U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-KSB

              Annual report pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934
                   For the fiscal year ended December 31, 2002
                          Commission File No.: 0-29770

                            WEST ESSEX BANCORP, INC.
                 (Name of small business issuer in its charter)

              UNITED STATES                                   22-3597632
     (State or other jurisdiction of                  (I.R.S. Employer I.D. No.)
      incorporation or organization)

417 Bloomfield Avenue, Caldwell, New Jersey                      07006
  (Address of principal executive offices)                     (Zip Code)

         Issuer's telephone number, including area code: (973) 226-7911
        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 $0.01 per share
                                (Title of class)

      Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes |X| No |_|

      Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-KSB
or any amendment to this Form 10-KSB. Yes |X| No |_|

      The issuer's revenues for its most recent fiscal year ended December 31,
2002 were $22,767,885.

      The aggregate market value of the voting stock held by non-affiliates of
the registrant, i.e., persons other than the directors and executive officers of
the registrant, was $55,174,708 based upon the last sales price of $35.10 as
listed on The Nasdaq National Market for March 14, 2003. Solely for purposes of
this calculation, the shares held by West Essex Bancorp, M.H.C. and the
directors and officers of the registrant are deemed to be shares held by
affiliates.

      The number of shares of common stock outstanding as of March 14, 2003 was:
4,890,733.

      Documents Incorporated by Reference: None.

      Transitional Small Business Disclosure Format: Yes |_| No |X|


<PAGE>


                                      INDEX
                                                                            PAGE
                                     PART I

Item 1.    Description of Business.............................................2
Item 2.    Description of Property............................................36
Item 3.    Legal Proceedings..................................................36
Item 4.    Submission of Matters to a Vote of Security Holders ...............36

                                     PART II

Item 5.    Market for Common Equity and Related
           Stockholder Matters................................................36
Item 6.    Management's Discussion and Analysis or Plan of Operation..........36
Item 7.    Financial Statements...............................................45
Item 8.    Changes in and Disagreements with Accountants
              on Accounting and Financial Disclosure..........................45

                                    PART III

Item 9.    Directors, Executive Officers, Promoters and Control Persons;
           Compliance With Section 16(a) of the Exchange Act..................46
Item 10.   Executive Compensation.............................................47
Item 11.   Security Ownership of Certain Beneficial Owners and Management
              and Related Stockholder Matters.................................51
Item 12.   Certain Relationships and Related Transactions.....................53
Item 13.   Exhibits and Reports on Form 8-K...................................53
Item 14.   Controls and Procedures............................................55

SIGNATURES

CERTIFICATIONS


                                       1
<PAGE>


      This report contains certain "forward-looking statements" within the
meaning of the federal securities laws. These statements are not historical
facts, rather statements based on West Essex Bancorp, Inc.'s current
expectations regarding its business strategies, intended results and future
performance. Forward-looking statements are preceded by terms such as "expects,"
believes," "anticipates," "intends" and similar expressions.

      Management's ability to predict results or the effect of future plans or
strategies is inherently uncertain. Factors which could affect actual results
include interest rate trends, the general economic climate in the market area in
which West Essex Bancorp, Inc. operates, as well as nationwide, West Essex
Bancorp, Inc.'s ability to control costs and expenses, competitive products and
pricing, loan delinquency rates and changes in federal and state legislation and
regulation. These factors should be considered in evaluating the forward-looking
statements and undue reliance should not be placed on such statements. West
Essex Bancorp, Inc. assumes no obligation to update any forward-looking
statements.

Item 1. Description of Business.

General

      West Essex Bancorp, Inc. (the "Company") became the federally chartered
stock holding company for West Essex Bank (the "Bank"), a federally chartered
stock savings bank on October 2, 1998 in connection with the conversion of the
Bank from the mutual to stock form and reorganization of the Bank into a mutual
holding company structure ("Reorganization"). In connection with the
Reorganization, West Essex Bancorp, M.H.C. (the "MHC") was organized and became
a majority holder of the Company's outstanding common stock. The Company, the
Bank and the MHC are regulated by the Office of Thrift Supervision (the "OTS").
The Bank is a federally chartered savings bank and is wholly-owned by the
Company. The Company is a savings and loan holding company and is subject to
regulation by the OTS, the Federal Deposit Insurance Corporation ("the FDIC")
and the Securities and Exchange Commission (the "SEC"). Currently, other than
investing in various securities, the Company does not directly transact any
material business other than through the Bank. Accordingly, the discussion
herein addresses the operations of the Company as they are conducted through the
Bank. At December 31, 2002, the Company had total assets of $392.6 million,
total deposits of $255.1 million and total stockholders' equity of $51.5
million.

      The Bank was originally organized in 1915 as a New Jersey chartered
building and loan association and, in 1995, became a federally chartered savings
bank. The Bank is a community-oriented savings institution whose business
primarily consists of accepting deposits from customers and investing those
funds primarily in mortgage-backed securities and mortgage loans secured by one-
to four-family residences located in the Bank's primary market area. To a
significantly lesser extent, the Bank invests in commercial real estate loans,
multi-family loans, construction and land development loans and home equity
loans as well as consumer loans and obligations of the federal government and
federal agencies as well as states and municipalities. The Bank generally
retains for its portfolio all one- to four-family mortgage loans which it
originates.

      The Company's and Bank's executive offices are located at 417 Bloomfield
Avenue, Caldwell, New Jersey 07006. The telephone number is (973) 226-7911.


                                       2
<PAGE>

Merger

      On September 11, 2002, Kearny Financial Corp. ("Kearny") and the Company
entered into an Agreement and Plan of Merger (the "Merger Agreement"). Kearny is
the parent company of Kearny Federal Savings Bank, a federally-chartered savings
bank, and is a federally-chartered mid-tier holding company and wholly-owned
subsidiary of Kearny MHC, a federally-chartered mutual holding company.

      Pursuant to the Agreement, the mutual holding company structure of the MHC
will be eliminated and West Essex Bank will ultimately merge with and into
Kearny Federal Savings Bank. The stockholders of the Company other than the MHC
(the "Public Stockholders") will receive $35.10 in cash in exchange for each
share of common stock. On February 14, 2003, at a special meeting of
stockholders, the Company's stockholders approved the pending merger with
Kearny.

      The transaction is subject to several conditions, including the receipt of
regulatory approvals. In connection with the transaction, Kearny Federal Savings
Bank will appoint Mr. Leopold W. Montanaro, Chairman, President and Chief
Executive Officer of the Company to its board of directors and will establish a
West Essex Advisory Board of Directors, which will include all the remaining
directors of West Essex Bank. The depositors of West Essex Bank will become
depositors of Kearny Federal Savings Bank

Market Area and Competition

      The Bank conducts its business through its administrative and branch
office located in Caldwell, New Jersey, and seven other full service branch
offices located in West Orange, Franklin Lakes, River Vale, Pine Brook, Old
Tappan and Northvale, all of which are located in the Northern New Jersey
counties of Essex, Morris and Bergen. The Bank's deposit gathering base is
concentrated in the communities surrounding its offices. While its lending area
extends throughout New Jersey, most of the Bank's mortgage loans are secured by
properties located in Essex, Morris and Bergen Counties in Northern New Jersey.

      The economy in the Bank's primary market area is based upon a mixture of
service and retail trade. Other employment is provided by a variety of wholesale
trade, manufacturing, federal, state and local government, hospitals and
utilities. The area is also home to commuters working in the greater New York
City metropolitan area. Certain communities in Bergen, Essex and Morris Counties
are among the highest per capita income in the country. Essex County contains
many older residential commuter towns which function partially as business and
service centers. Morris County was once predominantly a rural farming area;
however, it has experienced rapid growth in the residential, commercial and
industrial sectors. Bergen County has benefitted from its geographical proximity
to New York City. Originally an agricultural region, the county shifted toward
manufacturing and service industries and many foreign firms have set up their
American headquarters in this County.

     The  Bank  faces  significant  competition  both  in  making  loans  and in
attracting  deposits.  The State of New Jersey has a high  density of  financial
institutions,  many of which are branches of significantly  larger  institutions
which  have  greater  financial  resources  than  the  Bank,  all of  which  are
competitors of the Bank to varying  degrees.  The Bank's  competition  for loans
comes  principally  from  commercial  banks,  savings  banks,  savings  and loan
associations, credit unions, mortgage banking companies and insurance companies.
These companies compete aggressively through advertising and by cutting interest
rates on loans. The Bank has sought to compete for loans by advertising in local
papers,  developing contacts with local real estate brokers,  and providing cash
incentives to its retail and mortgage  origination staff to attract loans to the
Bank.

                                       3

<PAGE>


In addition,  the Bank is affiliated  with several  mortgage  brokers who, for a
fee,  provide  the Bank with  loans.  The Bank does not  attempt  to  compete by
offering  interest  rates  below  those  offered  by its  competitors,  but does
endeavor to keep its  interest  rates  competitive  in that the Bank's rates are
neither  higher  nor  lower  than  rates  generally  available  from the  Bank's
competitors  in its market area.  Its most direct  competition  for deposits has
historically  come  from  commercial  banks,  savings  banks,  savings  and loan
associations  and credit  unions.  The Bank  faces  additional  competition  for
deposits from short-term money market funds,  common stock,  other corporate and
government  securities funds and from other financial service  institutions such
as brokerage firms and insurance companies.


                                       4
<PAGE>


      Loan Portfolio Analysis. The following table sets forth the composition of
the Bank's loan portfolio in dollar amounts and as a percentage of the portfolio
at the dates indicated.

<TABLE>
<CAPTION>
                                                                        At December 31,
                                             ----------------------------------------------------------------------
                                                     2002                    2001                    2000
                                             ---------------------   ---------------------   ---------------------
                                                         Percent                 Percent                 Percent
                                              Amount     of Total     Amount     of Total     Amount     of Total
                                             --------   ----------   --------   ----------   --------   ----------

<S>                                          <C>          <C>        <C>          <C>        <C>          <C>
Mortgage Loans:
  Residential:
     One- to four-family ................    $102,049      72.74%    $125,313      73.72%    $125,933      74.40%
     Multi-family .......................       1,892       1.34        3,515       2.07        1,804       1.07
     Home equity loans and lines ........      19,742      13.98       16,919       9.95       16,663       9.84
  Commercial real estate ................      13,884       9.83       14,167       8.33       13,522       7.99
  Construction and development ..........       3,289       2.33        9,524       5.60       10,587       6.25
                                             --------     ------     --------     ------     --------     ------
        Total mortgage loans ............     140,856      99.72      169,438      99.67      168,509      99.55
                                             --------     ------     --------     ------     --------     ------
Commercial loans ........................          24       0.02           30       0.02           35       0.02
                                             --------     ------     --------     ------     --------     ------
Consumer Loans:
     Passbook or certificate ............         231       0.16          298       0.18          454       0.27
     Other ..............................         146       0.10          224       0.13          267       0.16
                                             --------     ------     --------     ------     --------     ------
        Total consumer loans ............         377       0.26          522       0.31          721       0.43
                                             --------     ------     --------     ------     --------     ------
  Total loans receivable ................     141,257     100.00%     169,990     100.00%     169,265     100.00%
                                                          ======                  ======                  ======
  Less:
     Construction loans in process ......      (1,799)                 (3,078)                 (4,219)
     Allowance for loan losses ..........      (1,363)                 (1,363)                 (1,363)
     Deferred loan fees, net ............         364                     387                     355
                                             --------                --------                --------
  Loans receivable, net .................    $138,459                $165,936                $164,038
                                             ========                ========                ========


<CAPTION>
                                                            At December 31,
                                             ---------------------------------------------
                                                     1999                    1998
                                             ---------------------   ---------------------
                                                         Percent                 Percent
                                              Amount     of Total     Amount     of Total
                                             --------   ----------   --------   ----------

<S>                                          <C>          <C>        <C>          <C>
Mortgage Loans:
  Residential:
     One- to four-family ................    $122,680      78.54%    $114,690      80.20%
     Multi-family .......................       1,693       1.08        1,943       1.36
     Home equity loans and lines ........      14,382       9.21        9,631       6.73
  Commercial real estate ................      12,965       8.30       11,589       8.11
  Construction and development ..........       3,819       2.45        4,394       3.07
                                             --------     ------     --------     ------
        Total mortgage loans ............     155,539      99.58      142,247      99.47
                                             --------     ------     --------     ------
Commercial loans ........................          40       0.02           49       0.04
                                             --------     ------     --------     ------
Consumer Loans:
     Passbook or certificate ............         341       0.22          401       0.28
     Other ..............................         276       0.18          305       0.21
                                             --------     ------     --------     ------
        Total consumer loans ............         617       0.40          706       0.49
                                             --------     ------     --------     ------
  Total loans receivable ................     156,196     100.00%     143,002     100.00%
                                                          ======                  ======
  Less:
     Construction loans in process ......      (1,886)                 (1,311)
     Allowance for loan losses ..........      (1,400)                 (1,717)
     Deferred loan fees, net ............         366                     298
                                             --------                --------
  Loans receivable, net .................    $153,276                $140,272
                                             ========                ========

</TABLE>


                                       5
<PAGE>


      Loan Maturity. The following table shows the remaining contractual
maturity of the Bank's loans at December 31, 2002. The table does not include
the effect of future principal repayments or prepayments.

<TABLE>
<CAPTION>
                                                                             At December 31, 2002
                                            ----------------------------------------------------------------------------------------
                                             One- to               Equity   Commercial  Construction
                                              Four-     Multi-   Loans and     Real         and                             Total
                                             Family     Family     Lines      Estate    Development  Commercial Consumer    Loans
                                            --------   --------  ---------- ----------  ------------ ---------- --------   --------
                                                                                (In thousands)
<S>                                         <C>        <C>        <C>        <C>          <C>         <C>       <C>        <C>
Amounts due:
  One year or less .......................  $    255   $     30   $    292   $    212     $  2,920    $     --  $    219   $  3,928
                                            --------   --------   --------   --------     --------    --------  --------   --------
  After one year:
    More than one year to three years ....       575        252         44         --          369          --        36      1,676
    More than three years to five years ..       486         --      3,330        776           --          --        --      4,592
    More than five years to ten years ....     3,775        811      5,173      3,540           --          --        47     13,346
    More than 10 years to 20 years .......    28,657        363     10,503      8,932           --          24        75     48,554
    More than 20 years ...................    68,301        436         --        424           --          --        --     69,161
                                            --------   --------   --------   --------     --------    --------  --------   --------
  Total due after one year ...............   101,794      1,862     19,450     13,672          369          24       158    137,329
                                            --------   --------   --------   --------     --------    --------  --------   --------
  Total due ..............................   102,049      1,892     19,742     13,884        3,289          24       377    141,257
       Less:
         Loans in process ................        --         --         --         --       (1,799)         --        --     (1,799)
         Deferred loan (fees) costs ......       303         --         26         42           (7)         --        --        364
         Allowance for loan losses .......      (752)       (38)      (215)      (232)        (117)         --        (9)    (1,363)
                                            --------   --------   --------   --------     --------    --------  --------   --------
    Loans receivable, net ................  $101,600   $  1,854   $ 19,553   $ 13,694     $  1,366    $     24  $    368   $138,459
                                            ========   ========   ========   ========     ========    ========  ========   ========
</TABLE>


                                       6
<PAGE>


      The following table sets forth, at December 31, 2002, the dollar amount of
loans contractually due after December 31, 2003, and whether such loans have
fixed interest rates or adjustable interest rates.

                                                Due After December 31, 2003
                                             Fixed      Adjustable      Total
                                            --------    ----------    ---------
                                                      (In thousands)
Mortgage loans:
   One- to four-family ...............      $ 78,709     $ 23,085     $101,794
   Multi-family ......................         1,862           --        1,862
   Equity loans and lines ............        14,380        5,070       19,450
   Commercial real estate ............        11,506        2,166       13,672
   Construction and development ......           369           --          369
                                            --------     --------     --------
      Total mortgage loans ...........       106,826       30,321      137,147
Commercial loans .....................            24           --           24
Consumer loans .......................           111           47          158
                                            --------     --------     --------
         Total loans .................      $106,961     $ 30,368     $137,329
                                            ========     ========     ========

      Origination, Purchase and Servicing of Loans. The Bank's mortgage lending
activities are conducted primarily by its loan personnel operating in all of the
Bank's branch offices. All loans originated by the Bank, either through internal
sources or through loan brokers, are underwritten by the Bank pursuant to the
Bank's policies and procedures. The Bank's underwriting policies, guidelines and
procedures are modeled after those of FNMA and FHLMC. The Bank originates both
adjustable-rate and fixed-rate loans. The Bank's ability to originate fixed- or
adjustable-rate loans is dependent upon the relative customer demand for such
loans, which is affected by the current and expected future level of interest
rates. It is the general policy of the Bank to retain all loans originated in
its portfolio. The Bank currently retains the servicing for all loans originated
in its portfolio. The Bank has faced significant competition for loans in its
market area. To that end, the Bank pays its retail and mortgage loan origination
staff cash incentives based upon loan originations and also works with mortgage
brokers, paying them fees for loans closed and purchased by the Bank.

      Based upon the Bank's investment needs and market opportunities, the Bank
has, on occasion, participated in loans, primarily multi-family loans through
the Thrift Institutions Community Investment Corporation of New Jersey
("TICIC"). At December 31, 2002, the Bank had 12 loan participations through
TICIC totaling $2.4 million. The Bank has in its loan portfolio loans generated
by third-party mortgage companies which were underwritten pursuant to the Bank's
policies, and closed in the name of the Bank.


                                       7
<PAGE>


      The following table sets forth the Bank's loan originations, purchases,
and principal repayments for the periods indicated. The Bank sold no loans
during the periods indicated.

                                                     For the Years Ended
                                                         December 31,
                                              ---------------------------------
                                                 2002        2001        2000
                                              ---------   ---------   ---------

Beginning balance ..........................  $ 169,990   $ 169,265   $ 156,196
                                              ---------   ---------   ---------
  Loans purchased:
     One- to four-family mortgage ..........         --       1,944       3,297
     Multi-family mortgage .................         --          80         235
     Construction and land development .....          5         892       1,525
                                              ---------   ---------   ---------
        Total ..............................          5       2,916       5,057
                                              ---------   ---------   ---------
  Loans originated:
     Mortgage  loans:
        One- to four-family ................     33,393      26,766      13,875
        Multi-family .......................        180          --          --
        Home equity lines ..................      9,839       4,467       7,070
        Commercial real estate .............      1,395       2,272       2,055
        Construction and land development ..      5,404       5,296       6,526
                                              ---------   ---------   ---------
              Total mortgage loans .........     50,211      38,801      29,526
                                              ---------   ---------   ---------
     Consumer loans:
        Passbook loans .....................      1,058         541         621
        Automobile .........................         --          21         107
        Credit lines .......................         32          84         161
                                              ---------   ---------   ---------
              Total consumer loans .........      1,090         646         889
                                              ---------   ---------   ---------
              Total originations ...........     51,301      39,447      30,415
                                              ---------   ---------   ---------
  Loans transferred to real estate owned ...         --          --        (165)
                                              ---------   ---------   ---------
     Principal repayments and other, net ...    (80,038)    (41,638)    (21,349)
                                              ---------   ---------   ---------
 Ending balance ............................  $ 141,258   $ 169,990   $ 169,265
                                              =========   =========   =========

      One- to Four-Family Mortgage Lending. The Bank offers both fixed-rate and
adjustable-rate mortgage loans ("ARM") secured by one- to four-family residences
with maturities of up to 30 years. Loan originations are generally obtained from
the Bank's retail and loan origination staff, from local real estate agents,
from wholesale brokers and their contacts in the Bank's local real estate
industry, from existing or past customers and through referrals from members of
the local communities and advertising. One- to four- family mortgage loans are
generally underwritten in accordance with FHLMC/FNMA standards.

      The Bank currently offers fixed-rate mortgage loans with terms from 10 to
30 years. The Bank generally retains for its portfolio all loans it originates.
The Bank also offers ARM loan programs made for terms of 30 years with interest
rates which adjust periodically. The Bank's ARM loans generally provide for
periodic (not more than 2.0% over the existing interest rate) and overall (not
more than 6.0%) caps on the increase or decrease in the interest rate at any
adjustment date and over the life of the loan. The interest


                                       8
<PAGE>



rate  adjustment  on these loans is indexed to the  one-year  U.S.  Treasury CMT
Index with a repricing margin of 2.75% above the index.

      The origination of adjustable-rate residential mortgage loans, as opposed
to fixed-rate residential mortgage loans, helps reduce the Bank's interest rate
exposure to increases in interest rates. However, adjustable-rate loans
generally pose credit risks not inherent in fixed-rate loans, primarily because
as interest rates rise, the underlying payments of the borrower rise, thereby
increasing the potential for default. Periodic and lifetime caps on interest
rate increases help to reduce the credit risk associated with the Bank's
adjustable-rate loans but also limit the interest rate sensitivity of its
adjustable-rate mortgage loans.

      The Bank's policy generally is to originate one- to four-family
residential mortgage loans in amounts up to 90% of the lower of the appraised
value or the selling price of the property securing the loan, but generally
requires private mortgage insurance if the loan is in an amount in excess of 80%
of the lower of the appraised value or selling price. Mortgage loans originated
by the Bank include due-on-sale clauses which provide the Bank with the
contractual right to deem the loan immediately due and payable in the event the
borrower transfers ownership of the property without the Bank's consent.
Due-on-sale clauses are an important means of adjusting the rates on the Bank's
fixed-rate mortgage loan portfolio and the Bank has generally exercised its
rights under these clauses. The Bank requires fire, casualty, title and, in
certain cases, flood insurance on all properties securing real estate loans made
by the Bank.

      In an effort to provide financing for first-time home buyers, the Bank
offers a first-time home buyers program. This program offers one- to four-family
residential mortgage loans to qualified individuals. These loans are originated
using the Bank's standard underwriting guidelines with preferred interest rates.
With respect to loans granted under this program, the Bank originates these
loans in amounts up to 95% of the lower of the appraised value or selling price
of the property securing the loan. In addition, the Bank also participates in
the First Home Club Program through the FHLB-NY, which benefits low income first
time homebuyers.

      Home Equity Loans. The Bank offers fixed-rate home equity loans and
floating rate home equity lines of credit in amounts of up to $200,000. Loans in
excess of $200,000 may be made at the discretion of the Chief Lending Officer.
Home equity loans have fixed rates of interest with terms of up to 20 years.
Interest rates on such loans will vary depending on the amortization period
chosen by the borrowers. Home equity lines of credit have adjustable-rates of
interest, which may adjust on a monthly basis. The adjustable- rate of interest
charged on such loans is indexed to the prime rate as published in The Wall
Street Journal. Currently, home equity lines of credit originated at this time
bear a maximum lifetime interest rate cap of 14%. The maximum combined
loan-to-value ("LTV") ratio on home equity loans and equity lines of credit is
70%; however, this policy provides that management has the discretion to make
such real estate loans in excess of 70%. The underwriting standards employed by
the Bank for home equity loans and lines of credit include a determination of
the applicant's credit history and an assessment of the applicant's ability to
meet existing obligations and payments on the proposed loan and the value of the
collateral securing the loan. The stability of the applicant's monthly income
may be determined by verification of gross monthly income from primary
employment and, additionally, from any verifiable secondary income.
Creditworthiness of the applicant is of primary consideration. The Bank's home
equity loans and lines of credit are secured by first or second liens on one- to
four-family residences and condominiums located in the Bank's primary market
area.


                                       9
<PAGE>


      Commercial Real Estate and Multi-Family Lending. The Bank also originates
multi-family and commercial real estate loans that are generally secured by five
or more apartment units and properties used for business purposes such as small
shopping centers located in northern New Jersey. The Bank's multi- family and
commercial real estate underwriting policy provides that such real estate loans
may be made in amounts up to 65% of the appraised value of the property;
however, this policy provides that management has the discretion to make such
real estate loans in excess of 65% of the appraised value of the property. The
Bank's multi-family and commercial real estate lending is limited by the
regulatory loans-to-one borrower limit which at December 31, 2002 was $7.2
million. The Bank currently originates multi-family and commercial real estate
loans, generally with terms of up to 20 years and has developed a variety of
programs, including balloon-type and adjustable mortgages, indexed to the FHLB
advance rate, the Prime Rate and the U.S. Treasury Bill rate. The Bank's
multi-family and commercial real estate loans have fixed or adjustable rates of
interest that adjust periodically and are indexed to either the prime rate as
published in The Wall Street Journal or the U.S. Treasury Bill. In reaching its
decision on whether to make a multi-family or commercial real estate loan, the
Bank considers the net operating income of the property, the borrower's
expertise, credit history and profitability and the value of the underlying
property. The Bank has generally required that the properties securing these
real estate loans have debt service coverage ratios (the ratio of earnings
before debt service to debt service) of at least 1.15. In addition,
environmental impact surveys may be required for multi-family and commercial
real estate loans. Generally, multi-family and commercial real estate loans made
to corporations, partnerships and other business entities require personal
guarantees by the principals. The Bank may not require a personal guarantee on
such loans depending on the creditworthiness of the borrower and the amount of
the downpayment and other mitigating circumstances.

      Loans secured by multi-family and commercial real estate properties are
generally larger and involve a greater degree of risk than one- to four-family
residential mortgage loans. Because payments on loans secured by multi-family
and commercial real estate properties are often dependent on successful
operation or management of the properties, repayment of such loans may be
subject to a greater extent to the then prevailing conditions in the real estate
market or the economy. The Bank seeks to minimize these risks through its
underwriting standards.

      Construction and Development Lending. The Bank originates construction and
development loans for the development of one- to four-family residences. Such
loans are made principally to licensed and experienced developers known to the
Bank in its primary market area for the construction of single-family
developments. The Bank also originates construction and development loans for
the development of commercial properties. The Bank generally does not originate
loans secured by unimproved land. Construction loans are originated in amounts
up to 70% of the lesser of the appraised value of the property, as improved, or
the sales price. Such loans are offered for up to two year terms and adjustable
interest rates which may adjust monthly and float at margins which are generally
indexed to the Prime Rate of interest as reported in The Wall Street Journal.
Proceeds of construction loans are disbursed as phases of the construction are
completed. Generally, if the borrower is a corporation, partnership or other
business entity, personal guarantees by the principals are required.

     Construction and development financing is generally considered to involve a
higher   degree  of  credit  risk  than   long-term   financing   on   improved,
owner-occupied  real estate.  Risk of loss on a  construction  loan is dependent
largely upon the  accuracy of the initial  estimate of the  property's  value at
completion  of  construction  or  development  compared  to the  estimated  cost
(including  interest)  of  construction  and other  assumptions,  including  the
estimated time to sell residential properties. If the estimate of value proves

                                       10
<PAGE>



to be inaccurate,  the Bank may be confronted  with a project,  when  completed,
having a value which is insufficient to assure full repayment.

      Consumer Lending. Consumer loans at December 31, 2002 consisted primarily
of $231,000 in loans secured by deposit accounts. Such loans are generally
originated in the Bank's primary market area. These loans are generally shorter
term and have higher interest rates than one- to four-family mortgage loans.

      Loans secured by rapidly depreciable assets such as automobiles or that
are unsecured, entail greater risks than one- to four-family mortgage loans. In
such cases, repossessed collateral for a defaulted loan may not provide an
adequate source of repayment of the outstanding loan balance, since there is a
greater likelihood of damage, loss or depreciation of the underlying collateral.
Further, consumer loan collections on these loans are dependent on the
borrower's continuing financial stability and, therefore, are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Finally, the application of various federal and state laws, including federal
and state bankruptcy and insolvency laws, may limit the amount which can be
recovered on such loans in the event of a default.

