on the
fair value of the underlying collateral. The Company identifies and measures
impaired loans in conjunction with its assessment of the adequacy of the
allowance for loan losses. Specific factors used in the identification of
impaired loans include, but are not limited to, delinquency status,
loan-to-value ratio, the condition of the underlying collateral, credit history
and debt coverage.

     The Company's allowance for loan losses amounted to $71.7 million at March
31, 2001 as compared to $70.3 million at March 31, 2000. The Company's allowance
amounted to 1.4% of total loans at March 31, 2001 and March 31, 2000. The
allowance for loan losses as a percent of non-performing loans was 202.8% at
March 31, 2001 compared to 226.7% at March 31, 2000.

     The Company's allowance for loan losses increased $1.4 million from March
31, 2000 to March 31, 2001 due to provisions totaling $1.4 million and
recoveries, net of charge-offs, of $38,000. As a result of the continued strong
asset quality ratios, the provision for loan losses for fiscal 2001 was $8.4
million less than the fiscal year ended March 31, 2000.

     The Company will continue to monitor and modify its allowance for possible
loan losses as conditions dictate. While management believes that, based on
information currently available, the Company's allowance for possible loan
losses is sufficient to cover losses inherent in its loan portfolio at this
time, no assurances can be given that future adjustments to the allowance for
possible loan losses will not be necessary if economic and other conditions
differ substantially from the economic and other conditions used by management
to determine the current level of the allowance for possible loan losses. In the
future, management may further increase the level of its allowance for loan
losses as a percentage of total loans and non-performing loans in the event the
level of multi-family residential, commercial real estate and commercial
business loans (which generally are considered to have a greater risk of loss
than single-family residential mortgage loans) as a percentage of its total loan
portfolio continues to increase. In addition, the FDIC and the Department as an
integral part of their examination process periodically review the Company's
allowance for possible loan losses. Such agencies may require the Company to
make additional provisions for estimated possible loan losses based upon
judgments different from those of management.
<PAGE>   19

ITEM 1. BUSINESS (continued)

17


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

<TABLE>
<CAPTION>
                                                                 YEAR ENDED MARCH 31,
                                                  ---------------------------------------------------
(DOLLARS IN THOUSANDS)                             2001       2000       1999       1998       1997
-----------------------------------------------------------------------------------------------------
<S>                                               <C>        <C>        <C>        <C>        <C>
Allowance at beginning of period                  $70,286    $46,823    $36,347    $27,024    $20,528
Allowances of acquired institutions(1)                 --      9,452         --         --         --

Provision:
  Mortgage loans                                      625      7,648      9,450      7,894      8,425
  Commercial business and consumer loans(2)           767      2,169      1,248      2,117       (465)(3)
                                                  -------    -------    -------    -------    -------
  Total provisions                                  1,392      9,817     10,698     10,011      7,960
                                                  -------    -------    -------    -------    -------

Charge-offs:
  Mortgage loans                                      120         40        194      1,047      1,636
  Commercial business and consumer loans(2)         2,489        199        403        263        509
                                                  -------    -------    -------    -------    -------
  Total charge-offs                                 2,609        239        597      1,310      2,145
                                                  -------    -------    -------    -------    -------

Recoveries:
  Mortgage loans                                    1,071      1,020        241        415        545
  Commercial business and consumer loans(2)         1,576      3,413        134        207        136
                                                  -------    -------    -------    -------    -------
  Total recoveries                                  2,647      4,433        375        622        681
                                                  -------    -------    -------    -------    -------
Net loans recovered/(charged off)                      38      4,194       (222)      (688)    (1,464)
                                                  -------    -------    -------    -------    -------
Allowance at end of period                        $71,716    $70,286    $46,823    $36,347    $27,024
                                                  =======    =======    =======    =======    =======

Net loans charged off to allowance for loan
  losses                                              N/A        N/A       0.47%      1.89%      5.42%

Allowance for possible loan losses as a percent
  of total loans                                     1.36%      1.42%      1.34%      1.31%      1.07%

Allowance for possible loan losses as a percent
  of total non-performing loans(4)                 202.79%    266.74%    119.72%    122.19%     99.76%
</TABLE>

---------------
(1) Reflects allowance for loan losses acquired in connection with the
    acquisitions of Broad and Statewide during fiscal 2000 of $6.7 million and
    $2.8 million, respectively.
(2) Includes commercial business loans, warehouse mortgage lines of credit, home
    equity loans and lines of credit, student loans, automobile loans, secured
    and unsecured personal loans and credit card loans.
(3) Reflects adjustment to allowance related to commercial business loans.
(4) Non-performing loans consist of non-accrual loans and loans 90 days or more
    past due as to interest or principal and accruing.

     The following table sets forth information concerning the allocation of the
Company's allowance for loan losses by loan category at the dates indicated.
<TABLE>
<CAPTION>
                                                              AT MARCH 31,
                        ----------------------------------------------------------------------------------------
                                 2001                   2000                  1999                  1998
                        ----------------------------------------------------------------------------------------
                         AMOUNT                   AMOUNT                AMOUNT                AMOUNT
                           OF                       OF                    OF                    OF
(DOLLARS IN THOUSANDS)  ALLOWANCE   PERCENT(1)   ALLOWANCE   PERCENT   ALLOWANCE   PERCENT   ALLOWANCE   PERCENT
----------------------------------------------------------------------------------------------------------------
<S>                     <C>         <C>          <C>         <C>       <C>         <C>       <C>         <C>
Mortgage loans           $56,769       84.9%      $54,743      90.0%    $40,128      96.5%    $30,631      95.6%
Commercial business
  loans                    8,899        8.3         6,729       5.1       4,163       1.1       3,494       1.1
Warehouse mortgage
  lines of credit          2,600        3.9            --       1.0          --        --          --        --
Other loans(2)             3,448        2.9         8,814       3.9       2,532       2.4       2,222       3.3
                         -------      -----       -------     -----     -------     -----     -------     -----
Total                    $71,716      100.0%      $70,286     100.0%    $46,823     100.0%    $36,347     100.0%
                         =======      =====       =======     =====     =======     =====     =======     =====

<CAPTION>
                           AT MARCH 31,
                        -------------------
                               1997
                        -------------------
                         AMOUNT
                           OF
(DOLLARS IN THOUSANDS)  ALLOWANCE   PERCENT
----------------------  -------------------
<S>                     <C>         <C>
Mortgage loans           $23,370      95.3%
Commercial business
  loans                    2,272       1.0
Warehouse mortgage
  lines of credit             --        --
Other loans(2)             1,382       3.7
                         -------     -----
Total                    $27,024     100.0%
                         =======     =====
</TABLE>

---------------
(1) Percent of loans in each category to total loans.
(2) Includes home equity loans and lines of credit, student loans, automobile
    loans, secured and unsecured personal loans and credit card loans.
<PAGE>   20

ITEM 1. BUSINESS (continued)


                                                                     18

ENVIRONMENTAL ISSUES

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

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

INVESTMENT ACTIVITIES

     INVESTMENT POLICIES.  The investment policy of the Company, which is
established by the Board of Directors, is designed to help the Company achieve
its fundamental asset/liability management objectives. Generally, the policy
calls for the Company to emphasize principal preservation, liquidity,
diversification, short maturities and/or repricing terms, and a favorable return
on investment when selecting new investments for the Company's investment and
mortgage-related securities portfolios. In addition, the policy sets forth
objectives which are designed to limit new investments to those which further
the Company's goals with respect to interest rate risk management. The Company's
current securities investment policy permits investments in various types of
liquid assets including obligations of the U.S. Treasury and federal agencies,
investment-grade corporate obligations, Dutch Auction Rate Preferred Stocks,
various types of mortgage-related securities, including collateralized mortgage
obligations ("CMOs"), commercial paper and insured certificates of deposit. The
Bank, as a New York-chartered savings bank, is permitted to make certain
investments in equity securities and stock mutual funds. At March 31, 2001,
these equity investments totaled $22.0 million. See "Business-
Regulation-Activities and Investments of FDIC-Insured State-Chartered Banks".

     Although the Company currently does not participate in hedging programs,
interest rate swaps or other activities involving use of off-balance sheet
derivative financial instruments, it may implement certain hedging activities as
part of its ongoing asset/liability management. The objective of any hedging
activities would be to reduce the Company's interest rate risk. Similarly, the
Company does not invest in mortgage-related securities which are deemed to be
"high risk," or purchase bonds which are not rated investment grade.

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

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

     The FHLMC is a publicly traded corporation chartered by the U.S.
Government. The FHLMC issues participation certificates backed principally by
conventional mortgage loans. FHLMC guarantees the timely payment of interest and
the ultimate return of principal on participation certificates. The FNMA is a
private corporation chartered by the U.S. Congress with a mandate to establish a
secondary market for mortgage loans. The FNMA guarantees the timely payment of
principal and interest on FNMA securities. The FHLMC and FNMA securities are not
backed by the full faith and credit of the
<PAGE>   21

ITEM 1. BUSINESS (continued)

19


United States, but because the FHLMC and the FNMA are U.S. Government-sponsored
enterprises, these securities are considered to be among the highest quality
investments with minimal credit risks. The GNMA is a government agency within
the Department of Housing and Urban Development which is intended to help
finance government-assisted housing programs. GNMA securities are backed by
FHA-insured and VA-guaranteed loans, and the timely payment of principal and
interest on GNMA securities are guaranteed by the GNMA and backed by the full
faith and credit of the U.S. Government. Because the FHLMC, the FNMA and the
GNMA were established to provide support for low-and middle-income housing,
there are limits to the maximum size of loans that qualify for these programs.

     At March 31, 2001, the Company's $720.5 million of mortgage-related
securities, which represented 10.3% of the Company's total assets, were
comprised of $659.1 million of CMOs and $61.4 million of mortgage-backed
securities, which were issued or guaranteed by the FHLMC, the FNMA or the GNMA.
The portfolio was reduced from March 31, 2000 to March 31, 2001 by $52.5 million
primarily as a result of approximately $118.6 million received from normal
paydowns which funds were utilized to fund higher yielding mortgage and
commercial business loan originations. Partially offsetting this decrease was a
$44.6 million decrease in unrealized losses on mortgage-related securities. This
is a direct result of the recent decline in market rates of interest. The
underlying mortgages which support these securities have a yield that is higher
than current mortgage rates thereby increasing the fair value of the related
securities.

     At March 31, 2001, the contractual maturity of approximately 95.5% of the
Company's mortgage-related securities was in excess of ten years. The actual
maturity of a mortgage-related security is generally less than its stated
maturity due to repayments of the underlying mortgages. Prepayments at a rate
different than that anticipated will affect the yield to maturity. The yield is
based upon the interest income and the amortization of any premium or discount
related to the mortgage-backed security. In accordance with generally accepted
accounting principles ("GAAP"), premiums and discounts are amortized over the
estimated lives of the loans, which decrease and increase interest income,
respectively. The repayment assumptions used to determine the amortization
period for premiums and discounts can significantly effect the yield of the
mortgage-related security, and these assumptions are reviewed periodically to
reflect actual prepayments. If prepayments are faster than anticipated, the life
of the security may be shortened and may result in the acceleration of any
unamortized premium. Although repayments of underlying mortgages depend on many
factors, including the type of mortgages, the coupon rate, the age of mortgages,
the geographical location of the underlying real estate collateralizing the
mortgages and general levels of market interest rates, the difference between
the interest rates on the underlying mortgages and the prevailing mortgage
interest rates generally is the most significant determinant of the rate of
repayments. During periods of falling mortgage interest rates, if the coupon
rate of the underlying mortgages exceeds the prevailing market interest rates
offered for mortgage loans, refinancing generally increases and accelerates the
repayment of the underlying mortgages and the related security. Under such
circumstances, the Company may be subject to reinvestment risk because to the
extent that the Company's mortgage-related securities amortize or repay faster
than anticipated, the Company may not be able to reinvest the proceeds of such
repayments and prepayments at a comparable rate.

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

<TABLE>
<CAPTION>
                                                                      YEAR ENDED MARCH 31,
                                                              ------------------------------------
(IN THOUSANDS)                                                  2001         2000          1999
--------------------------------------------------------------------------------------------------
<S>                                                           <C>         <C>           <C>
Mortgage-related securities at beginning of period            $773,031    $1,189,833    $   84,610
Increase due to acquisitions                                        --       251,095            --
Purchases                                                       25,751            --     1,232,479
Sales                                                           (4,302)     (491,326)           --
Repayments, prepayments and maturities                        (118,595)     (139,384)     (118,972)
Amortization of premium                                           (348)         (592)         (823)
Accretion of discounts                                             402           443            88
Unrealized gains (losses) on available-for-sale
  mortgage-related securities                                   44,610       (37,038)       (7,549)
                                                              --------    ----------    ----------
Mortgage-related securities at end of period                  $720,549    $  773,031    $1,189,833
                                                              ========    ==========    ==========
</TABLE>
<PAGE>   22

ITEM 1. BUSINESS (continued)


                                                                     20

     INVESTMENT SECURITIES.  The Company has the authority to invest in various
types of liquid assets, including U.S. Treasury obligations, securities of
various federal agencies and of state and municipal governments, Dutch Auction
Rate Preferred Stocks, mutual funds, equity securities and corporate
obligations. The Company reduced its investment securities portfolio by $11.6
million, or 5.4%, from $212.8 million at March 31, 2000 to $201.2 million at
March 31, 2001 in order to invest in higher yielding products. The reduction in
the portfolio was primarily the result of the sale of $67.8 million of
securities to fund the $100 million Bank Owned Life Insurance ("BOLI") program.
The BOLI provides an attractive tax-exempt return to the Company and is being
used by the Company to fund various employee benefit plans. Partially offsetting
the sales to fund the BOLI program were purchases of $54.9 million including
$40.0 million of Dutch Auction Rate Preferred Stock securities at the end of the
fiscal year. These purchases, invested on a short-term basis, were funded by a
portion of the proceeds received from the sale of $260.1 million of multi-family
loans in the secondary market in March 2001.

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

<TABLE>
<CAPTION>
                                                                     YEAR ENDED MARCH 31,
                                                              ----------------------------------
(IN THOUSANDS)                                                    2001      2000         1999
------------------------------------------------------------------------------------------------
<S>                                                           <C>         <C>         <C>
Investment securities at beginning of period                  $212,768    $331,795    $1,282,072
Increase due to acquisitions                                        --     112,781            --
Purchases                                                       54,888     458,196       717,698
Sales                                                          (67,814)   (502,428)     (456,013)
Maturities and repayments                                      (11,028)   (171,238)   (1,207,133)
Amortization of premium                                            (33)       (206)         (464)
Accretion of discounts                                             509         544         3,488
Unrealized gains (losses) on available-for-sale investment
  securities                                                    11,908     (16,676)       (7,853)
                                                              --------    --------    ----------
Investment securities at end of period                        $201,198    $212,768    $  331,795
                                                              ========    ========    ==========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                AT MARCH 31,
                                  ------------------------------------------------------------------------
                                          2001                     2000                     1999
                                  ------------------------------------------------------------------------
                                              ESTIMATED                ESTIMATED                ESTIMATED
                                  AMORTIZED     FAIR      AMORTIZED      FAIR      AMORTIZED       FAIR
(IN THOUSANDS)                      COST        VALUE        COST        VALUE        COST        VALUE
----------------------------------------------------------------------------------------------------------
<S>                               <C>         <C>         <C>          <C>         <C>          <C>
Available-for-sale:
  Investment securities:
     U.S. Government and federal
       agency obligations         $145,837    $140,152      $153,930   $137,872      $268,524     $264,223
     Corporate securities               --          --            --         --            78           78
     Municipal securities            2,772       2,837         3,615      3,489           699          699
     Stocks:
       Preferred                    56,365      56,317        46,365     46,270        15,000       15,000
       Common                          953       1,892        25,497     25,137        47,457       51,795
                                  --------    --------    ----------   --------    ----------   ----------
       Total investment
          securities               205,927     201,198       229,407    212,768       331,758      331,795
  Mortgage-related securities:
     FNMA                           21,182      21,111         8,631      8,566         3,830        3,875
     GNMA                           26,711      27,588        35,385     35,638        46,981       48,956
     FHLMC                          12,705      12,705         7,807      7,784         6,756        6,820
     CMOs                          656,768     659,145       762,635    721,043     1,136,655    1,130,182
                                  --------    --------    ----------   --------    ----------   ----------
     Total mortgage-related
       securities                  717,366     720,549       814,458    773,031     1,194,222    1,189,833
                                  --------    --------    ----------   --------    ----------   ----------
Total securities
  available-for-sale              $923,293    $921,747    $1,043,865   $985,799    $1,525,980   $1,521,628
                                  ========    ========    ==========   ========    ==========   ==========
</TABLE>
<PAGE>   23

ITEM 1. BUSINESS (continued)

21


     The following table sets forth certain information regarding the maturities
of the Company's investment and mortgage-related securities at March 31, 2001,
all of which were classified as available-for-sale.

<TABLE>
<CAPTION>
                                                 AT MARCH 31, 2001, CONTRACTUALLY MATURING
                        --------------------------------------------------------------------------------------------
                                  WEIGHTED            WEIGHTED             WEIGHTED              WEIGHTED
                        UNDER 1   AVERAGE     1-5     AVERAGE     6-10     AVERAGE    OVER 10    AVERAGE
(DOLLARS IN THOUSANDS)   YEAR      YIELD     YEARS     YIELD      YEARS     YIELD      YEARS      YIELD      TOTAL
--------------------------------------------------------------------------------------------------------------------
<S>                     <C>       <C>        <C>      <C>        <C>       <C>        <C>        <C>        <C>
Investment securities:
  U.S. Government and
    federal agency
    obligations         $4,297      5.03%    $6,245    11.17%    $   227     8.30%    $129,383     6.50%    $140,152
  Municipal securities     455      2.98        468     5.92       1,914     6.99           --       --        2,837
Mortgage-related
  securities:
  FNMA                      --        --        166     7.37         454     8.80       20,491     6.22       21,111
  GNMA                       1      8.74      1,139     7.61       5,157     8.67       21,291     7.59       27,588
  FHLMC                    641      7.16      1,012     5.34       1,076     8.07        9,976     6.19       12,705
  CMOs                      --        --         --       --      22,640     6.19      636,505     6.42      659,145
                        ------               ------              -------              --------              --------
         Total          $5,394      5.11%    $9,030     9.73%    $31,468     6.76%    $817,646     6.46%    $863,538
                        ======      ====     ======    =====     =======     ====     ========     ====     ========
</TABLE>

SOURCES OF FUNDS

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

     DEPOSITS.  The Company's deposit products include negotiable order of
withdrawal ("NOW") accounts (including the "Active Management" NOW account),
money market accounts, non-interest-bearing checking accounts, passbook and
statement savings accounts, New Jersey municipal deposits, IOLTA accounts and
term certificate accounts.

     The Company's deposits are obtained primarily from the areas in which its
branch offices are located; management estimates that only a minimal amount of
the Company's deposits are obtained from customers residing elsewhere. The
Company does not pay fees to brokers to solicit funds for deposit nor does the
Company actively solicit negotiable-rate certificates of deposit with balances
of $100,000 or more.

     The Company attracts deposits through a network of convenient office
locations offering a variety of accounts and services, competitive interest
rates and convenient customer hours. The Company's branch network consists of 67
traditional full-service offices. During fiscal 2001 the Company closed a branch
office in Hudson County and opened three de novo branches located in Staten
Island, Brooklyn and Mineola, Long Island. The Company also introduced a new and
easy to use Internet and telephonic banking system as an overall service
delivery program. The system includes a new Interactive Voice Response system,
enhanced ATM capabilities and a new customer Call Center. The Company currently
expects to open three new banking locations in the New York metropolitan area
during fiscal 2002.

     In addition to its branch network, the Company currently maintains 87 ATMs
in or at its branch offices and 13 ATMs at remote sites. The Company currently
plans to install four additional ATMs in its offices and three ATMs at remote
sites by the end of fiscal 2002.

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

     The Company's focus on customer service has facilitated its retention of
lower-costing NOW accounts, money market accounts, non-interest bearing checking
accounts and savings accounts, which generally bear rates substantially less
than certificates of deposit. At March 31, 2001, these types of deposits
amounted to $2.39 billion or 51.2%
<PAGE>   24

ITEM 1. BUSINESS (continued)


                                                                     22

of the Company's total deposits. During the fiscal year ended March 31, 2001 the
weighted average rate paid on the Company's demand deposits and savings deposits
amounted to 1.78% and 2.12%, respectively, as compared to a weighted average
rate of 5.57% paid on the Company's certificates of deposit during this period.

     The Company's deposits increased $254.0 million or 5.8% to $4.67 billion at
March 31, 2001 from $4.41 billion at March 31, 2000 primarily as a result of
deposit inflows of $85.8 million combined with interest credited of $168.2
million. For further information regarding the Company's deposit liabilities see
Note 8 of the "Notes to Consolidated Financial Statements" set forth in Item 8
hereof.

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

<TABLE>
<CAPTION>
                                                                       YEAR ENDED MARCH 31,
                                                              --------------------------------------
(IN THOUSANDS)                                                   2001          2000          1999
----------------------------------------------------------------------------------------------------
<S>                                                           <C>           <C>           <C>
Deposits at beginning of period                               $4,412,032    $3,447,364    $3,393,800
Increase due to acquisitions                                          --     1,028,476            --
Other net increase (decrease) before interest credited            85,797      (202,577)      (79,582)
Interest credited                                                168,228       138,769       133,146
                                                              ----------    ----------    ----------
Net increase in deposits                                         254,025       964,668        53,564
                                                              ----------    ----------    ----------
Deposits at end of period                                     $4,666,057    $4,412,032    $3,447,364
                                                              ==========    ==========    ==========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                           AT MARCH 31,
                                                              --------------------------------------
(IN THOUSANDS)                                                   2001          2000          1999
----------------------------------------------------------------------------------------------------
<S>                                                           <C>           <C>           <C>
2.00% to 3.99%                                                $   30,943    $   34,374    $       --
4.00% to 4.99%                                                   350,878       856,700       795,127
5.00% to 5.99%                                                 1,217,202       977,142       842,203
6.00% to 6.99%                                                   667,385       219,938       105,935
7.00% to 8.99%                                                     9,868        13,021        76,665
9.00% to 10.99%                                                       --            --           972
                                                              ----------    ----------    ----------
                                                              $2,276,276    $2,101,175    $1,820,902
                                                              ==========    ==========    ==========
</TABLE>

     The following table sets forth the amount and remaining maturities of the
Company's certificates of deposit at March 31, 2001.

<TABLE>
<CAPTION>
                                             OVER         OVER          OVER
                               SIX        SIX MONTHS    ONE YEAR      TWO YEARS      OVER
                              MONTHS       THROUGH       THROUGH       THROUGH       THREE
(IN THOUSANDS)               OR LESS       ONE YEAR     TWO YEARS    THREE YEARS     YEARS       TOTAL
---------------------------------------------------------------------------------------------------------
<S>                         <C>           <C>           <C>          <C>            <C>        <C>
2.00% to 3.99%              $   28,802     $  1,969     $    172       $     --     $    --    $   30,943
4.00% to 4.99%                 257,310       66,605       17,188          6,656       3,119       350,878
5.00% to 5.99%                 826,668      231,576       99,099         29,279      30,580     1,217,202
6.00% to 6.99%                 405,735      213,631       27,704          2,916      17,399       667,385
7.00% to 8.99%                   3,643        5,115           43            340         727         9,868
                            ----------     --------     --------       --------     -------    ----------
Total                       $1,522,158     $518,896     $144,206       $ 39,191     $51,825    $2,276,276
                            ==========     ========     ========       ========     =======    ==========
</TABLE>
<PAGE>   25

ITEM 1. BUSINESS (continued)

23


     As of March 31, 2001, the aggregate amount of outstanding time certificates
of deposit in amounts greater than or equal to $100,000 was approximately $411.0
million. The following table presents the maturity of these time certificates of
deposit at such date.

<TABLE>
<CAPTION>
(IN THOUSANDS)                                                 AMOUNT
----------------------------------------------------------------------
<S>                                                           <C>
3 months or less                                              $150,400
Over 3 months through 6 months                                 116,582
Over 6 months through 12 months                                104,739
Over 12 months                                                  39,244
                                                              --------
                                                              $410,965
                                                              ========
</TABLE>

     BORROWINGS.  The Company may obtain advances from the FHLB based upon the
security of the common stock it owns in that bank and certain of its residential
mortgage loans, provided certain standards related to creditworthiness have been
met. Such advances are made pursuant to several credit programs, each of which
has its own interest rate and range of maturities. Such advances are generally
available to meet seasonal and other withdrawals of deposit accounts and to
permit increased lending. The Company, at March 31, 2001, had $704.0 million of
FHLB advances outstanding with maturities of five years or less with the
majority having a maturity of less than three years. Another funding source
available to the Company are repurchase agreements with the FHLB. These
repurchase agreements are generally collateralized by CMOs or U.S. Government
and agency securities held by the Company. At March 31, 2001, the Company had
$605.0 million of FHLB repurchase agreements outstanding with maturities ranging
between one year and ten years with the majority having a maturity of between
five and ten years. Borrowings outstanding at March 31, 2001 also included a
$0.3 million mortgage extended to the Company in connection with the purchase of
one of its branch offices. For further discussion see "Management's Discussion
and Analysis of Financial Condition and Results of Operation-Business
Strategy-Controlled Growth" in Item 7 hereof and Note 9 of the "Notes to
Consolidated Financial Statements" set forth in Item 8 hereof.

EMPLOYEES

     The Company had 1,059 full-time employees and 232 part-time employees at
March 31, 2001. None of these employees are represented by a collective
bargaining agreement or agent and the Company considers its relationship with
its employees to be good.

SUBSIDIARIES

     At March 31, 2001, the Holding Company's three active subsidiaries were the
Bank, Mitchamm Corp. ("Mitchamm") and BNB Capital Trust (the "Issuer Trust").

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

     BNB CAPITAL TRUST.  The Issuer Trust (assumed by the Holding Company as
part of the acquisition of Broad) is a statutory business trust formed under
Delaware law in June 1997. As a result of the Broad acquisition, the Issuer
Trust is wholly owned by the Holding Company. The Holding Company, as holder of
all of the beneficial interests represented by the common securities of the
Issuer Trust (the "Common Securities"), selected two employees of the Holding
Company to serve as administrators. The Issuer Trust's business and affairs are
conducted by its Property Trustee, the Delaware Trustee and the two
administrators. The Issuer Trust was created to issue and sell the 9.5%
Cumulative Trust Preferred Securities (the "Trust Preferred Securities") and the
Common Securities, and use the proceeds of such sales to acquire the 9.5% Junior
Subordinated Debentures (the "Junior Subordinated Debentures") issued by Broad.
The Junior Subordinated Debentures are the sole asset of the Issuer Trust and
payments under the Junior Subordinated Debentures are the sole revenue of the
Issuer Trust. The Holding Company has entered into several contractual
arrangements for the purpose of fully and unconditionally guaranteeing the Trust
Preferred Securities pursuant to the terms of such agreements. The Issuer Trust
has a term of 31 years, but may terminate earlier as provided in the Trust
Agreement. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Item 7 hereof and "Financial Statements and
Supplementary Data" set forth in Item 8 hereof for additional information.
<PAGE>   26

ITEM 1. BUSINESS (continued)


                                                                     24

     The following are the subsidiaries of the Bank:

     INDEPENDENCE COMMUNITY INVESTMENT CORP. ("ICIC").  ICIC was established in
December 1998 as the Delaware-chartered holding company for Independence
Community Realty Corp. ("ICRC") and the Renaissance Asset Corporation ("RAC").
On December 18, 1998 the Bank transferred 1,000 shares of ICRC's common stock,
par value $.01 per share, and 9,889 shares of junior preferred stock, stated
value $1,000 per share, to ICIC in return for all 1,000 shares of ICIC's common
stock, par value $.01 per share.

     INDEPENDENCE COMMUNITY REALTY CORP.  ICRC was established in September 1996
as a real estate investment trust. On October 1, 1996, the Bank transferred to
ICRC real estate loans with a fair market value of approximately $834.0 million
in return for all 1,000 shares of ICRC's common stock and all 10,000 shares of
ICRC's 8% junior preferred stock. In January 1997, 111 officers and employees of
the Bank each received one share of 8% junior preferred stock with a stated
value of $1,000 per share of ICRC. At March 31, 2001, ICRC held $1.1 billion of
loans and $36.4 million of short-term investments.

     RENAISSANCE ASSET CORPORATION.  RAC, which was acquired from Broad, was
established by Broad National Bank ("Broad National") in November 1997 as a New
Jersey real estate investment trust. At March 31, 2001, RAC held $105.6 million
of loans and $54.6 million of short-term investments.

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

     WILJO DEVELOPMENT CORP.  ("WILJO") The assets of Wiljo consist primarily of
the office space in the building in which the Company's executive offices are
located and its limited partnership interest in the partnership which owns the
remaining portion of the building. At March 31, 2001, Wiljo had total assets of
$6.8 million and the Company's equity investment in Wiljo amounted to $5.7
million.

     BROAD NATIONAL REALTY CORP. ("BNRC")  BNRC was established by Broad
National in July 1987. The assets of BNRC consist primarily of an office
building located at 909 Broad Street, Newark New Jersey. BNRC is also the
holding company for BNB Horizons Inc. ("Horizon"). BNRC had total assets of $3.2
million at March 31, 2001.

     BROAD HORIZONS INC.  Horizon was established by Broad National in May 1998
to manage vacant land located at 901 Broad Street, Newark New Jersey. Horizon's
assets totaled $220,800 at March 31, 2001.

