10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2005

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from           to

0-23229

(Commission File Number)

INDEPENDENCE COMMUNITY BANK CORP.

(Exact name of registrant as specified in its charter)

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

(718) 722-5300

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share

(Title of Class)

     Indicate by check mark if the Registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act).     YES þ          NO o

     Indicate by check mark whether the Registrant is not required to file reports pursuant to Section 12 or 15(d) of the Act.     YES o          NO þ

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

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

     Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12-b-2 of the Exchange Act.     Large accelerated filer þ          Accelerated filer o          Non-accelerated filer o

     Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12-b-2 of the Exchange Act).     YES o          NO þ

     The aggregate market value of the 72,743,823 shares of the Registrant’s common stock held by non-affiliates (82,593,245 shares outstanding less 9,849,422 shares held by affiliates), based upon the closing price of $36.93 for the Common Stock on June 30, 2005, the last business day in the Registrant’s second quarter, was approximately $2.69 billion. Shares of Common Stock held by each executive officer and director, the Registrant’s 401(k) Plan and Employee Stock Ownership Plan have been excluded since such persons and entities may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

     As of February 28, 2006, there were 82,593,245 shares of the Registrant’s common stock issued and outstanding.

INDEPENDENCE COMMUNITY BANK CORP.

2005 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I
ITEM 1.	BUSINESS
	Independence Community Bank Corp.	1
	Independence Community Bank	1
	Change in Fiscal Year End	2
	Market Area and Competition	2
	Forward Looking Information	4
	Available Information	4
	Lending Activities	4
	Asset Quality	17
	Investment Activities	23
	Sources of Funds	27
	Employees	31
	Subsidiaries	31
	Regulation	33
	Taxation	42
ITEM 1A.	Risk Factors	44
ITEM 1B.	Unresolved Staff Comments	47
ITEM 2.	Properties	48
ITEM 3.	Legal Proceedings	48
ITEM 4.	Submission of Matters to a Vote of Security Holders	48
PART II
ITEM 5.	Market for Independence Community Bank Corp.’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	49
ITEM 6.	Selected Financial Data	51
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	77
ITEM 8.	Financial Statements and Supplementary Data	82
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	141
ITEM 9A.	Controls and Procedures	141
ITEM 9B.	Other Information	141
PART III
ITEM 10.	Directors and Executive Officers of Independence Community Bank Corp.	142
ITEM 11.	Executive Compensation	148
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	157
ITEM 13.	Certain Relationships and Related Transactions	160
ITEM 14.	Principal Accounting Fees and Services	161
PART IV
ITEM 15.	Exhibits, Financial Statement Schedules	162
SIGNATURES		165
EX-10.5: AMENDED AND RESTATED CHANGE IN CONTROL SEVERENCE PLAN
EX-10.25: CHANGE IN CONTROL SEVERENCE PLAN
EX-10.27: INCENTIVE COMPENSATION PLAN
EX-10.28: EMPLOYMENT AND NONCOMPETITION AGREEMENT
EX-23.1: CONSENT OF ERNST & YOUNG LLP
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION

PART I

ITEM 1.      Business

Independence Community Bank Corp.

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

      On October 24, 2005, the Company, Sovereign Bancorp, Inc. (“Sovereign”) and Iceland Acquisition Corp. (“Merger Sub”), a wholly owned subsidiary of Sovereign, entered into an Agreement and Plan of Merger (the “Merger Agreement”).

      Subject to the terms and conditions of the Merger Agreement, which has been approved by the Boards of Directors of all parties and by the stockholders of the Holding Company, Merger Sub will be merged with and into the Company (the “Merger”). Upon effectiveness of the Merger, each outstanding share of common stock of the Company other than shares owned by the Company (other than in a fiduciary capacity), Sovereign or their subsidiaries and other than dissenting shares will be converted into the right to receive $42 per share in cash and the Holding Company will become a subsidiary of Sovereign.

      Concurrently with the execution of the Merger Agreement, Sovereign entered into an Investment Agreement (the “Investment Agreement”) with Banco Santander Central Hispano, S.A. (“Banco Santander”) providing for the purchase by Banco Santander of approximately $2.4 billion of Sovereign’s common stock and, if necessary, up to $1.2 billion of its preferred stock and other securities, the proceeds of which would be used to finance the Merger.

      The merger is currently expected to close during the second quarter of 2006 and is subject to various customary conditions, including the receipt of certain regulatory approvals, including approval of the acquisition of control of the Holding Company by Sovereign by the Office of Thrift Supervision and the New York State Banking Department. The transaction received approval from the Holding Company’s stockholders at a special meeting of stockholders held on January 25, 2006. The Merger is not, however, contingent upon the closing of the transactions contemplated by the Investment Agreement.

      See “Legal Proceedings” set forth in Item 3 hereof and Note 2 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof for additional information.

      On April 12, 2004, the Company completed its acquisition of Staten Island Bancorp, Inc. (“SIB”) and the merger of SIB’s wholly owned subsidiary, SI Bank & Trust (“SI Bank”), with and into the Bank. The results of operations of SIB are included in the Consolidated Statements of Income and Comprehensive Income subsequent to April 12, 2004. The Company’s 2005 and 2004 earnings per share reflect the issuance of 28,200,070 shares as part of the consideration paid for SIB. See Note 2 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof for additional information.

      The Company’s executive office is located at 195 Montague Street, Brooklyn, New York 11201, and its telephone number is (718) 722-5300. The Company’s web address is www.myindependence.com.

Independence Community Bank

      The Bank’s principal business is gathering deposits from customers within its market area and investing those deposits along with borrowed funds primarily in multi-family residential mortgage loans,

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commercial real estate loans, commercial business loans, lines of credit to mortgage bankers, consumer loans, mortgage-related securities, investment securities and interest-bearing deposits. The Bank’s revenues are derived principally from interest on its loan and securities portfolios while its primary sources of funds are deposits, borrowings, loan amortization and prepayments and maturities of mortgage-related securities and investment securities. The Bank offers a variety of loan and deposit products to its customers. The Bank also makes available other financial instruments, such as annuity products and mutual funds, through arrangements with a third party.

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

Change in Fiscal Year End

      The Company announced in October 2001 that it changed its fiscal year end from March 31, to December 31, effective December 31, 2001. This change provided internal efficiencies as well as aligned the Company’s reporting cycle with regulators, taxing authorities and the investor community.

Market Area and Competition

      The Company is a community-oriented financial institution providing financial services and loans for housing and commercial businesses primarily within its market area. The Company has sought to set itself apart from its many competitors by tailoring its products and services to meet the diverse needs of its customers, by emphasizing customer service and convenience and by being actively involved in community affairs in the neighborhoods and communities it serves. The Company gathers deposits primarily from the communities and neighborhoods in close proximity to its branches, which deposits continue to constitute the primary funding source of the Bank’s operations. The Company oversees its 126 branch office network from its headquarters located in downtown Brooklyn, including the 35 additional branches which resulted from the acquisition of SIB in April 2004. The Company operates 20 branch offices on Staten Island, 20 branch offices in the borough of Brooklyn, another twelve in the borough of Queens, 14 in Manhattan and seven more branches dispersed among the Bronx, Nassau and Suffolk Counties of New York. The Company also operates 52 branches in the New Jersey counties of Bergen, Essex, Hudson, Middlesex, Monmouth, Ocean and Union. At its banking offices located on Staten Island, the Bank conducts business as SI Bank & Trust, a division of the Bank. During 2005, the Company closed four branch offices, one each in Brooklyn and Westchester and two in New Jersey. In addition, the Bank maintains one branch facility in Maryland and loan production offices in Maryland, Florida and Illinois as a result of the expansion of the Company’s commercial real estate lending activities as discussed below. The Company opened one new office in Manhattan during the first quarter of 2006 and currently expects to open two additional new branch offices during the remainder of 2006.

      Although the Company generally lends throughout the New York City metropolitan area, the majority of its real estate loans are secured by properties located in the boroughs of Brooklyn, Queens, Staten Island and Manhattan, Nassau County, Long Island, and the counties in northern and central New Jersey. In 2003, the Company expanded its commercial real estate lending activities to the Baltimore-Washington and the Boca Raton, Florida markets. In addition, during the third quarter of 2004, the Company expanded its commercial real estate lending activities to the Chicago market. The Company’s customer base within the New York City metropolitan area, like that of the urban neighborhoods which it serves, is racially and ethnically diverse and is comprised of mostly middle-income households and, to a lesser degree, low to moderate income households. Most of the businesses located in its primary market area that the Company lends to are small or medium sized and are primarily dependent upon the regional economy, which economy, due to its connections to the national economy, may be adversely affected not only by conditions within the local market but also by conditions existing elsewhere. Loans to such borrowers may be more sensitive to adverse changes in the local economy than single-family residential loans. Increased delinquencies or other problems with such loans could affect the Company’s financial condition and profitability. At December 31, 2005, approximately 77% of the loan portfolio consisted of commercial real estate, commercial

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business and multi-family residential loans. These portfolios, as a percent of total loans, have increased during 2005 due to the decrease in the size of the single-family residential mortgage loan portfolio due to repayments and the Company’s strategy of expanding the origination of higher yielding commercial real estate and commercial business loans.

      During 2005, the national and local economy continued to strengthen, New York City’s economy continued its growth as Real Gross City Product (“GCP”) (an inflation-adjusted measure of the overall New York City economy) grew for the eighth consecutive quarter after 11 quarters of decline. The GCP growth rate of 3.4% for the third quarter of 2005 compared unfavorably to the U.S. Gross Domestic Product of 4.3%. Factors that limited New York City’s third quarter 2005 economic performance included a higher rate of inflation and unemployment than the nation.

      The inflation rate in New York City rose in the third quarter of 2005 to 4.1% which was higher than the corresponding national rate of 3.8% for the same period. New York City’s higher inflation rate weakens its competitiveness when compared with the rest of the nation.

      The unemployment rate also remained higher than the national rate. New York City’s rate of 5.6% in the third quarter of 2005 compared unfavorably to the national rate of 5.0%. New York City’s rate, however, was at its lowest level since the second quarter of 2001.

      Commercial real estate vacancies fell for the seventh consecutive quarter. In particular, the Manhattan vacancy rate fell to 9.6% compared to 11.4% for the third quarter of 2004. New York City’s rate was at its lowest level since the fourth quarter of 2001. A decline in the vacancy rate has a positive effect on commercial real estate values.

      Historically, the New York City metropolitan area has benefited from being the corporate headquarters of many large industrial and commercial national companies, which have, in turn, attracted many smaller companies, particularly within the service industry. However, as a consequence of being the home of many national companies and to a large number of national securities and investment banking firms, as well as being a popular travel destination, the New York City metropolitan area is particularly sensitive to the economic health of the United States. As a result, economic deterioration in other parts of the United States often has had an adverse impact on the economic climate of New York City.

      The Company’s earnings are significantly affected by changes in market interest rates. The Federal Open Market Committee (“FOMC”) of the Board of Governors of the Federal Reserve (“Federal Reserve Board”) raised the federal funds rate (the rate at which banks borrow funds from one another) eight times, in 25 basis point increments to 4.25% during 2005 (and further raised it an additional 25 basis points to 4.50% in January 2006). While short-term U.S. Treasury yields have shown similar increases in 2005, the two and three year U.S. Treasury yields have shown more modest increases. The five, seven and ten year U.S. Treasury yields have shown smaller increases in 2005 resulting in a continued flattening of the U.S. Treasury yield curve. See “Risk Factors” set forth in Item 1A hereof, “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Net Interest Income” set forth in Item 7 hereof and “Quantitative and Qualitative Disclosures about Market Risk” set forth in Item 7a for further discussion on how changes in market interest rates and U.S. Treasury yield curves affect the Company’s results of operations.

      The Company faces significant competition both in making loans and in attracting deposits. The New York City metropolitan area has a significant concentration of financial institutions, many of which are branches of significantly larger institutions which have greater financial resources than the Company. Over the past 10 years, consolidation of the banking industry in the New York City metropolitan area has continued, resulting in the Company facing larger and increasingly efficient competitors. The Company’s competition for loans comes principally from commercial banks, savings banks, savings and loan associations, credit unions, mortgage-banking companies, commercial finance companies and insurance companies. The Company’s most direct competition for deposits has historically come from commercial banks, savings banks, savings and loan associations, credit unions and commercial finance companies. The Company faces additional competition for deposits from short-term money market funds and other corporate and government securities funds and from other financial institutions such as brokerage firms and insurance companies.

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Forward Looking Information

      Statements contained in this Annual Report on Form 10-K which are not historical facts are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors. Included in such forward-looking statements are statements regarding the proposed merger providing for the acquisition of the Company by Sovereign. See Note 2 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof.

      Words such as “expect”, “feel”, “believe”, “will”, “may”, “anticipate”, “plan”, “estimate”, “intend”, “should”, and similar expressions are intended to identify forward-looking statements. These statements include, but are not limited to, financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements regarding future performance. Such statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of the Company, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: (1) the businesses of the Company and Sovereign may not be combined successfully, or such combination may take longer to accomplish than expected; (2) the growth opportunities and cost savings from the merger of the Company and Sovereign may not be fully realized or may take longer to realize than expected; (3) operating costs and business disruption following the completion of the merger, including adverse effects on relationships with employees, may be greater than expected; (4) governmental approvals of the merger may not be obtained, or adverse regulatory conditions may be imposed in connection with governmental approvals of the merger; (5) diversion of management time to address merger-related issues, (6) litigation or other adversarial proceedings relating to the merger or to Banco Santander’s proposed investment in Sovereign (7) competitive factors which could affect net interest income and non-interest income and/or general economic conditions which could affect the volume of loan originations, deposit flows and real estate values; (8) the levels of non-interest income and the amount of loan losses as well as other factors discussed in the documents filed by the Company with the Securities and Exchange Commission (the “SEC”) from time to time. The Company does not undertake any obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

Available Information

      The Company is a public company and files annual, quarterly and special reports, proxy statements and other information with the SEC. Members of the public may read and copy any document the Company files at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Members of the public can request copies of these documents by writing to the SEC and paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for more information about the operation of the public reference room. The Company’s SEC filings are also available to the public at the SEC’s web site at http://www.sec.gov. In addition to the foregoing, the Company maintains a web site at www.myindependence.com. The Company’s website content is made available for informational purposes only. It should neither be relied upon for investment purposes nor is it incorporated by reference into this Form 10-K. The Company makes available on its internet web site copies of its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such documents as soon as practicable after it electronically files such material with or furnishes such documents to the SEC.

Lending Activities

      General. At December 31, 2005, the Company’s net loan portfolio totaled $12.20 billion (not including $22.1 million of loans available-for-sale), which represented 63.9% of the Company’s total assets of $19.08 billion at such date. A key corporate objective during the past several years has been to change the mix of the Company’s loan portfolio by reducing the origination of one-to-four family residential mortgage loans and cooperative apartment loans while concurrently expanding the origination of higher yielding commercial real estate and commercial business loans as well as variable-rate

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mortgage warehouse lines of credit. Although these portfolios as a percent of total loans declined during 2004 due to the increase in the size of the single-family residential mortgage loan portfolio as a result of the SIB transaction, the percentage of the portfolio comprised of such loans increased in 2005 (and increased on an aggregate dollar basis as well) as the Company continued to implement its business strategy and continued to de-emphasize the origination of single-family residential loans.

      The largest individual category of loans in the Company’s portfolio continues to be multi-family residential mortgage loans, which totaled $4.74 billion or 38.6% of the Company’s total loan portfolio at December 31, 2005. Such loans are secured primarily by apartment buildings located in the Company’s market area. Reflecting the shift in the Company’s loan portfolios as a result of the SIB transaction, the second and third largest loan categories are commercial real estate loans and single-family residential and cooperative apartment loans, which totaled $3.69 billion or 30.0% and $1.93 billion or 15.7%, respectively, of the total loan portfolio at December 31, 2005. Commercial business loans were $977.0 million, or 7.9% of the total loan portfolio, at December 31, 2005 while loans made under mortgage warehouse lines of credit accounted for $453.5 million or 3.7% of the total loan portfolio at such date. The remainder of the loan portfolio was comprised of $481.6 million of home equity loans and lines of credit and $35.9 million of consumer and other loans.

      The types of loans that the Company may originate are subject to federal and state laws and regulations. Interest rates charged by the Company on loans are affected principally by the demand for such loans and the supply of money available for lending purposes, the rates offered by its competitors, the emphasis placed on the origination of various types of loans and the terms and credit risks associated with the loans. These factors in turn, are affected by general and economic conditions, the monetary policy of the federal government, including the Federal Reserve Board, legislative tax policies and governmental budgetary matters.

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      Loan Portfolio and Loans Available-for-Sale Composition. The following table sets forth the composition of the Company’s loan portfolio and loans available-for-sale at the dates indicated.

		At December 31,
		2005					2004					2003					2002					2001
				Percent					Percent					Percent					Percent					Percent
				of					of					of					of					of
(Dollars in Thousands)		Amount		Total			Amount		Total			Amount		Total			Amount		Total			Amount		Total
Loan portfolio:
Mortgage loans:
	Single-family residential and cooperative apartment	$	1,932,516		15.7	%	$	2,490,062		22.1	%	$	284,367		4.6	%	$	556,279		9.5	%	$	849,140		14.6	%
	Multi-family residential (1)		4,743,308		38.6			3,800,649		33.8			2,821,706		45.7			2,436,666		41.9			2,731,513		46.5
	Commercial real estate		3,687,226		30.0			3,034,254		27.0			1,612,711		26.2			1,312,760		22.6			1,019,379		17.3
Total principal balance – mortgage loans			10,363,050		84.3			9,324,965		82.9			4,718,784		76.5			4,305,705		74.0			4,600,032		78.4
	Less net deferred fees		10,753		0.1			9,875		0.1			4,396		0.1			7,665		0.1			11,198		0.2
Total mortgage loans on real estate			10,352,297		84.2			9,315,090		82.8			4,714,388		76.4			4,298,040		73.9			4,588,834		78.2
Commercial business loans, net of deferred fees			977,022		7.9			809,392		7.2			606,204		9.8			598,267		10.3			665,829		11.3
Other loans:
	Mortgage warehouse lines of credit		453,541		3.7			659,942		5.9			527,254		8.5			692,434		11.9			446,542		7.6
	Home equity loans and lines of credit		481,597		3.9			416,351		3.7			296,986		4.8			201,952		3.5			141,905		2.4
	Consumer and other loans		35,913		0.3			47,817		0.4			27,538		0.5			26,971		0.4			32,002		0.5
Total principal balance – other loans			971,051		7.9			1,124,110		10.0			851,778		13.8			921,357		15.8			620,449		10.5
	Less unearned discounts and deferred fees		—		0.0			—		0.0			139		0.0			291		0.0			677		0.0
Total other loans			971,051		7.9			1,124,110		10.0			851,639		13.8			921,066		15.8			619,772		10.5
Total loans receivable			12,300,370		100.0	%		11,248,592		100.0	%		6,172,231		100.0	%		5,817,373		100.0	%		5,874,435		100.0	%
Less allowance for loan losses			101,467					101,435					79,503					80,547					78,239
Loans receivable, net		$	12,198,903				$	11,147,157				$	6,092,728				$	5,736,826				$	5,796,196
Loans available- for-sale:
	Single-family residential	$	4,172				$	74,121				$	2,687				$	7,576				$	3,696
	Multi-family residential		17,900					22,550					3,235					106,803					—
Total loans available- for-sale		$	22,072				$	96,671				$	5,922				$	114,379				$	3,696

(1)  Includes loans secured by mixed-use (combined residential and commercial use) properties. At December 31, 2005 and 2004, such loans totaled $2.18 billion and $1.59 billion, respectively.

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     Contractual Principal Repayments and Interest Rates. The following table sets forth scheduled contractual amortization of the Company’s loans at December 31, 2005, as well as the dollar amount of such loans which are scheduled to mature after one year and which have fixed or adjustable interest rates. Demand loans, overdraft loans and loans having no schedule of repayments and no stated maturity are reported as due in one year or less. The table does not include loans available-for-sale.

			Principal Repayments Contractually Due in Year(s) Ended December 31,
			Total at
			December 31,
(In Thousands)			2005		2006		2007		2008		2009		2010-2015		2016-2021		Thereafter
Mortgage loans:
	Single-family residential and cooperative apartment(1)		$	1,893,562	$	7,870	$	3,119	$	5,744	$	10,227	$	109,409	$	274,393	$	1,482,800
	Multi-family residential(2)(3)			4,742,034		40,073		103,466		163,160		460,578		3,093,541		847,236		33,980
	Commercial real estate(3)			3,687,226		153,824		134,522		129,127		271,681		2,174,027		533,598		290,447
Commercial business loans(4)				982,225		293,047		110,662		53,224		78,319		316,115		79,371		51,487
Other loans:
	Mortgage warehouse lines of credit			453,541		453,541		—		—		—		—		—		—
	Consumer and other loans(5)			517,510		18,716		7,158		11,643		23,205		263,981		166,708		26,099
		Total(6)	$	12,276,098	$	967,071	$	358,927	$	362,898	$	844,010	$	5,957,073	$	1,901,306	$	1,884,813

(1)	Does not include $39.0 million of single-family residential loans serviced by others.
(2)	Does not include $1.3 million of multi-family residential loans serviced by others.
(3)	Multi-family residential and commercial real estate loans are generally originated with a term to maturity of five to seven years and may be extended by the borrower for an additional five-year period.
(4)	Does not include $5.2 million of deferred fees.
(5)	Includes home equity loans and lines of credit, FHA and conventional home improvement loans, automobile loans, passbook loans and secured and unsecured personal loans.
(6)	Of the $11.31 billion of loan principal repayments contractually due after December 31, 2006, $9.09 billion have fixed rates of interest and $2.22 billion have adjustable rates of interest.

     Loan Originations, Purchases, Sales and Servicing. The Company originates multi-family residential loans, commercial real estate and business loans, advances under mortgage warehouse lines of credit, single-family residential mortgage loans, cooperative apartment loans, home equity loans and lines of credit, and consumer and other loans. The relative volume of originations is dependent upon customer demand and current and expected future levels of interest rates.

      During 2005, the Company continued its focus on expanding its higher yielding and/or variable-rate portfolios of commercial real estate and commercial business loans as well as expanding its mortgage warehouse lines of credit portfolio as part of its business plan.

      In addition to continuing to generate multi-family residential mortgage loans for its portfolio, the Company originates and sells multi-family residential mortgage loans in the secondary market to Fannie Mae while retaining servicing. This relationship supports the Company’s ongoing strategic objective of increasing non-interest income related to lending and servicing revenue. The Company underwrites these loans using its customary underwriting standards, funds the loans, and sells the loans to Fannie Mae at agreed upon pricing thereby eliminating interest rate and basis exposure to the Company. Generally, the Company can originate and sell loans to Fannie Mae for not more than $20.0 million per loan. During the year ended December 31, 2005, the Company sold $1.57 billion of fixed-rate multi-family loans in the secondary market to Fannie Mae with servicing retained by the Company. Included in the $1.57 billion of loans sold during 2005 were $377.9 million that were originally held in portfolio with a weighted average yield of 5.27%. Under the terms of the sales program with Fannie Mae, the Company retains a portion of the credit risk associated with such loans. The Company has a 100% first loss position on each multi-family residential loan sold to Fannie Mae under such program until the earlier to occur of (i) the aggregate losses on the multi-family residential loans sold to Fannie Mae reaching the maximum

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loss exposure for the portfolio as a whole or (ii) until all of the loans sold to Fannie Mae under this program are fully paid off. The maximum loss exposure is available to satisfy any losses on loans sold in the program subject to the foregoing limitations. At December 31, 2005, the Company serviced $6.27 billion of loans for Fannie Mae sold to it pursuant to this program with a maximum potential loss exposure of $186.7 million.

      The maximum loss exposure of the associated credit risk related to the loans sold to Fannie Mae under this program is calculated pursuant to a review of each loan sold to Fannie Mae. A risk level is assigned to each such loan based upon the loan product, debt service coverage ratio and loan to value ratio of the loan. Each risk level has a corresponding sizing factor which, when applied to the original principal balance of the loan sold, equates to a recourse balance for the loan. The sizing factors are periodically reviewed by Fannie Mae based upon its ongoing review of loan performance and are subject to adjustment. The recourse balances for each of the loans are aggregated to create a maximum loss exposure for the entire portfolio at any given point in time. The Company’s maximum loss exposure for the entire portfolio of sold loans is periodically reviewed and, based upon factors such as amount, size, types of loans and loan performance, may be adjusted downward. Fannie Mae is restricted from increasing the maximum exposure on loans previously sold to it under this program as long as (i) the total borrower concentration (i.e., the total amount of loans extended to a particular borrower or a group of related borrowers) as applied to all mortgage loans delivered to Fannie Mae since the sales program began does not exceed 10% of the aggregate loans sold to Fannie Mae under the program and (ii) the average principal balance per loan of all mortgage loans delivered to Fannie Mae since the sales program began continues to be $4.0 million or less.

      The Company has not sold multi-family residential loans to any other entities besides Fannie Mae during the last five years.

      Although all of the loans serviced for Fannie Mae (both loans originated for sale and loans sold from portfolio) are currently fully performing, the Company has established a liability related to the fair value of the retained credit exposure. This liability represents the amount that the Company estimates that it would have to pay a third party to assume the retained recourse obligation. The estimated liability represents the present value of the estimated losses that the portfolio is projected to incur based upon an industry-based default curve with a range of estimated losses. At December 31, 2005 the Company had a $9.4 million liability related to the fair value of the retained credit exposure for loans sold to Fannie Mae under this sales program.

      As a result of retaining servicing on $6.31 billion of multi-family residential loans sold to Fannie Mae, which includes both loans originated for sale and loans sold from portfolio, the Company had a $9.5 million loan servicing asset at December 31, 2005 compared to $11.8 million at December 31, 2004. During 2005 the Company sold $1.57 billion of multi-family loans to Fannie Mae and recorded a $4.1 million servicing asset, which was partially offset by $6.4 million of amortization expense related to the servicing asset.

      At December 31, 2005, the Company had a $4.4 million loan servicing asset related to $493.4 million of single-family residential loans that were sold in the secondary market with servicing retained. Such loans were acquired by the Company as a result of the SIB transaction. The Company recorded $1.9 million of amortization expense of this servicing asset during 2005.

      During the third quarter of 2003, the Company announced that ICM Capital, L.L.C. (“ICM Capital”), a subsidiary of the Bank, was approved as a Delegated Underwriting and Servicing (“DUS”) mortgage lender by Fannie Mae. Under the Fannie Mae DUS program, ICM Capital may underwrite, fund and sell mortgages on multi-family residential properties to Fannie Mae, with servicing retained. Participation in the DUS program requires ICM Capital to share the risk of loan losses with Fannie Mae with one-third of all losses assumed by ICM Capital with the remaining two-thirds of all losses being assumed by Fannie Mae. There have been no loans originated under this DUS program since inception.

      The Bank has a two-thirds ownership interest in ICM Capital and Meridian Company, LLC (“Meridian Company”), a Delaware limited liability company, has a one-third ownership interest in ICM Capital. ICM Capital’s loan originations are expected to be referred by Meridian Capital Group, LLC (“Meridian Capital”). Meridian Capital is 65% owned by Meridian Capital Funding, Inc.

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(“Meridian Funding”), a New York-based mortgage brokerage firm, with the remaining 35% minority equity investment held by the Holding Company. Meridian Funding and Meridian Company have the same principal owners. See Note 21 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof.

      Over the past several years, the Company has de-emphasized the origination for portfolio of single-family residential mortgage loans in favor of higher yielding loan products. In November 2001, the Company entered into a private label program for the origination of single-family residential mortgage loans through its branch network under a mortgage origination assistance agreement with Cendant Mortgage Corporation, doing business as PHH Mortgage Services (“Cendant”). In January 2005, Cendant was spun off from its parent company, Cendant Corporation, to PHH Corporation. Cendant was subsequently renamed PHH Mortgage Corporation (“PHH Mortgage”). Under this program, the Company utilizes PHH Mortgage’s mortgage loan origination platforms (including telephone and Internet platforms) to originate loans that close in the Company’s name. The Company funds the loans directly, and, under a separate loan and servicing rights purchase and sale agreement, sells the loans and related servicing to PHH Mortgage on a non-recourse basis at agreed upon pricing. During the year ended December 31, 2005, the Company originated for sale $83.3 million and sold $81.7 million of single-family residential mortgage loans through the program. The Company is using this program as a means of increasing non-interest income while efficiently serving its client base. In recent years the Company has continued to originate to a very limited degree certain adjustable and fixed-rate single-family residential mortgage loans for portfolio retention. During 2005, the Company originated $13.0 million of such loans compared to $143.4 million during 2004. The level of originations experienced in 2004 was primarily a result of funding SIB loan commitments in existence at the time the acquisition was completed in April 2004. The Company does not foresee any material expansion of such lending activities.

      Mortgage loan commitments to borrowers related to loans originated for sale are considered a derivative instrument under Statement of Financial Accounting Standards (“SFAS”) No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS No. 149”). In addition, forward loan sale agreements with Fannie Mae and PHH Mortgage also meet the definition of a derivative instrument under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”). For more information regarding the Company’s derivative instruments, see Note 19 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof.

      During the fourth quarter of 2002, the Company entered into a private label program for the origination and servicing of small business lines of credit through an origination assistance agreement with Wells Fargo & Company (“Wells Fargo”). This program is referred to as “Business Custom Capital” and consists of the extension of unsecured lines of credit, up to $100,000, to small business customers in the Company’s market area with over $50,000 in annual sales. These lines are underwritten, funded and serviced by Wells Fargo for their own portfolio and have no impact on the Company’s Statement of Financial Condition. The Company is using this program as a means of increasing non-interest income as the Company receives an upfront fee for lines originated and a fee on the outstanding balance of the line for a period of three years after origination.

      As of December 31, 2005, the Company serviced $528.9 million of single-family residential mortgage loans and $6.83 billion of multi-family residential loans for others.

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      Loan Activity. The following table shows the activity in the Company’s loan portfolio and loans available-for-sale portfolio during the periods indicated.

			Year Ended December 31,
(In Thousands)			2005		2004		2003
Total principal balance of loans and loans available-for-sale held at the beginning of period			$	11,360,818	$	6,188,498	$	5,944,961
Acquired from SIB acquisition				—		3,856,856		—
Originations of loans for portfolio:
	Single-family residential and cooperative apartment			13,013		143,386		13,710
	Multi-family residential			1,626,639		2,419,918		1,131,460
	Commercial real estate			1,202,280		1,474,481		651,862
	Commercial business loans			603,808		375,987		289,930
	Mortgage warehouse lines of credit(1)			9,977,225		10,187,771		10,291,152
	Consumer(2)			272,434		229,342		239,165
		Total originations for portfolio		13,695,399		14,830,885		12,617,279
Originations of loans for sale:
	Single-family residential			83,323		122,813		172,459
	Multi-family residential			1,177,609		1,141,099		1,621,584
	Commercial business loans			3,676		3,377		4,066
		Total originations of loans for sale		1,264,608		1,267,289		1,798,109
Purchases of loans:
	Mortgage warehouse lines of credit			—		—		76,334
		Total purchases		—		—		76,334
		Total originations and purchases		14,960,007		16,098,174		14,491,722
Loans sold:
	Single-family residential			95,851		348,935		174,208
	Multi-family residential			1,570,602		2,074,725		1,727,329
	Commercial business loans			3,676		3,373		4,066
		Total sold		1,670,129		2,427,033		1,905,603
Repayments(3)				12,312,298		12,355,677		12,342,582
Net loan activity				977,580		5,172,320		243,537
		Total principal balance of loans and loans available-for-sale held at the end of period		12,338,398		11,360,818		6,188,498
Less:
	Discounts on loans purchased and net deferred fees at end of period			15,956		15,555		10,345
		Total loans and loans available-for-sale at end of period	$	12,322,442	$	11,345,263	$	6,178,153

(1)	Represents advances on the lines of credit.
(2)	Includes home equity loans and lines of credit, FHA and conventional home improvement loans, automobile loans, passbook loans and secured and unsecured personal loans.
(3)	Includes repayment of mortgage warehouse line advances ($10.18 billion for mortgage warehouse lines of credit during the year ended December 31, 2005) and loans charged-off or transferred to other real estate owned.

     Multi-Family Residential and Commercial Real Estate Lending. The Company originates multi-family (five or more units) residential mortgage loans, which are secured primarily by apartment buildings, cooperative apartment buildings and mixed-use (combined residential and commercial) properties located primarily in the Company’s market area. These loans are comprised primarily of middle-income housing located primarily in the boroughs of Brooklyn, Queens, Manhattan, the

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Bronx and Northern New Jersey. In 2003, the Company expanded its commercial real estate lending (both multi-family residential and commercial real estate mortgage loans) activities to the Baltimore-Washington and the Boca Raton, Florida markets. In addition during the third quarter of 2004, the Company continued the expansion of its commercial real estate lending activities to the Chicago market. The Company expects the loans to be referred to the Company primarily by Meridian Capital, which already has an established presence in these market areas.

      The following table sets forth loan originations regarding the Company’s loan expansion program for the period indicated as follows:

			Year Ended December 31, 2005
			Baltimore-
			Washington		Florida		Chicago
(Dollars in Thousands)			Market Area		Market Area		Market Area
Originations for portfolio:
	Multi-family residential		$	196,747	$	186,444	$	38,910
	Commercial real estate			38,764		78,860		3,769
Originations for sale:
	Multi-family residential			248,355		262,365		11,910
		Total originations	$	483,866	$	527,669	$	54,589

			Year Ended December 31, 2004
			Baltimore-
			Washington		Florida		Chicago
(Dollars in Thousands)			Market Area		Market Area		Market Area
Originations for portfolio:
	Multi-family residential		$	126,696	$	88,748	$	—
	Commercial real estate			66,965		113,223		—
Originations for sale:
	Multi-family residential			140,860		82,861		—
		Total originations	$	334,521	$	284,832	$	—

      The Company reviews its expansion program periodically and establishes and adjusts its targets based on market acceptance, credit performance, profitability and other relevant factors.

      The main competitors for loans in the Company’s market area tend to be commercial banks, savings banks, savings and loan associations, credit unions, mortgage-banking companies and insurance companies. Historically, the Company has been an active lender of multi-family residential mortgage loans for portfolio retention. During the past several years, in order to further its commitment to remain a leader in the multi-family market, the Company has developed a relationship with Fannie Mae to originate and sell multi-family residential mortgage loans in the secondary market while retaining servicing. The Company determines whether to originate a loan for portfolio retention or for sale based upon the yield and terms of the loan. Due to the low interest rate environment during 2003 and 2002, a larger portion of the Company’s multi-family residential loan originations were for sale as opposed to portfolio retention. During 2004 and 2005, as interest rates were in transition, the Company also sold lower-yielding multi-family residential loans from portfolio to Fannie Mae. See “Business-Lending Activities-Loan Originations, Purchases, Sales and Servicing”.

      At December 31, 2005, multi-family residential mortgage loans totaled $4.74 billion, or 38.6% of the Company’s total loan portfolio. The level of originations of multi-family residential loans for portfolio for the year ended December 31, 2005 decreased by $793.3 million, or 32.8% to $1.63 billion during the year ended December 31, 2005 compared to $2.42 billion for the year ended December 31, 2004. The decline in originations in 2005 was due to rising interest rates and increased competition. As general market rates of interest increased in 2005 the increase in the average cost of interest-bearing liabilities used to fund the originations outpaced the increase in the average yield earned on those originations. This reduced the profitability of such loans and the Company determined

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to reduce the level of multi-family originations. The weighted average yield on multi-family originations during 2005 was 5.26%, an increase of 30 basis points compared to 4.96% for 2004 originations. However, the average interest rate paid on interest-bearing liabilities increased 58 basis points to 2.17% for the year ended December 31, 2005 compared to 1.59% for the year ended December 31, 2004. Multi-family residential mortgage loans in the Company’s portfolio generally range from $500,000 to $25.0 million and have an average loan size of approximately $1.5 million.

      At December 31, 2005, the Company had $17.9 million of multi-family loans available-for-sale. During the year ended December 31, 2005 the Company originated for sale $1.18 billion and sold $1.57 billion (of which $377.9 million was sold from portfolio) of multi-family residential loans to Fannie Mae with servicing retained by the Bank. By comparison, during the year ended December 31, 2004 the Company originated for sale $1.14 billion and sold $2.07 billion (of which $953.8 million was sold from portfolio) of multi-family residential loans to Fannie Mae with servicing retained by the Company. The Company chose to sell fewer loans out of portfolio as general market rates of interest continued to rise in 2005. The weighted average interest rate of loans sold out of portfolio to Fannie Mae was 5.27% during 2005 compared to 4.89% during 2004. Increased competition also reduced sales of loans originated for sale as the interest rates and terms on loans Fannie Mae was willing to purchase were no longer as attractive to borrowers as competitors’ terms and pricing, thus resulting in reduced originations.

      The Company has developed during the past several years working relationships with several mortgage brokers. Under the terms of the arrangements with such brokers, the brokers refer potential loans to the Company. The loans are appraised and underwritten by the Company utilizing its underwriting policies and standards. The mortgage brokers receive a fee from the borrower upon the funding of the loans by the Company. In recent years, mortgage brokers have been the source of substantially all of the multi-family residential and commercial real estate loans originated by the Company. In October 2002, in furtherance of its business strategy regarding commercial real estate and multi-family loan originations and sales, the Company increased from 20% to 35% its minority investment in Meridian Capital, which is 65% owned by Meridian Funding. Meridian Funding is primarily engaged in the origination of commercial real estate and multi-family mortgage loans. The loans originated by the Company resulting from referrals by Meridian Capital account for a significant portion of the Company’s total loan originations. For the year ended December 31, 2005, such loans originated by Meridian Funding accounted for approximately 24.6% of the aggregate amount of loans originated for portfolio and for sale compared to 27.7% for the year ended December 31, 2004. With respect to the loans which were originated for portfolio in 2005 (excluding mortgage warehouse lines of credit), loans resulting from referrals from Meridian Capital amounted to approximately 65.3% of such loans compared to 69.3% for the year ended December 31, 2004. In addition, referrals from Meridian Capital accounted for the majority of the loans originated for sale in 2005. All loans resulting from referrals from Meridian Capital are underwritten by the Company using its loan underwriting standards and procedures. The Company generally does not pay referral fees to Meridian Capital. However the Company paid fees aggregating approximately $0.7 million and $1.0 million to Meridian Capital for the years ended December 31, 2005 and 2004, respectively. The ability of the Company to continue to originate multi-family residential and commercial real estate loans at the levels experienced in recent years may be a function of, among other things, maintaining the mortgage broker relationships discussed above. See Note 21 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof.

      When approving new multi-family residential mortgage loans, the Company follows a set of underwriting standards which generally permit a maximum loan-to-value ratio of 80% based on an appraisal performed by either one of the Company’s in-house licensed and certified appraisers or by a Company-approved licensed and certified independent appraiser (whose appraisal is reviewed by a Company licensed and certified appraiser), and sufficient cash flow from the underlying property to adequately service the debt. A minimum debt service ratio of 1.25 generally is required on multi-family residential mortgage loans. The Company also considers the financial resources of the borrower, the borrower’s experience in owning or managing similar properties, the market value of the property and the Company’s lending experience with the borrower. For loans sold in the secondary

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market to Fannie Mae, the maximum loan-to-value ratio is 80% and the minimum debt service ratio is 1.25. The Company’s current lending policy for loans originated for portfolio and for sale requires that newly originated loans in excess of $5.0 million be approved by at least two members of the Credit Committee of the Board of Directors, the composition of which is changed periodically.

      It is the Company’s policy to require appropriate insurance protection, including title and hazard insurance, on all mortgage loans prior to closing. Other than cooperative apartment loans, mortgage loan borrowers generally are required to advance funds for certain items such as real estate taxes, flood insurance and private mortgage insurance, when applicable.

      The Company’s multi-family residential mortgage loans include loans secured by cooperative apartment buildings. In underwriting these loans, the Company applies the normal underwriting criteria used with other multi-family properties. In addition, the Company generally will not make a loan on a cooperative apartment building unless at least 50% of the total units in the building are owner-occupied. However, the Company will consider making a loan secured by a cooperative apartment building if it has a large positive rental income which significantly exceeds maintenance expense. At December 31, 2005, the Company had $284.6 million of loans secured by cooperative apartment buildings.

      The Company’s typical multi-family residential mortgage loan is originated with a term to repricing or maturity of 5 to 7 years. These loans generally have fixed interest rates and may be extended by the borrower, upon payment of an additional fee, for an additional 5-year period at an interest rate based on the 5-year Federal Home Loan Bank of New York (“FHLB”) advance rate plus a margin at the time of extension. Under the terms of the Company’s multi-family residential mortgage loans, the principal balance generally is amortized at the rate of 1% per year with the remaining principal due in full at maturity. Prepayment penalties are generally part of the terms of these loans.

      In addition to multi-family residential mortgage loans, the Company originates commercial real estate loans. This growing portfolio is comprised primarily of loans secured by commercial and industrial properties, office buildings and small shopping centers located primarily within the Company’s market area. During July 2003 the Company expanded its commercial real estate lending activities to the Baltimore-Washington and the Boca Raton, Florida markets. In addition, during the third quarter of 2004, the Company continued the expansion of its commercial real estate lending activities to the Chicago market. During 2005, the company originated $38.8 million of such loans in the Baltimore-Washington market, $78.9 million in the Florida market and $3.8 million in the Chicago market.

      At December 31, 2005, commercial real estate loans amounted to $3.69 billion or 30.0% of total loans. This portfolio increased $653.0 million, or 21.5%, during the year ended December 31, 2005 due to the Company’s increased emphasis on originating higher yielding commercial real estate and business loans in line with its business strategy. The Company originated $1.20 billion of commercial real estate loans during the year ended December 31, 2005 compared to $1.47 billion for the year ended December 31, 2004. The decline in originations in 2005 was due to rising interest rates and increased competition. As general market rates of interest increased in 2005, the increase in the average cost of interest-bearing liabilities used to fund the originations of such loans outpaced the increase in the average yield earned on those originations. This reduced the profitability of such loans and the Company determined to reduce the level of commercial real estate originations. The Company intends to continue to emphasize the origination for portfolio of these higher yielding loan products.

      The Company’s commercial real estate loans generally range in amount from $50,000 to $25.0 million, and have an average size of approximately $1.6 million. The Company originates commercial real estate loans using similar underwriting standards as applied to multi-family residential mortgage loans. The Company reviews rent or lease income, rent rolls, business receipts, the borrower’s credit history and business experience, and comparable values of similar properties when underwriting commercial real estate loans.

      Loans secured by apartment buildings and other multi-family residential and commercial properties generally are larger and considered to involve a higher inherent risk of loss than single-family residential mortgage or cooperative apartment loans. Payments on loans secured by multi-family residential and commercial properties are often dependent on the successful operation or management of the properties and are subject, to a

13

greater extent, to adverse conditions in the real estate market or the local economy. The Company seeks to minimize these risks through its underwriting policies, which generally limit the origination of such loans to loans secured by properties located in the Company’s market area and require such loans to be qualified on, among other things, the basis of the property’s income and debt service ratio.

      Single-Family Residential and Cooperative Apartment Lending. The Company, through its private label program with PHH Mortgage, offers both fixed-rate and adjustable-rate mortgage loans secured by single-family residential properties located in the Company’s primary market area. Under its agreement with PHH Mortgage, the Company offers a range of single-family residential loan products through various delivery channels, supported by direct consumer advertising, including telemarketing, branch referrals and the Company’s Internet website. At December 31, 2005, the Company had $4.2 million of loans available-for-sale to PHH Mortgage. During 2005, the Company originated for sale $83.3 million and sold $81.7 million of loans to PHH Mortgage. The Company will continue to emphasize this program as a means of increasing non-interest income.

      Over the past few years, the Company has de-emphasized the origination for portfolio of single-family residential mortgages and cooperative apartment loans in favor of higher yielding loan products. Although the Company’s cooperative apartment loans in the past have related to properties located in the boroughs of Manhattan, Brooklyn and Queens, in recent periods substantially all of such loans originated or purchased have related to properties located in Manhattan. At December 31, 2005, $1.93 billion, or 15.7%, of the Company’s total loan portfolio consisted of single-family residential mortgage loans and cooperative apartment loans, of which $995.5 million were adjustable-rate mortgage loans (“ARMs”), as compared to $2.49 billion or 22.1% of the total loan portfolio at December 31, 2004. The $557.5 million decrease was primarily due to repayments.

      The interest rates on the Company’s ARMs fluctuate based upon a spread above the average yield on United States Treasury securities, adjusted to a constant maturity which corresponds to the adjustment period of the loan (the “U.S. Treasury constant maturity index”) as published weekly by the Federal Reserve Board. In addition, ARMs generally are subject to limitations on interest increases or decreases of 2% per adjustment period and an interest rate cap during the life of the loan established at the time of origination. Certain of the Company’s ARMs can be converted at certain times to fixed-rate loans upon payment of a fee. Included in single-family residential loans is a modest amount of loans partially or fully guaranteed by the Federal Housing Administration (“FHA”) or the Department of Veterans’ Affairs (“VA”).

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

      Commercial Business Lending Activities. Part of the Company’s strategy to shift its portfolio mix is expanding its commercial business loan portfolio. The Company makes commercial business loans directly to businesses located primarily in its market area and targets small- and medium-sized businesses with annual revenue up to $500.0 million. Commercial business loans are obtained primarily from existing customers, branch referrals, accountants, attorneys and direct inquiries. As of December 31, 2005, commercial business loans totaled $977.0 million, or 7.9%, of the Company’s total loan portfolio compared to $809.4 million, or 7.2%, of the total loan portfolio at December 31, 2004. The Company originated $603.8 million of commercial business loans for portfolio during the year ended December 31, 2005 compared to $376.0 million for the year ended December 31, 2004.

      Commercial business loans originated by the Company generally range in amount from $50,000 to $10.0 million and have an average loan size of approximately $370,000. These loans include lines of credit, revolving credit, time loans and term loans. The loans generally range from one year to ten years and include floating, fixed and adjustable rates. Such loans are generally secured by real estate, receivables, inventory, equipment, machinery and vehicles and are often further enhanced by the personal guarantees of the principals of the

14

borrower. The Company’s current lending policy for loans originated for portfolio and for sale requires that newly originated loans in excess of $5.0 million be approved by two non-officer directors of the Credit Committee of the Board of Directors. Although commercial business loans generally are considered to involve greater credit risk, and generally bear a corresponding higher yield, than certain other types of loans, management intends to continue emphasizing the origination of commercial business loans to small- and medium-sized businesses in its market area.

      Included in commercial business loans are lease financing activities. ICB Leasing Corp., a subsidiary of the Bank, was formed during the third quarter of 2004 to provide equipment lease financing and term loans to its customers. The Company originated $3.9 million of such loans during the fourth quarter of 2004 and $124.6 million during the year ended December 31, 2005. Also included in commercial business loans are small business lending activities. Small business lending activities are targeted to customers within the Company’s market area with annual sales of $5.0 million or less. The Company offers various products to small business customers in its market area which include (i) originating secured loans for its own portfolio, (ii) originating secured loans in amounts up to $2.0 million using the Company’s underwriting standards and guidelines from the Small Business Administration (“SBA”), and selling, at a gain, the guaranteed portion (75%) of each loan, with servicing retained, and (iii) offering access to unsecured lines of credit up to $100,000 through its private label program with Wells Fargo. (See “ — Loan Origination, Purchases, Sales and Servicing”). The Company originated $3.7 million and sold $3.7 million of SBA loans during the year ended December 31, 2005. The Company offers these activities to better serve its small business customers as well as a means of increasing non-interest income.

      Mortgage Warehouse Lines of Credit. Mortgage warehouse lines of credit are revolving lines of credit to small- and medium-sized mortgage-banking companies at interest rates indexed at a spread to the prime rate as listed in the Wall Street Journal. The lines are drawn upon by such companies to fund the origination of mortgages, primarily one-to-four family loans, where the amount of the draw is generally no higher than 99% of the loan amount, which, in turn, in most cases, is no higher than 80% of the appraised value of the property. In most cases, where the amount of the draw is in excess of 80% of the appraised value, the mortgage is covered by private mortgage insurance or government insurance through the FHA. In substantially all cases, prior to funding the advance, the mortgage banker has received an approved commitment for the sale of the loan, which in turn reduces credit exposure associated with the line. The lines are repaid upon completion of the sale of the mortgage loan to third parties, which usually occurs within 90 days of origination of the loan. During the period between the origination and sale of the loan, the Company maintains possession of the original mortgage note. These loans are of short duration and are made to customers located primarily in New Jersey and surrounding states whose primary business is mortgage refinancing. In the event of rising interest rates, the Company would expect that the use of these lines of credit would be substantially reduced and replaced only to the extent of strength in the general housing market.

      Mortgage warehouse lines of credits to mortgage bankers generally range in amount from $1.0 million to $35.0 million, and have an average size of approximately $9.8 million. The Company establishes limits on mortgage warehouse lines of credit using its normal underwriting standards. The Company reviews credit history, business experience, process controls and procedures and requires personal guarantees of the principals of the borrower.

      As of December 31, 2005, advances under mortgage warehouse lines of credit totaled $453.5 million, or 3.7% of the Company’s total loan portfolio compared to $659.9 million at December 31, 2004. The decline was due to the continued rising interest rate environment that began in 2004. During 2005, advances on mortgage warehouse lines of credit totaled $10.00 billion and repayments totaled $10.18 billion. Unused mortgage warehouse lines of credit totaled $828.2 million at December 31, 2005. Utilization of the borrowers’ lines of credit approximated 35% and 47% of the total lines approved at December 31, 2005 and December 31, 2004, respectively.

      Consumer Lending Activities. The Company offers a variety of consumer loans including home equity loans and lines of credit, automobile loans and passbook loans in order to provide a full range of financial services to its customers. Such loans are obtained primarily through existing and walk-in

15

customers and direct advertising. At December 31, 2005, $517.5 million or 4.2% of the Company’s total loan portfolio was comprised of consumer loans.

      The largest component of the Company’s consumer loan portfolio is home equity loans and lines of credit. Home equity lines of credit are a form of revolving credit and are secured by the underlying equity in the borrower’s primary or secondary residence. The loans are underwritten in a manner such that they result in a risk of loss which is similar to that of single-family residential mortgage loans. The Company’s home equity lines of credit have interest rates that adjust or float based on the prime rate listed in the Wall Street Journal, have loan-to-value ratios of 80% or less, and are generally for amounts of less than $150,000. The loan repayment is generally based on a 20 year term consisting of principal amortization plus accrued interest. At December 31, 2005, home equity loans and lines of credit amounted to $481.6 million, or 3.9%, of the Company’s total loan portfolio. The Company had an additional $192.6 million of unused commitments pursuant to such equity lines of credit at December 31, 2005.

      Loan Approval Authority and Underwriting. The Board of Directors of the Bank has established lending authorities for individual officers as to its various types of loan products. For multi-family residential mortgage loans, commercial real estate and commercial business loans, an Executive Vice President and a Senior Vice President have the authority to approve newly originated loans in amounts up to $3.0 million and for the private banking group within the Company’s business banking area, two Senior Vice Presidents acting jointly have authority to approve up to $500,000. Amounts up to $5.0 million may be approved by either the Chief Executive Officer or the Chief Credit Officer.

      Single-family residential mortgage loans and cooperative apartment loans and home equity loans of less than $300,000 can be approved by an individual loan officer, while loans up to and including $500,000 must be approved by a senior loan officer. Two senior officers acting jointly have the authority to approve such loans in amounts up to $750,000 and those loans exceeding $750,000 may be approved by two senior officers acting jointly (one of whom must be the Chief Executive Officer, Chief Credit Officer or Executive Vice President — Consumer Banking.) Consumer loans of less than $50,000 can be approved by an individual loan officer and loans between $50,000 and $100,000 can be approved by an individual senior loan officer. Loans between $100,000 and $300,000 must be approved by the joint action of two senior loan officers.

      Any mortgage loan, cooperative apartment and commercial business loan in excess of $5.0 million must be approved by at least two members of the Credit Committee of the Board of Directors, which consists of various directors, the composition of which is changed periodically and the joint action of two senior officers, one of whom must be the Chief Executive Officer, Chief Credit Officer, Executive Vice President-Consumer Banking or Senior Vice President-Lending, Consumer Banking.

      With certain limited exceptions, the Company’s credit administration policy limits the amount of credit related to mortgage loans and commercial loans that can be extended to any one borrower to $20.0 million, substantially less than the limits imposed by applicable law and regulation. With certain exceptions, the Company’s policy also limits the amount of commercial business or commercial real estate loans that can be extended to any affiliated borrowing group to $40.0 million. Exceptions to the above policy limits must have the approval of the Chief Executive Officer, Chief Credit Officer and two members of the Credit Committee of the Board of Directors. With certain limited exceptions, a New York-chartered savings bank may not make loans or extend credit for commercial, corporate or business purposes (including lease financing) to a single borrower, the aggregate amount of which would exceed (i) 15% of the Bank’s net worth if the loan is unsecured, or (ii) 25% of net worth if the loan is secured. Excluding relationships that include loans that have been sold to Fannie Mae and against which Fannie Mae has recourse, the outstanding aggregate loan balance to the Company’s largest lending relationship was $118.9 million at December 31, 2005 which was in compliance with the regulatory limitations.

      Appraisals for multi-family residential and commercial real estate loans are generally conducted either by licensed and certified internal appraisers or qualified external appraisers. In addition, the Company generally reviews internally all appraisals conducted by independent appraisers on multi-family residential and commercial real estate properties.

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      Loan Origination and Loan Fees. In addition to interest earned on loans, the Company receives loan origination fees or “points” for many of the loans it originates. Loan points are a percentage of the principal amount of the mortgage loan and are charged to the borrower in connection with the origination of the loan. The Company also offers a number of residential loan products on which no points are charged.

      The Company’s loan origination fees and certain related direct loan origination costs are offset, and the resulting net amount is deferred and amortized over the contractual life of the related loans as an adjustment to the yield of such loans. At December 31, 2005, the Company had $16.0 million of net deferred loan fees.

Asset Quality

      The Company generally places loans on non-accrual status when principal or interest payments become 90 days past due, except those loans reported as 90 days past maturity within the overall total of non-performing loans. However, FHA or VA loans continue to accrue interest because their interest payments are guaranteed by various government programs and agencies. Loans may be placed on non-accrual status earlier if management believes that collection of interest or principal is doubtful or when such loans have such well defined weaknesses that collection in full of principal or interest may not be probable. When a loan is placed on non-accrual status, previously accrued but unpaid interest is deducted from interest income.

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

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      Delinquent loans. The following table sets forth delinquencies in the Company’s loan portfolio as of the dates indicated:

		At December 31, 2005										At December 31, 2004										At December 31, 2003
		60-89 Days					90 Days or More					60-89 Days					90 Days or More					60-89 Days					90 Days or More
				Principal					Principal					Principal					Principal					Principal					Principal
		Number		Balance			Number		Balance			Number		Balance			Number		Balance			Number		Balance			Number		Balance
(Dollars in Thousands)		of Loans		of Loans			of Loans		of Loans			of Loans		of Loans			of Loans		of Loans			of Loans		of Loans			of Loans		of Loans
Mortgage loans:
	Single-family residential and cooperative apartment		13	$	2,824			33	$	3,175			52	$	7,855			67	$	7,495			18	$	1,217			20	$	1,526
	Multi-family residential		2		438			4		184			3		508			6		1,083			4		936			4		673
	Commercial real estate		4		742			22		6,869			7		4,041			27		10,005			2		14,400			17		7,600
Commercial business loans			7		4,177			36		7,292			22		7,637			52		17,895			2		285			40		10,392
Consumer and other loans(1)			24		83			26		314			34		143			34		327			34		138			42		880
Total			50	$	8,264			121	$	17,834			118	$	20,184			186	$	36,805			60	$	16,976			123	$	21,071
Delinquent loans to total loans(2)					0.07	%				0.14	%				0.18	%				0.33	%				0.28	%				0.34	%

(1)	Includes home equity loans and lines of credit, FHA and conventional home improvement loans, automobile loans, passbook loans, piano loans, overdraft checking loans and secured and unsecured personal loans.
(2)	Total loans includes loans receivable less deferred loan fees and unamortized discounts, net.

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

				At December 31,
(Dollars in Thousands)				2005			2004			2003			2002			2001
Non-accrual loans:
	Mortgage loans:
		Single-family residential and cooperative apartment		$	3,175		$	7,495		$	1,526		$	3,041		$	4,172
		Multi-family residential			792			1,394			1,131			1,136			2,312
		Commercial real estate			8,351			12,517			20,061			11,738			6,780
	Commercial business loans				15,707			22,002			12,244			22,495			13,313
	Other loans(1)				300			236			840			568			1,225
			Total non-accrual loans		28,325			43,644			35,802			38,978			27,802
Loans past due 90 days or more as to:
	Interest and accruing				86			117			40			152			130
	Principal and accruing(2)				8,722			5,517			742			2,482			18,089
			Total past due accruing loans		8,808			5,634			782			2,634			18,219
Total non-performing loans					37,133			49,278			36,584			41,612			46,021
Other real estate owned, net(3)					1,279			2,512			15			7			130
Total non-performing assets(4)				$	38,412		$	51,790		$	36,599		$	41,619		$	46,151
Restructured loans				$	4,045		$	4,198		$	4,345		$	4,674		$	4,717
Non-performing loans as a percent of total loans					0.30	%		0.44	%		0.59	%		0.72	%		0.78	%
Non-performing assets as a percent of total assets					0.20	%		0.29	%		0.38	%		0.52	%		0.61	%
Allowance for loan losses as a percent of total loans					0.82	%		0.90	%		1.29	%		1.38	%		1.33	%
Allowance for loan losses as a percent of non-performing loans					273.25	%		205.84	%		217.32	%		193.57	%		170.01	%

(1)	Consists primarily of home equity loans and lines of credit and FHA home improvement loans.
(2)	Reflects loans that are 90 days or more past maturity which continue to make payments on a basis consistent with the original repayment schedule.
(3)	Net of related valuation allowances.
(4)	Non-performing assets consist of non-performing loans and OREO. Non-performing loans consist of (i) non-accrual loans and (ii) accruing loans 90 days or more past due as to interest or principal.

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     Non-performing assets decreased $13.4 million or 25.8% to $38.4 million at December 31, 2005 compared to $51.8 million at December 31, 2004. The decrease primarily reflects a $15.3 million decrease in non-accrual loans, a $1.2 million decrease in other real estate owned, partially offset by a $3.1 million increase in loans past due 90 days or more as to principal but still accruing, which loans continued to make payments on a basis consistent with the original repayment schedule. Non-accrual loans had decreases of $6.3 million in non-accrual commercial business loans, $4.3 million in non-accrual single-family residential and cooperative apartment loans, $4.1 million in non-accrual commercial real estate loans and $0.6 million in non-accrual multi-family residential loans.

      Loans 90 days or more past maturity on which payments continued to be made on a basis consistent with the original repayment schedule increased $3.1 million to $8.7 million at December 31, 2005 compared to December 31, 2004. The Company is continuing its efforts to have the borrowers refinance or extend the term of such loans.

      The interest income that would have been recorded during the years ended December 31, 2005, 2004 and 2003 if all of the Bank’s non-accrual loans at the end of each such period had been current in accordance with their terms during such periods was $1.2 million, $1.8 million and $1.1 million, respectively.

      A New York-chartered savings bank’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the Federal Deposit Insurance Corporation (“FDIC”) and the New York State Banking Department (“Department”), which can order the establishment of additional general or specific loss allowances. The FDIC, in conjunction with the other federal banking agencies, has adopted an interagency policy statement on the allowance for loan and lease losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of adequate allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management has analyzed all significant factors that affect the collectibility of the portfolio in a reasonable manner, and that management has established acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. Although the Company believes that its allowance for loan losses was at a level to cover all known and inherent losses in its loan portfolio at December 31, 2005 that were both probable and reasonable to estimate, there can be no assurance that the regulators, in reviewing the Company’s loan portfolio, will not request the Company to materially adjust its allowance for possible loan losses, thereby affecting the Company’s financial condition and results of operations at the date and for the period during which such adjustment must be recognized.

      Criticized and Classified Assets. Federal banking regulations require that each insured institution classify its assets on a regular basis. Furthermore, in connection with examinations of insured institutions, federal and state examiners have authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: “substandard,” “doubtful” and “loss.” Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the same weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, resulting in a high probability of loss. An asset classified as loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. The Company also categorizes assets as “special mention”. These are generally defined as assets that have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset. However, they do not currently expose an insured institution to a sufficient degree of risk to warrant classification as substandard, doubtful or loss.

      The Company’s senior management reviews and classifies loans continually and reports the results of its reviews to the Board of Directors on a monthly basis. The Company has also experienced significant improvement in the level of classified loans during 2005. At December 31, 2005, the Company had classified an aggregate of $61.7 million of assets (a portion of which consisted of

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non-accrual loans) which was a 25.7% improvement compared to $83.0 million at December 31, 2004. In addition, at December 31, 2005 the Company had $127.6 million of assets that were designated by the Company as special mention compared to $97.1 million at December 31, 2004.

      Allowance for Loan Losses. The determination of the level of the allowance for loan losses and the periodic provisions to the allowance charged to income is the responsibility of management. In assessing the level of the allowance for loan losses, the Company considers the composition and outstanding balance of its loan portfolio, the growth or decline of loan balances within various segments of the overall portfolio, the state of the local (and to a certain degree, the national) economy as it may impact the performance of loans within different segments of the portfolio, the loss experience related to different segments or classes of loans, the type, size and geographic concentration of loans held by the Company, the level of past due and non-performing loans, the value of collateral securing the loan, the level of classified loans and the number of loans requiring heightened management oversight. The continued shifting of the composition of the loan portfolio to be more commercial-bank like by increasing the balance of commercial real estate and business loans and mortgage warehouse lines of credit may increase the level of known and inherent losses in the Company’s loan portfolio.