      Commercial Lending. At December 31, 2002, the Bank had $24,000 in
commercial loans.

      Loan Approval Procedures and Authority. The Board of Directors establishes
the lending policies and loan approval limits of the Bank. All loans originated
by the Bank with principal amounts in excess of $1.0 million require the
approval of the Board of Directors. All loans originated by the Bank with
principal amounts less than or equal to $1.0 million may be approved by the
Bank's Chief Lending Officer. All approved loans are reported to the Board of
Directors or the Lending Committee. Pursuant to OTS regulations, loans to one
borrower cannot exceed 15% of the Bank's unimpaired capital and surplus. The
Bank will not make loans to one borrower that are in excess of the regulatory
limits.

      Underwriting. With respect to all loans originated by the Bank, it is the
general policy of the Bank to retain all such loans in its portfolio. The Bank
usually underwrites loans in accordance with FNMA or FHLMC guidelines. Upon
receipt of a completed loan application from a prospective borrower, a credit
report is ordered and certain other information is verified by an independent
credit agency. If necessary, additional financial information may be required.
An appraisal of real estate intended to secure a proposed loan generally is
required to be performed by outside appraisers approved by the Bank. The Board
annually approves independent appraisers used by the Bank and approves the
Bank's appraisal policy. The Bank's policy is to obtain title and hazard
insurance on all mortgage loans and flood insurance when necessary and the Bank
generally requires borrowers to make payments to a mortgage escrow account for
the payment of property taxes. No title or flood insurance is required, however,
for home equity loans.

Delinquent Loans, Classified Assets and Real Estate Owned

     Delinquencies  and  Classified  Assets.   Reports  listing  all  delinquent
accounts are  generated and reviewed by management at least once a month and the
Board  of  Directors   performs  a  monthly  review  of  all  loans  or  lending
relationships  delinquent 60 days or more and all real estate owned ("REO"). The
procedures taken by the Bank with respect to delinquencies vary depending on the
nature of the loan,  period and cause of delinquency and whether the borrower is
habitually  delinquent.  When a borrower  fails to make a required  payment on a
loan, the Bank takes a number of steps to have the borrower cure the delinquency
and restore the loan to current status.  The Bank generally sends the borrower a
written  notice of  non-payment  after the loan is first  past due.  The  Bank's
guidelines provide that telephone, written correspondence and/or face-to-


                                       11
<PAGE>



face contact will be attempted to ascertain the reasons for  delinquency and the
prospects of repayment. When contact is made with the borrower at any time prior
to foreclosure,  the Bank will attempt to obtain full payment, offer to work out
a  repayment  schedule  with the  borrower  to  avoid  foreclosure  or,  in some
instances,  accept a deed in lieu of  foreclosure.  In the event  payment is not
then  received  or the loan not  otherwise  satisfied,  additional  letters  and
telephone  calls generally are made. If the loan is still not brought current or
satisfied  and it becomes  necessary  for the Bank to take legal  action,  which
typically  occurs  after a loan is 90 days or more  delinquent,  the  Bank  will
commence  foreclosure  proceedings  against any real  property  that secures the
loan. If a foreclosure action is instituted and the loan is not brought current,
paid in full, or refinanced  before the foreclosure  sale, the property securing
the loan generally is sold at foreclosure and, if purchased by the Bank, becomes
REO.

      Federal regulations and the Bank's Asset Classification Policy require
that the Bank utilize an internal asset classification system as a means of
reporting problem and potential problem assets. The Bank has incorporated the
OTS internal asset classifications as a part of its credit monitoring system.
The Bank currently classifies problem and potential problem assets as
"Substandard," "Doubtful" or "Loss" assets. An asset is considered "Substandard"
if it is inadequately protected by the current net worth and paying capacity of
the obligor or of the collateral pledged, if any. "Substandard" assets include
those characterized by the "distinct possibility" that the insured institution
will sustain "some loss" if the deficiencies are not corrected. Assets
classified as "Doubtful" have all of the weaknesses inherent in those classified
"Substandard" with the added characteristic that the weaknesses present make
"collection or liquidation in full," on the basis of currently existing facts,
conditions, and values, "highly questionable and improbable." Assets classified
as "Loss" are those considered "uncollectible" and of such little value that
their continuance as assets without the establishment of a specific loss reserve
is not warranted.

      Management of the Bank, in determining the allowance for loan losses,
considers the risks inherent in its loan portfolio and changes in the nature and
volume of its loan activities, along with the general economic and real estate
market conditions. The Bank utilizes a two tier approach: (i) identification of
impaired loans and the establishment of specific loss allowances on such loans;
and (ii) establishment of general valuation allowances on the remainder of its
loan portfolio. The Bank maintains a loan review system which allows for a
periodic review of its loan portfolio and the early identification of potential
impaired loans. Such system takes into consideration, among other things,
delinquency status, size of loans, type and estimated fair value of collateral
and financial condition of the borrowers. Specific loan loss allowances are
established for identified loans based on a review of such information. General
loan loss allowances are based upon a combination of factors including, but not
limited to, actual loan loss experience, composition of the loan portfolio,
current economic conditions and management's judgment. Although management
believes that adequate loan loss allowances are established, actual losses are
dependent upon future events and, as such, further additions to the level of the
allowance for loan losses may be necessary.

     A  savings  institution's  determination  as to the  classification  of its
assets and the amount of its  valuation  allowances  is subject to review by the
OTS which can order the  establishment  of  additional  general or specific loss
allowances. The OTS, 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

                                       12
<PAGE>


management has established  acceptable  allowance evaluation processes that meet
the objectives set forth in the policy statement.  Although  management believes
that, based on information currently available to it at this time, its allowance
for loan losses is adequate, actual losses are dependent upon future events and,
as such, further additions to the level of allowances for loan losses may become
necessary.

      The Board reviews classified assets reports prepared by management and
classifies its assets on a quarterly basis. The Bank classifies assets in
accordance with the management guidelines described above. At December 31, 2002,
the Bank had $719,000, or 0.18% of total assets, of assets designated as
"Substandard," consisting of 2 one- to four-family mortgage loans, totaling
$196,000, and 3 multi-family mortgage loans totaling $523,000. At December 31,
2002, the largest loan designated as "Substandard" had a carrying balance of
$250,000, and was a multi-family mortgage loan. At December 31, 2002, a $716,000
portion of a trust preferred security issued by MBNA was classified as
"doubtful."


                                       13
<PAGE>


      The following table sets forth delinquencies in the Bank's loan portfolio
as of the dates indicated.

<TABLE>
<CAPTION>
                                              At December 31, 2002                      At December 31, 2001
                                   -----------------------------------------  -----------------------------------------
                                        60-89 Days         90 Days or More        60-89 Days          90 Days or More
                                   -------------------   -------------------  -------------------   -------------------
                                             Principal             Principal            Principal             Principal
                                    Number    Balance     Number    Balance    Number    Balance     Number    Balance
                                   of Loans   of Loans   of Loans   of Loans  of Loans   of Loans   of Loans   of Loans
                                   --------  ---------   --------  ---------  --------  ---------   --------  ---------
                                                                  (Dollars in thousands)
<S>                                  <C>       <C>         <C>       <C>         <C>       <C>         <C>       <C>
Loans:
   Residential Mortgage ........        5      $ 459          9      $ 839         15      $1,127         6      $ 575
   Commercial Mortgage .........       --         --         --         --          1         35         --         --
   Construction and land
      development ..............       --         --         --         --         --         --         --         --
   Consumer loans ..............       --         --          5          3         --         --          5          3
                                    -----      -----      -----      -----      -----      ------     -----      -----
      Total loans ..............        5      $ 459         14      $ 842         16      $1,162        11      $ 578
                                    =====      =====      =====      =====      =====      ======     =====      =====
Delinquent loans to total
    loans ......................     0.39%      0.33%      1.09%      0.60%      1.11%       0.68%     0.76%      0.34%
                                    =====      =====      =====      =====      =====      ======     =====      =====
</TABLE>

                                             At December 31, 2000
                                   -----------------------------------------
                                        60-89 Days         90 Days or More
                                   -------------------   -------------------
                                             Principal             Principal
                                    Number    Balance     Number    Balance
                                   of Loans   of Loans   of Loans   of Loans
                                   --------  ---------   --------  ---------
                                            (Dollars in thousands)
Loans:
   Residential Mortgage ........        5      $ 443          3      $ 109
   Commercial Mortgage .........       --         --         --         --
   Construction and land
      development ..............       --         --         --         --
   Consumer loans ..............        1         14          3          2
                                    -----      -----      -----      -----
      Total loans ..............        6      $ 457          6      $ 111
                                    =====      =====      =====      =====
Delinquent loans to total
  loans ........................     0.40%      0.27%      0.40%      0.07%
                                    =====      =====      =====      =====


                                       14
<PAGE>


      Non-Performing Assets and Impaired Loans. The following table sets forth
information regarding nonaccrual loans and REO. At December 31, 2002, REO
totaled $209,000 and consisted of 2 properties owned by the Company which are
being held for possible future use in operations. It is the policy of the Bank
to cease accruing interest on loans 90 days or more past due and to fully
reserve for all previously accrued interest. For the years ended December 31,
2002 and 2001, the amount of additional interest income that would have been
recognized on non-accrual loans if such loans had continued to perform in
accordance with their contractual terms was $25,000 and $25,000, respectively.
At December 31, 2002, one multi-family loan of $229,000 was classified as
impaired. During the year ended December 31, 2002, no income was recorded on
this loan. At December 31, 2001 and during the year ended December 31, 2001,
there were no loans classified as impaired.

<TABLE>
<CAPTION>
                                                               At December 31,
                                                ----------------------------------------------
                                                 2002      2001      2000      1999      1998
                                                ------    ------    ------    ------    ------
                                                            (Dollars in thousands)
<S>                                             <C>       <C>       <C>       <C>       <C>
Nonaccrual loans:
   Residential Mortgages ....................   $  834    $  575    $  109    $  792    $1,201
   Commercial Mortgages .....................       --        --        --        --       158
   Construction and land development ........       --        --        --        --       725
   Consumer .................................        3         3        --        --        --
                                                ------    ------    ------    ------    ------
      Total nonaccrual loans ................      837       578       109       792     2,084
                                                ------    ------    ------    ------    ------

Delinquent 90 or more days and accruing:
   Residential mortgage .....................        5        --        --        --        --
   Consumer .................................       --        --         2        --        --
                                                ------    ------    ------    ------    ------
                                                     5        --         2        --        --
                                                ------    ------    ------    ------    ------

Restructured loans:
   Residential Mortgages ....................       --        --        90        92        94
                                                ------    ------    ------    ------    ------
      Total non-performing loans ............      842       578       201       884     2,188
Real estate owned, net(1) ...................      209       209       602       900       582
                                                ------    ------    ------    ------    ------
      Total non-performing assets ...........   $1,051    $  787    $  803    $1,784    $2,770
                                                ======    ======    ======    ======    ======

Non-performing loans as a
   percent of total loans(2) ................     0.60%     0.34%     0.12%     0.57%     1.46%
                                                ======    ======    ======    ======    ======
Non-performing assets as

   a percent of total assets(3) .............     0.27%     0.21%     0.22%     0.51%     0.84%
                                                ======    ======    ======    ======    ======
</TABLE>
------------------------------------
(1)   REO balances are shown net of related valuation allowances. At all period
      ends, REO includes $209,000 of property that is not considered
      substandard.
(2)   Non-performing loans consist of all loans 90 days or more past due and
      other loans which have been identified by the Bank as presenting
      uncertainty with respect to the collectibility of interest or principal.
(3)   Non-performing assets consist of non-performing loans and REO.


     Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in its loan portfolio and the general economy. The allowance for
loan losses is maintained at an amount management considers adequate to cover
estimated losses in loans receivable which are deemed probable and estimable
based on information currently known to management. The allowance is based upon
a number of factors, including current economic conditions, actual loss
experience and industry trends. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowance for loan losses. Such agencies


                                       15
<PAGE>



may require the Bank to make additional provisions for estimated loan losses
based upon judgments different from those of management. As of December 31, 2002
and 2001, the Bank's allowance for loan losses was 0.97% and 0.80%,
respectively, of total loans receivable and 162.8% and 235.8%, respectively, of
nonaccrual loans. The Bank had non-accrual loans of $837,000 and $578,000 at
December 31, 2002 and 2001, respectively. The Bank will continue to monitor and
modify its allowances for loan losses as conditions dictate. While management
believes the Bank's allowance for loan losses is sufficient to cover losses
inherent in its loan portfolio at this time, no assurances can be given that the
Bank's level of allowance for loan losses will be sufficient to cover future
loan losses incurred by the Bank or that future adjustments to the allowance for
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 loan losses.

      The Bank has established a standardized process to assess the adequacy of
the allowance for loan losses and to identify the risks inherent in the loan
portfolio. The process incorporates credit reviews and gives consideration to
areas of exposure such as concentrations of credit, local economic conditions,
trends in delinquencies, collateral coverage, the composition of the performing
and non-performing loan portfolios, and other risks inherent in the loan
portfolio.

      Specific allocations of the allowance for loan losses are identified by
individual loan based upon a detailed credit review of each such loan. General
loan loss allowances are allocated to pools of loans categorized by type and
assigned allowance percentages which take into effect past charge-off history,
industry averages and current trends and risks. Finally, an unallocated portion
of the allowance is maintained to account for the general inherent risk in the
loan portfolio, known circumstances which are not addressed in the allocated
portion of the allowance (such as the increased dependence on outside mortgage
brokers for originations), and the necessary imprecision in the determination of
the allocation portion of the allowance.


                                       16
<PAGE>


      The following table sets forth activity in the Bank's allowance for loan
losses for the periods set forth in the following table.

<TABLE>
<CAPTION>
                                                       At or For the Years Ended December 31,
                                                ---------------------------------------------------
                                                  2002       2001       2000       1999       1998
                                                -------    -------    -------    -------    -------
                                                                   (Dollars in thousands)

<S>                                             <C>        <C>        <C>        <C>        <C>
Balance at beginning of period ..............   $ 1,363    $ 1,363    $ 1,400    $ 1,717    $ 1,885
                                                -------    -------    -------    -------    -------
Provision for (recapture of) loan losses ....        --         --         --         --       (131)
                                                -------    -------    -------    -------    -------
Charge-offs:
   Mortgage loans:
        One- to four-family .................        --         --         37         --         37
        Multi-family ........................        --         --         --         --         --
   Commercial real estate ...................        --         --         --         --         --
   Construction and land development ........        --         --         --        317         --
                                                -------    -------    -------    -------    -------
        Total mortgage loans ................        --         --         37        317         37
                                                -------    -------    -------    -------    -------
Recoveries:
   Construction and land development ........        --         --         --         --         --
                                                -------    -------    -------    -------    -------
Balance at end of period ....................   $ 1,363    $ 1,363    $ 1,363    $ 1,400    $ 1,717
                                                =======    =======    =======    =======    =======
Ratio of net charge-offs during
  the period to average gross loans
  during the period .........................      0.00%      0.00%      0.02%      0.21%      0.03%
                                                =======    =======    =======    =======    =======
Allowance for loan losses as a
   percent of total loans ...................      0.97%      0.80%      0.81%      0.90%      1.20%
                                                =======    =======    =======    =======    =======
Allowance for loan losses as a
   percent of non-performing loans ..........    161.85%    235.82%    677.75%    158.37%     78.47%
                                                =======    =======    =======    =======    =======
</TABLE>

      The following tables set forth the Bank's percent of allowance for loan
losses to total allowance for loan losses and the percent of loans to total
loans in each of the categories listed at the dates indicated.

                                                  At December 31, 2002
                                         ---------------------------------------
                                                     Percent of    Percent of
                                                     Allowance      Loans in
                                                      to Total    Each Category
                                         Amount      Allowance    to Total Loans
                                         ------      ---------    --------------
                                                (Dollars in thousands)
Mortgage loans:
  Residential .........................  $  655         48.05%        87.56%
  Commercial real estate ..............     151         11.08          9.83
  Construction and land development ...      76          5.58          2.33
                                         ------        ------        ------
    Total mortgage loans ..............     882         64.71         99.72
Commercial loans ......................      --            --          0.02
Consumer loans ........................       6          0.44          0.26
                                         ------        ------        ------
                                            888         65.15        100.00%
                                                                     ======
Unallocated ...........................     475         34.85
                                         ------        ------
     Total allowance for loan losses ..  $1,363        100.00%
                                         ======        ======


                                       17
<PAGE>

<TABLE>
<CAPTION>
                                                            At December 31,
                                   ---------------------------------------------------------------------
                                                2001                                2000
                                   --------------------------------   --------------------------------
                                                         Percent of                         Percent of
                                                          Loans in                           Loans in
                                            Percent of      Each               Percent of      Each
                                            Allowance     Category             Allowance     Category
                                             to Total     to Total              to Total     to Total
                                   Amount   Allowance       Loans     Amount   Allowance       Loans
                                   ------   ----------   ---------    ------   ----------   ---------
                                                         (Dollars in thousands)
<S>                                <C>         <C>        <C>        <C>         <C>         <C>
Mortgage loans:
    Residential ..............     $  786      57.67%      85.74      $  694      50.92%      85.31%
    Commercial real
      estate .................        145      10.64        8.33         149      10.93        7.99
    Construction and
       land development ......        156      11.44        5.60         129       9.46        6.25
                                   ------     ------      ------      ------     ------      ------
        Total mortgage
          loans ..............      1,087      79.75       99.67         972      71.31       99.55
Commercial loans .............         --         --        0.02          --         --        0.02
Consumer loans ...............          3       0.22       0. 31           5       0.37        0.43
                                   ------     ------      ------      ------     ------      ------
                                    1,090      79.97      100.00%        977      71.68      100.00%
                                                          ======                             ======
Unallocated ..................        273      20.03                     386      28.32
                                   ------     ------                  ------     ------
    Total ....................     $1,363     100.00%                 $1,363     100.00%
                                   ======     ======                  ======     ======


<CAPTION>
                                                            At December 31,
                                   ------------------------------------------------------------------
                                                1999                               1998
                                   -------------------------------    -------------------------------
                                                         Percent of                         Percent of
                                                          Loans in                           Loans in
                                            Percent of      Each               Percent of      Each
                                            Allowance     Category             Allowance     Category
                                             to Total     to Total              to Total     to Total
                                   Amount   Allowance       Loans     Amount   Allowance       Loans
                                   ------   ----------   ---------    ------   ----------   ---------
                                                        (Dollars in thousands)
<S>                                <C>         <C>         <C>        <C>         <C>         <C>
Mortgage loans:
    Residential ..............     $  735      52.50%      88.83%     $  763      44.44%      88.29%
    Commercial real
      estate .................        141      10.07        8.30         122       7.11        8.11
    Construction and
       land development ......         46       3.29        2.45         418      24.34        3.07
                                   ------     ------      ------      ------     ------      ------
        Total mortgage
          loans ..............        922      65.86       99.58       1,303      75.89       99.47
Commercial loans .............         --         --        0.02          --         --        0.04
Consumer loans ...............          6       0.43        0.40           6       0.35        0.49
                                   ------     ------      ------      ------     ------      ------
                                      928      66.29      100.00%      1,309      76.24      100.00%
                                                          ======                             ======
Unallocated ..................        472      33.71                     408      23.76
                                   ------     ------                  ------     ------
    Total ....................     $1,400     100.00%                 $1,717     100.00%
                                   ======     ======                  ======     ======
</TABLE>


                                       18
<PAGE>


      Real Estate Owned. At December 31, 2002, the Company had $209,000 of real
estate owned consisting of 2 properties, neither of which were acquired through
foreclosure. When a property is acquired through foreclosure or deed in lieu of
foreclosure, it is initially recorded at the lower of the recorded investment in
the corresponding loan or the fair value of the related assets at the date of
foreclosure, less costs to sell. Thereafter, if there is a further deterioration
in value, a specific valuation allowance is provided via a charge to operations
for the diminution in value. It is the policy of the Company and the Bank to
have obtained an appraisal on all real estate subject to foreclosure proceedings
prior to the time of foreclosure, to require appraisals on a periodic basis on
foreclosed properties and to conduct inspections on foreclosed properties.

Investment Activities

      The Company can invest in common and preferred stocks, limited
partnerships and all investments in which the Bank is permitted to invest.
Anything else requires the Board of Director's approval. Federally chartered
savings institutions have the authority to invest in various types of liquid
assets, including United States Treasury obligations, securities of various
federal agencies, certificates of deposit of insured banks and savings
institutions, bankers' acceptances, repurchase agreements and federal funds.
Subject to various restrictions, federally chartered savings institutions may
also invest their assets in commercial paper, investment-grade corporate debt
securities and mutual funds whose assets conform to the investments that a
federally chartered savings institution is otherwise authorized to make
directly. Additionally, the Bank must maintain minimum levels of investments
that qualify as liquid assets under OTS regulations. Historically, the Bank has
maintained liquid assets above the minimum OTS requirements and at a level
considered to be adequate to meet its normal daily activities.

      The Company's current policies generally limit securities investments to
U.S. Government and agency securities, municipal bonds and corporate debt
obligations and corporate equities. In addition, the Company's policies permit
investments in mortgage-backed securities, including securities issued and
guaranteed by FNMA, FHLMC and GNMA. The Company's current securities investment
strategy is to continue to emphasize the purchase of mortgage-backed securities
and U.S. Government and agency obligations as well as state and municipal
obligations for purposes of interest rate risk management.

      At December 31, 2002, the Company had $210.2 million in securities,
consisting primarily of mortgage-backed securities, U.S. Government and agency
obligations, trust preferred securities and municipal obligations. SFAS No. 115
requires the Company to designate its securities as held-to-maturity,
available-for-sale or trading depending on the Company's intent regarding its
investments. The Company does not currently maintain a trading portfolio of
securities.

      Mortgage-Backed Securities. The Company purchases mortgage-backed
securities in order to: (i) generate positive interest rate spreads with minimal
administrative expense; (ii) reduce its credit risk as a result of the guarantee
provided by FHLMC, FNMA and GNMA; (iii) utilize these securities as collateral
for borrowings; and (iv) increase the liquidity of the Company. The Company has
primarily invested in mortgage-backed securities issued or sponsored by FNMA,
FHLMC and GNMA and private issuers. The mortgage-backed securities portfolio had
coupon rates ranging from 2.375% to 15.00% and had a weighted average yield of
5.14% at December 31, 2002.


                                       19
<PAGE>


      Mortgage-backed securities are created by the pooling of mortgages and
issuance of a security with an interest rate which is less than the interest
rate on the underlying mortgage. Mortgage-backed securities typically represent
a participation interest in a pool of single-family or multi-family mortgages,
although the Company focuses its investments on mortgage-backed securities
backed by single-family mortgages. The issuers of such securities (generally
U.S. Government agencies and government sponsored enterprises, including FNMA,
FHLMC and GNMA) pool and resell the participation interests in the form of
securities to investors such as the Company and guarantee the payment of
principal and interest to investors. Mortgage-backed securities generally yield
less than the loans that underlie such securities because of the cost of loan
servicing and payment guarantees. In addition, mortgage-backed securities are
usually more liquid than individual mortgage loans and may be used to
collateralize certain liabilities and obligations of the Company. Investments in
mortgage-backed securities involve a risk that actual prepayments will differ
from estimated prepayments used in pricing the security at the time of purchase,
which may require adjustments to the amortization of any premium or accretion of
any discount relating to such instruments thereby changing the net yield on such
securities. There is also reinvestment risk associated with the cash flows from
such securities in the event such securities are redeemed by the issuer. In
addition, the market value of such securities may be adversely affected by
changes in interest rates. The Company estimates prepayments for its
mortgage-backed securities at purchase to ensure that prepayment assumptions are
reasonable considering the underlying collateral for the mortgage-backed
securities at issue and current mortgage interest rates and to determine the
yield and estimated maturity of its mortgage-backed security portfolio. Of the
Company's $182.0 million mortgage-backed securities portfolio at December 31,
2002, $8.6 million with a weighted average yield of 3.87% had contractual
maturities within five years and $173.4 million with a weighted average yield of
5.20% had contractual maturities over five years. However, the actual maturity
of a mortgage-backed security may be less than its stated maturity due to
prepayments of the underlying mortgages. Prepayments that are faster than
anticipated may shorten the life of the security and may result in a loss of any
premiums paid and thereby reduce the net yield on such securities. Although
prepayments of underlying mortgages depend on many factors, 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 prepayments. During periods of declining mortgage interest rates,
refinancing generally increases and accelerates the prepayment 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-backed securities prepay faster than anticipated, the Company may not
be able to reinvest the proceeds of such repayments and prepayments at a
comparable rate.

      U.S. Government and Agency Obligations and Obligations of States and
Municipalities. At December 31, 2002, the U.S. Government and Agency securities
portfolio totaled $14.9 million, or 3.8% of total assets, all of which were
classified as held-to-maturity. In addition, the Company held $3.3 million in
obligations of New Jersey municipal subdivisions.

     Trust Preferred Securities. At December 31, 2002, the investment portfolio
included $10.0 million, or 2.5% of total assets, in trust preferred securities,
all of which were purchased in 1998. Trust preferred securities are
non-perpetual cumulative preferred stock issued by a wholly owned subsidiary of
a bank and are classified as debt securities under generally accepted accounting
principles. Securities of this nature are permissible investments for banks and
thrifts provided they are of investment grade quality and are rated as such by
any of the top rating services. Before purchasing these investments, the Bank
researched extensively the permissibility and suitability of these investments
and whether they had a place on the balance sheet of the Bank. The Bank's policy
as approved by the Board of Directors allows for the purchase of investments
which are considered investment grade and are permissible investments under OTS
regulations. Securities


                                       20
<PAGE>


considered investment grade must be rated in one of the four highest categories
by a nationally recognized statistical rating agency. Additionally, the Board's
policy limits these type of investments to a maximum aggregate dollar amount of
$10,000,000. The Bank's conclusion was that these investments had a place on the
balance sheet and, during 1998, $10.0 million of trust preferred security
investments in five of the most well known large commercial banks in the eastern
United States were made. In addition to $9.0 million of such securities owned by
the Bank, the Company owns one trust preferred security which is carried at $1.0
million.

      During 1999, the OTS reviewed these securities and concluded that, in its
opinion, three of the five investments were not of a type suitable for the Bank.
Accordingly, the OTS mandated that the Bank liquidate these issues as soon as
possible without incurring a loss. The Company determined that these three
securities should be retained and thus the Bank may transfer them to the Company
over a period of time. One of the three issues was transferred during the fourth
quarter of 1999.

      The $10.0 million in trust preferred securities is a combination of $6.9
million in floating rate (spread to Libor) investments and $3.1 million in fixed
rate investments. The adjustable investments offer quarterly interest
adjustments, uncapped coupons and call protection unavailable in most other
types of adjustable investments. The fixed rate investments offer yield for the
balance sheet and presented a cost of funds spread which was unavailable in
other types of alternative investments. These investments present the normal
type of risk to the Company and the Bank that is associated with other forms of
marketable debt securities. These include credit risk, which is associated with
the underlying creditworthiness of the issuer, liquidity risk, which is
associated with the ability to dispose of a security in a reasonable time period
at a reasonable price, and call risk, which is associated with these securities
having call provisions after 10 years.


                                       21
<PAGE>


      The following table sets forth certain information regarding the amortized
cost and fair value of securities at the dates indicated.