     BNB INVESTMENT CORP. ("INVESTMENT CORP")  Investment Corp. was established
by Broad National in February 1987 to hold various investment securities.
Investment Corp. had total assets of $61.8 million at March 31, 2001.

     BRONATOREO, INC. ("BRONATOREO")  Bronatoreo was established by Broad
National in August 1992 to maintain parking lots located behind 905 Broad
Street, Newark New Jersey. Bronatoreo had total assets of $1.7 million at March
31, 2001.

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

REGULATION

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

THE HOLDING COMPANY

     GENERAL.  Upon consummation of the Conversion, the Holding Company became
subject to regulation as a savings and loan holding company under the Home
Owners' Loan Act, as amended ("HOLA"), instead of being subject to regulation as
a bank holding company under the Bank Holding Company Act of 1956 because the
Bank made an election under Section 10(l) of HOLA to be treated as a "savings
association" for purposes of Section 10(e) of HOLA. As a result, the Holding
Company was required to register with the Office of Thrift Supervision ("OTS")
and is subject to OTS regulations, examinations, supervision and reporting
requirements relating to savings and loan holding companies. The Holding Company
is also required to file certain reports with, and otherwise comply with the
rules and regulations of, the Department and the Securities and Exchange
Commission ("SEC"). As a subsidiary of a savings and loan holding company, the
Bank is subject to certain restrictions in its dealings with the Holding Company
and affiliates thereof.
<PAGE>   27

ITEM 1. BUSINESS (continued)

25


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

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

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

     QUALIFIED THRIFT LENDER TEST.  Under Section 2303 of the Economic Growth
and Regulatory Paperwork Reduction Act of 1996, a savings association can comply
with the QTL test by either meeting the QTL test set forth in the HOLA and
implementing regulations or qualifying as a domestic building and loan
association as defined in Section 7701(a)(19) of the Internal Revenue Code of
1986, as amended (the "Code"). A savings bank subsidiary of a savings and loan
holding company that does not comply with the QTL test must comply with the
following restrictions on its operations: (i) the institution may not engage in
any new activity or make any new investment, directly or indirectly, unless such
activity or investment is permissible for a national bank; (ii) the branching
powers of the institution shall be restricted to those of a national bank; and
(iii) payment of dividends by the institution shall be subject to the rules
regarding payment of dividends by a national bank. Upon the expiration of three
years from the date the savings institution ceases to meet the QTL test, it must
cease any activity and not retain any investment not permissible for a national
bank (subject to safety and soundness considerations).
<PAGE>   28

ITEM 1. BUSINESS (continued)


                                                                     26

     The QTL test set forth in the HOLA requires that qualified thrift
investments ("QTIs") represent 65% of portfolio assets of the savings
institution and its consolidated subsidiaries. Portfolio assets are defined as
total assets less intangibles, property used by a savings association in its
business and liquidity investments in an amount not exceeding 20% of assets.
Generally, QTIs are residential housing related assets. The 1996 amendments
allow small business loans, credit card loans, student loans and loans for
personal, family and household purpose to be included without limitation as
qualified investments. At March 31, 2001, approximately 86.4% of the Bank's
assets were invested in QTIs, which was in excess of the percentage required to
qualify the Bank under the QTL test in effect at that time.

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

     In addition, Sections 22(g) and (h) of the Federal Reserve Act place
restrictions on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, an executive officer and
to a greater than 10% stockholder of a savings institution, and certain
affiliated interests of either, may not exceed, together with all other
outstanding loans to such person and affiliated interests, the savings
institution's loans to one borrower limit (generally equal to 15% of the
institution's unimpaired capital and surplus). Section 22(h) also requires that
loans to directors, executive officers and principal stockholders be made on
terms substantially the same as offered in comparable transactions to other
persons unless the loans are made pursuant to a benefit or compensation program
that (i) is widely available to employees of the institution and (ii) does not
give preference to any director, executive officer or principal stockholder, or
certain affiliated interests of either, over other employees of the savings
institution. Section 22(h) also requires prior board approval for certain loans.
In addition, the aggregate amount of extensions of credit by a savings
institution to all insiders cannot exceed the institution's unimpaired capital
and surplus. Furthermore, Section 22(g) places additional restrictions on loans
to executive officers. At March 31, 2001, the Bank was in compliance with the
above restrictions.

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

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

     FEDERAL SECURITIES LAWS.  The Holding Company's common stock is registered
with the SEC under Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Holding Company is subject to the proxy and
tender offer rules, insider trading reporting requirements and restrictions, and
certain other requirements under the Exchange Act.
<PAGE>   29

ITEM 1. BUSINESS (continued)

27


THE BANK

     GENERAL.  The Bank is subject to extensive regulation and examination by
the Department, as its chartering authority, and by the FDIC, as the insurer of
its deposits, and is subject to certain requirements established by the OTS as a
result of the Holding Company's savings and loan holding company status. The
federal and state laws and regulations which are applicable to banks regulate,
among other things, the scope of their business, their investments, their
reserves against deposits, the timing of the availability of deposited funds and
the nature and amount of and collateral for certain loans. The Bank must file
reports with the Department and the FDIC concerning its activities and financial
condition, in addition to obtaining regulatory approvals prior to entering into
certain transactions such as establishing branches and mergers with, or
acquisitions of, other depository institutions. There are periodic examinations
by the Department and the FDIC to test the Bank's compliance with various
regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulation, whether by the Department, the FDIC or as a result of
the enactment of legislation, could have a material adverse impact on the
Company, the Bank and their operations.

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

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

     The FDIC also requires that savings banks meet a risk-based capital
standard. The risk-based capital standard for savings banks requires the
maintenance of total capital (which is defined as Tier 1 capital and
supplementary (Tier 2) capital) to risk-weighted assets of 8%. In determining
the amount of risk-weighted assets, all assets, plus certain off-balance sheet
assets, are multiplied by a risk-weight of 0% to 100%, based on the risks the
FDIC believes are inherent in the type of asset or item. The components of Tier
1 capital are equivalent to those discussed above under the 3% leverage capital
standard. The components of supplementary capital include certain perpetual
preferred stock, certain mandatory convertible securities, certain subordinated
debt and intermediate preferred stock and general allowances for loan and lease
losses. Allowance for loan and lease losses includable in supplementary capital
is limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of
capital counted toward supplementary capital cannot exceed 100% of core capital.
At March 31, 2001, the Bank exceeded each of its capital requirements.

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

     ACTIVITIES AND INVESTMENTS OF NEW YORK-CHARTERED SAVINGS BANKS.  The Bank
derives its lending, investment and other authority primarily from the
applicable provi-
<PAGE>   30

ITEM 1. BUSINESS (continued)


                                                                     28

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

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

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

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

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

     Also excluded from the foregoing proscription is the investment by a
state-chartered, FDIC-insured bank in common and preferred stock listed on a
national securities exchange and in shares of an investment company registered
under the Investment Company Act of 1940. In order to qualify for the exception,
a state-chartered FDIC-insured bank must (i) have held such types of investments
during the 14-month period from September 30, 1990 through November 26, 1991,
(ii) be chartered in a state that authorized such investments as of September
30, 1991
<PAGE>   31

ITEM 1. BUSINESS (continued)

29


and (iii) file a one-time notice with the FDIC in the required form and receive
FDIC approval of such notice. In addition, the total investment permitted under
the exception may not exceed 100% of the bank's tier one capital as calculated
under FDIC regulations. The Bank received FDIC approval of its notice to engage
in this investment activity on February 26, 1993. As of March 31, 2001, the book
value of the Bank's investments under this exception was $22.0 million, which
equaled 3.94% of its tier one capital. Such grandfathering authority is subject
to termination upon the FDIC's determination that such investments pose a safety
and soundness risk to the Bank or in the event the Bank coverts its charter or
undergoes a change in control.

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

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

     PROMPT CORRECTIVE ACTION.  Section 38 of the FDIA provides the federal
banking regulators with broad power to take "prompt corrective action" to
resolve the problems of undercapitalized institutions. The extent of the
regulators' powers depends on whether the institution in question is "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." Under regulations adopted by
the federal banking regulators, an institution shall be deemed to be (i) "well
capitalized" if it has total risk-based capital ratio of 10.0% or more, has a
Tier I risk-based capital ratio of 6.0% or more, has a Tier I leverage capital
ratio of 5.0% or more and is not subject to specified requirements to meet and
maintain a specific capital level for any capital measure, (ii) "adequately
capitalized" if it has a total risk-based capital ratio of 8.0% or more, a Tier
I risk-based capital ratio of 4.0% or more and a Tier I leverage capital ratio
of 4.0% or more (3.0% under certain circumstances) and does not meet the
definition of "well capitalized," (iii) "undercapitalized" if it has a total
risk-based capital ratio that is less than 8.0%, a Tier I risk-based capital
ratio that is less than 4.0% or a Tier I leverage capital ratio that is less
than 4.0% (3.0% under certain circumstances), (iv) "significantly
undercapitalized" if it has a total risk-based capital ratio that is less than
6.0%, a Tier I risk-based capital ratio that is less than 3.0% or a Tier I
leverage capital ratio that is less than 3.0% and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%. The regulations also provide that a federal banking
regulator may, after notice and an opportunity for a hearing, reclassify a "well
capitalized" institution as "adequately capitalized" and may require an
"adequately capitalized" institution or an "undercapitalized" institution to
comply with supervisory actions as if it were in the next lower category if the
institution is in an unsafe or unsound condition or engaging in an unsafe or
unsound practice. The federal banking regulator may not, however, reclassify a
"significantly undercapitalized" institution as "critically undercapitalized."

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

     As March 31, 2001, the Bank had capital levels which qualified it as a
"well-capitalized" institution.
<PAGE>   32

ITEM 1. BUSINESS (continued)


                                                                     30

     FDIC INSURANCE PREMIUMS.  The Bank is a member of the Bank Insurance Fund
("BIF") administered by the FDIC but has deposit accounts insured by both the
BIF and the Savings Association Insurance Fund ("SAIF"). The SAIF-insured
accounts are held by the Bank as a result of certain acquisitions and branch
purchases involving SAIF-insured deposits. Such SAIF-insured deposits amounted
to $2.12 billion as of March 31, 2001. As insurer, the FDIC is authorized to
conduct examinations of, and to require reporting by, FDIC-insured institutions.
It also may prohibit any FDIC-insured institution from engaging in any activity
that the FDIC determines by regulation or order poses a serious threat to the
FDIC.

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

     Effective October 8, 1996, the FDIC imposed a one-time special assessment
equal to 65.7 basis points for all SAIF-assessable deposits as of March 31,
1995, which was collected on November 27, 1996. Certain BIF members, including
the Bank, qualified for a 20% reduction of its SAIF-assessable deposits for
purposes of calculating the one-time special assessment. The Bank's one-time
special assessment amounted to $8.6 million, $5.63 million net of related tax
benefits. The payment of the special assessment reduced the Bank's capital by
the amount of the assessment.

     Following the imposition of the one-time special assessment, the FDIC
lowered assessment rates for SAIF members to reduce the disparity in the
assessment rates paid by BIF and SAIF members. Beginning October 1, 1996,
effective SAIF rates ranged from zero basis points to 27 basis points which was
the same range of premiums as the BIF rates. From 1997 through 1999, almost all
FDIC-insured institutions paid 6.4 basis points of their SAIF-assessable
deposits and approximately 1.3 basis points of their BIF-assessable deposits to
fund the Financing Corporation. Beginning January 1, 2000, all FDIC insured
institutions are assessed the same rate for their BIF and SAIF assessable
deposits to fund the Financing Corporation. Based upon the $2.68 billion of
BIF-assessable deposits and $2.12 billion of SAIF-assessable deposits at March
31, 2001, the Bank expects to pay approximately $228,000 in insurance premiums
per quarter during calendar 2001.

     BROKERED DEPOSITS.  The FDIA restricts the use of brokered deposits by
certain depository institutions. Under the FDIA and applicable regulations, (i)
a "well capitalized insured depository institution" may solicit and accept,
renew or roll over any brokered deposit without restriction, (ii) an "adequately
capitalized insured depository institution" may not accept, renew or roll over
any brokered deposit unless it has applied for and been granted a waiver of this
prohibition by the FDIC and (iii) an "undercapitalized insured depository
institution" may not (x) accept, renew or roll over any brokered deposit or (y)
solicit deposits by offering an effective yield that exceeds by more than 75
basis points the prevailing effective yields on insured deposits of comparable
maturity in such institution's normal market area or in the market area in which
such deposits are being solicited. The term "undercapitalized insured depository
institution" is defined to mean any insured depository institution that fails to
meet the minimum regulatory capital requirement prescribed by its appropriate
federal banking agency. The FDIC may, on a case-by-case basis and upon
application by an adequately capitalized insured depository institution, waive
the restriction on brokered deposits upon a finding that the acceptance of
brokered deposits does not constitute an unsafe or unsound practice with respect
to such institution. The Company had no brokered deposits outstanding at March
31, 2001.

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

     The CRA requires insured institutions to define the communities that they
serve, identify the credit needs of those communities and adopt and implement a
"Community Reinvestment Act Statement" pursuant to which they offer credit
products and take other actions that respond to the credit needs of the
community. The responsible federal banking regulator (in the case of the Bank,
the FDIC) must conduct regular CRA examinations of insured
<PAGE>   33

ITEM 1. BUSINESS (continued)

31


financial institutions and assign to them a CRA rating of "outstanding,"
"satisfactory," "needs improvement" or "unsatisfactory." The Bank's latest
federal CRA rating based upon its last examination is "satisfactory."

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

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

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

     During fiscal 2000, the Bank requested (and received) approval of or
non-objection to the distribution to the Holding Company of an aggregate of
$285.0 million. Of this amount, $176.0 million and $95.0 million was distributed
to the Holding Company in fiscal 2000 and fiscal 2001, respectively. The
distributions were primarily used by the Holding Company to fund the cash
portion of the merger consideration paid in the Broad and Statewide acquisitions
as well as the Holding Company's open market stock repurchase programs. In
addition, during fiscal 2001, the Bank requested (and received) approval of the
distribution of an aggregate of $25.0 million to the Holding Company, which
amount had not been distributed as of March 31, 2001.

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

     FEDERAL HOME LOAN BANK SYSTEM.  The Bank is a member of the FHLB of New
York, which is one of 12 regional FHLBs that administers the home financing
credit function of savings institutions. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from proceeds derived from the sale of consolidated obligations of the FHLB
System. It makes loans to members (i.e., advances) in accordance with policies
and procedures established by the Board of Directors of the FHLB. The Bank had
$1.31 billion of FHLB borrowings at March 31, 2001.

     As an FHLB member, the Bank is required to purchase and maintain stock in
the FHLB of New York in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year or 5% of its advances from the FHLB of New York,
whichever is greater. At March 31, 2001, the Bank had approximately $82.3
million in FHLB stock, which resulted in its compliance with this requirement.

     The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low-and moderate-income housing projects. These contributions have adversely
affected the level of FHLB dividends paid in the past and could continue to do
so in the future. These contributions also could have an adverse effect on the
value of FHLB stock in the future.
<PAGE>   34

ITEM 1. BUSINESS (continued)


                                                                     32

     FEDERAL RESERVE SYSTEM.  The Federal Reserve Board requires all depository
institutions to maintain reserves against their transaction accounts (primarily
NOW and Super NOW checking accounts and personal and business demand deposits)
and non-personal time deposits. As of March 31, 2001, the Bank was in compliance
with applicable requirements. However, because required reserves must be
maintained in the form of vault cash or a non-interest-bearing account at a
Federal Reserve Bank, the effect of this reserve requirement is to reduce an
institution's earning assets.

TAXATION

FEDERAL TAXATION

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

     The following discussion of federal taxation is intended only to summarize
certain pertinent federal income tax matters and is not a comprehensive
description of the tax rules applicable to the Company. The Bank's federal
income tax returns have been audited or closed without audit by the Internal
Revenue Service through 1995.

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

     BAD DEBT RESERVE.  Prior to the 1996 Act, the Company was permitted to
establish a reserve for bad debts and to make annual additions to the reserve.
These additions could, within specified formula limits, be deducted in arriving
at the Bank's taxable income. As a result of the 1996 Act, the Bank must use the
specific charge off method in computing its bad debt deduction beginning with
its 1996 federal tax return. In addition, federal legislation requires the
recapture (over a six year period) of the excess of tax bad debt reserves at
December 31, 1995 over those established as of December 31, 1987. The amount of
such reserve subject to recapture as of December 31, 2000 is approximately $1.9
million. The Company has an associated deferred tax liability of approximately
$80,000 at December 31, 2000.

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

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

     At December 31, 2000, the Bank's total federal pre-1988 reserve was
approximately $30.0 million. This reserve reflects the cumulative effects of
federal tax deductions by the Company for which no Federal income tax provision
has been made.

     MINIMUM TAX.  The Code imposes an alternative minimum tax ("AMT") at a rate
of 20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The AMT is payable to the
extent such AMTI is in excess of an exemption amount. Net operating losses can
offset no more than 90% of AMTI. Certain payments of alternative minimum tax may
be used as credits against regular tax liabilities in future years. As of
December 31, 2000, the Company has no AMT credits available as credits for
carryover.

     NET OPERATING LOSS CARRYOVERS.  For the years beginning after August 5,
1997, a financial institution may carry back net operating losses to the
preceding two taxable years and forward to the succeeding 20 taxable
<PAGE>   35

ITEM 1. BUSINESS (continued)

33


years. At December 31, 2000, the Bank had no net operating loss carryforwards
for federal income tax purposes.

     CORPORATE DIVIDENDS-RECEIVED DEDUCTION.  The Holding Company may exclude
from its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends-received deduction is
80% in the case of dividends received from corporations with which a corporate
recipient does not file a consolidated tax return, and corporations which own
less than 20% of the stock of a corporation distributing a dividend may deduct
only 70% of dividends received or accrued on their behalf.

STATE AND LOCAL TAXATION

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

     A temporary Metropolitan Transportation Business Tax Surcharge on Banking
corporations doing business in the Metropolitan District has been applied since
1982. The Company transacts a significant portion of its business within this
District and is subject to this surcharge. For the tax year ended December 31,
2000, the surcharge rate is 17% of the State franchise tax liability.

     Bad debt reserves maintained for New York State and New York City tax
purposes as of March 31, 2001, for which deferred taxes are not required to be
recognized, amounted to approximately $125 million.

     The Company is currently undergoing an audit of its New York State income
tax returns for the calendar years 1994, 1995 and 1996. As previously disclosed,
the Company received in fiscal 2000 a notice which could result in additional
income tax liability to New York State and New York City for the years in
question. The Company has conducted a review and analysis of the basis and
accuracy of the State's claims. Based on its review, the Company does not
believe that the final resolution will have a material financial statement
impact.

     NEW JERSEY TAXATION.  The Company and certain eligible and qualified
subsidiaries report income on a separate company basis, as New Jersey Law does
not permit consolidated return filing. The state of New Jersey imposes a tax on
entire net income allocated to the state at a rate of 7.5%, if allocated income
is $100,000 or less, or at a rate of 9.0% on allocated income over $100,000.

     DELAWARE STATE TAXATION.  As a Delaware holding company not earning income
in Delaware, the Company is exempt from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware. The tax is imposed as a percentage of the capital base of the
Company with an annual maximum of $150,000. The Holding Company pays the maximum
franchise tax.
<PAGE>   36


                                                                     34

ITEM 2. PROPERTIES

OFFICES AND PROPERTIES

     At March 31, 2001, the Company conducted its business from its executive
offices in Brooklyn and 67 full service branch offices:

<TABLE>
<CAPTION>
                                                                            NET BOOK
                                                                            VALUE OF
                                                                          PROPERTY AND
                                                                           LEASEHOLD
                                                              LEASE       IMPROVEMENTS      DEPOSITS
                                                OWNED OR    EXPIRATION    AT MARCH 31,    AT MARCH 31,
LOCATION                                         LEASED        DATE           2001            2001
------------------------------------------------------------------------------------------------------
                                                                                 (In Thousands)
<S>                                             <C>         <C>           <C>             <C>
EXECUTIVE AND ADMINISTRATIVE OFFICES:
195 Montague Street
Brooklyn, New York 11201(1)                       Owned                   $   16,085      $    113,916
BRANCH OFFICES:
130 Court Street
Brooklyn, New York 11201(2)                       Owned                        4,231           200,166
6424-18th Avenue
Brooklyn, New York 11204                          Owned                          940           317,346
23 Newkirk Plaza
Brooklyn, New York 11226                          Owned                        2,264           118,186
443 Hillside Avenue
Williston Park, New York 11596                    Owned                        2,025           190,164
23-56 Bell Boulevard
Bayside, New York 11360                          Leased         2008               5           208,114
250 Lexington Avenue
New York, New York 10016                         Leased         2030              13            75,389
1416 East Avenue
Bronx, New York 10462                            Leased            (3)           211           117,470
1420 Northern Boulevard
Manhasset, New York 11030                        Leased         2017             822            88,395
1769-86th Street
Brooklyn, New York 11214                          Owned                        1,378           170,391
Pratt Institute Campus
200 Willoughby Avenue
Brooklyn, New York 11205                         Leased            (4)             7             4,154
2357-59 86th Street
Brooklyn, New York 11214                          Owned                        1,693            97,990
4514 16th Avenue
Brooklyn, New York 11204                          Owned                        1,791           136,869
37-10 Broadway
Long Island City, New York 11103                  Owned                        1,631           167,796
22-59 31st Street
Long Island City, New York 11105                  Owned                          618           107,692
24-28 34th Avenue
Long Island City, New York 11106                 Leased         2007             279            70,312
51-12 31st Avenue
Woodside, New York 11377                         Leased         2007             274            48,438
83-20 Roosevelt Avenue
Jackson Heights, New York 11372                  Leased         2005             819            61,019
75-15 31st Avenue
Jackson Heights, New York 11370                  Leased         2004             282            90,873
</TABLE>
<PAGE>   37

ITEM 2. PROPERTIES (continued)

35


<TABLE>
<CAPTION>
                                                                            NET BOOK
                                                                            VALUE OF
                                                                          PROPERTY AND
                                                                           LEASEHOLD
                                                              LEASE       IMPROVEMENTS      DEPOSITS
                                                OWNED OR    EXPIRATION    AT MARCH 31,    AT MARCH 31,
LOCATION                                         LEASED        DATE           2001            2001
------------------------------------------------------------------------------------------------------
                                                                                 (In Thousands)
<S>                                             <C>         <C>           <C>             <C>
89-01 Northern Boulevard
Jackson Heights, New York 11372                  Leased         2004      $      249      $     89,252
498 Columbia Street
Brooklyn, New York 11231                         Leased         2002             334            20,917
150-28 Union Turnpike
Flushing, New York 11367                         Leased         2012             194            57,316
234 Prospect Park West
Brooklyn, New York 11215                          Owned                        2,954            65,755
7500 Fifth Avenue
Brooklyn, New York 11209                          Owned                          545            74,619
440 Avenue P
Brooklyn, New York 11223                          Owned                        1,262            93,534
301 Avenue U
Brooklyn, New York 11223                          Owned                        1,439            94,869
8808 Fifth Avenue
Brooklyn, New York 11209                          Owned                        2,203            64,510
1310 Kings Highway
Brooklyn, New York 11229                          Owned                          411            75,040
4823 13th Avenue
Brooklyn, New York 11219                          Owned                        3,710           199,753
1302 Avenue J
Brooklyn, New York 11230                          Owned                        1,905           117,543
1550 Richmond Road
Staten Island, New York 10304                     Owned                        1,315           136,472
1460 Forest Avenue
Staten Island, New York 10302                    Leased         2011             209           126,391
2655 Richmond Avenue
Staten Island, New York 10314                    Leased         2010             364            14,109
6509 Bay Parkway
Brooklyn, New York 11204                          Owned                        2,052             8,037
131 Jericho Turnpike
Mineola, New York 11501                          Leased         2010             443            27,855
905 Broad Street
Newark, New Jersey 07102                          Owned                        1,136            36,840
745 Broad Street
Newark, New Jersey 07102                         Leased         2003              60            28,104
243 Chestnut Street
Newark, New Jersey 07105                         Leased         2010             132            25,460
236 West St. George Avenue
Linden, New Jersey 07036                         Leased         2014             151             8,749
1-7 Wheeler Point Road
Newark, New Jersey 07105                         Leased         2003              58            60,395
133 Jackson Street
Newark, New Jersey 07105                          Owned                          811           108,252
225 Milburn Avenue
Milburn, New Jersey 07041                        Leased         2006              --            27,198
</TABLE>
<PAGE>   38

ITEM 2. PROPERTIES (continued)


                                                                     36

<TABLE>
<CAPTION>
                                                                            NET BOOK
                                                                            VALUE OF
                                                                          PROPERTY AND
                                                                           LEASEHOLD
                                                              LEASE       IMPROVEMENTS      DEPOSITS
                                                OWNED OR    EXPIRATION    AT MARCH 31,    AT MARCH 31,
LOCATION                                         LEASED        DATE           2001            2001
------------------------------------------------------------------------------------------------------
                                                                                 (In Thousands)
<S>                                             <C>         <C>           <C>             <C>
65 River Road
North Arlington, New Jersey 07031                Leased         2003      $       80      $     30,223
1000 South Elmora Avenue
Elizabeth, New Jersey 07202                      Leased         2006             185            62,604
30 W. Mt. Pleasant Avenue
Livingston, New Jersey 07039                     Leased         2001              19            39,222
Convery Plaza, Route 35
Perth Amboy, New Jersey 08861                    Leased         2002              24            20,965
466 Bloomfield Ave
Newark, New Jersey 07107                         Leased         2013              54            33,998
826 Elizabeth Avenue
Elizabeth, New Jersey 07201                       Owned                          295            22,240
554 Central Avenue
East Orange, New Jersey 07018                     Owned                          328            28,713
255 Prospect Avenue
West Orange, New Jersey 07052                    Leased         2004              69             5,588
348 Central Avenue
Jersey City, New Jersey 0730                     Leased         2006             325             6,830
290 Ferry Street
Newark, New Jersey 07105                         Leased         2005              --            14,395
9 Path Plaza
Jersey City, New Jersey 07306                    Leased         2011             585            86,178
241 Central Avenue
Jersey City, New Jersey 07307                     Owned                          289            66,882
214 Newark Avenue
Jersey City, New Jersey 07302                     Owned                          314            25,138
12 Chapel Avenue
Jersey City, New Jersey 07305                    Leased         2003              51             6,484
400 Marin Boulevard
Jersey City, New Jersey 07302                    Leased         2010             193            13,742
86 River Street
Hoboken, New Jersey 07030                        Leased         2002              47            11,945
416 Anderson Avenue
Cliffside Park, New Jersey 07010                  Owned                           95            18,880
35 South Main Street
Lodi, New Jersey 07644
Building                                          Owned         2005             222            23,213
Adjacent parcel of land                          Leased
19 Schuyler Avenue
North Arlington, New Jersey 07031                Leased         2008             214            18,612
1322A Patterson Plank Road
Secaucus, New Jersey 07094                        Owned                          818            44,596
456 North Broad Street
Elizabeth, New Jersey 07208                       Owned                          500            52,060
314 Elizabeth Avenue
Elizabeth, New Jersey 07206                      Leased         2098              79            30,024
345 South Avenue
Garwood, New Jersey 07027                         Owned                          137            27,509
</TABLE>
<PAGE>   39

ITEM 2. PROPERTIES (continued)

37


<TABLE>
<CAPTION>
                                                                            NET BOOK
                                                                            VALUE OF
                                                                          PROPERTY AND
                                                                           LEASEHOLD
                                                              LEASE       IMPROVEMENTS      DEPOSITS
                                                OWNED OR    EXPIRATION    AT MARCH 31,    AT MARCH 31,
LOCATION                                         LEASED        DATE           2001            2001
------------------------------------------------------------------------------------------------------
                                                                                 (In Thousands)
<S>                                             <C>         <C>           <C>             <C>
246 South Avenue
Fanwood, New Jersey 07023                         Owned                   $      225      $     17,991
1886 Springfield Avenue
Maplewood, New Jersey 07040                      Leased         2009             623            12,375
                                                                          ------------    ------------
Totals
                                                                          $   63,076      $  4,666,057
                                                                          ============    ============
</TABLE>

---------------
(1) The Bank operates a full-service branch on the ground floor of the building.
(2) Designated as the Bank's main office.
(3) Consists of two leases. The original lease executed in March 1972 expires in
    September 2002. In February 1987, the Bank entered into a lease for
    additional space in the adjacent store which expires in November 2002.
(4) The Bank executed a "Memorandum of Understanding" with the Pratt Institute
    to occupy the space; no expiration date was stated in the Memorandum.

ITEM 3. LEGAL PROCEEDINGS

LEGAL PROCEEDINGS

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

     On December 1, 1995, Statewide Bank initiated a suit against the U.S.
Government alleging, among other things, breach of contract and seeking
restitution for harm caused to Statewide Bank through changes in Federal banking
regulations regarding the treatment of goodwill in calculating the capital of
thrift institutions. The case relates to goodwill created by Statewide Bank's
1982 acquisition of Arch Federal Savings and Loan Association. The 1989 change
in Federal regulations required a phase-out of goodwill from the calculation of
a thrift institution's capital ratios and required that by January 1, 1995, no
goodwill be counted as capital. As of the effective date of the regulations,
Statewide Bank had $18.7 million in goodwill on its balance sheet.