      The formalized process for assessing the level of the allowance for loan losses is performed on a quarterly basis. Individual loans are specifically identified by loan officers as meeting the criteria of pass, criticized or classified loans. Such criteria include, but are not limited to, non-accrual loans, past maturity loans, impaired loans, chronic delinquencies and loans requiring heightened management oversight. Each loan is assigned to a risk level of special mention, substandard, doubtful and loss. Loans that do not meet the criteria to be characterized as criticized or classified are categorized as pass loans. Each risk level, including pass loans, has an associated reserve factor that increases as the risk level category increases. The reserve factor for criticized and classified loans becomes larger as the risk level increases. The reserve factor for pass loans differs based upon the loan type and collateral type. Commercial business loans and commercial real estate loans have a larger loss factor applied to pass loans since these loans are deemed to have higher levels of known and inherent loss than single-family residential and multi-family residential loans. The reserve factor is applied to the aggregate balance of loans designated to each risk level to compute the aggregate reserve requirement. This method of analysis is performed on the entire loan portfolio.

      The reserve factors that are applied to pass, criticized and classified loans are generally reviewed by management on a quarterly basis unless circumstances require a more frequent assessment. In assessing the reserve factors, the Company takes into consideration, among other things, the state of the national and/or local economies which could affect the Company’s customers or underlying collateral values, the loss experience related to different segments or classes of loans, changes in risk categories, the acceleration or decline in loan portfolio growth rates and underwriting or servicing weaknesses. To the extent that such assessment results in an increase or decrease to the reserve factors that are applied to each risk level, the Company may need to adjust its provision for loan losses which could impact earnings in the period in which such provisions are taken.

      The Company considers a loan impaired when, based upon current information and events, it is probable that it will be unable to collect all amounts due for both principal and interest, according to the contractual terms of the loan agreement. The measurement value of the Company’s impaired loans is based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the observable market prices of the loan, or the fair value of the underlying collateral if the loan is collateral dependent. The Company identifies and measures impaired loans in conjunction with its assessment of the level of the allowance for loan losses. Specific factors used in the identification of impaired loans include, but are not limited to, delinquency status, loan-to-value ratio, the condition of the underlying collateral, credit history and debt coverage. Impaired loans totaled $21.3 million at December 31, 2005 with a related allowance allocated of $1.1 million applicable to such loans.

      The Company’s allowance for loan losses amounted to $101.5 million at December 31, 2005 as compared to $101.4 million at December 31, 2004. The Company’s allowance amounted to 0.82% of total loans at December 31, 2005 and 0.90% at December 31, 2004. The allowance for loan losses as a percent of non-performing loans was 273.3% at

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December 31, 2005 compared to 205.8% at December 31, 2004.

      The Company’s allowance for loan losses increased $0.1 million from December 31, 2004 to December 31, 2005 due to the net recoveries of $0.1 million. The Company did not record a provision for loan losses during 2005 due to the improved quality in the characteristics of the loan portfolio including a reduction in classified loans and net charge-offs and the recognition of current economic conditions. Although there was no provision recorded in 2005, adjustments were made to the allowance for loan losses by loan category to reflect changes in the Company’s loan mix and risk characteristics.

      The Company will continue to monitor and modify its allowance for loan losses as conditions dictate. Management believes that, based on information currently available, the Company’s allowance for loan losses at December 31, 2005 was at a level to cover all known and inherent losses in its loan portfolio at such date that were both probable and reasonable to estimate. In the future, management may adjust the level of its allowance for loan losses as economic and other conditions dictate. In addition, the FDIC and the Department as an integral part of their examination process periodically review the Company’s allowance for possible loan losses. Such agencies may require the Company to adjust the allowance based upon their judgment.

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

														Nine Months
														Ended
		Year Ended December 31,												December 31,
(Dollars in Thousands)		2005			2004			2003			2002			2001
Allowance at beginning of period		$	101,435		$	79,503		$	80,547		$	78,239		$	71,716
Allowance of acquired institution (SIB)			—			24,069			—			—			—
Provision:
	Mortgage loans		—			2,000			2,300			3,733			4,200
	Commercial business and other loans(1)		—			—			1,200			4,267			3,675
	Total provision		—			2,000			3,500			8,000			7,875
Charge-offs:
	Mortgage loans		97			1,227			6,202			1,159			850
	Commercial business and other loans(1)(2)		2,982			10,500			1,179			7,202			1,756
	Total charge-offs		3,079			11,727			7,381			8,361			2,606
Recoveries:
	Mortgage loans		455			5,775			364			1,170			83
	Commercial business and other loans(1)		2,656			1,815			2,473			1,499			1,171
	Total recoveries		3,111			7,590			2,837			2,669			1,254
Net loans recovered /(charged-off)			32			(4,137	)		(4,544	)		(5,692	)		(1,352	)
Allowance at end of period		$	101,467		$	101,435		$	79,503		$	80,547		$	78,239
Net loans charged-off to allowance for loan losses			N/A			4.08	%		5.72	%		7.07	%		1.73	%
Net loans charged-off to average loans outstanding during year			N/A			0.04	%		0.08	%		0.10	%		0.02	%
Allowance for possible loan losses as a percent of total loans			0.82	%		0.90	%		1.29	%		1.38	%		1.33	%
Allowance for possible loan losses as a percent of total non-performing loans (3)			273.25	%		205.84	%		217.32	%		193.57	%		170.01	%

(1)	Includes commercial business loans, mortgage warehouse lines of credit, home equity loans and lines of credit, automobile loans and secured and unsecured personal loans.
(2)	Includes a $9.2 million charge-off related to the mortgage warehouse line of credit portfolio in 2004.
(3)	Non-performing loans consist of (i) non-accrual loans and (ii) accruing loans 90 days or more past due as to interest or principal.

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     The following table sets forth information concerning the allocation of the Company’s allowance for loan losses by loan category at the dates indicated.

	At December 31,
	2005					2004					2003					2002					2001
	Amount of					Amount of					Amount of					Amount of					Amount of
(Dollars in Thousands)	Allowance		Percent(1)			Allowance		Percent(1)			Allowance		Percent(1)			Allowance		Percent(1)			Allowance		Percent(1)
Mortgage loans	$	77,425		84.2	%	$	71,867		82.8	%	$	56,549		76.4	%	$	52,087		73.9	%	$	53,094		78.1	%
Commercial business loans		17,729		7.9			22,191		7.2			16,974		9.8			22,927		10.3			18,595		11.3
Mortgage warehouse lines of credit		4,226		3.7			5,161		5.9			4,016		8.5			3,516		11.9			4,349		7.6
Other loans(2)		2,087		4.2			2,216		4.1			1,964		5.3			2,017		3.9			2,201		3.0
Total	$	101,467		100.0	%	$	101,435		100.0	%	$	79,503		100.0	%	$	80,547		100.0	%	$	78,239		100.0	%

(1)	Percent of loans in each category to total loans.
(2)	Includes home equity loans and lines of credit, FHA home improvement loans, student loans, automobile loans, passbook loans and secured and unsecured personal loans.

Environmental Issues

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

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

Investment Activities

      Investment Policies. The investment policy of the Company, which is established by the Board of Directors, is designed to help the Company achieve its fundamental asset/liability management objectives. Generally, the policy calls for the Company to emphasize principal preservation, liquidity, diversification, short maturities and/or repricing terms, and a favorable return on investment when selecting new investments for the Company’s investment and mortgage-related securities portfolios. In addition, the policy sets forth objectives which are designed to limit new investments to those which further the Company’s goals with respect to interest rate risk management. The Company’s current securities investment policy permits investments in various types of liquid assets including obligations of the U.S. Treasury and federal agencies, investment-grade corporate and trust obligations, preferred securities, various types of mortgage-related securities, including collateralized mortgage obligations (“CMOs”), commercial paper and insured certificates of deposit. The Bank, as a New York-chartered savings bank, is permitted to make certain investments in equity securities and stock mutual funds. At December 31, 2005, these equity investments totaled $11.9 million. See “— Regulation-Activities and Investments of FDIC-Insured State-Chartered Banks”.

      The Company has the ability to enter into various derivative contracts for hedging purposes to facilitate its ongoing asset/liability management process. The Company’s hedging activities are limited to interest rate swaps, caps and floors with outstanding notional amounts not to exceed in the aggregate 10% of total assets. The objective of any hedging activities is to reduce the Company’s interest rate risk. Similarly, the Company does not invest in mortgage-related securities which are deemed by rating agencies to be “high risk,” or purchase bonds which are not rated investment grade.

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      Mortgage-Related Securities. Mortgage-related securities represent a participation interest in a pool of single-family or multi-family mortgages, the principal and interest payments on which are passed from the mortgage originators, through intermediaries (generally U.S. Government agencies and government-sponsored enterprises) that pool and repackage the participation interests in the form of securities, to investors such as the Company. Such U.S. Government agencies and government sponsored enterprises, which guarantee the payment of principal and interest to investors, primarily include the Federal Home Loan Mortgage Corporation (“Freddie Mac”), Fannie Mae and the Government National Mortgage Association (“GNMA”). The Company primarily invests in CMO private issuances, which are principally AAA rated and are current pay sequential pass-throughs or planned amortization class structures, and CMOs backed by U.S. Government agency securities.

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

      Freddie Mac is a publicly traded corporation chartered by the U.S. Government. Freddie Mac issues participation certificates backed principally by conventional mortgage loans. Freddie Mac guarantees the timely payment of interest and the ultimate return of principal on participation certificates. Fannie Mae is a private corporation chartered by the U.S. Congress with a mandate to establish a secondary market for mortgage loans. Fannie Mae guarantees the timely payment of principal and interest on Fannie Mae securities. Freddie Mac and Fannie Mae securities are not backed by the full faith and credit of the United States, but because Freddie Mac and Fannie Mae are U.S. Government-sponsored enterprises, these securities are considered to be among the highest quality investments with minimal credit risks. GNMA is a government agency within the Department of Housing and Urban Development which is intended to help finance government — assisted housing programs. GNMA securities are backed by FHA-insured and VA-guaranteed loans, and the timely payment of principal and interest on GNMA securities are guaranteed by GNMA and backed by the full faith and credit of the U.S. Government. Because Freddie Mac, Fannie Mae and GNMA were established to provide support for low-and middle-income housing, there are limits to the maximum size of one-to-four family loans that qualify for these programs.

      At December 31, 2005, the Company’s $3.16 billion of mortgage-related securities, which represented 16.5% of the Company’s total assets at such date, were comprised of $1.94 billion of AAA rated CMOs, $72.2 million of CMOs which were issued or guaranteed by Freddie Mac, Fannie Mae or GNMA (“Agency CMOs”) and $1.14 billion of pass through certificates, which were also issued or guaranteed by Freddie Mac, Fannie Mae or GNMA. The portfolio decreased by $323.9 million during the year ended December 31, 2005 primarily due to $734.6 million of principal payments received combined with sales of $417.6 million which were partially offset by $910.5 million of purchases. The purchases during the year ended December 31, 2005 primarily consisted of $720.6 million of AAA rated CMOs with an average yield of 4.72% and $160.0 million of Fannie Mae pass through certificates with a weighted average yield of 4.58%.

      At December 31, 2005, the contractual maturity of approximately 85.6% of the Company’s mortgage-related securities was within five years. The actual maturity of a mortgage-related security is generally less than its stated maturity due to repayments of the underlying mortgages. Prepayments at a rate different than that anticipated will affect the yield to maturity. The yield is based upon the interest income and the amortization of any premium or discount related to the mortgage-backed security. In accordance with generally accepted accounting principles used in the United States (“GAAP”), premiums and discounts are amortized over the estimated lives of the securities, which decrease and increase interest income, respectively. The repayment assumptions used to determine the amortization period for premiums and discounts can significantly affect the yield of mortgage-related securities, and these assumptions are reviewed periodically to reflect actual prepayments. If prepayments are faster than anticipated, the life of the security may be shortened and may result in the acceleration of any unamortized premium. Although repayments of underlying mortgages depend on many factors, including the type of mortgages, the coupon rate, the age of mortgages, the geographical location of the underlying real estate col-

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lateralizing the mortgages and general levels of market interest rates, the difference between the interest rates on the underlying mortgages and the prevailing mortgage interest rates generally is the most significant determinant of the rate of repayments. During periods of falling mortgage interest rates, if the coupon rate of the underlying mortgages exceeds the prevailing market interest rates offered for mortgage loans, refinancing generally increases and accelerates the repayment of the underlying mortgages and the related security. Under those circumstances, the Company may be subject to reinvestment risk to the extent that the Company’s mortgage-related securities amortize or repay faster than anticipated and the Company is not able to reinvest the proceeds of such repayments and prepayments at comparable rates. During 2005, as mortgage rates increased, the Company experienced a decrease in repayments, prepayments and maturities to $734.6 million for the year ended December 31, 2005 compared to $997.1 million for the year ended December 31, 2004. As a result, the Company also experienced a corresponding decline in the amortization of premium to $16.9 million for the year ended December 31, 2005 compared to $19.4 million for the year ended December 31, 2004.

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

	Year Ended December 31,
(In Thousands)	2005			2004			2003
Mortgage-related securities at beginning of period	$	3,479,482		$	2,211,755		$	1,038,742
Acquired from SIB acquisition		—			1,620,015			—
Purchases		910,503			840,250			2,823,123
Sales		(417,551	) (1)		(158,340	) (1)		—
Repayments, prepayments and maturities		(734,641	)		(997,105	)		(1,627,540	)
Amortization of premiums		(16,902	)		(19,388	)		(26,216	)
Accretion of discounts		577			1,345			2,002
Change in unrealized gains/(losses) on available-for-sale mortgage-related securities		(65,879	)		(19,050	)		1,644
Mortgage-related securities at end of period	$	3,155,589		$	3,479,482		$	2,211,755

(1)  The Company recognized a net gain of $3.3 million and $2.9 million on the sale of mortgage-related securities during the years ended December 31, 2005 and 2004, respectively. No gain or loss was recognized for the year ended December 31, 2003.

     Investment Securities. The Company has the authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies and of state and municipal governments, preferred securities, mutual funds, equity securities and corporate and trust obligations. The Company’s investment securities portfolio decreased $35.4 million to $418.9 million at December 31, 2005 compared to $454.3 million at December 31, 2004. The decrease was due to sales totaling $59.9 million, primarily consisting of corporate bonds and preferred securities combined with maturities, calls and repayments aggregating $160.2 million. Partially offsetting these decreases were $188.9 million of purchases, primarily $100.0 million of federal agency securities with a weighted average yield of 4.84%, $56.4 million of corporate bonds with a weighted average yield of 4.48% and $22.9 million of U.S. Treasury securities with a weighted average yield of 3.74%.

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

	Year Ended December 31,
(In Thousands)	2005			2004			2003
Investment securities at beginning of period	$	454,305		$	296,945		$	224,908
Acquired from SIB acquisition		—			469,947			—
Purchases		188,907			186,291			225,240
Sales		(59,887	) (1)		(155,495	) (1)		(48,410	) (1)
Maturities, calls and repayments		(160,206	)		(332,330	)		(101,535	)
Amortization of premium		(130	)		(726	)		(223	)
Accretion of discounts		124			187			128
Other-than-temporary impairment charge on securities		—			(12,737	)		—
Change in unrealized gains/(losses) on available-for-sale investment securities		(4,202	)		2,223			(3,163	)
Investment securities at end of period	$	418,911		$	454,305		$	296,945

(1)  The Company recognized net gains of $3.3 million, $1.0 million and $0.5 million on the sale of investment securities during the years ended December 31, 2005, 2004 and 2003, respectively.

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

				At December 31,
				2005				2004				2003
				Amortized		Estimated		Amortized		Estimated		Amortized		Estimated
(In Thousands)				Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
Available-for-sale:
	Investment securities:
		U.S. Government and agencies		$	231,716	$	227,662	$	212,016	$	212,068	$	15,549	$	15,585
		Corporate			95,342		95,441		89,093		89,381		119,013		119,575
		Municipal			160		161		4,630		4,866		4,282		4,590
		Equity Securities:
			Preferred		94,350		95,578		146,604		146,930		158,462		155,869
			Common		69		69		486		1,060		386		1,326
			Total investment securities		421,637		418,911		452,829		454,305		297,692		296,945
	Mortgage-related securities:
		Fannie Mae			442,269		435,526		449,182		451,375		142,956		146,177
		GNMA			17,545		16,729		7,259		7,563		8,981		9,655
		Freddie Mac			699,890		688,289		973,750		978,235		5,140		5,411
		CMOs			2,069,694		2,015,045		2,057,221		2,042,309		2,043,558		2,050,512
		Total mortgage-related securities			3,229,398		3,155,589		3,487,412		3,479,482		2,200,635		2,211,755
Total securities available-for-sale				$	3,651,035	$	3,574,500	$	3,940,241	$	3,933,787	$	2,498,327	$	2,508,700

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      The following table sets forth certain information regarding the contractual maturities of the Company’s investment and mortgage-related securities at December 31, 2005, all of which securities were classified as available-for-sale.

			At December 31, 2005, Contractually Maturing
					Weighted					Weighted					Weighted					Weighted
			Under 1		Average			1-5		Average			6-10		Average			Over 10		Average
(Dollars in Thousands)			Year		Yield (1)			Years		Yield (1)			Years		Yield (1)			Years		Yield (1)			Total
Investment securities:
	U.S. Government and agencies		$	11,080		2.53	%	$	30,129		4.08	%	$	113,005		4.90	%	$	73,448		5.01	%	$	227,662
	Corporate			1,700		5.62			8,244		4.56			9,862		4.46			75,635		4.67			95,441
	Municipal			—		—			—		—			—		—			161		6.45			161
Mortgage-related securities:
	Fannie Mae			5,749		3.35			285,121		4.64			125,958		4.98			18,698		5.55			435,526
	GNMA			3		4.28			1,527		4.48			—		—			15,199		4.60			16,729
	Freddie Mac			5,397		5.19			637,787		4.72			34,988		4.84			10,117		5.56			688,289
	CMOs			107,204		5.01			1,659,547		4.53			223,779		4.70			24,515		5.50			2,015,045
		Total	$	131,133		4.75	%	$	2,622,355		4.58	%	$	507,592		4.82	%	$	217,773		4.99	%	$	3,478,853

⁽¹⁾  The weighted average yield is based on amortized cost.

Sources of Funds

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

      Depending upon market conditions and funding needs, the Company at times uses brokered certificates of deposit (“CDs”) and brokered money market accounts as alternative sources of funds. The brokered CDs are issued by nationally recognized brokerage firms.

      Deposits. The Company’s product line is structured to attract both consumer and business prospects. The current product line includes negotiable order of withdrawal (“NOW”) accounts (including the “Independence Rewards Plus Checking^tm product), money market accounts (including brokered accounts), non-interest-bearing checking accounts, passbook and statement savings accounts, business checking accounts, cash management services, New Jersey municipal deposits, Interest on Lawyers Trust Accounts (“IOLTA”), Interest on Lawyers Accounts (“IOLA”) and term certificate accounts (including brokered CDs).

      Since 2002, the Company’s product line has been expanded to attract middle market business and larger corporate customers by offering a full suite of non-credit cash management services. The current product line includes lockbox services, sweep accounts, automated clearing house (ACH) services, account reconciliation services, escrow services, zero balance accounts, cash concentration, wire transfer services, and a cash management suite of services that business customers can access via the internet. Business customers benefit from these services through reduced operational costs, accelerated funds availability, and increased interest income. The primary goal in development of these services was to increase core deposits from business customers by offering additional products and services where fees are offset with compensating balances on deposit. Accounting for these service dollars and compensating balances are calculated through the Company’s account analysis system, which provides its customers with earnings credits applied against equivalent balances for services.

      Development of these products and services was designed to penetrate new markets by obtaining larger deposit relationships from business customers as well as offering borrowing customers additional

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business banking products in order to increase their deposit relationships. Approximately 1,295 business customers are using some form of cash management services as of December 31, 2005.

      The Company’s deposits are obtained primarily from the areas in which its branch offices are located. Prior to 2004 the Company neither paid fees to brokers to solicit funds for deposit nor did it actively solicit negotiable-rate certificates of deposit with balances of $100,000 or more. However, the Company assumed $281.4 million of brokered CDs as a result of the SIB transaction of which $33.0 million remained outstanding at December 31, 2004. In addition, the Company used brokered CDs and brokered money market accounts as an alternative funding source during 2005 to reduce its dependence on higher costing wholesale borrowings. The Company had $677.0 million of brokered CDs and $482.3 million of brokered money market accounts outstanding at December 31, 2005.

      The Company attracts deposits through a network of convenient office locations offering a variety of accounts and services, competitive interest rates and convenient customer hours. The Company’s branch network consists of 126 branch offices. During the year ended December 31, 2005 the Company opened seven branches: four in Manhattan, New York, and one each in Queens, New York, Brooklyn, New York and in Middlesex County, New Jersey. As a result of the SIB transaction, the Company continues to hold over 28% of the deposits in the Staten Island market which as of June 30, 2005 was the highest percentage held by any one depository institution on Staten Island.

      During the first quarter of 2006 the Company opened one branch in Manhattan, New York. The Company currently expects to expand its branch network through the opening of approximately two additional branch offices during the remainder of 2006.

      During 2002, the Company also expanded its retail banking services to include a private banking/wealth management group. This group was added to broaden and diversify the Company’s customer base and offers personalized and specialized services, including a carefully selected range of managed investment alternatives through third parties, to meet the needs of the Company’s clients. As of December 31, 2005, the private banking/wealth management group had $447.8 million in deposits of which $415.9 million or 92.9% were core deposits compared to $227.6 million in deposits of which $185.7 million were core deposits at December 31, 2004. In addition, this group had $40.3 million and $41.6 million of primarily multi-family and commercial business loans outstanding at December 31, 2005 and December 31, 2004, respectively.

      In addition to its branch network, the Company currently maintains 230 ATMs in or at its branch offices and 35 ATMs at remote sites. The Company currently plans to install 7 additional ATMs in its offices and four ATMs at remote sites by the end of calendar 2006.

      Supplementing the Company’s branch and ATM network are its Call Center, the Interactive Voice Response unit and its Internet Banking services. On an average monthly basis, the Company’s Call Center responds to and processes over 60,000 customer transactional requests and informational inquiries. The Call Center also provides account-opening services and can accept loan applications related to the Company’s consumer loan product line. The Interactive Voice Response unit provides automated voice and touch-tone information to approximately 400,000 telephoned inquiries per month. The Company’s Internet Banking site currently has approximately 92,000 users and provides a wide range of product and account information to both existing and new customers. Services on this site include account-opening capabilities, consumer loan applications, on-line bill paying and other products and services.

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

      The Company’s focus on customer service has facilitated its growth and retention of lower costing NOW accounts, money market accounts, non-interest bearing checking accounts, business checking accounts and savings accounts, which generally bear interest rates substantially less than certificates of deposit. During the first quarter of 2005, the Company introduced the Independence RewardsPlus

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Checking^tm product and utilized certain certificates of deposit promotions as an alternative funding source to reduce its dependence on higher costing wholesale borrowings. As a result of these initiatives, core deposits increased $196.0 million, or 2.8%, to $7.23 billion at December 31, 2005 compared to $7.03 billion at December 31, 2004. Certificates of deposit increased $1.44 billion, or 63.6% to 3.72 billion at December 31, 2005 compared to $2.27 billion at December 31, 2004. As a result of the increase in certificates of deposit, core deposits amounted to 66.1% of total deposits at December 31, 2005 compared to 75.6% at December 31, 2004. During the year ended December 31, 2005, the weighted average rate paid on the Company’s deposits, excluding certificates of deposit was 1.04%, as compared to a weighted average rate of 2.94% paid on the Company’s certificates of deposit during this period. At December 31, 2005, approximately 65.1% of the Company’s certificates of deposit portfolio was scheduled to mature within one year, reflecting customer preference to maintain their time deposits with relatively short terms during the current economic environment.

      The Company’s deposits increased $1.64 billion or 17.6% to $10.95 billion at December 31, 2005 from December 31, 2004. The increase was due to deposit inflows of $1.48 billion, of which $1.35 billion was certificates of deposit, combined with interest credited of $162.9 million. For further information regarding the Company’s deposit liabilities see Note 11 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof.

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

	Year Ended December 31,
(In Thousands)	2005		2004		2003
Deposits at beginning of period	$	9,305,064	$	5,304,097	$	4,940,060
Deposits of acquired institution (SI Bank)		—		3,786,020		—
Other net increase before interest credited		1,477,352		129,588		310,780
Interest credited		162,867		85,359		53,257
Net increase in deposits		1,640,219		4,000,967		364,037
Deposits at end of period	$	10,945,283	$	9,305,064	$	5,304,097

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

	At December 31,
(In Thousands)	2005		2004		2003
0.01% to 1.49%	$	476,101	$	889,289	$	784,734
1.50% to 1.99%		29,043		253,834		51,754
2.00% to 2.99%		166,995		200,353		84,664
3.00% to 3.99%		1,548,185		344,084		252,363
4.00% to 4.99%		1,377,977		427,794		78,809
5.00% to 5.99%		95,487		117,955		105,348
6.00% to 6.99%		12,053		27,473		19,281
7.00% to 8.99%		9,753		10,633		1,949
	$	3,715,594	$	2,271,415	$	1,378,902

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      The following table sets forth the amount and remaining contractual maturities of the Company’s certificates of deposit at December 31, 2005.

			Over		Over		Over
	Six		Six Months		One Year		Two Years		Over
	Months		Through		Through		Through		Three
(In Thousands)	Or Less		One Year		Two Years		Three Years		Years		Total
0.01% to 1.49%	$	360,837	$	95,826	$	16,355	$	2,865	$	218	$	476,101
1.50% to 1.99%		6,715		1,377		20,118		831		2		29,043
2.00% to 2.99%		109,836		4,918		4,921		22,252		25,068		166,995
3.00% to 3.99%		968,290		236,851		280,471		52,962		9,611		1,548,185
4.00% to 4.99%		332,269		259,050		426,131		43,000		317,527		1,377,977
5.00% to 5.99%		26,933		5,916		49,642		84		12,912		95,487
6.00% to 6.99%		11,721		55		24		232		21		12,053
7.00% to 8.99%		—		—		8,455		1,294		4		9,753
Total	$	1,816,601	$	603,993	$	806,117	$	123,520	$	365,363	$	3,715,594

      As of December 31, 2005, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $1.75 billion, which included $677.0 million of brokered CDs. The following table presents the maturity of these certificates of deposit at such date.

(In Thousands)	Amount
3 months or less	$	683,382
Over 3 months through 6 months		327,527
Over 6 months through 12 months		191,122
Over 12 months		550,047
	$	1,752,078

      Borrowings. The Company may obtain advances from the FHLB of New York based upon the security of the common stock it owns in that bank and certain of its residential mortgage loans, provided certain standards related to creditworthiness have been met. Such advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities. Such advances are generally available to meet seasonal and other withdrawals of deposit accounts, to fund increased lending or for investment purchases. The Company had $2.04 billion of FHLB advances outstanding at December 31, 2005 with maturities of ten years or less with approximately 50.0% having a maturity of less than one year. At December 31, 2005 the Company had the ability to borrow, from the FHLB, an additional $2.40 billion on a secured basis, utilizing mortgage-related loans and securities as collateral. Another funding source available to the Company is repurchase agreements with the FHLB and other counterparties. These repurchase agreements are generally collateralized by CMOs or U.S. Government and agency securities held by the Company. At December 31, 2005, the Company had $2.91 billion of repurchase agreements outstanding with the majority maturing between one and five years.

      Borrowings (not including subordinated and senior notes) decreased $555.2 million to $4.96 billion at December 31, 2005 compared to $5.51 billion at December 31, 2004. The decrease was principally due to repayments of borrowings as the Company used the increase in deposits, in particular, certificates of deposit, as a lower costing alternative funding source. For the year ended December 31, 2005, the weighted average interest rate of borrowings was 3.23% compared to the weighted average interest rate of certificates of deposit of 2.94%.

      The Company continues to reposition its balance sheet to more closely align the duration of its interest-earning asset base with its supporting funding sources. The Company also utilized the increase in deposits as an alternative funding source to reduce its dependence on higher costing borrowings. During the year ended December 31, 2005, the Company paid-off $2.08 billion of primarily short-term borrowings that matured with a weighted average interest rate of 2.91% and borrowed approximately $668.0 million of long-term fixed-rate borrowings at a weighted average interest rate of 3.68%. The Company also borrowed $894.9 million of short-term floating-rate borrowings. These borrowings generally mature within 30 days and have a

30

weighted average interest rate of 4.12%. The Company anticipates replacing a portion of these short-term borrowings with lower costing deposits.

      The Company has also used the issuance of subordinated and senior notes as a funding source. The Company had $397.3 million of subordinated notes outstanding at December 31, 2005 which qualify as Tier 2 capital of the Bank under the capital guidelines of the FDIC.

      During 2005 the Company issued $250.0 million aggregate principal amount of 4.90% Fixed Rate Notes due 2010. The Company used $150.0 million of the $248.1 million of net proceeds to make a capital contribution to the Bank.

      The Company is managing its leverage position and had a borrowings (including subordinated and senior notes) to asset ratio of 29.4% at December 31, 2005 and 33.3% at December 31, 2004.

      For further discussion of the Company’s borrowings see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Business Strategy-Controlled Growth” set forth in Item 7 hereof and Notes 12, 13 and 14 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof.

Trust Activities

      The Bank also provides a full range of trust and investment services, and acts as executor or administrator of estates and as trustee for various types of trust. Trust and investment services are offered through the Bank’s Private Banking Trust and Investment Department, which was acquired as a result of the SIB transaction. Fiduciary and investment services are provided primarily to persons and entities located in the banking branch market area. Services offered include fiduciary services for trusts and estates, money management, custodial services and pension and employee benefits consulting. As of December 31, 2005, the Trust and Investment Management Department maintained approximately 294 trust/fiduciary accounts with an aggregate value of $217.3 million.

      The accounts maintained by the Trust and Investment Management Department consist of “managed” and “non-managed” accounts. “Managed” accounts are those for which the Bank has responsibility for administration and investment management and/or investment advice. The Bank under special situations utilizes outside investment partners for the Investment Management process. “Non-managed” accounts are those accounts for which the Bank merely acts as a custodian. The Company receives fees depending upon the level and type of service provided. The Trust and Investment Management Department administers various trust accounts (revocable, irrevocable, charitable trusts and trusts under wills), agency accounts (various investment fund products), estate accounts and employee benefit plan accounts (assorted plans and IRA accounts).

Employees

      The Company had 1,974 full-time employees and 444 part-time employees at December 31, 2005. None of these employees are represented by a collective bargaining agreement or agent and the Company considers its relationship with its employees to be good.

Subsidiaries

      At December 31, 2005, the Holding Company’s two active subsidiaries were the Bank and Mitchamm Corp. (“Mitchamm”).

      Mitchamm Corp. Mitchamm was established in September 1997 primarily to operate Mail Boxes Etc. (“MBE”) franchises, which provide mail services, packaging and shipping services primarily to individuals and small businesses. Mitchamm had the area franchise for MBE in Brooklyn, Queens and Staten Island. During 2003, Mitchamm sold the MBE franchise for a gain of $0.3 million. Mitchamm currently operates one facility.

      BNB Capital Trust. BNB Capital Trust (the “Issuer Trust”) (assumed by the Holding Company as part of the acquisition of Broad National Bancorporation (“Broad”) is a statutory business trust formed under Delaware law in June 1997. As a result of the Broad acquisition, the Issuer Trust is wholly owned by the Holding Company. In accordance with the terms of the trust indenture, the Trust redeemed all of its outstanding 9.5% Cumulative Trust Preferred Securities (the “Trust Preferred Securities”) totaling $11.5 million, at $10.00 per share, effective June 30, 2002. Accordingly, the Issuer Trust is now considered to be an inactive subsidiary.

      The following are the subsidiaries of the Bank:

      Independence Community Investment Corp. (“ICIC”). ICIC was established in December

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1998, and is the Delaware-chartered holding company for Independence Community Realty Corp. (“ICRC”), Renaissance Asset Corporation (“RAC”) and Staten Island Funding Corporation (“SIFC”). On December 18, 1998 the Bank transferred 1,000 shares of ICRC’s common stock, par value $.01 per share, and 9,889 shares of junior preferred stock, stated value $1,000 per share, to ICIC in return for all 1,000 shares of ICIC’s common stock, par value $.01 per share. At December 31, 2005, ICIC held $223.3 million of securities available-for-sale and $230.7 million of short-term investments.

      Independence Community Realty Corp. ICRC was established in September 1996 as a real estate investment trust. On October 1, 1996, the Bank transferred to ICRC real estate loans with a fair market value of approximately $834.0 million in return for all 1,000 shares of ICRC’s common stock and all 10,000 shares of ICRC’s 8% junior preferred stock. In January 1997, 111 officers and employees of the Bank each received one share of 8% junior preferred stock with a stated value of $1,000 per share of ICRC. At December 31, 2005, ICRC held $2.53 billion of loans and $98.5 million of short-term investments.

      Renaissance Asset Corporation. RAC, which was acquired from Broad, was established by Broad National Bank (“Broad National”) in November 1997 as a New Jersey real estate investment trust. At December 31, 2005, RAC held $864.0 million of loans and $384.3 million of short-term investments. Effective January 1, 2003, RAC was merged into a newly formed Delaware corporation, also called Renaissance Asset Corporation, with the Delaware company being the surviving entity. Pursuant to the terms of the merger, each share of common and preferred stock of the New Jersey corporation was converted into an identical share of the Delaware corporation.

      Staten Island Funding Corporation. SIFC, which was acquired from SIB, was established by SI Bank in 1998 as a Maryland real estate investment trust. At December 31, 2005, SIFC held $610.7 million of loans and $13.1 million of short-term investments.

      Independence Community Insurance Agency, Inc. (“ICIA”). ICIA was established in 1984. ICIA was formed as a licensed life insurance agency to sell the products of the new mutual insurance company formed by the Savings Bank Life Insurance Department of New York.

      Wiljo Development Corp. (“Wiljo”). The assets of Wiljo consist primarily of the office space in the building in which the Company’s executive office is located and its limited partnership interest in the partnership which owns the remaining portion of the building. At December 31, 2005, Wiljo had total assets of $7.9 million and the Company’s equity investment in Wiljo amounted to $7.8 million.

      Broad National Realty Corp. (“BNRC”). BNRC was established by Broad National in July 1987. The assets of BNRC consist primarily of an office building located at 909 Broad Street, Newark, New Jersey. BNRC is also the holding company for Broad Horizons Inc. (“Horizon”). BNRC had total assets of $2.7 million at December 31, 2005.

      Broad Horizons Inc. Horizon was established by Broad National in May 1998 to manage vacant land located at 901 Broad Street, Newark, New Jersey. Horizon’s assets totaled $178,000 at December 31, 2005.

      BNB Investment Corp. (“Investment Corp”). Investment Corp. was established by Broad National in February 1987 to hold various investment securities. Investment Corp. had total assets of $62.0 million, of which $61.8 million was short-term investments, at December 31, 2005.

      SIB Investment Corporation (“SIBIC”). SIBIC was established by SI Bank in 1998 to manage certain investments of SI Bank. SIBIC is currently inactive and had no assets at December 31, 2005.

      Bronatoreo, Inc. (“Bronatoreo”). Bronatoreo was established by Broad National in August 1992 to maintain parking lots located behind 905 Broad Street, Newark, New Jersey. Bronatoreo had total assets of $1.8 million at December 31, 2005.

      Statewide Financial Services (“SFS”). SFS was established by Statewide Savings Bank, S.L.A. in July 1985 to sell annuity products. SFS is currently inactive with no assets.

      SIB Financial Services Corporation (“SIBFSC”). SIBFSC was established by SI Bank in 2000. SIBFSC was formed as a licensed life insurance agency to sell the products of SBLI USA Mutual Insurance Company, Inc. SIBFSC is

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currently inactive and had no assets at December 31, 2005.

      ICM Capital L.L.C. (“ICMC”). ICMC was established in July 2003 to act as a mortgage lender and to participate in the Fannie Mae DUS program. ICMC is 66.67% owned by the Bank and 33.33% owned by Meridian Company. At December 31, 2005, ICMC assets totaled $8.4 million consisting of short-term investments. See “Business-Lending Activities-Loan Originations, Purchases, Sales and Servicing”.

      SIB Mortgage Corp. (“SIBMC”). SIBMC was established by SI Bank in 1998 to participate in the mortgage banking business. In March 2004 the majority of SIBMC’s assets (consisting primarily of loans) and operations were sold as part of a plan to exit the mortgage banking business. In 2005 as a result of the Company’s decision to wind down the remaining operations of SIBMC, all remaining loans held by SIBMC were either sold in the secondary market or transferred to the Company’s single-family residential mortgage portfolio. At December 31, 2005, SIBMC had total assets of $18.0 million consisting primarily of short-term investments.

      Independence Community Commercial Reinvestment Corp. (“ICCRC”). ICCRC was established in July 2004. ICCRC is an economic development organization awarded New Market Tax Credit (“NMTC”) allocations in 2004 from the Community Development Financial Institutions Fund of the U.S. Department of Treasury. The NMTC Program promotes business and economic development in low-income communities. The NMTC Program permits ICCRC to receive a credit against federal income taxes for making qualified equity investments in investment vehicles known as Community Development Entities. The credits provided to ICCRC total 39% of the initial value of the $113.0 million investment and will be claimed over a seven-year credit allowance period. ICCRC held $133.4 million of loans at December 31, 2005.

      ICB Leasing Corp. (“Leasing Corp.”). Leasing Corp. was established in September 2004 to engage in the business of equipment leasing. At December 31, 2005, Leasing Corp. held $117.7 million of loans and had total assets of $126.1 million.

Regulation

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

The Holding Company

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

      Activities Restrictions. The Holding Company operates as a unitary savings and loan holding company. Generally, there are only limited restrictions on the activities of a unitary savings and loan holding company that applied to become or was a unitary savings and loan holding company prior to May 4, 1999 and its non-savings institution subsidiaries. Under the Gramm-Leach-Bliley Act of 1999 (the “GLBA”), companies that applied to the OTS to become unitary savings and loan holding companies after May 4, 1999 are restricted to engaging in those activities traditionally permitted to multiple savings and loan holding companies. If the Director of the OTS determines that there is reasonable cause to believe that the continuation by a savings and loan holding company of an activity constitutes a serious risk to the financial safety, soundness or stability of its subsidiary savings institution, the Director may impose such restrictions as deemed

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necessary to address such risk, including limiting (i) payment of dividends by the savings institution; (ii) transactions between the savings institution and its affiliates; and (iii) any activities of the savings institution that might create a serious risk that the liabilities of the holding company and its affiliates may be imposed on the savings institution. Notwithstanding the above rules as to permissible business activities of grandfathered unitary savings and loan holding companies under the GLBA, if the savings institution subsidiary of such a holding company fails to meet the Qualified Thrift Lender (“QTL”) test, as discussed under ‘-Qualified Thrift Lender Test,” then such unitary holding company also shall become subject to the activities restrictions applicable to multiple savings and loan holding companies and, unless the savings institution requalifies as a QTL within one year thereafter, shall register as, and become subject to the restrictions applicable to, a bank holding company. See “—Qualified Thrift Lender Test.”

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

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

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

      The QTL test set forth in the HOLA requires that qualified thrift investments (“QTIs”) represent 65% of portfolio assets of the savings institution and its consolidated subsidiaries. Portfolio assets are defined as total assets less intangibles, property used by a savings association in its business and liquidity investments in an amount not exceeding 20% of assets. Generally, QTIs are residential housing related assets. The 1996 amendments allow small

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business loans, credit card loans, student loans and loans for personal, family and household purpose to be included without limitation as qualified investments. At December 31, 2005, approximately 93.5% of the Bank’s assets were invested in QTIs, which was in excess of the percentage required to qualify the Bank under the QTL test in effect at that time.

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

      In addition, Sections 22(g) and (h) of the Federal Reserve Act place restrictions on loans to executive officers, directors and principal stockholders. Under Section 22(h), loans to a director, an executive officer and to a greater than 10% stockholder of a savings institution, and certain affiliated interests of either, may not exceed, together with all other outstanding loans to such person and affiliated interests, the savings institution’s loans to one borrower limit (generally equal to 15% of the institution’s unimpaired capital and surplus). Section 22(h) also requires that loans to directors, executive officers and principal stockholders be made on terms substantially the same as offered in comparable transactions to other persons unless the loans are made pursuant to a benefit or compensation program that (i) is widely available to employees of the institution and (ii) does not give preference to any director, executive officer or principal stockholder, or certain affiliated interests of either, over other employees of the savings institution. Section 22(h) also requires prior board approval for certain loans. In addition, the aggregate amount of extensions of credit by a savings institution to all insiders cannot exceed the institution’s unimpaired capital and surplus. Furthermore, Section 22(g) places additional restrictions on loans to executive officers. At December 31, 2005, the Bank was in compliance with the above restrictions.

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

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

      Federal Securities Laws. The Holding Company’s common stock is registered with the SEC under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Holding Company is subject to the proxy and tender offer rules, insider trading reporting requirements and restrictions, and certain other requirements under the Exchange Act.

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The Bank

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

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

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

      The FDIC also requires that savings banks meet a risk-based capital standard. The risk-based capital standard for savings banks requires the maintenance of total capital (which is defined as Tier I capital and supplementary (Tier II) capital) to risk-weighted assets of 8%. In determining the amount of risk-weighted assets, all assets, plus certain off-balance sheet assets, are multiplied by a risk-weight of 0% to 100%, based on the risks the FDIC believes are inherent in the type of asset or item. The components of Tier I capital are equivalent to those discussed above under the 3% leverage capital standard. The components of supplementary capital include certain perpetual preferred stock, certain mandatory convertible securities, certain subordinated debt and intermediate preferred stock and general allowances for loan and lease losses. Allowance for loan and lease losses includable in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of capital counted toward supplementary capital cannot exceed 100% of core capital. At December 31, 2005, the Bank exceeded each of its regulatory capital requirements. See Note 23 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof.

      Activities and Investments of New York-Chartered Savings Banks. The Bank derives its lending, investment and other authority primarily from the applicable provisions of New York Banking Law and the regulations of the Department, as limited by FDIC regulations and other federal laws and regulations. See “ — Activities and Investments of FDIC Insured State — Chartered Banks.” These New York laws and regulations authorize savings banks, including the Bank, to invest in real estate mortgages, consumer and commercial loans,

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

      Under New York Banking Law, the Department has the authority to maintain the power of state-chartered banks reciprocal with those of a national bank.

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

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

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

      Also excluded from the foregoing proscription is the investment by a state-chartered, FDIC-insured bank in common and preferred stock listed on a national securities exchange and in shares of an investment company registered under the Investment Company Act of 1940. In order to qualify for the exception, a state-chartered FDIC-insured bank must (i) have held such types of investments during

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the 14-month period from September 30, 1990 through November 26, 1991, (ii) be chartered in a state that authorized such investments as of September 30, 1991 and (iii) file a one-time notice with the FDIC in the required form and receive FDIC approval of such notice. In addition, the total investment permitted under the exception may not exceed 100% of the bank’s tier one capital as calculated under FDIC regulations. The Bank received FDIC approval of its notice to engage in this investment activity on February 26, 1993. As of December 31, 2005, the book value of the Bank’s investments under this exception was $11.9 million, which equaled 1.01% of its Tier I capital. Such grandfathering authority is subject to termination upon the FDIC’s determination that such investments pose a safety and soundness risk to the Bank or in the event the Bank converts its charter or undergoes a change in control.

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

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

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

      An institution generally must file a written capital restoration plan which meets specified requirements, as well as a performance guaranty by each company that controls the institution, with an appropriate federal banking regulator within 45 days of the date that the institution receives notice or is

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deemed to have notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Immediately upon becoming undercapitalized, an institution becomes subject to statutory provisions which, among other things, set forth various mandatory and discretionary restrictions on the operations of such an institution.

      As December 31, 2005, the Bank had capital levels which qualified it as a “well-capitalized” institution. See Note 23 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof.

      FDIC Insurance Premiums. The Bank is a member of the Bank Insurance Fund (“BIF”) administered by the FDIC. The Bank also has accounts insured by the Savings Association Insurance Fund (“SAIF”) as a result of certain acquisitions and branch purchases involving SAIF-insured deposits. Such SAIF-insured deposits amounted to $3.37 billion as of December 31, 2005. As insurer, the FDIC is authorized to conduct examinations of, and to require reporting by, FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity that the FDIC determines by regulation or order poses a serious threat to the FDIC.

      The FDIC may terminate the deposit insurance of any insured depository institution, including the Bank, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC. Management is not aware of any existing circumstances which would result in termination of the Bank’s deposit insurance.

      Since January 1, 2000, all FDIC-insured institutions are assessed the same rate for their BIF and SAIF assessable deposits to fund the Financing Corporation. Based upon the $8.38 billion of BIF-assessable deposits and $3.37 billion of SAIF-assessable deposits at December 31, 2005, the Bank expects to pay approximately $388,000 in insurance premiums per quarter during calendar 2006.

      On February 8, 2006, the President signed into law legislation that merges the BIF and the SAIF, eliminates any disparities in bank and thrift risk-based premium assessments, reduces the administrative burden of maintaining and operating two separate funds and establishes certain new insurance coverage limits and a mechanism for possible periodic increases. The legislation also gives the FDIC greater discretion to identify the relative risks all institutions present to the deposit insurance fund and set risk-based premiums.

      Major provisions in the legislation include:

•  Maintaining basic deposit and municipal account insurance coverage at $100,000 but providing for a new basic insurance coverage for retirement accounts of $250,000. Insurance coverage for basic deposit and retirement accounts could be increased for inflation every five years in $10,000 increments beginning in 2011.

•  Providing the FDIC with the ability to set the designated reserve ratio within a range of between 1.15% and 1.50%, rather than maintaining 1.25% at all times regardless of prevailing economic conditions.

•  Providing a one-time assessment credit of $4.7 billion to banks and savings associations in existence on December 31, 1996. The institutions qualifying for the credit may use it to offset future premiums with certain limitations.

•  Requiring the payment of dividends of 100% of the amount that the insurance fund exceeds 1.5% of the estimated insured deposits and the payment of 50% of the amount that the insurance fund exceeds 1.35% of the estimated insured deposits. (when the reserve is greater than 1.35% but no more than 1.5%).

•  The merger of the SAIF and BIF must occur no later than July 1, 2006. Other provisions will become effective within 90 days of the publication date of the final FDIC regulations implementing the legislation.

      Brokered Deposits. The FDIA restricts the use of brokered deposits by certain depository

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institutions. Under the FDIA and applicable regulations, (i) a “well capitalized insured depository institution” may solicit and accept, renew or roll over any brokered deposit without restriction, (ii) an “adequately capitalized insured depository institution” may not accept, renew or roll over any brokered deposit unless it has applied for and been granted a waiver of this prohibition by the FDIC and (iii) an “undercapitalized insured depository institution” may not (x) accept, renew or roll over any brokered deposit or (y) solicit deposits by offering an effective yield that exceeds by more than 75 basis points the prevailing effective yields on insured deposits of comparable maturity in such institution’s normal market area or in the market area in which such deposits are being solicited. The term “undercapitalized insured depository institution” is defined to mean any insured depository institution that fails to meet the minimum regulatory capital requirement prescribed by its appropriate federal banking agency. The FDIC may, on a case-by-case basis and upon application by an adequately capitalized insured depository institution, waive the restriction on brokered deposits upon a finding that the acceptance of brokered deposits does not constitute an unsafe or unsound practice with respect to such institution. The Company had $677.0 million of brokered certificates of deposit and $482.3 million of brokered money market accounts outstanding at December 31, 2005 compared to $33.0 million of outstanding brokered certificates of deposit at December 31, 2004. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Deposits” set forth in Item 7 hereof.

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

      The CRA requires insured institutions to define the communities that they serve, identify the credit needs of those communities and adopt and implement a “Community Reinvestment Act Statement” pursuant to which they offer credit products and take other actions that respond to the credit needs of the community. The responsible federal banking regulator (in the case of the Bank, the FDIC) must conduct regular CRA examinations of insured financial institutions and assign to them a CRA rating of “outstanding,” “satisfactory,” “needs improvement” or “unsatisfactory.” The Bank’s latest federal CRA rating based upon its last examination is “satisfactory.”

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

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

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

      During 2005, the Bank funded an aggregate of $80.0 million which had been approved in prior years. During 2004, as part of the SIB transaction, the Bank requested and received approval from

40

the Department and notified the OTS of the distribution to the Company of an aggregate $400.0 million. The Bank declared and funded $370.0 million to pay the cash portion of the merger consideration paid in the transaction. The remaining $30.0 million was declared and funded in 2005. During 2003, the Bank requested and received approval of the distribution to the Company of an aggregate of $100.0 million. The Bank declared $75.0 million and funded $50.0 million during 2003 and $25.0 million in 2005. The Bank declared and funded the remaining $25.0 million during 2005. The distributions, other than the one in 2004 used to fund the cash portion of the consideration paid in the SIB transaction, were primarily used by the Company to fund the Company’s open market stock repurchase programs and dividends.

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

      Federal Home Loan Bank System. The Bank is a member of the FHLB of New York, which is one of 12 regional FHLBs that administers the home financing credit function of savings institutions. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the Board of Directors of the FHLB. The Bank had $3.12 billion of FHLB borrowings outstanding at December 31, 2005.

      As an FHLB member, the Bank is required to purchase and maintain stock in the FHLB of New York in an amount equal to at least 1% of its aggregate unpaid residential mortgage loans, home purchase contracts or similar obligations at the beginning of each year or 5% of its advances from the FHLB of New York, whichever is greater. At December 31, 2005, the Bank had approximately $167.3 million in FHLB stock, which resulted in its compliance with this requirement.

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

      Federal Reserve System. The Federal Reserve Board requires all depository institutions to maintain reserves against their transaction accounts (primarily NOW and Super NOW checking accounts and personal and business demand deposits) and non-personal time deposits. As of December 31, 2005, the Bank was in compliance with applicable requirements. However, because required reserves must be maintained in the form of vault cash or a non-interest-bearing account at a Federal Reserve Bank, the effect of this reserve requirement is to reduce an institution’s earning assets.

Sarbanes-Oxley Act of 2002

      On July 30, 2002, the Sarbanes-Oxley Act of 2002 implementing legislative reforms intended to address corporate and accounting fraud was signed into law. In addition to the establishment of a new accounting oversight board (the Public Company Accounting Oversight Board) which enforces auditing, quality control and independence standards and is funded by fees from all publicly traded companies, the Act restricts the provision of both auditing and consulting services by accounting firms. To ensure auditor independence, any non-audit services being provided to an audit client are required to be pre-approved by the Company’s audit committee members. In addition, the audit partners must be rotated. The Act requires chief executive officers and chief financial officers, or their equivalent, to certify to the accuracy of periodic reports filed with the SEC, subject to civil and criminal penalties if they knowingly or willfully violate this certification requirement. In addition, under the Act, counsel is required to report evidence of a material violation of the securities laws or a breach of fiduciary duty by a company to its chief executive officer or its chief legal officer, and, if

41

such officer does not appropriately respond, to report such evidence to the audit committee or other similar committee of the board of directors or the board itself.

      Longer prison terms were legislated for corporate executives who violate federal securities laws, the period during which certain types of suits can be brought against a company or its officers has been extended, and bonuses issued to top executives prior to restatement of a company’s financial statements are now subject to disgorgement if such restatement was due to corporate misconduct. Executives are also prohibited from insider trading during retirement plan “blackout” periods, and loans to company executives are restricted. In addition, a provision directs that civil penalties levied by the SEC as a result of any judicial or administrative action under the Act be deposited to a fund for the benefit of harmed investors. The Federal Accounts for Investor Restitution (“FAIR”) provision also requires the SEC to develop methods of improving collection rates. The legislation accelerates the time frame for disclosures by public companies, as they must immediately disclose any material changes in their financial condition or operations. Directors and executive officers must also provide information for most changes in ownership in a company’s securities within two business days of the change.

      The Act also increases the oversight of, and codifies certain requirements relating to audit committees of public companies and how they interact with the Company’s “registered public accounting firm” (“RPAF”). Audit committee members must be independent and are barred from accepting consulting, advisory or other compensatory fees from the issuer. In addition, companies must disclose whether at least one member of the committee is an “audit committee financial expert” (as such term is defined by the SEC) and if not, why not. Under the Act, a RPAF is prohibited from performing statutorily mandated audit services for a company if such company’s chief executive officer, chief financial officer, comptroller, chief accounting officer or any person serving in equivalent positions has been employed by such firm and participated in the audit of such company during the one-year period preceding the audit initiation date. The Act also prohibits any officer or director of a company or any other person acting under their direction from taking any action to fraudulently influence, coerce, manipulate or mislead any independent public or certified accountant engaged in the audit of the company’s financial statements for the purpose of rendering the financial statement’s materially misleading. The Act also requires the SEC to prescribe rules requiring inclusion of an internal control report and assessment by management in the annual report to shareholders. The Act requires the RPAF that issues the audit report to attest to and report on management’s assessment of the company’s internal controls. In addition, the Act requires that each financial report required to be prepared in accordance with (or reconciled to) generally accepted accounting principles and filed with the SEC reflect all material correcting adjustments that are identified by a RPAF in accordance with generally accepted accounting principles and the rules and regulations of the SEC.

      As a result of the Act, the SEC has promulgated numerous regulations implementing various provisions of the Act.

Taxation

     Federal Taxation

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

      The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to the Company. The Company’s federal income tax returns have been audited or closed without audit by the Internal Revenue Service through 2001.

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

      At December 31, 2005, the Bank’s total federal pre-1988 reserve was approximately $42.5 million. This reserve reflects the cumulative effects of federal tax deductions by the Company for which no Federal income tax provision has been made.

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

     State and Local Taxation

      New York State and New York City Taxation. The Company and certain eligible and qualified subsidiaries report income on a combined calendar year basis to both New York State and New York City. New York State Franchise Tax on corporations is imposed in an amount equal to the greater of (a) 7.5% of “entire net income” allocable to New York State (b) 3% of “alternative entire net income” allocable to New York State (c) 0.01% of the average value of assets allocable to New York State or (d) nominal minimum tax. Entire net income is based on federal taxable income, subject to certain modifications. Alternative entire net income is equal to entire net income without certain modifications. The New York City Corporation Tax is imposed in an amount equal to the greater of 9% of “entire net income” allocable to New York City or similar alternative taxable methods and rates as New York State.

      A Metropolitan Transportation Business Tax Surcharge on Corporations doing business in the Metropolitan District has been applied since 1982. The Company transacts a significant portion of its business within this District and is subject to this surcharge. For the tax year ended December 31, 2005, the surcharge rate is 20.4% of New York State franchise tax liability.

      New York State enacted legislation in 1996, which among other things, decoupled the Federal and New York State tax laws regarding thrift bad debt deductions and permits the continued use of the bad debt reserve method under Section 593 of the Code. Thus, provided the Bank continues to satisfy certain definitional tests and other conditions, for New York State and City income tax purposes, the Bank is permitted to continue to use the special reserve method for bad debt deductions. The deductible annual addition to the state reserve may be computed using a specific formula based on the Bank’s loss history (“Experience Method”) or a statutory percentage equal to 32% of the Bank’s New York State or City taxable income (“Percentage Method”).

      If the Bank fails to meet certain thrift assets and definitional tests for New York State and New York City tax purposes, it would have to recapture into taxable income approximately $286.4 million of previously recognized bad debt deductions. As of December 31, 2005 no related deferred taxes have been recognized.

      New Jersey State Taxation. The Company and certain eligible and qualified subsidiaries report income on a separate company basis, as New Jersey Law does not permit consolidated return filing. The state of New Jersey imposes a tax on entire net income at a rate of 9% of allocated income on corporations.

      Delaware State Taxation. As a Delaware holding company not earning income in Delaware, the Company is exempt from Delaware corporate income tax but is required to file an annual report with and pay an annual franchise tax to the State of Delaware. The tax is imposed as a percentage of the capital base of the Company with an annual maximum of $165,000. The Holding Company pays the maximum franchise tax.

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ITEM 1A.      Risk Factors

       In addition to the other information in this Annual Report on Form 10-K, the following risk factors should be considered carefully in evaluating the Company and its business because such factors may have a significant effect on its operating results and financial condition. As a result of the risk factors set forth below and the information presented elsewhere in this Annual Report on Form 10-K, actual results could differ materially from those included in any forward-looking statements.

If we Fail to Complete the Merger or the Closing of the Merger is Significantly Delayed, it may have an Adverse Impact on our Business

      As discussed above under “Item 1. — Business” on October 24, 2005, the Company entered into a merger agreement with Sovereign Bancorp, Inc. under which Sovereign will acquire the Company. The proposed merger is subject to the satisfaction of various closing conditions, including the approval from the Office of Thrift Supervision, and other conditions described in the Merger Agreement. We cannot assure you that these conditions will be satisfied or that the proposed merger will be successfully completed or completed without significant delay. In the event that the proposed merger is not completed or if the completion of the merger is significantly delayed: (i) Management’s attention from our day-to-day business may be diverted; (ii) we may lose key employees; (iii) our relationships with clients may be disrupted as a result of uncertainties with regard to our business and prospects; (iv) we may be involved in litigation or other adversarial proceedings relating to the merger or to Banco Santander’s proposed investment in Sovereign; and (v) the market price of shares of our common stock may decline to the extent that the current market price of those shares reflects an assumption by investors that the proposed merger will be completed.

      Any such events could adversely affect our stock price and harm our business and operating results.

Our Loan Portfolio Includes Commercial Real Estate, Commercial Business and Multi-Family Residential Loans Which Have a Generally Higher Risk of Loss Than Single-Family Residential Loans

      Over the past several years the Company has increased its investment in commercial real estate loans, commercial business loans and multi-family residential loans, both in terms of dollar amounts and as a percentage of our loan portfolio. Such loans generally have a higher inherent risk of loss than single-family residential mortgage or cooperative apartment loans because repayment of the loans or lines often depends on the successful operation of a business or the underlying property. Accordingly, repayment of these loans is subject to adverse conditions in the real estate market and the local economy. In addition, our commercial real estate and multi-family residential loans have significantly larger average loan balances compared to our single-family residential mortgage and cooperative apartment loans. Our commercial real estate and commercial business loans aggregated $4.66 billion or 37.9% of the total loan portfolio at December 31, 2005. We continue to originate multi-family residential loans consistent with our historical involvement in such lending. Such loans totaled $4.74 billion or 38.6% of the total loan portfolio at December 31, 2005. In addition, we originate and sell multi-family residential loans to Fannie Mae under a special program. Under the terms of the sales program, we retain a portion of the associated credit risk. At December 31, 2005, our maximum potential loss exposure with respect to the $6.27 billion in loans sold under this program was $186.7 million.

Loan Origination Levels Could be Adversely Affected if Mortgage Broker Relationship Ceases

      In recent years, mortgage brokers have been the source of substantially all of the multi-family residential and commercial real estate loans originated by the Company. The loans originated by the Company resulting from referrals by Meridian Capital account for a significant portion of the Company’s total loan originations, including the majority of the loans originated for sale. The ability of the Company to continue to originate multi-family residential and commercial real estate loans at the levels experienced in recent years may be a function of, among other things, maintaining the

44

level of referrals from Meridian Capital to the Company or increasing the number of referrals from other mortgage broker relationships.

Adverse Economic and Business Conditions in Our Market Area Could Cause an Increase in Loan Delinquencies and Non-performing Assets, Including Loan Charge-offs, Which in Turn May Negatively Affect the Company’s Income and Growth.

      Although the Company lends throughout the New York City metropolitan area, the substantial majority of its real estate loans are secured primarily by properties located in the boroughs of Brooklyn, Queens and Manhattan, Nassau County, Long Island, and the counties in northern and central New Jersey. Furthermore, at December 31, 2005, approximately 77% of our loan portfolio consists of commercial real estate, commercial business and multi-family residential loans. Such loans may be more sensitive to adverse changes in the local economy than single-family residential loans.

      The Company’s results of operation may be adversely affected by changes in prevailing economic conditions, particularly in the metropolitan New York area, including (i) decreases in real estate values; (ii) changes in interest rates which may cause a decrease in interest rate spreads; (iii) adverse employment conditions; (iv) the monetary and fiscal policies of the Federal government; (v) and other significant external events.

      These factors could adversely affect the Company’s results of operations and consequently its financial condition because borrowers may not be able to repay their loans, the value of collateral securing the Company’s loans to borrowers may decline and the quality of the loan portfolio may deteriorate. This could result in an increase in delinquencies and non-performing assets or require the Company to charge-off a percentage of its loans and/or increase the Company’s provisions for loan losses, which would reduce the Company’s earnings.

Competition With Other Financial Institutions Could Adversely Affect our Growth and Profitability

      The Company faces intense competition both in making loans and in attracting deposits. The Company competes primarily on the basis of its depository rates, the terms of the loans it originates and the quality of the Company’s financial and depository services. The New York City metropolitan area has a significant concentration of financial institutions, many of which are branches of significantly larger institutions which have greater financial resources. Over the past 10 years, consolidation of the banking industry in the New York City metropolitan area has continued resulting in the Company having to face larger and increasingly efficient competitors.