<TABLE>
<CAPTION>
                                                                              At December 31,
                                                   --------------------------------------------------------------------
                                                           2002                    2001                    2000
                                                   --------------------    --------------------    --------------------
                                                   Amortized     Fair      Amortized     Fair      Amortized     Fair
                                                     Cost        Value       Cost        Value       Cost        Value
                                                   ---------    -------    ---------    -------    ---------    -------
                                                                              (In thousands)
<S>                                                 <C>         <C>         <C>         <C>         <C>         <C>
Investment securities available-for-sale(1):
   U.S. Government and Agency
        obligations ............................    $    --     $    --     $    --     $    --     $ 2,999     $ 2,994
                                                    -------     -------     -------     -------     -------     -------
Investment securities held-to-maturity (1):
   U.S. Government and
      Agency obligations .......................     14,930      15,163      22,600      22,342      31,155      30,577
   Trust preferred securities ..................      9,980       8,852       9,985       8,457       9,989       8,768
   Obligations of states and
     municipal subdivisions ....................      3,259       3,327         584         576         584         580
                                                    -------     -------     -------     -------     -------     -------
                                                     28,169      27,342      33,169      31,375      41,728      39,925
                                                    -------     -------     -------     -------     -------     -------
Federal Home Loan Bank of
   New York stock (2) ..........................      4,228       4,228       3,843       3,843       3,558       3,558
                                                    -------     -------     -------     -------     -------     -------
      Total ....................................    $32,397     $31,570     $37,012     $35,218     $48,285     $46,477
                                                    =======     =======     =======     =======     =======     =======
</TABLE>
----------------------------------------
(1)   Available-for-sale securities are carried at fair value while
      held-to-maturity securities are carried at amortized cost.
(2)   Investment is required by regulation. As the security is not readily
      marketable, its cost approximates fair value.


      The following table sets forth investment securities activities for the
periods indicated.

<TABLE>
<CAPTION>
                                                                   At December 31,
                                                           --------------------------------
                                                             2002        2001        2000
                                                           --------    --------    --------
                                                                    (In thousands)
<S>                                                        <C>         <C>         <C>
Investment securities:
Investment securities, beginning of period(1) ..........   $ 33,169    $ 44,722    $ 44,506
                                                           --------    --------    --------
Purchases:
   Investment securities-held-to-maturity ..............     15,672      14,000          --
   Investment securities-available-for-sale ............         --          --          --
Calls:
   Investment securities-held-to-maturity ..............    (21,000)    (22,848)         --
   Investment securities-available-for-sale ............         --      (1,000)         --
Maturities:
   Investment securities-held-to-maturity ..............         --          --        (150)
   Investment securities-available-for-sale ............         --          --          --
Sales:
   Investment securities-held-to-maturity ..............         --          --          --
   Investment securities-available-for-sale ............         --      (2,000)         --
Amortization of premiums and discounts .................        328         290         297
Unrealized gain ........................................         --           5          69
                                                           --------    --------    --------
   Net (decrease) increase in investment securities ....     (5,000)    (11,553)        216
                                                           --------    --------    --------
Investment securities, end of period ...................   $ 28,169    $ 33,169    $ 44,722
                                                           ========    ========    ========
</TABLE>

----------
(1)   Includes investment securities available-for-sale.


                                       22
<PAGE>


      The following table sets forth certain information regarding the amortized
cost and fair values of the Company's mortgage-backed securities, all of which
are held-to-maturity, at the dates indicated.

<TABLE>
<CAPTION>
                                                                         At December 31,
                                 ----------------------------------------------------------------------------------------------
                                              2002                            2001                            2000
                                 ------------------------------  ------------------------------  ------------------------------
                                             Percent                         Percent                         Percent
                                 Amortized      of       Fair    Amortized      of       Fair    Amortized      of       Fair
                                   Cost      Total(1)    Value     Cost      Total(1)    Value     Cost      Total(1)    Value
                                 ---------   --------   -------  ---------   --------   -------  ---------   --------   -------
                                                                  (Dollars in thousands)
<S>                               <C>        <C>       <C>        <C>        <C>       <C>        <C>        <C>       <C>
By Issuer:
   GNMA .......................   $ 72,662    39.92%   $ 74,249   $ 56,909    41.44%   $ 57,689   $ 56,873    43.54%   $ 57,226
   FHLMC ......................     45,305    24.89      46,838     29,269    21.31      30,025     31,052    23.77      31,176
   FNMA .......................     55,595    30.54      57,155     27,132    19.76      27,108     17,243    13.20      17,259
   Other ......................      8,467     4.65       8,638     24,018    17.49      24,513     25,460    19.49      24,524
                                  --------   ------    --------   --------   ------    --------   --------   ------    --------
      Total mortgage-backed
         securities (1)(2) ....   $182,029   100.00%   $186,880   $137,328   100.00%   $139,335   $130,628   100.00%   $130,185
                                  ========   ======    ========   ========   ======    ========   ========   ======    ========
By Coupon Type:
   Adjustable-rate ............   $ 91,202    50.10%   $ 93,175   $ 71,991    52.42%   $ 72,973   $ 78,092    59.78%   $ 78,446
   Fixed-rate .................     90,827    49.90      93,705     65,337    47.58      66,362     52,536    40.22      51,739
                                  --------   ------    --------   --------   ------    --------   --------   ------    --------
      Total mortgage-backed
         securities (1)(2) ....   $182,029   100.00%   $186,880   $137,328   100.00%   $139,335   $130,628   100.00%   $130,185
                                  ========   ======    ========   ========   ======    ========   ========   ======    ========
</TABLE>

----------
(1)   Based on amortized cost.
(2)   Includes net unamortized (discounts) premiums of $729, $106 and $(35) at
      December 31, 2002, 2001 and 2000, respectively.


      The following table sets forth the Company's mortgage-backed securities
activities for the periods indicated.

                                                     For the Years
                                                   Ended December 31,
                                            --------------------------------
                                              2002        2001        2000
                                            --------    --------    --------
                                                     (In thousands)

Beginning balance .......................   $137,328    $130,628    $121,223
   Purchases ............................     99,642      47,112      32,016
   Principal repayments .................    (54,908)    (40,383)    (22,699)
   Net amortization and accretion of
      discounts and premiums ............        (33)        (29)        (88)
                                            --------    --------    --------
Ending balance ..........................   $182,029    $137,328    $130,628
                                            ========    ========    ========


                                       23
<PAGE>


      The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of investment
securities available-for-sale and held-to-maturity and mortgage-backed
securities held-to-maturity as of December 31, 2002.

<TABLE>
<CAPTION>
                                                                   At December 31, 2002
                                               ----------------------------------------------------------------
                                                                      More than One         More than Five
                                                 One Year or Less   Year to Five Years    Years to Ten Years
                                               -------------------  -------------------   -------------------
                                                          Weighted             Weighted              Weighted
                                               Carrying   Average   Carrying   Average    Carrying   Average
                                                Value      Yield     Value      Yield      Value      Yield
                                               --------   --------  --------   --------   --------   --------
                                                                  (Dollars in thousands)
<S>                                              <C>          <C>    <C>         <C>       <C>          <C>
Investment securities held-to-maturity:
    U.S. Treasury and Government
       agency obligations ...................    $  --        --%    $8,000      3.53%     $ 2,493      6.41%
    Municipal obligations (1) ...............       --        --         --        --          866      5.19
    Trust preferred securities ..............       --        --         --        --           --        --
                                                 -----               ------                -------
      Total investment securities held
        to maturity .........................       --        --     $8,000      3.53      $ 3,359      6.10
                                                 =====               ======                =======
Mortgage-backed securities held-to-
maturity:
    Adjustable-rate:
      GNMA ..................................       --        --     $   --        -%      $    --        -%
      FHLMC .................................       --        --         --        --           --        --
      FNMA ..................................       --        --         --        --           --        --
      Other .................................       --        --         --        --           --        --
                                                 -----               ------                -------
            Total ...........................       --        --         --        --           --        --
                                                 -----               ------                -------
    Fixed-rate:
      GNMA ..................................       --        --        481      7.86        2,104      7.60
      FHLMC .................................       --        --      7,930      3.56        6,828      6.00
      FNMA ..................................       --        --        185      7.00       10,322      5.26
      Other .................................       --        --         --        --            3     11.00
                                                 -----               ------                -------
            Total ...........................       --        --      8,596      3.87       19,257      5.78
                                                 -----               ------                -------
 Total mortgage-backed securities
       held-to-maturity .....................    $  --        --     $8,596      3.87      $19,257      5.78
                                                 =====               ======                =======


<CAPTION>
                                                           At December 31, 2002
                                               --------------------------------------------
                                               More than Ten Years            Total
                                               -------------------     --------------------
                                                          Weighted                 Weighted
                                               Carrying   Average      Carrying    Average
                                                Value      Yield        Value       Yield
                                               --------   --------     --------    --------
                                                          (Dollars in thousands)
<S>                                            <C>           <C>       <C>           <C>
Investment securities held-to-maturity:
    U.S. Treasury and Government
       agency obligations ...................  $  4,437      6.95%     $ 14,930      5.03%
    Municipal obligations (1) ...............     2,393      5.59         3,259      5.48
    Trust preferred securities ..............     9,980      3.94         9,980      3.94
                                               --------                --------
      Total investment securities held
        to maturity .........................  $ 16,810      4.97      $ 28,169      4.70
                                               ========                ========
Mortgage-backed securities held-to-
maturity:
    Adjustable-rate:
      GNMA ..................................  $ 69,662      4.46%     $ 69,662      4.46%
      FHLMC .................................    16,307      5.29        16,307      5.29
      FNMA ..................................     3,776      5.23         3,776      5.23
      Other .................................     1,457      2.33         1,457      2.33
                                               --------                --------
            Total ...........................    91,202      4.61        91,202      4.61
                                               --------                --------
    Fixed-rate:
      GNMA ..................................       415      7.99         3,000      7.70
      FHLMC .................................    14,240      6.16        28,998      5.41
      FNMA ..................................    41,312      5.65        51,819      5.58
      Other .................................     7,007      6.54         7,010      6.54
                                               --------                --------
            Total ...........................    62,974      5.88        90,827      5.67
                                               --------                --------
 Total mortgage-backed securities
       held-to-maturity .....................  $154,176      5.13      $182,029      5.14
                                               ========                ========
</TABLE>

----------
(1)   Weighted average yield for municipal securities is based on a tax
      equivalent basis on an assumed tax rate of 40%.


                                       24
<PAGE>


Sources of Funds

      General. Deposits, loan repayments and prepayments, security maturities,
cash flows generated from operations and FHLB borrowings are the primary sources
of the Bank's funds for use in lending, investing and for other general
purposes.

      Deposits. The Bank offers a variety of deposit accounts with a range of
interest rates and terms. The Bank's deposits consist of savings, checking
accounts, NOW accounts, money market and club accounts, certificate of deposit
accounts and Individual Retirement Accounts. For the year ended December 31,
2002, average core deposits, which include all non-certificate deposits,
represented 41.7% of total average deposits. The flow of deposits is influenced
significantly by general economic conditions, changes in money market rates,
prevailing interest rates and competition. The Bank's deposits are obtained
predominantly from the areas in which its branch offices are located. The Bank
has historically relied primarily on customer service and long-standing
relationships with customers to attract and retain these deposits; however,
market interest rates and rates offered by competing financial institutions
significantly affect the Bank's ability to attract and retain deposits. The Bank
uses traditional means of advertising its deposit products through print media
and generally does not solicit deposits from outside its market area. The Bank
does not actively solicit certificate accounts in excess of $100,000 or use
brokers to obtain deposits. At December 31, 2002, 79.8% of the Bank's
certificate of deposit accounts had remaining terms of less than twelve months.

      The following table presents the deposit activity of the Bank for the
periods indicated.

                                             For the Years Ended December 31,
                                             --------------------------------
                                               2002        2001        2000
                                             --------    --------    --------
                                                      (In thousands)

Beginning balance ........................   $240,864    $237,956    $234,978
                                             --------    --------    --------
   Net deposits (withdrawals) ............      7,600      (6,140)     (6,378)
   Interest credited .....................      6,629       9,048       9,356
                                             --------    --------    --------
Increase (decrease) in deposit accounts ..     14,229       2,908       2,978
                                             --------    --------    --------
Ending balance ...........................   $255,093    $240,864    $237,956
                                             ========    ========    ========

      At December 31, 2002, the Bank had $26.5 million in certificate accounts
in amounts of $100,000 or more maturing as follows.

                                                           Weighted
                                                           Average
Maturity Period                               Amount         Rate
---------------                               ------       --------
                                             (Dollars in thousands)

Three months or less .....................   $ 9,199         2.95%
Over 3 through 6 months ..................     6,294         3.12
Over 6 through 12 months .................     6,130         2.87
Over 12 months ...........................     4,853         4.22
                                             -------
Total ....................................   $26,476         3.21%
                                             =======


                                       25
<PAGE>


      The following table sets forth the distribution of the Bank's average
deposit accounts for the periods indicated and the weighted average interest
rates on each category of deposits presented. Averages for the periods presented
utilize month-end balances.

<TABLE>
<CAPTION>
                                                                       For the Years Ended December 31,
                                      -------------------------------------------------------------------------------------------
                                                   2002                            2001                           2000
                                      -----------------------------   ----------------------------   ----------------------------
                                                 Percent                        Percent                        Percent
                                                 of Total  Weighted             of Total  Weighted             of Total  Weighted
                                       Average   Average   Average    Average   Average   Average    Average   Average   Average
                                       Balance   Deposits    Rate     Balance   Deposits    Rate     Balance   Deposits    Rate
                                       --------  --------  --------   --------  --------  --------   --------  --------  --------
                                                                          (Dollars in thousands)

<S>                                    <C>        <C>        <C>      <C>        <C>        <C>      <C>        <C>        <C>
Demand accounts ...................... $ 38,347    15.48%    0.46%    $ 36,245    15.22%    0.68%    $ 36,536    15.48%    0.75%
Savings and Club accounts ............   65,047    26.26     2.00       54,585    22.93     2.02       54,218    22.97     2.05
Certificates of deposit ..............  144,304    58.26     3.57      147,240    61.85     5.23      145,253    61.55     5.49
                                       --------   ------              --------   ------              --------   ------
         Total ....................... $249,698   100.00%    2.68     $238,070   100.00%    3.80     $236,007   100.00%    3.96
                                       ========   ======              ========   ======              ========   ======

Certificate accounts(1):
   Less than six months .............. $ 76,079    52.46%    2.87%    $ 80,272    55.25%    4.41%    $ 79,969    53.65%    5.59%
   Over six through 12 months ........   39,607    27.31     2.83       44,158    30.39     4.00       41,539    27.87     5.95
   Over 12 months through 36 months ..   25,683    17.71     3.75       18,523    12.75     4.98       24,274    16.29     5.95
   Over 36 months ....................    3,663     2.52     4.29        2,333     1.61     5.15        3,269     2.19     5.92
                                       --------   ------              --------   ------              --------   ------
         Total certificate accounts .. $145,032   100.00%    3.05     $145,286   100.00%    4.37     $149,051   100.00%    5.76
                                       ========   ======              ========   ======              ========   ======
</TABLE>

----------
(1)   Based on remaining maturity of certificates calculated as of the end of
      the period.


                                       26
<PAGE>


      The following table presents, by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at December 31, 2002.

<TABLE>
<CAPTION>
                                          Period to Maturity from December 31, 2002                        At December 31,
                             ---------------------------------------------------------------------  ------------------------------
                             Less than   One to      Two to      Three to    Four to      After
                             One Year   Two years  Three years  Four years  Five years  Five Years    2002       2001       2000
                             ---------  ---------  -----------  ----------  ----------  ----------  --------  ---------   --------
                                                                              (In thousands)
<S>                           <C>         <C>         <C>         <C>        <C>        <C>          <C>        <C>        <C>
Certificate accounts:
    2.00% and below .......   $ 22,025    $ 1,043     $   16      $   --     $   --     $      9    $ 23,093   $  4,482   $     --
    2.01% to 3.00% ........     63,484      5,956        540         133        194           54      70,361     20,638         --
    3.01 to 4.00% .........     18,367     11,245        813         279        584           31      31,319     33,386      3,603
    4.01 to 5.00% .........      4,579      2,036        304         656      1,091          155       8,821     51,843     34,193
    5.01 to 6.00% .........      1,985      1,399        430          22        454            1       4,291     14,744     32,323
    6.01 to 7.00% .........      4,558      1,095        735          --         --           --       6,388     18,940     76,074
    7.01 to 8.00% .........        231         --         71          --         --           --         302        592      2,289

                              $115,229    $22,774     $2,909      $1,090     $2,323     $    250     144,575    144,625    148,482
                              ========    =======     ======      ======     ======     ========
Accrued interest payable ..                                                                              457        661        569
                                                                                                    --------   --------   --------
    Total .................                                                                         $145,032   $145,286   $149,051
                                                                                                    ========   ========   ========
</TABLE>


                                       27
<PAGE>


      Borrowings. The Bank utilizes borrowings from the FHLB as an alternative
to retail deposits to fund its operations as part of its operating strategy.
These FHLB borrowings are collateralized primarily by certain of the Bank's
mortgage-related securities and secondarily by the Bank's investment in capital
stock of the FHLB. FHLB borrowings are made pursuant to several different credit
programs, each of which has its own interest rate and range of maturities. The
maximum amount that the FHLB will advance to member institutions, including the
Bank, fluctuates from time to time in accordance with the policies of the FHLB.
See "Regulation and Supervision-Federal Home Loan Bank System." At December 31,
2002, the Bank had $84.3 million in outstanding FHLB borrowings, compared to
$76.9 million at December 31, 2001.

      The following table sets forth certain information regarding the Bank's
borrowed funds at or for the periods ended on the dates indicated.

                                                    At or For the Years
                                                    Ended December 31,
                                             -------------------------------
                                               2002        2001        2000
                                             -------     -------     -------
                                                  (Dollars in thousands)

Average balance outstanding ..............   $84,262     $66,532     $65,592
Maximum amount outstanding at any
    month-end during the period ..........    91,339      76,856      69,167
Balance outstanding at end of period .....    84,282      76,856      62,290
Weighted average interest rate
    during the period ....................      4.84%       5.61%       5.85%
Weighted average interest rate at
    end of period ........................      4.58%       5.08%       5.78%

Subsidiary Activities

      The Company is the parent corporation of two wholly owned subsidiaries,
the Bank and West Essex Property Company ("West Essex Property"). West Essex
Property was formed in April 1999 to purchase a parcel of land located in Sussex
County, New Jersey from the Company. Upon the purchase of this parcel of land,
West Essex Property was to have entered into an arrangement to lease the
property to a restaurant chain. As of December 31, 2002, West Essex Property has
neither purchased the parcel of land nor entered into a lease arrangement. As of
December 31, 2002 and for the year then ended, West Essex Property had no
operations, assets, liabilities or equity. In addition, the Bank is the parent
corporation of three wholly owned subsidiary corporations. The only active
subsidiary is West Essex Insurance Agency ("WEIA") which was formed in December
1982 to offer insurance products and tax-deferred annuities through an agent.
Originally, these products were sold at one of the Bank's branches. Commencing
in 1993, customers have been referred to Anthony R. Davis Agency at an off-site
location. WEIA receives a fee for each customer referral resulting in the
purchase of an insurance and/or annuity product. Sales of annuity products
totaled $306,000 for the year ended December 31, 2002. WEIA's earnings are at a
nominal level since management decided in early 1994 to de-emphasize this
activity due to the lack of demand and controversial publicity associated with
uninsured annuity products. The two remaining Bank subsidiaries, First Reserve
Service Corp. and West Essex Corporation, are inactive.


                                       28
<PAGE>


Personnel

      As of December 31, 2002, the Company had 48 authorized full-time employee
positions and 4 authorized part-time employee positions. The employees are not
represented by a collective bargaining unit and the Bank considers its
relationship with its employees to be good.

                           REGULATION AND SUPERVISION

General

      The Bank is subject to extensive regulation, examination and supervision
by the OTS, as its chartering agency, and the FDIC, as the deposit insurer. The
Bank is a member of the FHLB System. The Bank's deposit accounts are insured up
to applicable limits by the Savings Association Insurance Fund ("SAIF") managed
by the FDIC. The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition in addition to obtaining regulatory approvals
prior to entering into certain transactions such as mergers with, or
acquisitions of, other financial institutions. There are periodic examinations
by the OTS 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 policies, whether by the OTS, the FDIC or the Congress, could
have a material adverse impact on the Company, the MHC and the Bank and their
operations. The MHC, as a federal mutual holding company and the Company, as a
federal corporation, will also be required to file certain reports with, and
otherwise comply with the rules and regulations of the OTS.

      The following summary of the regulation and supervision of savings
associations and their holding companies does not purport to be a complete
description of the applicable statutes and regulations and is qualified in its
entirety by reference to such statutes and regulations.

Federal Savings Institution Regulation

      Business Activities. The activities of federal savings banks are governed
by federal law and regulations. These laws and regulations delineate the nature
and extent of the activities in which federal savings banks may engage. In
particular, certain lending authority for federal savings banks, e.g.,
commercial, non-residential real property loans and consumer loans, is limited
to a specified percentage of the institution's capital or assets.

     Loans-to-One Borrower. Federal law provides that savings institutions are
generally subject to the limits on loans to one borrower applicable to national
banks. A savings institution may not make a loan or extend credit to a single or
related group of borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if secured by specified readily-marketable collateral. QTL Test.
The HOLA requires savings institutions to meet a qualified thrift lender test.
Under the test, a savings association is required to either qualify as a
"domestic building and loan association" under the Internal Revenue Code or
maintain at least 65% of its "portfolio assets" (total assets less: (i)
specified


                                       29
<PAGE>



liquid assets up to 20% of total assets; (ii) intangibles, including
goodwill; and (iii) the value of property used to conduct business) in certain
"qualified thrift investments" (primarily residential mortgages and related
investments, including certain mortgage-backed securities) in at least 9 months
out of each 12 month period.

      A savings institution that fails the qualified thrift lender test is
subject to certain operating restrictions and may be required to convert to a
bank charter. As of December 31, 2002, the Bank met the qualified thrift lender
test. Recent legislation has expanded the extent to which education loans,
credit card loans and small business loans may be considered "qualified thrift
investments."

      Limitation on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by a savings institution, including cash
dividends, payments to repurchase its shares and payments to shareholders of
another institution in a cash-out merger. Under the regulations, an application
to and the prior approval of the OTS is required prior to any capital
distribution if the institution does not meet the criteria for "expedited
treatment" of applications under OTS regulations (i.e., generally, examination
ratings in the two top categories), the total capital distributions for the
calendar year exceed net income for that year plus the amount of retained net
income for the preceding two years, the institution would be undercapitalized
following the distribution or the distribution would otherwise be contrary to a
statute, regulation or agreement with OTS. If an application is not required,
the institution must still provide prior notice to OTS of the capital
distribution if, like the Bank, it is a subsidiary of a holding company. In the
event the Bank's capital fell below its regulatory requirements or the OTS
notified it that it was in need of more than normal supervision, the Bank's
ability to make capital distributions could be restricted. In addition, the OTS
could prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice.

      Transactions with Related Parties. The Bank's authority to engage in
transactions with "affiliates" (e.g., any company that controls or is under
common control with an institution, including the Company and its non-savings
institution subsidiaries) is limited by federal law. The aggregate amount of
covered transactions with any individual affiliate is limited to 10% of the
capital and surplus of the savings institution. The aggregate amount of covered
transactions with all affiliates is limited to 20% of the savings institution's
capital and surplus. Certain transactions with affiliates are required to be
secured by collateral in an amount and of a type described in federal law. The
purchase of low quality assets from affiliates is generally prohibited. The
transactions with affiliates must be on terms and under circumstances, that are
at least as favorable to the institution as those prevailing at the time for
comparable transactions with non- affiliated companies. In addition, savings
institutions are prohibited from lending to any affiliate that is engaged in
activities that are not permissible for bank holding companies and no savings
institution may purchase the securities of any affiliate other than a
subsidiary.

     The Bank's authority to extend credit to executive officers, directors and
10% shareholders ("insiders"), as well as entities such persons control, is also
governed by federal law. Such loans are required to be made on terms
substantially the same as those offered to unaffiliated individuals and not
involve more than the normal risk of repayment. Recent legislation created an
exception for loans made pursuant to a benefit or compensation program that is
widely available to all employees of the institution and does not give
preference to insiders over other employees. The law limits both the individual
and aggregate amount of loans the Bank may make to insiders based, in part, on
the Bank's capital position and requires certain board approval procedures to be
followed.


                                       30
<PAGE>



      Enforcement. The OTS has primary enforcement responsibility over savings
institutions and has the authority to bring actions against the institution and
all institution-affiliated parties, including stockholders, and any attorneys,
appraisers and accountants who knowingly or recklessly participate in wrongful
action likely to have an adverse effect on an insured institution. Formal
enforcement action may range from the issuance of a capital directive or cease
and desist order to removal of officers and/or directors to institution of
receivership, conservatorship or termination of deposit insurance. Civil
penalties cover a wide range of violations and can amount to $25,000 per day, or
even $1 million per day in especially egregious cases. The FDIC has the
authority to recommend to the Director of the OTS that enforcement action to be
taken with respect to a particular savings institution. If action is not taken
by the Director, the FDIC has authority to take such action under certain
circumstances. Federal law also establishes criminal penalties for certain
violations.

      Standards for Safety and Soundness. The federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness.
The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the OTS determines that a
savings institution fails to meet any standard prescribed by the guidelines, the
OTS may require the institution to submit an acceptable plan to achieve
compliance with the standard.

      Capital Requirements. The OTS capital regulations require savings
institutions to meet three minimum capital standards: a 1.5% tangible capital
ratio, a 4% leverage ratio (3% for institutions receiving the highest rating on
the CAMELS examination rating system) and an 8% risk-based capital ratio. In
addition, the prompt corrective action standards discussed below also establish,
in effect, a minimum 2% tangible capital standard, a 4% leverage ratio (3% for
institutions receiving the highest rating on the CAMELS system), and, together
with the risk-based capital standard itself, a 4% Tier 1 risk-based capital
standard. The OTS regulations also require that, in meeting the tangible,
leverage and risk-based capital standards, institutions must generally deduct
investments in and loans to subsidiaries engaged in activities as principal that
are not permissible for a national bank.

      The risk-based capital standard for savings institutions requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, assigned by the OTS capital regulation based on the risks
believed inherent in the type of asset. Core (Tier 1) capital is defined as
common stockholders' equity (including retained earnings), certain noncumulative
perpetual preferred stock and related surplus, and minority interests in equity
accounts of consolidated subsidiaries less intangibles other than certain
mortgage servicing rights and credit card relationships. The components of
supplementary capital currently include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock, the allowance for loan and lease losses
limited to a maximum of 1.25% of risk-weighted assets and up to 45% of
unrealized gains on available-for-sale equity securities with readily
determinable fair market values. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.

      The capital regulations also incorporate an interest rate risk component.
Savings institutions with "above normal" interest rate risk exposure are subject
to a deduction from total capital for purposes of calculating their risk-based
capital requirements. For the present time, the OTS has deferred implementation
of the interest rate risk capital charge. At December 31, 2002, the Bank met
each of its capital requirements.