     The suit was initially subject to a stay pending a ruling by the U.S.
Supreme Court of the U.S. Government's appeal of a decision of the U.S. Court of
Federal Claims ("Court of Claims") in another case which had upheld the right of
three thrift institutions to maintain such actions. In July 1996, the U.S.
Supreme Court ruled in "United States v. Winstar Corporation" upholding the
Court of Claims' ruling in favor of the three institutions involved in that
suit. Subsequently, the stay in all goodwill related cases was lifted. The U.S.
Government then filed a motion seeking to dismiss all goodwill related claims
filed six years after the date of the Financial Institutions Reform, Recovery,
and Enforcement Act's adoption on August 9, 1989. Statewide Bank had filed its
claim on December 1, 1995. Statewide Bank, along with the approximately 25 other
institutions subject to the motion, vigorously opposed the U.S. Government's
motion to dismiss. In January 1997, the judge appointed to hear the motion ruled
against the U.S. Government, holding that the statute of limitations had not
begun to run until OTS regulations implementing the Financial Institutions
Reform, Recovery and Enforcement Act were adopted on December 7, 1989. The case
is currently in the expert discovery phase, and no trial date has been set. Fact
discovery was concluded in August 2000. In the fall of 2000, both Statewide and
the U.S. Government filed motions for summary judgment as to liability. These
motions have not yet been scheduled for argument or disposition. Accordingly,
for these reasons and because of other factors affecting the predictability of
litigation, management cannot predict the eventual outcome, the amount of
damages, if any, or the timing of final disposition of the case.

     See "Taxation -- State and Local Taxation" for a discussion of the status
of an audit of the Company's New York state income tax returns, including a
claim for additional tax liability.
<PAGE>   40


                                                                     38

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

     None.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS'
        MATTERS

     On March 13, 1998 the conversion and reorganization of the Bank and its
mutual holding company parent was completed. The common stock began trading on
the Nasdaq Stock Market on March 17, 1998. In connection with the consummation
of the reorganization, the Holding Company issued 76,043,750 shares of common
stock, including 5,632,870 shares which were contributed to the Independence
Community Foundation (the "Foundation"). As of March 31, 2001, there were
59,128,845 shares of common stock outstanding. As of May 31, 2001 the Holding
Company had 12,650 stockholders of record not including the number of persons or
entities holding stock in nominee or street name through various brokers and
banks. The following table sets forth the high and low stock prices of the
Holding Company's common stock as reported by the Nasdaq Stock Market under the
symbol "ICBC". Price information appears in major newspapers under the symbols
"IndepCmntyBk" or "IndpCm".

<TABLE>
<CAPTION>
                                                2001                2000
                                          -----------------  -------------------
                                          HIGH       LOW     HIGH      LOW
                                          -------------------------------------
<S>                                       <C>        <C>     <C>       <C>
First Quarter                              13 3/4    10 7/8  14 9/16   11 11/16
Second Quarter                             14 3/16   12 7/8  13 13/16  11 5/8
Third Quarter                              16 15/16  13 3/4  12 1/2    10 9/16
Fourth Quarter                             17 1/2    15 1/8  12 3/8     9 3/4
</TABLE>

     The following schedule summarizes the cash dividends paid by the Holding
Company per share of common stock for the fiscal years ended 2001 and 2000:

<TABLE>
<CAPTION>
                                                              2001     2000
                                                              --------------
<S>                                                           <C>      <C>
First Quarter                                                 $0.07    $0.04
Second Quarter                                                 0.07     0.05
Third Quarter                                                  0.08     0.06
Fourth Quarter                                                 0.08     0.06
</TABLE>

     On April 27, 2001, the Board of Directors declared a quarterly cash
dividend of $0.08 per share of Common Stock, payable on May 24, 2001, to
stockholders of record at the close of business on May 10, 2001.

     See "Liquidity and Commitments" and Notes 1 and 17 of the "Notes to
Consolidated Financial Statements" set forth in Item 8 hereof for discussion of
restrictions on the Holding Company's ability to pay dividends.
<PAGE>   41

39


ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

<TABLE>
<CAPTION>
                                                                      AT MARCH 31,
                                             --------------------------------------------------------------
(IN THOUSANDS)                                  2001         2000         1999         1998         1997
-----------------------------------------------------------------------------------------------------------
<S>                                          <C>          <C>          <C>          <C>          <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets                                 $7,010,867   $6,604,150   $5,536,978   $5,222,996   $3,734,723
Cash and cash equivalents                       277,762      152,167      279,885      857,251      374,636
Mortgage-related securities
  available-for-sale                            720,549      773,031    1,189,833       84,610      190,979
Investment securities available-for-sale        201,198      212,768      331,795    1,282,072      357,487
Loans receivable, net                         5,189,725    4,880,234    3,459,658    2,745,540    2,504,496
Intangible assets(1)                            198,994      220,979       47,244       55,873       60,499
Deposits                                      4,666,057    4,412,032    3,447,364    3,393,800    3,325,558
FHLB borrowings                               1,308,950    1,160,375    1,106,725       14,300       14,550
Borrowings-securities loaned                         --           --           --      701,160           --
Trust preferred securities(2)                    11,067       11,500           --           --           --
Other borrowings                                    343        2,363       11,639        2,381        2,682
Total stockholders' equity                      813,156      834,807      824,962      949,124      309,114
</TABLE>

<TABLE>
<CAPTION>
                                                                FOR THE YEAR ENDED MARCH 31,
                                               --------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)     2001         2000         1999         1998         1997
-------------------------------------------------------------------------------------------------------------
<S>                                            <C>          <C>          <C>          <C>          <C>
SELECTED OPERATING DATA:
Interest income                                $  470,702   $  402,486   $  336,415   $  293,043   $  255,303
Interest expense                                  247,457      203,660      167,221      160,943      140,187
                                               ----------   ----------   ----------   ----------   ----------
Net interest income                               223,245      198,826      169,194      132,100      115,116
                                               ----------   ----------   ----------   ----------   ----------
Provision for loan losses                           1,392        9,817       10,698       10,011        7,960
                                               ----------   ----------   ----------   ----------   ----------
Net interest income after provision for loan
  losses                                          221,853      189,009      158,496      122,089      107,156
Net gain (loss) on sales of loans and
  securities                                        3,398       (1,716)         390          115       (3,347)
Other non-interest income                          34,940       18,632       10,933       10,233        6,256
Amortization of intangible assets                  21,224       14,613        8,629        8,740        8,278
Charitable contribution to Independence
  Community Foundation(3)                              --           --           --       56,422           --
Other non-interest expense                        131,602      105,277       89,574       80,713       73,875
                                               ----------   ----------   ----------   ----------   ----------
Income (loss) before provision (benefit) for
  income taxes                                    107,365       86,035       71,616      (13,438)      27,912
Provision (benefit) for income taxes               45,329       32,789       26,441       (3,482)      10,732
                                               ----------   ----------   ----------   ----------   ----------
Net income (loss)                              $   62,036   $   53,246   $   45,175   $   (9,956)  $   17,180
                                               ==========   ==========   ==========   ==========   ==========
Basic earnings (loss) per share(3)             $     1.11   $     0.90   $     0.67   $    (0.52)         N/A
                                               ==========   ==========   ==========   ==========   ==========
Diluted earnings (loss) per share(3)           $     1.10   $     0.90   $     0.66   $    (0.52)         N/A
                                               ==========   ==========   ==========   ==========   ==========
</TABLE>

                                                        (footnotes on next page)
<PAGE>   42

ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA (continued)


                                                                     40

<TABLE>
<CAPTION>
                                                           AT OR FOR THE YEAR ENDED MARCH 31,
                                                     -----------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)         2001      2000      1999      1998      1997
----------------------------------------------------------------------------------------------------
<S>                                                  <C>       <C>       <C>       <C>       <C>
KEY OPERATING RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:(4)
Return on assets(5)                                     0.91%     0.88%     0.90%     0.64%     0.46%
Return on equity(5)                                     7.60      6.51      4.87      7.59      5.69
Interest-earning assets to interest-bearing
  liabilities                                         107.25    111.29    120.66    105.17    103.59
Interest rate spread(6)                                 3.23      3.06      2.79      3.05      3.18
Net interest margin(6)                                  3.51      3.47      3.50      3.26      3.32
Non-interest expense, excluding amortization of
  intangible assets, to total assets(5)                 1.92      1.74      1.78      1.90      1.99
Efficiency ratio(7)                                    50.97     48.41     49.73     56.71     53.82
Cash dividends declared per common share             $  0.30   $  0.21   $  0.06       N/A       N/A

ASSET QUALITY RATIOS:
Non-performing loans as a percent of total loans at
  end of period                                         0.67%     0.53%     1.12%     1.07%     1.07%
Non-performing assets to total assets at end of
  period(8)                                             0.51      0.40      0.71      0.57      0.74
Allowance for loan losses to non-performing loans
  at end of period                                    202.79    266.74    119.72    122.19     99.76
Allowance for loan losses to total loans at end of
  period                                                1.36      1.42      1.34      1.31      1.07

CAPITAL AND OTHER INFORMATION:(4)
Equity to assets at end of period                      11.60%    12.64%    14.90%    18.17%     8.28%
Leverage capital(9)                                     8.20      7.83     12.85     11.16      6.83
Tangible equity to risk-weighted assets at end of
  period(9)                                            11.70     11.37     17.73     22.25     10.05
Total capital to risk-weighted assets at end of
  period(9)                                            12.95     12.62     19.03     23.50     11.15
Tangible book value per share                        $ 10.39   $  9.13   $ 11.46   $ 11.75       N/A
Cash earnings(10)                                    $89,100   $73,431   $58,459   $36,754   $25,458
Diluted cash earnings per common share               $  1.58   $  1.24   $  0.86   $  0.13       N/A
Number of full service offices at end of period           67        65        32        34        32
</TABLE>

---------------
 (1) Represents the excess of cost over fair value of net assets acquired, which
     consists of goodwill and other intangibles, which amounted to $185.2
     million and $13.8 million, respectively, at March 31, 2001. The increase
     from March 31, 1999 to March 31, 2000 reflected the $98.8 million and $88.6
     million of goodwill resulting from the acquisitions of Broad and Statewide,
     respectively. See "Management's Discussion and Analysis of Financial
     Condition and Results of Operation-Recent Acquisitions" in Item 7 hereof.
 (2) The trust preferred securities were assumed by the Holding Company as part
     of the Broad acquisition effective the close of business on July 31, 1999.
 (3) The Bank completed its conversion and reorganization on March 13, 1998 (the
     "Conversion"). Accordingly, earnings per share for the fiscal year ended
     March 31, 1998 are presented on an historical basis from March 13, 1998 to
     March 31, 1998. Includes the one time non-recurring charge of $56.4 million
     ($37.2 million, net of tax) for funding of the Independence Community
     Foundation ("Foundation") in connection with the completion of the
     Conversion.
 (4) With the exception of end of period ratios and the efficiency ratio, all
     ratios are based on average daily balances during the respective periods.
 (5) At and for the year ended March 31, 1998, excludes the one time
     non-recurring charge of $56.4 million ($37.2 million net of tax) for the
     funding of the Foundation. At and for the year ended March 31, 1997,
     reflects the effects of a special one-time assessment imposed on
     institutions which had deposits insured by the SAIF. The Bank, as a result
     of the various acquisitions it has completed, is deemed to have SAIF
     deposits. As a consequence, during fiscal 1997, it paid $8.6 million in
     satisfaction of the special assessment. Had this amount not been paid for
     the year ended March 31, 1997, the Bank's returns on assets and equity
     would have been 0.61% and 7.44%, respectively, and the Bank's ratio of
     non-interest expenses, exclusive of amortization of intangible assets, to
     total assets would have been 1.76%.
 (6) Interest rate spread represents the difference between the weighted-average
     yield on interest-earning assets and the weighted-average cost of
     interest-bearing liabilities; net interest margin represents net interest
     income as a percentage of average interest-earning assets.
 (7) Reflects adjusted operating expense (net of amortization of goodwill and
     other intangibles, special SAIF assessment and contribution to the
     Foundation) as a percent of the aggregate of net interest income and
     adjusted non-interest income (excluding gains and losses on the sales of
     loans and securities).
 (8) Non-performing assets consist of non-accrual loans, loans past due 90 days
     or more as to interest or principal repayment and accruing and real estate
     acquired through foreclosure or by deed-in-lieu therefore.
 (9) Ratios reflect the capital position of the Bank only.
(10) Cash earnings include net income adjusted for the amortization of goodwill
     and other intangibles and certain charges related to the Company's stock
     related benefit plans, net of tax. For fiscal 1998, cash earnings were also
     adjusted to exclude the one time non-recurring charge of $56.4 million
     ($37.2 million net of tax) for funding of the Foundation.
<PAGE>   43

41


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

GENERAL

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

     The Company's results of operations also are affected by the provision for
loan losses resulting from management's assessment of the 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,
deposit insurance premiums, 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 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 emphasizing controlled growth, commercial real
estate and multi-family residential lending, commercial business lending,
warehouse mortgage lines of credit and retail and commercial deposit products,
while maintaining asset quality and stable liquidity.

BUSINESS STRATEGY

     CONTROLLED GROWTH.  In recent years, the Company has sought to increase its
assets and expand its operations. In fiscal 2001, the Company opened three de
novo branches and currently expects to open three new banking locations in the
New York metropolitan area during fiscal 2002. During fiscal 2000 the Company
completed its acquisition of Broad, which had $646.3 million in assets,
effective the close of business on July 31, 1999 and its acquisition of
Statewide, which had $745.2 million in assets, effective the close of business
on January 7, 2000. The Broad and Statewide acquisitions enabled the Company to
expand into contiguous markets in New Jersey with similar demographics as the
Company's New York market area. The acquisitions also enabled the Company to
further emphasize its broad array of commercial business products, including
business lending and lower cost deposits, which helped accelerate the Company's
strategy of becoming more bank-like. The Company also completed several other
smaller acquisitions in earlier periods. See "-- Acquisitions".

     The Company's assets increased by $406.7 million, or 6.2%, from $6.60
billion at March 31, 2000 to $7.01 billion at March 31, 2001 resulting mainly
from the $310.9 million growth in the loan portfolio. Such loan growth was
funded primarily through the use of borrowings and deposits.

     EMPHASIS ON COMMERCIAL LENDING.  Since the acquisitions of Broad and
Statewide, the Company has focused on expanding its higher yielding portfolios
of commercial real estate, commercial business and mortgage warehouse lines of
credit. Given the concentration of multi-family housing units in the New York
City metropolitan area, the Company continues to emphasize the origination of
loans secured by first liens on multi-family residential properties, which
consist primarily of mortgage loans secured by apartment buildings. In addition
to continuing to generate mortgage loans secured by multi-family and commercial
real estate, the Company also commenced a strategy to originate and sell
multi-family residential mortgage loans in the secondary market while retaining
servicing. During fiscal 2001, the Company sold $509.9 million (of which $249.9
million was originated for sale) of such loans recording a $3.6 million gain on
sale and $1.3 million in associated fees collected. To further expand these
higher yielding portfolios, the Company, in April 2001, purchased the assets and
employed the personnel of the Summit Group, a specialized lending group
providing mortgage warehouse lines of credit to mortgage bankers in the
tri-state area. The acquisition increased the mortgage warehouse line of credit
portfolio by $130 million in lines with approximately $83 million in outstanding
advances.

     The Company's strategy of emphasizing higher yielding loan products is
reflected in the shifting composition of its loan portfolio. The Company's
emphasis on commercial lending during fiscal 2001 resulted in commercial real
estate, commercial business and advances under warehouse mortgage lines of
credit comprising 28.6% of its total loan portfolio at March 31, 2001 compared
to 18.2% at March 31, 2000 while single-family and multi-family
<PAGE>   44

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


                                                                     42

residential loans comprised 60.9% of the Company's loan portfolio at March 31,
2001 compared to 68.8% at March 31, 2000.

     MAINTAIN ASSET QUALITY.  Management believes that maintaining high asset
quality is key to achieving and sustaining long-term financial success.
Accordingly, the Company has sought to maintain a high level of asset quality
and moderate credit risk by using underwriting standards which management
believes are conservative and by generally limiting its origination of mortgage
loans to its market area. The Company's non-accrual loans increased $4.0
million, to $16.2 million at March 31, 2001 with the increase primarily related
to commercial business loans. Loans 90 days or more past maturity which
continued to make payments on a basis consistent with the original repayment
schedule increased by $6.2 million. The Company's ratio of non-performing assets
to total assets at March 31, 2001 was 0.51% and its allowance for loan losses to
non-performing loans was 202.8%, while at March 31, 2000 the percentages were
0.40% and 266.7%, respectively.

     STABLE SOURCE OF LIQUIDITY.  The Company purchases short-to medium-term
investment securities and mortgage-related securities combining what management
believes to be appropriate liquidity, yield and credit quality in order to
achieve a managed and more predictable source of liquidity to meet loan demand
and, to a lesser extent, a stable source of interest income. These portfolios,
which totaled in the aggregate $921.7 million at March 31, 2001 compared to
$985.8 million at March 31, 2000, are comprised primarily of mortgage-related
securities totaling $720.5 million (of which $659.1 million consists of CMOs and
$61.4 million of mortgage-backed securities), $140.2 million of obligations of
the U.S. Government and federal agencies and $56.3 million of Dutch Auction Rate
Preferred Stock securities. In accordance with the Company's policy, securities
purchased by the Company generally must be rated at least "investment grade"
upon purchase.

     EMPHASIS ON RETAIL DEPOSITS AND CUSTOMER SERVICE. The Company, as a
community-based financial institution, is largely dependent upon its base of
competitively priced core deposits to provide a stable source of funding. The
Company has retained many loyal customers over the years through a combination
of quality service, relatively low service fees on various deposit and other
products, customer convenience, an experienced staff and a commitment to the
communities which it serves. Lower costing deposits, which exclude time
deposits, totaled $2.39 billion or 51.2% of the Company's total deposits at
March 31, 2001, as compared to $2.31 billion at March 31, 2000, a $78.9 million
or 3.4% increase. This increase in lower costing deposits is primarily
attributable to the continuing effort to grow core deposits and to a lesser
extent, the opening of three de novo branches. During fiscal 2001, the Company
also focused its efforts on increasing commercial deposits pursuant to the
Company's strategy of becoming a more commercial bank-like institution. In
addition, the Company does not accept brokered deposits as a source of funds and
presently has no plans to do so in the future.

ACQUISITIONS

     The Company completed its acquisition of Broad and the merger of Broad's
wholly owned subsidiary, Broad National, with and into the Bank, all effective
as of July 31, 1999.

     Under the terms of the Agreement and Plan of Merger between the Company and
Broad dated February 1, 1999 (the "Broad Agreement"), the merger consideration
consisted of approximately 50% Independence common stock and 50% cash. As a
result of the completed election procedures and in accordance with the terms of
a formula set forth in the Broad Agreement, each Broad stockholder who submitted
a valid election for stock consideration received 1.9859 shares of Holding
Company common stock for each share of Broad common stock, plus cash in lieu of
any fractional shares, and each Broad stockholder who submitted a valid election
for cash consideration received $26.50 per share of Broad common stock except
Broad stockholders who elected to receive cash as any portion of their
consideration for their Broad shares received a portion of such consideration in
the form of Holding Company common stock (the "Consideration Adjustment") in
accordance with the terms of the Broad Agreement. To the extent that certain
Broad stockholders elected to receive some combination of stock and cash
consideration in exchange for their shares of Broad common stock, such
individuals received the entire portion of their stock election in the form of
1.9859 shares of Holding Company common stock for each share of Broad common
stock, plus cash in lieu of any fractional shares, and the cash portion of their
election was subject to the Consideration Adjustment described above. The
remaining shares of Broad common stock for which a valid election was not
submitted received 1.9859 shares of Holding Company common stock for each share
of Broad common stock, plus cash in lieu of any fractional shares. The Broad
transaction had an aggregate value of approxi-
<PAGE>   45

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

43


mately $132 million assuming an acquisition value of $26.50 per share of Broad
common stock.

     As a result of the Broad acquisition, the Company acquired $646.3 million
of assets and 18 branch offices located in northern New Jersey, with total
deposits of $584.8 million. The acquisition was accounted for as a purchase and
the excess of cost over the fair value of net assets acquired ("goodwill") in
the transaction was $98.8 million, which is being amortized on a straight-line
basis over 15 years. The Company had $87.8 million of goodwill remaining related
to the Broad acquisition at March 31, 2001.

     The Company completed its acquisition of Statewide and the merger of
Statewide's wholly owned subsidiary, Statewide Bank, with and into the Bank, all
effective as of January 7, 2000.

     Under the terms of the Agreement and Plan of Merger between the Company and
Statewide dated April 12, 1999 (the "Statewide Agreement"), the merger
consideration consisted of approximately 4,172,606 shares of Holding Company
common stock and approximately $51.2 million based upon 4,051,277 shares of
Statewide common stock deemed outstanding as of the completion of the merger. As
a result of completed election procedures and in accordance with the terms of
the formula set forth in the Statewide Agreement, each Statewide stockholder who
submitted a valid election for stock consideration received 2.0700 shares of
Holding Company common stock for each share of Statewide common stock, plus cash
in lieu of any fractional shares, and each Statewide stockholder who submitted a
valid election for cash consideration received $25.14 per share of Statewide
common stock. Statewide stockholders who elected to receive some combination of
stock and cash consideration in exchange for their shares of Statewide common
stock, received the entire portion of their stock election in the form of 2.0700
shares of Holding Company common stock for each share of Statewide common stock,
plus cash in lieu of any fractional shares, and the cash portion of their
election at the rate of $25.14 per share of Statewide common stock. The
remaining shares of Statewide common stock for which valid elections were not
submitted were converted into the right to receive on a pro rata basis $25.14 in
cash for approximately 53% of the shares not tendered and 2.0700 shares of
Holding Company common stock for each remaining share of Statewide common stock,
plus cash in lieu of any fractional shares.

     As a result of the Statewide acquisition, the Company acquired $745.2
million of assets and 15 branch offices located in northern New Jersey, with
total deposits of $443.7 million. The acquisition was accounted for as a
purchase resulting in goodwill of approximately $88.6 million, which is being
amortized on a straight-line basis over 15 years. At March 31, 2001, the Company
had $81.2 million of goodwill remaining related to this acquisition.

     In April 1997, the Company completed a branch acquisition in Queens. The
Company assumed $70.0 million of deposits, receiving $64.9 million in cash, the
branch office and other fixed assets with an aggregate value of approximately
$886,000. In June 1998, this branch office was consolidated into another branch
office in the same geographic area. In connection with such acquisition, the
Company recorded a $4.0 million intangible asset which is being amortized on a
straight-line basis over seven years. At March 31, 2001, the remaining
intangible resulting from the deposit acquisition amounted to $1.7 million.

CHANGES IN FINANCIAL CONDITION

     Total assets increased by $406.7 million, or 6.2%, from $6.60 billion at
March 31, 2000 to $7.01 billion at March 31, 2001 primarily as a result of a
$310.9 million increase in the loan portfolio, which was funded primarily
through the use of borrowings and deposits. See "-- Business Strategy-Controlled
Growth." The $406.7 million of asset growth in fiscal 2001 primarily reflected
the combined increases of $125.6 million in cash and cash equivalents, $298.8
million in commercial business and other loans, $12.1 million in mortgage loans
and $58.0 million in other assets. Partially offsetting these increases were
decreases of $52.5 million in mortgage-related securities, $11.6 million in
investment securities and $22.0 million in intangible assets.

     CASH AND FEDERAL FUNDS SOLD (COLLECTIVELY "CASH AND CASH
EQUIVALENTS").  Cash and cash equivalents increased from $152.2 million at March
31, 2000 to $277.8 million at March 31, 2001 principally due to a temporary
build up of liquidity, resulting primarily from the sale in the fourth quarter
of fiscal 2001 of approximately $260.1 million of multi-family residential
loans. These funds will be used to fund existing commitments primarily for
commercial mortgage and business loans. See "-- Changes in Financial
Condition -- Loans, net" below.

     SECURITIES AVAILABLE-FOR-SALE.  The aggregate securities available-for-sale
portfolio (which includes investment
<PAGE>   46

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


                                                                     44

securities and mortgage-related securities) decreased $64.1 million, or 6.5%,
from $985.8 million at March 31, 2000 to $921.7 million at March 31, 2001. Total
securities decreased primarily as a result of approximately $118.6 million
received from the normal paydowns on mortgage-related securities which funds
were utilized to fund higher yielding mortgage and commercial business loan
originations. See "-- Changes in Financial Condition -- Loans, net" below. The
Company sold approximately $72.1 million of securities, consisting primarily of
equity securities, which were sold to fund the $100 million BOLI program. BOLI
provides an attractive tax-exempt return to the Company and is being used by the
Company to fund various employee benefit plans. BOLI is classified in other
assets in the Statement of Financial Condition and the income related to it is
included in non-interest income. Partially offsetting the decrease in securities
was a $56.5 million decrease in unrealized losses on securities
available-for-sale.

     As of March 31, 2001 and March 31, 2000, the Company's investment
securities totaled $201.2 million and $212.8 million, respectively. The
Company's mortgage-related securities, a portion of which at March 31, 2001
consisted of collateralized mortgage obligations secured by mortgage-backed
securities issued by FNMA or FHLMC, decreased from $773.0 million at March 31,
2000 to $720.5 million at March 31, 2001.

     At March 31, 2001, the Company had a $1.5 million (pre-tax) or $0.5 million
net unrealized loss on available-for-sale investment and mortgage-related
securities.

     LOANS, NET.  Loans, net, increased by $309.5 million, or 6.3%, to $5.19
billion at March 31, 2001 from $4.88 billion at March 31, 2000. The Company
originated for its own portfolio during the year ended March 31, 2001
approximately $641.4 million of mortgage loans compared to $1.13 billion for the
year ended March 31, 2000. The decline in mortgage originations reflected the
combined effects of aggressive pricing by competitors in the New York
metropolitan area in order to attain market share and reduced demand for loan
products due to increased market rates of interest during the first three
quarters of the fiscal year.

     Multi-family residential loans declined $110.2 million to $2.62 billion at
March 31, 2001 compared to $2.73 billion at March 31, 2000. The decrease was
primarily due to the sale during the fourth quarter of fiscal 2001 of
approximately $260.1 million of multi-family residential mortgage loans as well
as the reinvestment of loan repayments into higher yielding loan products. This
decline was partially offset by approximately $288.3 million of originations
during fiscal 2001. Commercial real estate loans increased $264.0 million or
44.2% to $861.2 million at March 31, 2001 compared to $597.2 million at March
31, 2000 primarily due to $332.9 million of originations in fiscal 2001. As a
result of these activities, multi-family residential mortgage loans comprised
49.8% and commercial real estate loans comprised 16.4% of the loan portfolio at
March 31, 2001 compared to 55.2% and 12.1% at March 31, 2000, respectively.
Single-family residential and cooperative apartment loans decreased $139.8
million from $1.14 billion at March 31, 2000 to $1.0 billion at March 31, 2001.
The decline was due to the Company reducing its emphasis on originating both
single-family residential and cooperative apartment loans in favor of higher
yielding, commercial real estate and business loans.

     Commercial business loans increased $183.1 million, or 72.2%, from $253.6
million at March 31, 2000 to $436.8 million at March 31, 2001 primarily due to
originations during fiscal 2001 of $345.7 million partially offset by loan
repayments. Advances under warehouse mortgage lines of credit increased $158.5
million from $48.2 million at March 31, 2000 to $206.7 million at March 31,
2001. The warehouse mortgage lines of credit are secured short-term advances
extended to mortgage-banking companies to fund the origination of one-to-four
family mortgages. To further expand these higher yielding portfolios, in April
2001, the Company purchased the assets and employed the personnel of the Summit
Group, a specialized lending group providing mortgage warehouse lines of credit
to mortgage bankers in the tri-state area. The acquisition increased the
Company's mortgage warehouse line of credit portfolio by $130 million in lines
with approximately $83 million in outstanding advances.

     During fiscal 2001, Company sold substantially its entire student loan
portfolio, effectuating its determination to exit the student loan servicing
business. The Company continues to offer student loans and has an agreement with
a third party who will purchase such loans at a premium. The sale resulted in a
net gain of approximately $1.1 million.

     The Company does not participate in syndicated loan structures.

     NON-PERFORMING ASSETS.  The overall quality of the Company's assets
remained strong with non-performing assets as a percentage of total assets of 51
basis points (0.51%) at March 31, 2001, compared to 40 basis points
<PAGE>   47

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

45


(0.40%) at March 31, 2000. The Company's non-performing assets, which consist of
non-accrual loans, loans past due 90 days or more as to interest or principal
and accruing and other real estate owned acquired through foreclosure or
deed-in-lieu thereof, increased by $9.2 million or 34.8% to $35.6 million at
March 31, 2001 from $26.4 million at March 31, 2000. The increase in non-
performing assets was primarily due to a $6.2 million increase to $17.8 million
at March 31, 2001 compared to March 31, 2000 of loans contractually past
maturity but which are continuing to pay in accordance with their original
repayment schedule and a $4.0 million increase in non-accrual loans, primarily
commercial business loans. At March 31, 2001, the Company's non-performing
assets consisted of $16.2 million of non-accrual loans (including $6.8 million
of commercial business loans, $5.0 million of single-family residential loans,
$3.5 million of commercial real estate loans and $0.5 million of multi-family
residential loans), $17.8 million of loans past due 90 days or more as to
principal and accruing ($10.4 million of which were multi-family loans and $7.0
million of which were commercial real estate loans), $1.4 million of loans past
due 90 days or more as to interest and accruing and $235,000 of other real
estate owned.