      This competition has made it more difficult for the Company to make new loans as competitors have recently been offering loans with lower fixed rates and loans on more attractive terms than the Company has been willing to offer. In addition, the Company has at times offered higher deposit rates in its market area which also decreases net interest margin. The Company’s profitability depends upon its continued ability to successfully compete in its market area and lowering interest rates on loans and increasing rates paid on deposits in response to competitive pressure could decrease the Company’s net interest margin.

      The Company expects competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Technological advances, for example, have lowered barriers to market entry, enabled banks to expand their geographic reach by providing services over the Internet and enabled non-depository institutions to offer products and services that traditionally have been provided by banks. Recent changes in federal banking law permit affiliation under certain circumstances among banks, securities firms and insurance companies, which also may change the competitive environment in which the Company conducts business.

Rising Interest Rates Could Reduce our Net Income

      The Company’s ability to earn a profit depends primarily on its net interest income, which is the difference between the interest income on interest-earning assets, such as loans and investments, and interest expense on our interest-bearing liabilities, such as deposits and borrowings.

      The majority of the Company’s interest- earning assets generally bear fixed interest rates for a contractual period of time. However, the Company’s interest-bearing liabilities that fund the interest-earning assets generally have shorter

45

contractual maturities or no stated maturities, such as core deposits. This imbalance can create significant earnings volatility, because market interest rates change over time. In addition, short-term and long-term interest rates do not necessarily change at the same time or at the same rate. During 2005, the FOMC of the Federal Reserve Board raised the federal funds rate (the rate at which banks borrow funds from one another) eight times, in 25 basis point increments to 4.25% during 2005 (and further raised it an additional 25 basis points to 4.50% in January 2006). While these short-term market rates (which are used as a guide to price the Bank’s deposits) have increased, longer term market interest rates (which are used as a guide to price the Bank’s longer term loans) have not. This flattening of the market yield curve has had a negative impact on net interest margin, and if the increase in short-term interest rates continues to outpace the increase in long-term rates, the Company would experience further compression on its net interest margin which would have a negative effect on the Company’s earnings.

      Changes in interest rates also affect the value of the Company’s interest-earning assets, and in particular the securities available-for-sale portfolio. Generally, the value of fixed-rate securities fluctuates inversely with changes in interest rates. Unrealized gains and losses on securities available-for-sale are reported as a separate component of stockholders’ equity, net of tax. Decreases in the fair value of securities available-for-sale resulting from increases in interest rates could have an adverse effect on stockholders’ equity.

Our Allowance for Loan Losses may be Inadequate, which Could Adversely Affect our Earnings

      The Company’s allowance for loan losses may not be sufficient to cover actual loan losses and if the Company is required to increase its allowance, earnings may be reduced in the period in which the allowance is increased. The Company has identified the evaluation of the allowance for loan losses as a critical accounting estimate where amounts are sensitive to material variation due to the large degree of judgment in (i) assigning individual loans to specific risk levels (pass, special mention, substandard, doubtful and loss); (ii) valuing the underlying collateral securing the loans; (iii) determining the appropriate reserve factor to be applied to specific risk levels for criticized and classified loans (special mention, substandard, doubtful and loss); and (iv) determining reserve factors to be applied to pass loans based upon loan type. To the extent that loans change risk levels, collateral values change or reserve factors change, the Company may need to adjust its provision for loan losses which would impact earnings.

      Management believes the allowance for loan losses at December 31, 2005 was at a level to cover the known and inherent losses in the portfolio that were both probable and reasonable to estimate. In the future, management may adjust the level of its allowance for loan losses as economic and other conditions dictate. In addition, the FDIC and the Department as an integral part of their examination process periodically review the Company’s allowance for possible loan losses. Such agencies may require the Company to adjust the allowance based upon their judgment.

Our Ability to Pay Dividends is Restricted

      Although the Holding Company has been paying regular quarterly dividends since 1998, its ability to pay dividends to stockholders depends to a large extent upon the dividends the Holding Company receives from the Bank. Dividends paid by the Bank are subject to restrictions under various federal and state banking laws. In addition, the Bank must maintain certain capital levels, which may restrict the ability of the Bank to pay dividends to the Holding Company. The Bank’s regulators have the authority to prohibit the Bank or the Company from engaging in unsafe or unsound practices in conducting its business. As a consequence, bank regulators could deem the payment of dividends by the Bank to be an unsafe or unsound practice, depending on the Bank’s financial condition or otherwise, and prohibit such payments. If the Bank were unable to pay dividends to the Holding Company, the Board of Directors might cease paying or reduce the rate or frequency at which the Company pays dividends to stockholders.

Our Stock Value May Suffer from Anti-Takeover Provisions That May Impede Potential Takeovers Other than the Pending Merger with Sovereign

      Provisions in our corporate documents and in Delaware corporate law, as well as certain federal regulations and certain contractual restrictions in our merger agreement with Sovereign, may make it

46

difficult and expensive to pursue a tender offer, change in control or takeover attempt that the board of directors opposes. As a result, stockholders may not have an opportunity to participate in such a transaction, and the trading price of our stock may not rise to the level of other institutions that are more vulnerable to hostile takeovers. Anti-takeover provisions include: (i) limitation on the acquisition of more than 10% of the issued and outstanding shares of common stock; (ii) limitations on voting rights; (iii) the election of members of the board of directors to staggered three-year terms; (iv) the absence of cumulative voting by stockholders in the election of directors; (v) provisions governing nominations of directors by stockholders; (vi) provisions governing the submission of stockholder proposals; (vii) provisions prohibiting the calling of special meetings of stockholders except by the board of directors; (viii) our ability to issue preferred stock and additional shares of common stock without stockholder approval; (ix) super-majority voting provisions for the approval of certain business combinations; and (x) super-majority voting provisions to amend our corporate documents.

      These provisions also will make it more difficult for an outsider to remove the current board of directors or management and may discourage potential proxy contests and other potential takeover attempts other than the pending merger with Sovereign.

We are Subject to Extensive Governmental Regulation Which May Affect our Operations

      The Company and the Bank are subject to extensive federal and state governmental supervision and regulation, which are intended primarily for the protection of depositors. The Company and the Bank are also subject to various laws and regulations which impose restrictions and requirements on our operations. Laws, regulations and policies adopted by federal or state authorities could significantly affect the Company’s business operations. The Company and Bank are also subject to periodic examination by federal and state banking regulators who may impose, among other things, restrictions on operations, which restrictions could substantially affect the implementation of our business plan. In addition, the Company and Bank are subject to changes in federal and state laws, as well as changes in regulations, governmental policies and accounting principles. The effects of any such potential changes cannot be predicted but could adversely affect our business and operations in the future.

Changes in the Value of Goodwill Could Reduce our Earnings

      The Company is required, by generally accepted accounting principles, to test goodwill for impairment at least annually. Testing for impairment of goodwill involves the identification of reporting units and the estimation of fair values. The estimation of fair values involves a high degree of judgment and subjectivity in the assumptions used. As of December 31, 2005, if the $1.19 billion of goodwill reflected as an asset of the Company was deemed fully impaired and the Company was required to charge-off all of its goodwill, the pro forma reduction to stockholders’ equity would be approximately $14.40 per share.

ITEM 1B.      Unresolved Staff Comments

       None.

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ITEM 2.      Properties

       The Company’s executive and administrative offices are located at 195 Montague Street, Brooklyn, New York. The Company owns the space it occupies in this facility. At December 31, 2005, the Company maintained 126 branches of which 39 were owned and 87 were leased under various lease agreements expiring at various times through 2098. The Company is also obligated under various other leases for facilities to support its private banking/ wealth management group and the expansion of its commercial real estate lending activities out of the New York metropolitan area. Additional information regarding properties and lease commitments are included in Notes 8 and 20 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof. The Company believes that its facilities are adequate to meet its present and currently foreseeable needs.

ITEM 3.      Legal Proceedings

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

      On November 4, 2005, a putative class action complaint was filed on behalf of the Holding Company’s stockholders in the Court of Chancery of the State of Delaware against the Holding Company, the members of the Company’s board of directors and Sovereign in connection with the proposed merger of the Company with Sovereign. The complaint alleges, among other things, that the directors of the Holding Company breached their fiduciary duties of due care and good faith by failing to conduct an adequate auction process or market check of the Company’s value and failing to maximize stockholder value; creating deterrents to third party offers (including by agreeing to a termination fee to Sovereign in certain circumstances under the merger agreement); and breaching their duty of loyalty by continuing in office and receiving fees following the merger. The complaint also names Sovereign as a defendant and alleges that Sovereign aided and abetted the breaches by the Holding Company’s directors. Among other things, the complaint seeks class action status, a court order enjoining the consummation of the merger and directing the defendants to take appropriate steps to maximize stockholder value, unspecified damages and the payment of attorneys’ and experts’ fees. The lawsuit is in its preliminary stage. The Holding Company believes that the claims in the lawsuit are without merit and intends to vigorously defend it.

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

       None.

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PART II

ITEM 5.       Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

       The common stock trades on the Nasdaq National Market System under the symbol “ICBC”. As of December 31, 2005, there were 82,332,449 shares of common stock outstanding.

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

      As of February 28, 2006 the Holding Company had 16,761 stockholders of record not including the number of persons or entities holding stock in nominee or street name through various brokers and banks.

      The following table sets forth the high and low closing stock prices of the Holding Company’s common stock as reported by the Nasdaq National Market System. Price information appears in major newspapers under the symbols “IndepCmntyBk” or “IndpCm”.

	Year Ended				Year Ended
	December 31, 2005				December 31, 2004
	High		Low		High		Low
First Quarter	$	41.98	$	38.60	$	41.41	$	34.92
Second Quarter		39.21		35.34		40.93		35.24
Third Quarter		37.56		33.14		40.49		35.03
Fourth Quarter		40.10		30.92		43.18		36.95

      The following table sets forth the high and low bid information of the Holding Company’s common stock as reported by the Nasdaq National Market System. Such bid information reflects inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

	Year Ended				Year Ended
	December 31, 2005				December 31, 2004
Bid	High		Low		High		Low
First Quarter	$	42.48	$	38.25	$	41.45	$	34.70
Second Quarter		39.46		34.52		41.54		35.02
Third Quarter		37.73		32.93		40.65		34.82
Fourth Quarter		40.43		30.66		43.35		36.54

      The following schedule summarizes the cash dividends per share of common stock paid by the Holding Company during the periods indicated. Dividends are paid quarterly.

	Year Ended		Year Ended
	December 31, 2005		December 31, 2004
First Quarter	$	0.26	$	0.22
Second Quarter		0.27		0.23
Third Quarter		0.27		0.24
Fourth Quarter		0.27		0.25

      The following schedule summarizes the total cash dividends paid by the Holding Company on its common stock during the periods indicated.

	Year Ended		Year Ended
(In Thousands)	December 31, 2005		December 31, 2004
First Quarter	$	21,112	$	11,159
Second Quarter		21,691		18,176
Third Quarter		21,507		19,222
Fourth Quarter		21,143		20,266

      On January 25, 2006, the Board of Directors declared a quarterly cash dividend of $0.27 per share of Common Stock, payable on February 23, 2006, to stockholders of record at the close of business on February 9, 2006.

      See “Business-Regulation — The Bank — Limitations on Dividends” set forth in Item 1 hereof, “Liquidity and Commitments” set forth in Item 7 hereof and Notes 1 and 25 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof for discussions of the restrictions on the Holding Company’s ability to pay dividends.

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      The following table contains information about the Company’s purchases of its equity securities pursuant to its twelfth stock repurchase plan during the quarter ended December 31, 2005.

					Total Number
					of Shares		Maximum Number
					Purchased as		of Remaining
	Total Number		Average Price		Part of a		Shares that May Be
	of Shares		Paid per		Publicly		Purchased Under
Period	Purchased		Share		Announced Plan		the Plan
October 1 — October 31, 2005		—	$	—		—		3,536,027
November 1 — November 30, 2005		—		—		—		3,536,027
December 1 — December 31, 2005		—		—		—		3,536,027
Total		—	$	—		—

      On July 24, 2003 the Company announced that its Board of Directors authorized the eleventh stock repurchase plan for up to three million shares of the Company’s outstanding common shares. The Company completed its eleventh stock repurchase program on August 12, 2005 for an aggregate cost of $111.0 million at an average price of $37.00.

      On May 27, 2005, the Company announced that its Board of Directors authorized the twelfth stock repurchase plan for up to five million shares of the Company’s outstanding common shares subject to completion of the eleventh stock repurchase program. The Company completed its eleventh stock repurchase plan and commenced its twelfth stock repurchase program on August 12, 2005. As of December 31, 2005, 1,463,973 shares had been repurchased pursuant to the Company’s twelfth repurchase program at an average cost of $34.32 per share. The Company suspended its twelfth repurchase program as a result of entering into the Agreement and Plan of Merger among the Company, Sovereign and Iceland Acquisition Corp. dated as of October 24, 2005. See “Business — Independence Community Bank Corp.” set forth in Item 1 hereof and Note 2 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof for additional information of the Agreement and Plan of Merger.

      See Item 12 hereto for information regarding the Company’s equity plans required by Item 201(d) of Regulation S-K.

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ITEM 6.      Selected Financial Data

	At December 31,
(In Thousands)	2005		2004		2003		2002		2001
Selected Financial Condition Data:
Total assets	$	19,083,120	$	17,753,479	$	9,546,607	$	8,023,643	$	7,624,798
Cash and cash equivalents		1,079,182		360,877		172,028		199,057		207,633
Investment securities available-for-sale		418,911		454,305		296,945		224,908		125,803
Mortgage-related securities available-for-sale		3,155,589		3,479,482		2,211,755		1,038,742		902,191
Loans available-for-sale		22,072		96,671		5,922		114,379		3,696
Loans receivable, net		12,198,903		11,147,157		6,092,728		5,736,826		5,796,196
Goodwill(1)		1,185,566		1,155,572		185,161		185,161		185,161
Identifiable intangible assets, net		67,676		79,056		190		2,046		8,981
Deposits		10,945,283		9,305,064		5,304,097		4,940,060		4,794,775
Borrowings		4,956,729		5,511,972		2,916,300		1,931,550		1,682,788
Subordinated notes		397,260		396,332		148,429		—		—
Senior notes		247,986		—		—		—		—
Total stockholders’ equity		2,285,780		2,304,043		991,111		920,268		880,533

										For the Nine
										Months
										Ended
	For the Year Ended December 31,									December 31,
(Dollars In Thousands, Except Per Share Data)	2005		2004			2003		2002		2001
Selected Operating Data:
Interest income	$	837,579	$	689,408		$	440,120	$	485,503	$	362,206
Interest expense		338,714		213,915			147,375		175,579		172,626
Net interest income		498,865		475,493			292,745		309,924		189,580
Provision for loan losses		—		2,000			3,500		8,000		7,875
Net interest income after provision for loan losses		498,865		473,493			289,245		301,924		181,705
Net gain (loss) on loans and securities		6,791		(8,535	)		765		557		2,850
Other non-interest income		118,089		130,044			111,974		74,561		41,623
Amortization of intangible assets		11,380		8,268			1,855		6,971		5,761
Other non-interest expense		286,453		262,807			186,948		178,084		109,880
Income before provision for income taxes		325,912		323,927			213,181		191,987		110,537
Provision for income taxes		112,440		111,755			76,211		69,585		40,899
Net income	$	213,472	$	212,172		$	136,970	$	122,402	$	69,638
Basic earnings per share	$	2.70	$	2.96		$	2.74	$	2.37	$	1.33
Diluted earnings per share	$	2.62	$	2.84		$	2.60	$	2.24	$	1.27

(footnotes on next page)

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													At or For the
													Nine Months
													Ended
	At or For the Year Ended December 31,												December 31,
(Dollars In Thousands, Except Per Share Data)	2005			2004			2003			2002			2001(2)
Key Operating Ratios and Other Data:
Performance Ratios:(3)
Return on average assets		1.18	%		1.37	%		1.58	%		1.56	%		1.27	%
Return on average equity		9.31			11.31			14.60			13.56			11.01
Return on average tangible assets		1.27			1.46			1.61			1.59			1.30
Return on average tangible equity		20.63			21.79			18.20			17.19			14.38
Average interest-earning assets to average interest-bearing liabilities		102.03			102.17			105.10			106.51			106.55
Interest rate spread(4)		3.09			3.43			3.58			4.08			3.55
Net interest margin(4)		3.13			3.46			3.68			4.23			3.77
Non-interest expense to average assets		1.65			1.75			2.18			2.34			2.10
Efficiency ratio(5)		46.43			43.40			46.19			46.32			47.53
Dividend payout ratio(6)		40.84			33.10			26.15			22.32			21.26
Cash dividends declared per common share	$	1.07		$	0.94		$	0.68		$	0.50		$	0.27
Asset Quality Ratios:
Non-performing loans as a percent of total loans at end of period		0.30	%		0.44	%		0.59	%		0.72	%		0.78	%
Non-performing assets to total assets at end of period(7)		0.20			0.29			0.38			0.52			0.61
Allowance for loan losses to non-performing loans at end of period		273.25			205.84			217.32			193.57			170.01
Allowance for loan losses to total loans at end of period		0.82			0.90			1.29			1.38			1.33
Capital and Other Information:(3)
Book value per share	$	27.76		$	27.13		$	18.19		$	16.36		$	15.08
Tangible book value per share		12.54			12.59			14.79			13.03			11.76
Equity to assets at end of period		11.98	%		12.98	%		10.38	%		11.47	%		11.54	%
Leverage capital(8)		6.98			5.51			8.14			8.73			8.60
Total capital to risk-weighted assets at end of period(8)		12.59			11.47			12.39			11.40			12.20
Number of full-service offices at end of period		125			122			84			73			69

(1)	Represents the excess of cost over fair value of net assets acquired less identifiable intangible assets. See Note 9 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof.
(2)	Where applicable, ratios have been annualized.
(3)	With the exception of end of period ratios and the efficiency ratio, all ratios are based on average daily balances during the respective periods.
(4)	Interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities; net interest margin represents net interest income as a percentage of average interest-earning assets.
(5)	Reflects adjusted operating expense (net of amortization of goodwill and identifiable intangible assets) as a percent of the aggregate of net interest income and adjusted non-interest income (excluding gains and losses on loans and securities). Amortization of identifiable intangible assets is excluded from the calculation since it is a non-cash expense and gains and losses on loans and securities are excluded since they are generally considered by the Company’s management to be non-recurring in nature. The operating efficiency ratio is not a financial measurement required by generally accepted accounting principles in the United States of America. However, the Company believes such information is useful to investors in evaluating the Company’s operations. The ratio would have been 47.75% for the year ended December 31, 2005 if the adjustments noted above were not made.
(6)	Represents cash dividends declared per common share as a percent of diluted earnings per share.
(7)	Non-performing assets consist of non-accrual loans, loans past due 90 days or more as to interest or principal repayment and accruing and real estate acquired through foreclosure or by deed-in-lieu therefore.
(8)	Ratios reflect the capital position of the Bank only.

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ITEM 7.       Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

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

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

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

Business Strategy

      Controlled growth. In recent years, the Company has sought to increase its assets and expand its operations through internal growth as well as through acquisitions.

      On October 24, 2005, the Company, Sovereign and Iceland Acquisition Corp. (“Merger Sub”) a wholly owned subsidiary of Sovereign, entered into an Agreement and Plan of Merger (the “Merger Agreement”). Subject to the terms and conditions of the Merger Agreement, which has been approved by the Boards of Directors of all parties and by the stockholders of the Holding Company, Merger Sub will be merged with and into the Company (the “Merger”). Upon effectiveness of the Merger, each outstanding share of common stock of the Company other than shares owned by the Company (other than in a fiduciary capacity), Sovereign or their subsidiaries and other than dissenting shares will be converted into the right to receive $42 per share in cash and the Holding Company will become a subsidiary of Sovereign. See “Business-Independence Community Bank Corp.” in Item 1 hereof and Note 2 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof.

      During the year ended December 31, 2005, the Company opened seven de novo branches while it opened six de novo branches during the year ended December 31, 2004. In addition, during 2003, the Company opened one branch facility in Maryland as a result of the expansion of the Company’s commercial real estate lending activities to the Baltimore-Washington area. During the first quarter of 2006 the Company opened one branch in Manhattan, New York, which brings the total to 127 banking offices. In addition, the Company currently expects to expand its branch network through the opening of approximately two additional banking locations during the remainder of calendar 2006.

      The Company’s assets increased by $1.33 billion, or 7.5%, from $17.75 billion at December 31, 2004 to $19.08 billion at December 31, 2005 resulting primarily from internal growth of the Company’s loan portfolio and a temporary build-up in liquidity by increasing cash and cash equivalents. The increases were primarily funded through the increase in deposits.

      The Company has selectively used acquisitions in the past as a means to expand its footprint and operations. The Company completed its acquisition of SIB and the merger of SIB’s wholly owned subsidiary, SI Bank, with and into the Bank on April 12, 2004. SIB had $7.15 billion in total assets effective the close of business on April 12, 2004.

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SI Bank, a full service federally chartered savings bank, operated 17 full service branch offices on Staten Island, three full service branch offices in Brooklyn, and a total of 15 full service branch offices in New Jersey. See Note 2 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof.

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

      The Company completed its acquisition of Broad, which had $646.3 million in assets, effective the close of business on July 31, 1999 and its acquisition of Statewide Financial Corp. (“Statewide”), which had $745.2 million in assets, effective the close of business on January 7, 2000. The Company also completed several other smaller whole bank and branch acquisitions in earlier periods.

      Emphasis on Commercial Real Estate, Commercial Business and Multi-family Lending. Since 1999, the Company has focused on expanding its higher yielding loan portfolios as compared to single-family mortgage loans, including portfolios of fixed and variable-rate commercial real estate loans, commercial business loans and mortgage warehouse lines of credit. Although the Company has deemphasized the origination of single-family residential loans over the past few years, the Company experienced a significant increase in its single-family residential portfolio during 2004 of approximately $2.21 billion as a result of the SIB transaction. Given the concentration of multi-family housing units in the New York City metropolitan area, as well as the Company’s commitment to remain a leader in the multi-family loan market, the Company continues to emphasize the origination (both for portfolio and for sale) of loans secured by first liens on multi-family residential properties, which consist primarily of mortgage loans secured by apartment buildings. In addition to continuing to generate mortgage loans secured by multi-family and commercial real estate, the Company also commenced a strategy in the fourth quarter of 2000 to originate and sell multi-family residential mortgage loans in the secondary market to Fannie Mae while retaining servicing in order to further the Company’s ongoing strategic objective of increasing non-interest income related to lending and servicing revenue.

      During the year ended December 31, 2005, the Company originated for sale $1.18 billion and sold $1.57 billion of multi-family residential mortgage loans, of which $377.9 million were from the Company’s portfolio. See “Business-Lending Activities-Loan Originations, Purchases, Sales and Servicing”. In addition, to further expand its variable-rate loan portfolios, in November 2003, the Company purchased certain mortgage warehouse lines from The Provident Bank. The acquisition increased the mortgage warehouse line of credit portfolio by approximately $207.0 million in lines with $76.3 million in outstanding advances at the time of acquisition. At December 31, 2005, mortgage warehouse lines of credit totaled $1.28 billion with $453.5 million outstanding at such date.

      Commercial real estate, commercial business, multi-family residential loans and mortgage warehouse lines of credit all generally have a higher inherent risk of loss than single-family residential mortgage or cooperative apartment loans because repayment of the loans or lines often depends on the successful operation of a business or the underlying property. Accordingly, repayment of these loans is subject to adverse conditions in the real estate market and the local economy. In addition, the Company’s commercial real estate and multi-family residential loans have significantly larger average loan balances compared to its single-family residential mortgage and cooperative apartment loans.

      The Company’s commercial real estate, commercial business and mortgage warehouse lines of credit portfolios comprised in the aggregate $5.12 billion, or 41.6% of its total loan portfolio at December 31, 2005 compared to $4.50 billion, or 40.1% at December 31, 2004. These portfolios as a percent of total loans at December 31, 2004 comprised a slightly smaller percentage of the portfolio than at December 31, 2005 due to the increase in the size of the single-family residential loan portfolio as a result of the SIB transaction in April 2004.

      Maintain Asset Quality. Management believes that maintaining high asset quality is key to achieving and sustaining long-term financial

54

success. Accordingly, the Company has sought to maintain a high level of asset quality and moderate credit risk through its underwriting standards and by generally limiting its origination to loans secured by properties or collateral located in its market area. Non-performing assets as a percentage of total assets at December 31, 2005 amounted to 0.20% and the ratio of the allowance for loan losses to non-performing loans amounted to 273.3%, while at December 31, 2004, the percentages were 0.29% and 205.8%, respectively. Non-performing assets decreased $13.4 million or 25.8% to $38.4 million at December 31, 2005 compared to $51.8 million at December 31, 2004. The Company’s non-accrual loans decreased $15.3 million to $28.3 million at December 31, 2005 with the decrease being primarily related to commercial business loans, commercial real estate loans and single-family residential mortgage loans. Loans 90 days or more past maturity which continued to make payments on a basis consistent with the original repayment schedule increased by $3.1 million to $8.8 million at December 31, 2005.

      Stable Source of Liquidity. The Company purchases short-to medium-term investment securities and mortgage-related securities combining what management believes to be appropriate liquidity, yield and credit quality in order to achieve a managed and a reasonably predictable source of liquidity to meet loan demand as well as a stable source of interest income. These portfolios, which totaled in the aggregate $3.57 billion at December 31, 2005 compared to $3.93 billion at December 31, 2004, are comprised primarily of mortgage-related securities totaling $3.16 billion (of which $2.02 billion consists of CMOs and $1.14 billion consists of mortgage-backed securities), $95.4 million of corporate bonds, $227.7 million of obligations of the U.S. Government and federal agencies and $95.6 million of preferred securities. In accordance with the Company’s policy, securities purchased by the Company generally must be rated at least “investment grade” upon purchase.

      Emphasis on Retail Deposits and Customer Service. The Company, as a community-based financial institution, is largely dependent upon its growth and retention of competitively priced core deposits (consisting of all deposit accounts other than certificates of deposit) to provide a stable source of funding. The Company has retained many loyal customers over the years through a combination of quality service, customer convenience, an experienced staff and a commitment to the communities which it serves. Complementing the increased emphasis on expanding commercial and consumer relationships, lower costing core deposits increased $196.0 million or 2.8%, to $7.23 billion at December 31, 2005, as compared to December 31, 2004. This increase in core deposits reflects both the continued successful implementation of the Company’s business strategy of increasing core deposits, as well as the successful performance of the Company’s de novo branch program. However, core deposits decreased to 66.1% of total deposits at December 31, 2005 compared to 75.6% of total deposits at December 31, 2004 as a result of a $1.44 billion increase in certificates of deposit as the Company utilized certain certificates of deposit promotions (including brokered certificates of deposit) as an alternative funding source to reduce its dependence on higher costing wholesale borrowings.

Critical Accounting Estimates

      Note 1 of Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data”, hereof contains a summary of the Company’s significant accounting policies. Various elements of the Company’s accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. The estimates with respect to the methodologies used to determine the allowance for loan losses, and judgments regarding goodwill and deferred tax assets are the Company’s most critical accounting estimates. Critical accounting estimates are significantly affected by management judgment and uncertainties and there is a likelihood that materially different amounts would be reported under different, but reasonably plausible, conditions or assumptions.

      The following is a description of the Company’s critical accounting estimates and an explanation of the methods and assumptions underlying their application. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of the Board of Directors and the Audit Committee has reviewed the Company’s disclosure relating to it in this Management’s Discussion and Analysis.

      Allowance for Loan Losses. In assessing the level of the allowance for loan losses and the periodic provisions to the allowance charged to income, the Company considers the composition and

55

outstanding balance of its loan portfolio, the growth or decline of loan balances within various segments of the overall portfolio, the state of the local (and to a certain degree, the national) economy as it may impact the performance of loans within different segments of the portfolio, the loss experience related to different segments or classes of loans, the type, size and geographic concentration of loans held by the Company, the level of past due and non-performing loans, the value of collateral securing loans, the level of classified loans and the number of loans requiring heightened management oversight. The continued shifting of the composition of the loan portfolio to be more commercial-bank like by increasing the balance of commercial real estate and business loans and mortgage warehouse lines of credit may increase the level of known and inherent losses in the Company’s loan portfolio.

      The Company has identified the evaluation of the allowance for loan losses as a critical accounting estimate where amounts are sensitive to material variation. The allowance for loan losses is considered a critical accounting estimate because there is a large degree of judgment in (i) assigning individual loans to specific risk levels (pass, special mention, substandard, doubtful and loss), (ii) valuing the underlying collateral securing the loans, (iii) determining the appropriate reserve factor to be applied to specific risk levels for criticized and classified loans (special mention, substandard, doubtful and loss) and (iv) determining reserve factors to be applied to pass loans based upon loan type. To the extent that loans change risk levels, collateral values change or reserve factors change, the Company may need to adjust its provision for loan losses which would impact earnings.

      Management believes the allowance for loan losses at December 31, 2005 was at a level to cover the known and inherent losses in the portfolio that were both probable and reasonable to estimate. In the future, management may adjust the level of its allowance for loan losses as economic and other conditions dictate. Management reviews the allowance for loan losses not less than quarterly.

      Goodwill. Effective April 1, 2001, the Company adopted SFAS No. 142, which resulted in discontinuing the amortization of goodwill. Under SFAS No. 142, goodwill is carried at its book value as of April 1, 2001 and any future impairment of goodwill will be recognized as non-interest expense in the period of impairment.

      The Company performs a goodwill impairment test on an annual basis. The Company did not recognize an impairment loss as a result of its annual impairment test effective October 1, 2005. The goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired while conversely, if the carrying amount of a reporting unit exceeds its fair value, goodwill is considered impaired and the Company must measure the amount of impairment loss, if any.

      The fair value of an entity with goodwill may be determined by a combination of quoted market prices, a present value technique or multiples of earnings or revenue. Quoted market prices in active markets are considered to be the best evidence of fair value and are to be used as the basis for the measurement, if available. However, the market price of an individual equity security (and thus the market capitalization of a reporting unit with publicly traded equity securities) may not be representative of the fair value of the reporting unit as a whole. The quoted market price of an individual equity security, therefore, need not be the sole measurement basis of the fair value of a reporting unit. A present value technique is another method with which to estimate the fair value of a group of net assets. If a present value technique is used to measure fair value, estimates of future cash flows used in that technique shall be consistent with the objective of measuring fair value. Those cash flow estimates shall incorporate assumptions that the marketplace participants would use in their estimates of fair value. If that information is not available without undue cost and effort, an entity may use its own assumptions. A third method of estimating the fair value of a reporting unit, is a valuation technique based on multiples of earnings or revenue.

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

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

56

which would result in a charge to non-interest expense in the period of impairment.

      Deferred Tax Assets. The Company uses the liability method to account for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws expected to be in effect when the differences are expected to reverse. The Company must assess the deferred tax assets and establish a valuation allowance where realization of a deferred asset is not considered “more likely than not.” The Company generally uses the expectation of future taxable income in evaluating the need for a valuation allowance. In management’s opinion, since the Company reported taxable income for Federal, state and local income tax purposes in each of the past two fiscal years in view of the Company’s previous, current and projected future earnings, such deferred tax assets are expected to be fully realized. Therefore the Company has not established a valuation allowance for deferred tax assets at December 31, 2005. See Note 22 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof.

      The Company has identified the valuation of deferred tax assets as a critical accounting estimate due to the judgment involved in projecting future taxable income, determining when differences are expected to be reversed and establishing a valuation allowance. Changes in management’s judgments and estimates may have an impact on the Company’s net income.

Changes in Financial Condition

      Total assets increased by $1.33 billion, or 7.5%, from $17.75 billion at December 31, 2004 to $19.08 billion at December 31, 2005 resulting primarily from the internal growth of the Company’s loan portfolio. The Company’s loan portfolio in the aggregate grew by $1.05 billion and cash and cash equivalents increased by $718.3 million during the year ended December 31, 2005, the effect of which was partially offset by a $359.3 million decrease in the securities available-for-sale portfolio during the year ended December 31, 2005.

      The growth was funded through the increase of $1.64 billion in deposits and by replacing $359.3 million of investment securities with higher yielding loans. The increase in deposits was also used to reduce the Company’s dependence on higher costing wholesale borrowings. Borrowings decreased $555.2 million (excluding subordinated debt and the issuance of senior notes discussed below) during the year ended December 31, 2005.

      Cash and Cash Equivalents. Cash and cash equivalents increased from $360.9 million at December 31, 2004 to $1.08 billion at December 31, 2005. The $718.3 million increase in cash and cash equivalents was primarily due to a temporary build-up of liquidity at the end of the fourth quarter that was used to pay down borrowings in early 2006. The increase was partially offset by the redeployment of funds into other interest-earning assets as well as to purchase shares pursuant to the Company’s twelfth stock repurchase program. The Company suspended its twelfth repurchase program as a result of its entering into the Agreement and Plan of Merger among the Company, Sovereign Bancorp, Inc. and Iceland Acquisition Corp. on October 24, 2005. (See “Business-Independence Community Bank Corp.” set forth in Item 1 hereof and Note 2 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof for additional information).

      Securities Available-for-Sale. The aggregate securities available-for-sale portfolio (which includes investment securities and mortgage-related securities) decreased $359.3 million, or 9.1%, from $3.93 billion at December 31, 2004 to $3.57 billion at December 31, 2005. The decrease in securities available-for-sale was due to $477.4 million of sales combined with $894.8 million of securities calls and repayments, the proceeds of which were redeployed to fund the growth of the Company’s loan portfolio as well as to purchase shares pursuant to the Company’s stock repurchase program. These decreases were partially offset by $1.10 billion of purchases. Securities available-for-sale had a net unrealized loss of $76.5 million at December 31, 2005 compared to a net unrealized loss of $6.5 million at December 31, 2004. The increase in the unrealized loss on the portfolio was primarily a result of changes in market interest rates and not credit quality of the issuers. The Company continues to actively manage the size of its securities portfolio in relation to total assets and as such had a securities-to-asset ratio of 18.7% as of December 31, 2005 as compared to 22.2% as of December 31, 2004.

      The Company’s mortgage-related securities portfolio decreased $323.9 million to $3.16 billion at December 31, 2005 compared to $3.48 billion at December 31, 2004. The securities were comprised

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of $1.94 billion of AAA-rated CMOs, $72.2 million of CMOs which were issued or guaranteed by Freddie Mac, Fannie Mae or GNMA (“Agency CMOs”) and $1.14 billion of mortgage-backed pass through certificates which were also issued or guaranteed by Freddie Mac, Fannie Mae or GNMA. The decrease in the portfolio was primarily due to $734.6 million of principal repayments received combined with sales of $417.6  million which was partially offset by purchases of $720.6 million of AAA-rated CMOs with an average yield of 4.72% and $189.9 million of Fannie Mae, GNMA and Freddie Mac mortgage-backed pass through certificates with an average yield of 4.66%. This portfolio had a net unrealized loss of $73.8 million at December 31, 2005 as compared to a net unrealized loss of $7.9 million at December 31, 2004.

      The Company’s investment securities portfolio decreased $35.4 million to $418.9 million at December 31, 2005 compared to $454.3 million at December 31, 2004. The decrease was primarily due to sales totaling $59.9 million, primarily consisting of corporate bonds and preferred securities, and calls and repayments of $160.2 million. Partially offsetting these decreases were $188.9 million of purchases, primarily $100.0 million of federal agencies with a weighted average yield of 4.84%, $56.4 million of corporate bonds with a weighted average yield of 4.48% and $22.9 million of U.S. Treasury securities with a weighted average yield of 3.74%. The net unrealized loss on this portfolio was $2.7 million at December 31, 2005 compared to a net unrealized gain of $1.5 million at December 31, 2004.

      At December 31, 2005, the Company had a $44.1 million net unrealized loss, net of tax, on available-for-sale investment and mortgage-related securities as compared to a $3.8 million net unrealized loss, net of tax, at December 31, 2004.

      Loans Available-for-Sale. Loans available-for-sale decreased by $74.6 million to $22.1 million at December 31, 2005 compared to December 31, 2004. The decrease was primarily the result of a $69.0 million decline in loans available-for-sale acquired from SIB.

      The Company sells multi-family residential mortgage loans, both newly originated and portfolio loans, in the secondary market to Fannie Mae while retaining servicing. During the year ended December 31, 2005, the Company originated $1.18 billion and sold $1.57 billion of loans to Fannie Mae under this program and as a result serviced $6.27 billion of loans with a maximum potential loss exposure (due to recourse provisions) of $186.7 million. As part of the sales to Fannie Mae, the Company retains a portion of the associated credit risk. Included in the $1.57 billion of loans sold during the year ended December 31, 2005 were $377.9 million of loans that were originally held in portfolio and were reclassified to loans available-for-sale. Multi-family loans available-for-sale at December 31, 2005 totaled $17.9 million compared to $22.6 million at December 31, 2004. See “Lending Activities-Loan Originations, Purchases, Sales and Servicing” set forth in Item 1 hereof and Notes 5 and 19 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof for additional information.

      The Company also originates and sells single-family residential mortgage loans under a mortgage origination assistance agreement with PHH Mortgage. The Company funds the loans directly and sells the loans and related servicing to PHH Mortgage. The Company originated $83.3 million and sold $81.7 million of such loans during the year ended December 31, 2005. Single-family residential mortgage loans available-for-sale under this program totaled $4.2 million at December 31, 2005 compared to $5.1 million at December 31, 2004.

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

      The $69.9 million decrease in single-family residential loans available-for-sale from $74.1 million at December 31, 2004 to $4.2 million at December 31, 2005 was primarily the result of a decrease in loans available-for-sale acquired from SIB. The Company determined to wind down the remaining operations of Staten Island Mortgage Corp., the mortgage-banking subsidiary of SIB (most of the operations were sold in connection with the SIB transaction). The Company reduced the balance of such loans from $298.7 million as of April 12, 2004 (the closing of the SIB transaction) to $69.0 million at December 31, 2004. During 2005, all such loans were either sold in the secondary market or transferred to the Company’s single-family residential mortgage portfolio.

      Loans. Loans increased by $1.05 billion, or 9.4%, to $12.30 billion at December 31, 2005 from $11.25 billion at December 31, 2004. The Company continues to focus on expanding its higher yielding

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loan portfolios of commercial real estate and commercial business loans as well as variable-rate mortgage warehouse lines of credit as part of its business plan. The Company is also committed to remaining a leader in the multi-family residential loan market.

      The Company originated (both for portfolio and for sale) approximately $4.10 billion of mortgage loans during the year ended December 31, 2005 compared to $5.30 billion for the year ended December 31, 2004. During 2004 and 2005 the Company was able to maintain a balanced program of originating loans for portfolio and for sale to effectively manage the size of the Company’s balance sheet. The Company sold $1.67 billion of mortgage loans during the year ended December 31, 2005 compared to $2.42 billion during the year ended December 31, 2004.

      Multi-family residential loans increased $942.7 million or 24.8% to $4.74 billion at December 31, 2005 compared to $3.80 billion at December 31, 2004. The increase was primarily due to originations for portfolio of $1.63 billion which was partially offset by repayments of $295.6 million combined with the sale out of portfolio of $377.9 million of loans to Fannie Mae with a weighted average yield of 5.27%. Multi-family residential loans comprised 38.6% of the total loan portfolio at December 31, 2005 compared to 33.8% at December 31, 2004.

      Commercial real estate loans increased $653.0 million or 21.5% to $3.69 billion at December 31, 2005 compared to $3.03 billion at December 31, 2004. The increase was primarily due to $1.20 billion of originations partially offset by $549.2 million of loan repayments for the year ended December 31, 2005. Commercial real estate loans comprised 30.0% of the total loan portfolio at December 31, 2005 compared to 27.0% at December 31, 2004.

      Commercial business loans increased $167.6 million, or 20.7%, from $809.4 million at December 31, 2004 to $977.0 million at December 31, 2005. The increase was due primarily to originations and advances of $603.8 million partially offset by $434.1 million of repayments and $2.6 million of charge-offs during the year ended December 31, 2005. Commercial business loans comprised 7.9% of the total loan portfolio at December 31, 2005 compared to 7.2% at December 31, 2004.

      Mortgage warehouse lines of credit are secured short-term advances extended to mortgage-banking companies to fund the origination of one-to-four family mortgages. Advances under mortgage warehouse lines of credit decreased $206.4 million, or 31.3%, from $659.9 million at December 31, 2004 to $453.5 million at December 31, 2005. At December 31, 2005, there were $828.2 million of unused lines of credit related to mortgage warehouse lines of credit. See “Business-Asset Quality-Allowance for Loan Losses”. Mortgage warehouse lines of credit comprised 3.7% of the total loan portfolio at December 31, 2005 compared to 5.9% at December 31, 2004.

      The single-family residential and cooperative apartment loan portfolio decreased $557.5 million or 22.4% from $2.49 billion at December 31, 2004 to $1.93 billion at December 31, 2005. The decrease was primarily due to $625.5 million of repayments partially offset by originations of $13.0 million as well as the reclassification of $54.9 million of loans as held for portfolio during the year ended December 31, 2005. As a result, single-family and cooperative apartment loans comprised 15.7% of the total loan portfolio at December 31, 2005 compared to 22.1% at December 31, 2004. The Company also originates and sells single-family residential mortgage loans to PHH Mortgage as previously discussed.

      Non-Performing Assets. Non-performing assets as a percentage of total assets at December 31, 2005 amounted to 0.20% compared to 0.29% at December 31, 2004. The Company’s non-performing assets, which consist of non-accrual loans, accruing loans past due 90 days or more as to interest or principal and other real estate owned acquired through foreclosure or deed-in-lieu thereof, decreased by $13.4 million or 25.8% to $38.4 million at December 31, 2005 from $51.8 million at December 31, 2004. The decrease in non-performing assets was primarily due to diligent work out efforts resulting in the sale of certain non-performing loans. Non-accrual loans totaled $28.3 million at December 31, 2005, a decrease of $15.3 million or 35.1%, compared to December 31, 2004. Non-accrual loans primarily consisted of $15.7 million of commercial business loans, $8.4 million of commercial real estate loans, $3.2 million of single-family residential and cooperative apartment loans and $0.8 million of multi-family residential loans.

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      Loans 90 days or more past maturity which continued to make payments on a basis consistent with the original repayment schedule increased $3.1 million to $8.7 million at December 31, 2005 compared to December 31, 2004. The Company is continuing its efforts to have the borrowers refinance or extend the term of such loans.

      Allowance for Loan Losses. The Company’s allowance for loan losses amounted to $101.5 million at December 31, 2005 as compared to $101.4 million at December 31, 2004. At December 31, 2005 the Company’s allowance amounted to 0.82% of total loans and 273.3% of total non-performing loans compared to 0.90% and 205.8% at December 31, 2004, respectively.

      The Company’s allowance increased slightly during the year ended December 31, 2005 due to net recoveries. No provision for loan losses was recorded for the year ended December 31, 2005 primarily as a result of the improved quality in the characteristics of the loan portfolio. Although there was no provision recorded in 2005, adjustments were made to the allowance for loan losses by loan category to reflect changes in the Company’s loan mix and risk characteristics.

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

      The Company’s goodwill, which aggregated $1.19 billion at December 31, 2005, resulted from the merger with SIB, the acquisitions of Broad and Statewide as well as the acquisition in January 1996 of Bay Ridge Bancorp, Inc. The $30.0 million increase in goodwill during the year ended December 31, 2005 was attributable to finalizing certain tax and accounting positions related to the SIB transaction. (See Notes 2 and 9 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof).

      The Company’s identifiable intangible assets decreased by $11.4 million to $67.7 million at December 31, 2005 compared to December 31, 2004 which was the result of the amortization of the $87.1 million core deposit intangible associated with the SIB transaction. The core deposit intangible is being amortized using the interest method over 14 years. The amortization of identified intangible assets will continue to reduce net income until such intangible assets are fully amortized.

      Bank Owned Life Insurance (“BOLI”). The Company owns BOLI policies to fund certain future employee benefit costs and to provide tax-exempt returns to the Company. The BOLI is recorded at its cash surrender value and changes in value are recorded in non-interest income. BOLI increased $15.5 million to $336.6 million at December 31, 2005 compared to December 31, 2004 as a result of an increase in the cash surrender value of the BOLI.

      Other Assets. Other assets decreased $51.7 million from $432.2 million at December 31, 2004 to $380.5 million at December 31, 2005. The decrease was primarily due to reductions of $38.8 million in tax receivables, $30.6 million in FHLB stock and $5.0 million in deferred tax assets partially offset by a $17.5 million increase in advances for borrowers real estate tax payments at the end of 2005.

      The Company had a net deferred tax asset of $73.9 million at December 31, 2005 compared to $78.8 million at December 31, 2004.

      Deposits. Deposits increased $1.64 billion or 17.6% to $10.95 billion at December 31, 2005 compared to December 31, 2004. The increase was due to deposits inflows totaling $1.48 billion as well as interest credited of $162.9 million.

      During the first quarter of 2005, the Company introduced the Independence RewardsPlus Checking^tm product and utilized certain certificates of deposit promotions as an alternative funding source to reduce its dependence on higher costing wholesale borrowings. As a result of these initiatives, core deposits increased $196.0 million, or 2.8%, to $7.23 billion at December 31, 2005 compared to $7.03 billion at December 31, 2004. Certificates of deposit increased $1.44 billion or 63.6% to $3.72 billion at December 31, 2005 compared to $2.27 billion at December 31, 2004. The increase in core deposits included $482.3 million of brokered deposits and the increase in certificates of deposit included $644.1 million of brokered certificates of deposit which are also being used as an alternative funding source to higher costing wholesale borrowings. As a result of the increase in certificates of deposit, core deposits amounted to 66.1% of total deposits at December 31, 2005 compared to 75.6% of total deposits at December 31, 2004.

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      The Company focuses on the growth of core deposits as a key element of its asset/liability management process to lower interest expense and thus increase net interest margin given that these deposits have a lower cost of funds than certificates of deposit and borrowings. Core deposits also reduce liquidity fluctuations since these accounts generally are considered to be less likely than certificates of deposit to be subject to disintermediation. In addition, these deposits improve non-interest income through increased customer related fees and service charges. The weighted average interest rate paid on core deposits was 1.04% compared to 2.94% for certificates of deposit and 3.30% for borrowings (including subordinated and senior notes) for the year ended December 31, 2005.

      In the future, the Company may choose to further increase its use of certificates of deposit as part of its asset/liability strategy to match the term and duration of the loans in its loan portfolio.

      Borrowings. Borrowings (not including subordinated and senior notes) decreased $555.2 million or 10.1% to $4.96 billion at December 31, 2005 compared to $5.51 billion at December 31, 2004. The decrease was a result of repayments of borrowings as the Company used the increase in deposits as a lower costing alternative funding source.

      The Company had $2.04 billion of FHLB advances outstanding at December 31, 2005 with maturities of ten years or less with $1.02 billion having a maturity of less than one year. At December 31, 2005 the Company had the ability to borrow from the FHLB an additional $2.40 billion on a secured basis, utilizing mortgage-related loans and securities as collateral. Another funding source available to the Company is repurchase agreements with the FHLB and other counterparts. These repurchase agreements are generally collateralized by CMOs or U.S. Government and agency securities held by the Company. At December 31, 2005, the Company had $2.91 billion of repurchase agreements outstanding with the majority maturing between one and five years.

      The Company continues to reposition its balance sheet to more closely align the duration of its interest-earning asset base with its supporting funding sources. The Company also utilized the increase in deposits as an alternative funding source to reduce its dependence on borrowings. During the year ended December 31, 2005, the Company paid-off $2.08 billion of primarily short-term borrowings with a weighted average interest rate of 2.91% that matured during the period. During the year ended December 31, 2005, the Company borrowed approximately $668.0 million of long-term borrowings with a weighted average interest rate of 3.68%. The Company also borrowed $894.9 million of short-term floating rate borrowings which generally mature within 30 days and have a weighted average interest rate of 4.12%. The Company anticipates replacing a portion of these short-term borrowings with lower costing deposits during 2006.

      The Company is managing its leverage position and had a borrowings (including subordinated and senior notes) to assets ratio of 29.4% at December 31, 2005 and 33.3% at December 31, 2004.

      For further discussion see Note 12 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof.

      Subordinated Notes. Subordinated notes increased $1.0 million to $397.3 million at December 31, 2005 compared to $396.3 million at December 31, 2004 due to the amortization of deferred issuance costs. The notes qualify as Tier 2 capital of the Bank under the capital guidelines of the FDIC.

      For further discussion see Note 13 of the “Notes to Consolidated Financial Statements” set forth in item 8 hereof.

      Senior Notes. On September 23, 2005, the Company issued $250.0 million aggregate principal amount of 4.90% Fixed Rate Notes due 2010. The Company used $150.0 million of the $248.1 million net proceeds to make a capital contribution to the Bank to strengthen the Bank’s capital position. The remainder of the net proceeds was used for general corporate purposes.

      Stockholders’ Equity. The Company’s stockholders’ equity totaled $2.29 billion at December 31, 2005 compared to $2.30 billion at December 31, 2004. The $18.3 million decrease was primarily due to a $154.4 million reduction in capital resulting from the purchase during the year ended December 31, 2005 of 4,254,302 shares of common stock pursuant to the Company’s open market repurchase program and an $85.4 million decrease due to dividends declared. In addition, the Company had a $40.4 million increase, net of tax effect, in the net unrealized loss on securities available-for-sale. These decreases were partially offset by net income of $213.5 million, $30.1 million related

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to the exercise of stock options and the related tax benefit, $10.5 million related to the Employee Stock Ownership Plan (“ESOP”) shares committed to be released with respect to the year ended 2005, $3.3 million of stock option compensation costs and $4.5 million of awards and amortization of restricted stock grants.

      Book value per share and tangible book value per share were $27.76 and $12.54 at December 31, 2005, respectively, compared to $27.13 and $12.59 at December 31, 2004, respectively. Return on average equity and return on average tangible equity were 9.3% and 20.6% for the year ended December 31, 2005, respectively, compared to 11.3% and 21.8% for the year ended December 31, 2004, respectively.

Contractual Obligations, Commitments, Contingent Liabilities and Off-balance Sheet Arrangements

      The following table presents, as of December 31, 2005, the Company’s significant fixed and determinable contractual obligations by payment date. The payment amounts represent those amounts contractually due to the recipient, including interest payments, and do not include any unamortized premiums, or discounts, or other similar carrying value adjustments. Further discussion of the nature of each obligation is included in the referenced notes to the Consolidated Financial Statements set forth in Item 8 hereof.

			Payments Due In
					Over one		Over three
	Note		One year		year through		years through		Over five
(In Thousands)	Reference		or less		three years		five years		years		Total
Core deposits		11	$	7,229,689	$	—	$	—	$	—	$	7,229,689
Certificates of deposit		11		2,537,083		985,596		373,207		6,137		3,902,023
FHLB advances		12		1,067,878		296,336		156,962		760,240		2,281,416
Repurchase agreements		12		405,772		1,986,398		657,151		219,417		3,268,738
Subordinated notes		13		14,625		29,250		42,028		477,195		563,098
Senior notes		14		12,250		24,500		271,177		—		307,927
Operating leases		20		18,386		34,005		32,899		100,150		185,440
Purchase obligations		20		16,907		—		—		—		16,907

      A schedule of significant commitments at December 31, 2005 and 2004 follows:

		Contract or Amount
(In Thousands)		December 31, 2005		December 31, 2004
Financial instruments whose contract amounts represent credit risk:
	Commitments to extend credit — mortgage loans	$	563,162	$	650,101
	Commitments to extend credit — commercial business loans		443,173		267,649
	Commitments to extend credit — mortgage warehouse lines of credit		828,177		775,905
	Commitments to extend credit — other loans		224,449		212,119
	Standby letters of credit		35,983		36,633
	Commercial letters of credit		543		807
Total		$	2,095,487	$	1,943,214

      The Company originates and sells multi-family residential mortgage loans in the secondary market to Fannie Mae while retaining servicing. Under the terms of the sales program, the Company retains a portion of the associated credit risk. The Company has a 100% first loss position on each multi-family residential loan sold to Fannie Mae under such program until the earlier to occur of (i) the aggregate losses on the multi-family residential loans sold to Fannie Mae reaching the maximum loss exposure for the portfolio as a whole or (ii) until all of the loans sold to Fannie Mae under this program are fully paid off. The maximum loss exposure is available to satisfy any losses on loans sold in the program subject to the foregoing limitations. At

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December 31, 2005, the Company serviced $6.27 billion of loans for Fannie Mae under this program with a maximum potential loss exposure of $186.7 million.

      For further discussion of these commitments as well as the Company’s commitments and obligations under pension and other post-retirement benefit plans, see Notes 16 and 20 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof.

      The Company has not had, and has no intention to have, any significant transactions, arrangements or other relationships with any unconsolidated, limited purpose entities that could materially affect its liquidity or capital resources. The Company has not, and does not intend to trade in commodity contracts.

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

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

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				Year Ended December 31,
				2005							2004							2003
								Average							Average							Average
				Average				Yield/			Average				Yield/			Average				Yield/
(Dollars in Thousands)				Balance		Interest		Cost			Balance		Interest		Cost			Balance		Interest		Cost
Interest-earning assets:
	Loans receivable(1) :
		Mortgage loans		$	9,942,883	$	536,125		5.39	%	$	8,007,134	$	433,848		5.42	%	$	4,162,397	$	276,579		6.64	%
		Commercial business loans			855,474		58,237		6.81			768,246		46,861		6.10			564,851		37,281		6.60
		Mortgage warehouse lines of credit			573,767		36,160		6.22			583,696		26,555		4.47			639,052		28,652		4.48
		Other loans(2)			496,498		28,563		5.75			407,147		21,754		5.34			268,886		15,741		5.85
	Total loans				11,868,622		659,085		5.55			9,766,223		529,018		5.41			5,635,186		358,253		6.36
	Investment securities				400,906		18,456		4.60			537,362		22,578		4.20			296,705		13,296		4.48
	Mortgage-related securities				3,368,272		148,271		4.40			3,124,201		132,809		4.25			1,765,662		62,918		3.56
	Other interest-earning assets(3)				290,293		11,767		4.05			294,974		5,003		1.70			263,116		5,653		2.15
Total interest-earning assets					15,928,093		837,579		5.26			13,722,760		689,408		5.02			7,960,669		440,120		5.53
Non-interest-earning assets					2,131,721							1,753,873							712,017
Total assets				$	18,059,814						$	15,476,633						$	8,672,686
Interest-bearing liabilities:
	Deposits:
		Savings deposits		$	2,394,722	$	8,398		0.35	%	$	2,423,565	$	8,464		0.35	%	$	1,595,084	$	7,886		0.49	%
		Money market deposits			689,339		13,551		1.97			795,658		12,259		1.54			251,447		2,303		0.92
		Active management accounts (“AMA”)			543,328		7,659		1.41			711,247		8,347		1.17			498,229		4,762		0.96
		Interest-bearing demand deposits(4)			2,230,243		47,195		2.12			1,147,798		11,005		0.96			700,739		4,826		0.69
		Certificates of deposit			2,930,696		86,065		2.94			2,005,120		31,773		1.58			1,486,302		33,480		2.25
			Total interest-bearing deposits		8,788,328		162,868		1.85			7,083,388		71,848		1.01			4,531,801		53,257		1.18
		Non-interest bearing deposits			1,500,135		—		—			1,281,445		—		—			672,952		—		—
			Total deposits		10,288,463		162,868		1.58			8,364,833		71,848		0.86			5,204,753		53,257		1.02
	Subordinated notes				396,797		15,621		3.94			341,230		13,279		3.89			79,253		3,029		3.82
	Senior notes				67,959		3,445		5.07			—		—		—			—		—		—
	Borrowings				4,858,563		156,780		3.23			4,725,871		128,788		2.73			2,290,401		91,089		3.98
Total interest-bearing liabilities					15,611,782		338,714		2.17			13,431,934		213,915		1.59			7,574,407		147,375		1.95
Non-interest-bearing liabilities					156,105							169,204							159,913
Total liabilities					15,767,887							13,601,138							7,734,320
Total stockholders’ equity					2,291,927							1,875,495							938,366
Total liabilities and stockholders’ equity				$	18,059,814						$	15,476,633						$	8,672,686
Net interest-earning assets				$	316,311						$	290,826						$	386,262
Net interest income/ interest rate spread						$	498,865		3.09	%			$	475,493		3.43	%			$	292,745		3.58	%
Net interest margin									3.13	%						3.46	%						3.68	%
Ratio of average interest-earning assets to average interest-bearing liabilities									1.02	x						1.02	x						1.05	x

(1)	The average balance of loans receivable includes loans available-for-sale and non-performing loans. Interest on non-performing loans is recognized on a cash basis.
(2)	Includes home equity loans and lines of credit, FHA and conventional home improvement loans, automobile loans, passbook loans and secured and unsecured personal loans.
(3)	Includes federal funds sold, interest-earning bank deposits and FHLB stock.
(4)	Includes NOW (including Independence RewardsPlus Checkingtm product) and checking accounts.

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Rate/ Volume Analysis

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

				Year Ended									Year Ended
				December 31, 2005 to									December 31, 2004 to Year Ended
				Year Ended December 31, 2004									December 31, 2003
				Increase									Increase
				(Decrease) due to						Total Net			(Decrease) due to						Total Net
										Increase									Increase
(In Thousands)				Rate			Volume			(Decrease)			Rate			Volume			(Decrease)
Interest-earning assets:
	Loans receivable:
		Mortgage loans(1)		$	(5,354	)	$	107,631		$	102,277		$	(51,572	)	$	208,841		$	157,269
		Commercial business loans			5,758			5,618			11,376			(3,001	)		12,581			9,580
		Mortgage warehouse lines of credit			10,065			(460	)		9,605			(53	)		(2,044	)		(2,097	)
		Other loans(2)			1,764			5,045			6,809			(1,474	)		7,487			6,013
	Total loans receivable				12,233			117,834			130,067			(56,100	)		226,865			170,765
	Investment securities				2,002			(6,124	)		(4,122	)		(879	)		10,161			9,282
	Mortgage-related securities				4,811			10,651			15,462			14,052			55,839			69,891
	Other interest-earning assets				6,844			(80	)		6,764			(1,279	)		629			(650	)
	Total net change in income on interest-earning assets				25,890			122,281			148,171			(44,206	)		293,494			249,288
Interest-bearing liabilities:
	Deposits:
		Savings deposits			—			(66	)		(66	)		(2,808	)		3,386			578
		Money market deposits			3,089			(1,797	)		1,292			2,372			7,584			9,956
		AMA deposits			1,510			(2,198	)		(688	)		1,255			2,330			3,585
		Interest-bearing demand deposits			20,338			15,852			36,190			2,352			3,827			6,179
		Certificates of deposit			35,213			19,079			54,292			(11,539	)		9,832			(1,707	)
			Total deposits		60,150			30,870			91,020			(8,368	)		26,959			18,591
	Borrowings				24,277			3,715			27,992			(35,595	)		73,294			37,699
	Subordinated notes				172			2,170			2,342			56			10,194			10,250
	Senior notes				—			3,445			3,445			—			—			—
	Total net change in expense on interest-bearing liabilities				84,599			40,200			124,799			(43,907	)		110,447			66,540
Net change in net interest income				$	(58,709	)	$	82,081		$	23,372		$	(299	)	$	183,047		$	182,748

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

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Comparison of Results of Operations for the Year Ended December 31, 2005 and the Year Ended December 31, 2004

      General. The Company reported a $1.3 million increase in net income to $213.5 million for the year ended December 31, 2005 compared to $212.2 million for the year ended December 31, 2004. However, diluted earnings per share decreased to $2.62 compared to $2.84 for the year ended December 31, 2004.

      The earnings and per share data for 2005 include for the entire period the operations of SIB which merged with the Company on April 12, 2004 and the related issuance of 28.2 million shares of the Company’s common stock in connection with the merger.

      The Company’s earnings growth was driven primarily by the benefit of the merger with SIB as well as the continued internal growth of the Company’s loan portfolio.

      Net Interest Income. Net interest income increased by $23.4 million, or 4.9%, to $498.9 million for the year ended December 31, 2005 as compared to the year ended December 31, 2004. The increase was due to a $148.2 million increase in interest income partially offset by a $124.8 million increase in interest expense. The increase in net interest income primarily reflected a $2.21 billion increase in average interest-earning assets during the year ended December 31, 2005 as compared to the same period in the prior year, reflecting in large part the effects of the SIB transaction. The growth was partially offset by the 33 basis point decrease in net interest margin between the periods from 3.46% for the year ended December 31, 2004 to 3.13% for the year ended December 31, 2005.

      Purchase accounting adjustments arising from the SIB transaction increased net interest margin 18 basis points during the year ended December 31, 2005 compared to a 23 basis point increase for the year ended December 31, 2004. Purchase accounting adjustments relate to recording acquired assets and liabilities at their fair values and amortizing/accreting the adjustment (whether gain or loss) into net interest income over the average life of the corresponding asset or liability.

      The Company’s net interest margin decreased 33 basis points to 3.13% for the year ended December 31, 2005 compared to 3.46% for the year ended December 31, 2004. The decline in net interest margin was primarily attributable to the 58 basis point increase in the average rate paid on its interest-bearing liabilities which increase was partially offset by an increase in the average yield on interest-earning assets of 24 basis points.

      The Company’s interest rate spread (i.e., the difference between the yields earned on its interest-earning assets and the rates paid on its interest-bearing liabilities) decreased by 34 basis points to 3.09% for the year ended December 31, 2005 compared to 3.43% for the year ended December 31, 2004.