                                       31
<PAGE>


      Prompt Corrective Regulatory Action. The OTS is required to take certain
supervisory actions against undercapitalized institutions, the severity of which
depends upon the institution's degree of undercapitalization. Generally, a
savings institution that has a ratio of total capital to risk weighted assets of
less than 8%, a ratio of Tier 1 (core) capital to risk-weighted assets of less
than 4% or a ratio of core capital to total assets of less than 4% (3% or less
for institutions with the highest examination rating) is considered to be
"undercapitalized." A savings institution that has a total risk-based capital
ratio less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio
that is less than 3% is considered to be "significantly undercapitalized" and a
savings institution that has a tangible capital to assets ratio equal to or less
than 2% is deemed to be "critically undercapitalized." Subject to a narrow
exception, the OTS is required to appoint a receiver or conservator for an
institution that is "critically undercapitalized." The regulation also provides
that a capital restoration plan must be filed with the OTS within 45 days of the
date a savings institution receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." Compliance
with the plan must be guaranteed by any parent holding company. In addition,
numerous mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion. The OTS could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.

      Insurance of Deposit Accounts. The Bank is a member of the SAIF. The FDIC
maintains a risk-based assessment system by which institutions are assigned to
one of three categories based on their capitalization and one of three
subcategories based on examination ratings and other supervisory information. An
institution's assessment rate depends upon the categories to which it is
assigned. Assessment rates for SAIF member institutions are determined
semi-annually by the FDIC and currently range from zero basis points for the
healthiest institutions to 27 basis points for the riskiest.

      The FDIC has authority to increase insurance assessments. A significant
increase in SAIF insurance premiums would likely have an adverse effect on the
operating expenses and results of operations of the Bank. Management cannot
predict what insurance assessment rates will be in the future.

      In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation ("FICO") to recapitalize the predecessor to the SAIF. During 2002,
FICO payments for SAIF members approximated 1.75 basis points.

      Insurance of deposits may be terminated by the FDIC upon a finding that
the institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the OTS. The
management of the Bank does not know of any practice, condition or violation
that might lead to termination of deposit insurance.

     Community Reinvestment Act. Under the Community Reinvestment Act, as
amended ("CRA"), as implemented by OTS regulations, a savings association has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the OTS, in connection with its examination of a savings
institution, to assess the institution's record


                                       32
<PAGE>


of meeting the credit needs of its community and to take such record into
account in its evaluation of certain applications by such institution. The
Bank's latest CRA rating received from the OTS was "Satisfactory."

Federal Home Loan Bank System

      The Bank is a member of the Federal Home Loan Bank System, which consists
of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a
central credit facility primarily for member institutions. The Bank, as a member
of the Federal Home Loan Bank, is required to acquire and hold shares of capital
stock in that Federal Home Loan Bank in an amount at least equal to 1.0% of the
aggregate principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 1/20 of its advances (borrowings)
from the Federal Home Loan Bank, whichever is greater.

      The Federal Home Loan Banks are required to provide funds for the
resolution of insolvent thrifts in the late 1980s and to contribute funds for
affordable housing programs. These requirements could reduce the amount of
dividends that the Federal Home Loan Banks pay to their members and could also
result in the Federal Home Loan Banks imposing a higher rate of interest on
advances to their members. If dividends were reduced, or interest on future
Federal Home Loan Bank advances increased, the Bank's net interest income would
likely also be reduced. Recent legislation has changed the structure of the
Federal Home Loan Banks funding obligations for insolvent thrifts, revised the
capital structure of the Federal Home Loan Banks and implemented entirely
voluntary membership for Federal Home Loan Banks. Management cannot predict the
effect that these changes may have with respect to its Federal Home Loan Bank
membership.

Federal Reserve System

      The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The regulations generally provide
that reserves be maintained against aggregate transaction accounts as follows: a
3% reserve ratio is assessed on net transaction accounts up to and including
$42.1 million; a 10% reserve ratio is applied above $42.1 million. The first
$6.0 million of otherwise reservable balances (subject to adjustments by the
Federal Reserve Board) are exempted from the reserve requirements. The amounts
are adjusted annually. The Bank complies with the foregoing requirements.

Holding Company Regulation

      General. The Company is a federal savings and loan holding company within
the meaning of the HOLA. As such, the Company is registered with the OTS and is
subject to OTS regulations, examinations, supervision and reporting
requirements. In addition, the OTS has enforcement authority over the Company
and its non-savings institution subsidiaries. Among other things, this authority
permits the OTS to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary savings institution. The Bank must notify the OTS
30 days before declaring any dividend to the Company.

     Restrictions Applicable to Mutual Holding Companies. Pursuant to Section
10(o) of the HOLA and the Regulations, a mutual holding company, such as the
MHC, may engage in the following activities: (i) investing in the stock of a
savings association; (ii) acquiring a mutual association through the merger of
such association into a savings association subsidiary of such holding company
or an interim savings association subsidiary of such holding company; (iii)
merging with or acquiring another holding company, one of whose subsidiaries is
a savings association and (iv) any activity approved by the Federal Reserve
Board for a bank holding company or financial holding company. Recent
legislation, which authorized MHCs to engage in activities permitted financial
holding companies, expanded the authorized activities.


                                       33
<PAGE>


Financial holding companies may engage in a broad array of financial service
activities including insurance and securities.

      The HOLA prohibits a savings and loan holding company, including a federal
mutual holding company, directly or indirectly, or through one or more
subsidiaries, from acquiring more than 5% of the voting stock of another savings
institution, or holding company thereof, without prior written approval of the
OTS. The HOLA also prohibits a savings and loan holding company from acquiring
more than 5% of a company engaged in activities other than those authorized for
savings and loan holding companies by the HOLA; or acquiring or retaining
control of a depository institution that is not insured by the FDIC. In
evaluating applications by holding companies to acquire savings institutions,
the OTS must consider the financial and managerial resources and future
prospects of the company and institution involved, the effect of the acquisition
on the risk to the insurance funds, the convenience and needs of the community
and competitive factors.

      The OTS is prohibited from approving any acquisition that would result in
a multiple savings and loan holding company controlling savings institutions in
more than one state, except: (i) the approval of interstate supervisory
acquisitions by savings and loan holding companies, and (ii) the acquisition of
a savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions. The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.

      If the savings institution subsidiary of a savings and loan holding
company fails to meet the QTL test set forth in Section 10(m) of the HOLA and
the regulations of the OTS, the holding company must register with the Federal
Reserve Board as a Bank Holding Company within one year of the savings
institution's failure to so qualify.

      Stock Holding Company Subsidiary Regulation. The OTS has adopted
regulations governing the two-tier mutual holding company form of organization
and mid-tier stock holding companies that are controlled by mutual holding
companies. Under these rules, the stock holding company subsidiary holds all the
shares of the mutual holding company's savings association subsidiary and issues
the majority of its own shares to the mutual holding company parent. In
addition, the stock holding company subsidiary is permitted to engage in
activities that are permitted for its mutual holding company parent and to have
the same indemnification and employment contract restrictions imposed that are
on the mutual holding company parent. Finally, OTS regulations maintain that the
stock holding company subsidiary must be federally chartered for supervisory
reasons.

                           FEDERAL AND STATE TAXATION

Federal Taxation

      General. The Bank, the Company and the MHC will report their income on a
calendar year basis using the accrual method of accounting and will be subject
to federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Bank's reserve for bad debts discussed
below. The following discussion of tax matters is intended only as a summary and
does not purport to be a comprehensive description of the tax rules applicable
to the Bank, the Company and the MHC.


                                       34
<PAGE>



      Bad Debt Reserve. Historically, savings institutions such as the Bank
which met certain definitional tests primarily related to their assets and the
nature of their business ("qualifying thrifts") were permitted to establish a
reserve for bad debts and to make annual additions thereto, which may have been
deducted in arriving at their taxable income. The Bank's deductions with respect
to "qualifying real property loans," which are generally loans secured by
certain interest in real property, were computed using an amount based on the
Bank's actual loss experience, or a percentage equal to 8% of the Bank's taxable
income, computed with certain modifications and reduced by the amount of any
permitted addition to the non-qualifying loan loss reserve. Due to the Bank's
loss experience, the Bank generally recognized a bad debt deduction equal to 8%
of taxable income.

      In August 1996, the provisions repealing the above thrift bad debt rules
were passed by Congress as part of "The Small Business Job Protection Act of
1996." The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995. These rules also require that all thrift institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988). The Bank has previously
recorded a deferred tax liability equal to the bad debt recapture and as such,
the new rules will have no effect on net income or federal income tax expense.
For taxable years beginning after December 31, 1995, the Bank's bad debt
deduction will be equal to net charge-offs. The new rules allow an institution
to suspend the bad debt reserve recapture for the 1996 and 1997 tax years if the
institution's lending activity for those years is equal to or greater than the
institution's average mortgage lending activity for the six taxable years
preceding 1996. For this purpose, only home purchase and home improvement loans
are included and the institution can elect to have the tax years with the
highest and lowest lending activity removed from the average calculation. If an
institution is permitted to postpone the reserve recapture, it must begin its
six year recapture no later than the 1998 tax year. The unrecaptured base year
reserves will not be subject to recapture as long as the institution continues
to carry on the business of banking. In addition, the balance of the pre-1988
bad debt reserves continue to be subject to a provision of present law referred
to below that require recapture in the case of certain excess distributions to
shareholders.

      Distributions. To the extent that the Bank makes "non-dividend
distributions" to the Company that are considered as made (i) from the reserve
for losses on qualifying real property loans, to the extent the reserve for such
losses exceeds the amount that would have been allowed under the experience
method, or (ii) from the supplemental reserve for losses on loans ("Excess
Distributions"), then an amount based on the amount distributed will be included
in the Bank's taxable income. Non-dividend distributions include distributions
in excess of the Bank's current and accumulated earnings and profits,
distributions

in redemption of stock, and distributions in partial or complete liquidation.
However, dividends paid out of the Bank's current or accumulated earnings and
profits, as calculated for federal income tax purposes, will not be considered
to result in a distribution from the Bank's bad debt reserve. Thus, any
dividends to the Company that would reduce amounts appropriated to the Bank's
bad debt reserve and deducted for federal income tax purposes would create a tax
liability for the Bank. The amount of additional taxable income created from an
Excess Distribution is an amount that, when reduced by the tax attributable to
the income, is equal to the amount of the distribution.

      Corporate Alternative Minimum Tax. The Internal Revenue Code of 1986, as
amended (the "Code") imposes a tax on alternative minimum taxable income
("AMTI") at a rate of 20%. The excess of the bad debt reserve deduction using
the percentage of taxable income method over the deduction that would have been
allowable under the experience method is treated as a preference item for
purposes of computing the AMTI. Only 90% of AMTI can be offset by net operating
loss carryovers. AMTI is increased by an amount equal to 75% of the amount by
which the Bank's adjusted current earnings

                                       35
<PAGE>


exceeds its AMTI (determined without regard to this preference and prior to
reduction for net operating losses).

      Dividends Received Deduction and Other Matters. The Company may exclude
from its income 100% of dividends received from the Bank. The MHC may exclude
from its income 80% of dividends received from the Company as long as it
maintains ownership in the Company of at least 20%. In addition, the MHC waived
dividends from the Company during the years ended December 31, 2002 and 2001.

      Audits. The Bank was last audited by the IRS in 1994. The Bank was not
audited by the New Jersey Department of Revenue ("DOR") in the past five years.

State and Local Taxation

      State of New Jersey. The Bank, the Company and the MHC file New Jersey
income tax returns. For New Jersey income tax purposes, savings institutions are
presently taxed at a rate equal to 9% of taxable income. For this purpose,
"taxable income" generally means federal taxable income, subject to certain
adjustments (including addition of interest income on state and municipal
obligations). For New Jersey tax purposes, regular corporations are presently
taxed at a rate equal to 9% of taxable income (7.5% is the rate if taxable
income is less than $100,000).


                                       36
<PAGE>


Item 2. Description of Property.

      The Bank currently conducts its business through an administrative and
full service branch office located in Caldwell, New Jersey and seven other full
service branch offices located in West Orange, Franklin Lakes, River Vale, Pine
Brook, Old Tappan and Northvale, New Jersey. Management believes that the Bank's
facilities are adequate to meet the present and immediately foreseeable needs of
the Bank and the Company.

                                                             Net Book Value
                                                 Original    of Property or
                                                   Year         Leasehold
                                      Leased      Leased     Improvements at
                                        or          or         December 31,
Location                              Owned      Acquired         2002
------------                          ------     --------    ---------------
                                                             (In thousands)
Administrative/Corporate/
Branch Office:
417 Bloomfield Avenue                 Owned        1962             $334
Caldwell, NJ 07006

Branch Offices:
216 Main Street                       Owned        1987              143
West Orange, NJ 07052
487 Pleasant Valley Way               Owned        1987              157
West Orange, NJ 07052
574 Franklin Avenue                   Leased       1978               --
Franklin Lakes, NJ 07417
653 Westwood Avenue                   Owned        1997              457
River Vale, NJ 07675
267 Changebridge Road                 Owned        1974              217
Pine Brook, NJ 07058
207 Old Tappan Road                   Owned        1997              456
Old Tappan, NJ 07675
119 Paris Avenue                      Owned        1997              294
Northvale, NJ 07647

Item 3. Legal Proceedings.

      Neither the Company nor the Bank is involved in any pending legal
proceedings other than routine legal proceedings occurring in the ordinary
course of business. Such routine legal proceedings in the aggregate, are
believed by management to be immaterial to the financial condition and results
of operations of the Company.

Item 4. Submission of Matters to a Vote of Security Holders.

      None.


                                       37
<PAGE>


                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

Market Information

      The Company is traded on the Nasdaq National Market under the ticker
symbol "WEBK." As of December 31, 2002, the Company had 4,890,733 shares of
common stock outstanding and approximately 354 shareholders of record.

Stock Price and Dividends

      The following table discloses the dividends declared and the high and low
bids for the Company's common stock on the Nasdaq National Market for each
quarterly period indicated.

  Quarter Ended        Dividends Per Share    High Bid Price     Low Bid Price
------------------     -------------------    --------------     -------------

December 31, 2002             $0.14               $34.87            $34.60
September 30, 2002             0.14                34.65             18.01
June 30, 2002                  0.14                21.50             18.85
March 31, 2002                 0.14                19.80             14.88
December 31, 2001              0.13                15.80             12.84
September 30, 2001             0.12                14.64             11.84
June 30, 2001                  0.12                13.36             10.00
March 31, 2001                 0.12                10.40              9.70

Item 6. Management's Discussion and Analysis or Plan of Operation.

      The Bank's results of operations are dependent primarily on net interest
income, which is the difference between the income earned on its loan and
securities portfolios and its cost of funds, consisting of the interest paid on
deposits and borrowings. Results of operations are also affected by the Bank's
non-interest income and expense. The Bank's non-interest income consists
primarily of fees and other service charges. The Bank's non-interest expense
principally consists of compensation and employee benefits, office occupancy and
equipment expenses, the cost of foreclosed real estate operations, amortization
of intangible assets, and other expenses. Results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in interest rates, government policies and actions of
regulatory authorities. Future changes in applicable law, regulations or
government policies may materially impact the Bank.

Merger

      As discussed in "Item 1 - Description of Business," on September 11, 2002,
Kearny and the Company entered into the Merger Agreement. Kearny is the parent
company of Kearny Federal Savings Bank, a federally-chartered savings bank, and
is a federally-chartered mid-tier holding company and wholly-owned subsidiary of
Kearny MHC, a federally-chartered mutual holding company.

      Pursuant to the Agreement, the mutual holding company structure of the MHC
will be eliminated and West Essex Bank will ultimately merge with and into
Kearny Federal Savings Bank. The


                                       38
<PAGE>

stockholders  of the Company  other than the MHC will receive  $35.10 in cash in
exchange for each share of common stock.

      As of December 31, 2002, the Company had incurred $581,000 in expenses
related to this transaction. Total expenses of the transaction are expected to
be approximately $1.3 million.

Average Balance Sheet

      The following table sets forth certain information relating to the Company
at December 31, 2002, and for the years ended December 31, 2002 and 2001. The
average yields and costs are derived by dividing income or expense by the
average balance of interest-earning assets or interest-bearing liabilities,
respectively, for the period shown except where noted otherwise and reflect
annualized yields and costs. Average balances are derived from average month-end
balances except for the average balances of other interest-earning assets and
borrowed money, which are derived from average daily balances. Management does
not believe that the use of average monthly balances instead of average daily
balances has caused any material differences in the information presented. The
yields and costs include fees which are considered adjustments to yields.
Nonaccrual loans are included in the average balances for loans receivable.


                                       39
<PAGE>


                                                           At December 31, 2002
                                                         -----------------------
                                                          Amount      Yield/Cost
                                                         ---------    ----------
                                                          (Dollars in thousands)

Assets:
  Interest-earning assets:
     Loans receivable .................................  $ 139,823       6.71%
     Mortgage-backed securities .......................    182,029       5.14
     Investment securities ............................     28,169       4.54
     Other interest-earning assets ....................     28,745       1.75
                                                         ---------
           Total interest-earning assets ..............    378,766       5.42

     Allowance for loan losses ........................     (1,363)
     Non-interest-earning assets ......................     15,221
                                                         ---------
           Total assets ...............................  $ 392,624
                                                         =========

Liabilities and Stockholders' Equity:
  Interest-bearing liabilities:
     Interest-bearing deposits:
        Demand deposits ...............................  $  20,129       0.94
        Savings and club accounts .....................     70,728       1.76
        Certificates of deposit .......................    145,032       3.05
                                                         ---------
          Total interest-bearing deposits .............    235,889       2.48
     Borrowed money ...................................     84,282       4.58
                                                         ---------
          Total interest-bearing liabilities ..........    320,171       3.04
  Noninterest-bearing deposits ........................     19,203
  Other noninterest-bearing liabilities ...............      1,795
                                                         ---------
          Total liabilities ...........................    341,169
  Stockholders' equity ................................     51,455
                                                         ---------
          Total liabilities and stockholders' equity ..  $ 392,624
                                                         =========

  Interest rate spread ................................                  2.38%
                                                                         ====
  Net interest-earning assets .........................  $  58,595
                                                         =========
  Ratio of average interest-earning assets to
     average interst-bearing liabilities ..............      1.18x
                                                         =========


                                       40
<PAGE>


<TABLE>
<CAPTION>
                                                                             At December 31, 2002
                                                     ---------------------------------------------------------------------
                                                                   2002                                 2001
                                                     ---------------------------------    --------------------------------
                                                                               Average                             Average
                                                      Average                  Yield/      Average                 Yield/
                                                      Balance     Interest      Cost       Balance     Interest     Cost
                                                     ---------   ----------   --------    ---------   ----------   -------
                                                                              (Dollars in thousands)

<S>                                                   <C>          <C>          <C>        <C>          <C>          <C>
Assets:
  Interest-earning assets:
     Loans receivable ............................    $157,737     $10,889      6.90%      $169,150     $12,465      7.37%
     Mortgage-backed securities ..................     163,233       8,986      5.51        123,203       8,141      6.61
     Investment securities (1) ...................      33,754       1,840      5.45         34,598       2,221      6.42
     Other interest-earning assets ...............      16,534         372      2.25         16,452         638      3.88
                                                      --------     -------                 --------     -------
           Total interest-earning assets .........     371,258      22,087      5.95        343,403      23,465      6.83
                                                                   -------                 --------     -------

     Allowance for loan losses ...................      (1,363)                              (1,363)
     Non-interest-earning assets .................      14,924                               15,034
                                                      --------                             --------
           Total assets ..........................    $384,819                             $357,074
                                                      ========                             ========

Liabilities and Stockholders' Equity:
  Interest-bearing liabilities:
     Interest-bearing deposits:
        Demand deposits ..........................    $ 19,841         177      0.89       $ 19,171         247      1.29
        Savings and club .........................      65,047       1,300      2.00         54,585       1,100      2.02
        Certificates of deposit ..................     144,304       5,152      3.57        147,240       7,701      5.23
                                                      --------     -------                 --------     -------
           Total interest-bearing deposits .......     229,192       6,629      2.89        220,996       9,048      4.09

     Borrowed money ..............................      84,262       4,079      4.84         66,532       3,734      5.61
                                                      --------     -------                 --------     -------
           Total interest-bearing liabilities ....     313,454      10,708      3.42        287,528      12,782      4.45
                                                                                                        -------

  Noninterest-bearing deposits ...................      18,506                               17,074
  Other noninterest-bearing liabilities ..........       1,784                                2,251
                                                      --------                             --------
           Total liabilities .....................     333,744                              306,853

  Stockholders' equity ...........................      51,075                               50,221
                                                      --------                             --------
           Total liabilities and
              stockholders' equity ...............    $384,819                             $357,074
                                                      ========                             ========

  Net interest income/interest rate spread .......                 $11,379      2.53%                   $10,683      2.38%
                                                                   =======      ====                    =======      ====
  Net interest-earning assets/net yield
     on interest-earning assets ..................    $ 57,804                  3.06%      $ 55,875                  3.11%
                                                      ========                  ====       ========                  ====
  Ratio of average interest-earning assets to
     average interst-bearing liabilities .........       1.18x                                1.19x
                                                      ========                             ========
</TABLE>

----------
(1)   Includes available for sale and held to maturity securities.


                                       41
<PAGE>


Rate/Volume Analysis

      The following table presents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to: (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume); and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated on a
proportional basis between changes in rate and volume.

                                               Year Ended December 31, 2002
                                                       Compared to
                                               Year Ended December 31, 2001
                                            ----------------------------------
                                                   Increase (Decrease)
                                                         Due to
                                            ---------------------------------
                                            Volume        Rate          Net
                                            -------      -------      -------
                                                      (In thousands)
Interest income:
   Loans receivable ...................     $  (810)     $  (766)     $(1,576)
   Mortgage-backed securities .........       2,351       (1,506)         845
   Investment securities ..............         (53)        (328)        (381)
   Other interest-earning assets ......           3         (269)        (266)
                                            -------      -------      -------

Total .................................       1,491       (2,869)      (1,378)
                                            -------      -------      -------

Interest expense:
   Demand deposits (1) ................           8          (78)         (70)
   Savings and club accounts ..........         211          (11)         200
   Certificates of deposit ............        (151)      (2,398)      (2,549)
   Borrowed money .....................         905         (560)         345
                                            -------      -------      -------

Total .................................         973       (3,047)      (2,074)
                                            -------      -------      -------

Net change in net interest income .....     $   518      $   178      $   696
                                            =======      =======      =======

----------
(1)   Includes NOW and Money Market accounts.

Comparison of Financial Condition at December 31, 2002 and 2001

      Total assets were $392.6 million at December 31, 2002, compared to $370.8
million at December 31, 2001, an increase of $21.8 million, or 5.9%. The
increase in assets was reflected primarily in federal funds sold and
mortgage-backed securities, which increased by $10.5 million and $44.7 million,
respectively, and was funded primarily by decreases in investment securities of
$5.0 million and loans receivable of $27.4 million along with increases of $14.2
million in deposits and $7.4 million in borrowed money.

     Cash and cash equivalents, primarily interest-bearing deposits and federal
funds sold, increased $9.5 million to $26.8 million at December 31, 2002, from
$17.3 million at December 31, 2001. The increase in cash and cash equivalents
resulted from repayments of loans and securities which have not yet been
reinvested.


                                       42
<PAGE>


      In the aggregate, mortgage-backed securities and investment securities,
including available-for- sale and held-to-maturity issues, totalled $210.2
million at December 31, 2002, an increase of $39.7 million or 23.3% from $170.5
million at December 31, 2001. Mortgage-backed securities, all of which are
held-to-maturity, increased $44.7 million or 32.6% to $182.0 million at December
31, 2002, from $137.3 million at December 31, 2001, due to purchases exceeding
repayments. Investment securities held-to-maturity decreased $5.0 million or
15.1% to $28.2 million at December 31, 2002 from $33.2 million at December 31,
2001, due to calls of such securities exceeding purchases. At December 31, 2002,
53.0% of the investment securities consisted of U.S. Government and Agency
obligations, while 95.3% of the mortgage-backed securities portfolio consisted
of Fannie Mae ("FNMA"), Freddie Mac ("FHLMC") and Ginnie Mae ("GNMA") issues.
Investment securities held-to-maturity consisted of $493,000 of U.S. Treasury
notes, $14.4 million of U.S. Government Agency notes, $10.0 million in trust
preferred securities and $3.3 million in municipal obligations.

      Loans receivable decreased $27.4 million or 16.5% to $138.5 million at
December 31, 2002, from $165.9 million at December 31, 2001, due to loan
repayments exceeding originations. At December 31, 2002, 86.2% of the
outstanding balance of loans in the portfolio consisted of one-to four- family
real estate related loans, compared to 83.7% at December 31, 2001.

      Deposits totalled $255.1 million at December 31, 2002, an increase of
$14.2 million or 5.9% from the $240.9 million balance at December 31, 2001.

      Borrowed money increased $7.4 million or 9.6% to $84.3 million at December
31, 2002, as compared to $76.9 million at December 31, 2001. During the year
ended December 31, 2002, short-term borrowings increased $10.0 million to $25.0
million, with an average cost of 2.16% at year end, while long-term debt
decreased $2.6 million to $59.3 million, the result of the repayment of
long-term debt. The increase in borrowed money was primarily used to finance
purchases of mortgage-backed securities.

      Stockholders' equity increased $540,000 or 1.1% to $51.5 million at
December 31, 2002, from $50.9 million at the prior year end. During 2002, net
income of $1.5 million was partially offset by $983,000 in dividends declared to
stockholders.

      During the year ended December 31, 2002, treasury stock acquisitions
totalled 79,750 shares for $1.5 million or an average price of $19.25 per share.
The treasury stock acquisitions were made in accordance with stock repurchase
plans authorized by the Company's Board of Directors. At December 31, 2002, an
additional 199,992 shares of Company common stock may be repurchased under these
plans.

Comparison of Operating Results for the Years Ended December 31, 2002 and 2001

      Net Income. Net income for 2002 was $1.51 million, a decrease of $1.56
million, or 50.8%, from $3.07 million in 2001. The decrease was primarily the
result of a $2.4 million increase in total non- interest expense, partially
offset by a $696,000 increase in net interest income and a $106,000 decrease in
income tax expense.

      Interest Income. Total interest income decreased $1.4 million or 6.0% to
$22.1 million for 2002 as compared to $23.5 million for 2001. The decrease was
due to a decrease of 88 basis points in the yield earned on interest-earning
assets to 5.95% in 2002 from 6.83% in 2001, partially offset by a $27.9 million
or 8.1% increase in average interest-earning assets. The increased average
balances of earning assets were funded by increases in average deposits and FHLB
borrowings.


                                       43
<PAGE>


      Interest income on loans during 2002 decreased by $1.6 million, or 12.8%,
to $10.9 million when compared to $12.5 million during 2001. The decrease was
due to an $11.4 million or 6.7% decrease in average loans, along with a 47 basis
point decrease in the yield earned on loans to 6.90% in 2002 from 7.37% in 2001.

      Interest on mortgage-backed securities, all of which are held-to-maturity,
increased $845,000, or 10.4%, during 2002 to $9.0 million compared to $8.1
million for 2001. During the year ended December 31, 2002, the average balance
of mortgage-backed securities outstanding increased $40.0 million, or 32.5%, to
$163.2 million when compared to $123.2 million for 2001. The yield earned on the
mortgage- backed securities portfolio decreased to 5.51% in 2002 from 6.61% in
2001.

      Interest earned on investment securities, including both
available-for-sale and held-to-maturity issues, decreased by $381,000, or 17.6%,
to $1.8 million for 2002, when compared to $2.2 million for 2001. The decrease
resulted from a decrease of $844,000, or 2.4%, in the average balance of the
investment securities portfolio, along with a decrease of 97 basis points in the
yield earned on the investment securities portfolio to 5.45% in 2002 from 6.42%
in 2001. During 2002, $21.0 million of investment securities were called in
advance of their maturity dates, resulting in the reduced average portfolio
balance. A portion of the proceeds of such calls were reinvested in securities
of generally lower yield.