     ALLOWANCE FOR LOAN LOSSES.  The Company's allowance for loan losses
amounted to $71.7 million at March 31, 2001, as compared to $70.3 million at
March 31, 2000. At March 31, 2001, the Company's allowance amounted to 1.36% of
total loans and 202.8% of total non-performing loans compared to 1.42% and
266.7% at March 31, 2000, respectively. 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 and the number
of loans requiring heightened management oversight. The Company utilizes these
percentages as only one of many factors in assessing the adequacy of the
allowance for loan losses at various points in time. Other factors included in
the analysis of the allowance for loan losses include the increased investment
in multi-family residential and commercial real estate loans (all of which are
secured by properties in the New York City metropolitan area), the increased
number of larger commercial real estate loans, the substantial increase in
mortgage warehouse advances, the increased amount and number of commercial
business loans and the increased number of loans which exhibit risk
characteristics which were determined to require closer oversight (including the
amount of loans which were 90 days or more past due as to principal).

     The Company's allowance increased during the year ended March 31, 2001
primarily due to a $1.4 million provision for loan losses and $38,000 of net
recoveries. As a result of the continued high quality of the Company's loan
portfolio as well as the level of net loan recoveries, during fiscal 2001
management reduced the provision for loan losses by $8.4 million for the year
ended March 31, 2001 as compared to the prior year. Although management believes
the allowance for loan losses at March 31, 2001 was adequate, changes in market
conditions, loan portfolio composition, level of non-performing loans, and other
factors may result in the need for provisions in the future. Management reviews
the adequacy of the allowance for loan losses not less than quarterly.

     INTANGIBLE ASSETS.  At March 31, 2001, intangibles totaled $199.0 million
and consisted of $87.8 million related to the acquisition of Broad, $81.2
million related to the acquisition of Statewide, $16.2 million related to the
acquisition of Bay Ridge and $13.8 million related to fiscal 1996 branch
acquisitions. The Company's intangible assets decreased by $22.0 million to
$199.0 million at March 31, 2001, from $221.0 million at March 31, 2000, as a
result of the amortization of the intangible assets, as well as adjustments to
the Broad and Statewide goodwill during fiscal 2001. Amortization of such
intangibles will continue to reduce net income until such intangible assets are
fully amortized. See "-- Impact of New Accounting Pronouncements".

     DEPOSITS.  Deposits increased $254.0 million or 5.8% to $4.67 billion at
March 31, 2001 compared to $4.41 billion at March 31, 2000. The increase was due
to deposit inflows totaling $85.8 million as well as interest credited of $168.2
million. The deposit inflows occurred primarily during the fourth quarter of
fiscal 2001 as a result of the (i) continuing effort to grow core deposits and
(ii) to a lesser extent, the opening of three de novo branches.

     BORROWINGS.  Borrowings increased $146.6 million or 12.6% to $1.31 billion
at March 31, 2001 compared to $1.16 billion at March 31, 2000. The increase was
principally due to a $290.0 million increase in FHLB repurchase agreements
partially offset by decreases of $141.4 million in FHLB advances and $2.0
million in other repurchase agreements and other borrowings. The increase in
borrowings was primarily used to fund the growth in the loan portfolio. The
change in mix from FHLB advances to
<PAGE>   48

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


                                                                     46

FHLB repurchase agreements was the result of the Company taking advantage of
longer term borrowings at attractive interest rates. See Note 9 of the "Notes to
Consolidated Financial Statements" set forth in Item 8 hereof.

     COMPANY-OBLIGATED MANDATORILY REDEEMABLE CUMULATIVE TRUST PREFERRED
SECURITIES.  On June 30, 1997, $11.5 million of Trust Preferred Securities were
issued by the Issuer Trust. The net proceeds from the issuance were invested in
Broad in exchange for its junior subordinated debentures. The sole asset of the
Issuer Trust, the obligor on the Trust Preferred Securities, is $11.9 million
principal amount of 9.5% Junior Subordinated Debentures due June 30, 2027. Broad
entered into several contractual arrangements (which the Holding Company assumed
as part of the Broad acquisition) for the purpose of guaranteeing the Issuer
Trust's payment of distributions on, payments on any redemptions of, and any
liquidation distribution with respect to, the Trust Preferred Securities.

     The proceeds from the issuance of the Trust Preferred Securities were used
to fund stock repurchases by Broad and for general corporate purposes as well as
to meet debt service obligations pursuant to the junior subordinated debentures.

     As a result of favorable market conditions existing during fiscal 2001, the
Holding Company purchased $0.4 million of the existing Trust Preferred
Securities through an open market transaction.

     STOCKHOLDERS' EQUITY.  The Holding Company's stockholders' equity totaled
$813.2 million at March 31, 2001, compared to $834.8 million at March 31, 2000.
The $21.7 million decrease was primarily due to $113.9 million reduction in
capital resulting from the purchase during fiscal 2001 of 8,170,225 shares of
common stock in connection with the Holding Company's open market repurchase
programs and a $17.4 million decrease due to dividends declared. These decreases
were partially offset by net income of $62.0 million, amortization of the earned
portion of restricted stock grants of $6.3 million, $4.0 million related to the
Employee Stock Ownership Plan ("ESOP") shares committed to be released for
fiscal 2001, a $32.4 million decrease in the net unrealized loss on securities
available-for-sale, reflecting the effect on fair market value as a result of
declines in market rates of interest during fiscal 2001 and a $4.7 million
valuation adjustment of the deferred tax asset reflecting the fair market value
of stock contributed to the Foundation at its inception in March 1998.

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

     The table on the following page sets forth, for the periods indicated,
information regarding (i) the total dollar amount of interest income of the
Company from interest-earning assets and the resultant average yields; (ii) the
total dollar amount of interest expense on interest-bearing liabilities and the
resultant average rate; (iii) net interest income; (iv) the interest rate
spread; and (v) the net interest margin. Information is based on average daily
balances during the indicated periods.
<PAGE>   49

47


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (continued)
<TABLE>
<CAPTION>
                                                                            YEAR ENDED MARCH 31,
                                            ------------------------------------------------------------------------------------
                                                           2001                                 2000                     1999
                                            ------------------------------------------------------------------------------------
                                             AVERAGE                 AVERAGE      AVERAGE                 AVERAGE      AVERAGE
       (DOLLARS IN THOUSANDS)                BALANCE     INTEREST   YIELD/COST    BALANCE     INTEREST   YIELD/COST    BALANCE
       -------------------------------------------------------------------------------------------------------------------------
       <S>                                  <C>          <C>        <C>          <C>          <C>        <C>          <C>
       Interest-earning assets:

         Loans receivable(1):

           Mortgage loans                   $4,596,117   $343,595      7.48%     $3,966,084   $290,566      7.33%     $3,011,096

           Commercial business loans           297,512     27,690      9.31         125,155     11,185      8.94          32,782

           Warehouse mortgage lines of
              credit                           102,146      9,339      9.14           9,708        766      7.89              --

           Other loans(2)                      177,410     15,265      8.60         136,080     10,916      8.02          86,483

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

         Total loans                         5,173,185    395,889      7.65       4,237,027    313,433      7.40       3,130,361

         Mortgage-related securities           763,636     48,993      6.42         922,665     58,714      6.36         430,170

         Investment securities                 197,655     12,399      6.27         318,526     17,350      5.45         828,265

         Other interest-earning assets(3)      219,966     13,421      6.10         252,664     12,989      5.14         439,814

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

       Total interest-earning assets         6,354,442    470,702      7.41       5,730,882    402,486      7.02       4,828,610

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

       Non-interest-earning assets             490,583                              326,235                              214,315

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

           Total assets                     $6,845,025                           $6,057,117                           $5,042,925

                                            ==========                           ==========                           ==========


       Interest-bearing liabilities:

         Deposits:

           Demand deposits(4)               $1,153,473   $ 20,498      1.78      $  941,652   $ 16,400      1.74      $  664,878

           Savings deposits                  1,185,681     25,094      2.12       1,071,547     23,512      2.19         969,893

           Certificates of deposit           2,203,514    122,636      5.57       1,953,141     98,857      5.06       1,749,558

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

           Total deposits                    4,542,668    168,228      3.70       3,966,340    138,769      3.50       3,384,329

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

         Cumulative trust preferred
           securities(5)                        11,139      1,047      9.40           7,667        728      9.50              --

         Total borrowings                    1,371,018     78,182      5.70       1,175,273     64,163      5.46         617,542

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

       Total interest-bearing liabilities    5,924,825    247,457      4.18       5,149,280    203,660      3.96       4,001,871

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

       Non-interest-bearing liabilities        103,738                               90,543                              112,854

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

       Total liabilities                     6,028,563                            5,239,823                            4,114,725

       Total stockholders' equity              816,462                              817,294                              928,200

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

       Total liabilities and stockholders'
         equity                             $6,845,025                           $6,057,117                           $5,042,925

                                            ==========                           ==========                           ==========


       Net interest-earning assets          $  429,617                           $  581,602                           $  826,739

                                            ==========                           ==========                           ==========

       Net interest income/interest rate
         spread                                          $223,245      3.23%                  $198,826      3.06%

                                                         ========      ====                   ========      ====

       Net interest margin                                             3.51%                                3.47%

                                                                       ====                                 ====

       Ratio of average interest-earning
         assets to average interest-
         bearing liabilities                                           1.07x                                1.11x

                                                                       ====                                 ====

<CAPTION>
                                     YEAR ENDED MARCH 31,
                                     ---------------------
                                             1999
                                     ---------------------
                                                 AVERAGE
       (DOLLARS IN THOUSANDS)        INTEREST   YIELD/COST
       ----------------------------  ---------------------
       <S>                           <C>        <C>
       Interest-earning assets:

         Loans receivable(1):

           Mortgage loans            $227,579      7.56%

           Commercial business loan     3,140      9.58

           Warehouse mortgage lines
              credit                       --        --

           Other loans(2)               7,004      8.10

                                     --------

         Total loans                  237,723      7.59

         Mortgage-related securitie    28,254      6.57

         Investment securities         46,216      5.58

         Other interest-earning ass    24,222      5.51

                                     --------

       Total interest-earning asset   336,415      6.97

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

       Non-interest-earning assets


           Total assets



       Interest-bearing liabilities

         Deposits:

           Demand deposits(4)        $ 14,238      2.14

           Savings deposits            24,480      2.52

           Certificates of deposit     94,428      5.40

                                     --------

           Total deposits             133,146      3.93

                                     --------

         Cumulative trust preferred
           securities(5)                   --        --

         Total borrowings              34,075      5.52

                                     --------

       Total interest-bearing liabi   167,221      4.18

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

       Non-interest-bearing liabili


       Total liabilities

       Total stockholders' equity


       Total liabilities and stockh
         equity



       Net interest-earning assets


       Net interest income/interest
         spread                      $169,194      2.79%

                                     ========      ====

       Net interest margin                         3.50%

                                                   ====

       Ratio of average interest-ea
         assets to average interest
         bearing liabilities                       1.21x

                                                   ====
</TABLE>

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

     (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 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.
     (5) Acquired in connection with the acquisition of Broad effective July 31,
         1999.
<PAGE>   50

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


                                                                     48

RATE/VOLUME ANALYSIS

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

<TABLE>
<CAPTION>
                                           FISCAL 2001 COMPARED TO            FISCAL 2000 COMPARED TO
                                                 FISCAL 2000                        FISCAL 1999
                                      ---------------------------------   --------------------------------
                                      INCREASE (DECREASE)                 INCREASE (DECREASE)
                                             DUE TO          TOTAL NET          DUE TO          TOTAL NET
                                      --------------------    INCREASE    -------------------    INCREASE
(IN THOUSANDS)                          RATE      VOLUME     (DECREASE)     RATE      VOLUME    (DECREASE)
----------------------------------------------------------------------------------------------------------
<S>                                   <C>        <C>         <C>          <C>        <C>        <C>
Interest-earning assets:
  Loans receivable:
     Mortgage loans                   $ 5,554    $ 47,475     $53,029     $ (7,484)  $ 70,471    $ 62,987
     Commercial business loans            482      16,023      16,505         (224)     8,269       8,045
     Warehouse mortgage lines of
       credit                             140       8,433       8,573           --        766         766
     Other loans(1)                       837       3,512       4,349          (70)     3,982       3,912
                                      -------    --------     -------     --------   --------    --------
  Total loans receivable                7,013      75,443      82,456       (7,778)    83,488      75,710
  Mortgage-related securities             459     (10,180)     (9,721)        (887)    31,347      30,460
  Investment securities                 2,354      (7,305)     (4,951)      (1,053)   (27,813)    (28,866)
  Other interest-earning assets         2,241      (1,809)        432       (1,532)    (9,701)    (11,233)
                                      -------    --------     -------     --------   --------    --------
Total net change in income on
  interest-earning assets              12,067      56,149      68,216      (11,250)    77,321      66,071
Interest-bearing liabilities:
  Deposits:
     Demand deposits                      380       3,718       4,098       (3,002)     5,164       2,162
     Savings deposits                    (873)      2,455       1,582       (3,386)     2,418        (968)
     Certificates of deposit           10,350      13,429      23,779       (6,163)    10,592       4,429
                                      -------    --------     -------     --------   --------    --------
  Total deposits                        9,857      19,602      29,459      (12,551)    18,174       5,623
  Trust preferred securities               (7)        326         319           --        728         728
  Borrowings                            2,927      11,092      14,019         (375)    30,463      30,088
                                      -------    --------     -------     --------   --------    --------
Total net change in expense on
  interest-bearing liabilities         12,777      31,020      43,797      (12,926)    49,365      36,439
                                      -------    --------     -------     --------   --------    --------
Net change in net interest income     $  (710)   $ 25,129     $24,419     $  1,676   $ 27,956    $ 29,632
                                      =======    ========     =======     ========   ========    ========
</TABLE>

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

COMPARISON OF RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MARCH 31, 2001
AND 2000

     GENERAL.  For the year ended March 31, 2001, the Company reported a 22.2%
increase in diluted earnings per share to $1.10 compared to $0.90 for the year
ended March 31, 2000. Net income for fiscal 2001 increased 16.5% to $62.0
million compared to $53.2 million for fiscal 2000.

     Cash earnings for fiscal 2001 increased 21.3% to $89.1 million, compared to
$73.4 million for the prior fiscal year. Cash earnings per diluted share
increased 27.4% to $1.58 for fiscal 2001 compared to $1.24 for fiscal 2000. Cash
earnings include net income adjusted for the amortization of goodwill and other
intangibles and certain charges related to the Company's stock-related benefit
plans net of tax. The Company believes the reporting of cash earnings along with
GAAP earnings provides another measure of the Company's operating performance.

     NET INTEREST INCOME.  Net interest income increased by $24.4 million or
12.3% to $223.2 million for the fiscal year ended March 31, 2001 as compared to
$198.8 million for fiscal 2000. The increase was due to a $68.2 million increase
in interest income, partially offset by a $43.8 million increase in interest
expense. The growth in net
<PAGE>   51

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

49


interest income primarily reflected the $623.6 million increase in average
interest-earning assets resulting from the assets acquired in connection with
the July 1999 acquisition of Broad and the January 2000 acquisition of Statewide
and, to a lesser extent, the growth of the commercial mortgage and business loan
portfolios. Net interest income in the current year was also lower due to the
BOLI investment. Changes in the cash surrender value of the BOLI are recognized
in other non-interest income.

     For the year ended March 31, 2001, the Company's net interest margin
increased to 3.51% from 3.47% for the comparative fiscal period. The increase in
net interest margin for the 2001 period was attributable to the addition of
Broad's higher yielding commercial loan portfolio and the associated lower cost
commercial deposit base, partially offset by interest rate compression
experienced during the period. Since the completion of the Broad and Statewide
acquisitions, the Company has continued to concentrate on expanding its higher
yielding commercial mortgage and business loan portfolios rather than investing
in securities. The margin also reflected the Company's use of $113.9 million of
its earning assets to fund its open market stock repurchase programs (pursuant
to which 8.2 million shares were repurchased in fiscal 2001).

     The Company's interest rate spread (i.e., the difference between the yields
earned on its interest-earning assets and the rates paid on its interest-bearing
liabilities) increased to 3.23% for the year ended March 31, 2001 compared to
3.06% for the year ended March 31, 2000. The net interest rate spread increased
by 17 basis points reflecting the shift in the asset/liability composition to
higher yielding assets, principally commercial business loans and mortgage
warehouse lines of credit, and the lower cost of liabilities, resulting in part
from the assets and deposits obtained in the acquisitions of Broad and
Statewide.

     Interest income increased by $68.2 million, or 16.9%, to $470.7 million for
the fiscal year ended March 31, 2001 compared to fiscal 2000. This increase is
primarily due to the $623.6 million increase in the average balance of the
Company's interest-earning assets, combined with a 39 basis point increase in
the weighted average yield, from 7.02% for fiscal 2000 to 7.41% for fiscal 2001.

     Interest income on loans increased $82.5 million due to a $936.2 million
increase in the average balance of loans as well as a 25 basis point increase in
the yield earned on loans from 7.40% for the fiscal 2000 period to 7.65% for the
fiscal 2001 period. The increase in average balance is due to $2.87 billion of
loan originations for portfolio retention in fiscal 2001 partially offset by
loan repayments of $2.26 billion. The increase in yield was primarily due to the
increased investment in higher yielding commercial mortgage and business loans.

     Income on investment securities decreased $5.0 million for the fiscal year
ended March 31, 2001 due to a $120.9 million decrease in the average balance of
investment securities, partially offset by an increase in the yield earned on
such securities from 5.45% for fiscal 2000 to 6.27% for fiscal 2001.

     Interest income on mortgage-related securities decreased $9.7 million
during fiscal 2001 compared to fiscal 2000 as a result of a $159.0 million
decrease in the average balance of these securities. This decrease was partially
offset by a six basis point increase in the yield earned to 6.42% for fiscal
2001 from 6.36% for fiscal 2000, reflecting the increase in market rates of
interest experienced during the first three quarters of the fiscal year. Income
on investment and mortgage-related securities decreased during fiscal 2001 as a
result of the BOLI investment as well as the Company's emphasis on investing in
higher yielding commercial loan products instead of securities.

     Income on other interest-earning assets (consisting primarily of interest
on federal funds and dividends on FHLB stock) increased $0.4 million in fiscal
2001 compared to fiscal 2000. This increase primarily reflects the $1.4 million
increase in dividends on FHLB stock partially offset by $1.0 million decline in
interest on federal funds, overnight deposits and other short-term investments.

     Interest expense increased $43.8 million or 21.5% to $247.5 million for the
year ended March 31, 2001 compared to $203.7 million for the year ended March
31, 2000. The increased FHLB borrowings resulted in additional interest expense
of $14.0 million. Interest paid on deposits increased by $29.5 million for the
year ended March 31, 2001 due to the $576.3 million increase in the average
balance of deposits, primarily as a result of the acquisitions of Broad and
Statewide, and a 20 basis point increase in the average rate paid on deposits to
3.70% for fiscal 2001 compared to 3.50% for fiscal 2000. Interest expense on
Trust Preferred Securities was $1.0 million and $0.7 million for fiscal 2001 and
2000, respectively. The Trust Preferred Securities were assumed as part of the
Broad acquisition effective the close of business on July 31, 1999.

     PROVISION FOR LOAN LOSSES.  The Company's provision for loan losses
decreased by $8.4 million, or 85.8%, from $9.8 million for the fiscal year ended
March 31, 2000,
<PAGE>   52

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


                                                                     50

to $1.4 million for the fiscal year ended March 31, 2001. The decrease in the
provision primarily reflected management's assessment of the loss inherent in
the Company's portfolio. Non-performing assets as a percentage of total assets
increased to 51 basis points at March 31, 2001, compared to 40 basis points at
March 31, 2000. Non-performing assets increased 34.8% to $35.6 million at March
31, 2001, compared to $26.4 million at March 31, 2000. The increase of $9.2
million was primarily due to an increase of $6.2 million on loans that are
contractually past due as to maturity, although current as to monthly principal
and interest payments and $4.0 million increase in non-accrual loans, primarily
commercial business loans. Included in the $35.6 million of non-accrual loans at
March 31, 2001 were $17.8 million of loans contractually past maturity but which
are continuing to pay in accordance with their original repayment schedule. At
March 31, 2001 and March 31, 2000, the allowance for loan losses as a percentage
of total non-performing loans was 202.8% and 266.7%, respectively.

     NON-INTEREST INCOME.  Increasing non-interest income has been an on-going
strategic objective. As a result of the implementation of a variety of
initiatives, the Company experienced a $21.4 million, or 126.6%, increase in
non-interest income to $38.3 million for the year ended March 31, 2001, compared
to $16.9 million for the year ended March 31, 2000.

     During fiscal 2001, the Company recognized net gains of $3.4 million
primarily from the sale of the $35.7 million student loan portfolio and
securities sales of $72.1 million, the proceeds of which funded the $100 million
BOLI program.

     Income from mortgage-banking activities for fiscal 2001 reflects $3.6
million in gains and $1.3 million of origination fees related to the sale of
multi-family residential loans in the secondary market. During fiscal 2001, the
Company implemented a new program of originating multi-family residential loans
specifically for sale in the secondary market with servicing retained by the
Bank. During fiscal 2001, the Company sold $509.9 million (of which $249.9
million was originated for sale) of such loans, recognizing a loan servicing
asset of $2.0 million at March 31, 2001. The Company intends to continue
emphasizing this program as a means of increasing non-interest income.

     Service fees increased 76.4% to $24.0 million for the year ended March 31,
2001 compared to fiscal 2000. These increases were due to increased banking and
service fees from the core and expanded branch network resulting from the
acquisitions of Broad and Statewide.

     Other non-interest income, consisting primarily of income from the BOLI
program and mortgage prepayment fees, increased by $1.0 million to $6.0 million
for the year ended March 31, 2001, compared to $5.0 million for the prior fiscal
year. The Company recorded approximately $2.7 million in income related to the
BOLI program for the year ended March 31, 2001. Prior to the investment in the
BOLI program, the $100 million premium was initially invested in investment
securities, income from which was recognized in interest income. Non-interest
income was adversely effected by a decline in the level of mortgage prepayments
during fiscal 2001 as general market rates of interest increased during the
majority of the fiscal year, resulting in reduced mortgage refinancing and lower
mortgage prepayment fees of $2.1 million.

     NON-INTEREST EXPENSE.  Non-interest expense increased $32.9 million or
27.5% to $152.8 million for the fiscal year ended March 31, 2001, from $119.9
million for fiscal 2000. This increase primarily reflects increases of $11.2
million in compensation and employee benefit expense, $5.7 million in occupancy
costs, $1.4 million in advertising costs, $1.0 million in data processing fees,
$6.6 million in amortization of intangibles and $7.4 million in other
non-interest expense.

     Total salaries and benefits increased by $11.2 million in fiscal 2001 to
$62.9 million. The increase was due to increased compensation of $10.3 million,
increased stock-related benefit plan costs of $1.1 million and increased medical
insurance and post-retirement health care costs of $2.2 million resulting from
staff additions due to the Statewide and Broad acquisitions. Included in the
increased compensation was a $0.7 million adjustment to the value of deferred
compensation investments. This increase was partially offset by a $3.3 million
reduction in pension expense, resulting from the pension plan amendments adopted
in the second quarter of fiscal 2001. The amendments are expected to result in a
projected annual savings of approximately $3.5 million.

     Occupancy costs increased by $5.7 million to $22.3 million in fiscal 2001,
primarily reflecting the expansion of operations resulting from the acquisitions
of Broad and Statewide. The Company anticipates higher annual operating costs as
a result of the increased number of branch facilities resulting from the three
de novo branches opened during fiscal 2001. In addition, the Company currently
expects to open three new branches in fiscal 2002.
<PAGE>   53

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

51


     Data processing fees increased by $1.0 million or 12.8%, to $8.4 million
during the fiscal year ended March 31, 2001 as compared to $7.5 million during
the fiscal year ended March 31, 2000. The increase was a result of additional
costs associated with the expanded operations resulting from the Broad and
Statewide acquisitions, costs associated with the new customer Call Center,
partially offset by the lack of any Year 2000 transition costs.

     The Company's advertising expenses amounted to $6.1 million and $4.7
million for the fiscal years ended March 31, 2001 and 2000, respectively. The
increase reflects the Company's continued focus on brand awareness through, in
part, increased advertising in print media, radio and direct marketing programs.

     FDIC deposit insurance premiums decreased $0.2 million for the fiscal year
ended March 31, 2001 compared to fiscal 2000. As a result of past acquisitions,
the Company is deemed to have SAIF-insured deposits. The level of deposit
insurance expense was higher than that of an insured institution with a
comparable amount of BIF-only insured deposits due to the significant amount of
the Company's deposits deemed to be SAIF-insured. The deposits deemed SAIF
insured were assessed at a rate of 6.4 basis points compared to 1.3 basis points
for the BIF-insured deposits. Beginning January 1, 2000, all FDIC-insured
institutions are assessed the same rate for their BIF and SAIF assessable
deposits to fund the Financing Corporation.

     Amortization of intangibles increased $6.6 million, or 45.2%, to $21.2
million for fiscal 2001, compared to $14.6 million for fiscal 2000. The increase
reflected a full year effect in fiscal 2001 of the amortization of the goodwill
incurred in the Broad and Statewide acquisitions compared to amortization of
eight months for Broad and three months for Statewide in fiscal 2000.

     Other non-interest expense includes items such as equipment expenses,
office supplies, postage, telephone expenses, maintenance and security services
contracts and professional fees. Other non-interest expense increased $7.4
million, or 31.2%, to $31.0 million for the fiscal year ended March 31, 2001,
compared to $23.6 million for fiscal 2000, primarily due to additional expenses
associated with the expansion of operations resulting from the acquisitions of
Broad and Statewide as well as costs associated with the internal growth of the
Company's infrastructure, including three new branch facilities, a new customer
Call Center and expanded lending activities.

     INCOME TAXES.  Income tax expense increased $12.5 million to $45.3 million
for the year ended March 31, 2001 compared to $32.8 million in fiscal 2000. This
increase was primarily due to a $21.3 million increase in pre-tax income to
$107.4 million for fiscal 2001 compared to $86.0 million in fiscal 2000. In
addition, the Company's effective tax rate for the year ended March 31, 2001 was
42.2%, compared to 38.1% for the year ended March 31, 2000. The increase in the
effective tax rate during fiscal 2001 compared to fiscal 2000 was attributable
to the increase in the amortization of intangibles, which is non-deductible for
tax purposes.

     Net deferred tax assets decreased by $18.9 million to $69.0 million at
March 31, 2001, compared to $87.9 million at March 31, 2000. The decrease was
primarily the result of a $24.4 million reduction in the deferred tax asset
related to securities available-for-sale as a result of a decrease in the
aggregate unrealized loss on such securities. 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. A $12.5 million valuation allowance was established due to the
expectation that the deferred tax asset may not be fully utilized. See Note 14
of the "Notes to Consolidated Financial Statements" set forth in Item 8 hereof.

     CASH EARNINGS.  Tangible stockholders' equity (stockholders' equity less
intangibles) totaled $614.2 million at March 31, 2001 compared to $613.8 million
at March 31, 2000.

     Although reported earnings and return on equity are traditional measures of
a company's performance, the Company believes that the change in tangible
equity, or "cash earnings," is also a significant measure of a company's
performance. Cash earnings exclude the effects of various non-cash expenses,
such as the amortization for the allocation of shares held by the ESOP and the
1998 Recognition and Retention Plan ("Recognition Plan") and related tax
benefit, as well as the amortization of goodwill and other intangibles. In the
case of tangible equity, these items have either been previously charged to
equity, as in the case of ESOP and Recognition Plan charges, through
contra-equity accounts, or do not affect tangible equity, such as the market
appreciation of allocated ESOP shares, for which the operating charge is offset
by a credit to additional paid-in capital, and amortization of goodwill and
other intangibles, for which the related intangible asset has already been
deducted in the calculation of tangible equity.
<PAGE>   54

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


                                                                     52

     The Company believes that cash earnings and cash returns on average equity
reflect the Company's ability to generate tangible capital that can be leveraged
for future growth.

     The following table reflects the Company's cash earnings for the periods
indicated as follows:

<TABLE>
<CAPTION>
                                 YEAR ENDED
                                 MARCH 31,
(DOLLARS IN THOUSANDS,       ------------------
EXCEPT PER SHARE DATA)        2001       2000
-----------------------------------------------
<S>                          <C>        <C>
Net income                   $62,036    $53,246
Additional contributions to
  stockholders' equity:
  Amortization of goodwill
     and other intangibles    21,224     14,613
  Amortization and
     appreciation of stock-
     related benefit plans,
     net of tax                5,840      5,572
                             -------    -------
Cash earnings                $89,100    $73,431
                             =======    =======
Diluted cash earnings per
  share                      $  1.58    $  1.24
                             =======    =======
Cash return on average
  equity                       10.91%      8.98%
Cash efficiency ratio          47.06%     44.27%
</TABLE>

COMPARISON OF RESULTS OF OPERATIONS FOR THE FISCAL
YEARS ENDED MARCH 31, 2000 AND 1999

     GENERAL.  For the year ended March 31, 2000, the Company reported a 36.4%
increase in diluted earnings per share to $0.90, compared to $0.66 for the year
ended March 31, 1999. Net income for fiscal 2000 increased 17.9% to $53.2
million, compared to $45.2 million for fiscal 1999.