      The compression in net interest margin in 2005 was primarily attributable to the addition of the lower yielding SIB interest-earning portfolios as well as the origination in 2004 and 2005 of new assets for portfolio retention at lower yields. The compression was also a result of the Company repositioning its balance sheet in 2004 to more closely align the duration of its interest-earning asset base with its supporting funding sources. This resulted in increased rates being paid on interest-bearing liabilities as the Company lengthened the duration of its borrowings.

      Interest income increased by $148.2 million, or 21.5%, to $837.6 million for the year ended December 31, 2005 compared to the year ended December 31, 2004. This increase was primarily due to a $2.21 billion increase in the average balance of the Company’s interest-earning assets and a 24 basis point increase in the average yield earned on those interest-earning assets.

      Interest income on mortgage loans, (including loans available-for-sale), increased $102.3 million to $536.1 million for the year ended December 31, 2005 compared to the year ended December 31, 2004. This increase was due to a $1.94 billion increase in the average outstanding balance of mortgage loans for the year ended December 31, 2005 compared to the year ended December 31, 2004. Partially offsetting the increase in the average balance was a slight decrease of 3 basis points in the average yield earned on mortgage loans for the year ended December 31, 2005 compared to the prior year. The increase in the average balance of mortgage loans was primarily attributable to the $3.25 billion of mortgage loans acquired as a result of the SIB transaction as well as internal loan growth. The Company realized average balance increases of $158.8 million in single-family and cooperative loans, $885.2 million in multi-family

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residential loans and $891.8 million in commercial real estate loans for the year ended December 31, 2005 compared to the year ended December 31, 2004.

      Although the single-family mortgage portfolio increased as a result of the SIB transaction, the Company primarily originates single-family loans for sale through its previously discussed private label program with PHH Mortgage. The average balance of multi-family residential loans increased $885.2 million during 2005 due to originations (for portfolio and for sale) of $2.80 billion during 2005 compared to $3.56 billion during 2004. The originations were partially offset by multi-family loans sold to Fannie Mae of $1.57 billion during 2005 compared to $2.07 billion during 2004. The $891.8 million increase in the average balance of the commercial real estate portfolio during the year ended December 31, 2005 reflected the continued implementation of management’s strategy of shifting the loan portfolio to higher yielding loan products as well as the effect of the acquisition of the loan portfolio from SIB. The increase in yield was primarily due to increased rates on variable-rate loans as a result of the FOMC raising the federal funds rate 200 basis points during 2005.

      Interest income on other loans increased $27.8 million, or 29.2%, due primarily to average balance increases of $87.2 million in commercial business loans and $89.4 million in other loans which were partially offset by a $9.9 million decrease in the average balance of mortgage warehouse lines of credit. The increase in the average balance of commercial business loans was a result of the portfolio acquired from SIB combined with the Company’s strategy of acquiring higher yielding assets while enhancing customer satisfaction by offering a suite of related cash management products. The decline in the mortgage warehouse portfolio was due to the softening of demand from mortgage bankers for mortgage warehouse funding.

      Income on investment securities decreased $4.1 million for the year ended December 31, 2005 compared to the year ended December 31, 2004 due to a decrease in the average balance of investment securities of $136.5 million, partially offset by an increase in the average yield of 40 basis points earned on such securities from 4.20% for the year ended December 31, 2004 to 4.60% for the year ended December 31, 2005.

      Interest income on mortgage-related securities increased $15.5 million for the year ended December 31, 2005 compared to the year ended December 31, 2004 as a result of a $244.1 million increase in the average balance of mortgage-related securities combined with a 15 basis point increase in the yield earned from 4.25% for the year ended December 31, 2004 to 4.40% for the year ended December 31, 2005.

      Income on other interest-earning assets (consisting primarily of interest on federal funds and dividends on FHLB stock) increased $6.8 million for the year ended December 31, 2005 compared to the year ended December 31, 2004 primarily due to a $3.9 million increase in dividends received on FHLB stock held by the Company.

      Interest expense increased $124.8 million or 58.3% to $338.7 million for the year ended December 31, 2005 as compared to the year ended December 31, 2004. Interest expense on deposits increased $91.0 million due primarily to a 72 basis point increase in the average rate paid on deposits to 1.58% for the year ended December 31, 2005 compared to 0.86% for the year ended December 31, 2004 and a $1.92 billion increase in the average balance of deposits. The increase in the average balance was primarily the result of the $3.79 billion of deposits assumed in the SIB transaction, the introduction of the Independence RewardsPlus Checking^tm product and utilization of certificate of deposit promotions as an alternative funding source to reduce the Company’s dependence on higher costing wholesale borrowings as well as the continued deposit growth through the de novo branch expansion program.

      The average balance of core deposits increased $998.1 million, or 15.7%, to $7.36 billion for the year ended December 31, 2005 compared to $6.36 billion for the year ended December 31, 2004. Core deposits consist of all deposits other than certificates of deposit. However, the average balance of certificates of deposit increased $925.6 million or 46.2% to $2.93 billion for the year ended December 31, 2005 compared to $2.01 billion for the year ended December 31, 2004. As a result of the increase in certificates of deposit, lower costing core deposits represented approximately 66.1% of total deposits at December 31, 2005 compared to 75.6% at December 31, 2004.

      Interest expense on borrowings (excluding subordinated and senior notes) increased $28.0 million

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or 21.7% to $156.8 million for the year ended December 31, 2005 compared to $128.8 million for the year ended December 31, 2004 due to an increase in the average rate paid on such borrowings of 50 basis points to 3.23% in the year ended December 31, 2005 compared to 2.73% in the year ended December 31, 2004. The increase in the average balance was primarily due to the $2.65 billion of borrowings assumed in the SIB transaction which was partially offset by replacing a portion of its borrowings with lower costing deposits. During the year ended December 31, 2005, the Company repaid $2.08 billion of short-term borrowings at a weighted average interest rate of 2.91% and borrowed $668.0 million of longer term fixed-rate borrowings at a weighted average interest rate of 3.68%. The Company also borrowed $894.9 million of short-term floating-rate borrowings at a weighted average interest rate of 4.12%.

      Interest expense on subordinated notes increased $2.3 million to $15.6 million for the year ended December 31, 2005 compared to the year ended December 31, 2004. The average balance of subordinated notes increased $55.6 million for the year ended December 31, 2005 compared to the year ended December 31, 2004. The increase was due to the issuance of $250.0 million aggregate principal amount of subordinated notes on March 22, 2004.

      Interest expense on senior notes was $3.4 million for the year ended December 31, 2005. The expense relates to the issuance of $250.0 million aggregate principal amount of senior notes on September 23, 2005.

      Provision for Loan Losses. The Company did not record a provision for loan losses for the year ended December 31, 2005 compared to a $2.0 million provision for loans losses for the year ended December 31, 2004 primarily as a result of the improved quality in the characteristics of the loan portfolio. In assessing the level of the allowance for loan losses and the periodic provision charged to income, the Company considers the composition of its loan portfolio, the growth of loan balances within various segments of the overall portfolio, the state of the local (and to a certain degree, the national) economy as it may impact the performance of loans within different segments of the portfolio, the loss experience related to different segments or classes of loans, the type, size and geographic concentration of loans held by the Company, the level of past due and non-performing loans, the value of collateral securing its loan, the level of classified loans and the number of loans requiring heightened management oversight.

      Non-performing assets as a percentage of total assets decreased to 20 basis points at December 31, 2005, compared to 29 basis points at December 31, 2004. Non-performing assets decreased 25.8% to $38.4 million at December 31, 2005 compared to $51.8 million at December 31, 2004. Included in the $37.1 million of non-performing loans at December 31, 2005 were $28.3 million of non-accrual loans and $8.7 million of loans contractually past maturity but which are continuing to pay in accordance with their original repayment schedule. At December 31, 2005 and 2004, the allowance for loan losses as a percentage of total non-performing loans was 273.3% and 205.8%, respectively. See “Business-Asset Quality” set forth in Item 1 hereof.

      Non-Interest Income. The Company continues to stress and emphasize the development of fee-based income throughout its operations. The Company experienced a $3.4 million or 2.8% increase in non-interest income from $121.5 million for the year ended December 31, 2004 to $124.9 million for the year ended December 31, 2005.

      The Company recognized net gains of $6.6 million on $477.4 million of securities sold during the year ended December 31, 2005 compared to losses of $8.8 million in 2004. The 2004 losses were primarily related to a $12.7 million other-than-temporary impairment charge on investment grade Fannie Mae preferred equity securities.

      A primary driver of non-interest income is earnings from the Company’s mortgage-banking activities. During the year ended December 31, 2005, revenue from the Company’s mortgage-banking business decreased $9.5 million or 32.1% to $20.1 million compared to $29.6 million for the year ended December 31, 2004. The Company sells multi-family residential loans (both loans originated for sale and from portfolio) in the secondary market to Fannie Mae with the Company retaining servicing on all loans sold. Under the terms of the sales program, the Company also retains a portion of the associated credit risk. At December 31, 2005, the Company’s maximum potential exposure related to secondary market sales to Fannie Mae under this program was $186.7 million. The Company also has a program with PHH Mortgage to originate and sell single-family residential mortgage loans and

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servicing in the secondary market. The $9.5 million decrease in mortgage-banking activities for the year ended December 31, 2005 compared to the year ended December 31, 2004 was primarily due to reduced sales of loans as customer demand for multi-family loans originated for sale in the secondary market softened in the current interest rate cycle. See “Business-Lending Activities-Loan Originations, Purchases, Sales and Servicing”.

      During the year ended December 31, 2005, the Company sold $1.57 billion of multi-family loans under the program with Fannie Mae and sold $81.7 million of single-family residential loans. By comparison, during 2004, the Company sold $2.07 billion of multi-family loans and sold $119.3 million of single-family residential mortgages.

      Mortgage-banking activities for the year ended December 31, 2005 reflected $16.4 million in gains, $1.8 million of origination fees and $10.2 million in servicing fees partially offset by $8.3 million of amortization of servicing assets. Included in the $16.4 million of gains were $1.5 million of provisions recorded related to the retained credit exposure on multi-family residential loans sold to Fannie Mae. This category also included a $0.2 million increase in the fair value of loan commitments for loans originated for sale and a $0.2 million decrease in the fair value of forward loan sale agreements which were entered into with respect to the sale of such loans as a result of an increase in interest rates after the Company entered into the interest rate lock loan commitment and the forward loan sale agreements. The $9.5 million decrease in revenue from mortgage-banking activities for the year ended December 31, 2005 compared to the year ended December 31, 2004 reflected decreases in gains of $13.0 million and $0.3 million in origination fees partially offset by decreased amortization of servicing rights of $2.3 million and higher service fees of $1.5 million.

      Service fee income decreased $0.6 million, or, 0.9% to $66.0 million for the year ended December 31, 2005 compared to the year ended December 31, 2004. The decrease in service fee income was primarily due to a decrease in prepayment and modification fees on loans due to the decline in loan refinancing activity partially offset by additional fee income generated by the addition of the SIB branch network. Prepayment and modification fees are effectively a partial offset to the decreases realized in net interest margin. Prepayment fees decreased $5.2 million to $7.7 million for the year ended December 31, 2005 compared to $12.9 million for the year ended December 31, 2004. Modification and extension fees decreased $1.6 million to $0.6 million for the year ended December 31, 2005 compared to $2.2 million for the year ended December 31, 2004.

      A component of service fees are revenues generated from the branch system which grew by $4.1 million, or 9.2% to $48.6 million for the year ended December 31, 2005 compared to the year ended December 31, 2004. The increase was primarily due to additional fee income generated by the SIB branch network.

      In addition, the Company also recorded an increase for the year ended December 31, 2005 of approximately $1.2 million in the cash surrender value of BOLI compared to the year ended December 31, 2004. The increase was primarily due to the merger with SIB which resulted in an increase in the amount of BOLI held by the Company since SIB also had BOLI.

      Other non-interest income decreased $3.1 million or 16.0% to $16.1 million for the year ended December 31, 2005 compared to $19.2 million for the year ended December 31, 2004. The decrease was primarily attributable to reduced income of $3.8 million from the Company’s equity investment in Meridian Capital.

      Non-Interest Expense. Non-interest expense increased by $26.8 million, or 9.9%, for the year ended December 31, 2005 as compared to the year ended December 31, 2004. The increase in non-interest expense was primarily attributable to the costs associated with managing a significantly larger bank franchise which resulted from the merger with SIB in April 2004 as well as merger-related costs associated with the pending acquisition of the Company. The increase was attributable to increases of $14.2 million in compensation and employee benefits, $8.6 million in occupancy costs, $3.1 million in the amortization of identifiable intangible assets and $4.0 million in other expenses. These increases were partially offset by decreases of $2.1 million in data processing fees and $1.0 million in advertising costs.

      Compensation and employee benefits expense increased $14.2 million to $149.1 million for the year ended December 31, 2005 as compared to $134.9 million in the prior year. The increase in

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compensation and benefit expense was primarily attributable to staff additions relating to the SIB transaction as well as the expansion of the Company’s commercial and retail banking and lending operations, including the opening of seven retail branches. In particular, the increase was due to increases of $12.6 million in salary and overtime expenses, $2.0 million in restricted stock award costs, $2.1 million in medical costs, $1.2 million in FICA costs and $1.6 million in stock-related benefit plan costs. Partially offsetting these increases were lower management incentives expenses of $4.3 million and lower pension cost of $0.7 million.

      Occupancy costs increased by $8.6 million to $52.3 million for the year ended December 31, 2005 compared to the year ended December 31, 2004. The increase was a direct result of operating the expanded branch franchise resulting from the SIB transaction as well as the increase in branch facilities resulting from the continued implementation of the Bank’s de novo branch expansion program and the expansion of the Bank’s commercial real estate lending operations in the Chicago market.

      Data processing fees decreased $2.1 million to $14.0 million for the year ended December 31, 2005 compared to the year ended December 31, 2004. The decrease was due to the Company’s continued focus on expense control which was partially offset by the Company operating an expanded branch network.

      Advertising expense decreased $1.0 million to $8.2 million from $9.1 million for the year ended December 31, 2005 compared to the year ended December 31, 2004. The cost reflects the Company’s continued focus on expense control.

      Amortization of identifiable intangible assets increased by $3.1 million to $11.4 million during the year ended December 31, 2005 as compared to the year ended December 31, 2004. The increase was primarily due to a full year of amortization of the $87.1 million core deposit intangible associated with the SIB transaction. The core deposit intangible is being amortized using the interest method over 14 years.

      Other non-interest expenses increased $4.0 million, or 6.8%, to $62.8 million for the year ended December 31, 2005 compared to the year ended December 31, 2004. The increase was primarily due to additional expenses associated with the expansion of operations resulting from the transaction with SIB and $4.4 million of merger-related costs associated with the pending acquisition of the Company by Sovereign. These increases were partially offset by a $1.0 million recovery received in 2005 related to a $3.8 million provision for probable losses recorded in the fourth quarter of 2002 from transactions in a commercial business deposit account. Other non-interest expenses include such items as professional services, legal expenses, business development expenses, equipment expenses, recruitment costs, office supplies, commercial bank fees, postage, insurance, telephone expenses and maintenance and security.

      Compliance with changing regulation of corporate governance and public disclosure has resulted in additional expenses. Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and revisions to the listing requirements of The Nasdaq Stock Market, are creating additional administrative and compliance requirements for companies such as ours. The Company is committed to maintaining high standards of corporate governance and public disclosure. Compliance with the various new requirements have resulted in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

      Income Taxes. Income tax expense increased $0.7 million to $112.4 million for the year ended December 31, 2005 compared to the year ended December 31, 2004. The increase recorded in the 2005 period was due to the $2.0 million increase in the Company’s income before provision for income taxes. The Company’s effective tax rate was 34.50% for both the year ended December 31, 2005 and 2004.

Comparison of Results of Operations for the Year Ended December 31, 2004 and the Year Ended December 31, 2003

      General. For the year ended December 31, 2004, the Company reported a 9.2% increase in diluted earnings per share to $2.84 compared to $2.60 for the year ended December 31, 2003. Net income for the year ended December 31, 2004 increased 54.9% to $212.2 million compared to $137.0 million for the year ended December 31, 2003. These results include an other-than-temporary impairment after-tax charge of $8.3 million, or

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$0.12 per diluted share for the year, related to the Company’s holdings of certain Fannie Mae Preferred Stock.

      Net Interest Income. Net interest income increased by $182.7 million, or 62.4%, to $475.5 million for the year ended December 31, 2004 as compared to the year ended December 31, 2003. The increase was due to a $249.3 million increase in interest income partially offset by a $66.6 million increase in interest expense. The increase in net interest income primarily reflected a $5.76 billion increase in average interest-earning assets during the year ended December 31, 2004 as compared to the same period in the prior year resulting in large part from the SIB transaction in April 2004. Partially offsetting this increase was a decline in the average yield earned of 51 basis points from 5.53% for the year ended December 31, 2003 to 5.02% for the year ended December 31, 2004.

      Purchase accounting adjustments arising from the SIB transaction increased net interest margin 23 basis points during the year ended December 31, 2004. Purchase accounting adjustments relate to the recording of acquired assets and liabilities at their fair values and amortizing/accreting the adjustment into net interest income over the average life of the corresponding asset or liability.

      Net interest margin decreased 22 basis points to 3.46% for the year ended December 31, 2004 compared to 3.68% for the year ended December 31, 2003. The decline in net interest margin was primarily attributable to the 51 basis points decline in the average yield on interest-earning assets which decrease was partially offset by a decline in the average rate paid on interest-bearing liabilities of 36 basis points.

      The Company’s interest rate spread decreased by 15 basis points to 3.43% for the year ended December 31, 2004 compared to 3.58% for the year ended December 31, 2003.

      The compression in net interest margin was primarily attributable to the addition of the lower yielding SIB interest-earning portfolios as well as new assets generated for portfolio retention during 2004 being originated at lower yields. The compression was also a result of the Company repositioning its balance sheet to more closely align the duration of its interest-earning asset base with its supporting funding sources. This resulted in increased rates on its interest-bearing liabilities during the second half of 2004 as the Company lengthened the duration of borrowings.

      The Company continues to rely on all of the components of its business model to offset or substantially lessen the reduction in net interest income as it continues to implement the shift in its deposits to lower costing core deposits while continuing to build non-interest rate sensitive revenue channels, including in particular the expansion of its mortgage-banking activities.

      Interest income increased by $249.3 million, or 56.6%, to $689.4 million for the year ended December 31, 2004 compared to the year ended December 31, 2003. This increase was primarily due to a $5.76 billion increase in the average balance of the Company’s interest-earning assets which was partially offset by a 51 basis point decline in the average yield earned on those interest-earning assets.

      Interest income on mortgage loans, (including loans available-for-sale), increased $157.3 million to $433.8 million for the year ended December 31, 2004 compared to the year ended December 31, 2003. This increase was due to a $3.84 billion increase in the average outstanding balance of mortgage loans for the year ended December 31, 2004 compared to the year ended December 31, 2003. Partially offsetting the increase in the average balance was a 122 basis point decline in the average yield earned on mortgage loans for the year ended December 31, 2004 compared to the prior year. The increase in the average balance of mortgage loans was primarily attributable to the $3.25 billion of mortgage loans acquired as a result of the SIB transaction as well as internal loan growth. The Company realized aggregate average balance increases from both the SIB transaction and internal growth of $1.70 billion in the single-family and cooperative loan portfolios, $1.10 billion in the multi-family residential mortgage loan portfolio and $1.05 billion in the commercial real estate portfolio.

      Although the single-family mortgage portfolio increased as a result of the SIB transaction, the Company primarily originates single-family loans for sale through its previously discussed private label program with PHH Mortgage. The average balance of multi-family residential loans increased during 2004 due to originations (for portfolio and for sale) of $3.56 billion during 2004 compared to $2.75 billion during 2003. The originations were partially offset by multi-family loans sold to

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Fannie Mae of $2.07 billion during 2004 compared to $1.73 billion during 2003. The $1.05 billion increase in the average balance of the commercial real estate portfolio during the year ended December 31, 2004 was the result of management’s strategy of shifting to higher yielding loan products as well as the portfolio acquired from SIB. The decrease in yield was primarily due to the interest rate yield curve existing in 2004.

      Interest income on other loans increased $13.5 million, or 16.5%, due primarily to average balance increases of $203.4 million in commercial business loans and a $138.3 million in other loans which were partially offset by a $55.4 million decrease in the average balance of mortgage warehouse lines of credit. The increase in the average balance of commercial business loans was a result of the portfolio acquired from SIB combined with the Company’s strategy of acquiring higher yielding assets while enhancing customer satisfaction by offering a suite of related cash management products. The decline in the mortgage warehouse portfolio was due to the softening of demand from mortgage bankers for mortgage warehouse funding which began in the fourth quarter of 2003 as the refinance market began to contract and which continued during 2004.

      Income on investment securities increased $9.3 million for the year ended December 31, 2004 compared to the year ended December 31, 2003 due to an increase in the average balance of investment securities of $240.7 million primarily due to securities acquired from SIB, partially offset by a decline in the average yield of 28 basis points earned on such securities from 4.48% for the year ended December 31, 2003 to 4.20% for the year ended December 31, 2004.

      Interest income on mortgage-related securities increased $69.9 million for the year ended December 31, 2004 compared to the year ended December 31, 2003 as a result of a $1.36 billion increase in the average balance of such assets, primarily due to securities acquired from SIB, combined with a 69 basis point increase in the yield earned from 3.56% for the year ended December 31, 2003 to 4.25% for the year ended December 31, 2004. The increase in yield earned in the mortgage-related securities portfolio was primarily the result of lower premium amortization as paydowns on securities slowed due to increases in interest rates combined with a softening in the refinance residential mortgage market during the year ended December 31, 2004 compared to December 31, 2003.

      Income on other interest-earning assets (consisting primarily of interest on federal funds and dividends on FHLB stock) decreased $0.7 million for the year ended December 31, 2004 compared to the year ended December 31, 2003. This decrease primarily reflected the decrease in the dividends from the FHLB of New York.

      Interest expense on deposits increased $18.6 million or 34.9% to $71.8 million for the year ended December 31, 2004 compared to the year ended December 31, 2003. This increase primarily reflects a $3.16 billion increase in the average balance of deposits. The increase in average balance was primarily the result of the $3.79 billion of deposits assumed in connection with the SIB transaction as well as the continued deposit growth through de novo branches. The average balance of core deposits increased $2.64 billion, or 71.0%, to $6.36 billion for the year ended December 31, 2004 compared to $3.72 billion for the year ended December 31, 2003. The average rate paid on deposits decreased 16 basis points to 0.86% for the year ended December 31, 2004 compared to 1.02% for the year ended December 31, 2003. Lower costing core deposits represented approximately 75.6% of total deposits at December 31, 2004 compared to 74.0% at December 31, 2003. This increase reflects the $2.66 billion of core deposits acquired from SIB as well as the success of the Company’s strategy to lower its overall cost of funds while emphasizing the expansion of its commercial and consumer relationships.

      Interest expense on borrowings (excluding subordinated notes) increased $37.7 million or 41.4% to $128.8 million for the year ended December 31, 2004 compared to $91.1 million for the year ended December 31, 2003. The increase was primarily due to an increase of $2.44 billion in the average balance of borrowings partially offset by a decline in the average rate paid on such borrowings of 125 basis points from 3.98% in the year ended December 31, 2003 to 2.73% in the year ended December 31, 2004. The increase in the average balance was primarily the result of the $2.65 billion of borrowings assumed in the SIB transaction. During the year ended December 31, 2004, the Company borrowed approximately $1.43 billion of fixed-rate borrowings with maturities of three to four years at a weighted average interest rate of 3.26% and

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$875.0 million of short-term low costing floating-rate FHLB borrowings which were partially offset by repayments of $2.40 billion of borrowings that matured in 2004. The funds borrowed were used primarily to fund multi-family and commercial real estate loan originations.

      Interest expense on subordinated notes increased $10.3 million to $13.3 million for the year ended December 31, 2004 compared to the year ended December 31, 2003. The Bank issued $250.0 million aggregate principal amount of 3.75% Fixed Rate/ Floating Rate Subordinated Notes Due 2014 in the first quarter of 2004 and also issued $150.0 million in 3.5% Fixed Rate/ Floating Rate Subordinated Notes Due 2013 at the end of the second quarter of 2003.

      Provision for Loan Losses. The Company’s provision for loan losses decreased by $1.5 million from $3.5 million for the year ended December 31, 2003 to $2.0 million for the year ended December 31, 2004. The decrease was primarily due to an improvement in the characteristics of the loan portfolio. In assessing the level of the allowance for loan losses and the periodic provision charged to income, the Company considers the composition of its loan portfolio, the growth of loan balances within various segments of the overall portfolio, the state of the local (and to a certain degree, the national) economy as it may impact the performance of loans within different segments of the portfolio, the loss experience related to different segments or classes of loans, the type, size and geographic concentration of loans held by the Company, the level of past due and non-performing loans, the value of collateral securing the loan, the level of classified loans and the number of loans requiring heightened management oversight.

      Non-performing assets as a percentage of total assets decreased to 29 basis points at December 31, 2004, compared to 38 basis points at December 31, 2003. Non-performing assets increased 41.5% to $51.8 million at December 31, 2004 compared to $36.6 million at December 31, 2003. Included in non-performing assets at December 31, 2004 were $20.8 million of non-performing assets acquired from SIB. Included in the $49.3 million of non-performing loans at December 31, 2004 were $43.6 million of non-accrual loans and $5.5 million of loans contractually past maturity but which are continuing to pay in accordance with their original repayment schedule. At December 31, 2004 and 2003, the allowance for loan losses as a percentage of total non-performing loans was 205.8% and 217.3%, respectively. See “Business-Asset Quality” set forth in Item 1 hereof.

      Non-Interest Income. The Company continues to stress and emphasize the development of fee-based income throughout its operations. As a result of a variety of initiatives, including the acquisition of SIB, the Company experienced an $8.8 million, or 7.8%, increase in non-interest income to $121.5 million for the year ended December 31, 2004 compared to $112.7 million for the year ended December 31, 2003.

      During 2004, the Company recognized net losses of $8.8 million on securities compared with net gains of $0.5 million in 2003. Prior to December 31, 2004, the Company held as part of its available-for-sale portfolio $72.5 million of investment grade Fannie Mae preferred equity securities, predominately bearing fixed-rates, with aggregate unrealized losses of $12.7 million ($8.3 million after-tax). Such unrealized losses were treated as a reduction of other comprehensive income and thus, a reduction to equity. However, as a result of events at Fannie Mae during 2004, the Company recorded these previously unrealized losses as an other-than-temporary impairment at December 31, 2004. Consequently, the aggregate amortized cost of these securities were reduced by $12.7 million and a corresponding other-than-temporary impairment charge to net loss on securities was recognized. This non-cash charge reduced diluted earnings per share by $0.12 for the year ended December 31, 2004 but did not reduce stockholders’ equity or related capital ratios since it was previously recorded as an unrealized loss in stockholders’ equity. At December 31, 2004, these securities had an effective yield of 6.47% and were rated AA- and Aa3 by Standard & Poor’s and Moody’s.

      A primary driver of non-interest income is earnings from the Company’s mortgage-banking activities. Income from mortgage-banking activities increased $4.2 million to $29.6 million for the year ended December 31, 2004 compared to $25.4 million for the year ended December 31, 2003. The Company sells multi-family residential loans (both loans originated for sale and from portfolio) in the secondary market to Fannie Mae with the Company retaining servicing on all loans sold. Under the terms of the sales program, the Company also retains a portion of the associated credit risk. At

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December 31, 2004, the Company’s maximum potential exposure related to secondary market sales to Fannie Mae under this program was $156.1 million. The Company also has a program with PHH Mortgage to originate and sell single-family residential mortgage loans and servicing in the secondary market. See “Business-Lending Activities-Loan Originations, Purchases, Sales and Servicing” set forth in Item 1 hereof.

      During the year ended December 31, 2004, the Company sold $2.07 billion of multi-family loans under the program with Fannie Mae and sold $119.3 million of single-family residential loans. By comparison, during 2003, the Company sold $1.73 billion of multi-family loans and sold $174.2 million of single-family residential mortgages.

      Mortgage-banking activities for the year ended December 31, 2004 reflected $29.4 million in gains, $2.1 million of origination fees and $8.7 million in servicing fees partially offset by $10.6 million of amortization of servicing assets. Included in the $29.4 million of gains were $1.0 million of provisions recorded related to the retained credit exposure on multi-family residential loans sold. This category also included a $4.7 million decrease in the fair value of loan commitments for loans originated for sale and a $4.7 million increase in the fair value of forward loan sale agreements which were entered into with respect to the sale of such loans as a result of an increase in interest rates after the Company entered into the interest rate lock loan commitment and the forward loan sale agreements. The $4.2 million increase in mortgage-banking activities for the year ended December 31, 2004 compared to the year ended December 31, 2003 was primarily due to a $10.9 million increase in gains on sales partially offset by $1.8 million of lower origination and servicing fees and $4.9 million of additional amortization of capitalized servicing rights.

      Service fee income decreased $2.7 million, or, 3.8% to $66.6 million for the year ended December 31, 2004 compared to the year ended December 31, 2003. Included in service fee income are prepayment and modification fees on loans which are a partial offset to the decreases realized in net interest margin. The $2.7 million decrease was principally due to a decrease of $11.0 million in mortgage prepayment fees to $12.9 million and a $4.4 million decrease in modification and extension fees to $2.2 million.

      Another component of service fees are revenues generated from the branch system which grew by $11.0 million, or 32.7% to $44.5 million for the year ended December 31, 2004 compared to the year ended December 31, 2003. The increase was primarily due to additional fee income generated by the SIB branch network and continued de novo branch expansion.

      Income on BOLI increased $5.8 million or 65.5% to $14.6 million for the year ended December 31, 2004 compared to the year ended December 31, 2003. The increase was due in part to the $134.1 million of BOLI acquired from SIB. The Company’s holdings in BOLI at December 31, 2004 was $321.0 million.

      Other non-interest income increased by $10.7 million to $19.2 million for the year ended December 31, 2004 compared to $8.5 million for the year ended December 31, 2003. The increase was primarily attributable to income from the Company’s equity investment in Meridian Capital combined with a tax refund related to the Company’s acquisition of Statewide in January 2000 and the gain experienced on the sale of a branch facility.

      Non-Interest Expense. Non-interest expense increased by $82.3 million, or 43.6%, for the year ended December 31, 2004 as compared to the year ended December 31, 2003. The increase was primarily attributable to operating the expanded franchise resulting from the SIB transaction as well as the expansion of the Company’s commercial and retail banking and lending operations. This increase primarily reflects increases of $34.7 million in compensation and employee benefit expense, $17.1 million in occupancy costs, $16.6 million in other expenses, $6.4 million in amortization of identifiable intangible assets and $6.2 million in data processing fees.

      Compensation and employee benefits expense increased $34.7 million to $134.9 million for the year ended December 31, 2004 as compared to $100.2 million in the prior year. The increase in compensation and benefits expense for the comparable periods was primarily attributable to staff additions relating to the SIB transaction as well as the expansion of the Company’s commercial and retail banking and lending operations during 2003 and 2004, including the opening of six retail branches. In particular, the increase was due to increases of $25.3 million in salary and overtime expenses, $4.3 million in management incentive expenses, $3.1 million in medical costs, $2.4 million

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in FICA costs, $1.7 million in ESOP expenses and $1.5 million in stock-related benefit plan costs. Partially offsetting these increases were lower restricted stock award costs of $3.3 million.

      Occupancy costs increased by $17.1 million to $43.7 million for the year ended December 31, 2004 compared to the year ended December 31, 2003. Data processing fees increased $6.2 million to $16.2 million for the year ended December 31, 2004 as compared to the same period in the prior year. The increase in both occupancy and data processing fees was due to operating the expanded branch franchise resulting from the SIB transaction combined with the increased number of branch facilities resulting from the continuation of the de novo branch program as well as the expansion of the commercial real estate lending activities to the Baltimore-Washington, Florida and Chicago markets through the establishment of loan production offices in these areas.

      The Company’s advertising expenses increased $1.3 million to $9.1 million from $7.8 million for the year ended December 31, 2004 compared to the year ended December 31, 2003. The cost reflects the Company’s continued focus on brand awareness through, in part, increased advertising in print media, radio and direct marketing programs and support of the SIB transaction and de novo branches.

      Other non-interest expenses increased $16.6 million, or 39.2%, to $58.8 million for the year ended December 31, 2004 compared to the year ended December 31, 2003. Other non-interest expenses include such items as professional services, business development expenses, equipment expenses, recruitment costs, office supplies, commercial bank fees, postage, insurance, telephone expenses and maintenance and security. Increases in non-interest expense are primarily attributable to operating the expanded franchise resulting from the SIB transaction. In addition, the Company has incurred additional costs associated with complying with the Sarbanes-Oxley Act of 2002 and the Bank Secrecy Act.

      Although the Company experienced an increase in non-interest expense during 2004, the efficiency ratio improved to 43.4% for the year ended December 31, 2004 compared to 46.2% for the year ended December 31, 2003. This improvement resulted primarily from the cost reductions associated with the synergies realized in the SIB transaction.

      Amortization of identifiable intangible assets increased $6.4 million during the year ended December 31, 2004 as compared to the year ended December 31, 2003. The increase was due to the amortization of the $87.1 million core deposit intangible associated with the SIB transaction which was partially offset by the intangible assets from a branch purchase transaction effected in fiscal 1996 being fully amortized during the three months ended March 31, 2004.

      Income Taxes. Income tax expense increased $35.5 million to $111.8 million for the year ended December 31, 2004 compared to the year ended December 31, 2003. The increase recorded in the 2004 period reflected the $110.7 million increase in the Company’s income before provision for income taxes which was partially offset by a decrease in the Company’s effective tax rate to 34.50% for the year ended December 31, 2004 compared to 35.75% for the year ended December 31, 2003.

      The effective tax rate was reduced due to the recognition of tax credit allocations received by Independence Community Commercial Reinvestment Corporation (“ICCRC”), a subsidiary of Independence Community Bank. The credits provided to ICCRC total 39% of the initial value of the $113.0 million investment and will be claimed over a seven-year credit allowance period. This investment was made in September 2004. See “Business-Subsidiaries” set forth in Item 1 hereof.

      As of December 31, 2004, the Company had a net deferred tax asset of $78.8 million compared to $55.7 million at December 31, 2003. The $23.1 million increase was primarily due to $34.6 million of deferred tax assets resulting from the SIB transaction which was partially offset by deferred tax liabilities established in connection with fair value purchase accounting adjustments resulting from the SIB transaction.

Regulatory Capital Requirements

      The Bank is subject to minimum regulatory capital requirements imposed by the FDIC which vary according to an institution’s capital level and the composition of its assets. An insured institution is required to maintain core capital of not less than 3.0% of total assets plus an additional amount of at least 100 to 200 basis points (“leverage capital ratio”). An insured institution must also maintain a ratio of total capital to risk-based assets of 8.0%. Although the minimum leverage capital ratio is

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3.0%, the Federal Deposit Insurance Corporation Improvement Act of 1991 stipulates that an institution with less than a 4.0% leverage capital ratio is deemed to be an “undercapitalized” institution which results in the imposition of certain regulatory restrictions. See “Business-Regulation-Capital Requirements” set forth in Item 1 hereof and Note 23 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof for a discussion of the Bank’s regulatory capital requirements and compliance therewith at December 31, 2005 and December 31, 2004.

Liquidity

      The Company’s liquidity, represented by cash and cash equivalents, is a product of its operating, investing and financing activities. The Company’s primary sources of funds are deposits, the amortization, prepayment and maturity of outstanding loans, mortgage-related securities, the maturity of debt securities and other short-term investments and funds provided from operations. While scheduled payments from the amortization of loans, mortgage-related securities and maturing debt securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. In addition, the Company invests excess funds in federal funds sold and other short-term interest-earning assets that provide liquidity to meet lending and other funding requirements. The Company decreased its total borrowings (including subordinated and senior notes) to $5.60 billion at December 31, 2005 as compared to $5.91 billion at December 31, 2004. At December 31, 2005, the Company had the ability to borrow from the FHLB an additional $2.40 billion on a secured basis, utilizing mortgage-related loans and securities as collateral. See Note 12 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof.

      Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments such as federal funds sold, U.S. Treasury securities or preferred securities. On a longer term basis, the Company maintains a strategy of investing in its various lending products. The Company uses its sources of funds primarily to meet its ongoing commitments, to pay maturing certificates of deposit and savings withdrawals, fund loan commitments and maintain a portfolio of mortgage-related securities and investment securities. Certificates of deposit scheduled to mature in one year or less at December 31, 2005 totaled $2.42 billion or 65.1% of total certificates of deposit. Based on historical experience, management believes that a significant portion of maturing deposits will remain with the Company. The Company anticipates that it will continue to have sufficient funds, together with borrowings, to meet its current commitments.

      The Holding Company’s principal business is that of its subsidiary, the Bank. The Holding Company invested 50% of the net proceeds from the Conversion in 1998 in the Bank and initially invested the remaining proceeds in short-term securities and money market investments. The Bank can pay dividends to the Holding Company to the extent such payments are permitted by law or regulation, which serves as an additional source of liquidity.

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

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

      The Bank’s ability to pay dividends to the Holding Company is also subject to certain restrictions. Under the New York Banking Law, dividends may be declared and paid only out of the net profits of the Bank. The approval of the Superintendent of Banks of the State of New York is required if the total of all dividends declared in any calendar year will exceed the net profits for that year plus the retained net profits of the preceding two years, less any required transfers. In addition, in connection with the Conversion, the Bank elected to be deemed a savings association for certain purposes. As a result, the Bank must give notice to the OTS of a proposed capital distribution. In addition, no dividends may be declared, credited or paid if the effect thereof would cause the Bank’s capital to be reduced below the amount required by the Superintendent or the FDIC. See

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“Business - Regulation-The Bank - Limitations of Dividends” set forth in Item 1 hereof.

Impact of Inflation and Changing Prices

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

Impact of New Accounting Pronouncements

      For a discussion of the Impact of New Accounting Pronouncements on the Company’s financial condition or results of operations, see Note 3 of the “Notes to Consolidated Financial Statements” set forth in Item 8 hereof.

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

       General. Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments. As a financial institution, the Company’s primary component of market risk is interest rate risk. Interest rate risk is defined as the sensitivity of the Company’s current and future earnings to changes in the level of market rates of interest. Market risk arises in the ordinary course of the Company’s business, as the repricing characteristics of its assets do not match those of its liabilities. Based upon the Company’s nature of operations, the Company is not subject to foreign currency exchange or commodity price risk. The Company’s various loan portfolios, concentrated primarily within the greater New York City metropolitan area (which includes parts of New Jersey and southern Connecticut), are subject to risks associated with the local economy. The Company does not own any trading assets.

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

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

      ALCO risk management strategies allow for the assumption of interest rate risk within the Board approved limits. The strategies are formulated based upon ALCO’s assessments of likely market developments and trends in the Company’s lending and consumer banking businesses. Strategies are developed with the aim of enhancing the Company’s net income and capital, while ensuring the risks to income and capital from adverse movements in interest rates are acceptable.

      The Company’s strategies to manage interest rate risk include, but are not limited to, (i) increasing the interest sensitivity of its mortgage loan portfolio through the use of adjustable-rate loans or relatively short-term (primarily five years) balloon loans, (ii) originating relatively short-term or variable-rate consumer and commercial business loans as well as mortgage warehouse lines of credit, (iii) investing in securities available-for-sale, primarily mortgage-related instruments, with maturities or estimated average lives of less than five years, (iv) promoting stable savings, demand and other transaction accounts, (v) utilizing variable-rate borrowings which have imbedded derivatives to cap the cost of borrowings, (vi) using interest rate swaps to modify the repricing characteristics of certain variable rate borrowings, (vii) entering into forward loan sale agreements to offset rate risk on rate-locked

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loan commitments originated for sale, (viii) maintaining a strong capital position and (ix) maintaining a relatively high level of liquidity and/or borrowing capacity.

      As part of the overall interest rate risk management strategy, management has entered into derivative instruments to minimize significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. The interest rate risk management strategy at times involves modifying the repricing characteristics of certain borrowings and entering into forward loan sale agreements to offset rate risk on rate-locked loan commitments originated for sale so that changes in interest rates do not have a significant adverse effect on net interest income, net interest margin and cash flows. Derivative instruments that management periodically uses as part of its interest rate risk management strategy include forward loan sale agreements and interest rate swaps. The Company had no interest rate swaps outstanding at December 31, 2005 and 2004.

      At December 31, 2005, the Company had $78.4 million of loan commitments outstanding related to loans being originated for sale. Of such amount, $53.9 million related to loan commitments for which the borrowers had not entered into interest rate locks and $24.5 million which were subject to interest rate locks. At December 31, 2005, the Company had $24.5 million of forward loan sale agreements. The fair market value of the loan commitments with interest rate locks was a loss of $0.1 million and the fair market value of the related forward loan sale agreements was a gain of $0.1 million at December 31, 2005.

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

      Net Interest Income Simulation Model. The simulation model measures the sensitivity of net interest income to changes in market interest rates. The simulation involves a degree of estimation based on certain assumptions that management believes to be reasonable. Factors considered include contractual maturities, prepayments, repricing characteristics, deposit retention and the relative sensitivity of assets and liabilities to changes in market interest rates.

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

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

      Based on the information and assumptions in effect at December 31, 2005, the model shows that a 200 basis point gradual increase in interest rates over the next twelve months would decrease net interest income by $21.0 million or 4.6%, while a 200 basis point gradual decrease in interest rates would decrease net interest income by $3.2 million or 0.7%.

      Gap Analysis. Gap analysis complements the income simulation model, primarily focusing on the longer term structure of the balance sheet. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring an institution’s “interest rate sensitivity gap”. An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. At December 31, 2005, the Company’s one-year cumulative gap position was a negative 14.89% compared to a negative 2.57% at December 31, 2004. The change in the one-year cumulative gap position was primarily the result of the increase in the balance of certificates of deposit due to mature within one year combined with the decline in the securities available-for-sale portfolio

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and the reduced balance in the mortgage warehouse lines of credit portfolio. A negative gap will generally result in the net interest margin decreasing in a rising rate environment and increasing in a falling rate environment. A positive gap will generally have the opposite results on the net interest margin.

      The following gap analysis table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at December 31, 2005 that are anticipated by the Company, using certain assumptions based on historical experience and other market-based data, to reprice or mature in each of the future time periods shown. The amount of assets and liabilities shown which reprice or mature during a particular period was determined in accordance with the earlier of the term to reprice or the contractual maturity of the asset or liability.

      The gap analysis, however, is an incomplete representation of interest rate risk and has certain limitations. The gap analysis sets forth an approximation of the projected repricing of assets and liabilities at December 31, 2005 on the basis of contractual maturities, anticipated prepayments, callable features and scheduled rate adjustments for selected time periods. The actual duration of mortgage loans and mortgage-backed securities can be significantly affected by changes in mortgage prepayment activity. The major factors affecting mortgage prepayment rates are prevailing interest rates and related mortgage refinancing opportunities. Prepayment rates will also vary due to a number of other factors, including the regional economy in the area where the underlying collateral is located, seasonal factors and demographic variables.

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

      Among the factors considered in our estimates are current trends and historical repricing experience with respect to similar products. As a result, different assumptions may be used at different points in time. Within the one year time period, money market accounts, savings accounts and NOW accounts were assumed to decay at 55%, 15% and 40%, respectively. Deposit decay rates (estimated deposit withdrawal activity) can have a significant effect on the Company’s estimated gap. While the Company believes such assumptions are reasonable, there can be no assurance that these assumed decay rates will approximate actual future deposit withdrawal activity.

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      The following table reflects the repricing of the balance sheet, or “gap” position at December 31, 2005.

(In Thousands)		0 - 90 Days			91 - 180 Days			181 - 365 Days			1 - 5 Years			Over 5 Years			Total		Fair Value
Interest-earning assets:
	Mortgage loans(1)	$	489,131		$	256,947		$	526,246		$	4,877,735		$	4,224,310		$	10,374,369	$	10,303,636
	Commercial business and other loans		1,044,765			87,658			159,242			461,690			194,718			1,948,073		1,926,808
	Securities available-for-sale(2)		287,820			185,393			372,417			2,168,952			636,453			3,651,035		3,574,500
	Other interest-earning assets(3)		720,246			—			—			—			167,294			887,540		887,540
Total interest-earning assets			2,541,962			529,998			1,057,905			7,508,377			5,222,775			16,861,017		16,692,484
Interest-bearing liabilities:
	Savings, NOW and money market deposits		533,841			533,841			1,067,681			1,219,596			2,398,773			5,753,732		5,753,732
	Certificates of deposit		1,051,422			732,386			569,816			1,361,970			—			3,715,594		3,725,319
	Borrowings		1,546,729			170,000			767,000			2,309,249			163,751			4,956,729		4,965,624
	Subordinated notes		(64	)		(64	)		(128	)		(1,025	)		398,541			397,260		380,000
	Senior notes		(106	)		(106	)		(212	)		248,410			—			247,986		243,750
Total interest-bearing liabilities			3,131,822			1,436,057			2,404,157			5,138,200			2,961,065			15,071,301		15,068,425
Interest sensitivity gap			(589,860	)		(906,059	)		(1,346,252	)		2,370,177			2,261,710
Cumulative interest sensitivity gap		$	(589,860	)	$	(1,495,919	)	$	(2,842,171	)	$	(471,994	)	$	1,789,716
Cumulative interest sensitivity gap as a percentage of total assets			(3.09	)%		(7.84	)%		(14.89	)%		(2.47	)%		9.38	%

(1)	Based upon contractual maturity, repricing date, if applicable, and management’s estimate of principal prepayments. Includes loans available-for-sale.
(2)	Based upon contractual maturity, repricing date, if applicable, and projected repayments of principal based upon experience. Amounts exclude the unrealized gains/(losses) on securities available-for-sale.
(3)	Includes interest-earning cash and due from banks, overnight deposits and FHLB stock.

     NPV Analysis. To a lesser degree, the Company also utilizes net portfolio value (“NPV”) analysis to monitor interest rate risk over a range of interest rate scenarios.

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

80

      The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The model assumes estimated loan prepayment rates and reinvestment rates similar to the Company’s historical experience. The following sets forth the Company’s NPV as of December 31, 2005.

									NPV as % of Portfolio
	Net Portfolio Value								Value of Assets
Change (in Basis points) in Interest Rates	Amount		$ Change			NPV % Change			Ratio			Change in NPV Ratio
	(Dollars In Thousands
+200	$	1,444,324	$	(395,084	)		(21.48	)%		8.29	%		(1.64	)%
0		1,839,408		—			—			9.93			—
-100		2,084,172		244,764			13.31			10.94			1.01

      As of December 31, 2005, the Company’s NPV was $1.84 billion, or 9.93% of the market value of assets. Following a 200 basis point assumed increase in interest rates, the Company’s “post shock” NPV was estimated to be $1.44 billion, or 8.29% of the market value of assets reflecting a decrease of 1.64% in the NPV ratio.

      As of December 31, 2004, the Company’s NPV was $2.13 billion, or 12.10% of the market value of assets. Following a 200 basis point assumed increase in interest rates, the Company’s “post shock” NPV was estimated to be $1.74 billion, or 10.52% of the market value of assets reflecting a decrease of 1.58% in the NPV ratio.

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

81

ITEM 8.       Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Independence Community Bank Corp.

      We have audited the accompanying consolidated statements of financial condition of Independence Community Bank Corp. (the “Company”) as of December 31, 2005 and 2004, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

      In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Independence Community Bank Corp. at December 31, 2005 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

      As discussed in Notes 3 and 17 to the consolidated financial statements, in 2003 the Company changed its method of accounting for stock-based compensation prospectively.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Independence Community Bank Corp.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 10, 2006, expressed an unqualified opinion thereon.

/s/ Ernst & Young, LLP

Ernst & Young, LLP

New York, New York

March 10, 2006

82

Management’s Report on Internal Control Over Financial Reporting

      The management of Independence Community Bank Corp. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting.

      The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

•  Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

•  Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and the board of directors of the company; and

•  Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions or because of declines in the degree of compliance with the policies or procedures.

      The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework.

      As of December 31, 2005, based on management’s assessment, the Company’s internal control over financial reporting was effective.

      Ernst & Young LLP, the Company’s independent registered public accounting firm, has issued an audit report on our assessment of the Company’s internal control over financial reporting. See “Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting” set forth in this Item 8.

83

Report of Independent Registered Public Accounting Firm on

Internal Control Over Financial Reporting

The Board of Directors and Shareholders Independence Community Bank Corp.

      We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Independence Community Bank Corp. maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Independence Community Bank Corp.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

      A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because management’s assessment and our audit were conducted to also meet the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA), management’s assessment and our audit of the Independence Community Bank Corp.’s internal control over financial reporting included controls over the preparation of financial statements in accordance with the instructions for the preparation of the Office of Thrift Supervision Annual/ Current Report instructions for Savings and Loan Holding Companies (the “H-(b) 11 instructions”). A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      In our opinion, management’s assessment that Independence Community Bank Corp. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Independence Community Bank Corp. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005 based on the COSO criteria.

84

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial condition of Independence Community Bank Corp. as of December 31, 2005 and 2004, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2005 of Independence Community Bank Corp. and our report dated March 10, 2006 expressed, an unqualified opinion thereon.

/s/ Ernst & Young, LLP

Ernst & Young, LLP

New York, New York

March 10, 2006

85

INDEPENDENCE COMMUNITY BANK CORP.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

				December 31,
(In Thousands, Except Share Data)				2005			2004
ASSETS:
Cash and due from banks — interest-bearing				$	710,251		$	84,532
Cash and due from banks — non-interest-bearing					368,931			276,345
			Total cash and cash equivalents		1,079,182			360,877
Securities available-for-sale:
	Investment securities ($44,118 and $25,764 pledged to creditors, respectively)				418,911			454,305
	Mortgage-related securities ($2,913,711 and $2,927,519 pledged to creditors, respectively)				3,155,589			3,479,482
			Total securities available-for-sale		3,574,500			3,933,787
Loans available-for-sale					22,072			96,671
Mortgage loans on real estate					10,352,297			9,315,090
Other loans					1,948,073			1,933,502
		Total loans			12,300,370			11,248,592
		Less: allowance for loan losses			(101,467	)		(101,435	)
		Total loans, net			12,198,903			11,147,157
Premises, furniture and equipment, net					165,639			162,687
Accrued interest receivable					72,518			64,437
Goodwill					1,185,566			1,155,572
Identifiable intangible assets, net					67,676			79,056
Bank owned life insurance (“BOLI”)					336,566			321,040
Other assets					380,498			432,195
			Total assets	$	19,083,120		$	17,753,479
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Deposits:
	Savings deposits			$	2,143,172		$	2,630,416
	Money market deposits				561,359			752,310
	Active management accounts (“AMA”) deposits				310,557			948,977
	Interest-bearing demand deposits				2,622,115			1,214,190
	Non-interest-bearing demand deposits				1,592,486			1,487,756
	Certificates of deposit				3,715,594			2,271,415
			Total deposits		10,945,283			9,305,064
Borrowings					4,956,729			5,511,972
Subordinated notes					397,260			396,332
Senior notes					247,986			—
Escrow and other deposits					116,529			104,304
Accrued expenses and other liabilities					133,553			131,764
			Total liabilities		16,797,340			15,449,436
Stockholders’ equity:
	Common stock, $.01 par value: 250,000,000 shares authorized, 104,243,820 shares issued; 82,332,449 and 84,928,719 shares outstanding at December 31, 2005 and December 31, 2004, respectively				1,042			1,042
	Additional paid-in-capital				1,911,370			1,900,252
	Treasury stock at cost: 21,911,371 and 19,315,101 shares at December 31, 2005 and December 31, 2004, respectively				(463,789	)		(341,226	)
	Unallocated common stock held by ESOP				(59,323	)		(64,267	)
	Unvested restricted stock awards under stock benefit plans				(9,104	)		(9,701	)
	Retained earnings, partially restricted				949,721			821,702
	Accumulated other comprehensive loss:
		Net unrealized loss on securities available-for-sale, net of tax			(44,137	)		(3,759	)
			Total stockholders’ equity		2,285,780			2,304,043
			Total liabilities and stockholders’ equity	$	19,083,120		$	17,753,479

See accompanying notes to consolidated financial statements.

86

INDEPENDENCE COMMUNITY BANK CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

			For the Year Ended December 31,
(In Thousands, Except Per Share Amounts)			2005		2004			2003
Interest income:
	Mortgage loans on real estate		$	531,272	$	426,942		$	271,805
	Other loans			122,960		95,170			81,674
	Loans available-for-sale			4,853		6,906			4,774
	Investment securities			18,456		22,578			13,296
	Mortgage-related securities			148,271		132,809			62,918
	Other			11,767		5,003			5,653
		Total interest income		837,579		689,408			440,120
Interest expense:
	Deposits			162,868		71,848			53,257
	Borrowings			156,780		128,788			91,089
	Subordinated notes			15,621		13,279			3,029
	Senior notes			3,445		—			—
		Total interest expense		338,714		213,915			147,375
		Net interest income		498,865		475,493			292,745
Provision for loan losses				—		2,000			3,500
		Net interest income after provision for loan losses		498,865		473,493			289,245
Non-interest income:
	Net gain (loss) on securities			6,637		(8,816	)		476
	Net gain on sales of loans			154		281			289
	Mortgage-banking activities			20,106		29,613			25,407
	Service fees			66,004		66,619			69,270
	BOLI			15,856		14,616			8,833
	Other			16,123		19,196			8,464
		Total non-interest income		124,880		121,509			112,739
Non-interest expense:
	Compensation and employee benefits			149,122		134,924			100,262
	Occupancy costs			52,287		43,679			26,547
	Data processing fees			14,037		16,236			10,029
	Advertising			8,170		9,140			7,845
	Other			62,837		58,828			42,265
		Total general and administrative expense		286,453		262,807			186,948
	Amortization of identifiable intangible assets			11,380		8,268			1,855
		Total non-interest expense		297,833		271,075			188,803
Income before provision for income taxes				325,912		323,927			213,181
Provision for income taxes				112,440		111,755			76,211
Net income			$	213,472	$	212,172		$	136,970
Basic earnings per share			$	2.70	$	2.96		$	2.74
Diluted earnings per share			$	2.62	$	2.84		$	2.60
Dividends declared per common share			$	1.07	$	0.94		$	0.68

See accompanying notes to consolidated financial statements.

87

INDEPENDENCE COMMUNITY BANK CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

			Years Ended December 31, 2005, 2004 and 2003
														Unearned
											Unallocated			Common Stock						Accumulated
					Additional						Common			Held by						Other
			Common		Paid-in-			Treasury			Stock Held			Recognition			Retained			Comprehensive
(In Thousands, Except Share Data)			Stock		Capital			Stock			by ESOP			Plan			Earnings			Income/(Loss)			Total
Balance — December 31, 2002			$	760	$	742,006		$	(318,182	)	$	(74,154	)	$	(11,782	)	$	575,927		$	5,693		$	920,268
Comprehensive income:
	Net income for the year ended December 31, 2003			—		—			—			—			—			136,970			—			136,970
	Other comprehensive income, net of tax of $3.9 million Change in net unrealized losses on cash flow hedges, net of tax of $1.1 million			—		—			—			—			—			—			4,094			4,094
		Less: reclassification adjustment of net loss realized on cash flow hedges, net of tax of $1.2 million		—		—			—			—			—			—			(2,223	)		(2,223	)
		Change in net unrealized gains on securities available-for-sale, net of tax of $0.3 million		—		—			—			—			—			—			(549	)		(549	)
Comprehensive income				—		—			—			—			—			136,970			1,322			138,292
Repurchase of common stock (2,765,900 shares)				—		—			(78,068	)		—			—			—			—			(78,068	)
Valuation adjustment for deferred income tax benefit				—		(3,070	)		—			—			—			—			—			(3,070	)
Treasury stock issued for options exercised (and related tax benefit) and for director fees (992,717 shares)				—		14,360			16,162			—			—			—			—			30,522
Dividends declared				—		—			—			—			—			(34,544	)		—			(34,544	)
Accelerated vesting of options				—		185			—			—			—			—			—			185
Stock compensation expense				—		153			—			—			—			—			—			153
ESOP shares committed to be released				—		3,674			—			4,943			—			—			—			8,617
Issuance of grants and amortization of earned portion of restricted stock awards				—		4,572			—			—			4,184			—			—			8,756
Balance — December 31, 2003				760		761,880			(380,088	)		(69,211	)		(7,598	)		678,353			7,015			991,111
Comprehensive income:
	Net income for the year ended December 31, 2004			—		—			—			—			—			212,172			—			212,172
	Other comprehensive income, net of tax benefit of $2.5 million
		Change in net unrealized gains on securities available-for-sale, net of tax of $3.5 million		—		—			—			—			—			—			(6,736	)		(6,736	)
		Less: reclassification adjustment of net gain realized in net income, net of tax of $2.6 million		—		—			—			—			—			—			(4,038	)		(4,038	)
Comprehensive income				—		—			—			—			—			212,172			(10,774	)		201,398
Treasury stock issued for options exercised (and related tax benefit) and for director fees (2,252,934 shares)				—		18,750			38,862			—			—			—			—			57,612
Common stock issued in connection with Staten Island Bancorp, Inc. acquisition (28,200,070 shares)				282		1,106,853			—			—			—			—			—			1,107,135
Dividends declared				—		—			—			—			—			(68,823	)		—			(68,823	)
Stock compensation expense				—		1,699			—			—			—			—			—			1,699
ESOP shares committed to be released				—		5,865			—			4,944			—			—			—			10,809
Issuance of grants and amortization of earned portion of restricted stock awards				—		5,205			—			—			(2,103	)		—			—			3,102
Balance — December 31, 2004				1,042		1,900,252			(341,226	)		(64,267	)		(9,701	)		821,702			(3,759	)		2,304,043
Comprehensive income:
	Net income for the year ended December 31, 2005			—		—			—			—			—			213,472			—			213,472
	Other comprehensive income, net of tax benefit of $31.9 million
		Change in net unrealized losses on securities available-for-sale, net of tax of $27.3 million		—		—			—			—			—			—			(37,522	)		(37,522	)
		Less: reclassification adjustment of net gains realized in net income, net of tax of $2.1 million		—		—			—			—			—			—			(2,856	)		(2,856	)
Comprehensive income				—		—			—			—			—			213,472			(40,378	)		173,094
Treasury stock issued for options exercised (and related tax benefit) and for director fees (1,658,032 shares)				—		(1,657	)		31,791			—			—			—			—			30,134
Repurchase of common stock (4,254,302 shares)				—		—			(154,354	)		—			—			—			—			(154,354	)
Dividends declared				—		—			—			—			—			(85,453	)		—			(85,453	)
Stock compensation expense				—		3,283			—			—			—			—			—			3,283
ESOP shares committed to be released				—		5,603			—			4,944			—			—			—			10,547
Issuance of grants and amortization of earned portion of restricted stock awards				—		3,889			—			—			597			—			—			4,486
Balance — December 31, 2005			$	1,042	$	1,911,370		$	(463,789	)	$	(59,323	)	$	(9,104	)	$	949,721		$	(44,137	)	$	2,285,780

See accompanying notes to consolidated financial statements.

88

INDEPENDENCE COMMUNITY BANK CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
(In Thousands)	2005			2004			2003
Cash Flows from Operating Activities:
Net income	$	213,472		$	212,172		$	136,970
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		—			2,000			3,500
Net (gain) loss on securities		(6,637	)		8,816			(476	)
Net gain on sale of loans		(154	)		(281	)		(289	)
Originations of loans available-for-sale		(1,264,608	)		(1,267,289	)		(1,798,108	)
Proceeds on sales of loans available-for-sale		1,684,275			2,442,121			1,919,941
Amortization of deferred income and premiums		(18,686	)		(32,347	)		19,107
Amortization of identifiable intangibles		11,380			8,268			1,855
Amortization of earned portion of ESOP and restricted stock awards		16,311			14,962			16,603
Depreciation and amortization		20,683			17,503			11,561
Deferred income tax provision (benefit)		34,446			(1,349	)		10,678
Increase in accrued interest receivable		(8,081	)		(3,379	)		(516	)
Decrease in accrued expenses and other liabilities		(528	)		(7,466	)		(73,249	)
Other, net		(42,688	)		8,226			(23,201	)
Net cash provided by operating activities		639,185			1,401,957			224,376
Cash Flow from Investing Activities:
Loan originations and purchases		(3,718,174	)		(4,643,114	)		(2,402,462	)
Principal payments on loans		2,125,636			2,300,128			1,802,535
Advances on mortgage warehouse lines of credit		(9,977,225	)		(10,187,771	)		(10,291,152	)
Repayments on mortgage warehouse lines of credit		10,183,583			10,045,928			10,532,666
Proceeds from sale of securities available-for-sale		484,076			317,756			48,886
Proceeds from maturities of securities available-for-sale		158,733			316,389			101,457
Principal collected on securities available-for-sale		736,114			1,012,884			1,627,618
Purchases of securities available-for-sale		(1,099,410	)		(1,026,512	)		(3,048,363	)
Redemption (purchase) of Federal Home Loan Bank stock		30,606			48,165			(34,237	)
Cash consideration paid to acquire Staten Island Bancorp, Inc.		—			(368,500	)		—
Cash and cash equivalents acquired in Staten Island Bancorp, Inc. acquisition		—			669,614			—
Proceeds from sale of other real estate		1,030			1,340			—
Net additions to premises, furniture and equipment		(23,635	)		(31,836	)		(27,548	)
Net cash used in investing activities		(1,098,666	)		(1,545,529	)		(1,690,600	)
Cash Flows from Financing Activities:
Net increase in demand and savings deposits		196,040			451,960			574,387
Net increase (decrease) in time deposits		1,449,743			(242,577	)		(210,350	)
Proceeds from new borrowings		1,562,911			2,300,000			1,475,000
Repayments of borrowings		(2,075,095	)		(2,399,403	)		(490,250	)
Net increase in subordinated notes		928			247,903			148,429
Net increase in senior notes		247,986			—			—
Net increase in escrow and other deposits		12,225			5,684			41,686
Proceeds on exercise of stock options		22,855			37,677			12,905
Repurchase of common stock		(154,354	)		—			(78,068	)
Dividends paid		(85,453	)		(68,823	)		(34,544	)
Net cash provided by financing activities		1,177,786			332,421			1,439,195
Net increase (decrease) in cash and cash equivalents		718,305			188,849			(27,029	)
Cash and cash equivalents at beginning of period		360,877			172,028			199,057
Cash and cash equivalents at end of period	$	1,079,182		$	360,877		$	172,028
Supplemental Information
Income taxes paid	$	61,682		$	116,416		$	53,875
Interest paid	$	337,108		$	197,240		$	150,923
Income tax benefit realized from exercise of stock options	$	13,372		$	16,551		$	6,076
Non-Cash Investing Activities
Common stock issued in Staten Island Bancorp, Inc. acquisition	$	—		$	1,107,135		$	—

See accompanying notes to consolidated financial statements.