      Interest on other interest-earning assets totalled $372,000 and $638,000
during 2002 and 2001, respectively. The yield earned on other interest-earning
assets decreased to 2.25% in 2002 from 3.88% in 2001, while the average balance
of other interest-earning assets outstanding remained steady at $16.5 million.
The low yield reflects the sharp drop in short-term market interest rates.

      Interest Expense. Interest expense on deposits decreased $2.4 million, or
26.7%, to $6.6 million during 2002 compared to $9.0 million for 2001. The
decrease during 2002 was attributable to a decrease of 120 basis points in the
average cost of interest-bearing deposits to 2.89% for 2002 from 4.09% for 2001,
partially offset by an increase of $8.2 million, or 3.7%, in the average balance
of interest-bearing deposits outstanding. The decrease cost of deposits was due
to the lower market rates prevailing for much of 2002, which effected all
deposit categories.

      Interest expense on borrowed money increased $345,000, or 9.2%, to $4.08
million during 2002 compared to $3.73 million for 2001. The increase during 2002
was attributable to a $17.7 million, or 26.6%, increase in average borrowings,
partially offset by a 77 basis point decline in the average cost of borrowings
to 4.84% in 2002 from 5.61% in 2001. The decreased cost of borrowings resulted
from lower market interest rates.

      Net Interest Income. Net interest income for 2002 increased $696,000, or
6.5%, to $11.4 million in 2002 from $10.7 million in 2001. The net interest rate
spread increased to 2.53% in 2002 from

2.38% in 2001 and the interest rate margin decreased to 3.06% in 2002 from 3.11%
in 2001. These changes primarily resulted from an 88 basis point decrease in the
yield on interest-earning assets to 5.95% in 2002 from 6.83% in 2001, which was
more than offset by a 103 basis point decrease in the cost of interest-bearing
liabilities to 3.42% in 2002 from 4.45% in 2001.

      Provision for Loan Losses. During both 2002 and 2001, the Bank did not
record a provision for loan losses as management determined that the existing
allowance for loan losses was adequate. At December 31, 2002 and 2001, the
Bank's loan portfolio included loans totalling $842,000 and $578,000,
respectively, which were delinquent ninety days or more. The Bank maintains an
allowance for loan

                                      44
<PAGE>

losses  based on  management's  evaluation  of the  risks  inherent  in its loan
portfolio which gives due  consideration to changes in general market conditions
and in the nature and volume of the Bank's loan activity. The allowance for loan
losses  amounted to $1.36  million at December 31, 2002,  representing  0.97% of
total loans and 161.9% of loans delinquent  ninety days or more,  compared to an
allowance of $1.36  million at December 31,  2001,  representing  0.80% of total
loans and 235.8% of loans delinquent  ninety days or more. During 2002 and 2001,
the Bank did not charge off any loans.  The Bank monitors its loan portfolio and
intends to continue to provide  for loan  losses  based on its ongoing  periodic
review of the loan portfolio and general market conditions.

      Non-Interest Income. Non-interest income decreased by $7,000, or 1.0%, to
$681,000 during 2002 as compared to $688,000 for 2001. The decrease in
non-interest income during 2002 resulted primarily from $45,000 in gain on sale
of securities during 2001 compared to none in 2002 offset by increases in fees
and service charges of $22,000 and other non-interest income of $16,000.

      Non-Interest Expenses. Non-interest expenses increased $2.36 million, or
35.3%, to $9.04 million during 2002 compared to $6.68 million for 2001. The
increase was primarily attributable to increases of $1.46 million in salaries
and employee benefits and $293,000 in other non-interest expenses, along with
$581,000 in merger related expenses recorded in 2002. The $1.46 million increase
in salaries and employee benefits, the largest component of non-interest
expense, was primarily due to the acceleration of benefits under the Company's
management supplemental retirement plan, normal salary increases and the
increased compensation cost related to the Company's Employee Stock Ownership
Plan, which is based upon the average price of the Company's common stock, which
increased to $24.13 in 2002 from $12.29 in 2001. The increase in miscellaneous
expenses is due to increases in a number of expense categories, the most
significant of which were legal fees, professional fees, and insurance costs.
The merger related expenses were incurred in conjunction with the Company's
merger with Kearny. The remaining elements of non-interest expenses totalled
$1.66 million in 2002, a $34,000, or 2.1%, increase from the $1.63 million
comparable amount in 2001.

      Income Taxes. Income tax expense totalled $1.52 million and $1.62 million
during 2002 and 2001, respectively. The decrease in 2002 resulted primarily from
a decrease in pre-tax income of $1.67 million, the effect of which was partially
offset by a statutory increase in the State of New Jersey income tax rate to 9%
in 2002 from 3% in 2001 and $1.27 million in non-deductible compensation and
merger related expenses. The Company's effective income tax rate was 50.2% in
2002 and 34.5% in 2001.

Liquidity and Capital Resources

      The Company's primary sources of funds on a long-term and short-term basis
are deposits, principal and interest payments on loans, mortgage-backed and
investment securities and FHLB borrowings. The Company uses the funds generated
to support its lending and investment activities as well as any other demands
for liquidity such as deposit outflows. While maturities and scheduled
amortization of loans are predictable sources of funds, deposit flows, mortgage
prepayments and the exercise of call features are greatly influenced by general
interest rates, economic conditions and competition.

      At December 31, 2002, the Bank exceeded all of its regulatory capital
requirements with a tangible capital level of $46.5 million, or 12.0% of total
adjusted assets, which is above the required level of $5.8 million, or 1.5%;
core capital of $46.5 million, or 12.0% of total adjusted assets, which is above
the required level of $15.5 million, or 4.0%; and risk-based capital of $47.9
million, or 36.3% of risk- weighted assets, which is above the required level of
$10.6 million, or 8.0%.


                                       45
<PAGE>


      The most liquid assets are cash and cash equivalents. The levels of these
assets are dependent on operating, financing, lending and investing activities
during any given period. At December 31, 2002, cash and cash equivalents
totalled $26.8 million, or 6.8% of total assets.

      The Company and the Bank have other sources of liquidity if a need for
additional funds arises, including FHLB borrowings. At December 31, 2002, the
Bank had $84.3 million in borrowings outstanding from the FHLB. Depending on
market conditions and the pricing of deposit products and FHLB borrowings, the
Bank may continue to rely on FHLB borrowing to fund asset growth.

      At December 31, 2002, the Bank had commitments to originate and purchase
loans and fund unused outstanding lines of credit and undisbursed proceeds of
construction mortgages totaling $16.5 million. The Bank anticipates that it will
have sufficient funds available to meet its current loan origination
commitments. Certificate accounts, including Individual Retirement Account
("IRA") accounts, which are scheduled to mature in less than one year from
December 31, 2002, totalled $115.7 million. The Bank expects that substantially
all of the maturing certificate accounts will be retained by the Bank at
maturity.

Impact of Inflation and Changing Prices

      The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with generally accepted accounting principles,
which require the measurement of financial position and operating results
generally in terms of historical dollar amounts without considering the changes
in the relative purchasing power of money over time due to inflation. The impact
of inflation is reflected in the increased cost of the Company's operations.
Unlike industrial companies, nearly all of the assets and liabilities of the
Company are monetary in nature. As a result, interest rates have a greater
impact on the Company's performance than do the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the prices of goods and services.

Item 7. Financial Statements.

      The financial statements listed at Item 13 of this Form 10-KSB are
incorporated herein by reference into this Item 7 of Part II of this Form
10-KSB.

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

      None.



                                       46
<PAGE>


                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.

Directors, Executive Officers, Promoters and Control Persons

      Information regarding the Board of Directors and the executive officers of
the Company is provided below. The age indicated for each individual is as of
December 31, 2002. The indicated period of service as a director includes the
period of service as a director of the Bank.

      The following directors have terms ending in 2003:

      William J. Foody is managing partner in the real estate firm of Crow
Holdings. Mr. Foody is currently Chairman of the Board of Directors of the Bank.
Age 75. Director since 1983.

      Leopold W. Montanaro has served as Chairman, President and Chief Executive
Officer of the Company and President and Chief Executive Officer of the Bank
since 1998 and 1972, respectively. Mr. Leopold Montanaro is the father of Mr.
Craig Montanaro. Age 63. Director since 1972.

      The following directors have terms ending in 2004:

      John J. Burke is the President of J.J. Burke & Associates, Inc., a
financial services, insurance consulting firm. Age 56. Director since 1992.

      The following directors have terms ending in 2005:

      David F. Brandley is a partner in the law firm of Brandley & Kleppe. Age
75. Director since 1959.

      S.M. Terry LaCorte is the retired President of North Jersey Press, Inc., a
newspaper publishing firm. Age 66. Director since 2002.

      Everett N. Leonard is a retired Verona, New Jersey Borough Administrator.
Age 89. Director since 1969.

                  Executive Officers Who Are Not Also Directors

      Charles E. Filippo, age 62, has served as Executive Vice President of the
Company since 1998 and has served as Executive Vice President and Chief Lending
Officer of the Bank since 1994.

      Craig L. Montanaro, age 36, has served as Senior Vice President, Corporate
Secretary and Treasurer of the Company and the Bank since 1998 and 1997,
respectively. Mr. Craig Montanaro has been employed by the Bank since 1988. Mr.
Craig Montanaro is the son of Mr. Leopold Montanaro.

      The executive officers of the Company are elected annually and hold office
until their successors have been elected and qualified or until they are removed
or replaced.

                                       47

<PAGE>

Section 16(a) Beneficial Ownership Reporting Compliance

      Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than 10% of
any registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Executive officers, directors and greater than 10% shareholders are required by
regulation to furnish the Company with copies of all Section 16(a) reports they
file.

      Based solely on its review of the copies of the reports it has received
and written representations provided to the Company from the individuals
required to file the reports, the Company believes that during the past fiscal
year all filing requirements applicable to its officers, directors and greater
than ten percent (10%) beneficial owners were complied with, except that one
Form 4 reporting the grant of 1,000 stock awards for Dennis A. Petrello and one
Form 4 reporting the grant of 2,535 stock awards for Craig L. Montanaro were
filed late due to administrative error.

Item 10. Executive Compensation.

Directors' Compensation

      Directors of the Company do not receive any fees or retainer for serving
on the Company's Board of Directors. Non-employee directors of the Bank, other
than the Chairman of the Board, currently receive a quarterly retainer fee of
$3,000 and $700 for each regular board meeting. The Chairman of the Bank
receives a quarterly retainer fee of $3,750 and $825 for each regular board
meeting. Directors do not receive any fees for special board meetings or
committee meetings. In addition, all directors, including retired directors,
receive medical and dental benefits. At this time, only three retired directors
are receiving such benefits.


                                       48
<PAGE>


Summary Compensation Table

      The following information is furnished for Messrs. Leopold Montanaro,
Petrello, Filippo and Craig Montanaro. No other executive officer of the Company
and the Bank received salary and bonus in excess of $100,000 in 2002.

<TABLE>
<CAPTION>
                                                          Annual Compensation(1)               Long-Term Compensation Awards(2)
                                                ---------------------------------------------  --------------------------------
                                                                                  Restricted     Securities
                                                                                    Stock        Underlying       All Other
         Name and Principal                     Fiscal                              Awards       Options/SARs    Compensation
             Positions                           Year     Salary($)    Bonus($)     ($)(3)           (#)         ($)(4)(5)(6)
--------------------------------------------    ------    ---------    --------   ----------     ------------    ------------

<S>                                              <C>      <C>          <C>          <C>              <C>         <C>
Leopold W. Montanaro .......................     2002     $300,000     $125,000     $    --             --       $1,053,886
    Chairman of the Board, President .......     2001      300,000      125,000          --             --          363,426
    and Chief Executive Officer ............     2000      275,000      100,000          --             --          118,545


Dennis A. Petrello .........................     2002     $141,748     $     --     $19,090          1,000       $       --
    Former Senior Executive Vice ...........     2001      150,000       35,000      30,000          5,000           25,177
    President and Chief Financial Officer(7)     2000      140,000       42,000          --             --           17,880

Charles E. Filippo .........................     2002     $145,000     $ 25,000     $    --             --       $  121,037
    Executive Vice President ...............     2001      145,000       25,000          --             --           84,356
                                                 2000      140,000       30,000          --             --           49,925

Craig L. Montanaro .........................     2002     $130,000     $ 40,000     $48,393             --       $       --
    Senior Vice President, Corporate .......     2001      110,000       35,000      71,535          4,829           23,912
    Secretary and Treasurer ................     2000      100,000       25,000          --             --           13,157
</TABLE>

----------

(1)   Does not include the aggregate amount of perquisites and other personal
      benefits, which did not exceed the lesser of $50,000 or 10% of any
      individual's total salary and bonus for the year.
(2)   All restricted stock awards and securities underlying options granted
      prior to October 22, 2001 have been retroactively adjusted to reflect the
      5 for 4 stock split distributed in the form of a stock dividend on October
      22, 2001.
(3)   For 2001, includes 2,000 and 4,769 shares of restricted stock granted to
      Messrs. Petrello and Craig Montanaro, respectively, under the West Essex
      Bancorp, Inc. 1999 Stock-Based Incentive Plan, as amended and restated,
      (the "Incentive Plan") which began vesting in five equal annual
      installments on November 28, 2002. For 2002, includes 1,000 and 2,535
      shares of restricted stock granted to Messrs. Petrello and Craig
      Montanaro, respectively, under the Incentive Plan which will begin vesting
      in five equal annual installments on July 19, 2003. All shares held by Mr.
      Petrello became immediately exercisable upon his death. When shares become
      vested and are distributed from the trust in which they are held, the
      recipients will also receive an amount equal to the accumulated cash and
      stock dividends (if any) paid with respect thereto, plus earnings thereon.
      Based on the closing price of $34.89 on December 30, 2002, the market
      values of the unvested shares of restricted stock held by Messrs. Leopold
      Montanaro, Filippo and Craig Montanaro were $335,572, $161,087 and
      $383,162, respectively.
(4)   For 2002, includes employer contributions for 2002 and accelerated
      employer contributions for 2003 and 2004 (resulting from the termination
      of the supplemental income agreements in 2002) totaling $1,053,886 and
      $121,037 to Messrs. Leopold Montanaro and Filippo, respectively, pursuant
      to the Bank's supplemental income agreements.


                                       49
<PAGE>


(5)   As of December 31, 2002, employee stock ownership plan allocations for
      Messrs. Leopold Montanaro, Petrello, Filippo and Craig Montanaro had not
      yet been determined.
(6)   As of December 31, 2002, employer contributions credited under the Bank's
      supplemental executive retirement plan for Messrs. Leopold Montanaro and
      Filippo had not yet been determined.
(7)   Mr. Petrello served as Senior Executive Vice President and Chief Financial
      Officer until he died in September 2002.

                            Compensation Arrangements

      Employment Agreements. Effective February 1999, the Bank and the Company
entered into employment agreements with Mr. Leopold Montanaro. The employment
agreements provide for three-year terms and were renewable on an annual basis
following a review of Mr. Montanaro's performance by the Board of Directors. In
April 2002, the employment agreements were amended and restated to provide that
the agreements are extended on a daily basis until either the Company or Mr.
Montanaro elects not to extend the term. Under the employment agreements, the
base salary for Mr. Montanaro is $300,000, subject to increase, which amount is
paid by the Bank and reviewed by the Board of Directors on an annual basis. In
addition to the base salary, the employment agreements provide for, among other
things, participation in various employee benefit plans and stock-based
compensation programs, as well as furnishing fringe benefits available to
similarly-situated executive personnel.

      The employment agreements provide for termination by the Bank or the
Company for cause, as defined in the employment agreements, at any time. If the
Bank or the Company chooses to terminate the executive's employment for reasons
other than for cause, or if Mr. Montanaro resigns from the Bank or the Company
after specified circumstances that would constitute constructive termination,
Mr. Montanaro or, if Mr. Montanaro dies, his beneficiary, would be entitled to
receive an amount equal to the remaining base salary payments due to Mr.
Montanaro and the contributions that would have been made on his behalf to any
employee benefit plans of the Bank and the Company during the remaining term of
the employment agreement. The Bank and the Company would also continue and/or
pay for Mr. Montanaro's life, medical, dental and long-term disability coverage
for the remaining term of the employment agreement. The employment agreements
restrict Mr. Montanaro's right to compete against the Bank or the Company for a
period of one year from the date of termination of the agreement if his
employment is terminated without cause, except if termination follows a change
in control.

      Under the agreements, if voluntary or involuntary termination follows a
change in control of the Bank, Mr. Montanaro or, in the event of his death, Mr.
Montanaro's beneficiary would be entitled to a severance payment or liquidated
damages, or both, in a sum equal to three times the average of the five
preceding taxable years' "annual compensation" (as defined in the agreements).
The Bank or the Company would also continue the Mr. Montanaro's life, medical,
dental and long-term disability coverage for thirty-six months. Even though both
the Bank and Company employment agreements provide for a severance payment if a
change in control occurs, Mr. Montanaro would not receive duplicative payments
or benefits under the agreements.

     The maximum present value of the severance benefits under the employment
agreements is 2.99 times Mr. Montanaro's average annual compensation during the
five-year period preceding the effective date of the change in control (the
"base amount"). The agreements also provide for continued coverage under the
Bank's life, medical, dental and long-term disability programs for a 36-month
period following a change in control.


                                       50
<PAGE>


      Payments to Mr. Montanaro under the Bank's employment agreement will be
guaranteed by the Company if payments or benefits are not paid by the Bank.
Payment under the Company's employment agreement would be made by the Company.
All reasonable costs and legal fees paid or incurred by Mr. Montanaro under any
dispute or question of interpretation relating to the employment agreements
shall be paid by the Bank or Company, respectively, if Mr. Montanaro is
successful on the merits in a legal judgment, arbitration or settlement. The
employment agreements also provide that the Bank and Company shall indemnify Mr.
Montanaro to the fullest extent legally allowable.

      Change in Control Agreements. Effective February 2, 1999, the Company and
the Bank entered into three-year Change in Control Agreements (the "CIC
Agreements") with Messrs. Filippo and Craig Montanaro. Commencing on the first
anniversary date of a CIC Agreement and continuing on each anniversary
thereafter, the Board of Directors may renew the agreement for an additional
year following a review of each officer's performance for the year. Each CIC
Agreement provides that in the event voluntary or involuntary termination
follows a change in control of the Bank or the Company, as the case may be, the
officer covered by the agreement will receive a severance payment equal to three
times the officer's average annual compensation for the five preceding taxable
years. The Bank or the Company will also continue to pay for the officer's life,
health and disability coverage for 36 months following termination.

      Amended and Restated Supplemental Executive Retirement Plan. West Essex
Bank maintains the West Essex Bank Supplemental Executive Retirement Plan, as
amended and restated. In addition to making up for benefits lost under the
employee stock ownership plan due to Internal Revenue Service limitations, the
supplemental executive retirement plan also provides a supplemental employee
stock ownership plan benefit to participants in connection with a change in
control of West Essex Bank or West Essex Bancorp prior to the complete repayment
of the loan to the employee stock ownership plan.

      Supplemental Income Agreements. The Bank currently sponsors non-qualified
supplemental executive retirement plans for Messrs. Leopold Montanaro and
Filippo. The plans generally provide benefits to the two executives otherwise
lost under the Bank's pension plan as a result of limitations imposed by the
Internal Revenue Code on the amount of compensation the Bank can consider under
the pension plan in determining benefits. The non-qualified arrangements for
Messrs. Leopold Montanaro and Filippo are "funded" through the use of trusts.
These agreements were terminated in 2002.

Option Grants in Last Fiscal Year

      The following table lists the grant of options to Mr. Petrello for the
year ended December 31, 2002. None of the other named executive officers were
granted options in 2002.

                         Number of     % of Total
                         Securities     Options
                         Underlying    Granted to     Exercise or
                          Options     Employees in    Base Price     Expiration
Name                     Granted(1)    Fiscal Year     Per Share        Date
---------                ----------   ------------    -----------  -------------

Dennis A. Petrello....     1,000         100.00%        $19.09     July 19, 2012
--------------------------
(1)   Options would have become exercisable in five equal annual installments
      commencing on July 19, 2003, the first anniversary of the date of grant;
      however, the options became immediately exercisable following the death of
      Mr. Petrello in September 2002.


                                       51
<PAGE>


Aggregated Option Exercises in Last Fiscal Year and Option Value at Fiscal Year
End

      The following table provides certain information regarding the exercise of
options during the past fiscal year and certain information regarding
unexercised stock options held by Messrs. Leopold Montanaro, Filippo and Craig
Montanaro as of December 31, 2002. Mr. Petrello did not exercise any options
during 2002.

<TABLE>
<CAPTION>
                                                        Number of Securities
                                                       Underlying Unexercised          Value of Unexercised
                                                          Options at Fiscal            In-the-Money Options
                                                              Year-End                 at Fiscal Year-End(1)
                              Shares                 ---------------------------   ---------------------------
                             Acquired      Value
Name                        on Exercise   Realized   Exercisable   Unexercisable   Exercisable   Unexercisable
----                        -----------   --------   -----------   -------------   -----------   -------------

<S>                            <C>        <C>            <C>           <C>           <C>           <C>
Leopold W. Montanaro.....      11,606     $313,478       108           23,426        $ 2,947       $639,296
Charles E. Filippo.......      16,867      456,864        --           11,244             --        306,849
Craig L. Montanaro.......      16,867      456,864       966           15,107         19,600        385,229
</TABLE>

----------
(1)   Value of unexercised in-the-money stock options equals the market value of
      shares covered by in-the-money options on December 31, 2002 less the
      option exercise price. Options are in-the- money if the market value of
      shares covered by the options is greater than the exercise price.

Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.

      The following table provides information as of March 1, 2003 about those
persons known to the Company to be beneficial owners of more than 5% of the
Company's outstanding common stock. A person may be considered to beneficially
own any shares of common stock over which he or she has, directly or indirectly,
sole or shared voting or investment power.

                                                          Percent of
                                         Number of       Common Stock
Name and Address of Beneficial Owner    Shares Owned     Outstanding
------------------------------------    ------------     ------------

West Essex Bancorp, M.H.C.              2,937,651(1)         60.1%
417 Bloomfield Avenue
Caldwell, New Jersey  07006

----------
(1)   Shares of common stock were acquired by the Mutual Holding Company in the
      Bank's mutual holding company reorganization, completed on October 2,
      1998. The members of the Board of Directors of the Company and the Bank
      also constitute the Board of Directors of the Mutual Holding Company.


                                       52
<PAGE>


      The following table provides information as of March 1, 2003 about the
shares of Company common stock that may be considered to be beneficially owned
by each director of the Company, by the executive officers and by all directors
and executive officers of the Company as a group. A person may be considered to
beneficially own any shares of common stock over which he or she has, directly
or indirectly, sole or shared voting or investment power. Unless otherwise
indicated, each of the named individuals has sole voting and investment power
with respect to the shares shown.

<TABLE>
<CAPTION>
                                    Number of       Number of Shares
                                     Shares           That May Be
                                      Owned          Acquired Within       Percent of
                                   (excluding          60 Days By         Common Stock
        Name                       options)(1)     Exercising Options    Outstanding(2)
---------------------             -------------   --------------------   --------------

<S>                                 <C>                  <C>                  <C>
David F. Brandley .............      17,248(3)            9,370                 *
John J. Burke .................      92,248(4)            9,370               2.1%
Charles E. Filippo ............      48,210(5)            5,622               1.1%
William J. Foody ..............      19,592(6)            7,026                 *
S.M. Terry LaCorte ............       3,000                  --                 *
Everett N. Leonard ............      14,123               9,370                 *
Craig L. Montanaro ............      28,579               6,588                 *
Leopold W. Montanaro ..........     158,153(7)           11,821               3.5%

All Executive Officers and
  Directors as a Group (8
  persons) ....................     381,153              59,167               9.0%
</TABLE>

----------
*     Less than 1% of shares outstanding

(1)   Includes unvested restricted shares, and shares purchased by the trustee
      with cash dividends paid on the unvested restricted shares, awarded under
      the Incentive Plan, for Messrs. Brandley, Burke, Filippo, Foody, Leonard,
      Craig L. Montanaro and Leopold W. Montanaro, as to which the holder has
      voting power but not investment power, as follows: 1,924 shares, 1,924
      shares, 4,617 shares, 1,924 shares, 1,924 shares, 10,983 shares and 9,618
      shares, respectively. Includes 456 and 8,726 shares credited under the
      supplemental executive retirement plan for Messrs. Filippo and Leopold W.
      Montanaro as to which the holder has voting power but not investment
      power. Also includes shares allocated under the employee stock ownership
      plan for Messrs. Filippo, Craig L. Montanaro and Leopold W. Montanaro, as
      to which the holder has voting power but not investment power, as follows:
      6,508 shares, 4,886 shares and 6,508 shares, respectively.
(2)   Percentages with respect to each person or group of persons have been
      calculated on the basis of 4,890,733 shares of Company's common stock,
      which includes the number of shares of the Company's common stock
      outstanding and entitled to vote as of December 31, 2002, plus the number
      of shares of the Company's common stock which such person or group of
      persons has the right to acquire within 60 days after March 1, 2003, by
      the exercise of stock options.
(3)   Includes 5,000 shares owned by Mr. Brandley's spouse.
(4)   Includes 43,750 shares owned by Mr. Burke's spouse.
(5)   Includes 3,750 shares owned by Mr. Filippo's spouse.
(6)   Includes 6,250 shares owned by Mr. Foody's spouse.
(7)   Includes 43,750 shares owned by Mr. Leopold Montanaro's spouse.

                                       53
<PAGE>


Item 12. Certain Relationships and Related Transactions.

      Federal regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, unless the loan or
extension of credit is made under a benefit program generally available to all
other employees and does not give preference to any insider over any other
employee, and must not involve more than the normal risk of repayment or present
other unfavorable features. The Bank currently makes new loans and extensions of
credit to the Bank's executive officers, directors and employees at different
rates than those offered to the general public; however, the Bank does not give
preference to any director or officer over any other employee, and such loans do
not involve more than the normal risk of repayment or present other unfavorable
features. In addition, loans made to a director or executive officer in an
amount that, when aggregated with the amount of all other loans to the person
and his or her related interests, are in excess of the greater of $25,000 or 5%
of the Bank's capital and surplus, up to a maximum of $500,000, must be approved
in advance by a majority of the disinterested members of the board of directors.

Item 13. Exhibits and Reports on Form 8-K.

(a)

(1)   The following are filed as a part of this report:

            o     Independent Auditors Report

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

            o     Consolidated Statements of Income for the Years Ended December
                  31, 2002 and December 31, 2001

            o     Consolidated Statements of Comprehensive Income for the Years
                  Ended December 31, 2002 and 2001

            o     Consolidated Statements of Changes in Stockholders' Equity for
                  the Years Ended December 31, 2002 and December 31, 2001

            o     Consolidated Statements of Cash Flows for the Years Ended
                  December 31, 2002 and December 31, 2001

            o     Notes to Consolidated Financial Statements

(2)   All financial statement schedules are omitted because they are not
      required or applicable, or the required information is shown in the
      consolidated financial statements or the notes thereto.


                                       54
<PAGE>


(3)   The following exhibits are filed as part of this report.