     Cash earnings for fiscal 2000 increased 25.6% to $73.4 million, compared to
$58.5 million for the prior fiscal year. Cash earnings per diluted share
increased 44.2% to $1.24 for fiscal 2000 compared to $0.86 for fiscal 1999. Cash
earnings include net income adjusted for the amortization of goodwill and other
intangibles and certain charges related to the Company's stock related benefit
plans net of tax. The Company believes the reporting of cash earnings along with
GAAP earnings provides another measure of the Company's operating performance.

     NET INTEREST INCOME.  Net interest income increased by $29.6 million or
17.5% to $198.8 million for the fiscal year ended March 31, 2000 as compared to
$169.2 million for fiscal 1999. The increase was due to a $66.1 million increase
in interest income, offset by a $36.5 million increase in interest expense. The
growth in net interest income primarily reflects the $902.3 million increase in
average interest-earning assets, which is primarily attributable to the
implementation of the Company's leveraging strategy in the third quarter of
fiscal 1999 and, to a lesser extent, the assets acquired in connection with the
July 31, 1999 acquisition of Broad and the January 7, 2000 acquisition of
Statewide. Such growth was partially offset by a lower interest rate environment
resulting from the flattening of the yield curve during fiscal 2000 as well as
interest rate compression associated with the continued leveraging of the
balance sheet. The Company initiated in fiscal 1999 a leverage strategy which
utilized FHLB borrowings as its primary funding source.

     For the year ended March 31, 2000, the Company's net interest margin
decreased to 3.47% from 3.50% for the comparative fiscal periods, primarily the
result of the implementation of the Company's leveraging strategy during the
third quarter of fiscal 1999, under which the increased investment in
mortgage-related securities was funded with FHLB advances and repurchase
agreements. Such borrowings, which bear interest generally at higher rates than
deposits, increased the Company's cost of funds. Also contributing to the net
interest margin compression were the generally lower yields on loans originated
during fiscal 2000, when compared to the average yields on the outstanding loan
portfolios at the beginning of the fiscal year, combined with the downward
repricing of adjustable-rate mortgages. The decline also reflected the Company's
use of $126.4 million of its earning assets to fund its open market stock
repurchase programs. This decline was partially offset by the acquisition of
Broad's higher yielding commercial loan portfolio and the associated lower cost
commercial deposit base.

     The Company's interest rate spread (i.e., the difference between the yields
earned on its interest-earning assets and the rates paid on its interest-bearing
liabilities) increased to 3.06% in fiscal 2000, compared to 2.79% for the year
ended March 31, 1999. Due to the general flattening of the yield curve, the
Company experienced a general decline in essentially all of its interest-earning
asset and interest-bearing liability portfolios. However, the net interest rate
spread increased by 27 basis points reflecting a shift in the mix to higher
yielding assets and lower costing liabilities, resulting partially from the
acquisitions of Broad and Statewide as well as the Company's leverage program.

     Interest income increased by $66.1 million, or 19.6%, to $402.5 million for
the fiscal year ended March 31, 2000,
<PAGE>   55

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

53


as compared to the same period in fiscal 1999. This increase is primarily due to
the $902.3 million increase in the average balance of the Company's
interest-earning assets, combined with a 5 basis point increase in the weighted
average yield earned thereon, from 6.97% for fiscal 1999 to 7.02% for fiscal
2000.

     Interest income on loans increased $75.7 million due to a $1.11 billion
increase in the average balance of loans, partially offset by a 19 basis point
decline in the yield earned on loans from 7.59% for the fiscal 1999 period to
7.40% for the fiscal 2000 period. The increase in average balance is due to the
combined effects of $1.52 billion of loan originations in fiscal 2000 and $761.7
million of loans acquired in connection with the acquisitions of Broad and
Statewide. The decline in yield is due to the effects of loan originations at
lower interest rates existing throughout much of fiscal 2000, together with
downward repricing with respect to the Company's adjustable-rate loans repricing
during fiscal 2000, reflecting declines in market rates of interest experienced
during the first three quarters of the fiscal year. Income on investment
securities decreased $28.9 million for the fiscal year ended March 31, 2000, due
to a $509.7 million decrease in the average balance of investment securities,
along with a decline in the yield earned from 5.58% for fiscal 1999 to 5.45% for
fiscal 2000. Interest income on mortgage-related securities increased $30.5
million during fiscal 2000 compared to fiscal 1999 as a result of a $492.5
million increase in the average balance of these securities. This increase was
partially offset by a 21 basis point decline in the yield earned to 6.36% for
fiscal 2000 from 6.57% for fiscal 1999, reflecting the general decline in market
rates of interest experienced during the first three quarters of the fiscal
year. In conjunction with its leveraging strategy, the Company reallocated its
assets from investment securities to higher yielding mortgage-related
securities. Income on other interest-earning assets (consisting primarily of
interest on federal funds and dividends on FHLB stock) decreased $11.2 million
in fiscal 2000 compared to fiscal 1999. This decrease primarily reflects the
$10.6 million decline in interest income earned from securities lending
activities during fiscal 1999 accompanied by a $3.0 million decrease in interest
on federal funds and overnight deposits. These decreases were partially offset
by a $2.2 million increase in dividends on FHLB stock.

     Interest expense increased $36.5 million or 21.8% to $203.7 million for the
year ended March 31, 2000, as compared to $167.2 million for the year ended
March 31, 1999. The increased FHLB borrowings associated with the implementation
of the Company's leveraging strategy resulted in additional interest expense of
$40.4 million, which was partially offset by a $10.4 million decrease in
interest paid on borrowings related to securities lending activities. Interest
paid on deposits increased by $5.6 million for the year ended March 31, 2000,
due to the $582.0 million increase in the average balance of deposits, primarily
as a result of the acquisitions of Broad and Statewide. This increase was
partially offset by a 43 basis point decline in the average rate paid on
deposits to 3.50% for fiscal 2000 compared to 3.93% for fiscal 1999, reflecting
the acquisition of Broad's lower cost commercial deposit base combined with
decreases in market rates of interest experienced during the first three
quarters of the fiscal year. Interest expense on Trust Preferred Securities was
$0.7 million for fiscal 2000. The Trust Preferred Securities were assumed as
part of the Broad acquisition effective the close of business on July 31, 1999.

     PROVISION FOR LOAN LOSSES.  The Company's provision for loan losses
decreased by $0.9 million or 8.2%, from $10.7 million for the fiscal year ended
March 31, 1999 to $9.8 million for the fiscal year ended March 31, 2000. The
decrease in the provision primarily reflected the quality of the Company's
assets, with non-performing assets as a percentage of total assets declining to
40 basis points at March 31, 2000, compared to 71 basis points at March 31,
1999. Non-performing assets decreased 32.9% to $26.4 million at March 31, 2000,
compared to $39.4 million at March 31, 1999. The decrease of $13.0 million was
primarily due to satisfactions totaling $19.3 million on loans that were
previously contractually past due as to maturity, although current as to monthly
principal and interest payments. The decrease was partially offset by a $5.1
million increase in non-accrual loans, primarily commercial business loans. At
March 31, 2000 and March 31, 1999, the allowance for loan losses as a percentage
of total non-performing loans was 266.7% and 119.7%, respectively.

     NON-INTEREST INCOME.  Non-interest income increased by $5.6 million from
$11.3 million for the fiscal year ended March 31, 1999 to $16.9 million for
fiscal 2000. The increase reflected an $8.4 million increase in service fee
income, a $1.7 million net loss on the sale of loans and securities during
fiscal 2000 as compared to a $390,000 gain incurred on such sales during fiscal
1999 and a $0.7 million decrease in other non-interest income.

     The $8.4 million increase in service fee income was primarily the result of
fee income generated by the Broad National and Statewide Bank branch network,
increased
<PAGE>   56

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


                                                                     54

fees on sales of annuities and mutual funds and an increase in banking service
and ATM fees. Other non-interest income decreased $0.7 million, primarily as a
result of the $0.9 million decrease resulting from the completion, in fiscal
1999, of the accretion of intangible assets resulting from the 1992 acquisition
of another financial institution, as well as a $0.6 million decline in mortgage
loan prepayment fees. These decreases were partially offset by $0.8 million
income from the Company's investment in a mortgage brokerage company. The
increase was partially offset by a $1.7 million net loss on the sale of
approximately $993.8 million of securities, consisting mainly of collateralized
mortgage obligation bonds and Dutch Auction Rate Preferred Stock securities,
which were sold primarily to fund mortgage loan originations and the Company's
open market stock repurchase programs.

     NON-INTEREST EXPENSE.  Non-interest expense increased $21.7 million or
22.1% to $119.9 million for the fiscal year ended March 31, 2000, from $98.2
million for fiscal 1999. This increase primarily reflects increases of $11.5
million in compensation and employee benefit expense, $3.2 million in occupancy
costs, $6.0 million in amortization of intangibles and $3.8 million in other
non-interest expense, partially offset by a decrease of $2.8 million in data
processing fees.

     Total salaries and benefits increased by $11.5 million in fiscal 2000 to
$51.7 million, primarily the result of $7.5 million in staff additions mainly
related to the Broad and Statewide acquisitions, as well as normal salary
increases. Such expenses also increased by $2.5 million during fiscal 2000 due
to the full year impact of the implementation of the Company's Recognition Plan
which was adopted at the end of the second quarter of fiscal 1999. The expense
associated with the Recognition Plan is being recognized over the five year
vesting period from date of grant.

     Occupancy costs increased by $3.2 million to $16.7 million in fiscal 2000,
primarily reflecting the expansion of operations resulting from the acquisitions
of Broad and Statewide.

     Data processing fees decreased by $2.8 million or 27.3%, to $7.5 million
during the fiscal year ended March 31, 2000 as compared to $10.3 million during
the fiscal year ended March 31, 1999. The decrease mainly reflected the
completion of the installation of a new teller and platform system in the fourth
quarter of fiscal 1999, as well as $1.2 million of lower Y2K costs in fiscal
2000 compared to fiscal 1999. These declines were partially offset by increases
as the result of the Broad and Statewide acquisitions.

     The Company's advertising expenses amounted to $4.7 million and $4.6
million for the fiscal years ended March 31, 2000 and 1999, respectively. The
increase in fiscal years 2000 and 1999 as compared to fiscal 1998 reflects the
Company's focus on brand awareness through, in part, increased advertising in
print media and radio.

     FDIC deposit insurance premiums remained constant for the fiscal years
ended March 31, 2000 and 1999. As a result of past acquisitions, the Company is
deemed to have SAIF-insured deposits. The level of deposit insurance expense was
higher than that of an insured institution with a comparable amount of BIF-only
insured deposits due to the significant amount of the Company's deposits deemed
to be SAIF-insured. The deposits deemed SAIF insured were assessed at a rate of
6.4 basis points compared to 1.3 basis points for the BIF-insured deposits.
Beginning January 1, 2000, all FDIC-insured institutions are assessed the same
rate of 2.1 basis points of their BIF and SAIF assessable deposits to fund the
Financing Corporation. At March 31, 2000, $2.26 billion of the Company's
deposits were deemed to be SAIF insured while at March 31, 1999, SAIF-insured
deposits were $1.54 billion.

     Amortization of intangibles increased $6.0 million, or 69.3% to $14.6
million for fiscal 2000, compared to $8.6 million for fiscal 1999. The increase
is primarily due to goodwill recognized as a result of the Broad and Statewide
acquisitions. Both acquisitions are being amortized over a fifteen-year period.
The Company experienced an increase in amortization of intangibles during fiscal
2001 due to the full year impact of the amortization of goodwill relating to the
Broad and Statewide acquisitions.

     Other non-interest expense includes items such as equipment expenses,
office supplies, postage, telephone expenses, maintenance and security services
contracts and professional fees. Other non-interest expense increased $3.8
million, or 19.4%, to $23.6 million for the fiscal year ended March 31, 2000,
compared to $19.8 million for fiscal 1999, primarily due to additional expenses
associated with the expansion of operations resulting from the acquisitions of
Broad and Statewide.

     INCOME TAXES.  Income tax expense increased $6.4 million to $32.8 million
for the year ended March 31, 2000 compared to $26.4 million in fiscal 1999. This
increase is primarily due to a $14.4 million increase in pre-tax income to $86.0
million for fiscal 2000 compared to $71.6 million in fiscal 1999. In addition,
the Company's effective
<PAGE>   57

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

55


tax rate for the year ended March 31, 2000 was 38.1%, compared to 36.9% for the
year ended March 31, 1999. The increase in the effective tax rate during fiscal
2000 compared to fiscal 1999 is attributable to the increase in the amortization
of intangibles, which is non-deductible for tax purposes.

     As of March 31, 2000, net deferred tax assets were $87.9 million, compared
to $48.5 million at March 31, 1999. No valuation allowance was deemed necessary
with respect to such assets. See Note 14 of the "Notes to Consolidated Financial
Statements" set forth in Item 8 hereof.
     CASH EARNINGS.  Tangible stockholders' equity (stockholders' equity less
intangibles) totaled $613.8 million at March 31, 2000, compared to $777.7
million at March 31, 1999. Tangible equity decreased due to a $173.7 million
increase in intangible assets primarily related to the acquisitions of Broad and
Statewide.

     Although reported earnings and return on equity are traditional measures of
a company's performance, the Company believes that the change in tangible
equity, or "cash earnings," is also a significant measure of a company's
performance. Cash earnings exclude the effects of various non-cash expenses,
such as the amortization for the allocation of shares held by the ESOP and the
Recognition Plan and related tax benefit, as well as the amortization of
goodwill and other intangibles. In the case of tangible equity, these items have
either been previously charged to equity, as in the case of ESOP and Recognition
Plan charges, through contra-equity accounts, or do not affect tangible equity,
such as the market appreciation of allocated ESOP shares, for which the
operating charge is offset by a credit to additional paid-in capital, and
amortization of goodwill and other intangibles, for which the related intangible
asset has already been deducted in the calculation of tangible equity.

     The Company believes that cash earnings and cash returns on average equity
reflect the Company's ability to generate tangible capital that can be leveraged
for future growth.

     The following table reflects the Company's cash earnings for the periods
indicated as follows:

<TABLE>
<CAPTION>
                                 YEAR ENDED
                                 MARCH 31,
(DOLLARS IN THOUSANDS,       ------------------
EXCEPT PER SHARE DATA)        2000       1999
-----------------------------------------------
<S>                          <C>        <C>
Net income                   $53,246    $45,175
Additional contributions to
  stockholders' equity:
  Amortization of goodwill
     and other intangibles    14,613      8,629
  Amortization and
     appreciation of stock-
     related benefit plans,
     net of tax                5,572      4,655
                             -------    -------
Cash earnings                $73,431    $58,459
                             =======    =======
Diluted cash earnings per
  share                      $  1.24    $  0.86
                             =======    =======
Cash return on average
  equity                        8.98%      6.30%
Cash efficiency ratio          44.27%     45.63%
</TABLE>

ASSET AND LIABILITY MANAGEMENT

     GENERAL.  The Company's asset and liability management strategy is
established by the Asset/Liability Committee of the Company and reviewed and
approved by the Company's Board of Directors periodically. The Asset/ Liability
Committee meets weekly. Currently, the Company manages the imbalance between its
interest-earning assets and interest-bearing liabilities within shorter
maturities to ensure that such relationships are within acceptable ranges given
the Company's business strategies and objectives and its analysis of market and
economic conditions. The ability to maximize net interest income is largely
dependent upon the achievement of a positive interest rate spread that can be
sustained during fluctuations in prevailing interest rates. Interest rate
sensitivity is a measure of the difference between amounts of interest-earning
assets and interest-bearing liabilities which either reprice or mature within a
given period of time. The difference, or the interest rate repricing "gap"
provides an indication of the extent to which an institution's interest rate
spread will be affected by changes in interest rates.
<PAGE>   58

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


                                                                     56

     DISCUSSION OF MARKET RISK.  As a financial institution, the Company's
primary component of market risk is interest rate volatility and the slope of
the yield curve. Fluctuations in interest rates will ultimately impact both the
level of income and expense recorded on a large portion of the Company's assets
and liabilities, and the market value of all interest-earning assets, other than
those which possess a short term to maturity. All significant interest rate risk
management procedures are performed at the Company level. Based upon the
Company's nature of operations, the Company is not subject to foreign currency
exchange or commodity price risk. The Company's various loan portfolios,
concentrated primarily within the greater New York City metropolitan area (which
includes parts of northern New Jersey), is subject to risks associated with the
local economy. The Company does not own any trading assets.

     The Company's strategies to manage interest rate risk include (i)
increasing the interest sensitivity of its mortgage loan portfolio through the
use of adjustable-rate loans or relatively short-term (five to ten years)
balloon loans, (ii) selling most newly originated fixed-rate, single-family
residential mortgage loans with original terms to maturity of more than 15
years, (iii) originating relatively short-term or adjustable-rate consumer and
commercial business loans, including warehouse lines of credit (iv) investing in
securities, primarily mortgage-related instruments with maturities or estimated
average lives of less than five years, (v) promoting stable savings, demand and
other transaction accounts, (vi) maintaining a strong capital position and (vii)
maintaining a relatively high level of liquidity and/or borrowing capacity.
<PAGE>   59

57


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

          The following table provides information about the Company's financial
     instruments used for purposes other than trading that are sensitive to
     changes in interest rates. The Company did not have any trading assets as
     of March 31, 2001. For loans, securities, and liabilities with contractual
     maturities, the table presents principal cash flows and related
     weighted-average interest rates by contractual maturities as well as the
     Company's historical experience of the impact of interest rate fluctuations
     on the prepayment of residential and home equity loans and mortgage-related
     securities. For deposits that have no contractual maturity, the table
     presents principal cash flows and, as applicable, related weighted-average
     interest rates as due in one year or less at March 31, 2001.

<TABLE>
<CAPTION>
                                                 PRINCIPAL REPAYMENTS CONTRACTUALLY DUE IN YEAR(S) ENDED MARCH 31,
                                  -----------------------------------------------------------------------------------------------
                                                                                                                       FAIR VALUE
   (DOLLARS IN THOUSANDS)            2002        2003       2004       2005        2006      THEREAFTER     TOTAL       3/31/01
   ------------------------------------------------------------------------------------------------------------------------------
   <S>                            <C>          <C>        <C>        <C>        <C>          <C>          <C>          <C>
   RATE SENSITIVE ASSETS:

   Fixed interest rate mortgage
     loans(1)                     $  127,908   $121,477   $125,804   $113,977   $2,175,420    $927,791    $3,592,377   $4,432,173

     Average interest rate              8.32%      8.33%      7.29%      7.24%        7.37%       6.67%

   Variable interest rate
     mortgage loans(1)            $  140,881   $114,989   $ 97,884   $ 34,491   $   30,567    $450,714    $  869,526   $  870,347

     Average interest rate              7.53%      7.55%      7.64%      7.45%        7.29%       7.29%

   Fixed interest rate
     commercial business loans    $   47,675   $ 42,234   $ 52,447   $ 50,070   $   31,235    $ 26,632    $  250,293   $  249,583

     Average interest rate              8.45%      8.66%      8.51%      8.78%        8.39%       6.73%

   Variable interest rate
     commercial business loans    $  144,791   $ 41,667   $     --   $     --   $       --    $     --    $  186,458   $  186,629

     Average interest rate              8.58%      8.66%        --%        --%          --%         --%

   Variable interest rate
     warehouse mortgage lines of
     credit                       $  206,707   $     --   $     --   $     --   $       --    $     --    $  206,707   $  206,707

     Average interest rate              9.14%        --%        --%        --%          --%         --%

   Fixed interest rate other
     loans                        $   32,121   $ 31,478   $ 24,418   $ 15,954   $   14,302    $ 32,917    $  151,190   $  151,190

     Average interest rate              9.35%      8.93%      9.06%      8.49%        8.49%       8.78%

   Fixed interest rate
     securities(2)                $  106,222   $ 81,650   $ 61,870   $ 61,406   $   64,424    $549,416    $  924,988   $  919,503

     Average interest rate              5.93%      5.98%      6.49%      6.46%        6.44%       6.33%

   Variable interest rate
     securities(2)                $      582   $    447   $    316   $     --   $       --    $  1,480    $    2,825   $    2,244

     Average interest rate              8.14%      8.05%      7.88%        --%          --%       7.81%

   Other interest-bearing assets  $  252,299   $     --   $     --   $     --   $       --    $     --    $  252,299   $  252,299

     Average interest rate              5.87%        --%        --%        --%          --%         --%

   RATE SENSITIVE LIABILITIES:

   Non interest-bearing checking  $  427,655   $     --   $     --   $     --   $       --    $     --    $  427,655   $  427,655

     Average interest rate                --%        --%        --%        --%          --%         --%

   Savings and interest-bearing
     checking                     $1,962,126   $     --   $     --   $     --   $       --    $     --    $1,962,126   $1,962,126

     Average interest rate              2.26%        --%        --%        --%          --%         --%

   Time deposits                  $2,041,054   $144,206   $ 39,191   $ 17,580   $   33,965    $    280    $2,276,276   $2,294,588

     Average interest rate              5.64%      5.69%      5.44%      5.45%        5.89%       6.16%

   Fixed interest rate
     borrowings                   $  148,593   $ 53,900   $515,500   $ 51,300   $       --    $540,000    $1,309,293   $1,326,177

     Average interest rate              5.64%      5.39%      5.50%      5.84%          --%       5.61%
</TABLE>

     --------------------
     (1) Does not include $16.7 million of loans serviced by others.
     (2) Does not include $4.5 million of unamortized non-cash premium or
         discount on securities.
<PAGE>   60

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


                                                                     58

     Management believes that the assumptions utilized by it to evaluate the
exposure of the Company's operations to changes in interest rates approximate
actual experience and considers them reasonable; however, the cash flows of the
Company's assets and liabilities in the above table could vary substantially if
different assumptions were used or actual experience differs from the historical
experience on which the cash flows are based.

     Although market risk disclosure is a useful measurement and contributes
toward effective asset and liability management, it is difficult to predict the
effect of changing interest rates based solely on that measure. An alternative
methodology is to estimate the change in the Company's net portfolio value
("NPV") over a range of interest rate scenarios.

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

     The NPV ratio, under any interest rate scenario, is defined as the NPV in
that scenario divided by the market value of assets in the same scenario. The
model assumes estimated loan prepayment rates and reinvestment rates similar to
the Company's historical experience. The following sets forth the Company's NPV
as of March 31, 2001.

<TABLE>
<CAPTION>
                                                                          NPV AS % OF PORTFOLIO
                                       NET PORTFOLIO VALUE                   VALUE OF ASSETS
                           --------------------------------------------   ---------------------
CHANGE (IN BASIS POINTS)                                         NPV %               CHANGE IN
   IN INTEREST RATES         AMOUNT            $ CHANGE          CHANGE    RATIO     NPV RATIO
-----------------------------------------------------------------------------------------------
                                        (Dollars in Thousands)
<S>                        <C>          <C>                      <C>      <C>       <C>
          +300             $  644,516         $(209,776)         (24.56)%  10.01%      (2.11)%

          +200                698,299          (155,993)         (18.26)   10.55       (1.57)

          +100                784,608           (69,684)         (8.16)    11.47       (0.65)

             0                854,292                --             --     12.12          --

          -100                928,677            74,385           8.71     12.79        0.67

          -200                992,904           138,612          16.23     13.35        1.23

          -300              1,180,652           326,360          38.20     15.29        3.17
</TABLE>

     As of March 31, 2001, the Company's NPV was $854.3 million, or 12.12% of
the market value of assets. Following a 200 basis point increase in interest
rates, the Company's "post shock" NPV was $698.3 million, or 10.55% of the
market value of assets. The change in the NPV ratio or the Company's Sensitivity
Measure was negative 1.57%.

     As of March 31, 2000, the Company's NPV was $774.3 million, or 12.00% of
the market value of assets. Following a 200 basis point increase in interest
rates, the Company's "post shock" NPV was $530.9 million, or 8.86% of the market
value of assets. The change in the NPV ratio or the Company's Sensitivity
Measure was negative 3.14%.

     Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in NPV require the making of
certain assumptions which may or may not reflect the manner in which actual
yields and costs respond to changes in market interest rates. In this regard,
the NPV table presented assumes that the composition of the Company's interest
sensitive assets and liabilities existing at the beginning of a period remains
constant over the period being measured and also assumes that a particular
change in interest rates is reflected uniformly across the yield curve
regardless of the duration to maturity or repricing of specific assets and
liabilities. Accordingly, although the NPV table provides an indication of the
Company's interest rate risk exposure at a particular point in time, such
measurements are not
<PAGE>   61

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

59


intended to and do not provide a precise forecast of the effect of changes in
market interest rates on the Company's net interest income and will differ from
actual results.

REGULATORY CAPITAL REQUIREMENTS

     The Bank is subject to minimum regulatory capital requirements imposed by
the FDIC which vary according to an institution's capital level and the
composition of its assets. An insured institution is required to maintain core
capital of not less than 3.0% of total assets plus an additional amount of at
least 100 to 200 basis points ("leverage capital ratio"). An insured institution
must also maintain a ratio of total capital to risk-based assets of 8.0%.
Although the minimum leverage capital ratio is 3.0%, the Federal Deposit
Insurance Corporation Improvement Act of 1991 stipulates that an institution
with less than a 4.0% leverage capital ratio is deemed to be an
"undercapitalized" institution which results in the imposition of certain
regulatory restrictions. See Note 15 of the "Notes to Consolidated Financial
Statements" set forth in Item 8 hereof for a discussion of the Bank's regulatory
capital requirements and compliance therewith at March 31, 2001 and 2000.

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 has increased its FHLB borrowings to $1.31
billion at March 31, 2001, from $1.16 billion at March 31, 2000. The amount of
such borrowings have ranged from $56.0 million at March 31, 1996 to $1.31
billion at March 31, 2001. See Note 9 of the "Notes to Consolidated Financial
Statements" set forth in Item 8 hereof.

     Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as federal funds sold, U.S. Treasury securities or Dutch Auction Rate
Preferred Stock 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 March 31, 2001, there were outstanding commitments and unused lines of credit
by the Company to originate or acquire mortgage loans aggregating $200.9
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 March 31, 2002. At March 31,
2001, outstanding commitments for other loans totaled $52.7 million, primarily
comprised of home equity loans and lines of credit. In addition, at March 31,
2001, unused commercial business lines of credit and warehouse mortgage lines of
credit outstanding were $209.8 million and $73.7 million, respectively.
Certificates of deposit scheduled to mature in one year or less at March 31,
2001 totaled $2.04 billion or 89.7% of total certificates of deposit. Based on
historical experience, management believes that a significant portion of
maturing deposits will remain with the Company. The Company anticipates that it
will continue to have sufficient funds, together with borrowings, to meet its
current commitments.

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

     The Holding Company's liquidity is available to, among other things, fund
acquisitions, support future expansion of operations or diversification into
other banking related businesses, pay dividends or repurchase its common stock.
<PAGE>   62

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


                                                                     60

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

     The Bank's ability to pay dividends to the Holding Company is also subject
to certain restrictions. Under the New York Banking Law, dividends may be
declared and paid only out of the net profits of the Bank. The approval of the
Superintendent of Banks of the State of New York is required if the total of all
dividends declared in any calendar year will exceed the net profits for that
year plus the retained net profits of the preceding two years, less any required
transfers. In addition, no dividends may be declared, credited or paid if the
effect thereof would cause the Bank's capital to be reduced below the amount
required by the Superintendent or the FDIC.

     During fiscal 2000, the Bank requested (and received) approval of or
non-objection to the distribution to the Holding Company of an aggregate of
$285.0 million. Of this amount, $176.0 million and $95.0 million was distributed
to the Company in fiscal 2000 and fiscal 2001, respectively. The distributions
were primarily used by the Company to fund the cash portion of the merger
consideration paid in the Broad and Statewide acquisitions as well as the
Company's open market stock repurchase programs. In addition, during fiscal
2001, the Bank requested (and received) approval of the distribution to the
Holding Company of an aggregate of $25.0 million, none of which had been
distributed as of March 31, 2001.

IMPACT OF INFLATION AND CHANGING PRICES

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

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

     In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. SFAS No. 133 requires an
entity to recognize all derivatives as either assets or liabilities in the
statement of financial condition and measure those instruments at fair value.
The accounting for changes in the fair value of a derivative (unrealized gains
and losses) depends on the intended use of the derivative and the resulting
designation. In June 1999, the FASB issued Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133." ("SFAS
No. 137"). SFAS No. 137 defers the effective date of SFAS No. 133 from fiscal
quarters of fiscal years beginning after June 15, 1999 to June 15, 2000. SFAS
No. 133 does not require restatement of prior periods. The implementation of
SFAS No. 133 did not have an impact on the Company's financial condition or
results of operations.

     In June 2000, the FASB issued Statement of Financial Accounting Standards
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities -- an amendment of FASB Statement No. 133" ("SFAS No. 138"). SFAS No.
138 amends the accounting and reporting standards of SFAS No. 133 for certain
derivative instruments and certain hedging activities. SFAS No. 138 was adopted
concurrently with SFAS No. 133.

     In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" ("SFAS No. 140") that replaces in its
entirety SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" ("SFAS No. 125"). SFAS No. 140
revises the standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain additional disclosures, but
it carries over most of SFAS No. 125's provisions without reconsideration. SFAS
No. 140 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. SFAS No. 140 is
effective for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000. The Company believes the implementation of SFAS No. 140
will not have a
<PAGE>   63

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

61


material effect on the Company's financial condition or results of operations.