89

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005, 2004 and 2003

1. Organization/ Form of Ownership

      Independence Community Bank was originally founded as a New York-chartered mutual savings bank in 1850. In April 1992, the Bank reorganized into the mutual holding company form of organization pursuant to which the Bank became a wholly owned stock savings bank subsidiary of a newly formed mutual holding company (the “Mutual Holding Company”).

      In April 1997, the Board of Directors of the Bank and the Board of Trustees of the Mutual Holding Company adopted a plan of conversion (the “Plan of Conversion”) to convert the Mutual Holding Company to the stock form of organization and simultaneously merge it with and into the Bank and all of the outstanding shares of Bank common stock held by the Mutual Holding Company would be cancelled (the “Conversion”).

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

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

      The Bank established, in accordance with the requirements of the New York State Banking Department (the “Department”), a liquidation account for the benefit of depositors of the Bank as of March 31, 1996 and September 30, 1997 in the amount of $319.7 million, which was equal to the Bank’s total equity as of the date of the latest consolidated statement of financial condition (August 31, 1997) appearing in the final prospectus used in connection with the Conversion. The liquidation account is reduced as, and to the extent that, eligible and supplemental eligible account holders (as defined in the Plan of Conversion) have reduced their qualifying deposits as of each December 31st. Subsequent increases in deposits do not restore an eligible or supplemental eligible account holder’s interest in the liquidation account. In the event of a complete liquidation of the Bank, each eligible account holder or supplemental eligible account holder will be entitled to receive a distribution from the liquidation account in an amount proportionate to the adjusted qualifying balances for accounts then held.

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

      The Bank provides financial services primarily to individuals and small to medium-sized businesses within the greater New York City metropolitan area. The Bank is subject to regulation by the Federal Deposit Insurance Corporation (“FDIC”) and the Department.

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INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Mergers and Acquisitions

Sovereign Bancorp, Inc.

      On October 24, 2005, the Company, Sovereign Bancorp, Inc. (“Sovereign”) and Iceland Acquisition Corp. (“Merger Sub”), a wholly owned subsidiary of Sovereign, entered into an Agreement and Plan of Merger (the “Merger Agreement”).

      Subject to the terms and conditions of the Merger Agreement, which has been approved by the Boards of Directors of all parties and by the stockholders of the Holding Company, Merger Sub will be merged with and into the Company (the “Merger”). Upon effectiveness of the Merger, each outstanding share of common stock of the Company other than shares owned by the Company (other than in a fiduciary capacity), Sovereign or their subsidiaries and other than dissenting shares will be converted into the right to receive $42 per share in cash and the Holding Company will become a subsidiary of Sovereign.

      The Company has made customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants to operate its business in the ordinary course consistent with past practice during the period between execution of the Merger Agreement and the date of the Merger and to refrain from specified non-ordinary course activities during that period without the prior approval of Sovereign. The Company has generally agreed not to solicit, approve or recommend, or enter into discussions concerning, or provide confidential information in connection with, proposals relating to alternative business combination transactions, subject to applicable exceptions specified in the Merger Agreement. The Merger Agreement also provides for customary covenants providing for the parties to use reasonable best efforts to take actions necessary for the closing of the Merger, including obtaining necessary regulatory approvals, and maintaining various employee benefits for the Company’s employees for specified periods of time. Sovereign has agreed to take action to enforce its rights under, and use its reasonable best efforts to satisfy as soon as practicable all conditions to closing under, the Investment Agreement by and between Sovereign and Banco Santander Central Hispano, S.A. (“Banco Santander”), dated as of October 24, 2005 (the “Investment Agreement”), which provides for Banco Santander to purchase approximately $2.4 billion of Sovereign’s common stock and, if necessary, up to $1.2 billion of its preferred stock and other securities, the proceeds of which would be used to finance the Merger.

      The Merger Agreement contains certain termination rights and provides that, upon the termination of the Merger Agreement under specified circumstances generally including a competitive takeover bid by a third party, the Company may be required to pay Sovereign a termination fee of up to $100 million. In addition, if the Merger Agreement is terminated in certain circumstances prior to Sovereign’s having issued securities to Banco Santander under the Investment Agreement, Sovereign may be obligated to pay the Company a termination fee of $100 million.

      The Company called a special meeting of the Company’s stockholders to consider adoption of the Merger Agreement and the Company’s board of directors recommended approval and adoption of the Merger Agreement by the Company’s stockholders. The transaction received approval from the Company’s stockholders at the special meeting of stockholders held on January 25, 2006.

      The Merger is currently expected to close during the second quarter of 2006 and is subject to various customary conditions, including the receipt of certain regulatory approvals, including approval of the Merger Agreement by the Office of Thrift Supervision and the New York State Banking Department. The Merger is not, however, contingent upon the closing of the transactions contemplated by the Investment Agreement.

Staten Island Bancorp, Inc.

      On April 12, 2004, the Company completed its merger with SIB and the merger of SIB’s wholly owned subsidiary, SI Bank & Trust (“SI Bank”), with and into the Bank. SI Bank, a full service federally chartered

91

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

savings bank, operated 17 full service branch offices on Staten Island, three full service branch offices in Brooklyn, and a total of 15 full service branch offices in New Jersey. Under the terms of the Agreement and Plan of Merger between the Company and SIB dated November 24, 2003 (the “SIB Agreement”), the aggregate consideration paid in the merger consisted of $368.5 million in cash and 28,200,070 shares of the Company’s common stock. Holders of SIB common stock received cash or shares of the Company’s common stock pursuant to an election, proration and allocation procedure subject to the total consideration being comprised of approximately 75% paid in shares of the Company’s common stock and 25% paid in cash. The SIB transaction had an aggregate value of approximately $1.48 billion assuming an acquisition value of $24.3208 per share (the average share price used to calculate the exchange ratio).

      As a result of the SIB transaction, the Company acquired approximately $7.15 billion in assets (including loans totaling $3.56 billion and securities totaling $2.09 billion) and assumed approximately $3.79 billion in deposits, $2.65 billion in borrowings and $84.2 million in other liabilities. Included in the $84.2 million of other liabilities was $23.7 million of accrued severance costs. The Company has paid approximately $22.2 million in severance since April 12, 2004, with $1.5 million of such liability remaining at December 31, 2005. The results of operations of SIB are included in the Consolidated Statements of Income and Comprehensive Income subsequent to April 12, 2004.

      In addition on March 1, 2004, SIB announced the completion of the sale of the majority of the assets and operations of Staten Island Mortgage Corp., the mortgage-banking subsidiary of SI Bank, to Lehman Brothers. The remaining Staten Island Mortgage Corp. offices were sold or ceased operations by March 31, 2004.

      The merger was accounted for as a purchase and the excess cost over the fair value of net assets acquired (“goodwill”) in the transaction was $1.00 billion. Under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, goodwill is not being amortized in connection with this transaction and the Company estimates that the goodwill will not be deductible for income tax purposes. The Company also recorded a core deposit intangible asset of $87.1 million, which is being amortized using the interest method over 14 years.

3.     Summary of Significant Accounting Policies

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

Principles of Consolidation and Basis of Presentation

      The consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America and include the accounts of the Company and its wholly owned subsidiaries. All normal, recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the consolidated financial statements have been included. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to the prior year’s financial statements to conform to the current year’s presentation. The Company uses the equity method of accounting for investments in less than majority-owned entities.

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

92

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Securities Available-for-Sale

      Securities available-for-sale are carried at fair value. Unrealized gains or losses on securities available-for-sale are included in other comprehensive income (“OCI”) within stockholders’ equity, net of tax. Gains or losses on the sale of such securities are recognized using the specific identification method and are recorded in gain (loss) on loans and securities in the Consolidated Statements of Operations.

Loans and Loans Available-for-Sale

      Loans are stated at unpaid principal balances, net of deferred loan fees. Loans available-for-sale are stated at the aggregate of lower of cost or fair value.

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

      The Company generally places loans on non-accrual status when principal or interest payments become 90 days past due, except those loans which are 90 days past maturity but which are performing consistently with their original terms. Loans that are 90 days or more past maturity which continue to make payments on a basis consistent with the original loan repayment schedule remain on accrual status. In addition, FHA or VA loans continue to accrue interest because their interest payments are guaranteed by various government programs and agencies. Loans may be placed on non-accrual status prior to becoming 90 days delinquent if management believes that collection of interest or principal is doubtful or when such loans have such well defined weaknesses that collection in full of principal or interest is not probable. When a loan is placed on non-accrual status, accrual of interest income is discontinued and uncollected interest is reversed against current interest income. Interest income on non-accrual loans is recorded only when received in cash. A loan is returned to accrual status when the principal and interest are no longer past due and the borrower’s ability to make periodic principal and interest payments is reasonably assured.

      The Company considers a loan impaired when, based upon current information and events, it is probable that it will be unable to collect all amounts due for both principal and interest, according to the contractual terms of the loan agreement. The Company identifies and measures impaired loans in conjunction with its assessment of the allowance for loan losses. An allowance for impaired loans is a component of the allowance for loan losses when it is probable all amounts due will not be collected pursuant to the contractual terms of the loan and the recorded investment in the loan exceeds its fair value. The Company’s evaluation of impaired loans includes a review of non-accrual commercial business, commercial real estate, mortgage warehouse lines of credit and multi-family residential loans as well as a review of other performing loans that may meet the definition of loan impairment. Smaller balance homogenous loans, such as consumer and residential mortgage loans, are specifically excluded from individual review for impairment. Fair value is measured using either the present value of expected future cash flows discounted at the loan’s effective interest rate, the observable market price of the loan, or the fair value of the underlying collateral if the loan is collateral dependent. The Company’s impaired loan portfolio is primarily collateral dependent. Impaired loans are individually assessed to determine that each loan’s carrying value is not in excess of the fair value of the underlying collateral or the present value of the expected future cash flows. All loans subject to evaluation and considered impaired are included in non-performing assets. Interest income on impaired loans is recognized on a cash basis.

      Commercial real estate loans, commercial business loans and mortgage warehouse lines of credit are generally charged-off to the extent principal and interest due exceed the net realizable value of the collateral, with the charge-off occurring when the loss is reasonably quantifiable. Loans secured by residential real estate are generally charged-off to the extent principal and interest due exceed the current appraised value of the collateral.

93

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Consumer loans are subject to charge-off at a specified delinquency date. Closed end consumer loans, which include installment and automobile loans, are generally charged-off in full when the loan becomes 120 days past due. Open-end, unsecured consumer loans are generally charged-off in full when the loan becomes 180 days past due. Home equity loans and lines of credit are written down to the appraised value of the underlying property when the loan becomes 120 days and 180 days past due, respectively.

Allowance for Loan Losses

      The determination of the level of the allowance for loan losses and the periodic provisions to the allowance charged to income is the responsibility of management. The formalized process for assessing the level of the allowance for loan losses is performed no less than quarterly. Individual loans are specifically identified by loan officers as meeting the criteria of pass, criticized or classified loans. Such criteria include, but are not limited to, non-accrual loans, past maturity loans, impaired loans, loans chronically delinquent and loans requiring heightened management oversight. Each loan is assigned to a risk level of special mention, substandard, doubtful and loss. Loans that do not meet the criteria to be characterized as criticized or classified are categorized as pass loans. Each risk level, including pass loans, has an associated reserve factor that increases as the risk level category increases. The reserve factor for criticized and classified loans becomes larger as the risk level increases. The reserve factor for pass loans differs based upon the loan type and collateral type. The reserve factor is applied to the aggregate balance of loans designated to each risk level to compute the aggregate reserve requirement. This method of analysis is performed on the entire loan portfolio.

      The reserve factors that are applied to pass, criticized and classified loans are generally reviewed by management on a quarterly basis unless circumstances require a more frequent assessment. In assessing the reserve factors, the Company takes into consideration, among other things, the state of the national and/or local economies which could affect the Company’s customers or underlying collateral values, the loss experience related to different segments or classes of loans, changes in risk categories, the acceleration or decrease in loan portfolio growth rates and underwriting or servicing weaknesses. To the extent that such assessment results in an increase or decrease to the reserve factors that are applied to each risk level, the Company may need to adjust its provision for loan losses which could impact earnings in the period in which such provision is taken.

      The Company has identified the evaluation of the allowance for loan losses as a critical accounting estimate.

Loan Servicing Assets and Retained Recourse

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

      Under the terms of the sales agreement with Fannie Mae, the Company retains a portion of the associated credit risk. The Company has a 100% first loss position on each multi-family residential loan sold to Fannie Mae under such program until the earlier to occur of (i) the aggregate losses on the multi-family residential loans sold to Fannie Mae reaching the maximum loss exposure for the portfolio as a whole or (ii) until all of the loans sold to Fannie Mae under this program are fully paid off. The maximum loss exposure is available to satisfy any losses on loans sold in the program subject to the foregoing limitations. The

94

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Company has established a liability of $9.4 million which represents the estimated amount that the Company would have to pay a third party to assume the liability of the retained recourse. The valuation calculates the present value of the estimated losses that the portfolio is projected to incur based upon an industry-based default curve.

Premises, Furniture and Equipment

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

Buildings	10 to 30 years
Furniture and equipment	3 to 10 years
Automobiles	3 years

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

Goodwill and Identifiable Intangible Assets

      Effective April 1, 2001, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), which resulted in discontinuing the amortization of goodwill. Under SFAS No. 142, goodwill is instead carried at its book value as of April 1, 2001 and any future impairment of goodwill will be recognized as non-interest expense in the period of impairment. However, under SFAS No. 142, identifiable intangible assets (such as core deposit premiums) with identifiable lives continue to be amortized. Core deposit intangibles currently held by the Company are amortized using the interest method over fourteen years.

      The Company’s goodwill was $1.19 billion at December 31, 2005 and $1.16 billion at December 31, 2004. The Company’s identifiable intangible assets were $67.7 million at December 31, 2005 and $79.1 million at December 31, 2004. The Company did not recognize an impairment loss as a result of its annual impairment test effective October 1, 2005. The Company tests the value of its goodwill at least annually. The Company has identified the goodwill impairment test as a critical accounting estimate.

Other Real Estate Owned

      Real estate properties acquired through, or in lieu of foreclosure and repossessed assets are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. After foreclosure, valuations are periodically performed and the real estate is carried at the lower of carrying amount or fair value, less the estimated selling costs. Other real estate owned is included in other assets.

Bank Owned Life Insurance

      The Bank has purchased Bank Owned Life Insurance (“BOLI”) policies to fund certain future employee benefit costs. The BOLI is recorded at its cash surrender value and changes in the cash surrender value of the insurance are recorded in other non-interest income.

Derivative Financial Instruments

      The Company enters into derivative transactions to protect against the risk of adverse interest rate movements on loan commitments and the value of certain borrowings and on future cash flows. All derivative financial instruments are recorded at fair value in the Consolidated Statements of Financial Condition.

95

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Mortgage loan commitments to borrowers related to loans originated for sale are considered a derivative instrument under SFAS No. 149 “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS No. 149”). In addition, forward loan sale agreements with Fannie Mae and Cendant Mortgage Corporation, doing business as PHH Mortgage Services (“Cendant”) also meet the definition of a derivative instrument under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”). In January 2005, Cendant was spun off from its parent company, Cendant Corporation, to PHH Corporation. Cendant was subsequently renamed PHH Mortgage Corporation (“PHH Mortgage”).

      In accordance with SFAS No. 133 and SFAS No. 149, derivative instruments are recognized in the statement of financial condition at fair value and changes in the fair value thereof are recognized in the statement of operations. Any change in the fair value of the loan commitment after the borrower locks in the interest rate is substantially offset by the corresponding change in the fair value of the forward loan sale agreement related to such loan. The period from the time the borrower locks in the interest rate to the time the Company funds the loan and sells it is generally 30 days. The fair value of each instrument will rise or fall in response to changes in market interest rates subsequent to the dates the interest rate locks and forward loan sale agreements are entered into (see Note 19).

      Derivative transactions qualifying as hedges are subject to special accounting treatment, depending on the relationship between the derivative instrument and the hedged item. Hedges of the changes in the fair value of a recognized asset, liability, or firm commitment are classified as fair value hedges. Hedges of the exposure to variable cash flows of forecasted transactions are classified as cash flow hedges.

      Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the Consolidated Statements of Financial Condition as either a freestanding asset or liability, with a corresponding offset recorded in OCI within stockholders’ equity, net of tax. Amounts are reclassified from OCI to the Consolidated Statements of Operations in the period or periods the hedged forecasted transaction affects earnings. No adjustment is made to the carrying amount of the hedged item.

      Under the cash flow hedge method, derivative gains and losses not effective in hedging the expected cash flows of the hedged item are recognized immediately in the Consolidated Statements of Operations. At the hedge’s inception and at least quarterly thereafter, a formal assessment is performed to determine whether changes in the cash flows of the derivative instruments have been highly effective in offsetting changes in the cash flows of the hedged items and whether they are expected to be highly effective in the future. If it is determined a derivative instrument has not been or will not continue to be highly effective as a hedge, hedge accounting is discontinued prospectively.

      In the event of early termination of a derivative financial instrument contract, any resulting gain or loss is deferred as an adjustment of the carrying value of the designated assets or liabilities, with a corresponding offset to OCI, and such amounts are recognized in earnings over the remaining life of the designated assets or liabilities or the derivative financial instrument contract, whichever period is shorter.

      The Company did not have any cash flow hedges during the years ended December 31, 2005 and 2004.

Advertising Costs

      Advertising costs are generally expensed as incurred.

Income Taxes

      The Company uses the liability method to account for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws expected to be in effect when the differences are expected to reverse. A valuation allowance is provided for deferred tax assets where realization

96

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

is not considered “more likely than not.” The Company did not have a valuation allowance at December 31, 2005. The Company has identified the evaluation of deferred tax assets as a critical accounting estimate (See Note 22).

Earnings Per Share

      Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding. Diluted EPS is computed using the same method as basic EPS, but reflects the potential dilution of common stock equivalents. Shares of common stock held by the ESOP that have not been allocated to participants’ accounts or are not committed to be released for allocation and unvested restricted stock awards from the 1998 Recognition and Retention Plan and Trust Agreement (the “Recognition Plan”), the 2002 Stock Incentive Plan (“Stock Incentive Plan”) and the 2005 Stock Incentive Plan (“2005 Stock Incentive Plan”) are not considered to be outstanding for the calculation of basic EPS. However, a portion of such shares is considered to be common stock equivalents of basic EPS in the calculation of diluted EPS. Diluted EPS also reflects the potential dilution that would occur if stock options were exercised and converted into common stock. The dilutive effect of unexercised stock options is calculated using the treasury stock method.

Employee Benefits

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

      Compensation expense related to restricted stock awards issued from the Recognition Plan, Stock Incentive Plan and 2005 Stock Incentive Plan are recognized over the vesting period at the fair market value of the common stock on the date of grant for share awards that are not subject to performance criteria. The expense related to performance share awards is recognized over the vesting period based at the fair market value on the measurement date.

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

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

      The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model and is based on certain assumptions including dividend yield, stock volatility, the risk free rate of return, expected term and turnover rate. The fair value of each option is expensed over its vesting period. Because the Company recognized the fair value provisions prospectively, compensation expense related to

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INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

employee stock options granted did not have a full impact during 2003. See Note 17 hereof. See also “Impact of New Accounting Pronouncements” below for a discussion of SFAS No. 123 (revised 2004), “Share-Based Payment” which was issued in December 2004 and was adopted by the Company effective January 1, 2006.

Comprehensive Income

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

Segment Reporting

      SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information” (“SFAS No. 131”), requires disclosures for each segment including quarterly disclosure requirements and a partitioning of geographic disclosures, including geographic information by country. As a community-oriented financial institution, substantially all of the Company’s operations (which comprise substantially all of the consolidated group’s activities) involve the delivery of loan and deposit products to customers located primarily in its market area. The Bank’s three key business divisions (the Commercial Real Estate Division, the Consumer Business Banking Division and the Business Banking Division) are codependent upon each other for both their source of funds as well as the utilization of such funds. Currently, business divisions are judged and analyzed using traditional criteria including loan origination levels, deposit origination levels, credit quality, adherence to expense budgets and other similar criteria, which data exists in a form deemed accurate and reliable by management. The President and Chief Executive Officer, the Company’s chief decision maker, has and continues to use these traditional criteria to make decisions regarding an individual division’s operations as well as the Company’s operations as a whole and thereby manages the Company as a single segment.

Treasury Stock

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

Consolidated Statements of Cash Flows

      For purposes of the Consolidated Statements of Cash Flows, the Company defines cash and cash equivalents as highly liquid investments with original maturities of three months or less.

Impact of New Accounting Pronouncements

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

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

      In November 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” This FSP provides additional guidance on when an investment in a debt or equity security should be considered impaired and when that impairment should be considered other-than-temporary and recognized as a loss in earnings. Specifically, the guidance clarifies that an investor should recognize an impairment loss no later than when the impairment is deemed other-than-temporary, even if a decision to sell has not been made. The FSP also requires certain disclosures about unrealized losses that have not been

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recognized as other-than-temporary impairments. Management applied the guidance in this FSP during their year-end 2005 review for other-than-temporary impairment and the disclosures required by the FSP are included in Note 4.

Accounting Changes and Error Corrections

      In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” (“SFAS No. 154”) which changes the accounting for and reporting of a change in accounting principle. This statement applies to all voluntary changes in accounting principle and changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. This statement requires retrospective application to prior period financial statements of changes in accounting principle, unless it is impractical to determine either the period-specific or cumulative effects of the change. SFAS No. 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005. The adoption of this standard did not have a material effect on the Company’s financial condition or results of operations.

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

      In May 2004, the FASB issued FSP FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP FAS 106-2”), in response to the signing into law in December 2003 of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”). The Act provides for a federal subsidy equal to 28% of prescription drug claims for sponsors of retiree health care plans with drug benefits that are at least actuarially equivalent to those to be offered under Medicare Part D. FSP FAS 106-2 requires the effect of this subsidy to be included in the measurement of post-retirement health care benefit costs effective for interim or annual periods beginning after June 15, 2004. Therefore, the expense amounts shown in Note 16 with respect to the years ended December 31, 2005 and 2004 reflect the effects of the Act.

FASB Statement No. 123 (revised 2004) — Share-Based Payment

      In December 2004, the FASB revised SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) establishes accounting requirements for share-based compensation to employees and carries forward prior guidance on accounting for awards to non-employees. In 2005, the FASB issued further guidance on the classification and measurement of freestanding financial instruments originally issued for employee service and the application of grant date as defined in SFAS 123(R). The Company adopted these statements effective as of January 1, 2006. On January 1, 2003, the Company adopted the provisions of SFAS 123 and began recognizing compensation expense ratably in the income statement, based on the estimated fair value of all awards granted after this date. SFAS 123(R) will require the Company to change its method of accounting for share-based awards to include estimated forfeitures in the initial estimate of compensation expense and to accelerate the recognition of compensation expense for retirement-eligible employees. The adoption of these standards did not have a material effect on the Company’s financial condition or results of operations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4.     Securities Available-for-Sale

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

			December 31, 2005
					Gross		Gross			Estimated
			Amortized		Unrealized		Unrealized			Fair
(In Thousands)			Cost		Gains		Losses			Value
Investment securities:
	Debt securities:
		U.S. Government and agencies	$	231,716	$	1	$	(4,055	)	$	227,662
		Corporate		95,342		133		(34	)		95,441
		Municipal		160		1		—			161
	Total debt securities			327,218		135		(4,089	)		323,264
	Equity securities:
		Preferred		94,350		3,136		(1,908	)		95,578
		Common		69		—		—			69
	Total equity securities			94,419		3,136		(1,908	)		95,647
Total investment securities				421,637		3,271		(5,997	)		418,911
Mortgage-related securities:
	Fannie Mae pass through certificates			442,269		1,399		(8,142	)		435,526
	GNMA pass through certificates			17,545		—		(816	)		16,729
	Freddie Mac pass through certificates			699,890		18		(11,619	)		688,289
	Collateralized mortgage obligation bonds			2,069,694		218		(54,867	)		2,015,045
Total mortgage-related securities				3,229,398		1,635		(75,444	)		3,155,589
Total securities available-for-sale			$	3,651,035	$	4,906	$	(81,441	)	$	3,574,500

			December 31, 2004
					Gross		Gross			Estimated
			Amortized		Unrealized		Unrealized			Fair
(In Thousands)			Cost		Gains		Losses			Value
Investment securities:
	Debt securities:
		U.S. Government and agencies	$	212,016	$	1,002	$	(950	)	$	212,068
		Corporate		89,093		604		(316	)		89,381
		Municipal		4,630		236		—			4,866
	Total debt securities			305,739		1,842		(1,266	)		306,315
	Equity securities:
		Preferred		146,604		1,100		(774	)		146,930
		Common		486		583		(9	)		1,060
	Total equity securities			147,090		1,683		(783	)		147,990
Total investment securities				452,829		3,525		(2,049	)		454,305
Mortgage-related securities:
	Fannie Mae pass through certificates			449,182		4,405		(2,212	)		451,375
	GNMA pass through certificates			7,259		330		(26	)		7,563
	Freddie Mac pass through certificates			973,750		5,070		(585	)		978,235
	Collateralized mortgage obligation bonds			2,057,221		3,400		(18,312	)		2,042,309
Total mortgage-related securities				3,487,412		13,205		(21,135	)		3,479,482
Total securities available-for-sale			$	3,940,241	$	16,730	$	(23,184	)	$	3,933,787

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Provided below is a summary of securities available-for-sale which were in an unrealized loss position at December 31, 2005. Approximately $54.9 million, or 67.4%, of the unrealized loss was comprised of securities in a continuous loss position for twelve months or more which consisted primarily of 221 mortgage-related securities and 13 investment securities. The Company has the ability and intent to hold these securities until such time as the value recovers or the securities mature. Further, the Company believes the deterioration in value is attributable to changes in market interest rates and not credit quality of the issuer.

			At December 31, 2005
			Under One Year				One Year or More
			Gross				Gross
			Unrealized		Estimated		Unrealized		Estimated
(In Thousands)			Losses		Fair Value		Losses		Fair Value
Investment securities:
	Debt securities:
		U.S. Government and agencies	$	2,051	$	117,322	$	2,005	$	109,202
		Corporate		34		3,202		—		8,375
	Total debt securities			2,085		120,524		2,005		117,577
	Equity securities:
		Preferred		673		21,837		1,234		10,843
		Common		—		69		—		—
	Total equity securities			673		21,906		1,234		10,843
Total investment securities				2,758		142,430		3,239		128,420
Mortgage-related securities:
		Fannie Mae pass through certificates		2,702		214,322		5,439		170,507
		GNMA pass through certificates		777		15,202		38		1,527
		Freddie Mac pass through certificates		9,367		597,051		2,253		89,675
		Collateralized mortgage obligation bonds		10,924		568,627		43,944		1,370,545
Total mortgage-related securities				23,770		1,395,202		51,674		1,632,254
Total securities available-for-sale			$	26,528	$	1,537,632	$	54,913	$	1,760,674

      The strategy for the securities portfolio is to maintain a short duration, thus minimizing exposure to sustained increases in interest rates. This is achieved through investments in securities with predictable cash flows and short average lives, and the purchase of certain adjustable-rate instruments.

      Mortgage-backed securities (“MBS”) are primarily securities with planned amortization class structures. These instruments provide a relatively stable source of cash flows, although they may be impacted by changes in interest rates. Such MBS securities are either guaranteed by Freddie Mac, GNMA or Fannie Mae, or represent collateralized mortgage-backed obligations (“CMOs”) backed by government agency securities or private issuances securities. These CMOs, by virtue of the underlying collateral or structure, are principally AAA rated and are current pay sequentials or planned amortization class structures.

      Equity securities were comprised principally of common and preferred stock of certain publicly traded companies. Other securities maintained in the portfolio consist of corporate bonds and U.S. Government and agencies.

      Prior to December 31, 2004, the Company held as part of its available-for-sale portfolio $72.5 million of investment grade Fannie Mae preferred equity securities, predominately bearing fixed-rates, with aggregate

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unrealized losses of $12.7 million ($8.3 million after-tax) as of December 31, 2004. Such unrealized losses were treated as a reduction of other comprehensive income and thus, a reduction to equity. Based on the Company’s 2004 assessment of investment impairment analysis, which considered the events at Fannie Mae, the Company recorded these previously unrealized losses as an other-than-temporary impairment as of December 31, 2004. Consequently, the aggregate amortized cost of these securities were reduced by $12.7 million and a corresponding other-than-temporary impairment charge to net loss on securities was recognized during 2004.

      At December 31, 2005, securities with a fair value of $2.96 billion were pledged to secure securities sold under agreements to repurchase, other borrowings and for other purposes required by law.

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

	Year Ended December 31,
(In Thousands)	2005		2004		2003
Proceeds from sales	$	484,076	$	317,756	$	48,886
Gross gains		6,637		6,242		476
Gross losses		—		2,321		—

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

	December 31, 2005
	Amortized		Estimated
(In Thousands)	Cost		Fair Value
One year or less	$	12,895	$	12,780
One year through five years		38,749		38,373
Five years through ten years		124,875		122,867
Over ten years		150,699		149,244
	$	327,218	$	323,264

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

	December 31, 2005
	Amortized		Estimated
(In Thousands)	Cost		Fair Value
One year or less	$	119,297	$	118,353
One year through five years		2,646,822		2,583,982
Five years through ten years		393,767		384,725
Over ten years		69,512		68,529
	$	3,229,398	$	3,155,589

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5.     Loans Available-for-Sale and Loan Servicing Assets

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

		December 31,
(In Thousands)		2005		2004
Loans available-for-sale:
	Single-family residential	$	4,172	$	74,121
	Multi-family residential		17,900		22,550
Total loans available-for-sale		$	22,072	$	96,671

Fannie Mae Loan Sale Program

      The Company originates and sells multi-family residential mortgage loans in the secondary market to Fannie Mae while retaining servicing. The Company underwrites these loans using its customary underwriting standards, funds the loans, and sells the loans to Fannie Mae pursuant to forward sales agreements previously entered into at agreed upon pricing thereby eliminating rate and basis exposure to the Company. The Company can originate and sell loans to Fannie Mae for not more than $20.0 million per loan. During the year ended December 31, 2005, the Company originated for sale $1.18 billion and sold $1.57 billion of fixed-rate multi-family loans, including $377.9 million of loans held in portfolio, in the secondary market to Fannie Mae with servicing retained by the Company. Under the terms of the sales program, the Company retains a portion of the associated credit risk. The Company has a 100% first loss position on each multi-family residential loan sold to Fannie Mae under such program until the earlier of (i) the aggregate losses on the multi-family residential loans sold to Fannie Mae reaching the maximum loss exposure for the portfolio as a whole (as discussed below) or (ii) until all of the loans sold to Fannie Mae under this program are fully paid off. The maximum loss exposure is available to satisfy any losses on loans sold in the program subject to the foregoing limitations. At December 31, 2005, the Company serviced $6.27 billion of loans sold to Fannie Mae pursuant to this program with a maximum potential loss exposure of $186.7 million or approximately 3% of the outstanding balance.

      The maximum loss exposure of the associated credit risk related to the loans sold to Fannie Mae under this program is calculated pursuant to a review of each loan sold to Fannie Mae. A risk level is assigned to each such loan based upon the loan product, debt service coverage ratio and loan to value ratio of the loan. Each risk level has a corresponding sizing factor which, when applied to the original principal balance of the loan sold, equates to a recourse balance for the loan. The sizing factors are periodically reviewed by Fannie Mae based upon its ongoing review of loan performance and are subject to adjustment. The recourse balances for each of the loans are aggregated to create a maximum loss exposure for the entire portfolio at any given point in time. The Company’s maximum loss exposure for the entire portfolio of sold loans is periodically reviewed and, based upon factors such as amount, size, types of loans and loan performance, may be adjusted downward. Fannie Mae is restricted from increasing the maximum exposure on loans previously sold to it under this program as long as (i) the total borrower concentration (i.e., the total amount of loans extended to a particular borrower or a group of related borrowers) as applied to all mortgage loans delivered to Fannie Mae since the sales program began does not exceed 10% of the aggregate loans sold to Fannie Mae under the program and (ii) the average principal balance per loan of all mortgage loans delivered to Fannie Mae since the sales program began continues to be $4.0 million or less.

      Although all of the loans serviced for Fannie Mae (both loans originated for sale and loans sold from portfolio) are currently fully performing, the Company has established a liability related to the fair value of the retained credit exposure. This liability represents the amount that the Company estimates that it would have

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to pay a third party to assume the retained recourse obligation. The estimated liability represents the present value of the estimated losses that the portfolio is projected to incur based upon an industry-based default curve with a range of estimated losses. At December 31, 2005 the Company had a $9.4 million liability related to the fair value of the retained credit exposure for loans sold to Fannie Mae.

      SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS No. 140”) requires a “true sale” analysis of the treatment of the transfer of assets under state law as if the Company was a debtor under the bankruptcy code. A “true sale” legal analysis includes several legally relevant factors, such as the nature and level of recourse to the transferor and the nature of retained servicing rights. The analytical conclusion as to a true sale is never absolute and unconditional, but contains qualifications based on the inherent equitable powers of a bankruptcy court, as well as the unsettled state of the common law. Once the legal isolation test has been met under SFAS No. 140, other factors concerning the nature and extent of the transferor’s control over the transferred assets are taken into account in order to determine whether derecognition of assets is warranted.

      A legal opinion regarding legal isolation for the transfer of loans to Fannie Mae has been obtained by the Bank. The “true sale” opinion provides reasonable assurance the transferred loans would not be characterized as the property of the transferring bank’s receivership or conservatorship estate in the event of insolvency.

      As a result of retaining servicing on $6.31 billion of multi-family loans sold to Fannie Mae, which include both loans originated for sale and loans sold from portfolio, the Company had a $9.5 million servicing asset at December 31, 2005.

      At December 31, 2005, the Company also had a $4.4 million loan servicing asset related to $493.4 million of single-family loans that were sold in the secondary market with servicing retained as a result of the SIB transaction.

      At December 31, 2005, 2004 and 2003, the Company was servicing loans on behalf of others, which are not included in the consolidated financial statements, of $7.36 billion, $6.12 billion and $3.65 billion, respectively. The right to service loans for others is generally obtained by the sale of loans with servicing retained.

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

		Year Ended December 31,
(In Thousands)		2005			2004			2003
Balance at beginning of period		$	18,100		$	7,772		$	6,445
	Loan servicing asset of acquired institution		—			7,687			—
	Capitalized servicing asset		4,070			13,555			7,307
	Reduction of servicing asset		(8,280	)		(10,914	)		(5,980	)
Balance at end of period		$	13,890		$	18,100		$	7,772

Fannie Mae DUS Program

      During the third quarter of 2003, the Company announced that ICM Capital, L.L.C. (“ICM Capital”), a subsidiary of the Bank, was approved as a Delegated Underwriting and Servicing (“DUS”) mortgage lender by Fannie Mae. Under the Fannie Mae DUS program, ICM Capital will underwrite, fund and sell mortgages on multi-family residential properties to Fannie Mae, with servicing retained. Participation in the DUS program requires ICM Capital to share the risk of loan losses with Fannie Mae with one-third of all losses assumed by ICM Capital with the remaining two-thirds of all losses being assumed by Fannie Mae. There

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have been no loans originated under this DUS program since inception. ICM Capital did not effect the Company’s statement of condition or results of operations for the year ended December 31, 2005.

      The Bank has a two-thirds ownership interest in ICM Capital and Meridian Company, LLC (“Meridian Company”), a Delaware limited liability company, has a one-third ownership interesting ICM Capital. ICM Capital’s loan originations are expected primarily to result from referrals by Meridian Capital Group, LLC (“Meridian Capital”). Meridian Capital is 65% owned by Meridian Capital Funding, Inc. (“Meridian Funding”), a New York-based mortgage brokerage firm, with the remaining 35% minority equity investment held by the Company. Meridian Funding and Meridian Company have the same principal owners (see Note 21).

Single-Family Loan Sale Program

      The $69.9 million decrease in single-family residential loans available-for-sale from $74.1 million at December 31, 2004 to $4.2 million at December 31, 2005 was primarily the result of a decrease in the amount of loans which were acquired in the SIB transaction classified as available-for-sale. The Company determined to wind down the remaining operations of Staten Island Mortgage Corp., the mortgage-banking subsidiary of SIB (most of the operations were sold in connection with the acquisition of SIB). During 2005, $14.1 million of such loans were sold in the secondary market with the remaining loans transferred to the Company’s single-family residential mortgage portfolio.

      Over the past several years, the Company has de-emphasized the origination for portfolio of single-family residential mortgage loans in favor of higher yielding loan products. In November 2001, the Company entered into a private label program for the origination of single-family residential mortgage loans through its branch network under a mortgage origination assistance agreement with PHH Mortgage. Under this program, the Company utilizes PHH Mortgage’s mortgage loan origination platforms (including telephone and Internet platforms) to originate loans that close in the Company’s name. The Company funds the loans directly, and, under a separate loan and servicing rights purchase and sale agreement, sells the loans and related servicing to PHH Mortgage on a non-recourse basis at agreed upon pricing. During the year ended December 31, 2005, the Company originated for sale $83.3 million and sold $81.7 million of single-family residential mortgage loans through the program. At December 31, 2005, the Company held $4.2 million of loans available-for-sale under this program.

Mortgage-Banking Activity

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

	Year Ended December 31,
(In Thousands)	2005			2004			2003
Origination fees	$	1,808		$	2,105		$	9,046
Servicing fees		10,212			8,724			3,609
Gain on sales		16,366			29,362			18,396
Change in fair value of loan commitments		249			(4,749	)		3,261
Change in fair value of forward loan sale agreements		(249	)		4,749			(3,261	)
Amortization of loan servicing asset		(8,280	)		(10,578	)		(5,644	)
Total mortgage-banking activity income	$	20,106		$	29,613		$	25,407

      Mortgage loan commitments to borrowers related to loans originated for sale are considered a derivative instrument under SFAS No. 149. In addition, forward loan sale agreements with Fannie Mae and PHH Mortgage also meet the definition of a derivative instrument under SFAS No. 133 (see Note 19).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6.     Loans Receivable, Net

      Loans are summarized as follows:

		December 31,
(In Thousands)		2005		2004
Mortgage loans:
	Single-family residential and cooperative apartment	$	1,932,516	$	2,490,062
	Multi-family residential		4,743,308		3,800,649
	Commercial real estate		3,687,226		3,034,254
Total principal balance – mortgage loans			10,363,050		9,324,965
Less net deferred fees			10,753		9,875
Total mortgage loans			10,352,297		9,315,090
Commercial business loans, net of deferred fees			977,022		809,392
Other loans:
	Mortgage warehouse lines of credit		453,541		659,942
	Home equity loans and lines of credit		481,597		416,351
	Consumer and other loans		35,913		47,817
Total other loans			971,051		1,124,110
Total loans receivable			12,300,370		11,248,592
Less allowance for loan losses			101,467		101,435
Loans receivable, net		$	12,198,903	$	11,147,157

      The loan portfolio is concentrated primarily in loans secured by real estate located in the New York metropolitan area. The real estate loan portfolio is diversified in terms of risk and repayment sources. The underlying collateral consists of multi-family residential apartment buildings, single-family residential properties and owner occupied/non-owner occupied commercial properties. The risks inherent in these portfolios are dependent not only upon regional and general economic stability, which affects property values, but also the financial condition and creditworthiness of the borrowers.

      To minimize the risk inherent in the real estate portfolio, the Company utilizes standard underwriting procedures and diversifies the type and geographic locations of loan collateral. Multi-family residential mortgage loans generally range in size from $0.5 million to $25.0 million and include loans on various types and geographically diverse apartment complexes located primarily in the New York City metropolitan area. Multi-family residential mortgages are dependent largely on sufficient rental income to cover operating expenses and may be affected by government regulation, such as rent control regulations, which could impact the future cash flows of the property. Most multi-family loans do not fully amortize; therefore, the principal balance outstanding is not significantly reduced prior to contractual maturity. The residential mortgage portfolio is comprised primarily of first mortgage loans on owner occupied one-to-four family residences located in the Company’s primary market area. The commercial real estate portfolio contains loans secured by commercial and industrial properties, professional office buildings and small shopping centers. Commercial business loans consist primarily of loans to small-and medium-sized businesses and are generally secured by real estate, receivables, inventory, equipment and machinery and are often further enhanced by the personal guarantees of the principals of the borrower. The commercial real estate and commercial business loan portfolios do not contain any shared national credit loans. Mortgage warehouse lines of credit are revolving lines of credit to small-and medium-sized mortgage-banking companies. The lines are drawn to fund the origination of mortgages, primarily one-to-four family loans. Consumer loans consist primarily of home equity

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

loans and lines of credit which are secured by the underlying equity in the borrower’s primary or secondary residence.

      Real estate underwriting standards include various limits on the loan-to-value ratios based on the type of property, and the Company considers among other things, the creditworthiness of the borrower, the location of the real estate, the condition and value of the security property, the quality of the organization managing the property and the viability of the project including occupancy rates, tenants and lease terms. Additionally, the underwriting standards require appraisals and periodic inspections of the properties as well as ongoing monitoring of operating results.

      In 2003, the Company expanded its commercial real estate lending activities to the Baltimore-Washington and the Boca Raton, Florida markets. During the third quarter of 2004, the Company continued the expansion of its commercial real estate lending activities to the Chicago market. The Company expects the loans in these areas to be referred primarily by Meridian Capital, which already has an established presence in these market areas.

      The following table sets forth loan originations regarding the Company’s loan expansion program for the period indicated as follows:

		Year Ended December 31, 2005
		Baltimore-
		Washington		Florida		Chicago
(Dollars in Thousands)		Market Area		Market Area		Market Area
Originations for portfolio:
	Multi-family residential	$	196,747	$	186,444	$	38,910
	Commercial real estate		38,764		78,860		3,769
Originations for sale:
	Multi-family residential		248,355		262,365		11,910
	Total originations	$	483,866	$	527,669	$	54,589

      The following table sets forth loan originations regarding the Company’s loan expansion program for the period indicated as follows:

		Year Ended December 31, 2004
		Baltimore-
		Washington		Florida		Chicago
(Dollars in Thousands)		Market Area		Market Area		Market Area
Originations for portfolio:
	Multi-family residential	$	126,696	$	88,748	$	—
	Commercial real estate		66,965		113,223		—
Originations for sale:
	Multi-family residential		140,860		82,861		—
	Total originations	$	334,521	$	284,832	$	—

      The Company reviews its expansion program periodically and establishes and adjusts its targets based on market acceptance, credit performance, profitability and other relevant factors.

107

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following tables set forth information regarding total loans outstanding (excluding loans held for sale) secured by properties located in the Company’s loan expansion market areas as follows:

		Year Ended December 31, 2005
		Baltimore-
		Washington		Florida		Chicago
(Dollars in Thousands)		Market Area		Market Area		Market Area
Mortgage warehouse lines of credit		$	154,194	$	—	$	—
Multi-family residential			335,589		278,181		38,732
Commercial real estate			109,208		209,693		3,769
Commercial business loans			5,412		536		—
	Total loans outstanding	$	604,403	$	488,410	$	42,501

		Year Ended December 31, 2004
		Baltimore-
		Washington		Florida		Chicago
(Dollars in Thousands)		Market Area		Market Area		Market Area
Mortgage warehouse lines of credit		$	84,000	$	—	$	—
Multi-family residential			171,351		107,539		—
Commercial real estate			72,698		117,695		—
Commercial business loans			949		18,171		—
	Total loans outstanding	$	328,998	$	243,405	$	—

      Non-performing loans consist of (i) non-accrual loans and (ii) accruing loans 90 days or more past due as to interest or principal. At December 31, 2005, 2004 and 2003, included in mortgage loans on real estate were $20.6 million, $26.5 million and $23.5 million, respectively, of non-performing loans. If interest on the non-accrual mortgage loans had been accrued, such income would have approximated $0.7 million, $1.0 million and $0.6 million for the years ended December 31, 2005 and 2004 and 2003, respectively.

      At December 31, 2005, 2004 and 2003, included in commercial business and other loans were $16.5 million, $22.8 million and $13.1 million, respectively, of non-performing loans. If interest on the non-accrual commercial business and other loans had been accrued, such income would have approximated $0.5 million, $0.8 million and $0.5 million for the years ended December 31, 2005, 2004 and 2003, respectively.

      The Company considers a loan impaired when, based upon current information and events, it is probable that it will be unable to collect all amounts due for both principal and interest, according to the contractual terms of the loan agreement. The Company’s evaluation of impaired loans includes a review of non-accrual commercial business, commercial real estate, mortgage warehouse lines of credit and multi-family residential loans as well as a review of other performing loans that may meet the definition of loan impairment. As permitted, all homogenous smaller balance consumer and residential mortgage loans are excluded from individual review for impairment.

108

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table summarizes information regarding impaired loans:

	December 31,
(In Thousands)	2005		2004
Impaired loans with associated allowance	$	11,039	$	10,200
Impaired loans without associated allowance		10,246		17,593
Total impaired loans	$	21,285	$	27,793
Allowance for credit losses for impaired loans	$	1,065	$	990

      Impaired loans averaged approximately $24.5 million, $29.1 million and $35.2 million during the years ended December 31, 2005, 2004 and 2003, respectively. Interest income on impaired loans is recognized on a cash basis. Interest income recorded on impaired loans was $1.0 million, $0.9 million and $0.8 million during the years ended December 31, 2005, 2004 and 2003, respectively. All of the impaired loans at December 31, 2005 were considered non-performing.

7.     Allowance for Loan Losses

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

	Year Ended December 31,
(In Thousands)	2005		2004			2003
Allowance at beginning of period	$	101,435	$	79,503		$	80,547
Allowance of acquired institution		—		24,069			—
Provision charged to operations		—		2,000			3,500
Net recoveries (charge-offs)		32		(4,137	)		(4,544	)
Allowance at end of period	$	101,467	$	101,435		$	79,503

      The Company’s loan portfolio is primarily comprised of secured loans made to individuals and businesses located in the New York City metropolitan area. However, as a result of the Company’s expansion of its commercial real estate lending activities, the Company also has exposure to the Baltimore-Washington, Florida and Chicago markets. (See Note 6).

8.     Premises, Furniture and Equipment

      A summary of premises, furniture and equipment is as follows:

	December 31,
(In Thousands)	2005		2004
Land	$	15,157	$	14,164
Buildings and improvements		102,629		108,697
Leasehold improvements		58,063		43,840
Furniture and equipment		74,819		60,890
		250,668		227,591
Less accumulated depreciation and amortization		85,029		64,904
Total premises, furniture and equipment	$	165,639	$	162,687

      Depreciation and amortization expense amounted to $20.7 million, $17.5 million and $11.6 million for the years ended December 31, 2005, 2004 and 2003, respectively.

109

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9.     Goodwill and Identifiable Intangible Assets

      Effective April 1, 2001, the Company adopted SFAS No. 142, which resulted in discontinuing the amortization of goodwill. Under SFAS No. 142, goodwill is instead carried at its book value as of April 1, 2001 and any future impairment of goodwill will be recognized as non-interest expense in the period of impairment. However, under SFAS No. 142, identifiable intangible assets (such as core deposit premiums) with identifiable lives will continue to be amortized.

      The Company’s goodwill was $1.19 billion and $1.16 billion at December 31, 2005 and 2004, respectively. The $30.0 million increase in goodwill during the year ended December 31, 2005 was a result of finalizing certain tax and accounting positions related to the SIB transaction which became effective on the close of business on April 12, 2004. (See Note 2).

      The Company did not recognize an impairment loss as a result of its most recent annual impairment test effective October 1, 2005. In accordance with SFAS No. 142, the Company tests the value of its goodwill at least annually.

      The Company’s identifiable intangible assets were $67.7 million and $79.1 million at December 31, 2005 and 2004, respectively. The $11.4 million decrease was a result of the amortization of the $87.1 million core deposit intangible recognized as a result of the SIB transaction. Core deposit intangibles currently held by the Company are being amortized using the interest method over fourteen years.

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

At December 31, 2005

At December 31, 2004

Gross

Net

Gross

Net

Carrying

Accumulated

Carrying

Carrying

Accumulated

Carrying

(In Thousands)

Amount

Amortization

Amount

Amount

Amortization

Amount

Amortized intangible assets:

Deposit intangibles

$

87,133

$

19,457

$

67,676

$

91,129

$

12,073

$

79,056

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

(In Thousands)	Amount
2006	$	10,496
2007		9,612
2008		8,728
2009		7,844
2010		6,960
2011 and thereafter		24,036

      Amortization expense related to identifiable intangible assets was $11.4 million, $8.3 million and $1.9 million for the years ended December 31, 2005, 2004 and 2003, respectively.

110

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10.     Other Assets

      A summary of other assets is as follows:

	December 31,
(In Thousands)	2005		2004
FHLB stock	$	167,294	$	197,900
Net deferred tax asset		73,873		78,844
Loan servicing assets		13,890		18,100
Equity investment in mortgage brokerage firm		27,531		29,183
Prepaid expenses		25,327		24,234
Other real estate		1,279		2,512
Accounts receivable		45,134		62,124
Other		26,170		19,298
Total other assets	$	380,498	$	432,195

      The Bank is a member of the Federal Home Loan Bank (“FHLB”) of New York, and owns FHLB stock with a carrying value of $167.3 million and $197.9 million at December 31, 2005 and 2004, respectively. As a member, the Bank is able to borrow on a secured basis up to twenty times the amount of its capital stock investment at either fixed or variable interest rates for terms ranging from overnight to fifteen years (see Note 12). The borrowings are limited to 30% of total assets except for borrowings to fund deposit outflows.

      In furtherance of its business strategy regarding commercial real estate and multi-family loan originations and sales, the Company has a 35% minority equity investment in Meridian Capital, which is 65% owned by Meridian Funding, a New York-based mortgage brokerage firm primarily engaged in the origination of commercial real estate and multi-family residential mortgage loans.

      Prepaid expenses include $16.7 million of prepaid pension costs at December 31, 2005. Accounts receivable includes $32.6 million of advanced real estate taxes and $2.6 million of federal and state estimated tax refunds at December 31, 2005.

11.     Deposits

      The amounts due to depositors and the weighted average interest rates at December 31, 2005 and December 31, 2004 are as follows:

		December 31,
		2005					2004
				Weighted					Weighted
		Deposit		Average			Deposit		Average
(Dollars in Thousands)		Liability		Rate			Liability		Rate
Savings		$	2,143,172		0.29	%	$	2,630,416		0.38	%
Money market			561,359		1.04			752,310		1.59
Active management accounts			310,557		1.46			948,977		1.43
Interest-bearing demand			2,622,115		2.64			1,214,190		1.35
Non-interest-bearing demand			1,592,486		—			1,487,756		—
	Total core deposits		7,229,689		1.58			7,033,649		0.93
Certificates of deposit			3,715,594		3.32			2,271,415		2.58
	Total deposits	$	10,945,283		1.91		$	9,305,064		1.19

111

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Scheduled maturities of certificates of deposit are as follows:

	December 31,
(In Thousands)	2005		2004
One year	$	2,420,594	$	1,214,030
Two years		806,117		200,539
Three years		123,520		473,550
Four years		268,115		100,859
Thereafter		97,248		282,437
	$	3,715,594	$	2,271,415

      Certificate of deposit accounts in denominations of $100,000 or more totaled approximately $1.75 billion and $745.3 million at December 31, 2005 and December 31, 2004, respectively.

      The aggregate amount of overdrawn deposit balances reclassified as loans was $16.0 million and $23.2 million as of December 31, 2005 and 2004, respectively.

12.     Borrowings

      A summary of borrowings is as follows:

	December 31,
(In Thousands)	2005		2004
FHLB advances and overnight borrowings	$	2,043,000	$	2,588,938
Repurchase agreements		2,913,729		2,923,034
Total borrowings	$	4,956,729	$	5,511,972

FHLB-NY Advances and Overnight Borrowings

      The following is a summary of advances from the FHLB (including overnight borrowings) which are made at fixed rates with remaining maturities between less than one year and ten years:

	At or for the Year Ended
	December 31,
(Dollars In Thousands)	2005			2004
Balance outstanding at end of year	$	2,043,000		$	2,558,938
Maximum amount outstanding at any month end during the year		2,408,000			3,048,000
Average outstanding balance during the year		1,964,275			2,404,148
Weighted average interest rate paid		2.71	%		2.23	%
Weighted average interest rate at year end		4.19	%		3.72	%

      Advances from the FHLB are collateralized by FHLB stock owned by the Bank in addition to a blanket pledge of eligible assets in an amount required to be maintained so that the estimated fair value of such eligible assets exceeds, at all times, 110% of the outstanding advances (see Note 10). At December 31, 2005, the Company had the ability to borrow from the FHLB an additional $2.40 billion on a secured basis, utilizing mortgage-related loans and securities as collateral.

112

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Advances from the FHLB (including overnight borrowings) at December 31, 2005 have contractual maturities as follows:

(In Thousands)	Amount
Year ended December 31:
2006	$	1,020,000
2007		140,000
2008		78,000
2009		35,000
2010		55,000
Thereafter(1)		715,000
	$	2,043,000

(1)  Although the contractual maturities of these borrowings are between five and ten years, the FHLB has the right to call these advances beginning in the third year after the advance was made. Such advances callable by the FHLB total $570.0 million in 2006 and $100.0 million in 2007.

Repurchase Agreements

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

      The following is a summary of repurchase agreements that are made at either fixed or variable rates with remaining maturities ranging from less than one year up to ten years:

	At or for the Year Ended
	December 31,
(Dollars In Thousands)	2005			2004
Balance outstanding at end of year	$	2,913,729		$	2,923,034
Maximum amount outstanding at any month end during the year		3,109,179			2,953,972
Average outstanding balance during the year		2,894,288			2,333,877
Weighted average interest rate paid		3.58	%		3.22	%
Weighted average interest rate at year end		4.09	%		3.75	%

113

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Repurchase agreements at December 31, 2005 have contractual maturities as follows:

(In Thousands)	Amount
Year ended December 31:
2006	$	295,711
2007		850,000
2008		977,018
2009		65,000
2010		526,000
Thereafter		200,000
	$	2,913,729

13.     Subordinated Notes

      The Company’s subordinated notes totaled $397.3 million at December 31, 2005 compared to $396.3 million at December 31, 2004. The $1.0 million increase was due to amortization of deferred issuance costs.

      On March 22, 2004, the Bank issued $250.0 million aggregate principal amount of 3.75% Fixed Rate/ Floating Rate Subordinated Notes Due 2014 (“2004 Notes”). The 2004 Notes bear interest at a fixed rate of 3.75% per annum for the first five years, and convert to a floating rate thereafter until maturity based on the US Dollar three-month LIBOR plus 1.82%. Beginning on April 1, 2009 the Bank has the right to redeem the 2004 Notes at par plus accrued interest. The net proceeds of $247.4 million were used for general corporate purposes. The average balance of 2004 Notes was $247.8 million with an average cost of 4.04% during the year ended December 31, 2005 compared to an average balance of $192.6 million with an average cost of 4.01% for the year ended December 31, 2004. The 2004 Notes qualify as Tier 2 capital of the Bank under the capital guidelines of the FDIC.

      On June 20, 2003, the Bank issued $150.0 million aggregate principal amount of 3.5% Fixed Rate/ Floating Rate Subordinated Notes Due 2013 (“2003 Notes”). The 2003 Notes bear interest at a fixed rate of 3.5% per annum for the first five years, and convert to a floating rate thereafter until maturity based on the US Dollar three-month LIBOR plus 2.06%. Beginning on June 20, 2008 the Bank has the right to redeem the 2003 Notes at par plus accrued interest. The net proceeds of $148.4 million were used for general corporate purposes. The average balance of 2003 Notes was $149.0 million with an average cost of 3.76% during the year ended December 31, 2005 compared to an average balance of $148.6 million with an average cost of 3.74% during the year ended December 31, 2004. The 2003 Notes qualify as Tier 2 capital of the Bank under the capital guidelines of the FDIC.

14.     Senior Notes

      On September 23, 2005, the Company issued $250.0 million aggregate principal amount of 4.90% Fixed Rate Senior Notes Due 2010 (“Senior Notes”). The Company used $150.0 million of the $248.1 million net proceeds to make a capital contribution to Independence Community Bank to strengthen the Bank’s capital position. The remainder of the proceeds was used for general corporate purposes. The average balance of Senior Notes was $68.0 million with an average cost of 5.07% during the year ended December 31, 2005.

15.     Earnings Per Share

      EPS is computed by dividing net income by the weighted average number of common shares outstanding. Diluted EPS is computed using the same method as basic EPS, but reflects the potential dilution of common stock equivalents. Shares of common stock held by the ESOP that have not been allocated to participants’

114

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

accounts or are not committed to be released for allocation and unvested restricted stock awards from the Recognition Plan, the Stock Incentive Plan and the 2005 Stock Incentive Plan are not considered to be outstanding for the calculation of basic EPS. However, a portion of such shares is considered in the calculation of diluted EPS as common stock equivalents of basic EPS. Diluted EPS also reflects the potential dilution that would occur if stock options were exercised and converted into common stock. The dilutive effect of unexercised stock options is calculated using the treasury stock method.

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

		For the Year Ended December 31,
(In Thousands, Except Per Share Amounts)		2005		2004		2003
Numerator:
	Net income	$	213,472	$	212,172	$	136,970
Denominator:
	Weighted average number of common shares outstanding — basic		79,163		71,560		49,993
	Weighted average number of common stock equivalents (restricted stock and options)		2,387		3,057		2,650
	Weighted average number of common shares and common stock equivalents — diluted		81,550		74,617		52,643
Basic earning per share		$	2.70	$	2.96	$	2.74
Diluted earnings per share		$	2.62	$	2.84	$	2.60

      At December 31, 2005 and December 31, 2004, there were 826,234 and 4,565 shares, respectively, that could potentially dilute EPS in the future that were not included in the computation of diluted EPS because to do so would have been antidilutive. For additional disclosures regarding outstanding stock options and restricted stock awards, see Note 17.

16.     Benefit Plans

Pension Plan

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

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

      In connection with the SIB transaction on April 12, 2004, the Company acquired the SI Bank & Trust Retirement Plan (“Staten Island Plan”), a noncontributory defined benefit pension plan, which was frozen effective as of December 31, 1999. The Staten Island Plan was merged with the Pension Plan on September 30, 2005. The Company’s Pension Plan, the Supplemental Plan and the Staten Island Plan (collectively, the “Plan”) are presented on a consolidated basis (since April 12, 2004 for the Staten Island Plan) in the following disclosures.

115

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table sets forth the Plan’s aggregate change in the projected benefit obligation:

	Year Ended December 31,
(In Thousands)	2005			2004
Projected benefit obligation at beginning of year	$	77,674		$	49,831
Projected benefit obligation for Staten Island Plan at beginning of year		—			24,920
Service cost		1,476			1,479
Interest cost		4,751			4,633
Actuarial loss		8,890			603
Benefits paid		(3,907	)		(3,792	)
Projected benefit obligation at end of year	$	88,884		$	77,674

      The Company changed the Plan’s measurement date from January 1st, to December 1st, effective December 1, 2004. The following table sets forth the aggregate change in Plan assets using a December 1, 2005 measurement date for December 31, 2005 and a December 1, 2004 measurement date for December 31, 2004:

	December 31,
(In Thousands)	2005			2004
Fair value of Plan assets at beginning of year	$	77,671		$	50,644
Fair value of Staten Island Plan assets at beginning of year		—			25,311
Actual return on Plan assets		6,267			5,250
Employer contributions		1,784			258
Benefits paid		(3,907	)		(3,792	)
Fair value of Plan assets at end of year	$	81,815		$	77,671
Funded status	$	(7,069	)	$	(3	)
Amount contributed during the fourth quarter		24			24
Unrecognized net asset		—			(203	)
Unrecognized prior service cost		(2,360	)		(3,450	)
Unrecognized actuarial loss		21,331			12,577
Prepaid pension cost at December 31, 2005 and 2004	$	11,926		$	8,945

      At December 31, 2005, the accumulated benefit obligation for the Pension Plan and Supplemental Plan was $86.7 million compared to $75.9 million at December 31, 2004.