2.0   Agreement and Plan of Merger, dated September 11, 2002, by and between
      West Essex Bancorp, Inc., West Essex Bank, West Essex Bancorp, M.H.C. and
      Kearny Financial Corp., Kearny Federal Savings Bank and Kearny MHC *

3.1   Federal MHC Subsidiary Holding Company Charter of West Essex Bancorp,
      Inc.**

3.2   Bylaws of West Essex Bancorp, Inc.**

4.0   Draft Stock Certificate of West Essex Bancorp, Inc.**

10.1  West Essex Bank Employee Stock Ownership Plan***

10.2  West Essex Bank Employee Stock Ownership Plan Trust***

10.3  ESOP Loan Commitment Letter***

10.4  West Essex Bank Employee Stock Ownership Trust Loan and Security
      Agreement***

10.5  Employment Agreement between West Essex Bank and Leopold W. Montanaro, as
      amended and restated ****

10.6  Employment Agreement between West Essex Bancorp, Inc. and Leopold W.
      Montanaro, as amended and restated ****

10.7  Three Year Change in Control Agreement between West Essex Bank and Charles
      E. Filippo***

10.8  Three Year Change in Control Agreement between West Essex Bank and Craig
      L. Montanaro***

10.9  Three Year Change in Control Agreement between West Essex Bancorp, Inc.
      and Charles E. Filippo***

10.10 Three Year Change in Control Agreement between West Essex Bancorp, Inc.
      and Craig L. Montanaro***

10.11 West Essex Bank Employee Severance Compensation Plan***

10.12 West Essex Bank Supplemental Executive Retirement Plan, as amended and
      restated

10.13 West Essex Bancorp, Inc. 1999 Stock Based Incentive Plan, as amended and
      restated*****

21.0  Subsidiaries

23.0  Consent of Radics & Co., LLC

(b)   Reports on Form 8-K

      None.

----------

* Incorporated herein by reference into this document from the Exhibit 2.1 to
the Form 8-K, filed on September 12, 2002.

** Incorporated herein by reference into this document from the Exhibits to Form
S-1, Registration Statement, filed on June 12, 1998, as amended, Registration
No. 333-56729.

***Incorporated herein by reference into this document from the Exhibits to the
Form 10-K, filed on March 31, 1999.

****Incorporated herein by reference into this document from the Exhibits to the
Form 10-QSB, filed on August 13, 2002.

***** Incorporated herein by reference into this document from the definitive
Proxy Statement dated March 27, 2000.


                                       55
<PAGE>


Item 14. Controls and Procedures

      (a) Evaluation of disclosure controls and procedures. The Company
maintains controls and procedures designed to ensure that information required
to be disclosed in the reports that the Company files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission. Based upon their evaluation of those controls and
procedures performed within 90 days of the filing date of this report, the chief
executive officer and the principal financial officer of the Company concluded
that the Company's disclosure controls and procedures were adequate.

      (b) Changes in internal controls. The Company made no significant changes
in its internal controls or in other factors that could significantly affect
these controls subsequent to the date of the evaluation of those controls by the
chief executive officer and principal financial officer.


                                       56
<PAGE>


                                   SIGNATURES

      In accordance with the requirements of Section 13 or 15(d) of the Exchange
Act, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                       WEST ESSEX BANCORP, INC.


                                       By: /s/ Leopold W. Montanaro
                                           -------------------------------------
                                           Leopold W. Montanaro
                                           Chairman of the Board,
                                           President and Chief Executive Officer

                                           Date: March 19, 2003

      In accordance with the Exchange Act, this report has been signed below by
the following persons and in the capacities and on the dates indicated.

Name                                     Title                         Date
----                                     -----                         ----

/s/ Leopold W. Montanaro        Chairman of the Board             March 19, 2003
---------------------------
Leopold W. Montanaro            President and Chief Executive
                                Officer
                                (principal executive officer)


/s/ Michael T. Sferrazza        Vice President and                March 19, 2003
---------------------------
Michael T. Sferrazza            Controller (principal
                                financial officer)


/s/ William J. Foody            Director                          March 19, 2003
---------------------------
William J. Foody



/s/ David F. Brandley           Director                          March 19, 2003
---------------------------
David F. Brandley



/s/ Everett N. Leonard          Director                          March 19, 2003
---------------------------
Everett N. Leonard



/s/ John J. Burke               Director                          March 19, 2003
---------------------------
John J. Burke



<PAGE>


                                 CERTIFICATIONS

I, Leopold W. Montanaro, President and Chief Executive Officer of West Essex
Bancorp, Inc., certify that:

      (1)   I have reviewed this annual report on Form 10-KSB of West Essex
            Bancorp, Inc.;

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

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

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

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

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

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

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

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

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


<PAGE>


      (6)   The registrant's other certifying officers and I have indicated in
            this annual report whether there were significant changes in
            internal controls or in other factors that could significantly
            affect internal controls subsequent to the date of our most recent
            evaluation, including any corrective actions with regard to
            significant deficiencies and material weaknesses.


Date: March 19, 2003                       /s/ Leopold W. Montanaro
                                           -------------------------------------
                                           Leopold W. Montanaro
                                           President and Chief Executive Officer
                                           (principal executive officer)


<PAGE>

                                 CERTIFICATIONS

I, Michael T. Sferrazza, Chief Financial Officer of West Essex Bancorp, Inc.,
certify that:

      (1)   I have reviewed this annual report on Form 10-KSB of West Essex
            Bancorp, Inc.;

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

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

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

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

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

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

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

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

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


<PAGE>


      (6)   The registrant's other certifying officers and I have indicated in
            this annual report whether there were significant changes in
            internal controls or in other factors that could significantly
            affect internal controls subsequent to the date of our most recent
            evaluation, including any corrective actions with regard to
            significant deficiencies and material weaknesses.

Date: March 19, 2003                /s/ Michael T. Sferrazza
                                    ------------------------------
                                    Michael T. Sferrazza
                                    Controller
                                    (principal financial and accounting officer)



<PAGE>


                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                   (WITH INDEPENDENT AUDITORS' REPORT THEREON)

                                December 31, 2002

<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS
                   (WITH INDEPENDENT AUDITORS' REPORT THEREON)
                                December 31, 2002
                  ---------------------------------------------

                                      INDEX

                                                                          Page
                                                                         -------

Management Responsibility Statement                                         1

Independent Auditors' Report                                                2

Consolidated Statements of Financial Condition                              3
 as of December 31, 2002 and 2001

Consolidated Statements of Income for
 the Years Ended December 31, 2002 and 2001                                 4

Consolidated Statements of Comprehensive Income for
 the Years Ended December 31, 2002 and 2001                                 5

Consolidated Statements of Changes in Stockholders' Equity for
 the Years Ended December 31, 2002 and 2001                                 6

Consolidated Statements of Cash Flows for
 the Years Ended December 31, 2002 and 2001                               7 - 8

Notes to Consolidated Financial Statements                                9 - 40

All schedules are omitted because the required information is either not
applicable or not required or the required information is included in the
consolidated financial statements or notes thereto.

<PAGE>

                         [West Essex Bancorp, Inc. Logo]

                                January 31, 2003


                      MANAGEMENT RESPONSIBILITY STATEMENT

     Management of West Essex Bank, F.S.B. and subsidiary is responsible for the
preparation of the consolidated financial statements and all other consolidated
financial information included in this report. The consolidated financial
statements were prepared in accordance with generally accepted accounting
principles applied on a consistent basis. All consolidated financial information
included in this report agrees with the consolidated financial statements. In
preparing the consolidated financial statements, management makes informed
estimates and judgements, with consideration given to materiality, about the
expected results of various events and transactions.

     Management maintains a system of internal accounting control that includes
personnel selection, appropriate division of responsibilities and formal
procedures and policies consistent with high standards of accounting and
administrative practice. Consideration has been given to the necessary balance
between costs of systems of internal control and the benefits derived.

     Management reviews and modifies its systems of accounting and internal
control in light of changes in conditions and operations as well as in response
to recommendations from the independent certified public accounts. Management
believes the accounting and internal control systems provide reasonable
assurance that assets are safeguarded and financial information is reliable.

     The Board of Directors (the "Board") is responsible for determining that
management fulfills its responsibilities in the preparation of the consolidated
financial statements and in the control of operations. The Board appoints the
independent certified public accountants. The Board meets with management, the
independent certified public accountants and the internal auditor, approves the
overall scope of audit work and related fee arrangements and reviews audit
reports and findings.


/s/ Michael T. Sferrazza                                /s/ Leopold W. Montanaro
------------------------                                ------------------------
Michael T. Sferrazza                                    Leopold W. Montanaro
Vice President &CFO                                     President & CEO

                               /s/ Charles E. Filipo
                               -----------------------
                               Charles E. Filipo
                               Executive Vice President

417 Bloomfield Avenue, Caldwell, New Jersey 07006
(973) 226-7911 o (973) 226-6764

                                                                              1.

<PAGE>


                          INDEPENDENT AUDITORS' REPORT

To The Board of Directors and Stockholders
West Essex Bancorp, Inc.

We have audited the accompanying consolidated statements of financial condition
of West Essex Bancorp, Inc. (the "Company") and Subsidiaries as of December 31,
2002 and 2001, and the related consolidated statements of income, comprehensive
income, changes in stockholders' equity and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to in the second
preceding paragraph present fairly, in all material respects, the consolidated
financial position of West Essex Bancorp, Inc. and Subsidiaries as of December
31, 2002 and 2001, and the results of their operations and cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States of America.

January 31, 2003


                                                                              2.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                                                                   December 31,
                                                                                         ---------------------------------
Assets                                                                  Note(s)              2002                 2001
------                                                              --------------       -------------       -------------
<S>                                                                 <C>                  <C>                 <C>
Cash and amounts due from depository institutions                                        $   2,288,983       $   2,008,885
Federal funds sold                                                                          21,000,000          10,500,000
Interest-bearing deposits in other banks                                                     3,517,536           4,781,061
                                                                                         -------------       -------------

       Total cash and cash equivalents                                 1 and 17             26,806,519          17,289,946

Term deposits                                                                                       --             200,000
Investment securities held to maturity                              1, 4, 11 and 17         28,168,892          33,169,187
Mortgage-backed securities held to maturity                         1, 5, 11 and 17        182,028,706         137,327,932
Loans receivable                                                      1, 6 and 17          138,459,442         165,935,968
Real estate owned                                                       1 and 7                209,000             209,000
Premises and equipment                                                  1 and 8              2,387,148           2,502,584
Federal Home Loan Bank of New York stock                                  11                 4,227,600           3,842,800
Accrued interest receivable                                           1, 9 and 17            1,667,866           1,879,537
Excess of cost over assets acquired                                        1                 2,865,045           3,457,813
Other assets                                                              14                 5,804,044           4,949,385
                                                                                         -------------       -------------

       Total assets                                                                      $ 392,624,262       $ 370,764,152
                                                                                         =============       =============

Liabilities and Stockholders' Equity

Liabilities

Deposits                                                               10 and 17         $ 255,092,594       $ 240,864,308
Borrowed money                                                         11 and 17            84,281,526          76,855,928
Advance payments by borrowers for taxes and insurance                                          652,023             927,375
Other liabilities                                                         13                 1,143,503           1,201,590
                                                                                         -------------       -------------

       Total liabilities                                                                   341,169,646         319,849,201
                                                                                         -------------       -------------

Commitments and contingencies                                          16 and 17                    --                  --

Stockholders' Equity                                             1, 2, 12, 13 and 14

Preferred stock (par value $.01), 1,000,000 shares
  authorized; no shares issued or outstanding                                                       --                  --
Common stock (par value $.01), 9,000,000 shares
  authorized; shares issued 5,246,461; shares outstanding
  4,890,733 (2002) and 4,921,615 (2001)                                                         52,465              52,465
Additional paid-in capital                                                                  18,247,695          17,379,880
Retained earnings - substantially restricted                                                38,436,469          37,914,015
Common stock acquired by Employee Stock Ownership
  Plan ("ESOP")                                                                               (736,799)           (884,158)
Unearned Incentive Plan stock                                                                 (262,706)           (405,730)
Treasury stock, at cost; 355,728 shares (2002) and
 324,846 shares (2001)                                                                      (4,282,508)         (3,141,521)
                                                                                         -------------       -------------

       Total stockholders' equity                                                           51,454,616          50,914,951
                                                                                         -------------       -------------

       Total liabilities and stockholders' equity                                        $ 392,624,262       $ 370,764,152
                                                                                         =============       =============
</TABLE>

See notes to consolidated financial statements.


                                                                              3.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                                    ----------------------------
                                                                      Note(s)           2002             2001
                                                                     ---------      -----------      -----------
<S>                                                                   <C>           <C>              <C>
Interest income:
     Loans                                                            1 and 6       $10,889,746      $12,464,835
     Mortgage-backed securities                                          1            8,985,961        8,141,400
     Investment securities                                               1            1,839,782        2,133,395
     Securities available for sale                                       1                   --           87,310
     Other interest-earning assets                                                      371,538          638,343
                                                                                    -----------      -----------

             Total interest income                                                   22,087,027       23,465,283
                                                                                    -----------      -----------

Interest expense:
     Deposits                                                           10            6,629,021        9,048,495
     Borrowed money                                                                   4,079,039        3,734,251
                                                                                    -----------      -----------

             Total interest expense                                                  10,708,060       12,782,746
                                                                                    -----------      -----------

Net interest income                                                                  11,378,967       10,682,537
Provision for loan losses                                                6                   --               --
                                                                                    -----------      -----------

Net interest income after provision for  loan losses                                 11,378,967       10,682,537
                                                                                    -----------      -----------

Non-interest income:
     Fees and service charges                                                           372,800          350,483
     Gain on sale of securities                                          1                   --           45,000
     Other                                                                              308,058          292,184
                                                                                    -----------      -----------

             Total non-interest income                                                  680,858          687,667
                                                                                    -----------      -----------

Non-interest expenses:
     Salaries and employee benefits                                  1 and 13         5,082,356        3,625,861
     Net occupancy expense of premises                               1 and 16           396,484          363,463
     Equipment                                                           1              665,302          664,085
     Loss on real estate owned                                        1 and 7             5,410            6,165
     Amortization of intangibles                                         1              592,768          592,768
     Merger related expenses                                                            580,759               --
     Other                                                                            1,716,273        1,423,346
                                                                                    -----------      -----------

             Total non-interest expenses                                              9,039,352        6,675,688
                                                                                    -----------      -----------

Income before income taxes                                                            3,020,473        4,694,516
Income taxes                                                         1 and 14         1,515,049        1,621,123
                                                                                    -----------      -----------

Net income                                                                          $ 1,505,424      $ 3,073,393
                                                                                    ===========      ===========

Net income per common share:                                         1 and 15
     Basic                                                                          $      0.32      $      0.64
                                                                                    ===========      ===========
     Diluted                                                                        $      0.31      $      0.63
                                                                                    ===========      ===========

Weighted average number of common shares outstanding:                1 and 15
     Basic                                                                            4,726,642        4,768,681
                                                                                    ===========      ===========
     Diluted                                                                          4,860,733        4,859,567
                                                                                    ===========      ===========
</TABLE>

See notes to consolidated financial statements.


                                                                              4.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                                       ---------------------------
                                                          2002              2001
                                                       ----------      -----------
<S>                                                    <C>             <C>
Net income                                             $1,505,424      $ 3,073,393
                                                       ----------      -----------

Other comprehensive income, net of income taxes:
     Unrealized holding gains on securities
          available for sale, net of income taxes
          of $18,040 in 2001                                   --           32,099

     Reclassification adjustment
          for realized (gains) on securities
          available for sale, net of income taxes
          of $16,191 in 2001                                   --          (28,809)
                                                       ----------      -----------

Other comprehensive income                                     --            3,290
                                                       ----------      -----------

Comprehensive income                                   $1,505,424      $ 3,076,683
                                                       ==========      ===========
</TABLE>

See notes to consolidated financial statements.


                                                                              5.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                    Retained
                                                                 Additional        Earnings -      Common Stock
                                                     Common       Paid-In        Substantially      Acquired by
                                                     Stock        Capital          Restricted           ESOP
                                                    -------     ------------     -------------     ------------
<S>                                                 <C>         <C>               <C>               <C>
Balance - December 31, 2000                         $41,972     $ 17,332,221      $ 35,733,815      $(1,031,516)

Net income for the year ended December 31, 2001          --               --         3,073,393               --

Purchase of 88,500 shares of treasury stock              --               --                --               --

Reissuance of 40,007 shares of treasury stock            --          (23,786)               --               --

Incentive Plan stock earned                              --               --                --               --

ESOP shares committed to be released                     --           81,938                --          147,358

Stock dividend                                       10,493          (10,493)               --               --

Cash dividends declared on common stock                  --               --          (893,193)              --

Unrealized gain on securities available for sale,
  net of income taxes                                    --               --                --               --
                                                    -------     ------------      ------------      -----------

Balance - December 31, 2001                          52,465       17,379,880        37,914,015         (884,158)

Net income for the year ended December 31, 2002          --               --         1,505,424               --

Purchase of 79,750 shares of treasury stock              --               --                --               --

Reissuance of 48,868 shares of treasury stock            --           (6,344)               --               --

Incentive Plan stock earned                              --               --                --               --

ESOP shares committed to be released                     --          305,342                --          147,359

Cash dividends declared on common stock                  --               --          (982,970)              --

Tax benefits of stock options exercised                  --          568,817                --               --
                                                    -------     ------------      ------------      -----------

Balance - December 31, 2002                         $52,465     $ 18,247,695      $ 38,436,469      $  (736,799)
                                                    =======     ============      ============      ===========

<CAPTION>
                                                                                   Accumulated
                                                                                      Other
                                                      Unearned                    Comprehensive        Total
                                                     Incentive      Treasury          (Loss)       Stockholders'
                                                     Plan Stock       Stock           Income          Equity
                                                     ----------    -----------    -------------    ------------
<S>                                                   <C>          <C>               <C>           <C>
Balance - December 31, 2000                           $(530,666)   $(2,094,524)      $(3,290)      $ 49,448,012

Net income for the year ended December 31, 2001              --             --            --          3,073,393

Purchase of 88,500 shares of treasury stock                  --     (1,379,425)           --         (1,379,425)

Reissuance of 40,007 shares of treasury stock                --        332,428            --            308,642

Incentive Plan stock earned                             124,936             --            --            124,936

ESOP shares committed to be released                         --             --            --            229,296

Stock dividend                                               --             --            --                 --

Cash dividends declared on common stock                      --             --            --           (893,193)

Unrealized gain on securities available for sale,
  net of income taxes                                        --             --         3,290              3,290
                                                      ---------    -----------       -------       ------------

Balance - December 31, 2001                            (405,730)    (3,141,521)           --         50,914,951

Net income for the year ended December 31, 2002              --             --            --          1,505,424

Purchase of 79,750 shares of treasury stock                  --     (1,535,275)           --         (1,535,275)

Reissuance of 48,868 shares of treasury stock                --        394,288            --            387,944

Incentive Plan stock earned                             143,024             --            --            143,024

ESOP shares committed to be released                         --             --            --            452,701

Cash dividends declared on common stock                      --             --            --           (982,970)

Tax benefits of stock options exercised                      --             --            --            568,817
                                                      ---------    -----------       -------       ------------

Balance - December 31, 2002                           $(262,706)   $(4,282,508)      $    --       $ 51,454,616
                                                      =========    ===========       =======       ============
</TABLE>


See notes to consolidated financial statements.


                                                                              6.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                           Year Ended December 31,
                                                                                       -------------------------------
                                                                                           2002               2001
                                                                                       ------------       ------------
<S>                                                                                    <C>                <C>
Cash flows from operating activities:
     Net income                                                                        $  1,505,424       $  3,073,393
     Adjustments to reconcile net income
      to net cash provided by operating activities:
        Depreciation and amortization of premises and equipment                             241,278            250,906
        Net accretion of premiums, discounts and deferred loan fees                         (75,795)          (229,399)
        Amortization of intangibles                                                         592,768            592,768
        (Gain) on sale of securities available for sale                                          --            (45,000)
        (Gain) on trade-in of automobile                                                         --             (2,360)
        (Gain) on sale of real estate owned                                                      --            (22,083)
        Deferred income tax (benefit) expense                                              (275,438)            94,532
        Decrease in accrued interest receivable                                             211,671            362,180
        Decrease (increase) in other assets                                                  32,955           (318,873)
        (Decrease) increase in interest payable                                            (161,196)           185,830
        (Decrease) increase in other liabilities                                           (114,984)           125,439
        Amortization of Incentive Plan cost                                                 143,024            124,936
        ESOP shares committed to be released                                                452,701            229,296
                                                                                       ------------       ------------

            Net cash provided by operating activities                                     2,552,408          4,421,565
                                                                                       ------------       ------------

Cash flows from investing activities:
     Purchase of term deposits                                                                   --           (300,000)
     Proceeds from maturity of term deposits                                                200,000            100,000
     Proceeds from sales of securities available for sale                                        --          2,045,000
     Proceeds from call of security available for sale                                           --          1,000,000
     Proceeds from maturities and calls of investment securities held to maturity        21,000,000         22,848,188
     Purchases of investment securities held to maturity                                (15,671,716)       (14,000,000)
     Principal repayments on mortgage-backed securities held to maturity                 54,907,919         40,382,836
     Purchases of mortgage-backed securities held to maturity                           (99,641,757)       (59,814,828)
     Purchases of loans                                                                      (4,541)        (2,915,934)
     Net decrease in loans receivable                                                    27,261,937            986,293
     Proceeds from sales of real estate owned                                                    --            414,678
     Additions to premises and equipment                                                   (125,842)          (156,094)
     Purchase of Federal Home Loan Bank of New York stock                                  (384,800)          (284,400)
     Purchase of life insurance policy                                                           --         (1,700,000)
                                                                                       ------------       ------------

            Net cash (used in) investing activities                                     (12,458,800)       (11,394,261)
                                                                                       ------------       ------------

Cash flows from financing activities:
     Net increase in deposits                                                            14,432,710          2,818,033
     Net increase in short-term borrowed money                                           10,000,000          7,050,000
     Proceeds of long-term borrowed money                                                        --         10,000,000
     Repayment of long-term borrowed money                                               (2,574,402)        (2,484,485)
     Net (decrease) in advance payments by borrowers for
      taxes and insurance                                                                  (275,352)          (105,578)
     Purchases of treasury stock                                                         (1,535,275)        (1,379,425)
     Proceeds from sales of treasury stock                                                  344,585            294,380
     Cash dividends paid on common stock                                                   (969,301)          (808,200)
                                                                                       ------------       ------------

            Net cash provided by financing activities                                    19,422,965         15,384,725
                                                                                       ------------       ------------

Net increase in cash and cash equivalents                                                 9,516,573          8,412,029
Cash and cash equivalents - beginning                                                    17,289,946          8,877,917
                                                                                       ------------       ------------

Cash and cash equivalents - ending                                                     $ 26,806,519       $ 17,289,946
                                                                                       ============       ============
</TABLE>

See notes to consolidated financial statements.


                                                                              7.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                                   ----------------------------
                                                                       2002            2001
                                                                   -----------      -----------
<S>                                                                <C>              <C>
Supplemental disclosure of cash flow information:
  Cash paid during the year for:
     Income taxes                                                  $ 1,505,720      $ 1,654,563
                                                                   ===========      ===========

     Interest                                                      $10,869,256      $12,596,916
                                                                   ===========      ===========

Supplemental schedule of noncash investing activities:
     Issuance of treasury stock to fund Supplemental Employee
       Retirement Plan                                             $    43,359      $    14,262
                                                                   ===========      ===========

     Cash dividend declared, not paid                              $   247,572      $   233,903
                                                                   ===========      ===========

Deferred income tax benefit recorded directly in
  additional paid-in capital                                       $   568,817      $        --
                                                                   ===========      ===========
</TABLE>

See notes to consolidated financial statements.


                                                                              8.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Basis of consolidated financial statement presentation

      The consolidated financial statements include the accounts of West Essex
      Bancorp, Inc. ("Company"), the Company's wholly owned subsidiary, West
      Essex Bank ("Bank") and the Bank's wholly owned subsidiary, West Essex
      Insurance Agency, Inc. ("Subsidiary"), and have been prepared in
      conformity with accounting principles generally accepted in the United
      States of America ("GAAP"). All significant intercompany accounts and
      transactions have been eliminated in consolidation.

      In preparing the consolidated financial statements, management is required
      to make estimates and assumptions that affect the reported amounts of
      assets and liabilities as of the dates of the consolidated statements of
      financial condition and revenues and expenses for the periods then ended.
      Actual results could differ significantly from those estimates. Material
      estimates that are particularly susceptible to significant changes relate
      to the determination of the allowance for loan losses and the carrying
      value of excess of cost over assets acquired. Management believes that the
      allowance for loan losses is adequate and that excess of cost over assets
      acquired is appropriately valued. While management uses available
      information to recognize losses on loans and to assess the carrying value
      of excess of cost over assets acquired, future additions to the allowance
      for loan losses or further writedowns of excess of cost over assets
      acquired may be necessary based on changes in economic and market
      conditions in the Bank's market area.

      In addition, various regulatory agencies, as an integral part of their
      examination process, periodically review the Bank's allowance for loan
      losses. Such agencies may require the Bank to recognize additions to the
      allowance based on their judgments about information available to them at
      the time of their examination.

      Cash and cash equivalents

      Cash and cash equivalents include cash and amounts due from depository
      institutions, federal funds sold and interest-bearing deposits in other
      banks with original maturities of three months or less.

      Investments and mortgage-backed securities

      Debt securities over which there exists positive intent and ability to
      hold to maturity are classified as held-to-maturity securities and
      reported at amortized cost. Debt and equity securities that are bought and
      held principally for the purpose of selling them in the near term are
      classified as trading securities and reported at fair value, with
      unrealized holding gains and losses included in earnings. Debt and equity
      securities not classified as trading securities nor as held-to-maturity
      securities are classified as available for sale securities and reported at
      fair value, with unrealized holding gains or losses, net of deferred
      income taxes, reported in a separate component of stockholders' equity.

      Premiums and discounts on all securities are amortized/accreted using the
      interest method. Interest and dividend income on securities, which
      includes amortization of premiums and accretion of discounts, is
      recognized in the consolidated financial statements when earned. The
      adjusted cost basis of an identified security sold or called is used for
      determining security gains and losses recognized in the consolidated
      statements of income.


                                                                              9.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)

      Loans receivable

      Loans receivable are stated at unpaid principal balances less the
      allowance for loan losses and net deferred loan (costs) fees. Interest is
      calculated by the use of the actuarial method.

      The Bank defers loan origination fees and certain direct loan origination
      costs and amortizes such amounts, using a method which approximates the
      level-yield method, as an adjustment of yield over the contractual lives
      of the related loans.

      Uncollectible interest on loans that are contractually delinquent ninety
      days or more is charged off and the related loans placed on nonaccrual
      status, or, alternatively, an allowance for uncollectible interest is
      established by a charge to interest income equal to all interest
      previously accrued. Under either method, income is subsequently recognized
      only to the extent that cash payments are received until, in management's
      judgment, the borrower's ability to make periodic interest and principal
      payments is probable, in which case the loan is returned to an accrual
      status.

      Allowance for loan losses

      An allowance for loan losses is maintained at a level considered adequate
      to absorb loan losses. Management of the Bank, in determining the
      allowance for loan losses, considers the risks inherent in its loan
      portfolio and changes in the nature and volume of its loan activities,
      along with the general economic and real estate market conditions.