     The FASB issued an exposure draft on February 14, 2001, "Business
Combinations and Intangible Assets" (the "Statement"), which is a limited
revision of an exposure draft on the same topic issued September 7, 1999. In the
Statement, the FASB indicated that the amortization of goodwill created with
respect to business combinations completed both before and after the effective
date of any final pronouncement with respect to the Statement would be
discontinued. Under the Statement, goodwill will instead be carried at its book
value as of the effective date of adoption of the Statement by a Company
(subject to the exceptions discussed below) and any future impairment of such
value will be recognized as either a change in accounting principle (with
respect to the first impairment test conducted within six months of adoption) or
as a part of operating income. However, under the terms of the Statement,
identified intangibles (such as core deposit premiums) would continue to be
amortized. In addition, the Statement provides that business combinations will
be accounted for using purchase accounting only. The final form of the Statement
has not been issued but is expected to be released by mid-summer 2001.

     On May 16, 2001, the FASB announced the effective dates of the various
provisions of the Statement. With respect to business combinations initiated
after June 30, 2001, such transactions must use purchase accounting. With
respect to business combinations initiated before such date but completed
subsequent to June 30, 2001 and accounted for under the purchase method, any
goodwill and identifiable intangibles must be accounted for in accordance with
the Statement. The effective date of the Statement for all other goodwill and
identifiable intangibles is for fiscal years beginning after December 15, 2001
provided, however, companies with fiscal years beginning after March 15, 2001
can elect to adopt the Statement early. However, adoption may only occur as of
the commencement of a fiscal year and early adoption is not allowed if first
quarter financial results have been issued prior to such early adoption.
Companies will be required to perform the first impairment test of its goodwill
(a comparison of the fair value of the goodwill to its carrying value) within
six months of the effective date of adoption of the Statement. Thus, if the
Company elects early adoption, it will be required to complete its first
impairment test by September 30, 2001. The Company is currently analyzing the
Statement and has not yet determined whether it will adopt the Statement
effective April 1, 2001 or wait until April 1, 2002. Although, the Company has
not made such decision, it believes that adoption of the Statement (as currently
drafted) will result in an increase in its reported earnings per share, although
the exact amount of such increased has not been determined.

ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Asset and Liability Management" in Item 7 hereof.
<PAGE>   64


                                                                     62

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT AUDITORS

THE BOARD OF DIRECTORS

INDEPENDENCE COMMUNITY BANK CORP.

     We have audited the accompanying consolidated statements of financial
condition of Independence Community Bank Corp. (the "Company") as of March 31,
2001 and 2000, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended March 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Independence
Community Bank Corp. at March 31, 2001 and 2000, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 2001, in conformity with accounting principles generally
accepted in the United States.

/s/ ERNST & YOUNG, LLP
----------------------------
Ernst & Young, LLP
New York, New York
May 17, 2001
<PAGE>   65

63


INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                                     MARCH 31,
                                                              ------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)                                2001          2000
--------------------------------------------------------------------------------------
<S>                                                           <C>           <C>
ASSETS:
Cash and due from banks -- interest-bearing                   $  144,576    $   59,585
Cash and due from banks -- non-interest-bearing                  107,786        74,585
Federal funds sold                                                25,400        17,997
                                                              ----------    ----------
     Total cash and cash equivalents                             277,762       152,167
Securities available-for-sale:
  Investment securities ($139,186 and $41,869 pledged to
     creditors, respectively)                                    201,198       212,768
  Mortgage-related securities ($529,714 and $397,687 pledged
     to creditors, respectively)                                 720,549       773,031
                                                              ----------    ----------
     Total securities available-for-sale                         921,747       985,799
Mortgage loans on real estate                                  4,467,984     4,455,845
Other loans                                                      793,457       494,675
                                                              ----------    ----------
     Total loans                                               5,261,441     4,950,520
     Less: allowance for possible loan losses                    (71,716)      (70,286)
                                                              ----------    ----------
     Total loans, net                                          5,189,725     4,880,234
Premises, furniture and equipment, net                            84,728        88,704
Accrued interest receivable                                       37,119        33,509
Intangible assets, net                                           198,994       220,979
Other assets                                                     300,792       242,758
                                                              ----------    ----------
     Total assets                                             $7,010,867    $6,604,150
                                                              ==========    ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits                                                      $4,666,057    $4,412,032
Borrowings                                                     1,309,293     1,162,738
Company-obligated mandatorily redeemable cumulative trust
  preferred securities of a subsidiary trust holding solely
  junior debentures of the Company                                11,067        11,500
Escrow and other deposits                                         72,152        73,516
Accrued expenses and other liabilities                           139,142       109,557
                                                              ----------    ----------
     Total liabilities                                         6,197,711     5,769,343
Stockholders' equity:
  Common stock, $.01 par value: 125,000,000 shares
     authorized, 76,043,750 shares issued; 59,128,845 and
     67,254,439 shares outstanding at March 31, 2001 and
     March 31, 2000, respectively                                    760           760
  Additional paid-in-capital                                     723,418       718,953
  Treasury stock at cost: 16,914,905 and 8,789,311 shares at
     March 31, 2001 and March 31, 2000, respectively            (230,012)     (116,693)
  Unallocated common stock held by ESOP                          (82,805)      (87,749)
  Non-vested awards under Recognition and Retention Plan         (22,744)      (27,907)
  Retained earnings, substantially restricted                    425,016       380,358
  Accumulated other comprehensive loss:
     Net unrealized loss on securities available-for-sale,
      net of tax                                                    (477)      (32,915)
                                                              ----------    ----------
     Total stockholders' equity                                  813,156       834,807
                                                              ----------    ----------
     Total liabilities and stockholders' equity               $7,010,867    $6,604,150
                                                              ==========    ==========
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>   66


                                                                     64

INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                FOR THE YEAR ENDED MARCH 31,
                                                              --------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)                        2001        2000        1999
----------------------------------------------------------------------------------------------
<S>                                                           <C>         <C>         <C>
INTEREST INCOME:
  Mortgage loans on real estate                               $343,595    $290,566    $227,579
  Other loans                                                   52,294      22,867      10,144
  Investment securities                                         12,399      17,350      46,216
  Mortgage-related securities                                   48,993      58,714      28,254
  Other                                                         13,421      12,989      24,222
                                                              --------    --------    --------
     Total interest income                                     470,702     402,486     336,415
                                                              --------    --------    --------
INTEREST EXPENSE:
  Deposits                                                     168,228     138,769     133,146
  Borrowings                                                    78,182      64,163      34,075
  Trust preferred securities                                     1,047         728          --
                                                              --------    --------    --------
     Total interest expense                                    247,457     203,660     167,221
                                                              --------    --------    --------
       Net interest income                                     223,245     198,826     169,194
                                                              --------    --------    --------
Provision for loan losses                                        1,392       9,817      10,698
                                                              --------    --------    --------
     Net interest income after provision for loan losses       221,853     189,009     158,496
                                                              --------    --------    --------
NON-INTEREST INCOME:
  Net gain (loss) on sales of loans and securities               3,398      (1,716)        390
  Mortgage-banking activities                                    4,932          --          --
  Service fees                                                  24,025      13,621       5,212
  Other                                                          5,983       5,011       5,721
                                                              --------    --------    --------
     Total non-interest income                                  38,338      16,916      11,323
                                                              --------    --------    --------
NON-INTEREST EXPENSE:
  Compensation and employee benefits                            62,934      51,740      40,247
  Occupancy costs                                               22,332      16,672      13,507
  Data processing fees                                           8,419       7,464      10,271
  Advertising                                                    6,063       4,665       4,608
  FDIC insurance premiums                                          894       1,142       1,182
  Amortization of intangible assets                             21,224      14,613       8,629
  Other                                                         30,960      23,594      19,759
                                                              --------    --------    --------
     Total non-interest expense                                152,826     119,890      98,203
                                                              --------    --------    --------
Income before provision for income taxes                       107,365      86,035      71,616
Provision for income taxes                                      45,329      32,789      26,441
                                                              --------    --------    --------
Net income                                                    $ 62,036    $ 53,246    $ 45,175
                                                              ========    ========    ========
Basic earnings per share                                      $   1.11    $   0.90    $   0.67
                                                              ========    ========    ========
Diluted earnings per share                                    $   1.10    $   0.90    $   0.66
                                                              ========    ========    ========
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>   67

65


INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                             YEARS ENDED MARCH 31, 2001, 2000 AND 1999
                                           ----------------------------------------------

                                                    ADDITIONAL               UNALLOCATED
                                           COMMON    PAID IN     TREASURY    COMMON STOCK
(IN THOUSANDS, EXCEPT SHARE DATA)          STOCK     CAPITAL       STOCK     HELD BY ESOP
-----------------------------------------------------------------------------------------
<S>                                        <C>      <C>          <C>         <C>
Balance -- March 31, 1998                   $760     $741,277    $      --     $(97,636)
Comprehensive income:
 Net income for the year ended March 31,
   1999                                       --           --           --           --
 Other comprehensive income, net of tax
   benefit of $2.0 million
   Changes in net unrealized losses on
     securities available-for-sale, net
     of tax                                   --           --           --           --
                                            ----     --------    ---------     --------
Comprehensive income                          --           --           --           --
Repurchase of common stock (8,169,874
 shares)                                      --           --     (125,993)          --
Dividends paid                                --           --           --           --
ESOP shares committed to be released          --         (669)          --        4,943
Other conversion related costs                --         (372)          --           --
Issuance of grants and purchase of shares
 under Recognition Plan (2,816,435
 shares)                                      --       (1,247)          --           --
Amortization of earned portion of
 Recognition Plan                             --          101           --           --
                                            ----     --------    ---------     --------
Balance -- March 31, 1999                    760      739,090     (125,993)     (92,693)
                                            ----     --------    ---------     --------
Comprehensive income:
 Net income for the year ended March 31,
   2000                                       --           --           --           --
 Other comprehensive income, net of tax
   benefit of $25.0 million
   Change in net unrealized gains on
     securities available-for-sale, net
     of tax                                   --           --           --           --
   Less: reclassification adjustment of
     net losses realized in net income,
     net of tax                               --           --           --           --
                                            ----     --------    ---------     --------
Comprehensive income                          --           --           --           --
Repurchase of common stock (10,022,867
 shares)                                      --           --     (126,386)          --
Treasury stock issued for Broad National
 Bancorporation acquisition (4,950,699
 shares)                                      --       (7,317)      73,378           --
Treasury stock issued for Statewide
 Financial Corp. acquisition (4,172,606
 shares)                                      --       (7,356)      58,040           --
Treasury stock issued for options
 exercised (280,125 shares)                   --       (3,595)       4,268           --
Dividends paid                                --           --           --           --
ESOP shares committed to be released          --       (1,496)          --        4,944
Amortization of earned portion of
 Recognition Plan                             --         (373)          --           --
                                            ----     --------    ---------     --------
Balance -- March 31, 2000                    760      718,953     (116,693)     (87,749)
                                            ----     --------    ---------     --------
Comprehensive income:
 Net income for the year ended March 31,
   2001                                       --           --           --           --
 Other comprehensive income, net of tax
   benefit of $0.7 million
   Change in net unrealized losses on
     securities available-for-sale, net
     of tax                                   --           --           --           --
   Less: reclassification adjustment of
     net losses realized in net income,
     net of tax                               --           --           --           --
                                            ----     --------    ---------     --------
Comprehensive income                          --           --           --           --
Valuation adjustment for deferred income
 tax benefit relating to Foundation           --        4,680           --           --
Repurchase of common stock (8,170,225
 shares)                                      --           --     (113,913)          --
Treasury stock issued for options
 exercised (44,631 shares)                    --         (397)         594           --
Dividends declared                            --           --           --           --
ESOP shares committed to be released          --         (928)          --        4,944
Issuance of grants under Recognition Plan
 (225,363 shares)                             --          930           --           --
Amortization of earned portion of
 Recognition Plan                             --          180           --           --
                                            ----     --------    ---------     --------
BALANCE -- MARCH 31, 2001                   $760     $723,418    $(230,012)    $(82,805)
                                            ====     ========    =========     ========

<CAPTION>
                                                  YEARS ENDED MARCH 31, 2001, 2000 AND 1999
                                           -------------------------------------------------------
                                               UNEARNED                   ACCUMULATED
                                             COMMON STOCK                    OTHER
                                               HELD BY        RETAINED   COMPREHENSIVE
(IN THOUSANDS, EXCEPT SHARE DATA)          RECOGNITION PLAN   EARNINGS   INCOME/(LOSS)     TOTAL
-----------------------------------------  -------------------------------------------------------
<S>                                        <C>                <C>        <C>             <C>
Balance -- March 31, 1998                      $     --       $298,876     $  5,847      $ 949,124
Comprehensive income:
 Net income for the year ended March 31,
   1999                                              --         45,175           --         45,175
 Other comprehensive income, net of tax
   benefit of $2.0 million
   Changes in net unrealized losses on
     securities available-for-sale, net
     of tax                                          --             --       (8,150)        (8,150)
                                               --------       --------     --------      ---------
Comprehensive income                                 --         45,175       (8,150)        37,025
Repurchase of common stock (8,169,874
 shares)                                             --             --           --       (125,993)
Dividends paid                                       --         (4,032)          --         (4,032)
ESOP shares committed to be released                 --             --           --          4,274
Other conversion related costs                       --             --           --           (372)
Issuance of grants and purchase of shares
 under Recognition Plan (2,816,435
 shares)                                        (36,920)            --           --        (38,167)
Amortization of earned portion of
 Recognition Plan                                 3,002             --           --          3,103
                                               --------       --------     --------      ---------
Balance -- March 31, 1999                       (33,918)       340,019       (2,303)       824,962
                                               --------       --------     --------      ---------
Comprehensive income:
 Net income for the year ended March 31,
   2000                                              --         53,246           --         53,246
 Other comprehensive income, net of tax
   benefit of $25.0 million
   Change in net unrealized gains on
     securities available-for-sale, net
     of tax                                          --             --      (25,858)       (25,858)
   Less: reclassification adjustment of
     net losses realized in net income,
     net of tax                                      --             --       (4,754)        (4,754)
                                               --------       --------     --------      ---------
Comprehensive income                                 --         53,246      (30,612)        22,634
Repurchase of common stock (10,022,867
 shares)                                             --             --           --       (126,386)
Treasury stock issued for Broad National
 Bancorporation acquisition (4,950,699
 shares)                                             --             --           --         66,061
Treasury stock issued for Statewide
 Financial Corp. acquisition (4,172,606
 shares)                                             --             --           --         50,684
Treasury stock issued for options
 exercised (280,125 shares)                          --             --           --            673
Dividends paid                                       --        (12,907)          --        (12,907)
ESOP shares committed to be released                 --             --           --          3,448
Amortization of earned portion of
 Recognition Plan                                 6,011             --           --          5,638
                                               --------       --------     --------      ---------
Balance -- March 31, 2000                       (27,907)       380,358      (32,915)       834,807
                                               --------       --------     --------      ---------
Comprehensive income:
 Net income for the year ended March 31,
   2001                                              --         62,036           --         62,036
 Other comprehensive income, net of tax
   benefit of $0.7 million
   Change in net unrealized losses on
     securities available-for-sale, net
     of tax                                          --             --       32,372         32,372
   Less: reclassification adjustment of
     net losses realized in net income,
     net of tax                                      --             --           66             66
                                               --------       --------     --------      ---------
Comprehensive income                                 --         62,036       32,438         94,474
Valuation adjustment for deferred income
 tax benefit relating to Foundation                  --             --           --          4,680
Repurchase of common stock (8,170,225
 shares)                                             --             --           --       (113,913)
Treasury stock issued for options
 exercised (44,631 shares)                           --             --           --            197
Dividends declared                                   --        (17,378)          --        (17,378)
ESOP shares committed to be released                 --             --           --          4,016
Issuance of grants under Recognition Plan
 (225,363 shares)                                  (930)            --           --             --
Amortization of earned portion of
 Recognition Plan                                 6,093             --           --          6,273
                                               --------       --------     --------      ---------
BALANCE -- MARCH 31, 2001                      $(22,744)      $425,016     $   (477)     $ 813,156
                                               ========       ========     ========      =========
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>   68


                                                                     66

INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                        YEAR ENDED MARCH 31,
                                                              -----------------------------------------
                                                              -----------------------------------------
(IN THOUSANDS)                                                   2001           2000           1999
-------------------------------------------------------------------------------------------------------
<S>                                                           <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                    $    62,036    $    53,246    $    45,175
Adjustments to reconcile net income to net cash provided by
  operating activities:
Provision for loan losses                                           1,392          9,817         10,698
Net (gain) loss on sale of loans and securities                    (3,398)         1,716           (390)
Amortization of deferred income and premiums                       (6,081)        (2,522)        (5,298)
Amortization of intangibles                                        21,224         14,613          8,629
Amortization of unearned compensation of ESOP and
  Recognition Plan                                                 10,106          9,002          7,377
Depreciation and amortization                                      12,040          9,964          7,271
Deferred income tax benefit                                        (1,040)        (7,153)        (4,446)
(Increase) decrease in accrued interest receivable                 (3,610)         3,981         (6,018)
(Increase) decrease in accounts receivable-securities
  transactions                                                     (1,753)           531         13,023
Decrease (increase) in other accounts receivable                   35,742        (34,328)        (3,201)
Increase (decrease) in accrued expenses and other
  liabilities                                                      29,586          7,333        (31,078)
Other, net                                                           (984)        22,780         19,016
                                                              -----------    -----------    -----------
Net cash provided by operating activities                         155,260         88,980         60,758
                                                              -----------    -----------    -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Loan originations and purchases                                (1,297,258)    (1,328,786)    (1,279,041)
Principal payments on loans                                       595,361        641,310        512,868
Proceeds from sale of loans                                       548,657          2,552         39,966
Advances on warehouse mortgage lines of credit                 (1,821,622)      (194,994)            --
Repayments on warehouse mortgage lines of credit                1,663,090        188,350             --
Proceeds from sale of securities available-for-sale                73,780        992,024        456,359
Proceeds from maturities of securities available-for-sale           9,832        142,946      1,027,983
Principal collected on securities available-for-sale              118,975        167,677        297,715
Purchases of securities available-for-sale                        (80,639)      (458,196)    (1,950,177)
Purchase of Bank Owned Life Insurance                            (100,000)            --             --
Purchase of Federal Home Loan Bank stock                               --        (35,738)       (30,480)
Cash consideration paid to acquire Broad                               --        (66,061)            --
Cash consideration paid to acquire Statewide                           --        (51,173)            --
Cash and cash equivalents acquired in Broad acquisition                --        196,653             --
Cash and cash equivalents acquired in Statewide acquisition            --         17,492             --
Proceeds from sale of other real estate                               535            440             76
Net additions to premises, furniture and equipment                 (8,065)       (12,419)       (14,423)
                                                              -----------    -----------    -----------
Net cash (used in) provided by investing activities              (297,354)       202,077       (939,154)
                                                              -----------    -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand and savings deposits             78,924         57,260        (44,713)
Net increase (decrease) in time deposits                          175,101       (121,068)        98,277
Net increase (decrease) in borrowings                             146,555       (225,594)       400,523
Net (decrease) increase in escrow and other deposits               (1,364)         9,150         15,135
Decrease in cumulative trust preferred securities                    (433)            --             --
Purchase of shares for Recognition Plan                                --             --        (38,167)
Proceeds on exercise of stock options                                 197            770             --
Repurchase of common stock                                       (113,913)      (126,386)      (125,993)
Dividends paid                                                    (17,378)       (12,907)        (4,032)
                                                              -----------    -----------    -----------
Net cash provided by (used in) financing activities               267,689       (418,775)       301,030
                                                              -----------    -----------    -----------
Net increase (decrease) in cash and cash equivalents              125,595       (127,718)      (577,366)
Cash and cash equivalents at beginning of period                  152,167        279,885        857,251
                                                              -----------    -----------    -----------
Cash and cash equivalents at end of period                    $   277,762    $   152,167    $   279,885
                                                              ===========    ===========    ===========
Income taxes paid                                             $    34,675    $    27,690    $    28,917
                                                              ===========    ===========    ===========
Interest paid                                                 $   246,227    $   200,443    $   161,790
                                                              ===========    ===========    ===========
</TABLE>

See accompanying notes to consolidated financial statements.
<PAGE>   69

67


INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001, 2000 AND 1999

1. ORGANIZATION/FORM OF OWNERSHIP

     Independence Community Bank, formerly known as Independence Savings 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.

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

     As part of the conversion and reorganization, the Company was incorporated
under Delaware law in June 1997. The Company is regulated by the OTS as a
registered savings and loan holding company. The Company completed its initial
public offering on March 13, 1998 and issued 70,410,880 shares of common stock
resulting in proceeds of $685.7 million, net of expenses which totaled $18.4
million. 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 ("ESOP")
which purchased 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, 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 reorganization and
conversion of the Bank and the Mutual Holding Company. The liquidation account
is reduced as, and to the extent that, eligible and supplemental eligible
account holders have reduced their qualifying deposits as of each March 31st.
Subsequent increases in deposits do not restore an eligible account holder's
interest in the liquidation account. In the event of a complete liquidation of
the Bank, each eligible account holder or a supplemental eligible account
holder's will be entitled to receive a distribution from the liquidation account
in an amount proportionate to the adjusted qualifying balances for accounts then
held.

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

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

2. ACQUISITIONS

     The Company completed its acquisition of Broad National Bancorporation
("Broad") and the merger of Broad's wholly owned subsidiary, Broad National Bank
("Broad National"), with and into the Bank, all effective as of the close of
business on July 31, 1999.
<PAGE>   70

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


                                                                     68

     Under the terms of the Agreement and Plan of Merger between the Company and
Broad dated February 1, 1999 (the "Broad Agreement"), the merger consideration
consisted of approximately 50% Independence common stock and 50% cash. As a
result of the completed election procedures and in accordance with the terms of
a formula set forth in the Broad Agreement, each Broad stockholder who submitted
a valid election for stock consideration received 1.9859 shares of Company
common stock for each share of Broad common stock, plus cash in lieu of any
fractional shares, and each Broad stockholder who submitted a valid election for
cash consideration received $26.50 per share of Broad common stock, except Broad
stockholders who elected to receive cash as any portion of their consideration
for their Broad shares received a portion of such consideration in the form of
Company common stock (the "Consideration Adjustment") in accordance with the
terms of the Broad Agreement. To the extent that certain Broad stockholders
elected to receive some combination of stock and cash consideration in exchange
for their shares of Broad common stock, such individuals received the entire
portion of their stock election in the form of 1.9859 shares of Company common
stock for each share of Broad common stock, plus cash in lieu of any fractional
shares, and the cash portion of their election was subject to the Consideration
Adjustment described above. The remaining shares of Broad common stock for which
a valid election was not submitted received 1.9859 shares of Company common
stock for each share of Broad common stock, plus cash in lieu of any fractional
shares. The Broad transaction had an aggregate value of approximately $132
million assuming an acquisition value of $26.50 per share of Broad common stock.

     As a result of the Broad acquisition, the Company acquired $646.3 million
of assets and assumed $584.8 million of deposits. The acquisition was accounted
for as a purchase and the excess of cost over the fair value of net assets
acquired ("goodwill") in the transaction was $98.8 million, which is being
amortized on a straight-line basis over 15 years.

     The Company completed its acquisition of Statewide Financial Corp.
("Statewide") and the merger of Statewide's wholly owned subsidiary, Statewide
Savings Bank, S.L.A. ("Statewide Bank"), with and into the Bank, all effective
as of the close of business on January 7, 2000.

     Under the terms of the Agreement and Plan of Merger between the Company and
Statewide dated April 12, 1999 (the "Statewide Agreement"), the merger
consideration consisted of approximately 4,172,606 shares of Company common
stock and approximately $51.2 million based upon 4,051,277 shares of Statewide
common stock deemed outstanding under the terms of the Statewide Agreement as of
the completion of the merger. As a result of completed election procedures and
in accordance with the terms of the formula set forth in the Statewide
Agreement, each Statewide stockholder who submitted a valid election for stock
consideration received 2.0700 shares of Company common stock for each share of
Statewide common stock, plus cash in lieu of any fractional shares, and each
Statewide stockholder who submitted a valid election for cash consideration
received $25.14 per share of Statewide common stock. To the extent that any
Statewide stockholders elected to receive some combination of stock and cash
consideration in exchange for their shares of Statewide common stock, such
individuals received the entire portion of their stock election in the form of
2.0700 shares of Company common stock for each share of Statewide common stock,
plus cash in lieu of any fractional shares, and the cash portion of their
election at the rate of $25.14 per share of Statewide common stock. The
remaining shares of Statewide common stock for which valid elections were not
submitted were converted into the right to receive, on a pro rata basis, $25.14
in cash for approximately 53% of the shares not tendered and 2.0700 shares of
Company common stock for each remaining share of Statewide common stock, plus
cash in lieu of any fractional shares.

     As a result of the Statewide acquisition, the Company acquired $745.2
million of assets and assumed $443.7 million of deposits. The acquisition was
accounted for as a purchase, resulting in goodwill of approximately $88.6
million, which is being amortized on a straight-line basis over 15 years.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The following is a description of the significant accounting policies of
the Company and its subsidiaries. These policies conform to generally accepted
accounting principles.
<PAGE>   71

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

69


PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements of the Company include all
majority-owned subsidiaries, after elimination of intercompany transactions and
accounts.

RISKS AND UNCERTAINTIES

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

RECLASSIFICATIONS

     Certain reclassifications have been made to the prior years' financial
statements to conform with the current year's presentation.

SECURITIES AVAILABLE-FOR-SALE

     Securities available-for-sale are carried at fair value. Unrealized gains
or losses on securities available-for-sale are included as a separate component
of stockholders' equity, net of tax. Gains or losses on the sale of such
securities are recognized using the specific identification method.

LOANS

     Loans are stated at unpaid principal balances, net of deferred loan fees.
Interest income on loans is recognized as earned. Accrual of interest income is
discontinued and uncollected interest is reversed for loans on which a default
on interest has existed for a period in excess of 90 days, or for loans which
management believes, after giving consideration to economic and business
conditions and collection efforts, the collection of interest is doubtful.

     In accordance with SFAS No. 114 "Accounting by Creditors for Impairment of
a Loan," ("SFAS No. 114") and the amendment thereof, SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan -- Income Recognition and Disclosures,"
the Company considers a loan impaired when, based upon current information and
events, it is probable that it will be unable to collect all amounts due for
both principal and interest, according to the contractual terms of the loan
agreement. The Company identifies and measures impaired loans in conjunction
with its assessment of the adequacy of the allowance for loan losses. Specific
factors used in the identification of impaired loans include, but are not
limited to, delinquency status, loan-to-value ratio, the condition of the
underlying collateral, credit history and debt coverage.

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

ALLOWANCE FOR LOAN LOSSES

     The allowance for loan losses is determined based upon management's
evaluation of the Company's loan portfolios considering past loan loss
experience, assessment of current economic conditions, the size and composition
of the loan portfolios, and other relevant factors.

     Assessing the adequacy of the allowance for loan losses is inherently
subjective as it requires making various material estimates, including the
amount and timing of future cash flows expected to be received on impaired
loans, that may be
<PAGE>   72

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


                                                                     70

susceptible to significant change. In the opinion of management, the allowance,
when taken as a whole, is adequate to absorb reasonable estimated loan losses
inherent in the Company's loan portfolios.

LOAN SERVICING ASSETS

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

PREMISES, FURNITURE AND EQUIPMENT

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

<TABLE>
<S>                                                    <C>
Buildings                                              10 to 30 years
Furniture and equipment                                 3 to 10 years
Automobiles                                                   3 years
</TABLE>

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

INTANGIBLE ASSETS

     Intangible assets represents the excess of cost over fair value of net
assets acquired, which consists of goodwill and other intangibles. Goodwill
arising from the fiscal 2000 acquisitions of Broad and Statewide is being
amortized using the straight-line method over 15 years. The goodwill associated
with the acquisitions of a bank and branches in prior years is being amortized
using the straight-line method over 14 years and 7 years, respectively.

BANK OWNED LIFE INSURANCE

     The Bank invested in Bank Owned Life Insurance ("BOLI") policies to fund
certain future employee benefit costs. The BOLI investment totaled approximately
$100.0 million and is recorded in other assets at its cash surrender value.
Changes in the cash surrender value are recorded in other non-interest income.

INCOME TAXES

     The Company uses the liability method to account for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and liabilities
and are measured using the enacted tax rates and laws expected to be in effect
when the differences are expected to reverse. A valuation allowance is provided
for deferred tax assets where realization is not considered "more likely than
not."
<PAGE>   73

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

71


EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                 FOR THE YEAR ENDED MARCH 31,
                                             ------------------------------------
                                                2001         2000         1999
---------------------------------------------------------------------------------
<S>                                          <C>          <C>          <C>
Weighted average shares outstanding:
Basic                                        55,880,273   59,203,079   67,708,509
Diluted                                      56,326,245   59,203,079   68,000,595
</TABLE>

EMPLOYEE BENEFITS

     Compensation expense related to the ESOP is recognized in an amount equal
to the shares committed to be released by the ESOP multiplied by the average
fair value of the common stock during the period in which they were released.
The difference between the average fair value and the $17.55 weighted average
per share cost of shares committed to be released by the ESOP is recorded as an
adjustment to additional paid-in capital.

     For stock options, the Company uses the intrinsic value based methodology
which measures compensation cost for such stock options as the excess, if any,
of the quoted market price of the Company's stock at the date of the grant over
the amount an employee or director must pay to acquire the stock. To date, no
compensation expense has been recorded for stock options, since, for all granted
options, the market price on date of grant equaled the amount employees or
directors must pay to acquire stock.

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, net of tax.