      The following table sets forth the amounts recognized in the Consolidated Statements of Financial Condition:

		At December 31,
(In Thousands)		2005			2004
Prepaid pension cost		$	16,652		$	13,717
Accrued pension cost			(4,726	)		(4,772	)
	Net prepaid pension cost	$	11,926		$	8,945

116

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Net pension (benefit) expense of the Plan included the following components:

	Year Ended December 31,
(In Thousands)	2005			2004			2003
Service cost-benefits earned during the period	$	1,476		$	1,479		$	1,420
Interest cost on projected benefit obligation		4,751			4,188			2,972
Expected return on Plan assets		(6,854	)		(5,598	)		(3,415	)
Amortization of net assets		(203	)		(203	)		(203	)
Amortization of prior service cost		(1,090	)		(1,090	)		(1,090	)
Recognized net actuarial loss		723			686			1,462
Net pension (benefit) expense for the years ended December 31, 2005, 2004 and 2003		(1,197	)		(538	)		1,146
Net adjustment		—			—			(37	)
Net pension (benefit) expense	$	(1,197	)	$	(538	)	$	1,109

Weighted Average Assumptions as of December 31:	2005		2004		2003
Discount rate		5.50%		6.25%		6.375%
Rate of compensation increase		3.00%		3.25%		3.50%
Expected long-term return on Plan assets		9.00%		9.00%		8.00%

      The Bank amended the Plan to adopt the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”). Effective January 1, 2002 EGTRRA increased the maximum compensation for pension plan purposes to $200,000, subject to periodic increases.

      Typically, the long-term rate of return on Plan assets assumption is set based on historical returns earned by equities and fixed income securities, adjusted to reflect expectations of future returns as applied to the Plan’s actual target allocation of asset classes. Equities and fixed income securities are assumed to earn real rates of return in the ranges of 5 to 9% and 2 to 6%, respectively. Additionally, the long-term inflation rate is projected to be 3.0%. When these overall return expectations are applied to the Plan’s target allocation, the result is an expected rate of return of 8% to 10%.

      The following table sets forth the weighted-average asset allocations and the target allocation for 2005, by asset category for the Pension Plan:

		Pension Plan
		Target
		Allocation			At December 31,
Asset Category:		2006			2005			2004
Equity investments			60.0	%		61.0	%		61.0	%
Fixed income investments			40.0			39.0			39.0
	Total		100.0	%		100.0	%		100.0	%

      The Company has a Benefits Committee, which is responsible for managing the investment process of the Pension Plan with regard to preserving principal while providing reasonable returns.

      The Investment Policy for the Pension Plan permits investments in mutual funds, other pooled asset portfolios and cash reserves. Investments are diversified among asset classes with the intent to minimize the risk of large losses to the Plan. The asset allocation represents a long-term perspective, and as such, rapid

117

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

unanticipated market shifts or changes in economic conditions may cause the asset mix to temporarily fall outside of the policy target range.

      The asset classes include equity investments (both domestic and non-U.S.), and fixed income investments (both domestic and non-U.S.) consisting of investment grade, high yield and emerging debt securities.

      The expected payment period of estimated future benefit payments, which reflect expected future services, are summarized as follows:

(In Thousands)		Amount
Year ended December 31:
	2006	$	3,847
	2007		4,067
	2008		4,317
	2009		4,516
	2010		4,657
	2011 — 2015		26,706

      The Company currently expects to contribute an aggregate of $0.3 million to the Plan for the year ended December 31, 2006.

Post-retirement Benefits

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

      In connection with the SIB transaction on April 12, 2004, the Company became the sponsor of the Post-retirement Welfare Plan of SI Bank & Trust covering certain active and retired participants. The active and retired participants from the SI Bank & Trust Post-retirement Welfare Plan were transferred into the Company’s post-retirement benefit plan.

      The Company changed the measurement date for its post-retirement benefit plan from January 1st, to December 1st, effective December 1, 2004. The Company used a December 1, 2005 measurement date for its post-retirement benefit obligation as of December 31, 2005 and a December 1, 2004 measurement date for the December 31, 2004 post-retirement benefit obligation.

118

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Status of the post-retirement benefit obligation is as follows:

	December 31,			December 31,
(In Thousands)	2005			2004
Benefit obligation at beginning of year	$	29,652		$	21,651
Benefit obligation for Staten Island Plan at beginning of year		—			7,262
Service cost		905			726
Interest cost		1,816			1,566
Actuarial gain		(2,756	)		(2,287	)
Benefits paid		(927	)		(1,021	)
Plan amendments		700			1,755
Benefit obligation at end of year	$	29,390		$	29,652
Funded status	$	(29,390	)	$	(29,652	)
Unrecognized transition obligation being recognized over 20 years		524			582
Unrecognized net loss due to past experience difference from assumptions made		3,770			6,798
Unrecognized past service liability		2,310			1,756
Accrued post-retirement benefit cost at December 31, 2005 and 2004	$	(22,786	)	$	(20,516	)

      The Plan amendment charge of $0.7 million during 2005 related to the former employees of SI Bank & Trust who were hired after January 1, 1999 and thus not eligible under the SI Bank & Trust Retiree Medical Plan Provisions. As a result of the amendment, such persons are now covered under the Company’s plan provisions. This amendment will be amortized over 12.83 years.

      The Plan amendment charge of $1.8 million during 2004 related to the change in coverage provisions for the participants from the SI Bank & Trust Post-retirement Welfare Plan who are now covered by the provisions in the Company’s plan. This amendment will be amortized over 12 years.

      Net post-retirement benefit cost, which included costs for SIB’s post-retirement benefit plan since April 12, 2004, included the following components:

	Year Ended December 31,
(In Thousands)	2005		2004		2003
Service cost-benefits earned during the period	$	906	$	726	$	523
Interest cost on accumulated post-retirement benefit obligation		1,816		1,566		1,197
Amortization of net obligation		58		58		58
Amortization of unrecognized loss		271		537		585
Unrecognized past service liability		146		—		—
Post-retirement benefit cost-plan years ended December 31, 2005, 2004 and 2003	$	3,197	$	2,887	$	2,363

      At December 31, 2005, 2004 and 2003, discount rates of 5.50%, 6.25% and 6.375%, respectively, were used.

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      The following table sets forth the amounts recognized in the Consolidated Statements of Financial Condition:

	At December 31,
(In Thousands)	2005		2004
Accrued post-retirement costs	$	22,786	$	20,516

      In May 2004, the FASB issued FSP FAS 106-2 related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 which provides for a federal subsidy equal to 28% of prescription drug claims for sponsors of retiree health care plans with drug benefits that are at least actuarially equivalent to those to be offered under Medicare Part D.

      The Company has determined that its drug benefits are at least actuarially equivalent to those under Medicare Part D. The expected subsidy reduced the Company’s benefit plan obligation by $3.6 million to $29.4 million at December 31, 2005 and also reduced the benefit cost by $0.6 million to $3.2 million for the year ended December 31, 2005.

      The expected payment period of estimated future benefit payments, which reflect expected future services, are summarized as follows:

(In Thousands)		Amount
Year ended December 31:
	2006	$	1,132
	2007		1,181
	2008		1,250
	2009		1,339
	2010		1,416
	2011 — 2015		8,486

      The Company currently expects to contribute $1.1 million to the post retirement health care plan for the year ended December 31, 2006.

      The following table sets forth the assumed health care cost trend rates:

	At December 31,
	2005			2004
Health care cost trend rate assumed for next year		9.50	%		10.00	%
Rate to which the cost trend rate is assumed to decline (the “ultimate trend rate”)		3.75	%		3.75	%
Year that the rate reaches the ultimate trend rate		2012			2011

      The health care cost trend rate assumption has a significant effect on the amounts reported. A 1.0% change in assumed health care cost trend rates would have the following effects:

(In Thousands)	1% Increase		1% Decrease
Effect in total service and interest cost	$	485	$	(385	)
Effect in post-retirement benefit obligation		4,122		(3,565	)

401(k) Plan

      The Company also sponsors an incentive savings plan (“401(k) Plan”) whereby eligible employees may make tax deferred contributions up to certain limits. The Company makes matching contributions up to the lesser of 6% of employee compensation, or $3,000. Beginning in fiscal 1999, the matching contribution for full-time employees was in the form of shares of Company common stock held in the ESOP while the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

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

Employee Stock Ownership Plan

      The Company established the ESOP for full-time employees in March 1998 in connection with the Conversion. To fund the purchase in the open market of 5,632,870 shares of the Company’s common stock, the ESOP borrowed funds from the Company. The collateral for the loan are the shares of common stock of the Company purchased by the ESOP. The loan to the ESOP is being repaid principally from the Bank’s contributions to the ESOP over a period of 20 years. Dividends paid by the Company on shares owned by the ESOP are also utilized to repay the debt. The Bank contributed $4.8 million, $5.4 million and $6.7 million to the ESOP during the years ended December 31, 2005, 2004 and 2003, respectively. Dividends paid on ESOP shares, which reduced the Bank’s contribution to the ESOP and were utilized to repay the ESOP loan, totaled $5.5 million, $5.0 million and $3.6 million for the years ended December 31, 2005, 2004 and 2003, respectively. The loan from the Company had an outstanding principal balance of $77.2 million and $80.7 million at December 31, 2005 and 2004, respectively. The interest expense paid on the loan was $6.8 million, $7.0 million and $7.3 million for the years ended December 31, 2005, 2004 and 2003, respectively.

      Shares held by the ESOP are held by an independent trustee for allocation among participants as the loan is repaid. The number of shares released annually is based upon the ratio that the current principal and interest payment bears to the original principal and interest payments to be made. ESOP participants become 100% vested in the ESOP after three years of service. Shares allocated are first used to satisfy the employer matching contribution for the 401(k) Plan with the remaining shares allocated to the ESOP participants based upon includable compensation in the year of allocation. Forfeitures from the 401(k) Plan match portions are used to reduce the employer 401(k) Plan match while forfeitures from shares allocated to the ESOP participants are allocated among the participants. There were 281,644 shares allocated in each of the years ended December 31, 2005, 2004 and 2003. At December 31, 2005 there were 1,789,937 shares allocated, 3,379,722 shares unallocated and 463,211 shares that had been distributed to participants in connection with their withdrawal from the ESOP. At December 31, 2005, the 3,379,722 unallocated shares had a fair value of $134.3 million.

      The Company recorded compensation expense of $8.9 million, $9.6 million and $7.8 million for the years ended December 31, 2005, 2004 and 2003, respectively, which was equal to the shares committed to be released by the ESOP multiplied by the average fair value of the common stock during the period in which such shares were deemed released.

      The Company will incur additional expense estimated to be approximately $60.8 million in 2006 upon completion of the pending acquisition of the Company pursuant to the terms of the Merger Agreement among the Company, Sovereign and Iceland Acquisition Corp., which is currently expected to close in the second quarter of 2006. Upon termination of the ESOP pursuant to a change in control (as defined in the ESOP), unallocated shares will be sold to the extent necessary to generate sufficient sales proceeds to be used to pay the remaining principal and interest owed on the outstanding loan. Upon payment in full of the loan, any remaining unallocated shares shall be released from the collateral requirements of the loan and shall be

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

credited to the accounts of affected participants as earnings in proportion to their respective nonsegregated account balances as of the termination date of the ESOP which will be the effective date of the Merger.

17. Stock Benefit Plans

Recognition Plan

      The Recognition Plan was implemented in September 1998, was approved by stockholders in September 1998, and may make restricted stock awards in an aggregate amount up to 2,816,435 shares (4% of the shares of common stock sold in the Conversion excluding shares contributed to the Foundation), except as set forth below. The objective of the Recognition Plan is to enable the Company to provide officers, key employees and non-employee directors of the Company with a proprietary interest in the Company as an incentive to contribute to its success. During the year ended March 31, 1999, the Recognition Plan purchased all 2,816,435 shares in open market transactions. The Recognition Plan provides that awards may be designated as performance share awards, subject to the achievement of performance goals, or non-performance share awards which are subject solely to time vesting requirements. Certain key executive officers have been granted performance-based shares. These shares become earned only if annually established corporate performance targets are achieved. On September 25, 1998, the Committee administering the Recognition Plan issued grants covering 2,188,517 shares of common stock of which 844,931 were deemed performance based. These awards were fully vested as of September 30, 2003. The Committee granted 3,250 awards under the Recognition Plan during the year ended December 31, 2005. The Committee granted non-performance-based share awards covering 52,407 shares and 123,522 shares during the years ended December 31, 2004 and 2003, respectively. In connection with obtaining shareholder approval of the 2005 Stock Incentive Plan in May 2005 (see below), the Company committed to not make any further grants pursuant to this plan. As a result, 8,886 shares which remained available for grant will not be able to be issued under the Recognition Plan.

      The stock awards granted generally vest on a straight-line basis over a three, four or five-year period beginning one year from the date of grant. However, certain stock awards granted during the year ended December 31, 2002 will fully vest on the fourth anniversary of the date of grant. Subject to certain exceptions, awards become 100% vested upon termination of employment due to death, disability or retirement. However, senior officers and non-employee directors of the Company who elect to retire, require the approval of the Board of Directors or the Committee administering the Recognition Plan to accelerate the vesting of these shares. The amounts also become 100% vested upon a change in control, as defined in the Recognition Plan, of the Company. The Merger will constitute a change in control for purposes of the Recognition Plan.

      Compensation expense is recognized over the vesting period at the fair market value of the common stock on the date of grant for non-performance share awards. The expense related to performance share awards is recognized over the vesting period at the fair market value on the measurement date(s). The Company recorded compensation expense of $7.4 million, $5.4 million and $8.8 million related to the restricted stock awards for the years ended December 31, 2005, 2004 and 2003, respectively. During the years ended December 31, 2005, 2004 and 2003, the Committee administering the Plan approved the accelerated vesting of awards covering 7,364, 7,143 and 6,176 shares due to the retirement of senior officers, resulting in the recognition of $0.1 million, $0.2 million and $0.1 million of compensation expense, respectively.

      The following table sets forth the activity of the Company’s restricted stock awards under the Recognition Plan, the Stock Incentive Plan and the 2005 Stock Incentive Plan during the periods indicated. See “2002

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock Incentive Plan” and “2005 Stock Incentive Plan” below for discussion of restricted stock awards granted pursuant to the terms of such plans.

	Year Ended December 31,
	2005					2004					2003
				Weighted					Weighted					Weighted
				Average					Average					Average
	Shares			Grant Value		Shares			Grant Value		Shares			Grant Value
Outstanding, beginning of year		441,425		$	30.4830		363,771		$	24.0877		747,205		$	16.5493
Granted		147,779			38.4865		183,379			38.9202		123,522			31.9458
Vested		(132,143	)		27.6372		(103,952	)		22.9653		(505,206	)		14.8673
Forfeited		(10,223	)		31.5760		(1,773	)		30.0554		(1,750	)		13.3125
Outstanding, end of year		446,838		$	34.1090		441,425		$	30.4830		363,771		$	24.0877

Stock Option Plans

      The Company accounts for stock-based compensation on awards granted prior to January 1, 2003 using the intrinsic value method. Since each option granted prior to January 1, 2003 had an exercise price equal to the fair market value of one share of the Company’s stock on the date of the grant, no compensation cost at date of grant has been recognized.

      Beginning in 2003, the Company commenced recognizing stock-based compensation expense on options granted in 2003 and in subsequent years in accordance with the fair value-based method of accounting described in SFAS No. 123. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model and is based on certain assumptions including dividend yield, stock volatility, the risk free rate of return, expected term and turnover rate. The risk free interest rate reflects the yield on the 6-year zero coupon U.S. Treasury. Expected volatility is based on historical volatility levels of the Company’s common stock from January 1, 1999 through grant date. Expected dividend yield is based on annualizing the quarterly dividend at the time of grant over the market price. The option term of each award granted is based on the Company’s historical experience of employees’ exercise behavior. The fair value of each option is expensed over its vesting period.

      During the years ended December 31, 2005, 2004 and 2003, there were 443,880, 548,540 and 235,750 options granted, respectively, and approximately $3.3 million, $1.7 million and $153,000 in compensation expense recognized under this statement.

      In December 2004 SFAS No, 123(R) was issued and requires all share-based awards vesting, granted, modified or settled during fiscal years beginning after June 15, 2005 be accounted for using the fair value based method of accounting. Although the Company has expensed options granted subsequent to January 1, 2003, the Company will incur additional expense of approximately $1.2 million in 2006 related to the unvested portion of options outstanding at January 1, 2006 that were granted prior to January 1, 2003.

      The Company currently uses the nominal vesting period approach for retirement eligible employees. Using this approach, compensation cost for share-based awards granted subsequent to January 1, 2003 was recognized over the stated vesting period for retirement eligible employees and, if an employee retired before the end of the vesting period, any remaining unrecognized compensation cost was recognized at the date of retirement. As of January 1, 2006, the Company will change its approach for recognizing compensation expense for new share-based awards granted to retirement eligible employees. SFAS No. 123(R) requires the use of the non-substantive vesting period approach to recognize compensation cost for retirement eligible employees over the period from the date of grant to the date retirement eligibility is achieved or one year of service (whichever is greater), if that is expected to occur during the nominal vesting period. Had the

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Company applied the non-substantive vesting period approach to awards granted prior to 2006, compensation expense would have been $1.5 million, $1.7 million and $0.1 million higher for the years ended December 31, 2005, 2004 and 2003, respectively.

      The Company will also incur additional expense during 2006 of approximately $7.3 million with respect to unvested stock awards which will vest upon the completion of the pending acquisition of the Company pursuant to the terms of the Merger Agreement among the Company, Sovereign and Iceland Acquisition Corp. which is currently expected to close in the second quarter of 2006. (See Note 2).

1998 Stock Option Plan

      The 1998 Stock Option Plan (the “Option Plan”) was implemented in September 1998 and was approved by stockholders in September 1998. The Option Plan may grant options covering shares aggregating in total 7,041,088 shares (10% of the shares of common stock sold in the Conversion excluding the shares contributed to the Foundation), except as discussed below. Under the Option Plan, stock options (which expire ten years from the date of grant) have been granted to officers, key employees and non-employee directors of the Company. The option exercise price per share was the fair market value of the common stock on the date of grant. Each stock option or portion thereof is exercisable at any time on or after such option vests and is generally exercisable until the earlier to occur of ten years after its date of grant or six months after the date on which the optionee’s employment terminates (three years after termination of service in the case of non-employee directors), unless extended by the Board of Directors to a period not to exceed five years from the date of such termination. Subject to certain exceptions, options become 100% exercisable upon termination of employment due to death, disability or retirement. However, senior officers and non-employee directors of the Company who elect to retire, require the approval of the Board of Directors or the Committee administering the Option Plan to accelerate the vesting of options. Options become 100% vested upon a change in control, as defined in the Option Plan, of the Company.

      On September 25, 1998, the Board of Directors issued options covering 6,103,008 shares of common stock vesting over a five-year period at a rate of 20% per year, beginning one year from date of grant. These options were fully vested as of September 30, 2003. During the years ended December 31, 2005, 2004 and 2003 the Board of Directors granted options covering 6,750, 5,000 and 220,750 shares, respectively. During the years ended December 31, 2004 and 2003, the Committee administering the Option Plan approved the accelerated vesting of 21,700 and 30,000 options due to the retirement of senior officers, resulting in $0.2 million and $0.2 million of compensation expense, respectively. At December 31, 2005, there were options covering 3,144,650 shares outstanding pursuant to the Option Plan. In connection with obtaining shareholder approval of the 2005 Stock Incentive Plan (see below), the Company committed to not make any further grants pursuant to this Plan. As a result, 20,700 options which remained available for grant under the Option Plan will not be issued.

2002 Stock Incentive Plan

      The Stock Incentive Plan was approved by stockholders at the May 23, 2002 annual meeting. The Stock Incentive Plan may grant options covering shares aggregating an amount equal to 2,800,000 shares, except as discussed below. The Stock Incentive Plan also provides for the ability to issue restricted stock awards which cannot exceed 560,000 shares and which are part of the 2,800,000 shares. Options awarded to date under the Stock Incentive Plan generally vest over a four-year period at a rate of 25% per year and expire ten years from the date of grant. Restricted stock awards granted to date generally vest on a pro rata basis over a three, four or five-year period with the first vesting occurring on the first anniversary of date of grant. However, certain awards made during 2004 and 2005 will vest in full on the third anniversary of the date of grant. The Board of Directors granted options covering 402,630, 543,540 and 15,000 shares during the years ended December 31, 2005, 2004 and 2003, respectively. The Board of Directors granted restricted share awards totaling 133,529, of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

which 72,546 were performance-based awards, during the year ended December 31, 2005. The Board of Directors granted restricted share awards totaling 130,972, of which 67,797 were performance-based awards, during the year ended December 31, 2004. During the year ended December 31, 2005, the Committee administering the Plan approved the accelerated vesting of 15,925 options due to the retirement of a senior officer, resulting in $0.1 million of compensation expense. At December 31, 2005, there were 1,582,454 options and 238,077 restricted share awards outstanding related to the Stock Incentive Plan. In connection with obtaining shareholder approval of the 2005 Stock Incentive Plan (see below) in May 2005, the Company committed to not make any further grants pursuant to this Plan. As a result, options and restricted stock awards covering an aggregate of 841,033 shares which were available for grant will not be issued. The activity for such restricted share awards is reflected in the table under “Stock Benefit Plans - Recognition Plan”.

2005 Stock Incentive Plan

      The 2005 Stock Incentive Plan was approved by stockholders at the May 26, 2005 annual meeting. The 2005 Stock Incentive Plan may grant options covering shares aggregating an amount equal to 4,200,000 shares. The 2005 Stock Incentive Plan also provides for the ability to issue restricted stock awards which cannot exceed 1,260,000 shares and which are part of the 4,200,000 shares. The Board of Directors granted restricted stock awards totaling 11,000 shares and 34,500 options during the year ended December 31, 2005. Options awarded to date under the 2005 Stock Incentive Plan generally vest on a pro rata basis over a two, three or four-year period and expire ten years from the date of grant. Restricted stock awards granted to date generally vest on a pro rata basis over a two or three-year period with the first vesting occurring on the first anniversary of date of grant. However, certain awards made during 2005 will vest in full on the third anniversary of the date of grant. At December 31, 2005, there were 11,000 restricted share awards and 34,500 options outstanding related to the 2005 Stock Incentive Plan.

Other Stock Plans

      Broad National Bancorporation (“Broad”) and Statewide Financial Corp. (“Statewide”)(companies the Company acquired in 1999 and 2000, respectively) maintained several stock option plans for officers, directors and other key employees (the “Assumed Plans”). Generally, these plans granted options to individuals at a price equivalent to the fair market value of the stock at the date of grant. Options awarded under the plans generally vested over a five-year period and expired ten years from the date of grant. In connection with the Broad and Statewide acquisitions, options which were converted by election of the option holders to options to purchase the Company’s common stock totaled 602,139 and became 100% exercisable at the effective date of the acquisitions. At December 31, 2005, there were 18,213 options outstanding related to the Assumed Plans.

      In connection with the SIB transaction in April 2004, options granted under the SIB plan (“SIB Plan”) were converted by election of the option holders to options to purchase the Company’s common stock totaled 2,762,184 and became 100% exercisable at the effective date of the transaction. At December 31, 2005, there were 1,134,896 options outstanding related to the SIB Plan.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

		Year Ended December 31,
(In Thousands, Except Per Share Data)		2005			2004			2003
Net income:
	As reported	$	213,472		$	212,172		$	136,970
	Add: Stock-based employee compensation expense included in reported net income, net of related tax effects (1)		6,983			4,654			5,724
	Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects (1)		(8,861	)		(8,739	)		(10,599	)
	Pro forma	$	211,594		$	208,087		$	132,095
Basic earnings per share:
	As reported	$	2.70		$	2.96		$	2.74
	Pro forma	$	2.67		$	2.91		$	2.64
Diluted earnings per share:
	As reported	$	2.62		$	2.84		$	2.60
	Pro forma	$	2.59		$	2.79		$	2.51

(1)  Includes costs associated with restricted stock awards granted pursuant to the Recognition Plan, Stock Incentive Plan and 2005 Stock Incentive Plan and stock option grants awarded under the various stock option plans.

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

		Year Ended December 31,
		2005					2004					2003
					Weighted					Weighted					Weighted
					Average					Average					Average
					Exercise					Exercise					Exercise
		Shares			Price		Shares			Price		Shares			Price
Outstanding, beginning of year			6,988,482		$	20.0618		5,994,342		$	16.6341		6,834,038		$	15.6343
	Granted		443,880			38.4943		548,540			38.1708		235,750			34.2564
	SIB converted options		—			—		2,762,184			21.3063		—			—
	Exercised		(1,478,241	)		15.1113		(2,293,844	)		17.9516		(1,039,833	)		13.9231
	Forfeited/cancelled		(34,408	)		31.9109		(22,740	)		24.3963		(35,613	)		20.5780
Outstanding, end of year			5,919,713		$	22.6113		6,988,482		$	20.0618		5,994,342		$	16.6341
Options exercisable at year end			4,679,523					5,632,863					4,740,697
Weighted average fair value per share of options granted during the year					$	10.1229				$	10.6241				$	10.8031

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model using the following weighted-average assumptions for the periods indicated.

	Year Ended December 31,
	2005		2004		2003
Risk free interest rate		3.77% - 4.45%		3.12% - 4.53%		2.90% - 3.85%
Volatility		28.43% - 29.34%		29.72% - 37.50%		31.02% - 32.59%
Expected dividend yield		2.67% - 3.48%		1.20% - 2.60%		1.92% - 2.37%
Expected option life		6 years		6 years		6 years

      The following table is a summary of the information concerning currently outstanding and exercisable options as of December 31, 2005.

Options Outstanding							Options Exercisable
			Weighted
			Average		Weighted				Weighted
			Remaining		Average				Average
			Contractual		Exercise				Exercise
Range of Exercise Prices	Shares		Life (Years)		Price		Shares		Price
$ 0.0000 – $12.0000		84,313		3.5	$	11.1092		84,313	$	11.1092
$12.0001 – $16.0000		2,272,842		2.6		13.3321		2,272,842		13.3321
$16.0001 – $24.0000		1,269,581		4.4		19.2347		1,161,181		19.3585
$24.0001 – $30.0000		749,814		6.2		28.9742		540,409		29.0274
$30.0001 – $36.0000		668,269		7.5		33.5444		464,238		32.8654
$36.0001 – $41.6400		874,894		8.6		38.9212		156,540		38.7486
		5,919,713		4.9	$	22.6113		4,679,523	$	19.3881

18.     Stockholders’ Equity

      On July 24, 2003 the Company announced that its Board of Directors authorized the eleventh stock repurchase plan for up to three million shares of the Company’s outstanding common shares. The Company completed its eleventh stock repurchase program on August 12, 2005 for an aggregate cost of $111.0 million at an average price per share of $37.00.

      On May 27, 2005, the Company announced that its Board of Directors authorized the twelfth stock repurchase plan for up to an additional five million shares of the Company’s outstanding common shares subject to completion of the eleventh stock repurchase program. The Company commenced its twelfth stock repurchase program on August 12, 2005 and repurchased 1,463,973 shares at an average cost of $34.32 per share. The Company suspended its twelfth repurchase program in light of the Merger Agreement among the Company, Sovereign and Iceland Acquisition Corp. (See Note 2).

      The repurchased shares are held as treasury stock. A portion of such shares has been utilized to fund the stock portion of the merger consideration paid in two acquisitions of other financial institutions by the Company in prior years as well as consideration paid in October 2002 to increase the Company’s minority equity investment in Meridian Capital. Treasury shares also are being used to fund the Company’s stock benefit plans, in particular, the Option Plan, the Directors Fee Plan, the Stock Incentive Plan, the SIB Plan and the 2005 Stock Incentive Plan. The Company issued 1,658,032 shares of treasury stock in connection with the exercise of options and director fees with an aggregate value of $32.2 million at the date of issuance during the year ended December 31, 2005.

      During the year ended December 31, 2005, the Company repurchased 4,254,302 shares of its common stock at an aggregate cost of $154.4 million. At December 31, 2005, the Company had repurchased a total of

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INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

37,766,818 shares pursuant to the twelve repurchase programs at an aggregate cost of $708.3 million and reissued 15,855,447 shares with an aggregate value, as calculated, of $246.2 million.

19.     Derivative Financial Instruments

      The Company concurrently adopted the provisions of SFAS No. 133, and SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities — an amendment of FASB Statement No. 133” on January 1, 2001. The Company adopted the provisions of SFAS No. 149 effective April 1, 2003. The Company’s derivative instruments outstanding during the year ended December 31, 2005 included commitments to fund loans available-for-sale and forward loan sale agreements.

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

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

      The Company adopted new accounting requirements relating to SFAS No. 149 which requires that mortgage loan commitments related to loans originated for sale be accounted for as derivative instruments. In accordance with SFAS No. 133 and SFAS No. 149, derivative instruments are recognized in the statement of financial condition at fair value and changes in the fair value thereof are recognized in the statement of operations. The Company originates single-family and multi-family residential loans for sale pursuant to programs with PHH Mortgage and Fannie Mae. Under the structure of the programs, at the time the Company initially issues a loan commitment in connection with such programs, it does not lock in a specific interest rate. At the time the interest rate is locked in by the borrower, the Company concurrently enters into a forward loan sale agreement with respect to the sale of such loan at a set price in an effort to manage the interest rate risk inherent in the locked loan commitment. The forward loan sale agreement meets the definition of a derivative instrument under SFAS No. 133. Any change in the fair value of the loan commitment after the borrower locks in the interest rate is substantially offset by the corresponding change in the fair value of the forward loan sale agreement related to such loan. The period from the time the borrower locks in the interest rate to the time the Company funds the loan and sells it to Fannie Mae or PHH Mortgage is generally 30 days. The fair value of each instrument will rise or fall in response to changes in market interest rates subsequent to the dates the interest rate locks and forward loan sale agreements are entered into. In the event that interest rates rise after the Company enters into an interest rate lock, the fair value of the loan commitment will decline. However, the fair value of the forward loan sale agreement related to such loan commitment should increase by approximately the same amount, effectively eliminating the Company’s interest rate and price risk.

      At December 31, 2005, the Company had $78.4 million of loan commitments outstanding related to loans being originated for sale. Of such amount, $53.9 million related to loan commitments for which the borrowers had not entered into interest rate locks and $24.5 million which were subject to interest rate locks. At December 31, 2005, the Company had $24.5 million of forward loan sale agreements. The fair market value of the loan commitments with interest rate locks was a loss of $0.1 million and the fair market value of the related forward loan sale agreements was a gain of $0.1 million at December 31, 2005.

20.     Commitments and Contingencies

Off-Balance Sheet Risks

      The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to

128

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

extend credit and standby letters of credit. Such financial instruments are reflected in the consolidated financial statements when and if proceeds associated with the commitments are disbursed. The exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. Management uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet financial instruments.

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

      Standby and commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party, while commercial letters of credit are issued specifically to facilitate commerce and typically result in the commitment being drawn on when the underlying transaction is consummated between the customer and the third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

      The notional principal amount of the off-balance sheet financial instruments at December 31, 2005 and December 31, 2004 are as follows:

		Contract or Amount
(In Thousands)		December 31, 2005		December 31, 2004
Financial instruments whose contract amounts represent credit risk:
	Commitments to extend credit-mortgage loans	$	563,162	$	650,101
	Commitments to extend credit-commercial business loans		443,173		267,649
	Commitments to extend credit-mortgage warehouse lines of credit		828,177		775,905
	Commitments to extend credit-other loans		224,449		212,119
	Standby letters of credit		35,983		36,633
	Commercial letters of credit		543		807
Total		$	2,095,487	$	1,943,214

Retained Credit Exposure

      The Company sells multi-family residential mortgage loans (both newly originated and from portfolio) in the secondary market to Fannie Mae while retaining servicing. The Company underwrites these loans using its customary underwriting standards, funds the loans, and sells the loans to Fannie Mae pursuant to forward sales agreements previously entered into at agreed upon pricing. Under the terms of the sales program, the Company retains a portion of the associated credit risk. The Company has a 100% first loss position on each multi-family residential loan sold to Fannie Mae under such program until the earlier to occur of (i) the aggregate losses on the multi-family residential loans sold to Fannie Mae reaching the maximum loss exposure for the portfolio as a whole or (ii) until all of the loans sold to Fannie Mae under this program are fully paid off. The maximum loss exposure is available to satisfy any losses on loans sold in the program subject to the foregoing limitations. At December 31, 2005, the Company serviced $6.27 billion of loans sold to Fannie Mae pursuant to this program with a maximum potential loss exposure of $186.7 million.

129

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      During 2002, in a separate transaction, the Company sold to Fannie Mae from portfolio at par $257.6 million of fully performing multi-family loans in exchange for Fannie Mae mortgage-backed securities representing a 100% interest in these loans. Such loans were sold with full recourse with the Company retaining servicing. These loans had an outstanding balance of $35.7 million at December 31, 2005.

      Although all of the loans serviced for Fannie Mae (both loans originated for sale and loans sold from portfolio) are currently fully performing, the Company has recorded a $9.4 million liability related to the fair value of the retained credit exposure. This liability represents the amount that the Company estimates that it would have to pay a third party to assume the retained recourse obligation. The estimated liability represents the present value of the estimated losses that the portfolio is projected to incur based upon an industry-based default curve with a range of estimated losses (see Note 5).

Lease Commitments

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

(In Thousands)		Amount
Year ended December 31:
	2006	$	18,386
	2007		17,327
	2008		16,678
	2009		16,089
	2010 and thereafter		116,960

      The rent expense for the year ended December 31, 2005, 2004 and 2003 was $18.6 million, $13.7 million and $7.1 million, respectively.

Purchase Obligations

      The Company has outstanding purchase obligations as of the year ended December 31, 2005 of $16.9 million. These obligations primarily relate to construction and equipment costs related to our de novo branch expansion program as well as data processing equipment.

Other Commitments and Contingencies

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

21.     Related Party Transactions

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

130

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      All loans resulting from referrals from Meridian Capital are underwritten by the Company using its loan underwriting standards and procedures. Meridian Capital receives a fee from the borrower upon the funding of the loans by the Company. The Company generally does not pay referral fees to Meridian Capital. However the Company paid fees of approximately $0.7 million and $1.0 million to Meridian Capital for the years ended December 31, 2005 and 2004, respectively.

      The loans originated by the Company resulting from referrals by Meridian Capital account for a significant portion of the Company’s total loan originations. In addition, referrals from Meridian Capital accounted for substantially all of the loans originated for sale in 2004 and 2005. The ability of the Company to continue to originate multi-family residential and commercial real estate loans at the levels experienced in the past may be a function of, among other things, maintaining the level of referrals from Meridian Capital or increasing referrals from other mortgage broker relationships.

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

      Under the DUS program, ICM Capital is able to underwrite, fund and sell mortgages on multi-family residential properties to Fannie Mae, with servicing retained. Participation in the DUS program requires ICM Capital to share the risk of loan losses with Fannie Mae with one-third of all losses to be assumed by ICM Capital and two-thirds of all losses to be assumed by Fannie Mae. There were no loans originated under the DUS program by ICM Capital since inception.

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

      Meridian Capital’s stock ownership in the Company amounted to approximately 0.63% of the issued and outstanding shares of the Company’s stock at December 31, 2005.

131

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

22.     Income Taxes

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

		December 31,
(In Thousands)		2005		2004
Deferred tax assets:
	Stock options and restricted stock awards	$	12,291	$	16,551
	Allowance for loan losses		46,729		56,804
	Securities impairment loss		—		6,806
	Deferred loan fees		6,993		3,462
	Amortization of intangible assets		7,715		9,066
	Non-accrual interest		—		1,061
	Employee benefits		7,128		12,853
	Securities available-for-sale		32,259		2,720
	Representation and warranty reserve		—		2,178
	Other		2,396		1,333
Gross deferred tax assets			115,511		112,834
Deferred tax liabilities:
	Purchase accounting		33,909		25,639
	Deferred compensation		327		263
	Depreciation		7,402		8,088
Gross deferred tax liabilities			41,638		33,990
Net deferred tax assets		$	73,873	$	78,844

      The Company has reported taxable income for federal, state and local income tax purposes in each of the past two years and in management’s opinion, in view of the Company’s previous, current and projected future earnings, such net deferred tax asset is expected to be fully realized.

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

		Year Ended December 31,
(In Thousands)		2005		2004			2003
Current:
	Federal	$	74,970	$	96,108		$	60,069
	State and local		3,024		16,996			5,464
			77,994		113,104			65,533
Deferred:
	Federal		24,381		(740	)		10,291
	State and local		10,065		(609	)		387
			34,446		(1,349	)		10,678
Total		$	112,440	$	111,755		$	76,211

132

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

		Year Ended December 31,
(In Thousands)		2005			2004			2003
Federal income tax provision at statutory rates		$	114,069		$	113,374		$	74,613
Increase (decrease) in tax resulting from:
	State and local taxes, net of Federal income tax effect		8,508			10,650			3,803
	New Market Tax Credit		(5,650	)		(5,650	)		—
	Other		(4,487	)		(6,619	)		(2,205	)
		$	112,440		$	111,755		$	76,211

      At December 31, 2005, the base year bad debt reserve for federal income tax purposes which is subject to recapture as taxable income was approximately $42.5 million, for which deferred taxes are not required to be recognized. Bad debt reserves maintained for New York State and New York City tax purposes as of December 31, 2005 for which deferred taxes are not required to be recognized, amounted to approximately $286.4 million. Accordingly, deferred tax liabilities of approximately $39.2 million have not been recognized as of December 31, 2005.

      During 2004, the Bank announced that one of its subsidiaries, ICCRC was one of seven New York area economic development organizations awarded New Market Tax Credit (“NMTC”) allocations in 2004 from the Community Development Financial Institutions Fund of the U.S. Department of Treasury. The NMTC Program promotes business and economic development in low-income communities. The NMTC Program permits ICCRC to receive a credit against federal income taxes for making qualified equity investments in investment vehicles known as Community Development Entities. The credits provided to ICCRC total approximately $44.1 million (39% of the initial value of the $113.0 million investment) and will be claimed over a seven-year credit allowance period. This investment was made in September 2004. The Company redeployed the initial $113.0 million investment into qualifying commercial real estate and business loans in low-income communities by September 2005.

      The Company recognized the benefit of these tax credits by reducing the provision for income taxes by a total of $5.7 million in 2005 and 2004.

      The following table reflects the amount of credits for the year in which it is currently expected to be recognized.

(In Thousands)		Amount
Year ended December 31:
	2004	$	5,650
	2005		5,650
	2006		5,650
	2007		6,780
	2008		6,780
	2009		6,780
	2010		6,780
	Total	$	44,070

133

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

23.     Regulatory Requirements

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

      Based on its regulatory capital ratios at December 31, 2005 and December 31, 2004, the Bank exceeded all capital adequacy requirements to which it was subject. As of December 31, 2005, the most recent notification from the FDIC categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. Management believes that no conditions or events have transpired since such notification that have changed the Bank’s category. To be categorized as “well capitalized” the Bank must maintain Tier I leverage, Tier I risk-based and minimum total risk-based ratios as set forth in the following table.

      The Bank’s actual capital amounts and ratios are presented in the tables below as of December 31, 2005 and December 31, 2004:

											To Be Well-
											Capitalized Under
						For Capital					FDIC
	Actual Amounts					Adequacy Purposes at					Guidelines
	as of 12/31/05					12/31/05					at 12/31/05
(Dollars In Thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Tier I Leverage	$	1,185,969		6.98	%	$	679,573		4.00	%	$	849,466		5.00	%
Tier I Risk-Based		1,185,969		8.82			538,073		4.00			807,110		6.00
Total Risk-Based		1,694,083		12.59			1,076,147		8.00			1,345,184		10.00

											To Be Well-
											Capitalized Under
						For Capital					FDIC
	Actual Amounts					Adequacy Purposes at					Guidelines
	as of 12/31/04					12/31/04					at 12/31/04
(Dollars In Thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
Tier I Leverage	$	904,828		5.51	%	$	656,762		4.00	%	$	820,953		5.00	%
Tier I Risk-Based		904,828		7.36			491,833		4.00			737,749		6.00
Total Risk-Based		1,410,734		11.47			983,665		8.00			1,229,582		10.00

24.     Fair Value of Financial Instruments

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

134

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

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

	December 31,
	2005				2004
(In Thousands)	Book Value		Fair Value		Book Value		Fair Value
Financial Assets:
Cash and due from banks	$	1,079,182	$	1,079,182	$	360,877	$	360,877
Securities available-for-sale		3,574,500		3,574,500		3,933,787		3,933,787
Loans available-for-sale		22,072		22,072		96,671		97,707
Mortgage loans on real estate		10,363,050		10,303,636		9,324,965		9,357,637
Commercial business loans		977,022		953,196		809,392		804,915
Mortgage warehouse lines of credit		453,541		453,541		659,942		659,942
Other loans		517,510		520,071		464,168		460,203
Accrued interest receivable		72,518		72,518		64,437		64,437
FHLB stock		167,294		167,294		197,900		197,900
Loan servicing assets		13,890		34,501		18,100		26,514
Financial Liabilities:
Core deposits		7,229,689		7,229,689		7,033,649		7,033,649
Certificates of deposit accounts		3,715,594		3,725,319		2,271,415		2,333,655
Borrowings		4,956,729		4,965,624		5,511,972		5,627,147
Escrow and other deposits		116,529		116,529		104,304		104,304
Subordinated notes		397,260		380,000		396,332		387,625
Senior notes		247,986		243,750		—		—
Retained credit exposure		9,387		9,387		7,881		7,881

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

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

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

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

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

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

135

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

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

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

      Subordinated Notes: The estimated fair value for subordinated notes is based on quoted market prices.

      Senior Notes: The estimated fair value for senior notes is based on quoted market prices.

      Retained Credit Exposure: The fair value is based upon the present value of the estimated losses that the portfolio is projected to incur based upon an industry based default curve.

25.     Asset and Dividend Restrictions

      The Bank is required to maintain a reserve balance with the Federal Reserve Bank of New York. The required reserve balance was $35.9 million at December 31, 2005, $20.0 million at December 31, 2004 and $9.5 million at December 31, 2003.

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

      During 2005, the Bank funded an aggregate of $80.0 million which had been approved in prior years. During 2004, as part of the SIB transaction, the Bank requested and received approval from the Department and notified the OTS of the distribution to the Company of $400.0 million in the aggregate. The Bank declared and funded $370.0 million in 2004 to pay the cash portion of the merger consideration paid in the transaction. The remaining $30.0 million was declared and funded in 2005. During 2003, the Bank requested and received approval of the distribution to the Company of an aggregate of $100.0 million. The Bank declared $75.0 million and funded $50.0 million during 2003 and $25.0 million in 2005. The Bank declared and funded the remaining $25.0 million during 2005. The distributions, other than the one in 2004 used to fund the cash portion of the consideration paid in the SIB transaction, were primarily used by the Company to fund the Company’s open market stock repurchase programs and dividends.

136

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

26. Quarterly Results of Operations (unaudited)

		Year Ended December 31, 2005
(In Thousands, Except Per Share Data)		1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Interest income		$	200,180	$	203,868	$	213,765	$	219,766
Interest expense			67,614		77,020		88,208		105,872
Net interest income			132,566		126,848		125,557		113,894
Provision for loan losses			—		—		—		—
Net interest income after provision for loan losses			132,566		126,848		125,557		113,894
Non-interest income			29,559		29,953		33,045		32,323
Total income			162,125		156,801		158,602		146,217
General and administrative expense			67,958		71,289		72,794		74,412
Amortization of intangible assets			2,928		2,873		2,816		2,763
Income before provision for income taxes			91,239		82,639		82,992		69,042
Provision for income taxes			31,478		28,510		28,632		23,820
Net income		$	59,761	$	54,129	$	54,360	$	45,222
Basic earnings per common share		$	0.74	$	0.68	$	0.69	$	0.58
Diluted earnings per common share		$	0.72	$	0.66	$	0.67	$	0.56
Dividend declared per common share		$	0.26	$	0.27	$	0.27	$	0.27
Closing price per common share
	High	$	41.980	$	39.210	$	37.560	$	40.100
	Low	$	38.600	$	35.340	$	33.140	$	30.920
	End of period	$	39.000	$	36.930	$	34.090	$	39.730

137

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		Year Ended December 31, 2004
(In Thousands, Except Per Share Data)		1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Interest income		$	117,615	$	182,561	$	193,385	$	195,847
Interest expense			36,106		51,718		61,995		64,096
Net interest income			81,509		130,843		131,390		131,751
Provision for loan losses			—		2,000		—		—
Net interest income after provision for loan losses			81,509		128,843		131,390		131,751
Non-interest income			27,453		35,505		35,897		22,654
Total income			108,962		164,348		167,287		154,405
General and administrative expense			49,453		70,051		71,548		71,755
Amortization of intangible assets			143		2,602		2,540		2,983
Income before provision for income taxes			59,366		91,695		93,199		79,667
Provision for income taxes			21,223		33,447		29,785		27,300
Net income		$	38,143	$	58,248	$	63,414	$	52,367
Basic earnings per common share		$	0.76	$	0.77	$	0.79	$	0.65
Diluted earnings per common share		$	0.72	$	0.74	$	0.76	$	0.63
Dividend declared per common share		$	0.22	$	0.23	$	0.24	$	0.25
Closing price per common share
	High	$	41.410	$	40.930	$	40.490	$	43.180
	Low	$	34.920	$	35.240	$	35.025	$	36.950
	End of period	$	40.750	$	36.400	$	39.050	$	42.580

138

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

27. Parent Company Disclosure

      The following Condensed Statement of Financial Condition, as of December 31, 2005 and December 31, 2004 and Condensed Statement of Operations and Condensed Statement of Cash Flows for the years ended December 31, 2005, 2004 and 2003 should be read in conjunction with the Consolidated Financial Statements and the Notes thereto.

Condensed Statement of Financial Condition

	December 31,
(In Thousands)	2005		2004
Assets:
Cash and cash equivalents	$	86,319	$	38,856
Securities available-for-sale		10,853		50,102
Investment in and advances to subsidiaries		2,402,277		2,153,880
Net deferred tax asset		521		164
Dividends receivable		—		25,000
Minority equity investment		27,531		29,183
Other assets		10,419		7,231
Total assets	$	2,537,920	$	2,304,416
Liabilities:
Senior notes	$	247,986	$	—
Accrued expenses and other liabilities		4,154		373
Total liabilities		252,140		373
Stockholders’ equity		2,285,780		2,304,043
Total liabilities and stockholders’ equity	$	2,537,920	$	2,304,416

Condensed Statement of Operations

	Year Ended December 31,
(In Thousands)	2005		2004			2003
Income:
Interest income	$	1,671	$	355		$	69
Net gain (loss) on sales of securities		523		(181	)		—
Income from minority equity investment		10,361		14,160			6,334
Other non-interest income		699		201			—
		13,254		14,535			6,403
Expenses:
Interest expense on senior notes		3,445		—			—
Shareholder expense		837		701			477
Other expense		191		200			245
		4,473		901			722
Income before provision for income taxes and undistributed earnings of subsidiaries		8,781		13,634			5,681
Provision for income taxes, net		165		165			150
Income before undistributed earnings of subsidiaries		8,616		13,469			5,531
Equity in undistributed earnings of subsidiaries		204,856		198,703			131,439
Net income	$	213,472	$	212,172		$	136,970

139

INDEPENDENCE COMMUNITY BANK CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Statement of Cash Flows

	Year Ended December 31,
(In Thousands)	2005			2004			2003
Cash flows from operating activities:
Net income	$	213,472		$	212,172		$	136,970
Adjustments to reconcile net income to net cash provided by operating activities:
(Gain) loss on securities		(523	)		181			—
(Increase) decrease in deferred income taxes		(200	)		—			6,084
Dividends received from subsidiary		80,000			370,000			75,000
Decrease in other assets		24,273			31,946			9,031
Increase (decrease) in other liabilities		75			(97	)		(55	)
Amortization of unearned compensation of ESOP and restricted stock awards		15,033			13,911			17,373
Accelerated vesting of stock options		110			206			185
Undistributed earnings of subsidiaries		(204,856	)		(198,703	)		(131,439	)
Other, net		642			(890	)		(542	)
Net cash provided by operating activities		128,026			428,726			112,607
Cash flows from investing activities:
Increase in investment in subsidiary		(150,000	)		—			—
Cash and cash equivalents acquired from SIB		—			10,564			—
Cash consideration paid to acquire SIB		—			(368,500	)		—
Purchase of securities available-for-sale		(9,597	)		(39,000	)		—
Principal collected on securities available-for-sale		48,000			15,314			—
Proceeds on sales of securities		—			4,889			—
Net cash used in investing activities		(111,597	)		(376,733	)		—
Cash flows from financing activities:
Net increase in senior notes		247,986			—			—
Proceeds received on exercise of stock options		22,855			37,677			12,905
Repurchase of common stock		(154,354	)		—			(78,068	)
Dividends paid		(85,453	)		(68,823	)		(34,544	)
Net cash provided by (used in) financing activities		31,034			(31,146	)		(99,707	)
Net increase in cash and cash equivalents		47,463			20,847			12,900
Cash and cash equivalents at beginning of period		38,856			18,009			5,109
Cash and cash equivalents at end of period	$	86,319		$	38,856		$	18,009

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Item 9.       Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

       None.

Item 9A.      Controls and Procedures

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

      Changes in Internal Control Over Financial Reporting. No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934, as amended) occurred during the quarter ended December 31, 2005 that has materially affected or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

      Management Report on Internal Control Over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934). Management’s Report on Internal Control over Financial Reporting is set forth in Item 8 hereof. Management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2005 has been audited by its independent registered public accounting firm, as stated in its report set forth in Item 8 hereof.

Item 9B.      Other Information

       On April 22, 2005, the Bank’s Board of Directors amended the Independence Community Bank Amended and Restated Change in Control Severance Plan (the “Plan”) to exclude from its operation officers of the Bank who are designated as Job Group 1 officers. A separate plan, the Independence Community Bank Job Group 1 Change in Control Severance Plan (the “Job Group 1 Plan,” and collectively with the Plan, the “Severance Plans”), was adopted concurrently to provide for severance benefits to officers designated as Job Group 1 officers who previously had been covered by the Plan. The Plan was also revised to freeze the level of the severance benefit period to that which a participating officer would have been entitled to as of March 31, 2005 notwithstanding any change in such officer’s title subsequent to such date. In addition, the severance benefit was revised to be paid in a lump sum rather than being either in a lump sum or on an installment basis at the choice of the participating officer. The Plan was amended to effectively limit participation to those persons meeting the definition of “Covered Officer” in the Plan as of December 31, 2004. Furthermore, the definition of “Good Reason” in the Plan was modified to limit the grounds for voluntary termination by a participating officer. The provisions of the Job Group 1 Plan are substantially similar to the Plan.

      The description of the Plan and the Job Group 1 Plan is qualified in its entirety by reference to the Severance Plans which are attached hereto as Exhibits 10.5 and 10.25 and incorporated herein by reference thereto.

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PART III

ITEM 10.       Directors and Executive Officers of the Registrant

Directors

      The following table presents information concerning our directors, including each such person’s tenure as a director of the Company or its subsidiaries. Ages are reflected as of March 1, 2006.

			Principal Occupation During	Director		Term
Name	Age		the Past Five Years	Since		Expires
Willard N. Archie		62	Director; retired; certified public accountant and Chief Executive Officer and Managing Partner of Mitchell & Titus, LLP, New York, New York, an accounting and management consulting firm, from January 1998 to December 2000. Director of Security Mutual Life Insurance.		1994		2008
Robert B. Catell*		69	Director; Chairman and Chief Executive Officer of KeySpan Energy Corporation, Brooklyn, New York, since August 1998; Chairman and Chief Executive Officer of Brooklyn Union, Brooklyn, New York, since May 1996. Director of KeySpan Energy Corporation, the Houston Exploration Company, Keyera Facilities Insurance Fund and J. & W. Seligman Fund.		1984		2008
Rohit M. Desai		67	Director; Chairman and President of Desai Capital Management, Inc., New York, New York. Director of Finlay Enterprises, Inc., Sitel Corporation and Triton PCS.		1992		2007
Harry P. Doherty**		63	Vice Chairman of the Board; previously, Chairman, President and Chief Executive Officer of Staten Island Bancorp, Inc., Staten Island, New York, from 1990 until its merger with the Company in April 2004.		2004		2008
Chaim Y. Edelstein		63	Director; Chairman, 7th Online Inc.; formerly Chairman of the Board of Hills Stores, Inc., Canton, Massachusetts, from 1995 to 1998 and prior thereto, Chairman and Chief Executive Officer of the A&S division of Federated Department Stores from 1984 to 1994.		1991		2006

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			Principal Occupation During	Director		Term
Name	Age		the Past Five Years	Since		Expires
Alan H. Fishman		59	Director; President and Chief Executive Officer of the Company and the Bank since March 2001; previously, President and Chief Executive Officer of ContiFinancial Corporation from July 1999 to December 2000 and Managing Partner of Columbia Financial Partners, L.P. from 1992 to March 2001. Director of KeySpan Energy Corporation.		2001		2006
Charles J. Hamm		68	Chairman of the Board; served as Chairman, President and Chief Executive Officer of Independence and Independence Community Bank from 1996 until March 2001; prior thereto, Mr. Hamm served as the President and Chief Executive Officer.		1975		2007
Scott M. Hand		63	Director; Chairman and Chief Executive Officer of INCO Limited, a mining and metals company headquartered in Ontario, Canada since April 2001; formerly President of INCO Limited. Director of INCO Limited.		1987		2007
David L. Hinds**		59	Director; retired; previously served as Managing Director for Global Cash Management and Trade Finance and in various other management positions at Deutsche Bank/Bankers Trust Company, New York, New York from 1970 to 2000. Director of Carver Bancorp, Inc. and SBLI Mutual Life Insurance Company.		2004		2007
Donald M. Karp		69	Vice Chairman of the Board; previously, Chairman and Chief Executive Officer of Broad National Bancorporation, Newark, New Jersey, from 1991 until its merger with the Company in July 1999.		1999		2006
Denis P. Kelleher**		66	Director; Chief Executive Officer of Wall Street Access (formerly Wall Street Investors), a financial services company, New York, New York, since 1981. Director of The Ireland Fund, Inc.		2004		2006
John R. Morris**		67	Director; self-employed; previously served in various positions at Merrill Lynch, New York, New York, until his retirement in 1997, including Vice President of the Capital Markets and Private Client groups.		2004		2008

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			Principal Occupation During	Director		Term
Name	Age		the Past Five Years	Since		Expires
Maria Fiorini Ramirez		58	Director; President and Chief Executive Officer, Maria Fiorini Ramirez, Inc., New York, New York, a global economic consulting firm, since 1992.		2000		2007
Victor M. Richel		67	Vice Chairman of the Board; previously, Chairman, President and Chief Executive Officer of Statewide Financial Corp., Jersey City, New Jersey, from 1995 until its merger with the Company in January 2000.		2000		2006

*  Under the terms of the Company’s bylaws, Mr. Catell will not be able to serve his entire term due to age limitations set forth in the bylaws. Mr. Catell can serve on the board of directors until December 31, 2007.

**  Elected to the board of directors in accordance with the terms of the Agreement and Plan of Merger between the Company and Staten Island Bancorp, Inc. dated as of November 24, 2003.

Executive Officers Who Are Not Directors

      The following information is provided with respect to each person who currently serves as an executive officer of the Company but does not serve on the Company’s board of directors. There are no arrangements or understandings between the Company and any such person pursuant to which such person has been elected an officer, and no such officer is related to any director or other officer of the Company by blood, marriage or adoption. Ages are reflected as of March 1, 2006.

			Principal Occupation During
Name	Age		the Past Five Years
Frank W. Baier		40	Executive Vice President, Chief Financial Officer and Treasurer of the Company and the Bank since August 15, 2003; previously served as Senior Vice President and Treasurer from June 1, 2001; Mr. Baier previously served with ContiFinancial Corporation in various capacities including Senior Vice President and Chief Financial Officer from 1999 until May 2001, Vice President and Treasurer from 1997 until 1999 and Director, Corporate Finance from 1996 until 1997. Mr. Baier is a certified public accountant.
Brendan J. Dugan		58	Executive Vice President — Business Banking Division since November 2003; previously Chief Operating Officer, Commercial Markets Group, Citibank, NA, New York, New York, from June 2001 to August 2003; prior to that served as President and Chief Operating Officer, European American Bank, New York, New York, from 1992 to June 2001.
Gary M. Honstedt		56	Executive Vice President — Commercial Real Estate Lending Division of the Bank since March 2001; previously, Senior Vice President — Commercial Real Estate Lending from April 1996 to March 2001; Mr. Honstedt joined the Bank in 1986.

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			Principal Occupation During
Name	Age		the Past Five Years
Harold A. McCleery		58	Executive Vice President — Chief Credit Officer of the Bank since May 2001; Mr. McCleery previously served as Executive Vice President and Chief Credit Officer of Bank Austria U.S. from July 2000 until May 2001; prior thereto served as Executive Vice President of First Union National Bank (and its predecessor, First Fidelity Bank, Newark, New Jersey) from 1996 until July 2000.
Joseph A. Micali		50	Executive Vice President — Operations and Technology since October 2005; previously Chief Operating Officer for TradeCard, Inc., an internet-based procurement management company, from November 2001 to October 2005; Senior Executive Vice President for Operations for Summit Bancorp from June 1997 to May 2001.
Terence J. Mitchell		53	Executive Vice President — Consumer Banking Division of the Bank since April 1999; Executive Vice President — Director of Retail Banking from July 1998 to March 1999; Mr. Mitchell joined the Bank in 1974.
Frank S. Muzio		52	Senior Vice President and Controller of the Bank since April 1998; previously, Senior Vice President — Planning and Analysis of Dime Bancorp, Inc. subsequent to its merger with Anchor Bancorp, Inc. in January 1995 and served as Senior Vice President and Controller of Anchor Bancorp, Inc. from 1993 to 1995. Mr. Muzio is a certified public accountant.
John K. Schnock		62	Senior Vice President, Secretary and Counsel of the Bank since 1996 and of the Company since 1997; Mr. Schnock joined the Bank in 1972.

Certain Matters Regarding the Governance of Independence

      General. The Company’s business and affairs are managed by or under the direction of its board of directors and its certificate of incorporation and bylaws. Members of the board of directors are kept informed of the Company’s business through discussions with its chairman and the president and chief executive officer and with key members of management, by reviewing materials provided to them and by participating in meetings of the board of directors and its committees.

      Independence of the Company’s Board of Directors. It is the policy of the board of directors of the Company that a substantial majority of its directors be independent of the Company within the meaning of applicable laws and regulations and the listing requirements of the Nasdaq Stock Market, Inc.

      The Company’s board of directors has affirmatively determined that a majority of the members of the board directors are independent. The current independent directors are Ms. Ramirez and Messrs. Archie, Catell, Desai, Edelstein, Hamm, Hand, Hinds, Kelleher and Morris. The Company’s board of directors also has affirmatively determined that each member of the Audit Committee, Compensation Committee and the Corporate Governance and Nominating Committee of the board of directors is independent within the meaning of applicable laws and regulations and the requirements of the Nasdaq Stock Market, Inc.

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      Committees of the Board of Directors. The Company’s board of directors has established various committees, including an Executive Committee, an Audit Committee, a Corporate Governance and Nominating Committee and a Compensation Committee.

      Executive Committee. An Executive Committee of the Board of Directors has been appointed in accordance with the Company’s bylaws and may exercise all of the authority of the Board of Directors except in major corporate transactions, declarations of dividends or amendment of the bylaws or the certificate of incorporation. The Executive Committee met once in 2005. The Executive Committee is currently chaired by Mr. Hamm and is comprised of Messrs. Archie, Catell, Desai, Doherty, Edelstein, Fishman, Hand and Ms. Ramirez.

      Audit Committee. The primary responsibilities of the Audit Committee are to:

•  monitor the integrity of the Company’s financial reporting process and system of internal controls regarding finance, accounting and legal compliance;

•  appoint, compensate and monitor the independence and performance of the Company’s independent auditors, as well as monitor the independence and performance of the Company’s internal auditing department; and

•  provide an avenue of communication among the independent auditors, management, the internal auditing department and the board of directors.

      The Audit Committee, which is chaired by Mr. Desai and is currently comprised of Messrs. Archie, Catell, Hand and Morris, met eight times during 2005. The Company’s board has determined that Mr. Archie meets the requirements established by the Securities and Exchange Commission (“SEC”) for qualification as an audit committee financial expert as well as has accounting or related financial expertise within the meaning of the Nasdaq Stock Market, Inc. listing requirements.

      The Audit Committee operates pursuant to a written charter, a copy of which was attached as Appendix A to the Company’s proxy statement for the annual meeting of stockholders in 2003. The Audit Committee reviews and reassesses the adequacy of the charter annually. It last reviewed the charter in February 2006. The Company’s Audit Committee Charter is available at the Company’s website at http://investor.myindependence.com under the Investor Relations link.

      Compensation Committee. The primary responsibilities of the Compensation Committee are to:

•  establish the compensation and benefits for the president and chief executive officer and other executive officers of Independence;

•  evaluate the performance of the president and chief executive officer and other senior executive officers of Independence; and

•  review, recommend and approve executive compensation, equity awards and benefit plans for employees of Independence.

      The standing Compensation Committee currently consists of Messrs. Hand, as chairman, Archie, Edelstein and Hinds and Ms. Ramirez. The Compensation Committee operates pursuant to a written charter approved by the board of directors. The report of the Compensation Committee is set forth under Item 11 of this Form 10-K. The Compensation Committee met seven times in 2005.