      The Bank utilizes a two tier approach: (1) identification of impaired
      loans and the establishment of specific loss allowances on such loans; and
      (2) establishment of general valuation allowances on the remainder of its
      loan portfolio. The Bank maintains a loan review system which allows for a
      periodic review of its loan portfolio and the early identification of
      potential impaired loans. Such system takes into consideration, among
      other things, delinquency status, size of loans, type and estimated fair
      value of collateral and financial condition of the borrowers. Specific
      loan loss allowances are established for identified loans based on a
      review of such information. General loan loss allowances are based upon a
      combination of factors including, but not limited to, actual loan loss
      experience, composition of the loan portfolio, current economic conditions
      and management's judgment. Although management believes that adequate loan
      loss allowances are established, actual losses are dependent upon future
      events and, as such, further additions to the level of the allowance for
      loan losses may be necessary.


                                                                             10.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

      Allowance for loan losses (Cont'd)

      A loan evaluated for impairment is deemed to be impaired when based on
      current information and events, it is probable that the Bank will be
      unable to collect all amounts due according to the contractual terms of
      the loan agreement. The amount of loan impairment is measured based on the
      present value of expected future cash flows discounted at the loan's
      effective interest rate or, as a practical expedient, at the loan's
      observable market price or the fair value of the collateral if the loan is
      collateral dependent. All loans identified as impaired are evaluated
      independently. The Bank does not aggregate such loans for evaluation
      purposes. Payments received on impaired loans are applied first to
      interest receivable and then to principal.

      Real estate owned

      Real estate owned consists of real estate acquired by foreclosure or deed
      in lieu of foreclosure. Real estate owned is recorded at the lower of cost
      or fair value at date of acquisition and thereafter carried at the lower
      of such initially recorded amount or fair value less estimated selling
      costs. Costs incurred in developing or preparing properties for sale are
      capitalized. Income and expense related to the holding and operating of
      properties are recorded in operations. Gains and losses from sales of such
      properties are recognized as incurred.

      Concentration of risk

      The Bank's real estate and lending activity is concentrated in real estate
      and loans secured by real estate located in the State of New Jersey.

      Premises and equipment

      Premises and equipment are comprised of land, at cost, and buildings and
      improvements, leasehold improvements and furnishings and equipment, at
      cost less accumulated depreciation and amortization. Depreciation and
      amortization charges are computed on the straight-line method over the
      following estimated useful lives.

             Buildings and improvements        10 to 50 years
             Leasehold improvements            Shorter of useful life
                                                or term of lease
             Furnishing and equipment          3 to 10 years

      Significant renewals and betterments are charged to the property and
      equipment account. Maintenance and repairs are charged to expense in the
      year incurred. Rental income is netted against occupancy costs in the
      consolidated statements of income.


                                                                             11.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

      Excess of cost over assets acquired

      The cost in excess of the fair value of net assets acquired was recorded
      in conjunction with the acquisition of certain assets and assumption of
      certain liabilities of three branch offices of another financial
      institution. This asset is being amortized to expense over a ten-year
      period by use of the straight-line method.

      Interest-rate risk

      The Bank is principally engaged in the business of attracting deposits
      from the general public and using these deposits, together with borrowings
      and other funds, to purchase securities and to make loans secured by real
      estate. The potential for interest-rate risk exists as a result of the
      generally shorter duration of the Bank's interest-sensitive liabilities
      compared to the generally longer duration of its interest-sensitive
      assets. In a rising interest rate environment, liabilities will reprice
      faster than assets, thereby reducing net interest income. For this reason,
      management regularly monitors the maturity structure of the Bank's
      interest-earning assets and interest-bearing liabilities in order to
      measure its level of interest-rate risk and to plan for future volatility.

      Accounting for stock-based compensation

      Statement of Financial Accounting Standards ("Statement") No. 123
      "Accounting for Stock-Based Compensation", issued by the Financial
      Accounting Standards Board ("FASB"), establishes financial accounting and
      reporting standards for stock-based employee compensation plans. While all
      entities are encouraged to adopt the "fair value based method" of
      accounting for employee stock compensation plans, Statement No. 123 also
      allows an entity to continue to measure compensation cost under such plans
      using the "intrinsic value based method" specified in Accounting
      Principles Board Opinion No. 25. The Company has elected to apply the
      intrinsic value based method. Included in Note 13 to consolidated
      financial statements are the pro forma disclosures required by Statement
      No. 123.

      Income taxes

      The Company, Bank and Subsidiary file a consolidated federal income tax
      return. Income taxes are allocated based on the contribution of income to
      the consolidated income tax return. Separate state income tax returns are
      filed.

      Federal and state income taxes have been provided on the basis of reported
      income. The amounts reflected on the income tax returns differ from these
      provisions due principally to temporary differences in the reporting of
      certain items for financial reporting and tax reporting purposes. The
      income tax effect of these temporary differences is accounted for as
      deferred income taxes applicable to future periods.


                                                                             12.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

      Net income per common share

      Basic net income per common share is computed by dividing net income for
      the year by the weighted average number of shares of common stock
      outstanding, adjusted for unearned shares of the ESOP. Diluted net income
      per common share is computed by adjusting the weighted average number of
      shares of common stock outstanding to include the effect of outstanding
      stock options and compensation grants, if dilutive, using the treasury
      stock method.

      Reclassification

      Certain amounts as of and for the year ended December 31, 2001, have been
      reclassified to conform with the current year's presentation.

2. ORGANIZATION AND STOCKHOLDERS' EQUITY

The Company is a business corporation formed at the direction of the Bank under
the laws of the United States and is the stock holding company for the Bank. The
Company's principal business is the operation of the Bank. West Essex Bancorp,
M.H.C. ("MHC"), a mutual holding company formed at the direction of the Bank, is
the majority owner of the Company, owning 60.1% and 59.7% of the Company's
outstanding common stock at December 31, 2002 and 2001, respectively.

During the years ended December 31, 2002 and 2001, the MHC waived its right to
receive cash dividends on the shares of Company common stock it owns. If the MHC
had not waived its rights to receive dividends, the amount of such dividends
would have been $1,645,000 and $1,440,000, respectively. The cumulative amount
of such waived dividends at December 31, 2002 and 2001, was $4,730,000 and
$3,085,000, respectively.

In addition to the 9,000,000 authorized shares of Common Stock, the Company
authorized 1,000,000 shares of preferred stock with a par value of $0.01 per
share (the "Preferred Stock"). The Board of Directors is authorized, subject to
any limitations by law, to provide for the issuance of the shares of Preferred
Stock in series, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences,
and rights of the shares of each such series and any qualifications, limitations
or restriction thereof. As of December 31, 2002 and 2001, there were no shares
of Preferred Stock issued.

3. MERGER AGREEMENT

On September 11, 2002, the Company, the Bank and West Essex Bancorp, M.H.C., the
mutual holding company which owns the majority of the outstanding capital stock
of the Company, entered into a merger agreement with Kearny Financial Corp.
(Kearny Financial), the parent corporation of Kearny Federal Savings Bank, and
Kearny MHC, the parent company of Kearny Financial. At the date of the merger,
the Company's common stock held by public stockholders other than West Essex
Bancorp, M.H.C. will be purchased for $35.10 per share, in cash. The transaction
is subject to several conditions including the receipt of shareholders and
regulatory approvals.


                                                                             13.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. MERGER AGREEMENT (Cont'd.)

In the event the Company enters into a merger, acquisition, consolidated or
other form of business combination agreement with another entity, the Company
will be required to pay Kearny Financial the amount of $4.0 million in cash upon
written demand by Kearny Financial. Merger related charges, which include but
are not limited to professional fees for investment banking, legal and
accounting, are expected to be approximately $1.3 million.

Prior to or upon the effective date of the merger, the Company's ESOP, Inventive
Stock Plan, and Stock Option Plan will be terminated on such terms as contained
in the merger agreement. Upon termination, all participant accounts will be
considered fully vested and nonforfeitable and all remaining plan assets will be
allocated to the participants.

Certain executive officers of the Bank have employment agreements or change of
control agreements that will become effective on the date of the merger.
Payments required under these agreements will be liabilities of Kearny
Financial.

4. INVESTMENT SECURITIES HELD TO MATURITY

<TABLE>
<CAPTION>
                                                                          December 31, 2002
                                                    -------------------------------------------------------------
                                                                          Gross Unrealized
                                                     Carrying        ---------------------------       Estimated
                                                       Value            Gains           Losses        Fair Value
                                                    -----------      ----------      -----------      -----------
<S>                                                 <C>              <C>             <C>              <C>
U.S. Government (including agencies):
       Due within five years                        $ 8,000,000      $   35,000      $        --      $ 8,035,000
       After five years through ten years             2,492,787         185,963               --        2,678,750
       After ten years                                4,437,427          13,532            2,157        4,448,802
                                                    -----------      ----------      -----------      -----------

                                                     14,930,214         234,495            2,157       15,162,552
                                                    -----------      ----------      -----------      -----------

Obligations of states and municipalities:
       Due after five years through ten years           866,327          16,317               --          882,644
       After ten years                                2,392,069          52,343               --        2,444,412
                                                    -----------      ----------      -----------      -----------

                                                      3,258,396          68,660               --        3,327,056
                                                    -----------      ----------      -----------      -----------

Trust preferred securities due after ten years        9,980,282         105,299        1,233,677        8,851,904
                                                    -----------      ----------      -----------      -----------

                                                    $28,168,892      $  408,454      $ 1,235,834      $27,341,512
                                                    ===========      ==========      ===========      ===========
</TABLE>


                                                                             14.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. INVESTMENT SECURITIES HELD TO MATURITY (Cont'd.)

<TABLE>
<CAPTION>
                                                                                 December 31, 2001
                                                          -------------------------------------------------------------
                                                                                 Gross Unrealized
                                                            Carrying       ---------------------------       Estimated
                                                             Value            Gains           Losses        Fair Value
                                                          -----------      ----------      -----------      -----------
<S>                                                       <C>              <C>             <C>              <C>
U.S. Government (including agencies):
      Due after five years through ten years              $ 4,000,000      $       --      $   109,375      $ 3,890,625
      After ten years                                      18,599,690         145,604          294,026       18,451,268
                                                          -----------      ----------      -----------      -----------

                                                           22,599,690         145,604          403,401       22,341,893
                                                          -----------      ----------      -----------      -----------

Obligations of states and municipalities:
      After five years through ten years                      100,000              --              506           99,494
      After ten years                                         484,446              --            8,316          476,130
                                                          -----------      ----------      -----------      -----------

                                                              584,446              --            8,822          575,624
                                                          -----------      ----------      -----------      -----------

Trust preferred securities due after ten years              9,985,051              --        1,528,003        8,457,048
                                                          -----------      ----------      -----------      -----------

                                                          $33,169,187      $  145,604      $ 1,940,226      $31,374,565
                                                          ===========      ==========      ===========      ===========
</TABLE>

There were no sales of investment securities held to maturity during the years
ended December 31, 2002 and 2001.

At December 31, 2002 and 2001, investment securities held to maturity with an
aggregate carrying value of $292,000 and $291,000, respectively, were pledged to
secure public deposits.

5. MORTGAGE-BACKED SECURITIES HELD TO MATURITY

<TABLE>
<CAPTION>
                                                                      December 31, 2002
                                              ----------------------------------------------------------------
                                                                      Gross Unrealized
                                               Carrying         ----------------------------       Estimated
                                                 Value            Gains            Losses          Fair Value
                                              ------------      ----------      ------------      ------------
<S>                                           <C>               <C>             <C>               <C>
Government National Mortgage Association      $ 72,661,623      $1,587,553      $         --      $ 74,249,176
Federal Home Loan Mortgage Corporation          44,332,325       1,510,783             2,375        45,840,733
Federal National Mortgage Association           55,594,531       1,577,447            16,968        57,155,010
Collateralized mortgage obligations              7,979,883         199,878                --         8,179,761
Other                                            1,460,344              --             5,002         1,455,342
                                              ------------      ----------      ------------      ------------

                                              $182,028,706      $4,875,661      $     24,345      $186,880,022
                                              ============      ==========      ============      ============
</TABLE>


                                                                             15.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. MORTGAGE-BACKED SECURITIES HELD TO MATURITY (Cont'd.)

<TABLE>
<CAPTION>
                                                                     December 31, 2001
                                              ----------------------------------------------------------------
                                                                       Gross Unrealized
                                                Carrying        ----------------------------       Estimated
                                                 Value             Gains           Losses          Fair Value
                                              ------------      ----------      ------------      ------------
<S>                                           <C>               <C>             <C>               <C>
Government National Mortgage Association      $ 56,909,281      $  846,131      $     66,564      $ 57,688,848
Federal Home Loan Mortgage Corporation          27,872,512         755,989                --        28,628,501
Federal National Mortgage Association           24,226,546         294,116           244,610        24,276,052
Collateralized mortgage obligations             26,714,653         508,818            73,995        27,149,476
Other                                            1,604,940              --            12,383         1,592,557
                                              ------------      ----------      ------------      ------------

                                              $137,327,932      $2,405,054      $    397,552      $139,335,434
                                              ============      ==========      ============      ============
</TABLE>

There were no sales of mortgage-backed securities held to maturity during the
years ended December 31, 2002 and 2001.

At December 31, 2002 and 2001, mortgage-backed securities held to maturity
having an aggregate carrying value of $404,000 and $686,000, respectively, were
pledged to secure public deposits.


                                                                             16.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. LOANS RECEIVABLE

                                                         December 31,
                                              ---------------------------------
                                                  2002                 2001
                                              -------------       -------------

Real estate mortgage                          $ 117,825,640       $ 142,994,796
                                              -------------       -------------

Agency for International Development                 24,497              30,160
                                              -------------       -------------

Construction and land development                 3,289,231           9,524,452
                                              -------------       -------------

Consumer:
      Passbook or certificate                       230,904             297,788
      Equity                                     19,741,855          16,919,114
      Automobile                                     47,688             118,257
      Other                                          98,111             105,846
                                              -------------       -------------

                                                 20,118,558          17,441,005
                                              -------------       -------------

         Total loans                            141,257,926         169,990,413
                                              -------------       -------------

Less: Loans in process                            1,799,000           3,078,106
      Allowance for loan losses                   1,363,366           1,363,366
      Net deferred loan (costs)                    (363,882)           (387,027)
                                              -------------       -------------

                                                  2,798,484           4,054,445
                                              -------------       -------------

                                              $ 138,459,442       $ 165,935,968
                                              =============       =============

The Bank has granted loans to officers and directors of the Bank and to their
associates. Related party loans do not involve more than normal risk of
collectibility. The aggregate dollar amount of these loans was $1,505,000 and
$1,833,000 at December 31, 2002 and 2001, respectively. During the year ended
December 31, 2002, new loans aggregating $248,000 were granted and repayments
totalled $576,000.


                                                                             17.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. LOANS RECEIVABLE (Cont'd.)

Nonperforming loans consist of nonaccrual and renegotiated loans. Nonaccrual
loans are those on which income under the accrual method has been discontinued
with subsequent interest payments credited to interest income when received, or
if ultimate collectibility of principal is in doubt, applied as principal
reductions. Renegotiated loans are loans whose contractual interest rates have
been reduced or where other significant concessions have been made due to a
borrower's financial difficulties. Interest on renegotiated loans is accrued to
interest income.

Nonperforming loans were as follows:

<TABLE>
<CAPTION>
                                                                            December 31,
                                                                    --------------------------
                                                                       2002            2001
                                                                    ----------      ----------
                                                                           (In Thousands)
<S>                                                                 <C>             <C>
Nonaccrual                                                          $      837      $      578
Renegotiated                                                                --              --
                                                                    ----------      ----------

                                                                    $      837      $      578
                                                                    ==========      ==========
</TABLE>

The impact of nonperforming loans on interest income is as follows:

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                                    --------------------------
                                                                       2002            2001
                                                                    ----------      ----------
                                                                         (In Thousands)
<S>                                                                 <C>             <C>
Interest income if performing in accordance with original terms     $       65      $       48
Interest income actually recorded                                           40              23
                                                                    ----------      ----------

Interest income lost                                                $       25      $       25
                                                                    ==========      ==========
</TABLE>

The following is an analysis of the allowance for loan losses:

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                                    --------------------------
                                                                       2002            2001
                                                                    ----------      ----------
<S>                                                                 <C>             <C>
Balance - beginning                                                 $1,363,366      $1,363,366
Provision charged  to operations                                            --              --
Loans charged off                                                           --              --
                                                                    ----------      ----------

Balance - ending                                                    $1,363,366      $1,363,366
                                                                    ==========      ==========
</TABLE>


                                                                             18.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. LOANS RECEIVABLE (Cont'd.)

Impaired loans and related amounts recorded in the allowance for loan losses are
summarized as follows:

                                                            December 31,
                                                      -----------------------
                                                         2002          2001
                                                      ---------      --------
                                                            (In Thousands)
      Recorded investment in impaired loans:
           With recorded allowances                   $     229      $     --
           Without recorded allowances                       --            --
                                                      ---------      --------

                   Total impaired loans                     229            --
           Related allowance for loan losses                 23            --
                                                      ---------      --------

                   Net impaired loans                 $     206      $     --
                                                      =========      ========

For the year ended December 31, 2002, the average recorded investment in
impaired loans totalled $229,000. No interest income was recognized on such
loans. At December 31, 2001, and during the year then ended, there were no loans
classified as impaired.

7. REAL ESTATE OWNED

                                                           December 31,
                                                    ---------------------------
                                                       2002              2001
                                                    ---------         ---------

Acquired in settlement of loans                     $ 209,000         $ 209,000
                                                    =========         =========

The following is an analysis of the (loss) on real estate owned:

                                                       Year Ended December 31,
                                                    ---------------------------
                                                       2002              2001
                                                    ---------         ---------

Gain on sale, net                                   $      --         $  22,083
Carrying costs, net of rental income                   (5,410)          (28,248)
                                                    ---------         ---------

                                                    $  (5,410)        $  (6,165)
                                                    =========         =========


                                                                             19.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. PREMISES AND EQUIPMENT

                                                            December 31,
                                                  ------------------------------
                                                     2002                2001
                                                  ----------          ----------

Land                                              $  979,315          $  979,315
                                                  ----------          ----------

Buildings and improvements                         2,224,386           2,197,156
Less accumulated depreciation                      1,145,396           1,075,012
                                                  ----------          ----------

                                                   1,078,990           1,122,144
                                                  ----------          ----------

Leasehold improvements                               112,754             112,754
Less accumulated amortization                        112,754             112,754
                                                  ----------          ----------

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

Furnishings and equipment                          1,239,410           1,140,798
Less accumulated depreciation                        910,567             739,673
                                                  ----------          ----------

                                                     328,843             401,125
                                                  ----------          ----------

                                                  $2,387,148          $2,502,584
                                                  ==========          ==========

9. ACCRUED INTEREST RECEIVABLE

                                                           December 31,
                                                  ------------------------------
                                                     2002                2001
                                                  ----------          ----------

Loans                                             $  618,812          $  861,934
Mortgage-backed securities                           872,871             818,247
Investment securities                                176,183             199,356
                                                  ----------          ----------

                                                  $1,667,866          $1,879,537
                                                  ==========          ==========


                                                                             20.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. DEPOSITS

<TABLE>
<CAPTION>
                                                                          December 31,
                                       --------------------------------------------------------------------------------------
                                                       2002                                              2001
                                       ---------------------------------------         --------------------------------------
                                       Weighted                                        Weighted
                                        Average                                        Average
                                         Rate           Amount         Percent           Rate          Amount         Percent
                                       --------     -------------      -------         --------    -------------      -------
<S>                                      <C>        <C>                  <C>             <C>       <C>                   <C>
Demand accounts:
       Non-interest-bearing              0.00%      $  19,202,848        7.53            0.00%     $  18,272,852         7.59
       Interest-bearing                  0.94%         20,129,454        7.89            0.87%        20,956,612         8.70
                                                      -----------       -----                        -----------        ----

                                         0.48%         39,332,302       15.42            0.46%        39,229,464        16.29
Savings and club accounts                1.76%         70,727,897       27.73            2.00%        56,349,272        23.39
Certificates of deposit                  3.05%        145,032,395       56.85            4.37%       145,285,572        60.32
                                                    -------------      ------                      -------------       ------

                                         2.30%      $ 255,092,594      100.00            3.18%     $ 240,864,308       100.00
                                                    =============      ======                      =============       ======
</TABLE>

The amount of certificates of deposit with balances of $100,000 or more at
December 31, 2002 and 2001 was approximately $26,476,000 and $25,885,000,
respectively.

The scheduled maturities of certificates of deposit are as follows (in
thousands):

                                                            December 31,
                                                    ----------------------------
                                                      2002                2001
                                                    --------            --------

One year or less                                    $115,686            $124,431
After one to three years                              25,683              18,523
After three years                                      3,663               2,332
                                                    --------            --------

                                                    $145,032            $145,286
                                                    ========            ========

A summary of interest on deposits is as follows (in thousands):

                                                       Year Ended December 31,
                                                    ----------------------------
                                                      2002                2001
                                                    --------            --------

Demand accounts                                     $    177            $    247
Savings and club accounts                              1,300               1,100
Certificates of deposit                                5,152               7,701
                                                    --------            --------

                                                    $  6,629            $  9,048
                                                    ========            ========


                                                                             21.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. BORROWED MONEY

<TABLE>
<CAPTION>
                                                                          December 31,
                                                     -----------------------------------------------------
                                                               2002                         2001
                                                     ------------------------    -------------------------
                                                     Weighted                    Weighted
                                                      Average                     Average
                                                       Rate          Amount         Rate          Amount
                                                     --------     -----------    ---------     -----------
<S>                                                    <C>        <C>               <C>        <C>
Securities sold under agreements to
 to repurchase maturing within one year                2.16%      $25,000,000       2.86%      $15,000,000

Convertible advances (a):
     due November 13, 2006                             5.90%        5,000,000       5.90%        5,000,000
     due March 24, 2008                                5.33%       10,000,000       5.33%       10,000,000
     due March 25, 2008                                5.59%       10,000,000       5.59%       10,000,000
     due March 24, 2009                                5.42%        5,000,000       5.42%        5,000,000

Monthly amortizing advances:
     Payable in 13 monthly principal
      and interest installments of $96,286 and
      a final payment of $192,818 on
      February 24, 2003                                5.84%          286,069       5.84%        1,389,595

     Payable in 73 monthly principal
      and interest installments of $55,591 and
      a final payment of $111,347 on
      February 25, 2008                                6.03%        2,995,457       6.03%        3,466,333

Term advances maturing during:
     2002                                                --                --       6.42%        1,000,000
     2003                                              6.55%        1,000,000       6.55%        1,000,000
     2004                                              5.75%       12,000,000       5.75%       12,000,000
     2008                                              5.55%        3,000,000       5.55%        3,000,000
     2011                                              5.40%       10,000,000       5.40%       10,000,000
                                                                  -----------                  -----------

                                                       4.58%      $84,281,526       5.08%      $76,855,928
                                                                  ===========                  ===========
</TABLE>

(a)   Convertible at lender option to replacement funding at then current rates
      on November 12, 2002, March 24, 2002, March 25, 2003 and March 24, 2004,
      respectively, and quarterly thereafter.

Certain information concerning borrowed money is summarized as follows:

                                                        Year Ended December 31,
                                                        -----------------------
                                                         2002             2001
                                                        -------         -------
                                                          (Dollars in Thousands)

Average balance outstanding                             $84,262         $66,532
Maximum month-end balance outstanding                    91,339          76,856
Average interest rate                                      4.84%           5.61%


                                                                             22.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. BORROWED MONEY (Cont'd.)

The foregoing borrowings were secured by pledges of the Bank's investment in the
following:

                                                                 December 31,
                                                             -------------------
                                                               2002        2001
                                                             -------     -------
                                                                (In Thousands)

      FHLB capital stock                                     $ 4,228     $ 3,843
      Mortgage-backed securities held to maturity             82,133      77,233
      Investment securities held to maturity                   6,578      16,875
                                                             -------     -------

                                                             $92,939     $97,951
                                                             =======     =======

12. REGULATORY CAPITAL

The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the Bank.
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 classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of Total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier 1 capital to adjusted total assets (as defined). The following
tables present a reconciliation of capital per GAAP and regulatory capital and
information as to the Bank's capital levels at the dates presented:

                                                             December 31,
                                                       ------------------------
                                                         2002             2001
                                                       --------        --------
                                                            (In Thousands)

GAAP capital                                           $ 49,411        $ 47,739
Less: excess of cost over assets acquired                (2,865)         (3,458)
                                                       --------        --------

Core and tangible capital                                46,546          44,281
Add: allowance for loan losses                            1,363           1,363
                                                       --------        --------

       Total regulatory capital                        $ 47,909        $ 45,644
                                                       ========        ========


                                                                             23.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. REGULATORY CAPITAL (Cont'd.)

<TABLE>
<CAPTION>
                                                                                                   To Be Well
                                                                                                   Capitalized
                                                                                                   Under prompt
                                                                      Minimum Capital               Corrective
                                             Actual                     Requirements            Actions Provisions
                                       -------------------          -------------------        --------------------
                                       Amount        Ratio          Amount        Ratio        Amount         Ratio
                                       ------        -----          ------        -----        ------         -----
                                                                     (Dollars in Thousands)
<S>                                   <C>            <C>           <C>             <C>         <C>            <C>
As of December 31, 2002
Total Capital
 (to risk-weighted assets)            $47,909        36.31%        $10,555         8.00%       $13,193        10.00%

Tier 1 Capital
 (to risk-weighted assets)             46,546        35.28%             --           --          7,916         6.00%

Core (Tier 1) Capital
 (to adjusted total assets)            46,546        11.98%         15,538         4.00%        19,423         5.00%

Tangible Capital
 (to adjusted total assets)            46,546        11.98%          5,827         1.50%            --           --

As of December 31, 2001
Total Capital
 (to risk-weighted assets)            $45,644        32.35%        $11,286         8.00%       $14,107        10.00%

Tier 1 Capital
 (to risk-weighted assets)             44,281        31.39%             --           --          8,464         6.00%

Core (Tier 1) Capital
 (to adjusted total assets)            44,281        12.11%         14,632         4.00%        18,290         5.00%

Tangible Capital
 (to adjusted total assets)            44,281        12.11%          5,487         1.50%            --           --
</TABLE>

As of September 30, 2002, the most recent notification from the OTS, the Bank
was categorized as well capitalized under the regulatory framework for prompt
corrective action. There are no conditions existing or events which have
occurred since notification that management believes have changed the
institution's category.


                                                                             24.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. BENEFIT PLANS

      Pension Plan

      The Bank has a non-contributory pension plan covering all eligible
      employee. The plan is a defined benefit plan which provides benefits based
      on a participant's years of service and compensation. The Bank's funding
      policy is to contribute annually an amount ranging from the minimum to the
      maximum amount that can be deducted for federal income tax purposes.