SEGMENT REPORTING

     SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information" requires disclosures for each segment that are similar to those
required under current standards with the addition of quarterly disclosure
requirements and a finer partitioning of geographic disclosures. It also
requires geographic information by country, as opposed to broader geographic
regions as permitted under prior standards. As a community-oriented financial
institution, substantially all of the Company's operations involve the delivery
of loan and deposit products to customers in its market area. Management makes
operating decisions and assesses performance based on an ongoing review of these
community banking operations, which constitute the Company's only operating
segment for financial reporting purposes under SFAS No. 131.
<PAGE>   74

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


                                                                     72

TREASURY STOCK

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

4. SECURITIES AVAILABLE-FOR-SALE

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

<TABLE>
<CAPTION>
                                                                         MARCH 31, 2001
                                                       --------------------------------------------------
                                                                      GROSS         GROSS       ESTIMATED
                                                       AMORTIZED    UNREALIZED    UNREALIZED      FAIR
(IN THOUSANDS)                                           COST         GAINS         LOSSES        VALUE
---------------------------------------------------------------------------------------------------------
<S>                                                    <C>          <C>           <C>           <C>
Investment securities:
  Debt securities:
     U.S. government and agencies                      $145,837       $  814       $(6,499)     $140,152
     Municipals                                           2,772           66            (1)        2,837
                                                       --------       ------       -------      --------
  Total debt securities                                 148,609          880        (6,500)      142,989
                                                       --------       ------       -------      --------
  Equity securities:
     Preferred                                           56,365            7           (55)       56,317
     Common                                                 953          939            --         1,892
                                                       --------       ------       -------      --------
  Total equity securities                                57,318          946           (55)       58,209
                                                       --------       ------       -------      --------
Total investment securities                             205,927        1,826        (6,555)      201,198
                                                       --------       ------       -------      --------
Mortgage-related securities:
  FNMA Pass Through Certificates                         21,182          112          (183)       21,111
  GNMA Pass Through Certificates                         26,711          900           (23)       27,588
  FHLMC Pass Through Certificates                        12,705           81           (81)       12,705
  Collateralized Mortgage Obligation Bonds              656,768        3,665        (1,288)      659,145
                                                       --------       ------       -------      --------
Total mortgage-related securities                       717,366        4,758        (1,575)      720,549
                                                       --------       ------       -------      --------
Total securities available-for-sale                    $923,293       $6,584       $(8,130)     $921,747
                                                       ========       ======       =======      ========
</TABLE>
<PAGE>   75

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

73


<TABLE>
<CAPTION>
                                                                      MARCH 31, 2000
                                                    ---------------------------------------------------
                                                                    GROSS         GROSS       ESTIMATED
                                                    AMORTIZED     UNREALIZED    UNREALIZED      FAIR
(IN THOUSANDS)                                         COST         GAINS         LOSSES        VALUE
-------------------------------------------------------------------------------------------------------
<S>                                                 <C>           <C>           <C>           <C>
Investment securities:
  Debt securities:
     U.S. government and agencies                   $  153,930      $1,127       $(17,185)    $137,872
     Municipals                                          3,615          --           (126)       3,489
                                                    ----------      ------       --------     --------
  Total debt securities                                157,545       1,127        (17,311)     141,361
                                                    ----------      ------       --------     --------
  Equity securities:
     Preferred                                          46,365          --            (95)      46,270
     Common                                             25,497       1,637         (1,997)      25,137
                                                    ----------      ------       --------     --------
  Total equity securities                               71,862       1,637         (2,092)      71,407
                                                    ----------      ------       --------     --------
Total investment securities                            229,407       2,764        (19,403)     212,768
                                                    ----------      ------       --------     --------
Mortgage-related securities:
  FNMA Pass Through Certificates                         8,631          49           (114)       8,566
  GNMA Pass Through Certificates                        35,385         354           (101)      35,638
  FHLMC Pass Through Certificates                        7,807          58            (81)       7,784
  Collateralized Mortgage Obligation Bonds             762,635          --        (41,592)     721,043
                                                    ----------      ------       --------     --------
Total mortgage-related securities                      814,458         461        (41,888)     773,031
                                                    ----------      ------       --------     --------
Total securities available-for-sale                 $1,043,865      $3,225       $(61,291)    $985,799
                                                    ==========      ======       ========     ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                 YEAR ENDED MARCH 31,
                                            -------------------------------
(IN THOUSANDS)                               2001        2000        1999
---------------------------------------------------------------------------
<S>                                         <C>        <C>         <C>
Proceeds from sales                         $73,780    $992,024    $456,359
Gross gains                                   3,100       5,569         346
Gross losses                                 (1,436)     (7,298)         --
</TABLE>

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

<TABLE>
<CAPTION>
                                                         MARCH 31, 2001
                                                     -----------------------
                                                     AMORTIZED    ESTIMATED
(IN THOUSANDS)                                         COST       FAIR VALUE
----------------------------------------------------------------------------
<S>                                                  <C>          <C>
One year or less                                     $  4,744      $  4,752
One year through five years                             5,925         6,713
Five years through ten years                            2,082         2,141
Over ten years                                        135,858       129,383
                                                     --------      --------
                                                     $148,609      $142,989
                                                     ========      ========
</TABLE>
<PAGE>   76

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


                                                                     74

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

<TABLE>
<CAPTION>
                                                         MARCH 31, 2001
                                                     -----------------------
                                                     AMORTIZED    ESTIMATED
(IN THOUSANDS)                                         COST       FAIR VALUE
----------------------------------------------------------------------------
<S>                                                  <C>          <C>
One year or less                                     $    639      $    642
One year through five years                             2,295         2,317
Five years through ten years                           28,919        29,327
Over ten years                                        685,513       688,263
                                                     --------      --------
                                                     $717,366      $720,549
                                                     ========      ========
</TABLE>

5. LOANS RECEIVABLE, NET

     Loans are summarized as follows:

<TABLE>
<CAPTION>
                                                          MARCH 31,
                                                   ------------------------
(IN THOUSANDS)                                        2001          2000
---------------------------------------------------------------------------
<S>                                                <C>           <C>
Mortgage loans on real estate:
  Single-family residential                        $  587,153    $  674,118
  Cooperative apartment                               409,344       462,185
  Multi-family residential                          2,620,888     2,731,104
  Commercial real estate                              861,187       597,165
                                                   ----------    ----------
Total principal balance -- mortgage loans           4,478,572     4,464,572
Less net deferred fees                                (10,588)       (8,727)
                                                   ----------    ----------
Total mortgage loans on real estate                 4,467,984     4,455,845
Commercial business loans                             436,751       253,606
Other loans:
  Warehouse mortgage lines of credit                  206,707        48,175
  Home equity loans and lines of credit               117,701       121,109
  Student loans                                         1,200        39,260
  Consumer and other loans                             24,141        25,799
  Passbook loans                                        8,148         8,519
                                                   ----------    ----------
Total principal balance -- other loans                357,897       242,862
Less unearned discounts and deferred fees              (1,191)       (1,793)
                                                   ----------    ----------
Total other loans                                     356,706       241,069
Total loans receivable                              5,261,441     4,950,520
                                                   ----------    ----------
Less allowance for loan losses                        (71,716)      (70,286)
                                                   ----------    ----------
Total loans, net                                   $5,189,725    $4,880,234
                                                   ==========    ==========
</TABLE>

     At March 31, 2001, 2000 and 1999, the Company was servicing loans on behalf
of others which are not included in the consolidated financial statements of
$658.7 million, $184.0 million and $206.9 million, respectively.

     At March 31, 2001, 2000, and 1999, included in mortgage loans on real
estate are $27.0 million, $19.9 million and $37.5 million, respectively, of
non-performing loans. If interest on the nonaccrual mortgage loans had been
accrued, such income would have approximated $0.6 million, $0.4 million and $0.6
million for the years ended March 31, 2001, 2000 and 1999, respectively.

     At March 31, 2001, 2000, 1999, included in commercial business and other
loans are $6.9 million, $3.9 million and $0.4 million, respectively, of
nonaccrual loans. If interest on the nonaccrual commercial business and other
loans had
<PAGE>   77

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

75


been accrued, such income would have approximated $360,000, $196,000 and $3,000
for the years ended March 31, 2001, 2000 and 1999, respectively.

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

<TABLE>
<CAPTION>
                                                  YEAR ENDED MARCH 31,
                                              -----------------------------
(IN THOUSANDS)                                 2001       2000       1999
---------------------------------------------------------------------------
<S>                                           <C>        <C>        <C>
Balance at beginning of period                $70,286    $46,823    $36,347
Allowance of acquired institutions                 --      9,452         --
Provision charged to operations                 1,392      9,817     10,698
Net recoveries (charge-offs)                       38      4,194       (222)
                                              -------    -------    -------
Balance at end of period                      $71,716    $70,286    $46,823
                                              =======    =======    =======
</TABLE>

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

6. PREMISES, FURNITURE AND EQUIPMENT

     A summary of premises, furniture and equipment, net of accumulated
depreciation and amortization, is as follows:

<TABLE>
<CAPTION>
                                                            MARCH 31,
                                                        ------------------
(IN THOUSANDS)                                           2001       2000
--------------------------------------------------------------------------
<S>                                                     <C>        <C>
Land                                                    $ 7,400    $ 5,577
Buildings and improvements                               52,762     55,317
Leasehold improvements                                    7,296      6,909
Furniture and equipment                                  17,270     20,901
                                                        -------    -------
Total premises, furniture and equipment                 $84,728    $88,704
                                                        =======    =======
</TABLE>

     Depreciation and amortization expense amounted to $12.0 million, $10.0
million and $7.3 million for the years ended March 31, 2001, 2000 and 1999,
respectively.

7. OTHER ASSETS

     A summary of other assets is as follows:

<TABLE>
<CAPTION>
                                                           MARCH 31,
                                                      --------------------
(IN THOUSANDS)                                          2001        2000
--------------------------------------------------------------------------
<S>                                                   <C>         <C>
FHLB stock                                            $ 82,323    $ 82,323
BOLI                                                   103,753          --
Net deferred tax asset                                  68,965      87,931
Prepaid expenses                                         2,302       2,221
Other real estate                                          235          68
Accounts receivable                                     20,710      44,969
Other                                                   22,504      25,246
                                                      --------    --------
                                                      $300,792    $242,758
                                                      ========    ========
</TABLE>
<PAGE>   78

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


                                                                     76

     The Bank is a member of the Federal Home Loan Bank ("FHLB") of New York,
and owns FHLB stock with a carrying value of $82.3 million at both March 31,
2001 and March 31, 2000, respectively. As a member, the Bank is able to borrow
on a secured basis up to twenty times the amount of its capital stock investment
at either fixed or variable interest rates for terms ranging from six months to
fifteen years (see Note 9). The borrowings are limited to 30% of total assets
except for borrowings to fund deposit outflows.

8. DEPOSITS

     The amounts due to depositors and the weighted average interest rates at
March 31, 2001 and March 31, 2000 are as follows:

<TABLE>
<CAPTION>
                                                           MARCH 31,
                                         ----------------------------------------------
                                                 2001                     2000
                                         ----------------------------------------------
                                                      WEIGHTED                 WEIGHTED
                                          DEPOSIT     AVERAGE      DEPOSIT     AVERAGE
(DOLLARS IN THOUSANDS)                   LIABILITY      RATE      LIABILITY      RATE
---------------------------------------------------------------------------------------
<S>                                      <C>          <C>         <C>          <C>
Savings                                  $1,195,840     1.95%     $1,226,996       2.00%
Money Market                                173,967     2.11         193,561       2.23
NOW                                         592,319     2.95         544,721       2.57
Checking                                    427,655       --         345,579         --
Time Deposits                             2,276,276     5.64       2,101,175       5.15
                                         ----------               ----------
                                         $4,666,057               $4,412,032
                                         ==========               ==========
</TABLE>

     Scheduled maturities of time deposits are as follows:

<TABLE>
<CAPTION>
                                                          MARCH 31,
                                                   ------------------------
(IN THOUSANDS)                                        2001          2000
---------------------------------------------------------------------------
<S>                                                <C>           <C>
One year                                           $2,041,054    $1,776,040
Two years                                             144,206       188,044
Three years                                            39,191        84,745
Four years                                             17,580        30,469
Thereafter                                             34,245        21,877
                                                   ----------    ----------
                                                   $2,276,276    $2,101,175
                                                   ==========    ==========
</TABLE>

     Time deposit accounts in denominations of $100,000 or more totaled
approximately $411.0 million, $319.6 million and $232.5 million at March 31,
2001, 2000 and 1999, respectively.

9. BORROWINGS

     A summary of borrowings is as follows:

<TABLE>
<CAPTION>
                                                          MARCH 31,
                                                   ------------------------
(IN THOUSANDS)                                        2001          2000
---------------------------------------------------------------------------
<S>                                                <C>           <C>
FHLB advances                                      $  703,950    $  845,375
Repurchase agreements -- FHLB                         605,000       315,000
Repurchase agreements -- other                             --         1,000
Other                                                     343         1,363
                                                   ----------    ----------
                                                   $1,309,293    $1,162,738
                                                   ==========    ==========
</TABLE>
<PAGE>   79

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

77


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

<TABLE>
<CAPTION>
                                                           MARCH 31,
                                                      --------------------
(IN THOUSANDS)                                          2001        2000
--------------------------------------------------------------------------
<S>                                                   <C>         <C>
Less than one year                                    $148,250    $141,425
Over one year through five years                       555,700     653,950
Over five years through seven years                         --      50,000
                                                      --------    --------
                                                      $703,950    $845,375
                                                      ========    ========
</TABLE>

     Advances from the FHLB are collateralized by all FHLB stock owned by the
Bank in addition to a blanket pledge of eligible assets in an amount required to
be maintained so that the estimated fair value of such eligible assets exceeds,
at all times, 110% of the outstanding advances (see Note 7).

     The average cost of FHLB advances were 5.2% and 5.4% for the years ended
March 31, 2001 and March 31, 2000, respectively.

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

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

<TABLE>
<CAPTION>
                                                           MARCH 31,
                                                      --------------------
(IN THOUSANDS)                                          2001        2000
--------------------------------------------------------------------------
<S>                                                   <C>         <C>
Less than one year                                    $     --    $185,000
Over one year through five years                        65,000      65,000
Over five years through ten years                      540,000      65,000
                                                      --------    --------
                                                      $605,000    $315,000
                                                      ========    ========
</TABLE>

     At March 31, 2001, all of the outstanding FHLB repurchase agreements were
secured by collateralized mortgage obligations or U.S. Government and agency
securities. The average balance of FHLB repurchase agreements during fiscal 2001
was $470.7 million with an average cost of 6.7%. The maximum amount outstanding
at any month end during fiscal 2001 was $720.0 million. The average balance of
FHLB repurchase agreements during fiscal 2000 was $261.2 million with an average
cost of 5.8%. The maximum amount outstanding at any month end during fiscal 2000
was $315.0 million.

     At March 31, 2001, there were no other outstanding repurchase agreements.
Prior to March 31, 2001, other outstanding repurchase agreements had original
contractual maturities of less than one year and were secured by U.S. Treasury
securities. The average balance of other repurchase agreements during fiscal
2001 was $0.9 million with an average cost of 5.2%. The maximum amount
outstanding at any month end during fiscal 2001 was $1.0 million. The average
balance of other repurchase agreements during fiscal 2000 was $4.8 million with
an average cost of 6.1%. The maximum amount outstanding at any month end during
fiscal 2000 was $10.0 million.
<PAGE>   80

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


                                                                     78

10. 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, is $11.9 million principal amount of 9.5% Junior
Subordinated Debentures (the "Junior Subordinated Debentures") due June 30,
2027. Broad entered into several contractual arrangements (which the Company
assumed as part of the Broad acquisition) for the purpose of guaranteeing the
Trust's payment of distributions on, payments on any redemptions of, and any
liquidation distribution with respect to, the Trust Preferred Securities. As a
result of the Broad acquisition, all the assets, liabilities and obligations of
Broad as to securities became assets, liabilities and obligations of the
Company.

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

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

     As a result of favorable market conditions during fiscal 2001, the Company
purchased $0.4 million of the Trust Preferred Securities through an open market
transaction.

11. BENEFIT PLANS

PENSION PLAN

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

     The Company also has a Supplemental Executive Retirement Plan (the
"Supplemental Plan"). The Supplemental Plan is a nonqualified, unfunded plan of
deferred compensation covering those senior officers of the Company whose
benefits under the Pension Plan would be limited by Internal Revenue Code
Sections 415 and 401(a)(17).
<PAGE>   81

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

79


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

<TABLE>
<CAPTION>
                                                            MARCH 31,
                                                        ------------------
(IN THOUSANDS)                                           2001       2000
--------------------------------------------------------------------------
<S>                                                     <C>        <C>
Benefit obligation at beginning of year                 $39,147    $38,432
Service cost                                              1,451      2,018
Interest cost                                             2,848      2,700
Acquisitions                                                 --      4,483
Reduction in future benefits                             (8,790)        --
Actuarial loss (gain)                                     4,399     (5,999)
Benefits paid                                            (1,774)    (2,487)
                                                        -------    -------
Benefit obligation at end of year                       $37,281    $39,147
                                                        =======    =======
</TABLE>

     The following table sets forth the Plan's change in Plan assets:

<TABLE>
<CAPTION>
                                                            MARCH 31,
                                                        ------------------
(IN THOUSANDS)                                           2001       2000
--------------------------------------------------------------------------
<S>                                                     <C>        <C>
Fair value of Plan assets at beginning of year          $45,979    $32,795
Actual return on Plan assets                              1,614      9,341
Acquisitions                                                 --      6,327
Employer contributions                                      221         --
Benefits paid                                            (1,770)    (2,484)
                                                        -------    -------
Fair value of Plan assets at end of year                $46,044    $45,979
                                                        =======    =======
Funded status                                           $ 8,763    $ 6,832
Unrecognized net asset                                   (1,013)    (1,216)
Unrecognized prior service cost                          (7,837)       509
Unrecognized actuarial gain                              (3,775)   (11,293)
                                                        -------    -------
Accrued pension cost at December 31, 2000 and 1999       (3,862)    (5,168)
Net adjustment                                               46       (279)
                                                        -------    -------
Accrued pension cost                                    $(3,816)   $(5,447)
                                                        =======    =======
</TABLE>

     Net pension (benefit) expense included the following components:

<TABLE>
<CAPTION>
                                                  YEAR ENDED MARCH 31,
                                              -----------------------------
(IN THOUSANDS)                                 2001       2000       1999
---------------------------------------------------------------------------
<S>                                           <C>        <C>        <C>
Service cost-benefits earned during the
  period                                      $ 1,451    $ 2,019    $ 1,527
Interest cost on projected benefit
  obligation                                    2,848      2,700      2,352
Expected return on Plan assets                 (4,074)    (3,168)    (2,500)
Amortization of net asset                        (202)      (203)      (203)
Amortization of prior service cost               (443)        24         24
Recognized net actuarial (gain) loss             (661)       100         77
                                              -------    -------    -------
Net pension (benefit) expense for the years
  ended December 31, 2000, 1999 and 1998       (1,081)     1,472      1,277
Net adjustment                                   (546)       165         18
                                              -------    -------    -------
Net pension (benefit) expense                 $(1,627)   $ 1,637    $ 1,295
                                              =======    =======    =======
</TABLE>
<PAGE>   82

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


                                                                     80

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

     At December 31, 2000 and 1999, the projected benefit obligation for the
Plan was determined using an assumed discount rate of 7.50% and 7.75%,
respectively, and an assumed rate of compensation increase of 4% for the Pension
Plan and 7% for the Supplemental Plan. At December 31, 2000 and 1999, the
weighted average assumed rate of return on Plan assets was 9%. Plan assets
consist mainly of investments in U.S. Government and agency obligations,
mortgage-related securities and common stocks.

POSTRETIREMENT BENEFITS

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

     Status of the postretirement benefit obligation is as follows:

<TABLE>
<CAPTION>
                                                           MARCH 31,
                                                      --------------------
(IN THOUSANDS)                                          2001        2000
--------------------------------------------------------------------------
<S>                                                   <C>         <C>
Benefit obligation at beginning of fiscal year        $ 10,092    $  9,759
Service cost                                               509         403
Interest cost                                              982         721
Actuarial loss (gain)                                    3,403        (258)
Benefits paid                                             (703)       (533)
                                                      --------    --------
Benefit obligation at end of fiscal year              $ 14,283    $ 10,092
                                                      ========    ========
Funded status                                         $(14,283)   $(10,092)
Unrecognized transition obligation being recognized
  over 20 years                                          3,747       4,014
Unrecognized net loss due to past experience
  difference from assumptions made                       4,016         838
Unrecognized prior service cost                             --           1
                                                      --------    --------
Accrued postretirement benefit cost at December 31,
  2000 and 1999                                         (6,520)     (5,239)
Net adjustment                                            (320)       (250)
                                                      --------    --------
Accrued postretirement benefit cost                   $ (6,840)   $ (5,489)
                                                      ========    ========
</TABLE>
<PAGE>   83

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

81


<TABLE>
<CAPTION>
                                                    YEAR ENDED MARCH 31,
                                                 --------------------------
(IN THOUSANDS)                                    2001      2000      1999
---------------------------------------------------------------------------
<S>                                              <C>       <C>       <C>
Components of postretirement benefit cost:
  Service cost-benefits earned during the
     period                                      $  508    $  403    $  334
  Interest cost on accumulated postretirement
     benefit obligation                             982       721       610
  Amortization of net obligation                    268       268       268
  Amortization of prior service cost                  1        10        10
  Recognized net actuarial loss                     224       129        12
                                                 ------    ------    ------
Postretirement benefit cost-years ended
  December 31, 2000, 1999 and 1998                1,983     1,531     1,234
Net adjustment                                      113        74      (190)
                                                 ------    ------    ------
Net postretirement benefit cost                  $2,096    $1,605    $1,044
                                                 ======    ======    ======
</TABLE>

     The assumptions used in arriving at the above include the initial rate of
annual increase in health care costs of 7% decreasing by 1% to 6% in 2001 and
remaining at that level thereafter. At December 31, 2000, 1999 and 1998,
discount rates of 7.50%, 7.75% and 6.75%, respectively, were used.

     The health care cost trend rate assumption has a significant effect on the
amounts reported. A 1% increase in each year would increase the accumulated
postretirement benefit obligation as of December 31, 2000 by $1.7 million and
the aggregate of the service and interest cost components of the net periodic
postretirement benefits cost for the year then ended by $205,700.

401(K) PLAN

     The Company also sponsors an incentive savings plan ("401(k) Plan") whereby
eligible employees may make tax deferred contributions up to certain limits. The
Company makes matching contributions up to the lesser of 6% of employee
compensation, or $3,000. Beginning in fiscal 1999, the matching contribution for
full-time employees is in the form of shares held in the ESOP while the
contribution for part-time employees remained a cash contribution. However,
beginning January 1, 2001, the matching contribution for all employees, full and
part time, is in the form of shares held in the ESOP. The Company may reduce or
cease matching contributions if it is determined that the current or accumulated
net earnings or undivided profits of the Company are insufficient to pay the
full amount of contributions in a plan year. Cash contributions to the 401(k)
Plan by the Company aggregated approximately $33,000, $38,000 and $25,000 for
the years ended March 31, 2001, 2000 and 1999, respectively.

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 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 are also utilized to repay the debt. The collateral for the loan is the
common stock of the Company purchased by the ESOP. At March 31, 2001, the loan
from the Company had an outstanding principal balance of $91.8 million.

     Shares held by the ESOP are held by a trustee for allocation among
participants as the loan is repaid. The number of shares released annually is
based upon the ratio that the current principal and interest payment bears to
the original principal and interest payments to be made. Shares allocated will
first be used to satisfy the employer matching contribution for the 401(k) Plan
with the remaining shares allocated to the ESOP participants based upon
compensation in the year of allocation. Forfeitures from the 401(k) match
portions will be used to reduce the employer 401(k) match while forfeitures from
shares allocated to the ESOP participants will be allocated among the
participants. There were 281,644 shares allocated in each of fiscal 2001 and
2000. At March 31, 2001 there were 801,812 shares allocated, 4,787,940
<PAGE>   84

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


                                                                     82

shares unallocated and 43,118 shares which had been distributed to participants
in connection with their withdrawal from the ESOP.

     The Company recorded compensation expense of $3.8 million, $3.4 million and
$4.3 million for the years ended March 31, 2001, 2000 and 1999, respectively,
which was equal to the shares committed to be released by the ESOP multiplied by
the average fair value of the common stock during the period in which they were
released.

RECOGNITION PLAN

     The Recognition Plan was implemented in September 1998. The objective of
the Recognition Plan is to enable the Company to provide officers, key employees
and non-employee directors of the Company with a proprietary interest in the
Company as an incentive to contribute to its success. The Recognition Plan may
grant up to 4% of the shares of common stock sold in the Conversion, or
2,816,435 shares. The Recognition Plan provides that awards may be designated as
performance share awards, subject to the achievement of performance goals, or
non-performance share awards which are subject solely to time vesting
requirements. Certain key executive officers have been granted performance-based
shares. These shares become payable only upon the achievement of certain
annually-defined corporate performance targets. During fiscal 1999, the
Recognition Plan purchased all 2,816,435 shares in the open market. 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 200,000 performance based shares in fiscal 2001 and
25,363 and 28,363 non-performance based share awards during fiscal 2001 and
2000, 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. Subject to certain exceptions, awards become 100% vested upon
termination of employment due to death, disability or retirement. 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 related to the Recognition Plan of $6.3 million, $5.4 million and $3.1
million for the years ended March 31, 2001, 2000 and 1999, respectively.

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

<TABLE>
<CAPTION>
                                                         YEAR ENDED MARCH 31,
                                -----------------------------------------------------------------------
                                        2001                     2000                     1999
                                -----------------------------------------------------------------------
                                             WEIGHTED                 WEIGHTED                 WEIGHTED
                                             AVERAGE                  AVERAGE                  AVERAGE
                                              GRANT                    GRANT                    GRANT
                                 SHARES       PRICE       SHARES       PRICE       SHARES       PRICE
-------------------------------------------------------------------------------------------------------
<S>                             <C>          <C>         <C>          <C>         <C>          <C>
Outstanding, beginning of year  1,757,420    $13.3000    2,180,517    $13.3125           --    $     --
Granted                           225,363     16.5542       28,363     12.0300    2,188,517     13.3125
Vested                           (456,461)    13.2446     (451,460)    13.2800           --          --
Forfeited                          (2,400)    13.3125           --          --       (8,000)    13.3125
                                ---------                ---------                ---------
Outstanding, end of year        1,523,922    $13.7745    1,757,420    $13.3000    2,180,517    $13.3125
                                =========    ========    =========    ========    =========    ========
</TABLE>

STOCK OPTION PLAN

     The 1998 Stock Option Plan (the "Option Plan") was implemented in September
1998. The Option Plan may grant options covering shares aggregating an amount
equal to 10% of the shares of common stock sold in the conversion, or 7,041,088
shares. 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. Each option entitles the holder to purchase one share
of the Company's common stock at an exercise price equal to the fair market
value of the common stock on the date of the grant. Each stock option or portion
thereof is exercisable at any time on or after such option vests and is
generally
<PAGE>   85

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

83


exercisable until the earlier of ten years after its date of grant or six months
after the date in 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 such
termination. Subject to certain exceptions, options become 100% exercisable upon
termination of employment due to death, disability or retirement. Options become
100% vested upon a change in control of the Company. 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.

     Broad and Statewide maintained several stock option plans for their
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 holder to options to purchase the Company's
common stock totaled 602,139 and became 100% exercisable at the effective date
of the acquisitions.

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

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

<TABLE>
<CAPTION>
                                                  YEAR ENDED MARCH 31,
                                              -----------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)          2001       2000       1999
---------------------------------------------------------------------------
<S>                                           <C>        <C>        <C>
Net income
  As reported                                 $62,036    $53,246    $45,175
  Pro forma                                   $56,467    $46,264    $42,980
Basic earnings per share
  As reported                                 $  1.11    $  0.90    $  0.67
  Pro forma                                   $  1.01    $  0.78    $  0.63
Diluted earnings per share
  As reported                                 $  1.10    $  0.90    $  0.66
  Pro forma                                   $  1.00    $  0.78    $  0.63
</TABLE>
<PAGE>   86

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


                                                                     84

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

<TABLE>
<CAPTION>
                                                            YEAR ENDED MARCH 31,
                                     ------------------------------------------------------------------
                                             2001                   2000                   1999
                                     ------------------------------------------------------------------
                                                 WEIGHTED               WEIGHTED               WEIGHTED
                                                 AVERAGE                AVERAGE                AVERAGE
                                                 EXERCISE               EXERCISE               EXERCISE
                                      SHARES      PRICE      SHARES      PRICE      SHARES      PRICE
-------------------------------------------------------------------------------------------------------
<S>                                  <C>         <C>        <C>         <C>        <C>         <C>
Outstanding, beginning of year       6,419,734   $13.0519   6,051,708   $13.3125          --   $     --
  Granted                              325,000    16.6414     146,000    11.3677   6,102,408    13.3125
  Broad/Statewide converted options         --         --     602,139     6.9200          --         --
  Exercised                            (44,631)    4.4172    (368,933)    5.8463          --         --
  Forfeited/cancelled                  (39,240)   13.3125     (11,180)   13.3125     (50,700)   13.3125
                                     ---------              ---------              ---------
Outstanding, end of year             6,660,863   $13.2834   6,419,734   $13.0519   6,051,708   $13.3125
                                     =========   ========   =========   ========   =========   ========
Options exercisable at year end      3,063,234              1,461,075                  5,400
Weighted average fair value of
  options granted                                $ 5.3458               $ 4.0353               $ 5.1700
</TABLE>

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model using the following weighted-average
assumptions: risk free interest rates of 4.89%, volatility of 30.91%, expected
dividend yield of 1.90% and expected life of 6 years.