      Corporate Governance and Nominating Committee. The primary responsibilities of the Corporate Governance and Nominating Committee are to evaluate and make recommendations to the board of directors for the election of directors and for the compensation of directors, develop corporate governance guidelines for Independence and its directors and executive officers and evaluate the performance of the board of directors and its members. The Corporate Governance and Nominating Committee operates pursuant to a written charter approved by the board of directors. The Corporate Governance and Nominating Committee, which is chaired by Mr. Catell and is currently comprised of Messrs. Edelstein, Hand and Hinds and Ms. Ramirez, met

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three times during 2005. The Corporate Governance and Nominating Committee charter is available at the Company’s website at http://investor.myindependence.com under the Investor Relations link.

      Stockholder Nominations for the Board. The Company’s bylaws govern nominations for election to its board of directors and require all nominations for election to the board of directors, other than those made by the board or a committee appointed by the board, to be made at a meeting of stockholders called for the election of directors, and only by a stockholder who has complied with the notice provisions in the Company’s bylaws. Written notice of a stockholder nomination for election of a director at an annual meeting of stockholders must be given either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Company not later than 120 days prior to the anniversary date of the mailing of the proxy materials for the immediately preceding annual meeting of stockholders. The written notice is required to set forth certain information specified in the bylaws. No changes to the procedure were adopted by the board of directors during fiscal 2005.

      Code of Conduct and Ethics. The Company maintains a comprehensive Code of Conduct and Ethics which covers all directors, officers and employees of the Company and its subsidiaries. The Code of Conduct and Ethics requires that the Company’s directors, officers and employees avoid conflicts of interest; maintain the confidentiality of information relating to the Company and its customers; engage in transactions in the Common Stock only in compliance with applicable laws and regulations and the requirements set forth in the Code of Conduct and Ethics; and comply with other requirements which are intended to ensure that they conduct business in an honest and ethical manner and otherwise act with integrity and in the best interest of the Company. The Company’s Code of Conduct specifically imposes standards of conduct on our chief executive officer, chief financial officer, principal accounting officer and other persons with financial reporting responsibilities which are identified in a regulation issued by the SEC dealing with corporate codes of conduct.

      All of our directors, officers and employees are required to affirm in writing that they have reviewed and understand the Code of Conduct and Ethics. A copy of the Company’s Code of Conduct and Ethics can be viewed on our website at http://investor.myindependence.com.

Section 16(a) Beneficial Ownership Reporting Compliance.

      Under Section 16(a) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), the Company’s directors and executive officers and certain persons who own more than 10% of the Common Stock are required:

•  to file reports of their ownership of the Common Stock and any changes in that ownership with the SEC and the Nasdaq Stock Market, Inc. by specific dates, and

•  to furnish the Company with copies of the reports.

      Based on the Company’s records and other information, the Company believes that these filing requirements were satisfied by our directors and executive officers in 2005 with the exception of one report for each of Messrs. Archie, Catell, Desai, Edelstein, Hamm, Hand, Hinds, Karp, Kelleher, Morris, Richel and Weissglass and Ms. Ramirez for equity awards (directors’ annual retainer) which were made in May 2005 and for which reports were filed in August 2005; one report for each of Messrs. Baier, Dugan, Fishman, Honstedt, McCleery, Mitchell, Muzio and Schnock for equity awards made in February 2005 and for which reports were filed in August 2005; one report for Mr. McCleery for a sale of stock to meet payroll tax obligations in May 2005 for which a report was filed in November 2005; one report for Mr. Honstedt for a sale of stock to meet payroll tax obligations in July 2005 for which a report was filed in November 2005; and one report for Mr. Muzio for an equity award in March 2005 and sales of stock to meet payroll tax obligations in February 2005 and March 2005 for which a report was filed in November 2005.

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ITEM 11.       Executive Compensation

Compensation of Executive Officers

      The following table discloses compensation received by the Company’s chief executive officer and its five other most highly compensated executive officers of the Bank for each of the years in the three year period ended December 31, 2005. These individuals, each of whom also serves as an executive officer of the Company, do not receive any separate compensation from the Company.

Summary Compensation Table

								Long Term Compensation
								Awards
				Annual Compensation(1)							Securities		Payouts
		Fiscal						Restricted			Underlying		LTIP		All Other
Principal Position		Year		Salary(2)		Bonus(3)		Stock			Options		Payouts		Compensation(7)
Alan H. Fishman			2005	$	725,000	$	150,000	$	907,845	(4)		60,400		—	$	3,000
	President and		2004		701,923		404,550		1,121,304	(5)		60,400		—		28,414
	Chief Executive Officer		2003		575,000		310,500		243,558	(6)		—		—		26,438
Frank W. Baier			2005	$	320,000	$	50,700	$	334,824	(4)		23,000		—	$	3,000
	Executive Vice President,		2004		312,307		125,736		387,658	(5)		23,000		—		28,414
	Chief Financial Officer and Treasurer(8)		2003		245,000		116,927		501,162	(6)		50,000		—		26,438
Brendan J. Dugan			2005	$	316,180	$	50,700	$	334,824	(4)		23,000		—	$	1,500
	Executive Vice President —		2004		300,000		181,350		194,665	(5)		23,000		—		21,938
	Business Banking(9)		2003		34,615		23,507		1,135,200	(6)		100,000		—		—
Gary M. Honstedt			2005	$	320,000	$	42,300	$	329,487	(4)		23,000			$	3,000
	Executive Vice President—		2004		312,307		125,736		387,658	(5)		23,000		—		58,665
	Commercial Real Estate Lending		2003		260,000		116,927		785,862	(6)		—		—		51,833
Harold A. McCleery			2005	$	320,000	$	50,700	$	334,824	(4)		23,000			$	3,000
	Executive Vice President—		2004		310,769		125,736		387,658	(5)		23,000		—		28,414
	Chief Credit Officer		2003		260,000		112,596		71,341	(6)		—		—		26,438
Terence J. Mitchell			2005	$	320,000	$	42,300	$	329,487	(4)		23,000			$	3,000
	Executive Vice President—		2004		310,000		125,736		387,658	(5)		23,000		—		66,648
	Consumer Banking		2003		255,000		107,738		68,253	(6)		—		—		58,163

(1)	Does not include amounts attributable to miscellaneous benefits received by the named executive officers. In the opinion of management of the Bank, the costs to the Bank of providing such benefits to each of the named executive officers during the fiscal year ended December 31, 2005 did not exceed the lesser of $50,000 or 10% of the total of annual salary and bonus reported for the individual.
(2)	Does not include amounts deferred by an officer in prior years (and previously reported) and received by such officer in the current fiscal year.
(3)	Reflects cash portion of bonus paid in February 2006, 2005 and 2004 pursuant to the Bank’s Executive Management Incentive Compensation Plans for 2005, 2004 and 2003, respectively. A portion of the bonus was paid in the form of a grant of restricted shares of common stock of the Company, $.01 par value per share (the “Common Stock”) pursuant to the 1998 Recognition and Retention Plan and Trust Agreement (“Recognition Plan”), the 2002 Stock Incentive Plan or the 2005 Stock Incentive Plan which is reported in under the column “Long Term Compensation-Awards-Restricted Stock” in the table.
(4)	Represents the grant in February 2006 of 2,932, 800, 800, 667, 800 and 667 shares of restricted Common Stock to Messrs. Fishman, Baier, Dugan, Honstedt, McCleery and Mitchell, respectively, pursuant to the 2005 Stock Incentive Plan (the “2005 Plan”) which had a value at the date of grant of $117,661, $32,104, $32,104, $26,767, $32,104 and $26,767, respectively, as a part of the bonus paid under the 2005 Executive Management Incentive Compensation Plan. Dividends paid on the restricted Common Stock subject to such grants are held in the 2005 Plan and paid to the recipient when the restricted Common Stock vests. Also includes a grant of 20,308, 7,780, 7,780, 7,780, 7,780, and 7,780 shares made in February 2005 to Messrs. Fishman, Baier, Dugan, Honstedt, McCleery and Mitchell, respectively, which vest over three years and had a value of $790,184, $302,720, $302,720, $302,720, $302,720 and $302,720, at the date of grant pursuant to the 2002 Stock Incentive Plan. The value of the shares subject to all grants of restricted stock to such individuals that remained unvested at December 31, 2005 were $4,225,683, $1,339,696, $909,939, $1,469,374, $1,252,250 and $950,461 with respect to Messrs. Fishman, Baier, Dugan, Honstedt, McCleery and Mitchell, respectively.
(5)	Represents the grant in February 2005 of 8,154, 2,047, 1,919, 2,047, 2,047 and 2,047 shares of restricted Common Stock to Messrs. Fishman, Baier, Dugan, Honstedt, McCleery and Mitchell, respectively, pursuant to the Recognition Plan which had a value at the date of grant of $317,272, $79,648, $74,668, $79,648, $79,648 and $79,648, respectively, as a part of the bonus paid under the

148

	2004 Executive Management Incentive Compensation Plan. Dividends paid on the restricted Common Stock subject to such grants are held in the Recognition Plan and paid to the recipient when the restricted Common Stock vests. Also includes a grant of 20,308, 7,780, 3,031, 7,780, 7,780, and 7,780 shares made in February 2004 under the Recognition Plan to Messrs. Fishman, Baier, Dugan, Honstedt, McCleery and Mitchell, respectively, which vest over three years and had a value of $803,993, $308,010, $119,997, $308,010, $308,010, and $308,010, at the date of grant.
(6)	Represents the grant in February 2004 of 6,152, 1,872, 245, 1,872, 1,802 and 1,724 shares of restricted Common Stock to Messrs. Fishman, Baier, Dugan, Honstedt, McCleery and Mitchell, respectively, pursuant to the Recognition Plan which had a value at the date of grant of $243,558, $74,112, $9,700, $74,112, $71,341 and $68,253, respectively, as a part of the bonus paid under the 2003 Executive Management Incentive Compensation Plan. Dividends paid on the restricted Common Stock subject to such grants are held in the Recognition Plan and paid to the recipient when the restricted Common Stock vests. For Messrs. Baier and Honstedt, also includes grants of 15,000 and 25,000 shares, respectively, made pursuant to the Recognition Plan in July 2003 which vest over four years and had a value of $427,050 and $711,750, respectively, at the date of grant. For Mr. Dugan includes a grant of 30,000 shares made pursuant to the Recognition Plan in November 2003 which vests over three years and had a value of $1,125,500 at the date of grant.
(7)	Consists of amounts allocated on behalf of Messrs. Fishman, Baier, Dugan, Honstedt, McCleery and Mitchell pursuant to the Company’s employee stock ownership plan (“ESOP”). Figure for 2005 reflects only the matching contribution to the Independence Community Bank 401(k) Savings Plan made in the ESOP. Complete 2005 allocation information for the ESOP is not available as of the date of the filing of this Form 10-K.
(8)	Mr. Baier was appointed Executive Vice President, Chief Financial Officer and Treasurer in August 2003.
(9)	Mr. Dugan was appointed Executive Vice President — Business Banking in November 2003.

Options/ SAR Grants in 2005

      The following table provides information relating to option grants pursuant to the Company’s stock option plans during 2005 to our named executive officers.

			% of Total
			Options
	Options		Granted to			Exercise		Expiration		Fair Value of
Name	Granted(1)		Employees			Price(2)		Date		Options(3)
Alan H. Fishman		60,400		13.6	%	$	38.91		2-23-2015	$	621,860
Frank W. Baier		23,000		5.2	%		38.91		2-23-2015		236,801
Brendan J. Dugan		23,000		5.2	%		38.91		2-23-2015		236,801
Gary M. Honstedt		23,000		5.2	%		38.91		2-23-2015		236,801
Harold A. McCleery		23,000		5.2	%		38.91		2-23-2015		236,801
Terence J. Mitchell		23,000		5.2	%		38.91		2-23-2015		236,801

(1)	Consists of stock options exercisable at the rate of 331/3% per year from the date of grant.
(2)	The exercise price was based on the fair market value of a share of Common Stock on the date of grant.
(3)	The fair value of the options granted was estimated using the Black-Scholes Pricing Model. Under such analysis, the risk-free interest rate was assumed to be 3.77% to 4.45% depending on the timing of the particular option grant, the expected life of the options to be six years, the expected volatility to be 28.43% to 29.34% depending on the timing of the particular option grant, and the dividend yield to be 2.67% to 3.48%, depending on the timing of the particular option grant per share, depending on the date the particular option grant was made.

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Aggregated Option Exercises in 2005 and Year-end Option Values

      The following table provides information relating to option exercises in 2005 by the Company’s named executive officers and the value of such officers’ unexercised options at December 31, 2005.

					Number of Unexercised				Value of Unexercised
	Shares				Options at Year End				Options at Year End(1)
	Acquired on		Value
Name	Exercise		Realized		Exercisable		Unexercisable		Exercisable		Unexercisable
Alan H. Fishman		—	$	—		337,600		193,200	$	6,360,628	$	1,717,570
Frank W. Baier		—		—		77,750		78,250		1,111,745		523,335
Brendan J. Dugan		—		—		55,750		90,250		95,305		115,775
Gary. M. Honstedt		—		—		88,250		57,750		1,496,755		260,575
Harold A. McCleery		—		—		83,250		62,750		1,242,805		364,775
Terence J. Mitchell		—		—		201,554		51,500		4,638,266		140,075

(1)  Based on a per share market price of $39.73 at December 30, 2005 (the last trading day in 2005).

Severance and Employment Agreements

      The Company and the Bank entered into Change in Control Agreements with Messrs. Fishman, Baier, Dugan, Honstedt, McCleery and Mitchell (as well as certain other executive officers). The agreements have terms of three years and are extended each year for a successive, additional one-year period upon approval by the board of directors unless either the board of directors or the individual elects in writing, not less than 30 days prior to the annual anniversary date, not to extend the term.

      The agreements provide that if certain adverse actions are taken with respect to the individual’s employment following a change in control, as defined, of the Company or the Bank, the individual will be able to terminate his or her employment and be entitled to a cash severance payment equal to three times the individual’s annual compensation. In addition, the individual will be entitled to a continuation of benefits similar to those he is receiving at the time of such termination for the remaining term of the agreement or until he obtains full-time employment with another employer, whichever occurs first.

      A change in control generally is defined in the agreements to include any change in control of the Company or the Bank required to be reported under the federal securities laws, as well as (i) the acquisition by any person of 20% or more of our outstanding voting securities and (ii) a change in a majority of our directors during any three-year period without the approval of at least two-thirds of the persons who were directors at the beginning of such period.

      The agreements also provide that in the event that any of the payments to be made thereunder or otherwise upon termination of employment are deemed to constitute “excess parachute payments” within the meaning of Section 280G of the Internal Revenue Code, and such payments will cause the executive officer to incur an excise tax under the Internal Revenue Code, Independence shall pay the executive officer an amount such that after payment of all federal, state and local income tax and any additional excise tax, the executive will be fully reimbursed for the amount of such excise tax. Excess parachute payments generally are payments in excess of three times the recipient’s average annual compensation from the employer includable in the recipient’s gross income during the most recent five taxable years ending before the date of a change in control of the employer (“base amount”). Recipients of excess parachute payments are subject to a 20% excise tax on the amount by which such payments exceed the base amount, in addition to regular income taxes, and payments in excess of the base amount are not deductible by the employer as compensation expense for federal income tax purposes.

      Under the Merger Agreement discussed in Item 1 hereof, Sovereign has agreed that, so long as specified management employees, including the named executive officers, who are parties to a Change in Control Agreement with the Company are, as of the completion of the Merger, still employed by the Company, such persons will receive all cash severance benefits to which they would otherwise be entitled pursuant to those current change in control agreements assuming a termination without “cause” of that employee on that date,

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whether or not such employees are so terminated. Under their current Change in Control Agreements, the amount of cash severance payments and pro rated bonus (exclusive of tax gross ups), which are subject to the timing of the completion of the merger, that would be payable to each of Messrs. Fishman, Baier, Dugan, Honstedt, McCleery and Mitchell, is estimated to be approximately $6.9 million, $2.3 million, $2.2 million, $2.3 million, $2.3 million, and $2.3 million, respectively.

      In connection with entering into the definitive merger agreement with Staten Island Bancorp, Inc. (“Staten Island Bancorp”), the Company, the Bank and Mr. Doherty entered into an employment and noncompetition agreement. Under the terms of the employment and noncompetition agreement, Mr. Doherty serves as Vice Chairman of both the board of directors of the Company and of the Bank for a three-year term which commenced on the completion of the merger with Staten Island Bancorp on April 12, 2004. He is entitled to a minimum base salary of $540,000 per year and bonus payments as determined by the boards of directors of the Company and the Bank. The agreement provides that, if Mr. Doherty is terminated by the Company or the Bank without “cause”, or if Mr. Doherty terminates his employment for “good reason”, he will be entitled to a cash severance amount equal to the “Annual Compensation” Mr. Doherty would have received for the remainder of the term of the agreement and benefit continuation, at no cost, for a period ending on the earlier of (i) the end of the term, or (ii) Mr. Doherty’s full time employment by another employer that offers substantially similar benefits. For purposes of the agreement, “Annual Compensation” means the highest level of aggregate base salary and cash bonus paid to Mr. Doherty during the calendar year in which the termination occurs or either of the two calendar years immediately preceding the calendar year in which the termination occurs.

      The agreement further provides that, during the 24-month period following the end of Mr. Doherty’s employment with the Company and the Bank, he will not compete with the Company or the Bank, solicit employees or solicit customers to transact business with any other entity or refrain from transacting business with the Company or the Bank. In consideration of this commitment by Mr. Doherty, the Company will pay Mr. Doherty $500,000 per year during the restricted period, payable in monthly installments.

      The Company also maintains two severance plans which covers certain officers who are not otherwise covered by change in control agreements. Such plans provide certain severance benefits to participants whose employment is terminated or whose job responsibilities are substantially reduced in connection with or subsequent to a change in control of the Company which will include the completion of the acquisition of the Company by Sovereign. The severance plans use the same definition of change in control as the change in control agreements discussed above.

Benefits

      Retirement Plan. The Bank maintains a non-contributory, tax-qualified defined benefit pension plan for eligible employees. All salaried employees who had attained at least the age of 21 and who had completed at least one hour of service as of July 31, 2000 are eligible to participate in the pension plan. The pension plan was amended in June 2000 to cease admission of any new participants after July 31, 2000. The pension plan provides for a benefit for each participant, including the eligible named executive officers, equal to 2% of the participant’s final average compensation as of July 31, 2000 (average W-2 compensation during the highest 60 consecutive months of employment) multiplied by the participant’s years (and any fraction thereof) of eligible employment for service up to and including July 31, 2000 and 1% of the participant’s final average compensation multiplied by the participant’s years (and any fraction thereof) of eligible employment on or after August 1, 2000. A participant is fully vested in his or her benefit under the pension plan after five years of service. The pension plan is funded by the Bank on an actuarial basis and all assets are held in trust by the pension plan trustee.

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      The following table illustrates the maximum annual benefit payable upon retirement at age 65 (in single life annuity amounts with no offset for Social Security benefits) at various levels of compensation and years of service under the pension plan and the Supplemental Executive Retirement Plan maintained by the Bank.

	Years of Service(1)(2)
Remuneration(3)(4)	15		20		25		30
$ 125,000	$	37,500	$	50,000	$	62,500	$	75,000
150,000		45,000		60,000		75,000		90,000
175,000		52,500		70,000		87,500		105,000
200,000		60,000		80,000		100,000		120,000
225,000		67,500		90,000		112,500		135,000
250,000		75,000		100,000		125,000		150,000
300,000		90,000		120,000		150,000		180,000
400,000		120,000		160,000		200,000		240,000
450,000		135,000		180,000		225,000		270,000
500,000		150,000		200,000		250,000		300,000
600,000		180,000		240,000		300,000		360,000
700,000		210,000		280,000		350,000		420,000
800,000		240,000		320,000		400,000		480,000
900,000		270,000		360,000		450,000		540,000
1,000,000		300,000		400,000		500,000		600,000

(1)	The annual retirement benefits shown in the table do not reflect a deduction for Social Security benefits. There are no other offsets to benefits. The amounts reflect the maximum benefit; the benefit amounts payable could be less if based in whole or in part on service after August 1, 2000.
(2)	The maximum years of service credited for benefit purposes is 30 years.
(3)	The average annual final compensation for computing benefits under the pension plan cannot exceed $220,000 (as adjusted for subsequent years pursuant to Internal Revenue Code provisions). Benefits in excess of the limitation are provided through the Supplemental Executive Retirement Plan, discussed below.
(4)	For the fiscal year of the pension plan beginning on January 1, 2006, the maximum annual benefit payable under the pension plan cannot exceed $175,000 (as adjusted for subsequent years pursuant to Internal Revenue Code provisions).

     The following table sets forth the years of credited service and the average annual compensation determined as December 31, 2005 for each of the named executive officers other than Messrs. Fishman, Baier, Dugan and McCleery who are not participants in the pension plan.

	Years of Credited			Average Annual
	Service			Earnings
Gary M. Honstedt		19	7/12	$	358,725
Terence J. Mitchell		30		$	384,365

      In connection with the merger with Staten Island Bancorp on April 12, 2004, the Company acquired the SI Bank and Trust Retirement Plan (“Staten Island Plan”), a noncontributory defined benefit pension plan, which was frozen effective as of December 31, 1999. The Staten Island Plan was merged with the pension plan maintained by the Bank on September 30, 2005.

      Supplemental Executive Retirement Plan. The Bank has adopted the Supplemental Executive Retirement Plan to provide for eligible employee benefits that would be due under its pension plan if such benefits were not limited under the Internal Revenue Code. Supplemental Executive Retirement Plan benefits provided with respect to the pension plan are reflected in the pension table. Messrs. Honstedt and Mitchell are participants in the Supplemental Executive Retirement Plan.

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Compensation of Directors

      Members of the Bank’s board of directors receive an attendance fee of $2,000 per meeting of the board, $1,250 per meeting attended of the Executive Committee and Audit Committee, and $1,000 per meeting attended of all other committees, except for Messrs. Fishman and Doherty who do not receive any fees for service on the board and board committees. Board fees are subject to periodic adjustment by the board of directors. In addition, non-employee directors receive an annual retainer. Such retainer was $30,000 in 2005. In addition, in 2005, the Chairman of the Audit Committee received an annual retainer of $10,000 and the Chairmen of the Compensation Committee and Corporate Governance/ Nominating Committee each received an annual retainer of $5,000. Under the Directors’ Fee Plan approved by stockholders of the Company at the 2001 Annual Meeting, non-employee directors receive their annual retainer in shares of Common Stock. For 2005, each non-employee-director received 832 shares of Common Stock in lieu of cash other than Mr. Desai who received 1,110 shares due to the additional retainer he received as Chairman of the Audit Committee. Messrs. Hand and Catell, as Chairman of the Compensation and Corporate Governance and Nominating Committee, respectively, each received an annual retainer of 970 shares. Directors may also elect to receive all or a portion of the remainder of their fees earned in shares of Common Stock. In June 2002, each non-employee director received a grant of a compensatory stock option pursuant to the 2002 Stock Incentive Plan (“2002 Plan”) covering 3,000 shares of Common Stock (except Ms. Ramirez who received a compensatory stock option covering 9,000 shares). The options vest at the rate of 25% per year starting on the first anniversary of the date of grant and have exercise prices equal to the fair market value of the Common Stock on the date of grant. In December 2004, each non-employee director received a grant of a compensatory stock option pursuant to the 2002 Plan covering 2,000 shares of Common Stock, also vesting at the rate of 25% per year for four years starting on the first anniversary of the date of grant with an exercise price equal to the fair market value of the Common Stock on the date of grant.

      The Company’s non-employee directors may defer all or any portion of the board and committee fees and retainer as well as the awards received under the Recognition Plan received from the Company, including the shares of Common Stock received as payment for the annual retainer. Benefits are payable upon the dates selected by the directors for the distribution over a period not to exceed ten years. The directors have the right to direct the investment of the deferred amounts except that any compensation deferred that would have been in the form of shares of Common Stock (such as the retainer) must be deemed invested in shares of Common Stock.

Compensation Committee Interlocks and Insider Participation

      For the fiscal year ended December 31, 2005, the Compensation Committee of the boards of directors of the Company and the Bank determined the salaries and bonuses of our executive officers. The Compensation Committee also reviews the salaries and bonuses for our other officers. The Compensation Committee met seven times during 2005 and its current members are Messrs. Hand, as chairman, Archie, Edelstein and Hinds and Ms. Ramirez. None of such persons is or was formerly an officer or employee of the Company, the Bank or any of their subsidiaries. The report of the Compensation Committee with respect to compensation for our Chief Executive Officer and all of our other executive officers for the fiscal year ended December 31, 2005 is set forth below.

Report of the Compensation Committee

      The following discussion provides information relative to the compensation and benefits of the President and Chief Executive Officer and certain other executive officers for the fiscal year ending December 31, 2005 and constitutes the report of the Compensation Committee.

Compensation Philosophy

      The Company’s executive compensation program is administered by the Compensation Committee (“the Committee”) of the Board of Directors. The Committee is composed of independent directors as defined by the Marketplace Rules of the Nasdaq Stock Market, Inc. On an annual basis the Committee, with the

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assistance of an independent compensation consultant engaged by and reporting to the Committee, reviews the base salary, annual incentive compensation program and long-term incentive compensation program of the Company’s executive officers. The Committee then recommends the establishment of appropriate compensation programs to the Board.

      The Committee annually evaluates the performance of the President and Chief Executive Officer and considers the recommendations and evaluations of the President and Chief Executive Officer with respect to the compensation of executive officers other than himself. The President and Chief Executive Officer does not participate in the Committee’s deliberations regarding the determination of his own compensation. The Committee also receives and considers the analysis and recommendations of its independent compensation consultant, which is engaged by and reports directly to the Committee, considers the objectives and performance of the Company, reviews the individual performance and level of responsibility of each executive officer and takes into account compensation practices at comparable financial institutions, specifically a group of financial institutions similar to the Company in size, business model and geographic location.

      The goals of the Company’s compensation programs are to attract, retain and motivate a highly competent executive team; link pay to performance within a context of fiscal responsibility; recognize both individual and business unit contributions toward achievement of the Company’s goals and objectives; strike a balance between short-term and long-term performance with a view toward achieving maximum long-term value for stockholders; and align the interests of the executive team with the interests of stockholders.

Components of the Compensation Program

      The three components of the Company’s executive compensation program are base salary, annual incentive compensation (bonus) and long-term incentive compensation.

      Base Salary. The Committee annually reviews market data compiled by its compensation consultant and evaluates the performance and responsibilities of each executive officer. Individual salaries and salary increases are based on the Company’s performance and the achievement of individual and business unit objectives during the previous fiscal year. Executive base salaries are intended to be at market average levels with the opportunity for additional compensation to come from the annual and long-term incentive portions of the Company’s compensation program.

      Annual Incentive Compensation. The Company’s executive officer incentive compensation program is designed to provide additional annual compensation based on the achievement of corporate performance objectives established by the Board of Directors as well as individual and business unit objectives. Members of the Bank’s management committee participated in the 2005 Executive Management Incentive Compensation Plan (“the 2005 Plan”). Except for the President and Chief Executive Officer, whose incentive compensation award pursuant to the 2005 Plan is based solely on corporate performance, executive officers’ awards are based 75% on corporate performance and 25% on individual and business unit performance.

      In July 2005 the Committee exercised its discretion and agreed to waive the corporate performance requirement that minimum levels of earnings per diluted share and return on average assets be achieved in order for any annual incentive compensation awards to be paid pursuant to the 2005 Plan. In making this decision, the Committee took into account the difficult and unusual economic environment and recognized that superior individual and business unit performance should be rewarded. The Committee decided to make awards pursuant to the 2005 Plan on the basis of the individual and business unit performance components of the 2005 Plan. At its meeting of January 25, 2006, the Committee, after receiving the analysis and recommendations of its compensation consultant and considering and evaluating the performance of each executive officer, voted to recommend approval of incentive compensation awards for 2005 aggregating approximately $834,000 to thirteen executive officers, including an award of $250,000 to the President and Chief Executive Officer. The Board of Directors unanimously approved said awards.

      Long-term Incentive Compensation. The Committee annually makes equity awards to the Company’s executive officers. During 2005, the Committee approved the award of an aggregate of 215,000 stock options to twelve executive officers, including the President and Chief Executive Officer, such options having a three

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year vesting period and with exercise prices equal to 100% of the fair market value of a share of stock on the date the option was granted. The Committee also approved awards of 72,546 shares of restricted stock during 2005; these restricted shares vest in full on the third anniversary of the date of the grant with no partial vesting in the interim and are subject to the achievement of certain performance criteria. The Committee uses stock options and restricted stock awards as a means to motivate the Company’s executives, to encourage executive ownership in the Company and to reward the creation of stockholder value. Stock option and restricted stock awards provide incentive for the creation of stockholder value since the full benefit of these awards can only be realized with the appreciation in the price of the Company’s common stock (with respect to options) or the attainment of specific performance goals (with respect to restricted stock awards.)

      Deductibility of Executive Compensation. Under Section 162(m) of the Internal Revenue Code, publicly-held companies such as the Company are subject to a maximum income tax deduction of $1.0 million with respect to annual compensation paid to any one of the chief executive officer or the other officers appearing in the Summary Compensation Table above, with certain exceptions for performance-based compensation. The Committee’s objective is to structure the Company’s executive compensation plans to maximize the deductibility of executive compensation under the Internal Revenue Code, and each of the 1998 Stock Option Plan, the Recognition Plan, the 2002 Stock Incentive Plan and the 2005 Stock Incentive Plan of the Company have been structured to provide for the grant of deductible performance-based compensation. The Committee reserves the right, however, in the exercise of its business judgment, to establish appropriate compensation levels for executive officers that may exceed the limits on tax deductibility established under Section l62(m) of the Internal Revenue Code.

      Compensation of the President and Chief Executive Officer. The Committee and the Board of Directors approved an annual base salary of $747,000 for Mr. Fishman effective February 20, 2006, an increase of approximately 3% above his 2004 base salary. Mr. Fishman did not receive an increase in his base salary in 2005.

      The Committee awarded Mr. Fishman stock options covering 60,400 shares on February 23, 2005, such options vesting pro rata over a three year period at an exercise price of $38.19 per share, and on the same date 20,308 shares of restricted stock vesting in full three years from the date of the award with no partial vesting until such date and subject to the achievement of certain performance criteria established by the Committee.

      As noted above, Mr. Fishman was awarded a bonus of $250,000 for 2005 (paid in 2006), of which $150,000 was paid in cash with the remainder consisting of a restricted stock grant pursuant to the 2005 Stock Incentive Plan of 2,932 shares of common stock vesting pro rata over a three year period (which resulted in a total value as of the date of the award of approximately $267,661).

      In establishing the various components of Mr. Fishman’s compensation, the Committee and the Board consider the compensation of chief executive officers at peer financial institutions in the Company’s primary market area, the significant contribution that the chief executive officer makes to the successful operations of the Company and the performance of Mr. Fishman in his position as chief executive officer of the Company.

Review of Executive Compensation

      The Committee annually reviews each component of the compensation of the Company’s Chief Executive Officer and other executive officers, including base salary, annual bonus and long-term equity-based compensation.

      In its review of the Company’s total executive compensation for 2005, the Committee took into account the report and findings of its compensation consultant with respect to the Company’s past practices as well as the marketplace, said report concluding that the Company’s total executive compensation for 2005 is within the median range of total compensation relative to other financial institutions comparable to the Company.

      Based on this review, the Committee finds that the total compensation of the Company’s Chief Executive Officer and other executive officers for 2005 was reasonable. In its review of the various components of executive compensation, the Committee considers the aggregate amounts and mix of all components for each executive in reaching its decisions.

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      The Company’s Compensation Committee during 2005 consisted of the following directors, each of whom is independent as defined in the requirements of the Nasdaq Stock Market.

The Compensation Committee

Scott M. Hand, Chairman	David L. Hinds
Willard N. Archie	Maria Fiorini Ramirez
Chaim Y. Edelstein

PERFORMANCE GRAPH

      The graph below compares the performance of the Common Stock with that of the Nasdaq Composite Index (U.S. Companies), the SNL $5 billion to $10 billion Thrift Index and the SNL $10 billion and greater Thrift Index (the “SNL Indexes”) from December 31, 2000 through December 31, 2005. The SNL Indexes are indexes created by SNL Securities, L.P., Charlottesville, Virginia, a nationally recognized analyst of financial institutions. The graph is based on the investment of $100 in the Common Stock at its closing price on December 31, 2000. The cumulative returns include the payment of dividends by the Company. The Company changed its fiscal year end from March 31st to December 31st, effective December 31, 2001.

	Period Ending
Index	12/31/00		12/31/01		12/31/02		12/31/03		12/31/04		12/31/05
Independence Community Bank Corp.	$	100.00	$	145.40	$	165.01	$	239.15	$	290.26	$	278.66
NASDAQ Composite		100.00		79.18		54.44		82.09		89.59		91.54
SNL $5B to $10B Thrift Index		100.00		115.02		137.00		198.41		223.22		205.75
SNL $10B+ Thrift Index		100.00		96.90		112.64		156.75		174.20		186.55

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ITEM 12.       Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Beneficial Ownership of Common Stock

      The following table sets forth information as to the Common Stock beneficially owned as of March 1, 2006 by (i) each of our nominees for election as director and each of our directors whose term will continue after the annual meeting, (ii) each of our executive officers named in the Summary Compensation Table below, (iii) all of our nominees for director, directors whose terms will continue after the annual meeting and executive officers as a group and each person or entity, including any “group” as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), who was known to us to be the beneficial owner of 5% or more of the outstanding common stock.

		Amount and Nature of Beneficial			Percent of
Name of Beneficial Owner or Number of Persons in Group		Ownership as of March 1, 2006(1)			Common Stock
Independence Community Bank Corp.			5,169,659	(2)		6.3	%
	Employee Stock Ownership Plan Trust
	195 Montague Street
	Brooklyn, New York 11201
Private Capital Management, L.P.			6,127,626	(3)		7.4	%
	8889 Pelican Bay Boulevard
	Naples, Florida 34108
Directors:
	Willard N. Archie		170,946	(4)(5)		*
	Robert B. Catell		291,792	(4)(5)		*
	Rohit M. Desai		288,128	(4)(5)		*
	Harry P. Doherty		819,146	(5)(6)(10)		*
	Chaim Y. Edelstein		246,329	(5)(11)		*
	Alan H. Fishman		794,579	(4)(5)(7)(8)(9)(10)		*
	Charles J. Hamm		926,123	(4)(5)		1.1	%
	Scott M. Hand		224,164	(4)(5)		*
	David L. Hinds		17,511	(5)		*
	Donald M. Karp		780,411	(5)(12)		*
	Denis P. Kelleher		209,046	(4)(5)(13)		*
	John R. Morris		116,765	(5)(14)		*
	Maria Fiorini Ramirez		23,684	(4)(5)		*
	Victor M. Richel		37,878	(5)(10)		*
Other Senior Executive Officers:
	Frank W. Baier		187,698	(5)(7)(9)		*
	Brendan J. Dugan		134,933	(4)(5)(7)(9)(10)		*
	Gary M. Honstedt		203,630	(5)(7)(9)(10)		*
	Harold A. McCleery		175,458	(5)(7)(9)		*
	Terence J. Mitchell		387,367	(4)(5)(7)(9)(10)		*
All directors and executive officers as a group (22 persons)			6,246,198	(15)		7.6	%

* Represents less than 1% of the outstanding shares of Common Stock.

(1)  The number of shares beneficially owned by the persons set forth above is determined under rules under Section 13 of the Exchange Act, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, an individual is considered to beneficially own any shares of Common Stock if he or she directly or indirectly has or shares: (i) voting power, which includes the power to vote or to direct the voting of the shares, or (ii) investment power, which includes the power to dispose

157

or direct the disposition of the shares. Unless otherwise indicated, an individual has sole voting power and sole investment power with respect to the indicated shares.

(2)	The Independence Community Bank Corp. Employee Stock Ownership Plan Trust (“Trust”) was established pursuant to the Independence Community Bank Corp. Employee Stock Ownership Plan (“ESOP”). RSGroup Trust Company is the trustee (“Trustee”) of the Trust. As of December 31, 2005 1,789,937 of the shares held by the ESOP had been allocated to the accounts of participating employees. Under the terms of the ESOP, the Trustee will generally vote the allocated shares held in the ESOP in accordance with the instructions of the participating employees. Unallocated shares held in the ESOP will generally be voted in the same ratio on any matter as those allocated shares for which instructions are given, subject in each case to the fiduciary duties of the ESOP trustees and applicable law. Any allocated shares which abstain on the proposal will be disregarded in determining the percentage of stock voted for and against each proposal by the participants and beneficiaries. Allocated shares for which no timely instructions are received will be voted by the Trustee who will vote such shares in the same proportion as those allocated shares for which timely instructions were received. The amount of Common Stock beneficially owned by all directors and executive officers as a group does not include the shares held by the ESOP, other than shares allocated to an executive officer as a participant.
(3)	Based solely on a Schedule 13G/ A, dated February 14, 2006, filed by Private Capital Management, L.P. (“PCM”), a registered investment adviser, Bruce S. Sherman and Gregg J. Powers, chief executive officer and president of PCM, respectively. PCM and Messrs. Sherman and Powers exercise in these capacities shared voting power and shared dispositive power with respect to the 6,127,626 shares of Common Stock held by PCM’s clients and managed by PCM.
(4)	Includes shares held by the Independence Community Bank Corp. Deferred Compensation Plan (the “Deferred Compensation Plan”), over which each director and executive officer named below disclaims beneficial ownership except to the extent of his or her personal pecuniary interest therein, as follows:

Name	No. of Shares
Willard N. Archie		43,945
Robert B. Catell		89,943
Rohit M. Desai		92,349
Brendan J. Dugan		21,185
Alan H. Fishman		183,547
Charles J. Hamm		389,360
Scott M. Hand		57,421
Denis Kelleher		2,900
Terence J. Mitchell		109,256
Maria Fiorini Ramirez		11,434

(5)  Includes shares subject to stock options which are currently or will first become exercisable within 60 days of March 1, 2006 as follows:

Name	No. of Options
Willard N. Archie		104,779
Frank W. Baier		91,167
Robert B. Catell		194,779
Rohit M. Desai		194,779
Harry P. Doherty		233,740
Brendan J. Dugan		69,167
Chaim Y. Edelstein		164,779
Alan H. Fishman		432,834
Charles J. Hamm		482,368
Scott M. Hand		142,750
David L. Hinds		15,987
Gary M. Honstedt		106,667
Donald M. Karp		1,250
Denis P. Kelleher		38,449
Harold A. McCleery		96,667
Terence J. Mitchell		214,971
John R. Morris		52,694
Maria Fiorini Ramirez		12,250
Victor M. Richel		2,750

158

(6)

Includes 5,089 shares held by the Staten Island Bancorp Directors’ Deferred Compensation Plan.

(7)

Includes with respect to the following persons shares allocated to each individual pursuant to grants made under the Recognition Plan, the 2002 Plan or the 2005 Stock Incentive Plan but which have not vested. Included in the total number of shares beneficially owned by Messrs. Fishman, Baier, Dugan, Honstedt, McCleery and Mitchell are 52,932, 30,800, 20,800, 25,667, 25,800 and 20,667 shares respectively, which have been awarded pursuant to the 2005 Plan as of March 1, 2006, but are unfunded as of such date.

Name	No. of Shares
Frank W. Baier		62,848
Brendan J. Dugan		42,972
Alan H. Fishman		152,035
Gary M. Honstedt		60,715
Harold A. McCleery		55,325
Terence J. Mitchell		42,666

(8)

Includes 141,616 shares awarded under the Recognition Plan, the 2002 Plan and the 2005 Plan for Mr. Fishman which are contingent upon the achievement of certain performance goals established pursuant to the terms of the Plans. Until such performance goals are satisfied and the shares vest, such shares are voted by the trustees of the Recognition Plan. Such shares are included in the amount shown in Footnote 7 for Mr. Fishman.

(9)

Includes allocated shares held in the ESOP and shares contributed by the Company on the following individual’s behalf based on their contributions to the 401(k) Plan as of December 31, 2004. Information about the December 31, 2005 ESOP allocation is not available as of the date of filing of this Form 10-K.

Name	No. of Shares
Alan H. Fishman		2,158
Frank W. Baier		2,158
Brendan J. Dugan		480
Gary M. Honstedt		10,959
Harold A. McCleery		2,158
Terence J. Mitchell		13,280

(10)  Includes shares held in the 401(k) Plan as follows:

Name	No. of Shares
Harry P. Doherty		116,837
Brendan J. Dugan		467
Alan H. Fishman		2,009
Gary M. Honstedt		6,866
Terence J. Mitchell		5,281
Victor M. Richel		10,426

Does not include any shares contributed to the 401(k) Plan on their behalf by the Company and held in the ESOP. See Footnote 9 above.

(11)	Does not include 1,000 shares owned by Mr. Edelstein’s son.
(12)	Includes 276,953 shares under shared voting and dispositive authority with Harriet M. Alpert, 41,841 shares owned by Mr. Karp’s spouse, 67 shares owned by a company of which Mr. Karp is a director, and 92,899 shares held in various trusts of which Mr. Karp or his spouse is the trustee, as to which Mr. Karp disclaims beneficial ownership.
(13)	Includes 54,366 shares held by the Staten Island Bancorp Directors’ Deferred Compensation Plan, 1,858 shares owned by Mr. Kelleher’s spouse and 20,000 shares held by Wall Street Access, as to which Mr. Kelleher disclaims beneficial ownership.
(14)	Includes 29,433 shares held individually by Mr. Morris’ spouse and 4,241 shares held by Mr. Morris in his individual retirement account.
(15)	Includes 81,929 shares held by the Recognition Plan, the 2002 Plan and the 2005 Plan which may be voted by directors and executive officers pending vesting and distribution, 8,886 shares held by the Recognition Plan and the 2002 Plan which are voted by the trustees thereof (such shares are excluded from the shares beneficially owned by each of such directors), 49,921 shares allocated to executive officers pursuant to the ESOP and 2,724,577 shares which may be acquired by directors and executive officers upon the exercise of stock options which are currently or will first become exercisable within 60 days of March 1, 2006.

159

Existence of Change of Control of the Company

      As noted in Item 1 hereof, the Company entered into the Merger Agreement with Sovereign and Merger Sub on October 24, 2005. Subject to the terms and conditions of the Merger Agreement, Merger Sub will be merged with and into the Company (the “Merger”). Upon effectiveness of the Merger, each outstanding share of common stock of the Company other than shares owned by the Company (other than in a fiduciary capacity), Sovereign or their respective subsidiaries and other than dissenting shares will be converted into the right to receive $42.00 per share in cash. As a result, a change in control of the Company will be deemed to have occurred upon effectiveness of the Merger.

Equity Compensation Plans

      The following table provides information as of December 31, 2005 with respect to shares of Common Stock that may be issued under the Company’s existing equity compensation plans which include the 1998 Stock Option Plan, 1998 Recognition and Retention Plan and Trust Agreement, the 2002 Stock Incentive Plan, the 2005 Stock Incentive Plan and the Directors’ Fee Plan (collectively, the “Plans”). Each of the Plans has been approved by the Company’s stockholders.

      The table does not include information with respect to shares of Common Stock subject to outstanding options granted under equity compensation plans assumed by the Holding Company in connection with mergers and acquisitions of the companies which originally granted those options. Note 3 to the table sets forth the total number of shares of Common Stock issuable upon the exercise of assumed options as of December 31, 2005 and the weighted average exercise price of those options. No additional options may be granted under those assumed plans.

								Number of
								securities
		Number of						remaining available
		securities to be			Weighted-			for future issuance
		issued upon			average exercise			under equity
		exercise of			price of			compensation
		outstanding			outstanding			plans (excluding
		options, warrants			options, warrants			securities reflected
		and rights			and rights			in column (a))
Plan Category		(a)			(b)			(c)
Equity compensation plans approved by security holders			5,208,442	(1)	$	22.27	(1)		4,154,500	(2)(3)
Equity compensation plans not approved by security holders(4)			5,000			12.94			—
	Total		5,213,442		$	22.26			4,154,500

(1)	Included in such number are 446,838 shares which are subject to restricted stock grants which were not vested as of December 31, 2005. The weighted average exercise price excludes restricted stock grants.
(2)	Does not take into account shares available for future issuance under the Directors’ Fee Plan, under which the $30,000 annual retainer payable to each of the Company’s non-employee directors and Directors Emeritus is payable in shares of Common Stock. Because the number of shares of Common Stock issuable under the Directors’ Fee Plan is based on a formula and not a specific reserve amount, the number of shares which may be issued pursuant to this plan in the future is not determinable. This plan was approved by stockholders in May 2001. During the year ended December 31, 2005, a total of 13,867 shares were issued under this plan.
(3)	The table does not include information for equity compensation plans assumed by the Holding Company in connection with mergers and acquisitions of the companies which originally established those plans. As of December 31, 2005, a total of 1,153,109 shares of Common Stock were issuable upon exercise of outstanding options under those assumed plans and the weighted average exercise price of those outstanding options was $24.06 per share.
(4)	Consists of a single grant of options to a non-employee director upon appointment to the Board of Directors of the Company.

ITEM 13.       Certain Relationships and Related Transactions

       Although federal and state banking regulations permit some borrowing by directors and executive officers, the board of directors of the Bank has adopted a policy prohibiting loans or other extensions of credit by the Bank to directors, executive officers and the immediate relations and related interests of each such

160

person. Exceptions must be approved by the board of directors of the Bank. To the extent any such loans have been permitted, they have been made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. The Company believes that at the time of origination these loans neither involved more than the normal risk of collectibility nor presented any other unfavorable features.

ITEM 14.       Principal Accounting Fees and Services

General

      In accordance with the provisions of the charter of the Audit Committee, the Audit Committee of the Company’s board of directors has reappointed Ernst & Young LLP as the independent registered public accounting firm to audit the Company’s financial statements for the year ending December 31, 2006.

      In connection with the determination to reappoint Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2006, the Audit Committee considered whether Ernst & Young LLP’s provision of services other than audit services is compatible with maintaining the independence of the Company’s outside registered public accounting firm. In addition, the Audit Committee reviewed the fees described below for audit-related services (there were no fees or charges for tax-related services in 2005 or 2004) and concluded that such fees are compatible with the independence of Ernst & Young LLP.

      In January 2003, our board of directors and the Audit Committee amended the charter of the Audit Committee to provide, among other things, that the Audit Committee shall be directly responsible for the appointment, compensation and oversight of the work of our independent registered public accounting firm and to generally require the Audit Committee to preapprove all audit services and permitted non-audit services (including the fees and terms thereof).

Audit Fees

      The following table sets forth the aggregate fees paid by the Company to Ernst & Young LLP for professional services rendered in connection with the audit of Independence’s consolidated financial statements for 2005 and 2004, as well as the fees paid by the Company to Ernst & Young LLP for audit-related and other services rendered by Ernst & Young LLP to us during 2005 and 2004.

	Year Ended December 31,
	2005		2004
Audit fees(1)	$	995,000	$	945,000
Audit-related fees(2)		258,000		94,500
Tax fees		—		—
All other fees		119		1,938
Total	$	1,253,119	$	1,041,438

(1)

Audit fees consist of fees incurred in connection with the audit of the Company’s annual financial statements and the review of the interim financial statements included in the Company’s quarterly reports filed with the SEC, as well as work generally only the independent registered public accounting firm can reasonably be expected to provide, such as statutory audits, consents and assistance with and review of documents filed with the SEC.

(2)

Audit-related fees primarily consist of fees incurred in connection with audits of the financial statements of our employee benefit plans and review of registration statements and during 2004, services performed in connection with the merger with Staten Island Bancorp.

     The Audit Committee selects our independent registered public accounting firm and pre-approves all audit services to be provided by it to the Company. The Audit Committee also reviews and pre-approves all audit-related and non-audit related services rendered by the Company’s independent registered public accounting firm in accordance with the Audit Committee’s charter. In its review of these services and related fees and terms, the Audit Committee considers, among other things, the possible effect of the performance of

161

such services on the independence of the Company’s independent registered public accounting firm. The Audit Committee pre-approves certain audit-related services and certain non-audit related tax services which are specifically described by the Audit Committee on an annual basis and separately approves other individual engagements as necessary.

      Each new engagement of Ernst & Young LLP was approved in advance by the Audit Committee and none of those engagements made use of the de minimis exception to pre-approval contained in the SEC’s rules.

PART IV

ITEM 15.       Exhibits, Financial Statement Schedules

       (a) Documents Filed as Part of this Report

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

Report of Independent Registered Public Accounting Firm Consolidated Statements of Financial Condition as of December 31, 2005 and 2004.

Consolidated Statements of Operations for the Years Ended December 31, 2005, 2004 and 2003.

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2005, 2004 and 2003.

Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003.

Notes to Consolidated Financial Statements.

(2)	All schedules for which provision is made in the applicable accounting regulations of the SEC are omitted because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements and related notes thereto.
(3)	The following exhibits are filed as part of this Form 10-K, and this list includes the Exhibit Index.

162

EXHIBIT INDEX

2.1	(1)	Agreement and Plan of Merger by and among Sovereign Bancorp, Inc., Iceland Acquisition Corp. and Independence Community Bank Corp.
3.1	(2)	Articles of Incorporation of Independence Community Bank Corp.
3.2	(3)	Bylaws, as amended, of Independence Community Bank Corp.
3.3	(4)	Amendment to Certificate of Incorporation of Independence Community Bank Corp.
4.0	(2)	Specimen Stock Certificate of Independence Community Bank Corp.
10.1	(2)	Form of Change of Control Agreement entered into among Independence Community Bank Corp., Independence Community Bank and certain senior executive officers of the Company and the Bank.*
10.2	(2)	Form of Change in Control Agreement entered into between Independence Community Bank and certain officers thereof.*
10.3	(2)	Form of Change of Control Agreement entered into among Independence Community Bank Corp., Independence Community Bank and certain executive officers of the Company and the Bank.*
10.4	(2)	Form of Change of Control Agreement entered into between Independence Community Bank and certain executive officers thereof.*
10.5		Independence Community Bank Amended and Restated Change in Control Severance Plan.*
10.6	(5)	1998 Stock Option Plan.*
10.7	(5)	1998 Recognition and Retention Plan and Trust Agreement.*
10.8	(6)	Broad National Bancorporation Incentive Stock Option Plan.*
10.9	(6)	1993 Broad National Incentive Stock Option Plan.*
10.10	(6)	1993 Broad National Directors Non-Statutory Stock Option Plan.*
10.11	(6)	1996 Broad National Incentive Stock Option Plan.*
10.12	(6)	1996 Broad National Bancorporation Directors Non-Statutory Stock Option Plan.*
10.13	(7)	1996 Statewide Financial Corporation Incentive Stock Option Plan.*
10.14	(8)	Amended and Restated Deferred Compensation Plan.*
10.15	(9)	Directors Fiscal 2002 Stock Retainer Plan.*
10.16	(10)	Directors Fee Plan.*
10.17	(11)	Independence Community Bank Executive Management Incentive Compensation Plan (April 1, 2001-December 31, 2001).*
10.18	(12)	Independence Community Bank Executive Management Incentive Compensation Plan (January 1, 2002-December 31, 2002).*
10.19	(13)	2002 Stock Incentive Plan.*
10.20	(14)	Independence Community Bank Executive Management Incentive Compensation Plan (January 1, 2003-December 31, 2003).*
10.21	(14)	Form of Amendment Number One to Change in Control Severance Agreements.
10.22	(4)	Amendment No. 1 to the SI Bank & Trust Deferred Compensation Plan “A”.
10.23	(15)	1998 Staten Island Bancorp, Inc. Amended and Restated Stock Option Plan.*
10.24	(16)	Independence Community Bank Executive Management Incentive Compensation Plan (January 1, 2004-December 31, 2004).*
10.25		Independence Community Bank Job Group 1 Change in Control Severance Plan*
10.26	(17)	2005 Stock Incentive Plan*
10.27		Independence Community Bank Executive Management Incentive Compensation Plan (January 1, 2005-December 31, 2005).*
10.28		Employment and Noncompetition Agreement between Independence Community Bank Corp., Independence Community Bank and Harry P. Doherty.*

163

11.0		Statement re computation of per share earnings — Reference is made to Item 8. “Financial Statements and Supplementary Data” for the required information.
18.1	(16)	Letter re change in accounting principles.
21.0		Subsidiaries of the Registrant — Reference is made to Item 1. “Business” for the required information.
23.1		Consent of Ernst & Young LLP
31.1		Certification pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1)	Incorporated herein by reference from the Company’s Current Report on Form 8-K filed by the Company with the SEC on October 27, 2005.
(2)	Incorporated herein by reference from the Company’s Registration Statement on Form S-1 (Registration No. 333-30757) filed by the Company with the SEC on July 3, 1997.
(3)	Incorporated herein by reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 filed by the Company with the SEC on November 14, 2002.
(4)	Incorporated herein by reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 filed by the Company with the SEC on November 8, 2004.
(5)	Incorporated herein by reference from the Company’s definitive proxy statement filed by the Company with the SEC on August 17, 1998.
(6)	Incorporated herein by reference from the Company’s registration statement on Form S-8 (Registration No. 333-85981) filed by the Company with the SEC on August 26, 1999.
(7)	Incorporated herein by reference from the Company’s registration statement on Form S-8 (Registration No. 333-95767) filed by the Company with the SEC on January 31, 2000.
(8)	Incorporated herein by reference from the Company’s Current Report on Form 8-K filed by the Company with the SEC on April 28, 2005.
(9)	Incorporated herein by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2001 filed by the Company with the SEC on June 22, 2001.

(10)	Incorporated herein by reference from the Company’s definitive proxy statement filed by the Company with the SEC on June 22, 2001.
(11)	Incorporated herein by reference from the Company’s Annual Report on Form 10-KT for the transition period from April 1, 2001 to December 31, 2001 filed by the Company with the SEC on March 28, 2002.
(12)	Incorporated herein by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002 filed by the Company with the SEC on March 31, 2003.
(13)	Incorporated herein by reference from the Company’s definitive proxy statement filed by the Company with the SEC on April 10, 2002.
(14)	Incorporated herein by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003 filed by the Company with the SEC on March 10, 2004.
(15)	Incorporated herein by reference from the Company’s registration statement on Form S-8 (Registration No. 333-111562) filed by the Company with the SEC on April 23, 2004.
(16)	Incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004 filed by the Company on March 11, 2005.
(17)	Incorporated herein by reference from the Company’s definitive proxy statement filed by the Company with the SEC on April 18, 2005.

* Denotes management compensation plan or arrangement.

     (b) The exhibits listed under (a)(3) of this Item 15 are filed herewith.

      (c) Reference is made to (a)(2) of this Item 15.

164

SIGNATURES

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

Independence Community Bank Corp.

/s/ Alan H. Fishman

Alan H. Fishman

President and Chief Executive Officer

Date: March 15, 2006

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

	Name		Date
/s/ Charles J. Hamm Charles J. Hamm		Chairman of the Board	March 15, 2006
/s/ Harry P. Doherty Harry P. Doherty		Vice Chairman of the Board	March 15, 2006
/s/ Donald M. Karp Donald M. Karp		Vice Chairman of the Board	March 15, 2006
/s/ Victor M. Richel Victor M. Richel		Vice Chairman of the Board	March 15, 2006
/s/ Alan H. Fishman Alan H. Fishman		President and Chief Executive Officer	March 15, 2006
/s/ Frank W. Baier Frank W. Baier		Executive Vice President, Chief Financial Officer, Treasurer and Principal Accounting Officer	March 15, 2006
/s/ Willard N. Archie Willard N. Archie		Director	March 15, 2006
/s/Robert B. Catell		Director	March 15, 2006
/s/ Rohit M. Desai Rohit M. Desai		Director	March 15, 2006
/s/ Chaim Y. Edelstein Chaim Y. Edelstein		Director	March 15, 2006

165

	Name		Date
/s/ Scott M. Hand Scott M. Hand		Director	March 15, 2006
/s/ David L. Hinds David L. Hinds		Director	March 15, 2006
/s/Dennis P. Kelleher		Director	March 15, 2006
/s/ John R. Morris John R. Morris		Director	March 15, 2006
/s/ Maria Fiorini Ramirez Maria Fiorini Ramirez		Director	March 15, 2006

166 EX-10.5 2 y18520exv10w5.htm EX-10.5: AMENDED AND RESTATED CHANGE IN CONTROL SEVERENCE PLAN

Exhibit 10.5

INDEPENDENCE COMMUNITY BANK AMENDED AND
RESTATED CHANGE IN CONTROL SEVERANCE PLAN

AMENDED BY THE BOARD OF DIRECTORS
APRIL 22 ^ND, 2005

ARTICLE I
ESTABLISHMENT OF THE PLAN

     Independence Community Bank (the “Bank”) hereby establishes the Amended and Restated Change in Control Severance Plan (the “Plan”).

ARTICLE II
PURPOSE OF THE PLAN; ELIGIBILITY TO PARTICIPATE

     2.01 Purpose of the Plan. The purpose of this Plan is provide certain specified benefits to certain Covered Officers as hereinafter defined and as provided herein whose employment is terminated in connection with or subsequent to a Change in Control of the Bank’s parent corporation, Independence Community Bank Corp. (the “Corporation”) (the Bank and the Corporation are hereinafter collectively referred to as the “Employer”).

     2.02 Eligibility to Participate. Those officers of the Bank who meet the definition of Covered Officer, as defined herein, shall be eligible to participate in this Plan. A listing of all eligible Covered Officers is attached hereto as Appendix A.

ARTICLE III
DEFINITIONS

     3.01 Annual Compensation. A Covered Officer’s “Annual Compensation” for purposes of this Plan shall be deemed to mean the aggregate base salary and incentive compensation (whether cash or equity based as provided herein) earned by or paid to the Covered Officer by the Employer or any subsidiary thereof during the calendar year immediately preceding the calendar year in which the Date of Termination occurs. Notwithstanding the foregoing, for purposes of this Plan, a Covered Officer’s Annual Compensation does not include deferred compensation earned by the Covered Officer in a prior year but received in the calendar year immediately preceding the calendar year in which the Date of Termination occurs. In addition, for purposes of this Agreement, “incentive compensation” shall include both cash and equity-based incentive compensation; provided, however, that for purposes of this Plan equity-based incentive compensation shall only include grants of restricted share awards (“Restricted Share Incentive Awards”) resulting from incentive compensation awards under the Executive Management Incentive Compensation Plan or the Officers Incentive Compensation Plan (the “Incentive Plans”) and not options and restricted stock awards granted pursuant to the 1998 Stock Option Plan, the 1998 Recognition and Retention Plan and Trust Agreement or

the 2002 and 2005 Stock Incentive Plans (collectively, the “Equity Plans”) except to the extent that any such Restricted Share Incentive Awards are granted under said Equity Plans solely as a result of incentive awards made pursuant to the terms of the Incentive Plans or any successors thereto; provided, further, that in the event that at the time of termination the equity-based portion of an incentive compensation grant has not fully vested, solely for purposes of calculating a Covered Officer’s Annual Compensation in order to determine the amount of severance due such Covered Officer pursuant to the terms of Section 4.01 hereof, such unvested Restricted Share Incentive Award shall be deemed to have been vested and paid as of the end of the calendar year immediately preceding the calendar year in which the Date of Termination occurs. For purposes of determining the value of the Restricted Share Incentive Award deemed vested as of the end of the calendar year immediately preceding the calendar year in which the Date of Termination occurs in order to determine the severance due a Covered Officer hereunder, the number of shares subject to the Restricted Share Incentive Award shall be multiplied by the fair market value of a share of common stock of the Corporation, determined as of the date of the grant of the Restricted Share Incentive Award.

     3.02 Cause. Termination of a Covered Officer’s employment for “Cause” shall mean termination because of personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order. For purposes of this paragraph, no act or failure to act on the Covered Officer’s part shall be considered “willful” unless done, or omitted to be done, by the Covered Officer not in good faith and without reasonable belief that the Covered Officer’s action or omission was in the best interests of the Employer.

     3.03 Change in Control of the Corporation. “Change in Control of the Corporation” shall mean the occurrence of any of the following: (i) the acquisition of control of the Corporation as defined in 12 C.F.R. §574.4, unless a presumption of control is successfully rebutted or unless the transaction is exempted by 12 C.F.R. §574.3(c)(vii), or any successor to such sections; (ii) an event that would be required to be reported in response to Item 5.01 of Form 8-K or Item 6(e) of Schedule 14A of Regulation 14A pursuant to the Securities Exchange Act of 1934, as amended (“Exchange Act”), or any successor thereto, whether or not any class of securities of the Corporation is registered under the Exchange Act; (iii) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation’s then outstanding securities; or (iv) during any period of 36 consecutive months, individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period.

     3.04 Code. “Code” shall mean the Internal Revenue Code of 1986, as amended.

     3.05 Committee. “Committee” means a committee of two or more directors appointed by the Board pursuant to Article VII hereof.

     3.06 Covered Officer. “Covered Officer” shall mean: (1) an Officer of the Employer, including wholly owned subsidiaries thereof, whose date of hire is on or before December 31^st, 2004 and who achieved the level of Officer, as defined herein, on or before March 31^st, 2005; or (2) an Officer designated as eligible to participate in this Plan by the Committee.

     3.07 Covered Officer’s Severance Period. “Covered Officer’s Severance Period” shall mean the period of time in years for which severance benefits are payable to a Covered Officer as provided in Appendix A attached hereto.

     A Covered Officer’s Severance Period shall be frozen at the level in effect as of March 31^st, 2005 regardless of any change in the Covered Officer’s official title subsequent to that date.

     3.08 Date of Termination. “Date of Termination” shall mean (i) if a Covered Officer’s employment is terminated for Cause, the date on which the Notice of Termination is given, and (ii) if a Covered Officer’s employment is terminated for any other reason, the date specified in the Notice of Termination.