      The following table sets forth the plan's funded status:

<TABLE>
<CAPTION>
                                                                            December 31,
                                                                   ----------------------------
                                                                       2002             2001
                                                                   -----------      -----------
<S>                                                                <C>              <C>
            Projected benefit obligation - beginning               $ 3,994,986      $ 3,482,340
            Service cost                                               171,892          141,222
            Interest cost                                              297,988          270,969
            Actuarial loss                                               4,220          228,265
            Benefits paid                                             (108,736)        (100,372)
            Settlements                                                (28,351)         (29,716)
            Plan amendments                                            472,935            2,278
                                                                   -----------      -----------

            Projected benefit obligation - ending                    4,804,934        3,994,986
                                                                   -----------      -----------

            Plan assets at fair value - beginning                    3,660,776        4,047,264
            Actual (loss) on assets                                   (284,295)        (329,778)
            Employer's contributions                                   229,823           73,378
            Benefits paid                                             (108,736)        (100,372)
            Settlements                                                (28,351)         (29,716)
                                                                   -----------      -----------

            Plan assets at fair value - ending                       3,469,217        3,660,776
                                                                   -----------      -----------

            Funded status                                           (1,335,717)        (334,210)
            Unrecognized net transition obligation                      31,647           63,292
            Unrecognized past service cost                             654,829           42,280
            Unrecognized net loss                                      472,880           39,737
                                                                   -----------      -----------

            Accrued pension cost included in other liabilities     $  (176,361)     $  (188,901)
                                                                   ===========      ===========
</TABLE>

      The following table sets forth the components of net periodic pension
      cost:

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                                   ----------------------------
                                                                       2002             2001
                                                                   -----------      -----------
<S>                                                                <C>              <C>
      Net periodic pension cost
        included the following components:
           Service cost                                            $   171,892      $   141,222
           Interest cost                                               297,988          270,969
           Expected return on plan assets                             (326,577)        (340,143)
           Amortization of net transition obligation                    31,645           31,645
           Amortization of past service cost                            42,335            9,553
           Amortization of net gain                                         --          (50,953)
                                                                   -----------      -----------

      Net periodic pension cost
        included in salaries and employee benefits                 $   217,283      $    62,293
                                                                   ===========      ===========
</TABLE>


                                                                             25.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. BENEFIT PLANS (Cont'd.)

      Pension Plan (Cont'd.)

      During 2002, the Plan was amended, in accordance with the Economic Growth
      Tax Relief Reconciliation Act of 2001, to increase the amount of
      compensation that can be used to determine benefits. The effect of the
      amendment was to increase the pension benefit obligation, as of January 1,
      2002, by $472,935.

      Assumptions used to value the pension plan were as follows:

                                                         Year Ended December 31,
                                                         -----------------------
                                                          2002             2001
                                                         ------           ------

         Discount rate                                    7.25%           8.00%
         Expected long-term rate of return                8.50%           8.50%
         Rate of increase in  compensation levels         4.50%           5.50%

      On December 18, 2002, the Board of Directors of the Bank resolved,
      providing that the planned merger with Kearny Financial is approved and
      completed, that the Plan would be terminated effective on the last
      business day preceding such merger. Based on Plan data as of December 31,
      2002, such Plan termination would result in a Plan termination expense of
      approximately $762,000. The actual termination expense recorded may differ
      from this amount due to additional benefits earned through the termination
      date and changes in the market value of Plan assets, which are primarily
      mutual funds.

      ESOP

      The Bank maintains an ESOP for all eligible employees who have completed a
      twelve-month period of employment with the Bank and at least 1,000 hours
      of service and have attained the age of 21. The ESOP used $1,473,854 in
      proceeds from a term loan obtained from the Company to purchase 147,768
      shares of Company common stock in the open market. In conjunction with the
      5-for-4 split of the Company's common stock in October 2002, the ESOP
      shares increased from 147,768 to 184,710. The term loan principal is
      payable over ten equal annual installments through December 31, 2007.
      Interest on the term loan is fixed at a rate of 8.25%. Each year, the Bank
      intends to make discretionary contributions to the ESOP which will be
      equal to principal and interest payments required on the term loan. The
      loan is further paid down by the amount of dividends paid, if any, on the
      common stock owned by the ESOP.

      Shares purchased with the loan proceeds were initially pledged as
      collateral for the term loan and are held in a suspense account for future
      allocation among participants. Contributions to the ESOP and shares
      released from the suspense account will be allocated among the
      participants on the basis of compensation, as described by the Plan, in
      the year of allocation.


                                                                             26.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. BENEFIT PLANS (Cont'd.)

      ESOP (Cont'd.)

      The ESOP is accounted for in accordance with Statement of Position 93-6
      "Accounting for Employee Stock Ownership Plans", which was issued by the
      American Institute of Certified Public Accountants. Accordingly, the ESOP
      shares pledged as collateral are reported as unearned ESOP shares in the
      consolidated statements of financial condition. As shares are committed to
      be released from collateral, the Bank reports compensation expense equal
      to the current market price of the shares, and the shares become
      outstanding for basic net income per common share computations. ESOP
      compensation expense was approximately $453,000 and $229,000 for the years
      ended December 31, 2002 and 2001, respectively.

      The ESOP shares were as follows:

                                                             December 31,
                                                       -------------------------
                                                          2002           2001
                                                       ----------     ----------

            Allocated shares                               92,355         73,884
            Unreleased shares                              92,355        110,826
                                                       ----------     ----------

            Total ESOP shares                             184,710        184,710
                                                       ==========     ==========

            Fair value of unreleased shares            $3,222,266     $1,690,097
                                                       ==========     ==========

      In addition to the above, the Company has established a supplemental
      benefit plan to offset the ESOP benefit reduction applicable to certain
      members of Company management due to limitations imposed by the Internal
      Revenue Code. The amount expensed related to this plan totalled
      approximately $137,000 and $23,000 for the years ended December 31, 2002
      and 2001, respectively. A portion of the 2001 and 2000 liabilities was
      settled via the issuance of 3,528 shares and 1,422 shares, respectively,
      of Company common stock during the years ended December 31, 2002 and 2001,
      respectively.

      1999 Stock-Based Incentive Plan (the "Incentive Plan")

      In April 1999, the Company's stockholders approved, and the Company
      implemented the Incentive Plan. Under the Incentive Plan, employees of the
      Company and its subsidiaries may be awarded up to 92,355 shares of
      Company common stock (the "Stock Awards") and issued options to purchase
      up to 230,889 shares of Company common stock (the "Stock Options").
      Additional information on the Stock Awards and Stock Options is contained
      in the succeeding paragraphs.


                                                                             27.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. BENEFIT PLANS (Cont'd.)

      Stock Awards

      Stock Awards under the Incentive Plan are granted in the form of Company
      common stock, which are held by the Incentive Plan Trust, and vest over a
      period of five years (20% annually from the date of grant). The Stock
      Awards become fully vested upon the death or disability of the awardee.
      During the years ended December 31, 2002 and 2001, approximately $143,000
      and $125,000, respectively, in expense related to the Stock Awards was
      recorded. The amount of expense recorded for the Stock Awards is based
      upon the number of shares awarded, the market price of the Company's
      common stock at the grant date and the period over which the Stock Awards
      are earned (60 months).

      Stock award activity is summarized as follows:

<TABLE>
<CAPTION>
                                                                   Grant Price Per Share
                                                   Shares      ----------------------------
                                                  Granted          Range            Average
                                                  -------      -------------        -------
<S>                                                <C>            <C>                <C>
          Balance - December 31, 2000              65,752         $  7.60            $ 7.60

                Shares granted                      7,169          14.60              14.60
                Shares issued                     (19,214)          7.60               7.60
                                                  --------

          Balance - December 31, 2001              53,707       7.60 - 14.60           8.53

                Shares granted                      3,535           19.09             19.09
                Shares issued                     (25,086)      7.60 - 19.09           8.90
                                                  --------

          Balance - December 31, 2002              32,156      $7.60 - $19.09        $ 9.41
                                                  =======
</TABLE>

      Stock Options

      Stock Options granted under the Incentive Plan may be either options that
      qualify as incentive stock options as defined in Section 422 of the
      Internal Revenue Code of 1986, as amended, or non-statutory options.
      Options granted will vest and will be exercisable on a cumulative basis in
      equal installments at the rate of 20% per year commencing one year from
      the date of grant. All options granted will be exercisable in the event
      the optionee terminates his employment due to death or disability. The
      options expire ten years from the date of grant. The options are
      summarized as follows:


                                                                             28.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. BENEFIT PLANS (Cont'd.)

      Stock Options (Cont'd.)

<TABLE>
<CAPTION>
                                                    Number of Option Shares                Exercise Price Per Share
                                              ----------------------------------           -------------------------
                                                 Non-
                                              Incentive    Incentive       Total           Range             Average
                                              ---------    ---------       -----           -----             -------
<S>                                            <C>           <C>           <C>         <C>                    <C>
         Balance - December 31, 2000            58,570       161,490       220,060         $ 7.60             $ 7.60

         Options granted                            --        10,829        10,829         14.60               14.60

         Options exercised                     (14,058)      (24,996)      (39,054)         7.60                7.60
                                               -------      --------      --------

         Balance - December 31, 2001            44,512       147,323       191,835      7.60 - 14.60            8.00

         Options granted                            --         1,000         1,000         19.09               19.09
         Options cancelled                          --        (1,000)       (1,000)        14.60               14.60
         Options exercised                          --       (45,340)      (45,340)         7.60                7.60
                                               -------      --------      --------

         Balance - December 31, 2002            44,512       101,983       146,495     $ 7.60 - $19.09        $ 8.15
                                               =======      ========      ========
</TABLE>

      At December 31, 2002 and 2001, options for 55,005 shares and 56,748
      shares, respectively, were excercisable. At December 31, 2002, all options
      available under the Incentive Plan had been granted.

      The Company, as permitted by Statement No. 123, recognizes compensation
      cost for stock options granted based on the intrinsic value method instead
      of the fair value based method. The weighted-average grant-date fair
      values of the stock options granted during 2002 and 2001, which have
      exercise prices equal to the market price of the Company's common stock at
      the grant dates, were estimated using the Black-Scholes option-pricing
      model. Such fair values and the assumptions used for estimating fair value
      are as follows:

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                                        ----------------------------
                                                                           2002              2001
                                                                        ---------          ---------
<S>                                                                     <C>                <C>
               Weighted average grant-date fair value per share           $19.09             $4.72
               Expected common stock dividend yield                       2.93%              3.29%
               Expected volatility                                        58.17%            38.08%
               Expected option life                                     6.5 years          6.5 years
               Risk-free interest rate                                    4.18%              4.66%
</TABLE>


                                                                             29.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. BENEFIT PLANS (Cont'd.)

      Stock Options (Cont'd.)

      Proforma data, assuming usage of the fair value based method, is as
      follows:

<TABLE>
<CAPTION>
                                                                            Net Income Per Share
                                                               Net          --------------------
                                                              Income        Basic        Diluted
                                                           -----------      -----        -------
<S>                                                        <C>              <C>           <C>
         Year ended December 31, 2002:
               As reported                                 $ 1,505,424      $0.32         $0.31

               Stock-based compensation,
                 net of income taxes, as if
                 the fair value based method
                 had been applied                              (60,248)     (0.01)        (0.01)
                                                           -----------      -----         -----

               Proforma                                    $ 1,445,176      $0.31         $0.30
                                                           ===========      =====         =====

         Year ended December 31, 2001:
               As reported                                 $ 3,073,393      $0.64         $0.63

               Stock-based compensation,
                 net of income taxes, as if
                 the fair value based method
                 had been applied                              (57,754)     (0.01)        (0.01)
                                                           -----------      -----         -----

               Proforma                                    $ 3,015,639      $0.63         $0.62
                                                           ===========      =====         =====
</TABLE>

14. INCOME TAXES

The Bank qualifies as a Savings Institution under the provisions of the Internal
Revenue Code and, therefore, must calculate its bad debt deduction using either
the experience method or the specific charge off method. Retained earnings at
December 31, 2002, include approximately $6.8 million of such bad debt allowance
for which federal income taxes have not been provided. If such amount is used
for purposes other than for bad debt losses, including distributions in
liquidation, it will be subject to income tax at the then current rate.


                                                                             30.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. INCOME TAXES (Cont'd.)

The components of income taxes are summarized as follows:

                                                        Year Ended December 31,
                                                     ---------------------------
                                                        2002              2001
                                                     -----------      ----------
      Current tax expense:
          Federal income                             $ 1,372,968      $1,402,918
          State income                                   417,519         123,673
                                                     -----------      ----------

                                                       1,790,487       1,526,591
                                                     -----------      ----------
      Deferred tax expense (benefit):
          Federal income                                 (56,067)         87,256
          State income                                  (219,371)          7,276
                                                     -----------      ----------

                                                        (275,438)         94,532
                                                     -----------      ----------

                                                     $ 1,515,049      $1,621,123
                                                     ===========      ==========

The components of the net deferred income tax asset are as follows:

<TABLE>
<CAPTION>
                                                                         December 31,
                                                                  -------------------------
                                                                     2002           2001
                                                                  ----------     ----------
<S>                                                               <C>            <C>
      Deferred tax assets:
          Allowance for loan losses                               $  522,480     $  489,985
          Benefit plans                                              215,126        191,789
          Goodwill                                                   839,783        705,718
          Other                                                       38,762         12,505
                                                                  ----------     ----------

              Total deferred tax assets                            1,616,151      1,399,997
                                                                  ----------     ----------

      Deferred tax liabilities:
          Deferred loan origination fees, net                        218,645        279,755
          Other                                                       13,964         12,138
                                                                  ----------     ----------

              Total deferred tax liabilities                         232,609        291,893
                                                                  ----------     ----------

              Net deferred tax asset included in other assets     $1,383,542     $1,108,104
                                                                  ==========     ==========
</TABLE>


                                                                             31.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. INCOME TAXES (Cont'd.)

The following table presents a reconciliation between the reported income taxes
and the income taxes which would be computed by applying the normal federal
income tax rate of 34% to income before income taxes:

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                                ----------------------------
                                                                    2002            2001
                                                                -----------      -----------
<S>                                                             <C>              <C>
      Federal income tax                                        $ 1,026,961      $ 1,596,135
      Increases (reductions) in taxes resulting from:
            Adjustment of deferred state income tax
              assets due to change in state income tax rate        (119,148)              --
            New Jersey state income tax,
             net of federal income tax effect                       249,926           86,426
            Non-deductible compensation expense                     213,000               --
            Non-deductible merger expenses                          197,458               --
            Other items, net                                        (53,148)         (61,438)
                                                                -----------      -----------

      Effective income tax                                      $ 1,515,049      $ 1,621,123
                                                                ===========      ===========
</TABLE>

15. NET INCOME PER COMMON SHARE

<TABLE>
<CAPTION>
                                                      Year Ended December 31, 2002
                                                 --------------------------------------
                                                                 Weighted
                                                    Net          Average      Per Share
                                                   Income        Shares        Amounts
                                                 ----------     ---------     ---------
<S>                                              <C>            <C>           <C>
      Basic net income per share                 $1,505,424     4,726,642     $   0.32
                                                                              ========

      Effect of dilutive securities:
             Stock options                               --       118,504
             Other                                       --        15,587
                                                 ----------     ---------

      Diluted net income per share               $1,505,424     4,860,733     $   0.31
                                                 ==========     =========     ========
</TABLE>


                                                                             32.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. NET INCOME PER COMMON SHARE (Cont'd.)

<TABLE>
<CAPTION>
                                                   Year Ended December 31, 2001
                                             --------------------------------------
                                                             Weighted
                                                 Net          Average     Per Share
                                               Income         Shares       Amounts
                                             ----------     ---------     ---------
<S>                                          <C>            <C>           <C>
      Basic net income per share             $3,073,393     4,768,681     $   0.64
                                                                          ========

      Effect of dilutive securities:
            Stock options                            --        78,211
            Other                                    --        12,675
                                             ----------     ---------

      Diluted net income per share           $3,073,393     4,859,567     $   0.63
                                             ==========     =========     ========
</TABLE>

16. COMMITMENTS AND CONTINGENCIES

The Bank 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 and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments primarily include commitments to extend credit. Such instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the consolidated statements of financial condition.
The contractual amounts of these instruments reflect the extent of involvement
the Bank has in those particular classes of financial instruments.

The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit is
represented by the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.

At December 31, 2002 and 2001, the Bank had $2,547,000 and $5,505,000,
respectively, in outstanding commitments to originate and purchase loans. The
outstanding commitments at December 31, 2002, include $805,000 for fixed rate
mortgage loans at rates ranging from 5.50% to 5.625%, $367,000 for fixed rate
home equity loans at rates ranging from 5.375% to 6.75%, $75,000 for a floating
rate home equity line of credit with an initial rate of 6.00%, and a $1,300,000
construction loan with a fixed rate of 6.00%.

At December 31, 2002 and 2001, undisbursed funds from approved lines of credit
under a homeowners' equity lending program amounted to approximately $11,958,000
and $9,179,000, respectively. Unless they are specifically cancelled by notice
from the Bank, these funds represent firm commitments available to the
respective borrowers on demand. The interest rate charged for any month on funds
disbursed under the program ranges from 0.50% below to 1.75% above the prime
rate published in The Wall Street Journal on the last day of the preceding
month.

At December 31, 2002 and 2001, undisbursed funds from approved unsecured lines
of credit under the Credit Reserve program totalled $186,000 and $141,000,
respectively. Funds drawn on these lines are assessed interest at a rate of
15.00%.


                                                                             33.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. COMMITMENTS AND CONTINGENCIES (Cont'd.)

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral held varies but primarily
includes commercial and residential real estate.

Rentals under a long-term operating lease for a branch office amounted to
approximately $56,000 for each of the years ended December 31, 2002 and 2001. At
December 31, 2002, the minimum rental commitment under this noncancellable lease
expiring in October 2003 is $46,000.

The Bank also has, in the normal course of business, commitments for services
and supplies. Management does not anticipate losses on any of these
transactions.

The Bank is a party to various litigation which arises primarily in the ordinary
course of business. In the opinion of management, the ultimate disposition of
such litigation should not have a material effect on the consolidated financial
position or operations of the Company.

17. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than a forced or liquidation sale. Significant estimations were used for
the purposes of this disclosure. Estimated fair values have been determined
using the best available data and estimation methodology suitable for each
category of financial instruments. For those loans and deposits with floating
interest rates, it is presumed that estimated fair values generally approximate
their recorded book balances. The estimation methodologies used and the
estimated fair values and carrying values of financial instruments are set forth
below:

      Cash and cash equivalents and accrued interest receivable

      The carrying amounts for cash and cash equivalents and accrued interest
      receivable approximate fair value.

      Term Deposits

      The fair value of term deposits is estimated by discounting future cash
      flows, using the current rates at which term deposits of similar remaining
      maturities could be obtained.


                                                                             34.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont'd.)

      Securities

      The fair values for investment securities held to maturity and
      mortgage-backed securities held to maturity are based on quoted market
      prices or dealer prices, if available. If quoted market prices or dealer
      prices are not available, fair value is estimated using quoted market
      prices or dealer prices for similar securities.

      Loans

      The fair value of loans is estimated by discounting future cash flows,
      using the current rates at which similar loans with similar remaining
      maturities would be made to borrowers with similar credit ratings.

      Deposits

      For demand, savings and club accounts, fair value is the carrying amount
      reported in the consolidated financial statements. For certificates of
      deposit, fair value is estimated by discounting future cash flows, using
      rates currently offered for deposits of similar remaining maturities.

      Borrowed money

      Fair value is estimated using rates currently offered for liabilities of
      similar remaining maturities, or when available, quoted market prices.

      Commitments to extend credit

      The fair value of credit commitments is estimated using the fees currently
      charged to enter into similar agreements, taking into account the
      remaining terms of the agreements and the present creditworthiness of the
      counterparties. For fixed-rate loan commitments, fair value also considers
      the difference between current levels of interest rates and the committed
      rates.


                                                                             35.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont'd.)

The carrying values and estimated fair values of financial instruments are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                          December 31,
                                                      -----------------------------------------------
                                                               2002                     2001
                                                      ---------------------     ---------------------
                                                      Carrying    Estimated     Carrying    Estimated
                                                        Value     Fair Value     Value      Fair Value
                                                      --------    ----------    --------    ----------
<S>                                                   <C>          <C>          <C>          <C>
      Financial assets

      Cash and cash equivalents                       $ 26,807     $ 26,807     $ 17,290     $ 17,290
      Term deposits                                         --           --          200          202
      Investment securities held to maturity            28,169       27,342       33,169       31,375
      Mortgage-backed securities held to maturity      182,029      186,880      137,328      139,335
      Loans receivable                                 138,459      139,737      165,936      170,008
      Accrued interest receivable                        1,668        1,668        1,880        1,880

      Financial liabilities

      Deposits                                         255,093      256,733      240,864      242,826
      Borrowed money                                    84,282       89,807       76,856       76,711

      Commitments

      Loan origination and purchase                      2,547        2,547        5,505        5,505
      Unused lines of credit                            12,144       12,144        9,320        9,320
</TABLE>

Fair value estimates are made at a specific point in time based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the entire holdings of a particular financial instrument.
Because no market value exists for a significant portion of the financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective
in nature, involve uncertainties and matters of judgment and, therefore, cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates.

In addition, fair value estimates are based on existing on-and-off balance sheet
financial instruments without attempting to estimate the value of anticipated
future business, and exclude the value of assets and liabilities that are not
considered financial instruments. Other significant assets and liabilities that
are not considered financial assets and liabilities include premises and
equipment, real estate owned and advance payments by borrowers for taxes and
insurance. In addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in any of the estimates.


                                                                             36.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont'd.)

Finally, reasonable comparability between financial institutions may not be
likely due to the wide range of permitted valuation techniques and numerous
estimates which must be made given the absence of active secondary markets for
many of the financial instruments. This lack of uniform valuation methodologies
introduces a greater degree of subjectivity to these estimated fair values.

18. PARENT ONLY FINANCIAL INFORMATION

The following are the condensed financial statements for West Essex Bancorp,
Inc. (Parent company only).

                             STATEMENTS OF CONDITION


                                                           December 31,
                                                    ----------------------------
                                                        2002             2001
                                                    -----------      -----------
Assets:
        Cash and due from banks                     $   304,888      $    19,564
        Interest-bearing deposits                       251,310          359,343
        Securities held to maturity                   1,047,960        1,051,829
        Loan receivable                                 830,578        1,570,096
        Real estate owned                               209,000          209,000
        Investment in subsidiaries                   49,411,383       47,738,943
        Due from subsidiaries                                --          199,252
        Other assets                                     19,242           19,450
                                                    -----------      -----------

               Total assets                         $52,074,361      $51,167,477
                                                    -----------      -----------

Liabilities:
        Due to subsidiaries                         $   348,574      $        --
        Other liabilities                               271,171          252,526
                                                    -----------      -----------

                                                        619,745          252,526

Stockholders' equity                                 51,454,616       50,914,951
                                                    -----------      -----------

Total liabilities and stockholders' equity          $52,074,361      $51,167,477
                                                    ===========      ===========


                                                                             37.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. PARENT ONLY FINANCIAL INFORMATION (Cont'd.)

                              STATEMENTS OF INCOME

                                                       Year Ended December 31,
                                                    ----------------------------
                                                       2002              2001
                                                    -----------       ----------

Dividend from subsidiary                            $ 1,039,000       $       --
Interest income                                         164,056          292,708
Other                                                       546               --
                                                    -----------       ----------

               Total income                           1,203,602          292,708
                                                    -----------       ----------

Merger related expenses                                  42,475               --
Other non-interest expenses                             232,375          152,337
                                                    -----------       ----------

               Total non-interest expenses              274,850          152,337
                                                    -----------       ----------

Income before income tax and equity in
   undistributed earnings of subsidiaries               928,752          140,371
Income tax                                              (24,975)          48,530
                                                    -----------       ----------

Income before equity in undistributed
  earnings of subsidiaries                              953,727           91,841
Equity in undistributed
  earnings of subsidiaries                              551,697        2,981,552
                                                    -----------       ----------

Net income                                          $ 1,505,424       $3,073,393
                                                    -----------       ----------


                                                                             38.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. PARENT ONLY FINANCIAL INFORMATION (Cont'd.)

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                                    ----------------------------
                                                                        2002            2001
                                                                    -----------      -----------
<S>                                                                 <C>              <C>
Cash flows from operating activities:
        Net income                                                  $ 1,505,424      $ 3,073,393
        Adjustments to reconcile net income to net cash
          provided by operating activities:
               Net amortization of premium and discount                   3,869            3,599
               Equity in undistributed earnings of subsidiaries        (551,697)      (2,981,552)
               Loss on sales of real estate owned                            --           11,924
               Decrease (increase) in other assets                          208          (15,317)
               Change in due to/from subsidiaries                       591,625          (12,079)
               Increase (decrease) in other liabilities                   4,976           (6,824)
                                                                    -----------      -----------

                      Net cash provided by operating activities       1,554,405           73,144
                                                                    -----------      -----------

Cash flows from investing activities:
        Decrease in loans receivable                                    739,518        2,140,897
        Purchase of real estate owned from subsidiary                        --         (240,890)
        Proceeds from sales of real estate owned                             --           19,966
                                                                    -----------      -----------

                      Net cash provided by investing activities         739,518        1,919,973
                                                                    -----------      -----------

Cash flows from financing activities:
        Purchase of treasury stock                                   (1,535,275)      (1,379,425)
        Proceeds from sales of treasury stock                           387,944          294,380
        Cash dividends paid to stockholders                            (969,301)        (808,200)
                                                                    -----------      -----------

                      Net cash (used in ) financing activities       (2,116,632)      (1,893,245)
                                                                    -----------      -----------

Net increase in cash and cash equivalents                               177,291           99,872

Cash and cash equivalents - beginning                                   378,907          279,035
                                                                    -----------      -----------

Cash and cash equivalents - ending                                  $   556,198      $   378,907
                                                                    ===========      ===========
</TABLE>


                                                                             39.
<PAGE>

                    WEST ESSEX BANCORP, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19. QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                Quarter Ended
                                                           -------------------------------------------------------
                                                           March 31,    June 30,      September 30,   December 31,
                                                             2002         2002            2002            2002
                                                           ---------    --------      -------------   ------------
                                                                 (In thousands, except for per share amounts)
<S>                                                         <C>          <C>             <C>             <C>
Total interest income                                       $5,609       $5,709          $5,501          $ 5,268
Total interest expense                                       2,762        2,702           2,697            2,547
                                                            ------       ------          ------          -------

Net interest income                                          2,847        3,007           2,804            2,721

Provision for loan losses                                       --           --              --               --
Non-interest income                                            165          210             156              150
Non-interest expenses                                        1,779        1,887           2,256            3,118
Income taxes                                                   429          474             355              257
                                                            ------       ------          ------          -------


Net income (loss)                                           $  804       $  856          $  349          $  (504)
                                                            ======       ======          ======          =======
Net income (loss) per common share:
    Basic                                                   $0.169       $0.182          $0.074          $(0.106)
    Diluted                                                  0.165        0.177           0.072           (0.103)

Weighted average number of
 common shares outstanding:
    Basic                                                    4,750        4,709           4,705            4,743
    Diluted                                                  4,874        4,840           4,846            4,882

<CAPTION>
                                                                               Quarter Ended
                                                           -------------------------------------------------------
                                                           March 31,    June 30,      September 30,   December 31,
                                                             2001         2001             2001           2001
                                                           ---------    --------      -------------   ------------
                                                               (In thousands, except for per share amounts)
<S>                                                         <C>          <C>             <C>             <C>
Total interest income                                       $6,129       $5,883          $5,808          $ 5,645
Total interest expense                                       3,353        3,272           3,183            2,974
                                                            ------       ------          ------          -------

Net interest income                                          2,776        2,611           2,625            2,671

Provision for loan losses                                       --           --              --               --
Non-interest income                                            177          151             163              197
Non-interest expenses                                        1,714        1,675           1,585            1,703
Income taxes                                                   441          375             392              413
                                                            ------       ------          ------          -------

Net income                                                  $  798       $  712          $  811          $   752
                                                            ======       ======          ======          =======
Net income per common share:
    Basic                                                   $0.167       $0.149          $0.171          $ 0.158
    Diluted                                                  0.165        0.146           0.167            0.155

Weighted average number of
 common shares outstanding:
    Basic                                                    4,781        4,780           4,753            4,761
    Diluted                                                  4,850        4,863           4,863            4,863
</TABLE>


                                                                             40.