     The following table is a summary of the information concerning currently
outstanding and exercisable options as of March 31, 2001.

<TABLE>
<CAPTION>
                                    WEIGHTED
                                     AVERAGE                   WEIGHTED
                                    REMAINING                  AVERAGE
     RANGE OF          OPTIONS     CONTRACTUAL     OPTIONS     EXERCISE
  EXERCISE PRICES    OUTSTANDING      LIFE       EXERCISABLE    PRICE
-----------------------------------------------------------------------
<S>                  <C>           <C>           <C>           <C>
$ 0.0000 - $10.0000     176,841        6.3          176,841    $ 7.8798
$10.0001 - $12.0000     158,434        8.7           41,634     11.3242
$12.0001 - $14.0000   6,005,588        6.9        2,844,759     13.3122
$14.0001 - $16.8750     320,000        9.9               --     16.6992
                      ---------                   ---------
                      6,660,863        7.1        3,063,234    $13.2834
                      =========        ===        =========    ========
</TABLE>

12. STOCKHOLDERS' EQUITY

     On July 28, 2000, the Company announced that its Board of Directors
authorized a seventh stock repurchase plan for up to five percent of the shares
of common stock then outstanding or 3,221,718 shares. On November 27, 2000, the
Company announced that an eighth stock repurchase plan was authorized by the
Board of Directors for an additional 3,062,414 shares, or five percent of the
Company's then outstanding common stock.

     Repurchases are authorized to be made by the Company from time to time in
open-market transactions as, in the opinion of management, market conditions
warrant. Repurchased shares are held as treasury stock and are available for
issuance pursuant to the Company's benefit plans, including the option plans,
acquisitions and for general corporate purposes. During fiscal 2001, the Company
repurchased 8,170,225 shares of its common stock at a cost of $113.9 million and
issued 44,631 shares of treasury stock in connection with the exercise of
options. At March 31, 2001, the Company
<PAGE>   87

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

85


had repurchased a total of 26,362,966 shares, or 34.7% of its common stock at a
cost of $366.0 million and reissued 9,448,061 shares at a cost of $136.3
million.

13. COMMITMENTS AND CONTINGENCIES

OFF-BALANCE SHEET RISKS

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

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

     Standby letters of credit are conditional commitments issued to guarantee
the performance of a customer to a third party. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers.

     The notional principal amount of the off-balance sheet financial
instruments at March 31, 2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                       CONTRACT OR AMOUNT
                                                      --------------------
(IN THOUSANDS)                                          2001        2000
--------------------------------------------------------------------------
<S>                                                   <C>         <C>
Financial instruments whose contract amounts
  represent credit risk:
  Commitments to extend credit -- mortgage loans      $200,945    $ 88,334
  Commitments to extend credit -- commercial
     business loans                                    209,828     117,356
  Commitments to extend credit -- warehouse mortgage
     lines of credit                                    73,693     112,392
  Commitments to extend credit -- other loans           52,675      53,134
  Standby letters of credit                              7,340       2,966
                                                      --------    --------
Total                                                 $544,481    $374,182
                                                      ========    ========
</TABLE>
<PAGE>   88

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


                                                                     86

LEASE COMMITMENTS

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

<TABLE>
<CAPTION>
(In Thousands)                                                Amount
---------------------------------------------------------------------
<S>                                                           <C>
Year ended March 31:
  2002                                                        $ 3,161
  2003                                                          2,867
  2004                                                          2,644
  2005                                                          2,467
  2006 and thereafter                                          21,756
</TABLE>

     The rent expense for the years ended March 31, 2001, 2000 and 1999 was $3.7
million, $2.5 million and $1.6 million, respectively.

OTHER COMMITMENTS AND CONTINGENCIES

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

14. INCOME TAXES

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

<TABLE>
<CAPTION>
                                                           MARCH 31,
                                                      --------------------
(IN THOUSANDS)                                          2001        2000
--------------------------------------------------------------------------
<S>                                                   <C>         <C>
Deferred tax assets:
  Securities available-for-sale                       $    647    $ 25,010
  Contribution to the Foundation                        27,817      12,290
  Allowance for loan losses                             31,103      27,848
  Depreciation                                             691         524
  Deferred loan fees                                     5,283       2,588
  Amortization of intangible assets                      8,630       7,167
  Nonaccrual interest                                    1,560       2,233
  Employee benefits                                      5,531      12,110
  Other                                                  1,679       3,927
                                                      --------    --------
Gross deferred tax assets                               82,941      93,697
                                                      --------    --------
  Valuation allowance for contribution to Foundation   (12,538)         --
                                                      --------    --------
Deferred tax assets, net of valuation allowance         70,403      93,697
                                                      --------    --------
Deferred tax liabilities:
  Bad debt recapture under Section 593                     762         973
  Acquisition premium on mortgage-related securities       354       3,766
  Other                                                    322       1,027
                                                      --------    --------
Gross deferred tax liabilities                           1,438       5,766
                                                      --------    --------
Net deferred tax assets                               $ 68,965    $ 87,931
                                                      ========    ========
</TABLE>
<PAGE>   89

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

87


     The Company has reported taxable income for Federal, State and local income
tax purposes in each of the past two years and in management's opinion, in view
of the Company's previous, current and projected future earnings, such net
deferred tax asset is expected to be fully realized with the exception of a
portion of the charitable contribution. Accordingly, no other valuation
allowance was deemed necessary for the net deferred tax asset at March 31, 2001
and March 31, 2000.

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

<TABLE>
<CAPTION>
                                                  YEAR ENDED MARCH 31,
                                              -----------------------------
(IN THOUSANDS)                                 2001       2000       1999
---------------------------------------------------------------------------
<S>                                           <C>        <C>        <C>
Current:
  Federal                                     $42,439    $36,187    $28,968
  State and local                               3,930      3,755      1,919
                                              -------    -------    -------
                                               46,369     39,942     30,887
                                              -------    -------    -------
Deferred:
  Federal                                        (760)    (5,189)    (3,527)
  State and local                                (280)    (1,964)      (919)
                                              -------    -------    -------
                                               (1,040)    (7,153)    (4,446)
                                              -------    -------    -------
Total                                         $45,329    $32,789    $26,441
                                              =======    =======    =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                  YEAR ENDED MARCH 31,
                                              -----------------------------
(IN THOUSANDS)                                 2001       2000       1999
---------------------------------------------------------------------------
<S>                                           <C>        <C>        <C>
Federal income tax provision at statutory
  rates                                       $37,578    $27,233    $24,407
Increase in tax resulting from:
  State and local taxes, net of Federal
     income tax effect                          2,372      1,164        650
  Amortization of goodwill                      5,021      2,879        659
  Other                                           358      1,513        725
                                              -------    -------    -------
                                              $45,329    $32,789    $26,441
                                              =======    =======    =======
</TABLE>

     At March 31, 2001, the base year bad debt reserve for federal income tax
purposes was approximately $30 million, for which deferred taxes are not
required to be recognized. Bad debt reserves maintained for New York State and
New York City tax purposes as of March 31, 2001 for which deferred taxes are not
required to be recognized, amounted to approximately $125 million. Accordingly,
deferred tax liabilities of approximately $21 million have not been recognized
as of March 31, 2001.

     The Company is currently undergoing an audit of its New York State income
tax returns for the calendar years 1994, 1995 and 1996. The Company has received
a notice which could result in additional income tax liability to New York State
and New York City for the years in question. The Company has conducted a review
and analysis of the basis and accuracy of the State's claims. Based on its
review, the Company does not believe that the final resolution will have a
material financial statement impact.
<PAGE>   90

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


                                                                     88

15. REGULATORY REQUIREMENTS

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

     Based on its regulatory capital ratios at March 31, 2001 and March 31,
2000, the Bank is categorized as "well capitalized" under the regulatory
framework for prompt corrective action. To be categorized as "well capitalized"
the Bank must maintain Tier I leverage, Tier I risk-based and minimum total
risk-based ratios as set forth in the following table.

     The Bank's actual capital amounts and ratios are presented in the tables
below as of March 31, 2001 and March 31, 2000:

<TABLE>
<CAPTION>
                                                                                  TO BE WELL-CAPITALIZED
                           ACTUAL AMOUNTS            FOR CAPITAL ADEQUACY          UNDER FDIC GUIDELINES
                            AS OF 3/31/01             PURPOSES AT 3/31/01               AT 3/31/01
                        ---------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)   AMOUNT         RATIO         AMOUNT         RATIO         AMOUNT          RATIO
---------------------------------------------------------------------------------------------------------
<S>                     <C>             <C>          <C>             <C>          <C>              <C>
Tier 1 Leverage         $558,054         8.20%       $272,139         4.00%       $340,174          5.00%
Tier 1 Risk-Based        558,054        11.70%        190,863         4.00%        286,294          6.00%
Total Risk-Based         618,050        12.95%        381,725         8.00%        477,156         10.00%
</TABLE>

<TABLE>
<CAPTION>
                                                                                  TO BE WELL-CAPITALIZED
                           ACTUAL AMOUNTS            FOR CAPITAL ADEQUACY          UNDER FDIC GUIDELINES
                            AS OF 3/31/00             PURPOSES AT 3/31/00               AT 3/31/00
                        ---------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)   AMOUNT         RATIO         AMOUNT         RATIO         AMOUNT          RATIO
---------------------------------------------------------------------------------------------------------
<S>                     <C>             <C>          <C>             <C>          <C>              <C>
Tier 1 Leverage         $497,573         7.83%       $254,094         4.00%       $317,618          5.00%
Tier 1 Risk-Based        497,573        11.37%        175,100         4.00%        262,650          6.00%
Total Risk-Based         552,484        12.62%        350,201         8.00%        437,751         10.00%
</TABLE>

16. FAIR VALUE OF FINANCIAL INSTRUMENTS

     SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the statements of financial condition, for which it
is practicable to estimate fair value. In cases where quoted market prices are
not available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by comparison
to independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 requirements exclude certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Additionally, tax consequences related to the realization of the
unrealized gains and losses can have a potential effect on fair value estimates
and have not been considered in the estimates. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Company.
<PAGE>   91

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

89


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

<TABLE>
<CAPTION>
                                                                       MARCH 31,
                                                  ----------------------------------------------------
                                                            2001                        2000
                                                  ----------------------------------------------------
(IN THOUSANDS)                                    BOOK VALUE    FAIR VALUE    BOOK VALUE    FAIR VALUE
------------------------------------------------------------------------------------------------------
<S>                                               <C>           <C>           <C>           <C>
FINANCIAL ASSETS:
Cash and due from banks                           $  252,362    $  252,362    $ 134,170     $  134,170
Federal funds sold                                    25,400        25,400       17,997         17,997
Securities available-for-sale                        921,747       921,747      985,779        985,799
Mortgage loans on real estate                      4,478,572     4,448,809    4,464,572      4,236,911
Commercial business loans                            436,751       436,212      253,606        253,044
Other loans                                          151,190       151,190      194,687        194,687
Warehouse mortgage lines of credit                   206,707       206,707       48,175         48,175
Accrued interest receivable                           37,119        37,119       33,509         33,509
FHLB stock                                            82,323        82,323       82,323         82,323
Loan servicing assets                                  1,961         1,961           --             --
FINANCIAL LIABILITIES:
Deposits                                           2,389,781     2,389,781    2,310,857      2,310,857
Time deposits                                      2,276,276     2,294,588    2,101,175      2,107,782
Borrowings                                         1,309,293     1,326,177    1,162,738      1,123,761
Escrow and other deposits                             72,152        72,152       73,516         73,516
Trust Preferred Securities                            11,067        11,067       11,500         11,895
</TABLE>

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

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

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

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

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

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

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

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

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

     Trust Preferred Securities: The estimated fair value for Trust Preferred
Securities is based on a discounted cash flow calculation that applies current
interest rates for similar trust preferred securities.
<PAGE>   92

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


                                                                     90

17. ASSET AND DIVIDEND RESTRICTIONS

     The Bank is required to maintain a reserve balance with the Federal Reserve
Bank of New York. The required reserve balance was $6.0 million, $6.0 million
and $1.3 million at March 31, 2001, 2000 and 1999, respectively.

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

     During fiscal 2000, the Bank requested (and received) approval of or
non-objection to the distribution to the Company of an aggregate of $285.0
million. Of this amount, $176.0 million and $95.0 million was distributed to the
Company in fiscal 2000 and fiscal 2001, respectively. The distributions were
primarily used by the Company to fund the cash portion of the merger
consideration paid in the Broad and Statewide acquisitions as well as the
Company's open market stock repurchase programs. In addition, during fiscal
2001, the Bank requested (and received) approval of the distribution to the
Company of an aggregate of $25.0 million, which amount had not been distributed
as of March 31, 2001.

18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                YEAR ENDED MARCH 31, 2001
                                                 --------------------------------------------------------
                                                     1ST            2ND            3RD            4TH
(IN THOUSANDS, EXCEPT PER SHARE DATA)              QUARTER        QUARTER        QUARTER        QUARTER
---------------------------------------------------------------------------------------------------------
<S>                                              <C>            <C>            <C>            <C>
Interest income                                   $115,094       $116,193       $119,000       $120,415
Interest expense                                    57,080         62,213         64,348         63,816
                                                  --------       --------       --------       --------
Net interest income                                 58,014         53,980         54,652         56,599
Provision for loan losses                              792             --             --            600
                                                  --------       --------       --------       --------
Net interest income after provision for loan
  losses                                            57,222         53,980         54,652         55,999
Non-interest income                                  6,094          8,749         10,899         12,596
                                                  --------       --------       --------       --------
Total income                                        63,316         62,729         65,551         68,595
                                                  --------       --------       --------       --------
General and administrative expense                  32,811         30,295         33,522         34,974
Amortization of intangible assets                    5,352          5,282          5,276          5,314
                                                  --------       --------       --------       --------
Income before provision for income taxes            25,153         27,152         26,753         28,307
Provision for income taxes                          10,617         11,462         11,370         11,880
                                                  --------       --------       --------       --------
Net income                                        $ 14,536       $ 15,690       $ 15,383       $ 16,427
                                                  ========       ========       ========       ========
Basic earnings per common share                   $   0.25       $   0.27       $   0.28       $   0.31
                                                  ========       ========       ========       ========
Diluted earnings per common share                 $   0.25       $   0.27       $   0.28       $   0.31
                                                  ========       ========       ========       ========
Dividend declared per common share                $   0.07       $   0.07       $   0.08       $   0.08
                                                  ========       ========       ========       ========
Stock price per common share
  High                                            $ 13.750       $ 14.188       $ 16.938       $ 17.500
                                                  ========       ========       ========       ========
  Low                                             $ 10.875       $ 12.875       $ 13.750       $ 15.125
                                                  ========       ========       ========       ========
  Close                                           $ 13.250       $ 14.000       $ 15.938       $ 17.437
                                                  ========       ========       ========       ========
</TABLE>
<PAGE>   93

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

91


<TABLE>
<CAPTION>
                                                              YEAR ENDED MARCH 31, 2000
                                               --------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)          1ST QUARTER    2ND QUARTER    3RD QUARTER    4TH QUARTER
-------------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>            <C>            <C>
Interest income                                  $91,569        $97,868       $102,165       $110,884
Interest expense                                  47,432         49,364         51,357         55,507
                                                 -------        -------       --------       --------
Net interest income                               44,137         48,504         50,808         55,377
Provision for loan losses                          2,629          2,930          2,527          1,731
                                                 -------        -------       --------       --------
Net interest income after provision for loan
  losses                                          41,508         45,574         48,281         53,646
Non-interest income                                1,889          5,086          5,150          4,791
                                                 -------        -------       --------       --------
Total income                                      43,397         50,660         53,431         58,437
                                                 -------        -------       --------       --------
General and administrative expense                22,250         26,042         27,048         29,937
Amortization of intangible assets                  2,155          3,359          3,959          5,140
                                                 -------        -------       --------       --------
Income before provision for income taxes          18,992         21,259         22,424         23,360
Provision for income taxes                         6,994          8,236          8,866          8,693
                                                 -------        -------       --------       --------
Net income                                       $11,998        $13,023       $ 13,558       $ 14,667
                                                 =======        =======       ========       ========
Basic earnings per common share                  $  0.21        $  0.22       $   0.23       $   0.24
                                                 =======        =======       ========       ========
Diluted earnings per common share                $  0.21        $  0.22       $   0.23       $   0.24
                                                 =======        =======       ========       ========
Dividend declared per common share               $  0.04        $  0.05       $   0.06       $   0.06
                                                 =======        =======       ========       ========
Stock price per common share
  High                                           $14.562        $13.813       $ 12.500       $ 12.375
                                                 =======        =======       ========       ========
  Low                                            $11.688        $11.625       $ 10.563       $  9.750
                                                 =======        =======       ========       ========
  Close                                          $13.500        $11.938       $ 12.500       $ 11.125
                                                 =======        =======       ========       ========
</TABLE>
<PAGE>   94

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


                                                                     92

19. PARENT COMPANY DISCLOSURE

     The following Condensed Statement of Financial Condition, as of March 31,
2001 and 2000 and Condensed Statement of Operations and Cash Flows for the years
ended March 31, 2001, 2000 and 1999 should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto.

CONDENSED STATEMENT OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                             MARCH 31,
                                                        -------------------
(IN THOUSANDS)                                            2001       2000
---------------------------------------------------------------------------
<S>                                                     <C>        <C>
ASSETS:
Cash and cash equivalents                               $ 17,128   $ 12,081
Securities available for sale                              1,491     10,598
Investment in subsidiaries                               757,215    688,367
Net deferred tax asset                                    12,148      7,927
Dividends receivable                                      39,000    109,000
Other assets                                               6,239     20,703
                                                        --------   --------
Total assets                                            $833,221   $848,676
                                                        ========   ========
LIABILITIES:
Subordinated debentures                                 $ 11,856   $ 11,856
Accrued expenses and other liabilities                     8,209      2,013
                                                        --------   --------
Total liabilities                                         20,065     13,869
Stockholders' equity                                     813,156    834,807
                                                        --------   --------
Total liabilities and stockholders' equity              $833,221   $848,676
                                                        ========   ========
</TABLE>

CONDENSED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                     YEAR ENDED MARCH 31,
                                                  ---------------------------
(IN THOUSANDS)                                     2001      2000      1999
-----------------------------------------------------------------------------
<S>                                               <C>       <C>       <C>
INTEREST INCOME:                                  $   685   $   686   $ 3,235
Net gain (loss) on sales of securities              1,477    (1,215)      346
Other non-interest income                             615     1,388        --
                                                  -------   -------   -------
                                                    2,777       859     3,581
                                                  -------   -------   -------
EXPENSES:
Shareholder expense                                   647       575       712
Other expense                                       1,418     1,186       500
                                                  -------   -------   -------
                                                    2,065     1,761     1,212
                                                  -------   -------   -------
Income (loss) before provision for income taxes
  and undistributed earnings of subsidiaries          712      (902)    2,369
Provision for income taxes, net                       150       150       150
                                                  -------   -------   -------
Income (loss) before undistributed earnings of
  subsidiaries                                        562    (1,052)    2,219
Equity in undistributed earnings of subsidiaries   61,474    54,298    42,956
                                                  -------   -------   -------
Net income                                        $62,036   $53,246   $45,175
                                                  =======   =======   =======
</TABLE>
<PAGE>   95

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

93


CONDENSED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                     YEAR ENDED MARCH 31,
                                                              -----------------------------------
(IN THOUSANDS)                                                  2001         2000         1999
-------------------------------------------------------------------------------------------------
<S>                                                           <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                    $  62,036    $  53,246    $  45,175
Adjustments to reconcile net income to net cash provided by
  operating activities:
(Gain) loss on sale of securities                                (1,477)       1,215           --
Decrease in deferred income taxes                                   459        5,926        3,824
Dividends received from subsidiary                               95,000      176,000           --
Decrease (increase) in other assets                              14,464      (17,035)       8,600
Increase in subordinated debentures                                  --       11,856           --
Increase (decrease) in other liabilities                          6,196       (2,160)       1,730
Amortization of unearned compensation of ESOP and
  Recognition Plan                                               10,289        9,086        7,377
Undistributed earnings of subsidiaries                          (61,474)     (54,298)     (42,956)
Other, net                                                         (531)        (191)        (783)
                                                              ---------    ---------    ---------
Net cash provided by operating activities                       124,962      183,645       22,967
                                                              ---------    ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in investment in subsidiaries                              368        3,709           --
Purchase of securities available-for-sale                          (433)     (33,020)    (209,037)
Proceeds on sales of securities                                  11,244       57,702      173,259
Cash consideration paid to acquire Broad                             --      (66,061)          --
Cash consideration paid to acquire Statewide                         --      (51,173)          --
                                                              ---------    ---------    ---------
Net cash provided by (used in) investing activities              11,179      (88,843)     (35,778)
                                                              ---------    ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds received on exercise of stock options                      197          770           --
Repurchase of common stock                                     (113,913)    (126,386)    (125,993)
Purchase of shares for Recognition Plan                              --           --      (38,167)
Dividends paid                                                  (17,378)     (12,907)      (4,032)
                                                              ---------    ---------    ---------
Net cash used in financing activities                          (131,094)    (138,523)    (168,192)
                                                              ---------    ---------    ---------
Net increase (decrease) in cash and cash equivalents              5,047      (43,721)    (181,003)

Cash and cash equivalents at beginning of year                   12,081       55,802      236,805
                                                              ---------    ---------    ---------
Cash and cash equivalents at end of year                      $  17,128    $  12,081    $  55,802
                                                              =========    =========    =========
</TABLE>
<PAGE>   96


                                                                     94

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

     None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required herein is incorporated by reference to
"Information With Respect to Nominees for Director, Continuing Directors and
Executive Officers" in the definitive proxy statement of the Company for the
Annual Meeting of Stockholders to be held on July 27, 2001, which was filed with
the SEC on June 22, 2001 ("Definitive Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION

     The information required herein is incorporated by reference to "Executive
Compensation" in the Definitive Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required herein is incorporated by reference to "Executive
Compensation -- Certain Relationships and Related Transactions" in the
Definitive Proxy Statement.
<PAGE>   97

95


PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Documents Filed as Part of this Report

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

         Report of Independent Auditors

         Consolidated Statements of Financial Condition as of March 31, 2001 and
         2000.

         Consolidated Statements of Operations for the Years Ended March 31,
         2001, 2000 and 1999.

         Consolidated Statements of Changes in Stockholders' Equity for the
         Years Ended March 31, 2001, 2000 and 1999.

         Consolidated Statements of Cash Flows for the Years Ended March 31,
         2001, 2000 and 1999.

         Notes to Consolidated Financial Statements.

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

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

EXHIBIT INDEX

<TABLE>
<C>      <S>
 3.1(1)  Certificate of Incorporation of Independence Community Bank
         Corp.
 3.2     Bylaws, as amended, of Independence Community Bank Corp.
 4.0(1)  Specimen Stock Certificate of Independence Community Bank
         Corp.
10.1(1)  Form of Change of Control Agreement to be entered into among
         Independence Community Bank Corp., Independence Community
         Bank and certain senior executive officers of the Company
         and the Bank.
10.2(1)  Form of Change in Control Agreement to be entered into
         between Independence Community Bank and certain officers
         thereof.
10.3(1)  Form of Change of Control Agreement to be entered into among
         Independence Community Bank Corp., Independence Community
         Bank and certain executive officers of the Company and the
         Bank.
10.4(1)  Form of Change of Control Agreement to be entered into
         between Independence Community Bank and certain executive
         officers thereof.
10.5(2)  Independence Community Bank Severance Plan.
10.6(3)  1998 Stock Option Plan.
10.7(3)  1998 Recognition and Retention Plan and Trust Agreement.
10.8(4)  Broad National Bancorporation Incentive Stock Option Plan.
10.9(4)  1993 Broad National Incentive Stock Option Plan.
10.10(4) 1993 Broad National Directors Non-Statutory Stock Option
         Plan.
10.11(4) 1996 Broad National Incentive Stock Option Plan.
10.12(4) 1996 Broad National Bancorporation Directors Non-Statutory
         Stock Option Plan.
10.13(5) 1996 Statewide Financial Corporation Incentive Stock Option
         Plan.
10.14    Deferred Compensation Plan.
10.15    Directors Fiscal 2002 Stock Retainer Plan.
</TABLE>
<PAGE>   98

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
         (continued)


                                                                     96

<TABLE>
<C>      <S>
11.0     Statement re computation of per share earnings -- Reference
         is made to Item 8. "Financial Statements and Supplementary
         Data" for the required information.
21.0     Subsidiaries of the Registrant -- Reference is made to Item
         2. "Business" for the required information.
23.1     Consent of Ernst & Young LLP
</TABLE>

---------------
(1) Incorporated herein by reference from the Company's Registration Statement
    on Form S-1 (Registration No. 333-30757) filed by the Company with the SEC
    on July 3, 1997.
(2) Incorporated herein by reference from the Company's Annual Report on Form
    10-K for the fiscal year ended March 31, 1999 filed by the Company with the
    SEC on June 28, 1999.
(3) Incorporated herein by reference from the Company's definitive proxy
    statement filed by the Company with the SEC on August 17, 1998.
(4) Incorporated herein by reference from the Company's registration statement
    on Form S-8 (Registration No. 333-85981) filed by the Company with the SEC
    on August 26, 1999.
(5) Incorporated herein by reference from the Company's registration statement
    on Form S-8 (Registration No. 333-95767) filed by the Company with the SEC
    on January 31, 2000.

(b) Reports on Form 8-K

     The following Current report on Form 8-K was filed during the fourth
quarter of fiscal 2001.

<TABLE>
<CAPTION>
            DATE                                                   ITEM AND DESCRIPTION
            ----                                                   --------------------
            <S>                                    <C>
            January 30, 2001                       5 -- Announced the appointment of Alan H. Fishman as
                                                   President and Chief Executive Officer.
</TABLE>

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

(d) Not applicable.
<PAGE>   99

97


SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Independence Community Bank Corp.

<TABLE>
<S>                                                       <C>
                  /s/ ALAN H. FISHMAN                     Date: June 22, 2001
--------------------------------------------------------  -------------------
                    Alan H. Fishman
         President and Chief Executive Officer
</TABLE>

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and the capacities and on the dates indicated:

<TABLE>
<CAPTION>
                          NAME                                DATE
                          ----                                ----
<S>                                                       <C>
                  /s/ CHARLES J. HAMM                     June 22, 2001
--------------------------------------------------------  -------------
                    Charles J. Hamm
                 Chairman of the Board

                   /s/ DONALD M. KARP                     June 22, 2001
--------------------------------------------------------  -------------
                     Donald M. Karp
               Vice Chairman of the Board

                  /s/ VICTOR M. RICHEL                    June 22, 2001
--------------------------------------------------------  -------------
                    Victor M. Richel
               Vice Chairman of the Board

                  /s/ ALAN H. FISHMAN                     June 22, 2001
--------------------------------------------------------  -------------
                    Alan H. Fishman
         President and Chief Executive Officer

                   /s/ JOHN B. ZURELL                     June 22, 2001
--------------------------------------------------------  -------------
                     John B. Zurell
              Executive Vice President and
                Chief Financial Officer

                 /s/ WILLARD N. ARCHIE                    June 22, 2001
--------------------------------------------------------  -------------
                   Willard N. Archie
                        Director

                  /s/ ROBERT B. CATELL                    June 22, 2001
--------------------------------------------------------  -------------
                    Robert B. Catell
                        Director

                   /s/ ROHIT M. DESAI                     June 22, 2001
--------------------------------------------------------  -------------
                     Rohit M. Desai
                        Director
</TABLE>
<PAGE>   100

SIGNATURES (continued)


                                                                     98

<TABLE>
<CAPTION>
                          NAME                                DATE
                          ----                                ----
<S>                                                       <C>

                 /s/ CHAIM Y. EDELSTEIN                   June 22, 2001
--------------------------------------------------------  -------------
                   Chaim Y. Edelstein
                        Director

                 /s/ DONALD H. ELLIOTT                    June 22, 2001
--------------------------------------------------------  -------------
                   Donald H. Elliott
                        Director

                 /s/ ROBERT W. GELFMAN                    June 22, 2001
--------------------------------------------------------  -------------
                   Robert W. Gelfman
                        Director

                   /s/ SCOTT M. HAND                      June 22, 2001
--------------------------------------------------------  -------------
                     Scott M. Hand
                        Director

                 /s/ DONALD E. KOLOWSKY                   June 22, 2001
--------------------------------------------------------  -------------
                   Donald E. Kolowsky
                        Director

                    /s/ JANINE LUKE                       June 22, 2001
--------------------------------------------------------  -------------
                      Janine Luke
                        Director

                   /s/ MALCOLM MACKAY                     June 22, 2001
--------------------------------------------------------  -------------
                     Malcolm MacKay
                        Director

                 /s/ JOSEPH S. MORGANO                    June 22, 2001
--------------------------------------------------------  -------------
                   Joseph S. Morgano
                        Director

               /s/ MARIA FIORINI RAMIREZ                  June 22, 2001
--------------------------------------------------------  -------------
                 Maria Fiorini Ramirez
                        Director

                 /s/ WESLEY D. RATCLIFF                   June 22, 2001
--------------------------------------------------------  -------------
                   Wesley D. Ratcliff
                        Director
</TABLE>