     3.09 Disability. Termination by the Employer of a Covered Officer’s employment based on “Disability” shall mean termination because of any physical or mental impairment which qualifies the Covered Officer for disability benefits under the applicable long-term disability plan maintained by the Employer or any subsidiary or, if no such plan applies, which would qualify the Covered Officer for disability benefits under the Federal Social Security System.

     3.10 Employee. “Employee” shall mean any person, including a Covered Officer, employed by the Employer on a salaried basis. A person employed by the Employer on a hourly, commission or fee basis or similar arrangement shall not be considered an Employee for purposes of this Plan.

     3.11 Good Reason. Termination by a Covered Officer of the Covered Officer’s employment for “Good Reason” shall mean termination by the Covered Officer within twelve months following a Change in Control of the Corporation based on:

     (i) Without the Covered Officer’s express written consent, a reduction of ten percent (10%) or more in the Covered Officer’s base salary as in effect immediately prior to the date of the Change in Control of the Corporation;

     (ii) Any relocation of the Covered Officer’s principal site of employment to a location more than fifty (50) miles from the business location of the Covered Officer as of the date of the Change in Control; or

     (iii) Any purported termination of the Covered Officer’s employment for Disability or Retirement which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.13 below.

     3.12 IRS. “IRS” shall mean the Internal Revenue Service.

     3.13 Notice of Termination. Any purported termination of a Covered Officer’s employment by the Employer for any reason or by a Covered Officer for any reason, including without limitation for Good Reason, shall be communicated by written “Notice of Termination” to the other party hereto.

For purposes of this Plan, a “Notice of Termination” shall mean a dated notice which (i) indicates the specific termination provision in this Plan relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Covered Officer’s employment under the provision so indicated, (iii) specifies a Date of Termination, which shall be not less than thirty (30) nor more than ninety (90) days after such Notice of Termination is given, except in the case of the Employer’s termination of the Covered Officer’s employment for Cause, which shall be effective immediately; and (iv) is given in the manner specified in Article VIII hereof.

     3.14 Officer. “Officer” shall mean any Employee of the Employer having the title of Vice President or more senior title who is neither at the Job Group 1 officer level nor a party to a severance or employment agreement with the Employer that is in effect as of the date of the Notice of Termination. Officers who are hired at or who attain the Job Group 1 officer level shall not participate in this Plan but shall participate in the Independence Community Bank Job Group 1 Change in Control Severance Plan adopted April 22, 2005.

     3.15 Retirement. “Retirement” shall mean voluntary termination by the Covered Officer in accordance with the Employer’s retirement policies, including early retirement, generally applicable to their salaried employees.

ARTICLE IV
BENEFITS

     4.01 Payments and Benefits Upon Termination. Except as provided herein, no Covered Officer or Employee shall be eligible to participate or be entitled to payment of a benefit pursuant to this Plan. If a Covered Officer’s employment is terminated subsequent to a Change in Control of the Corporation by (i) the Employer for other than Cause, Disability, Retirement or the Covered Officer’s death or (ii) the Covered Officer for Good Reason, then the Employer shall:

(a) Pay to the Covered Officer a cash severance amount (“Cash Severance Payment”) equal to the aggregate of the following for the Covered Officer’s Severance Period:

(i)	the Covered Officer’s Annual Compensation;
(ii)	the present value of the cost of providing the Covered Officer with coverage under the Bank’s medical and dental insurance plans.

                    Such Cash Severance Payment shall be subject to reduction as provided in subsections 4.01(b) and (c) hereof.

(b)	Notwithstanding anything to the contrary herein, the Cash Severance Payment shall be reduced in accordance with the number of whole months that the Covered Officer continues to be employed by the Employer or the successor thereto subsequent to a Change in Control of the Corporation.
	For example, should the Covered Officer’s Severance Period be equal to 2 years or 24 months, but the covered Officer continues to be employed for six months following a Change in Control of

the Corporation, then his or her Cash Severance Payment shall be equal to a one and one-half year (18 months) payment rather than two years (24 months).

     (c) If the Cash Severance Payment pursuant to Sections 4.01 (a) and (b) hereof, either alone or together with other payments and benefits which the Covered Officer has the right to receive from the Employer, would constitute a “parachute payment” under Section 280G of the Code, the payment by the Bank pursuant to this Section 4.01 hereof shall be further reduced, by the amount, if any, which is the minimum necessary to result in no portion of the Cash Severance Payment by the Bank under Section 4.01 being non-deductible to the Bank pursuant to Section 280G of the Code and subject to the excise tax imposed under Section 4999 of the Code. The determination of any reduction in the Cash Severance to be made pursuant to this Section 4.01 shall be based upon the opinion of independent counsel selected by the Bank’s independent public accountants and paid by the Bank. Such counsel shall be reasonably acceptable to the Bank and the Covered Officer; shall promptly prepare the foregoing opinion, but in no event later than thirty (30) days from the Date of Termination; and may use such actuaries as such counsel deems necessary or advisable for the purpose.

     (d) Nothing contained herein shall result in a reduction of any payments or benefits to which the Covered Officer may be entitled upon termination of employment under any circumstances other than as specified in Sections 4.01(b) and 4.01(c) set forth above, or a reduction in the payments and benefits specified in this Section 4.01 below zero.

     4.02 Mitigation; Exclusivity of Benefits.

     (a) A Covered Officer shall not be required to mitigate the amount of any benefits hereunder by seeking other employment or otherwise, nor shall the amount of any such benefits be reduced by any compensation earned by the Covered Officer as a result of employment by another employer after the Date of Termination or otherwise.

     (b) The specific arrangements referred to herein are not intended to exclude any other benefits which may be available to a Covered Officer upon a termination of employment with the Employer pursuant to employee benefit plans of the Employer or otherwise.

     4.03 Withholding. All payments required to be made by the Employer hereunder to the Covered Officer shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Employer may reasonably determine should be withheld pursuant to any applicable law or regulation.

ARTICLE V
ASSIGNMENT

     The Employer may assign this Plan and its rights and obligations hereunder in whole, but not in part, to any corporation, bank or other entity with or into which the Bank or the Corporation may hereafter merge or consolidate or to which the Bank or the Corporation may transfer all or substantially all of its respective assets, if in any such case said corporation, bank or other entity shall by operation of law or expressly in

writing assume all obligations of the Employer hereunder as fully as if it had been originally made a party hereto, but may not otherwise assign this Plan or their rights and obligations hereunder. A Covered Officer may not assign or transfer any rights or benefits due hereunder.

ARTICLE VI
DURATION AND EFFECTIVE DATE OF PLAN

     6.01 Duration. Except in the event of a Change in Control of the Corporation, this Plan is subject to change or termination, in whole or in part, at any time without notice, in the Board’s sole discretion. In the event of a Change in Control of the Corporation, this Plan may not be terminated or amended to reduce the benefits provided hereunder for a period of one (1) years from the date of the Change in Control of the Corporation.

     6.02 Effective Date. This Plan shall be effective as October 1, 1998.

ARTICLE VII
ADMINISTRATION

     7.01 Duties of the Committee. The Plan shall be administered and interpreted by the Committee, as appointed from time to time by the Board of Directors of the Bank pursuant to Section 7.02. The Committee shall have the authority to adopt, amend and rescind such rules, regulations and procedures as, in its opinion, may be advisable in the administration of the Plan, including, without limitation, rules, regulations and procedures with respect to the operation of the Plan. The interpretation and construction by the Committee of any provisions of the Plan, any rule, regulation or procedure adopted by it pursuant thereto shall be final and binding in the absence of action by the Board of Directors of the Bank.

     7.02 Appointment and Operation of the Committee. The members of the Committee shall be appointed by, and will serve at the pleasure of, the Board of Directors of the Bank. The Board from time to time may remove members from, or add members to, the Committee, provided the Committee shall continue to consist of two or more members of the Board. The Committee shall act by vote or written consent of a majority of its members. Subject to the express provisions and limitations of the Plan, the Committee may adopt such rules, regulations and procedures as it deems appropriate for the conduct of its affairs. It may appoint one of its members to be chairman and any person, whether or not a member, to be its secretary or agent. The Committee shall report its actions and decisions to the Board at appropriate times but in no event less than one time per calendar year.

     7.03 Limitation on Liability. Neither the members of the Board of Directors of the Bank nor any member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any rule, regulation or procedure adopted by it pursuant thereto. If a member of the Board or the Committee is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of anything done or not done by him in such capacity under or with respect to the Plan, the Bank shall, subject to the requirements of applicable laws and

regulations, indemnify such member against all liabilities and expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in the best interests of the Bank and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

ARTICLE VIII
MISCELLANEOUS

     8.01 Notice. For the purposes of this Plan, notices and all other communications provided for in this Plan shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed, with respect to the Bank, Secretary, Independence Community Bank, 195 Montague Street, 12th Floor, Brooklyn, New York 11201, and with respect to a Covered Officer, to the home address thereof set forth in the records of the Bank at the date of any such notice.

     8.02 Governing Law. The validity, interpretation, construction and performance of this Plan shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of New York.

     8.03 Nature of Employment and Obligations.

     (a) Nothing contained herein shall be deemed to create other than a terminable at will employment relationship between the Employer and a Covered Officer, and the Employer may terminate the Covered Officer’s employment at any time, subject to providing any of the benefits specified herein in accordance with the terms hereof.

     (b) Nothing contained herein shall create or require the Employer to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Covered Officer acquires a right to receive benefits from the Employer hereunder, such right shall be no greater than the right of any unsecured general creditor of the Employer.

     8.04 Headings. The section headings contained in this Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of this Plan.

     8.05 Validity. The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provisions of this Plan, which shall remain in full force and effect.

     8.06 Regulatory Prohibition. Notwithstanding any other provision of this Plan to the contrary, any payments made to a Covered Officer pursuant to this Plan, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. §1828(k)) and the regulations promulgated thereunder, including 12 C.F.R. Part 359.

EX-10.5

exv10w5

EX-10.25

Exhibit 10.25

INDEPENDENCE COMMUNITY BANK
JOB GROUP 1 CHANGE IN CONTROL SEVERANCE PLAN

ADOPTED APRIL 22 ^ND, 2005

ARTICLE I
ESTABLISHMENT OF THE PLAN

     Independence Community Bank (the “Bank”) hereby establishes the Job Group 1 Change in Control Severance Plan (the “Plan”).

ARTICLE II
PURPOSE OF THE PLAN

     The purpose of this Plan is to provide certain specified benefits to certain Officers as provided herein whose employment is terminated in connection with or subsequent to a Change in Control of the Bank’s parent corporation, Independence Community Bank Corp. (the “Corporation”) (the Bank and the Corporation are hereinafter collectively referred to as the “Employer”).

ARTICLE III
DEFINITIONS

     3.01 Annual Compensation. An Officer’s “Annual Compensation” for purposes of this Plan shall be deemed to mean the aggregate base salary and incentive compensation (whether cash or equity based as provided herein) earned by or paid to the Officer by the Employer or any subsidiary thereof during the calendar year immediately preceding the calendar year in which the Date of Termination occurs. Notwithstanding the foregoing, for purposes of this Plan, an Officer’s Annual Compensation does not include deferred compensation earned by the Officer in a prior year but received in the calendar year immediately preceding the calendar year in which the Date of Termination occurs. In addition, for purposes of this Agreement, “incentive compensation” shall include both cash and equity-based incentive compensation; provided, however, that for purposes of this Plan equity-based incentive compensation shall only include grants of restricted share awards (“Restricted Share Incentive Awards”) resulting from incentive compensation awards under the Executive Management Incentive Compensation Plan or the Officers Incentive Compensation Plan (the “Incentive Plans”) and not options and restricted stock awards granted pursuant to the 1998 Stock Option Plan, the 1998 Recognition and Retention Plan and Trust Agreement or the 2002 and 2005 Stock Incentive Plans (collectively, the “Equity Plans”) except to the extent that any such Restricted Share Incentive Awards are granted under said Equity Plans solely as a result of incentive awards made pursuant to the terms of the Incentive Plans or any successors thereto; provided, further, that in the event that at the time of termination the equity-based portion of

an incentive compensation grant has not fully vested, solely for purposes of calculating an Officer’s Annual Compensation in order to determine the amount of severance due such Officer pursuant to the terms of Section 4.01 hereof, such unvested Restricted Share Incentive Award shall be deemed to have been vested and paid as of the end of the calendar year immediately preceding the calendar year in which the Date of Termination occurs. For purposes of determining the value of the Restricted Share Incentive Award deemed vested as of the end of the calendar year immediately preceding the calendar year in which the Date of Termination occurs in order to determine the severance due an Officer hereunder, the number of shares subject to the Restricted Share Incentive Award shall be multiplied by the fair market value of a share of common stock of the Corporation, determined as of the date of the grant of the Restricted Share Incentive Award.

     3.02 Cause. Termination of an Officer’s employment for “Cause” shall mean termination because of personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order. For purposes of this paragraph, no act or failure to act on the Officer’s part shall be considered “willful” unless done, or omitted to be done, by the Officer not in good faith and without reasonable belief that the Officer’s action or omission was in the best interests of the Employer.

     3.03 Change in Control of the Corporation. “Change in Control of the Corporation” shall mean the occurrence of any of the following: (i) the acquisition of control of the Corporation as defined in 12 C.F.R. §574.4, unless a presumption of control is successfully rebutted or unless the transaction is exempted by 12 C.F.R. §574.3(c)(vii), or any successor to such sections; (ii) an event that would be required to be reported in response to Item 5.01 of Form 8-K or Item 6(e) of Schedule 14A of Regulation 14A pursuant to the Securities Exchange Act of 1934, as amended (“Exchange Act”), or any successor thereto, whether or not any class of securities of the Corporation is registered under the Exchange Act; (iii) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act, but excluding any person who on the date hereof is a director or officer of the Corporation) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation’s then outstanding securities; (iv) the stockholders of the Corporation approve (or, in the event no approval of the Corporation’s stockholders is required, the Corporation consummates) a merger, consolidation, share exchange, division or other reorganization or transaction involving the Corporation (a “Fundamental Transaction”) with any other corporation or entity, other than a Fundamental Transaction which results in both (a) the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting power of the surviving entity immediately after such Fundamental Transaction, and (b) the members of the Board of Directors of the Corporation immediately prior thereto continuing to represent at least 50% of the members of the Board of Directors of the surviving entity; or (v) during any period of 36 consecutive months, individuals who at the beginning of such period constitute the Board of Directors of the Corporation cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by stockholders, of each new director was approved by a vote of

at least two-thirds of the directors then still in office who were directors at the beginning of the period.

     3.04 Code. “Code” shall mean the Internal Revenue Code of 1986, as amended.

     3.05 Committee. “Committee” means a committee of two or more directors appointed by the Board pursuant to Article VII hereof.

     3.06 Date of Termination. “Date of Termination” shall mean (i) if an Officer’s employment is terminated for Cause, the date on which the Notice of Termination is given, and (ii) if an Officer’s employment is terminated for any other reason, the date specified in the Notice of Termination.

     3.07 Disability. Termination by the Employer of an Officer’s employment based on “Disability” shall mean termination because of any physical or mental impairment which qualifies the Officer for disability benefits under the applicable long-term disability plan maintained by the Employer or any subsidiary or, if no such plan applies, which would qualify the Officer for disability benefits under the Federal Social Security System.

     3.08 Employee. “Employee” shall mean any person, including an Officer, employed by the Employer on a salaried basis. A person employed by the Employer on a hourly, commission or fee basis or similar arrangement shall not be considered an Employee for purposes of this Plan.

     3.09 Good Reason. Termination by an Officer of the Officer’s employment for “Good Reason” shall mean termination by the Officer within twelve months following a Change in Control of the Corporation based on:

(i)	Without the Officer’s express written consent, a reduction in the Officer’s base salary as in effect immediately prior to the date of the Change in Control of the Corporation or as the same may be increased from time to time thereafter;
(ii)	Without the Officer’s express written consent, the assignment of any duties or responsibilities which are substantially diminished as compared with the Officer’s duties and responsibilities immediately prior to a Change in Control of the Corporation or any removal of the Officer from or any failure to re-elect the Officer to any of such responsibilities except in connection with the termination of the Officer’s employment for Cause, Disability or Retirement or as a result of the Officer’s death or by the Officer other than for Good Reason;
(iii)	Any relocation of the Officer’s principal site of employment to a location more than fifty (50) miles from the business location of the Officer as of the date of the Change in Control; or
(iv)	Any purported termination of the Officer’s employment for Disability or Retirement which is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3.11 below.

     3.10 IRS. “IRS” shall mean the Internal Revenue Service.

     3.11 Notice of Termination. Any purported termination of an Officer’s employment by the Employer for any reason or by an Officer for any reason, including without limitation for Good Reason, shall be communicated by written “Notice of Termination” to the other party hereto. For purposes of this Plan, a “Notice of Termination” shall mean a dated notice which (i) indicates the specific termination provision in this Plan relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Officer’s employment under the provision so indicated, (iii) specifies a Date of Termination, which shall be not less than thirty (30) nor more than ninety (90) days after such Notice of Termination is given, except in the case of the Employers’ termination of the Officer’s employment for Cause, which shall be effective immediately; and (iv) is given in the manner specified in Article VIII hereof.

     3.12 Officer. “Officer” shall mean any Employee of the Employer at the Job Group 1 officer level who is not a party to a severance or employment agreement with the Employer that is in effect as of the date of the Notice of Termination.

     3.13 Officer’s Severance Period. “Officer’s Severance Period” shall mean the three-year period of time, subject to reduction as provided in subsections 4.01(b) and 4.01(c), for which severance benefits are payable to an Officer.

     3.14 Retirement. “Retirement” shall mean voluntary termination by the Officer in accordance with the Employer’s retirement policies, including early retirement, generally applicable to their salaried employees.

ARTICLE IV
BENEFITS

4.01 Payments and Benefits Upon Termination.

                    If the Officer’s employment is terminated subsequent to a Change in Control of the Corporation by (i) the Employer for other than Cause, Disability, Retirement or the Officer’s death or (ii) the Officer for Good Reason, then the Employer shall:

     (a) Pay to the Officer a cash severance amount equal to the aggregate of (i) three (3) times the Officer’s Annual Compensation and (ii) the present value of the cost to the Corporation of providing the Officer during the Severance Period, participation in the Bank’s medical and dental insurance plans (“Cash Severance Payment”). Such Cash Severance Payment shall be subject to reduction as provided in subsections 4.01 (b) and (c) hereof;

     (b) Notwithstanding anything to the contrary herein, the amount of Cash Severance Payment due an Officer pursuant to the provisions of Section 4.01(a) shall be reduced in accordance with the number of whole months that the Officer continues to be employed by the Employer or the successor thereto subsequent to a Change in Control of the Corporation.

     For example, should an Officers Date of Termination occur six months subsequent to a Change in Control of the Corporation, then his or her Cash Severance Payment shall be equal to two and one-half years (30 months) Annual

Compensation, medical and dental benefits rather than three years (36 months).

     (c) If the payment pursuant to Sections 4.01 (a) and (b) hereof, either alone or together with other payments and benefits which the Officer has the right to receive from the Employer, would constitute a “parachute payment” under Section 280G of the Code, the payment by the Bank pursuant to Section 4.01 hereof shall be further reduced, by the amount, if any, which is the minimum necessary to result in no portion of the payments and benefits payable by the Bank under Section 4.01 being non-deductible to the Bank pursuant to Section 280G of the Code and subject to the excise tax imposed under Section 4999 of the Code. The determination of any reduction in the payment to be made pursuant to this Section 4.01 shall be based upon the opinion of independent counsel selected by the Bank’s independent public accountants and paid by the Bank. Such counsel shall be reasonably acceptable to the Bank and the Officer; shall promptly prepare the foregoing opinion, but in no event later than thirty (30) days from the Date of Termination; and may use such actuaries as such counsel deems necessary or advisable for the purpose.

     (d) Nothing contained herein shall result in a reduction of any payments or benefits to which the Officer may be entitled upon termination of employment under any circumstances other than as specified in Sections 4.01(b) and 4.01(c) set forth above, or a reduction in the payments and benefits specified in this Section 4.01 below zero.

     4.02 Mitigation; Exclusivity of Benefits.

     (a) An Officer shall not be required to mitigate the amount of any benefits hereunder by seeking other employment or otherwise, nor shall the amount of any such benefits be reduced by any compensation earned by the Officer as a result of employment by another employer after the Date of Termination or otherwise.

     (b) The specific arrangements referred to herein are not intended to exclude any other benefits which may be available to an Officer upon a termination of employment with the Employer pursuant to employee benefit plans of the Employer or otherwise.

     4.03 Withholding. All payments required to be made by the Employer hereunder to the Officer shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Employer may reasonably determine should be withheld pursuant to any applicable law or regulation.

ARTICLE V
ASSIGNMENT

     The Employer may assign this Plan and its rights and obligations hereunder in whole, but not in part, to any corporation, bank or other entity with or into which the Bank or the Corporation may hereafter merge or consolidate or to which the Bank or the Corporation may transfer all or substantially all of its respective assets, if in any such case said corporation, bank or other entity shall by operation of law or expressly in writing assume all obligations of the Employer hereunder as fully as if it

had been originally made a party hereto, but may not otherwise assign this Plan or their rights and obligations hereunder. An Officer may not assign or transfer any rights or benefits due hereunder.

ARTICLE VI
DURATION AND EFFECTIVE DATE OF PLAN

     6.01 Duration. Except in the event of a Change in Control of the Corporation, this Plan is subject to change or termination, in whole or in part, at any time without notice, in the Board’s sole discretion. In the event of a Change in Control of the Corporation, this Plan may not be terminated or amended to reduce the benefits provided hereunder for a period of one (1) year from the date of the Change in Control of the Corporation.

     6.02 Effective Date. This Plan shall be effective as April 22^nd, 2005.

ARTICLE VII
ADMINISTRATION

     7.01 Duties of the Committee. The Plan shall be administered and interpreted by the Committee, as appointed from time to time by the Board of Directors of the Bank pursuant to Section 7.02. The Committee shall have the authority to adopt, amend and rescind such rules, regulations and procedures as, in its opinion, may be advisable in the administration of the Plan, including, without limitation, rules, regulations and procedures with respect to the operation of the Plan. The interpretation and construction by the Committee of any provisions of the Plan, any rule, regulation or procedure adopted by it pursuant thereto shall be final and binding in the absence of action by the Board of Directors of the Bank.

     7.02 Appointment and Operation of the Committee. The members of the Committee shall be appointed by, and will serve at the pleasure of, the Board of Directors of the Bank. The Board from time to time may remove members from, or add members to, the Committee, provided the Committee shall continue to consist of two or more members of the Board. The Committee shall act by vote or written consent of a majority of its members. Subject to the express provisions and limitations of the Plan, the Committee may adopt such rules, regulations and procedures as it deems appropriate for the conduct of its affairs. It may appoint one of its members to be chairman and any person, whether or not a member, to be its secretary or agent. The Committee shall report its actions and decisions to the Board at appropriate times but in no event less than one time per calendar year.

     7.03 Limitation on Liability. Neither the members of the Board of Directors of the Bank nor any member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any rule, regulation or procedure adopted by it pursuant thereto. If a member of the Board or the Committee is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of anything done or not done by him in such capacity under or with respect to the Plan, the Bank shall, subject to the requirements of applicable laws and

regulations, indemnify such member against all liabilities and expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in the best interests of the Bank and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

ARTICLE VIII
MISCELLANEOUS

     8.01 Notice. For the purposes of this Plan, notices and all other communications provided for in this Plan shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed, with respect to the Bank, Secretary, Independence Community Bank, 195 Montague Street, 12th Floor, Brooklyn, New York 11201, and with respect to an Officer, to the home address thereof set forth in the records of the Bank at the date of any such notice.

     8.02 Governing Law. The validity, interpretation, construction and performance of this Plan shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of New York.

     8.03 Nature of Employment and Obligations.

     (a) Nothing contained herein shall be deemed to create other than a terminable at will employment relationship between the Employer and an Officer, and the Employer may terminate the Officer’s employment at any time, subject to providing any of the benefits specified herein in accordance with the terms hereof.

     (b) Nothing contained herein shall create or require the Employer to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Officer acquires a right to receive benefits from the Employer hereunder, such right shall be no greater than the right of any unsecured general creditor of the Employer.

     8.04 Headings. The section headings contained in this Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of this Plan.

     8.05 Validity. The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provisions of this Plan, which shall remain in full force and effect.

     8.06 Regulatory Prohibition. Notwithstanding any other provision of this Plan to the contrary, any payments made to an Officer pursuant to this Plan, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. §1828(k)) and the regulations promulgated thereunder, including 12 C.F.R. Part 359.

EX-10.27

Exhibit 10.27

INDEPENDENCE COMMUNITY BANK
Executive Management
Incentive Compensation Plan
for the Fiscal Year of January 1, 2005 — December 31, 2005

I.     INTRODUCTION

     The Boards of Directors of Independence Community Bank Corp. (“ICBC” or “the Company”) and Independence Community Bank (“the Bank”) have approved a business model that is designed to make ICBC a superior performer in its industry. The Compensation Committee (“Committee”) and the Board of Directors of ICBC and the Bank have considered and approved this Plan to assist in attaining that objective. Accordingly, this Plan will focus on those critical performance measures that the Board believes are very significant to the success of the institution, namely diluted earnings per share (EPS) and return on average assets (ROAA).

     The Committee and the Board have indicated that they expect to continue the Plan or adopt new incentive compensation plans in future years with revised and updated goals and targets as to EPS and ROAA or other measurements and to assess the progress management is making towards achieving the performance of the superior institutions in the industry — for example return on equity, efficiency ratio and net interest margin. In particular, an annual evaluation will consider progress made in comparison to the performance of a peer group of high-performing financial institutions. Accordingly, Plan performance goals and targets approved in future years will be based on this long-term objective.

     This Plan will be known as the Independence Community Bank Executive Management Incentive Compensation Plan for January 1, 2005 — December 31, 2005 (“the FY2005 Plan”). The January 1, 2005 — December 31, 2005 period is the “Plan Year”.

II.     GENERAL

A. Participants in the FY2005 Plan will be the members of the Bank’s Management Committee, namely the following officers:

Alan H. Fishman, President and Chief Executive Officer
Brendan J. Dugan, Executive Vice President — Business Banking
Gary M. Honstedt, Executive Vice President — Commercial Real Estate Lending
Harold A. McCleery, Executive Vice President — Chief Credit Officer
Joseph A. Micali, Executive Vice President — Operations and Technology (as of 10/11/2005)
Terence J. Mitchell, Executive Vice President — Consumer Banking
Frank W. Baier, Executive Vice President — Chief Financial Officer and Treasurer
Stephen J. Glass, Senior Vice President — Chief Information Officer
Frank S. Muzio, Senior Vice President and Controller
Janice Schillig, Senior Vice President — Director of Marketing
John K. Schnock, Senior Vice President, Secretary and Counsel
Nicholas Tsoumpariotis, Senior Vice President and Auditor
Robert C. Weiss, Senior Vice President — Director of Human Resources (as of 6/22/2005)

B.	Awards granted under the FY2005 Plan will be made by the Committee upon consideration of the various factors set forth herein. However, awards will be made in the sole discretion of the Committee. The Committee shall have the sole authority, subject to the Board of Directors, to interpret and implement the provisions of the FY2005 Plan. No Participant shall be entitled to any award unless and until the Committee notifies a FY2005 Plan Participant of his or her specific award under the FY2005 Plan. Neither the terms of the FY2005 Plan nor any award granted hereunder shall create any right of a FY2005 Plan Participant to continued employment with ICBC, the Bank or any affiliate thereof.
C.	The FY2005 Plan is designed to provide FY2005 Plan Participants with awards equal in value to a specified percentage (the “Target Bonus”) of his or her annual base salary at the end of the Plan Year based upon his or her executive rank (President, Executive Vice President or Senior Vice President). The award may be increased or decreased above or below the Target Bonus depending on actual performance during the Plan Year relative to the target thresholds described herein.
	Awards granted under the FY2005 Plan will be made by the Committee upon consideration of the following factors:

(1)	Executive level of each Participant as provided herein;
(2)	Corporate Performance Component: the achievement of EPS and ROAA targets, with the weighting of this component for awards granted with respect to the Plan Year determined by executive level as follows, President and Chief Executive Officer — 100%, Executive Vice Presidents and Senior Vice President — 75%; and
(3)	Business Unit/Function Performance Component: based upon recommendation of the President and CEO, with the weighting of this

component for the Plan Year determined by executive level as follows, Executive Vice Presidents and Senior Vice Presidents — 25%.

D.	Once the total award is determined, the award will be due and payable in cash and ICBC stock as described herein (unless deferred by the Fiscal Year 2005 Plan Participant).
E.	The Committee and the Board may also adjust the amounts of awards granted hereunder upon consideration of unusual factors or unanticipated extraordinary events which have a significant impact on the goals and targets established hereunder.

Newly hired employees and others promoted to or made a member of the Bank’s Management Committee during the Plan Year may be considered for participation in the FY2005 Plan. If any such person is selected by action of the Committee to be included within the list of FY2005 Plan Participants, he or she shall be eligible to receive a pro-rated award based on his or her period of service with the Bank during the Plan Year. In addition, Participants whose employment terminates prior to payment of an award may be entitled to receive a pro-rated award payable entirely in cash if recommended by the President and CEO and approved by the Committee.

III.     SPECIFIC FY 2005 PLAN STRUCTURE

A. Executive Level Target Bonus Component Allocation

Executive Level	Target	Corporate	BU/Functional
	Bonus %	Performance	Component
	Base Salary	Component Weighting	Weighting
President & CEO	100%	100%	—
Executive Vice Presidents	65%	75%	25%
Senior Vice Presidents	45%	75%	25%

B. Corporate Performance Component

	EPS	Payout	ROAA
		Percentage
Maximum	$3.30 and Above	150%	1.426% and Above
	3.29	145%	1.422%
	3.28	140%	1.418%
	3.27	135%	1.413%
	3.26	130%	1.409%
	3.25	125%	1.405%
	3.24	120%	1.400%
	3.23	115%	1.396%
	3.22	110%	1.392%
	3.21	105%	1.387%
Target	$3.20	100%	1.383%
	3.19	95%	1.379%
	3.18	88%	1.374%
	3.17	80%	1.370%
	3.16	79%	1.366%
	3.15	78%	1.361%
	3.14	77%	1.357%
	3.13	76%	1.353%
	3.12	75%	1.348%
	3.11	74%	1.344%
	3.10	73%	1.340%
	3.09	72%	1.335%
	3.08	71%	1.331%
	3.07	70%	1.327%
	3.06	69%	1.322%
	3.05	68%	1.318%
	3.04	67%	1.314%
	3.03	66%	1.309%
	3.02	65%	1.305%
	3.01	64%	1.301%
	3.00	62%	1.297%
	2.99	60%	1.292%
	2.98	58%	1.288%
	2.97	53%	1.284%
	2.96	50%	1.279%
Threshold	Below $2.96	0%	Below 1.279%

     EPS and ROAA are each weighted 50% in calculating the portion of the award earned for corporate performance. The above scale is not subject to interpolation (i.e., an EPS of $3.198 is counted as $3.19 and is paid out at the 95% rate. Each $.01 increment in EPS is treated as a hurdle. The same principle applies for ROAA, i.e., an ROAA of 1.380% is counted as 1.379% and is paid out at the 95% rate. At achievement of EPS of $3.30 or higher and ROAA of 1.426% or higher, the corporate performance component payout percentage would be 150% of target, the maximum.

C. Business Unit/Functional Performance Component

     Each business unit will be evaluated by the President and CEO on its overall performance during the Plan Year as well as the attainment of specific operating initiatives assigned to the Business Unit at the start of the Plan Year. The Business Unit/Functional Performance Component payout percentage will be based on the following performance ratings:

BU/Functional	Percentage of
Performance Rating	Award Earned
Outstanding Performance	125% - 150%
Exceeded Expectations	110% - 125%
Fully Met Expectations	100%
Met Minimum Expectations	50% - 80%
Did Not Meet Expectations	0%

     The Business Unit/Functional Performance Component percentage payout can range from 0% for Did Not Meet minimum performance criteria to a maximum of 150% for Outstanding Performance. The President and CEO will provide a written report to the Committee with respect to his recommendation of both the Business Unit/Functional Performance Component rating and the percentage of award earned with respect to each FY2005 Plan Participant. The President and CEO’s award will not include the Business Unit/Functional Performance Component. The Committee will determine the final Business Unit/Functional Performance Component and percentage of award earned using the President and CEO’s recommendation and such other information as it deems appropriate.

IV.     PAYMENT OF AWARDS

A. Once awards have been calculated in accordance with the foregoing process and submitted to and approved by the Committee, the Committee shall notify each of the FY2005 Plan participants in writing of the amount, if any, of his or her award. Thereafter, payment of any such awards will be made as follows:

(1) Subject to the provisions of subsection (3) hereof, a cash payment equal to such percentage of the award as shown in the following table (unless the Participant has made a timely election to defer all or part of the award or is required to defer receipt of such payment due to the applicability of Section 162(m) of the Internal Revenue Code) will be made within 15 days of the date of the award notice:

President and CEO — 60%
Executive Vice President — 65%
Senior Vice President — 70%

(2)

In the discretion of the Committee (the “Compensation Committee”) administering the 2005 Stock Incentive Plan (“SIP”), a grant of shares of ICBC common stock pursuant to the SIP (unless the FY2005 Plan Participant has made a timely election to defer receipt of all or a portion of such shares or is required to defer receipt of such shares due to the applicability of Section 162(m) of the Internal Revenue Code) shall be made with respect to the remaining portion of the award. It is expected that such grant shall vest over a three year period, with one-third of such shares vesting on each anniversary date of the granting of such award for a three-year period. The number of shares awarded shall be determined by discounting the closing price of ICBC common stock on the date the award is approved by 15% and dividing the adjusted price into the dollar amount of the applicable percentage of the award. A Participant’s unvested portion will become fully vested upon his or her death, “disability”, “retirement” or a “change in control” only as provided in the SIP. However, the award of a Participant whose employment terminates prior to payment of the award shall be paid entirely in cash.

(3)

In the event the Compensation Committee determines not to grant restricted stock awards with respect to any portion of an award, then such remaining amount shall be paid in cash within 15 days of the date of the Compensation Committee’s determination not to make such restricted stock awards.

B.	(1)	In the event that a FY2005 Plan Participant is a “covered employee” for purposes of Section 162(m) of the Internal Revenue Code and such FY2005 Plan Participant’s applicable employee remuneration in a particular tax year exceeds or is likely to exceed the limitation as specified in Section 162(m) of the Code, the Committee may request that such FY2005 Plan Participant defer the payment of all or a portion of the FY2005 Plan Participant’s award to be received under the FY2005 Plan or such other plans and programs, employment agreements and arrangements of the Company to the extent necessary to avoid the payment of employee remuneration for such tax year in excess of the Section 162(m) limit.
	(2)	Notwithstanding any other provision of the FY2005 Plan, any FY2005 Plan Participant may elect, consistent with any rules and regulations

	established by the Committee, to defer the receipt of all or any portion of an award granted hereunder. The election to defer the receipt of the award must be made no later than two months before the end of the calendar year preceding the calendar year in which the FY2005 Plan Participant would otherwise have an unrestricted right to receive such award. Any election to defer the receipt of an award, in whole or in part, shall be irrevocable as long as the FY2005 Plan Participant remains an employee of the Company, the Bank or one of their subsidiaries.
(3)	The Committee may, at its sole discretion, allow for the early payment of a FY2005 Plan Participant’s deferred award account in the event of an “unforeseeable emergency” or in the event of the death or disability of the FY2005 Plan Participant. An “unforeseeable emergency” means an unanticipated emergency caused by an event beyond the control of the FY2005 Plan Participant that would result in severe financial hardship if the distribution were not permitted. Such distributions shall be limited to the amount necessary to sufficiently address the financial hardship. Any distributions under this provision shall be consistent with the Internal Revenue Code and the regulations promulgated thereunder. Additionally, the Committee may use its discretion to cause award accounts to be distributed when continuing the program is no longer in the best interest of the Company or the Bank.
(4)	No FY2005 Plan Participant or other person shall have any interest in any fund or in any specific asset of the Company or the Bank by reason of any amount credited pursuant to the provisions hereof. Any amounts payable pursuant to the provisions hereof shall be paid from the general assets of the Company or the Bank or a subsidiary thereof and no FY2005 Plan Participant or other person shall have any rights to such assets beyond the rights afforded general creditors of the Company or the Bank. However, the Company or the Bank or a subsidiary thereof shall have the right to establish a reserve, trust or make any investment for the purpose of satisfying the obligations created under the FY2005 Plan; provided, however, that no FY2005 Plan Participant or other person shall have any interest in such reserve, trust or investment.
(5)	To the extent not otherwise inconsistent with the provisions of the FY2005 Plan, FY2005 Plan Participants may defer awards hereunder in accordance with the provisions of the Independence Community Bank Corp. Deferred Compensation Plan.

V.     PROVISIONS RELATING TO SECTION 162(m)
OF THE INTERNAL REVENUE CODE

It is the intent of the Company that any compensation (including any award) deferred under the FY2005 Plan by a person who is, with respect to any year of settlement, deemed by the Committee to be a “covered employee” within the meaning of Section 162(m) of the Internal Revenue Code and the regulations thereunder, which compensation constitutes either “qualified performance-based compensation” within the meaning of Section 162(m) and the regulations thereunder or compensation not otherwise subject to the limitation on deductibility under Section 162(m) and the regulations thereunder, shall not, as a result of deferral hereunder, become compensation with respect to which the Company in fact would not be entitled to a tax deduction under Section 162(m) and the regulations thereunder. Accordingly, unless otherwise determined by the Committee, if any compensation would become so disqualified under Section 162(m) and the regulations thereunder as a result of deferral hereunder, the terms of such deferral shall be automatically modified to the extent necessary to ensure that the compensation would not, at the time of settlement, be so disqualified.

EX-10.28

Exhibit 10.28

EMPLOYMENT AND NONCOMPETITION AGREEMENT

     AGREEMENT, dated this 24th day of November 2003, between Independence Community Bank Corp. (the “Corporation”), a Delaware corporation, Independence Community Bank (the “Bank”), a wholly owned subsidiary of the Corporation, and Harry P. Doherty (the “Executive”).

WITNESSETH

     WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of November 24, 2003 (the “Merger Agreement”) between the Corporation and Staten Island Bancorp, Inc. (“SIB”), SIB shall, as of the Effective Time (as defined in the Merger Agreement), merge with and into the Corporation, so that the Corporation is the Surviving Company (as defined in the Merger Agreement);

     WHEREAS, prior to the consummation of the Merger, the Corporation and SIB will respectively cause the Bank and SI Bank & Trust (“SI Bank”) to enter into a merger agreement providing for the merger of SI Bank into the Bank;

     WHEREAS, the Executive is presently the Chairman and Chief Executive Officer of SIB and SI Bank;

     WHEREAS, the Executive has been with SIB since formation and with SI Bank since 1966;

     WHEREAS, the Executive has valuable knowledge with respect to SIB and SI Bank and could cause substantial harm to the Corporation and the Bank if he were to work for a competing entity following completion of the Merger;

     WHEREAS, the Corporation and the Bank (collectively, the “Employers”) desire to be ensured of the Executive’s continued active participation in the business of the Employers; and

     WHEREAS, in order to induce the Executive to remain in the employ of the Employers and in consideration of the Executive’s agreeing to remain in the employ of the Employers, the parties desire to specify the severance benefits which shall be due the Executive by the Employers in the event that his employment with the Employers is terminated under specified circumstances;

     NOW THEREFORE, in consideration of the mutual agreements herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

     1. Definitions. The following words and terms shall have the meanings set forth below for the purposes of this Agreement:

     (a) Annual Compensation. The Executive’s “Annual Compensation” for purposes of this Agreement shall be deemed to mean the highest level of aggregate Base Salary and any cash bonus paid to the Executive by the Employers or any subsidiary thereof during the calendar year in which the Date of Termination occurs (determined on an annualized basis) or either of the two calendar years immediately preceding the calendar year in which the Date of Termination occurs.

     (b) Base Salary. “Base Salary” shall have the meaning set forth in Section 3(a) hereof.

     (c) Cause. “Cause” means, when used with respect to the termination of the employment of the Executive by the Employers, termination due to (i) the Executive’s willful and continued failure to substantially perform his employment duties (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness); (ii) gross negligence in the performance of the Executive’s duties; (iii) engagement in fraudulent or other illegal activity (including but not limited to embezzlement, theft, misappropriation of Employer funds, false entries in Employer records, or the improper acceptance of money, gifts or other items of value); or (iv) conviction of, or a plea of guilty or no contest to, a crime that constitutes a felony. No act or failure to act on the part of the Executive shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Employers.

     (d) Code. “Code” shall mean the Internal Revenue Code of 1986, as amended.

     (e) Date of Termination. “Date of Termination” shall mean (i) if the Executive’s employment is terminated for Cause, the date on which the Notice of Termination is given, and (ii) if the Executive’s employment is terminated for any other reason, the date specified in the Notice of Termination.

     (f) Disability. Termination by the Employers of the Executive’s employment based on “Disability” shall mean termination because of any physical or mental impairment which qualifies the Executive for disability benefits under the applicable long-term disability plan maintained by the Employers or any subsidiary or, if no such plan applies, which would qualify the Executive for disability benefits under the Federal Social Security System.

     (g) Good Reason. Termination by the Executive of the Executive’s employment for “Good Reason” shall mean termination by the Executive based on:

(i) Without the Executive’s express written consent, the failure to elect or to re-elect or to appoint or to re-appoint the Executive to the offices of Vice Chairman of the Board of Directors of the Corporation and Vice Chairman of the Board of Directors of the Bank, or a material adverse change made

by the Employers in the Executive’s functions, duties or responsibilities as an officer of the Employers;

(ii)	Without the Executive’s express written consent, a reduction by either of the Employers in the Executive’s Base Salary as the same may be increased from time to time or, except to the extent permitted by Section 3(b) hereof, a reduction in the package of fringe benefits provided to the Executive, taken as a whole;
(iii)	Any purported termination of the Executive’s employment for Disability or Retirement which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (i) below;
(iv)	A material breach of this Agreement by either of the Employers, which breach has not been cured within fifteen (15) days after a written notice of non-compliance has been given by the Executive to the Employers; or
(v)	The failure by the Employers to obtain the assumption of and agreement to perform this Agreement by any successor as contemplated in Section 9 hereof.

     (h) IRS. IRS shall mean the Internal Revenue Service.

     (i) Notice of Termination. Any purported termination of the Executive’s employment by the Employers for any reason, including without limitation for Cause, Disability or Retirement, or by the Executive for any reason, including without limitation for Good Reason, shall be communicated by written “Notice of Termination” to the other party hereto. For purposes of this Agreement, a “Notice of Termination” shall mean a dated notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, (iii) specifies a Date of Termination, which shall be not less than thirty (30) nor more than ninety (90) days after such Notice of Termination is given, except in the case of the Employers’ termination of the Executive’s employment for Cause, which shall be effective immediately; and (iv) is given in the manner specified in Section 10 hereof.

     (j) Retirement. “Retirement” shall mean voluntary termination by the Executive in accordance with the Employers’ retirement policies generally applicable to their salaried employees or after the attainment of age 65.

     2. Term of Employment.

     (a) The Employers hereby employ the Executive as Vice Chairman of the Boards of Directors of the Corporation and of the Bank, and the Executive hereby accepts said employment and agrees to render such services to the Employers on the terms and conditions set forth in this Agreement. Unless earlier terminated pursuant to Section 5 hereof, the term of employment under this Agreement shall be for three years commencing at the Effective Time of the Merger,

as such terms are defined in the Merger Agreement (the “Employment Period”). The Executive shall report directly to the President and Chief Executive Officer of the Employers. This Agreement shall be null and void if the Effective Time of the Merger does not occur.

     (b) During the Employment Period, the Executive shall perform such executive services for the Employers as may be consistent with his title and from time to time assigned to him by the Employers’ Boards of Directors or the President and Chief Executive Officer of the Employers. It is anticipated that the duties of the Executive will include significant responsibilities with respect to the SI Bank & Trust Division of the Bank, including community and civic affairs, and in assisting the President and Chief Executive Officer of the Employers with respect to potential mergers and acquisitions of other financial institutions. The Executive shall use his best efforts to advance the interests of the Employers.

     (c) Throughout the Employment Period, the Board of Directors of the Bank shall nominate the Executive to be a director of the Bank when his term expires, subject to its fiduciary duties, and the Corporation agrees to approve his election as a director of the Bank. Throughout the Employment Period, the Board of Directors of the Corporation shall nominate the Executive to be a director of the Corporation when his term expires, subject to its fiduciary duties.

     3. Compensation and Benefits.

     (a) The Employers shall compensate and pay the Executive for his services during the Employment Period at a minimum base salary of $540,000 per year (“Base Salary”), which may be increased from time to time in such amounts as may be determined by the Boards of Directors of the Employers and may not be decreased without the Executive’s express written consent. In addition to his Base Salary, the Executive shall be entitled to receive during the Employment Period such bonus payments as may be determined by the Boards of Directors of the Employers.

     (b) During the Employment Period, the Executive and his spouse and other eligible dependents shall participate in, and be covered by, all of the health and other welfare benefit plans and programs that are made available from time to time by the Employers for the benefit of senior executives and/or other employees of the Employers, including but not limited to medical, dental, life and disability insurance (but excluding participation in any general severance policy, plan or program of the Employers), at no cost to the Executive; provided, that participation by the Executive in employee benefit plans of both Employers does not result in duplication of benefits. In addition, the Executive shall be eligible to participate in and receive the benefits of any pension or other retirement benefit plan (excluding the defined benefit pension plan), 401(k), profit sharing, employee stock ownership, or other plans, benefits and privileges given to employees and executives of the Employers, to the extent commensurate with his then duties and responsibilities, as fixed by the Boards of Directors of the Employers, subject to the provisions in the Merger Agreement and provided that nothing herein shall require the Employers to grant any stock options or restricted stock awards to the Executive. The Employers shall not make any changes in such plans, benefits or privileges which would adversely affect the Executive’s rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Employers and does not result in a proportionately greater adverse

change in the rights of or benefits to the Executive as compared with any other executive officer of the Employers. Nothing paid to the Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to the Executive pursuant to Section 3(a) hereof.

     (c) During the Employment Period, the Executive shall also be entitled to receive the following benefits at no cost to the Executive: (1) the use of an automobile substantially comparable to the automobile currently provided to him by SI Bank, with all of the costs associated with such automobile, including but not limited to insurance, gas, maintenance, lease payments and residual payments, paid by the Employers; and (2) membership dues and fees at a country club mutually agreed to by the parties.

     (d) During the Employment Period, the Executive shall be entitled to paid annual vacation in accordance with the policies as established from time to time by the Boards of Directors of the Employers. The Executive shall not be entitled to receive any additional compensation from the Employers for failure to take a vacation, nor shall the Executive be able to accumulate unused vacation time from one year to the next, except to the extent authorized by the Boards of Directors of the Employers.

     (e) In the event the Executive’s employment is terminated due to Disability or Retirement, the Employers shall provide continued life, medical and dental coverage substantially identical to the coverage maintained by the Employers for the Executive immediately prior to his termination. Such coverage shall cease upon the expiration of the otherwise remaining term of the Employment Period but for such Disability or Retirement.

     (f) The Executive’s compensation, benefits and expenses during the Employment Period shall be paid by the Corporation and the Bank in the same proportion as the time and services actually expended by the Executive on behalf of each respective Employer.

     4. Expenses. During the Employment Period, the Employers shall reimburse the Executive or otherwise provide for or pay for all reasonable expenses incurred by the Executive in furtherance of or in connection with the business of the Employers, including, but not by way of limitation, traveling expenses and all reasonable entertainment expenses, subject to such reasonable documentation and other limitations as may be established by the Employers. If such expenses are paid in the first instance by the Executive, the Employers shall reimburse the Executive therefore.

     5. Termination.

     (a) The Employers shall have the right, upon prior Notice of Termination, to terminate the Executive’s employment hereunder (1) at any time for Cause, and (2) subsequent to the one-year anniversary of the Effective Time of the Merger, for any reason, including without limitation termination for Disability or Retirement. In addition, the Executive shall have the right, upon prior Notice of Termination, to terminate his employment hereunder at any time for any reason.

     (b) In the event that (i) the Executive’s employment is terminated by the Employers for Cause or (ii) the Executive terminates his employment hereunder other than for Disability, Retirement, death or Good Reason, the Executive shall have no right pursuant to this Agreement to compensation or other benefits pursuant to Sections 3, 4 or 5 hereof for any period after the applicable Date of Termination.

     (c) In the event that the Executive’s employment is terminated as a result of Disability, Retirement or the Executive’s death during the Employment Period, the Executive shall have no right pursuant to Sections 3, 4 or 5 hereof to compensation or other benefits for any period after the applicable Date of Termination, except as provided for in Section 3(e) hereof.

     (d) In the event that (i) the Executive’s employment is terminated by the Employers for other than Cause, Disability, Retirement or the Executive’s death, or (ii) the Executive elects to terminate his employment for Good Reason, then the Employers shall

     (A) pay to the Executive, in either equal monthly installments beginning with the first business day of the month following the Date of Termination or in a lump sum within five business days of the Date of Termination (at the Executive’s election), a cash severance amount equal to the Annual Compensation the Executive would have received for the otherwise remaining term of the Employment Period, and

     (B) maintain and provide for a period ending at the earlier of (i) the otherwise remaining term of the Employment Period or (ii) the date of the Executive’s full-time employment by another employer (provided that the Executive is entitled under the terms of such employment to benefits substantially similar to those described in this subparagraph (B)), at no cost to the Executive, the Executive’s continued participation in all group insurance, life insurance, health and accident insurance, disability insurance and other employee benefit plans, programs and arrangements offered by the Employers in which the Executive was entitled to participate immediately prior to the Date of Termination, including the benefits specified in Section 3 hereof (excluding (x) stock option and restricted stock plans of the Employers, (y) bonuses and other items of cash compensation included in Annual Compensation, and (z) other benefits, or portions thereof, included in Annual Compensation), provided that in the event that the Executive’s participation in any plan, program or arrangement as provided in this subparagraph (B) is barred, or during such period any such plan, program or arrangement is discontinued or the benefits thereunder are materially reduced, the Employers shall arrange to provide the Executive with benefits substantially similar to those which the Executive was entitled to receive under such plans, programs and arrangements immediately prior to the Date of Termination.

     6. Mitigation; Exclusivity of Benefits.

     (a) The Executive shall not be required to mitigate the amount of any benefits hereunder by seeking other employment or otherwise, nor shall the amount of any such benefits be reduced by any compensation earned by the Executive as a result of employment by another

employer after the Date of Termination or otherwise, except as set forth in Section 5(d)(B)(ii) hereof.

     (b) The specific arrangements referred to herein are not intended to exclude any other benefits (other than severance under the Employers’ general severance policy, plan or program) which may be available to the Executive upon a termination of employment with the Employers pursuant to employee benefit plans of the Employers or otherwise.

     7. Withholding. All payments required to be made by the Employers hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Employers may reasonably determine should be withheld pursuant to any applicable law or regulation.

     8. Noncompetition and Nonsolicitation Provisions.

     (a) The Executive agrees that during the 24-month period following the Employment Period (the “Non-Compete Period”), the Executive will not, directly or indirectly, (i) become a director, officer, employee, shareholder, principal, agent, consultant or independent contractor of any insured depository institution, trust company or parent holding company of any such institution or company which has an office in New York City, New York, or any of Bronx, Kings, Nassau, Queens, Richmond, Rockland, Suffolk or Westchester Counties in the State of New York, or any of Bergen, Essex, Hudson, Middlesex, Ocean, Passaic or Union Counties in the State of New Jersey (collectively, the “Restricted Territory”), or any other entity whose business in the Restricted Territory materially competes with the depository, lending or other business activities of the Corporation or its subsidiaries or affiliates (in each case, a “Competing Business”), provided, however, that this provision shall not prohibit the Executive from owning bonds, non-voting preferred stock or up to five percent (5%) of the outstanding common stock of any such entity if such common stock is publicly traded, (ii) solicit or induce, or cause others to solicit or induce, any employee of the Corporation or any of its subsidiaries to leave the employment of such entities, or (iii) solicit (whether by mail, telephone, personal meeting or any other means) any customer of the Corporation or any of its subsidiaries to transact business with any other entity, whether or not a Competing Business, or to reduce or refrain from doing any business with the Corporation or its subsidiaries, or interfere with or damage (or attempt to interfere with or damage) any relationship between the Corporation or its subsidiaries and any such customers.

     (b) In consideration of the obligations and commitments of the Executive under this Section 8, the Corporation shall pay to the Executive an amount equal to $500,000 per year during the Non-Compete Period, payable in monthly installments on the first business day of each month during the Non-Compete Period.

     (c) Notwithstanding any other provision hereof, the Executive agrees to treat as confidential all information (excluding, however, information contained in publicly available reports filed by the Corporation or its subsidiaries with any governmental entity and information published or disclosed to the public by a third party) concerning the records, properties, books,

contracts, commitments and affairs of the Corporation and/or its subsidiaries and affiliates, including but not limited to, information regarding accounts, shareholders, finances, strategies, marketing, customers and potential customers (their identities, preferences, likes and dislikes) and other information of a similar nature not available to the public.

     (d) It is the intention of the parties hereto that the provisions of this Section 8 shall be enforced to the fullest extent permissible under all applicable laws and public policies, but that the unenforceability or the modification to conform with such laws or public policies of any provision hereof shall not render unenforceable or impair the remainder of this Section 8. The covenants in Section 8(a) of this Agreement with respect to the Restricted Territory shall be deemed to be separate covenants with respect to each city and county in the Restricted Territory, and should any court of competent jurisdiction conclude or find that this Section 8 or any portion is not enforceable with respect to any city or county in the Restricted Territory, such conclusion or finding shall in no way render invalid or unenforceable the covenants herein with respect to any other city or county in the Restricted Territory. Accordingly, if any provision shall be determined to be invalid or unenforceable either in whole or in part, this Section 8 shall be deemed amended to delete or modify as necessary the invalid or unenforceable provisions to alter the balance of this Section 8 in order to render the same valid and enforceable.

     (e) The Executive acknowledges that the Corporation would not have entered into the Merger Agreement or intend to consummate the Merger unless the Executive had, among other things, entered into Section 8(a) of this Agreement. Any breach of Section 8 of this Agreement will result in irreparable damage to the Corporation for which the Corporation will not have an adequate remedy at law. In addition to any other remedies and damages available to the Corporation, the Executive further acknowledges that the Corporation shall be entitled to injunctive relief hereunder to enjoin any breach of Section 8 of this Agreement, and the parties hereby consent to an injunction in favor of the Corporation by any court of competent jurisdiction, without prejudice to any other right or remedy to which the Corporation may be entitled. The Executive represents and acknowledges that, in light of his experience and capabilities, the Executive can obtain employment with other than a Competing Business or in a business engaged in other lines and/or of a different nature than those engaged in by the Corporation or its subsidiaries or affiliates, and that the enforcement of a remedy by way of injunction will not prevent the Executive from earning a livelihood. In the event of a breach of Section 8 of this Agreement by the Executive, the Executive acknowledges that in addition to or in lieu of the Corporation seeking injunctive relief, the Corporation may also seek to recoup in a judicial proceeding any or all amounts paid by the Corporation to the Executive pursuant to Section 8(b) hereof. Each of the remedies available to the Corporation in the event of a breach by the Executive shall be cumulative and not mutually exclusive.

     9. Assignability. The Employers may assign this Agreement and their rights and obligations hereunder in whole, but not in part, to any corporation, bank or other entity with or into which the Employers may hereafter merge or consolidate or to which either of the Employers may transfer all or substantially all of its respective assets, if in any such case said corporation, bank or other entity shall by operation of law or expressly in writing assume all obligations of the Employers hereunder as fully as if it had been originally made a party hereto,

but may not otherwise assign this Agreement or their rights and obligations hereunder. The Executive may not assign or transfer this Agreement or any rights or obligations hereunder.

     10. Notice. For the purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below:

To the Corporation:	Secretary
	Independence Community Bank Corp.
	195 Montague Street
	Brooklyn, New York 11201
To the Bank:	Secretary
	Independence Community Bank
	195 Montague Street
	Brooklyn, New York 11201
To the Executive:	Harry P. Doherty
	(at the address shown in the Employers’ records)

     11. Amendment; Waiver. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer or officers as may be specifically designated by the Boards of Directors of the Employers to sign on their behalf. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

     12. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of New York, without regard to the conflicts of laws provisions thereof.

     13. Nature of Obligations. Nothing contained herein shall create or require the Employers to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Executive acquires a right to receive benefits from the Employers hereunder, such right shall be no greater than the right of any unsecured general creditor of the Employers.

     14. Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

     15. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect.

     16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

     17. Regulatory Prohibition. Notwithstanding any other provision of this Agreement to the contrary, any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. §1828(k)) and the regulations promulgated thereunder, including 12 C.F.R. Part 359. In the event of the Executive’s termination of employment with the Bank for Cause, all employment relationships and managerial duties with the Bank shall immediately cease regardless of whether the Executive remains in the employ of the Corporation following such termination. Furthermore, following such termination for Cause, the Executive will not, directly or indirectly, influence or participate in the affairs or the operations of the Bank.

     18. Payment of Costs and Legal Fees and Reinstatement of Benefits. In the event any dispute or controversy arising under or in connection with the Executive’s termination is resolved in favor of the Executive, whether by judgment, arbitration or settlement, the Executive shall be entitled to the payment of all reasonable legal fees incurred by the Executive in resolving such dispute or controversy.

     19. Entire Agreement. This Agreement embodies the entire agreement between the Employers and the Executive with respect to the matters agreed to herein. All prior agreements between the Employers and the Executive with respect to the matters agreed to herein are hereby superseded and shall have no force or effect.

     IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written.

Attest:	INDEPENDENCE COMMUNITY      BANK CORP.
	By:	/s/Alan H. Fishman

Attest:	INDEPENDENCE COMMUNITY BANK
	By:	/s/Alan H. Fishman

EXECUTIVE
By:	/s/Harry P. Doherty
	Harry P. Doherty

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements of our reports dated March 10, 2006, with respect to the consolidated financial statements of Independence Community Bank Corp., Independence Community Bank Corp. management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Independence Community Bank Corp., included in the Form 10-K for the year ended December 31, 2005:

Form S-8 No. 333-50987, pertaining to the Independence Community Bank 401(k) Savings Plan in RSI Retirement Trust

Form S-8 No. 333-74055, pertaining to the 1998 Stock Option Plan

Form S-8 No. 333-85981, pertaining to the Stock Options Assumed in Acquisition of Broad National Bancorporation

Form S-8 No. 333-95767, pertaining to the Stock Options Assumed in Acquisition of Statewide Financial Corp.

Form S-8 No. 333-60204, pertaining to the Director’s Fiscal 2002 Stock Retainer Plan

Form S-8 No. 333-83330, pertaining to the Director’s Fee Plan

Form S-8 No. 333-106193, pertaining to the 2002 Stock Incentive Plan, as amended

Form S-3 No. 333-100897, pertaining to the common stock available for resale by Meridian Capital Group, LLC

Form S-8 No. 333-111562, pertaining to the stock options assumed in the acquisition of Staten Island Bancorp, Inc.

/s/ Ernst & Young LLP
New York, New York
March 10, 2006

EX-31.1

EXHIBIT 31.1

PURSUANT TO RULES 13a-14 AND 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934

AND SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

I, Alan H. Fishman, certify that:

      1.     I have reviewed this annual report on Form 10-K of Independence Community Bank Corp. (the “Registrant”);

      2.     Based on my knowledge, this 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 report;

      3.     Based on my knowledge, the financial statements, and other financial information included in this 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 report;

      4.     The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

      (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

      (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

      (c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      (d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

      5.     The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

      (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

/s/ Alan H. Fishman

Alan H. Fishman

President and Chief Executive Officer

Date: March 15, 2006

EX-31.2

EXHIBIT 31.2

PURSUANT TO RULES 13a-14 AND 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934 AND SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

I, Frank W. Baier, certify that:

      1.     I have reviewed this annual report on Form 10-K of Independence Community Bank Corp. (the “Registrant”);

      2.     Based on my knowledge, this 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 report;

      3.     Based on my knowledge, the financial statements, and other financial information included in this 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 report;

      4.     The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

      (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

      (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

      (c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

      (d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

      5.     The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

      (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

/s/ Frank W. Baier

Frank W. Baier

Executive Vice President, Chief Financial Officer,

Treasurer and Principal Accounting Officer

Date: March 15, 2006

EX-32.1

Exhibit 32.1

CERTIFICATE PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Annual Report of Independence Community Bank Corp. (the “Company”) on Form 10-K for the period ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Alan H. Fishman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

      (1) The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

      (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Alan H. Fishman

Alan H. Fishman

President and Chief Executive Officer

March 15, 2006

      A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act has been provided to Independence Community Bank Corp. and will be retained by Independence Community Bank Corp. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATE PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Annual Report of Independence Community Bank Corp. (the “Company”) on Form 10-K for the period ending December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Frank W. Baier, Executive Vice President, Chief Financial Officer, Treasurer and Principal Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

      (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

      (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Frank W. Baier

Frank W. Baier

Executive Vice President,

Chief Financial Officer,

Treasurer and Principal Accounting Officer

March 15, 2006

      A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act has been provided to Independence Community Bank Corp. and will be retained by Independence Community Bank Corp. and furnished to the Securities and Exchange Commission or its staff upon request.