Independence Federal Savings Bank Financial Information For the Three Months and Twelve Months Ended June 30, 2002

Business Wire, August 16, 2002

Business Editors

WASHINGTON--(BUSINESS WIRE)--Aug. 16, 2002

Independence Federal Savings Bank (Nasdaq:IFSB) reported net income of $478,000, or $0.36 per share, for the three months ended June 30, 2002, up from a net loss of $1,000, or $(0.001) per share in the June 2001 quarter. In the June 2002 quarter, the re-negotiation of the lockbox contract resulted in a one-time boost to net income of $207,000. In addition, gains on sales of securities totaled $266,000. There were no such gains in the prior year quarter.

For the June 2002 quarter, net interest income amounted to $1,644,000, down from $1,858,000 one year earlier, as the average net interest margin dipped from 2.78% to 2.43%. The Bank attributed the decline in the net interest margin to the historically low interest rate environment. The unprecedented decline in interest rates following the "9/11" terrorist attacks and the recent turmoil in the stock market affected the return on the student loan portfolio,in particular. For the June 2002 quarter, the yield on the student loan portfolio averaged 5.44%, down from 8.29% in the prior year quarter. Interest rates on student loans are set by the federal government. On June 30, 2002, the borrower rate on student loans reset from 5.39% to 3.46%. The rate that lenders receive on student loans is equal to the higher of the borrower rate; or, either the average of the bond equivalent yields of the 91-day treasury bill auctioned during a calendar quarter plus 220 basis points; or, the average rate of the 3-month commercial paper rate for a calendar quarter plus 174 basis points. Over the past six months, the yield on the 91-day treasury bill has fallen below 2%. Due to the low interest rate environment, it appears likely that the yield that the Bank receives on these loans will remain low in the months ahead.

In the June 2002 quarter, interest income totaled $3,560,000, down from $4,817,000 the previous year, as the average yield on financial assets fell from 7.80% to 5.67%, more than offsetting an increase in average financial assets outstanding from $247,049,000 to $251,141,000. Total interest expense amounted to $1,916,000, down from $2,959,000 in 2001, as the average cost of funds declined from 5.02% to 3.24%. For the current quarter, noninterest income amounted to $1,276,000, up from $670,000, due to the previously mentioned gains on sales of securities ($266,000) and the re-negotiation of the lockbox contract ($207,000.) In the current quarter, noninterest expense amounted to $2,162,000, down from $2,515,000. Noninterest expense comprised 3.32% (annualized) of average assets, down from 3.85% (pre FASB 142) and 3.76% (post FASB 142) in the 2001 quarter.

Independence Federal Savings Bank reported a net loss of $517,000, or $(0.40) per share, for the six months ended June 30, 2002, down from net income of $72,000, or $0.06 per share in the June 2001 period. The net loss was due primarily to the write-off of the goodwill arising from the 1981 merger with Community Federal Savings and Loan Association, pursuant to SFAS 142, Goodwill and other Identifiable Intangible Assets, which requires that goodwill no longer be amortized but be tested annually for "impairment." The Bank adopted SFAS 142 in the first quarter of 2002. The write-off amounted to $1,030,000 and $0.80 per share. The charge had no effect on regulatory capital because goodwill and other intangible assets are deducted from stockholders' equity prior to computing regulatory capital. A more detailed discussion of the goodwill charge is contained in the Bank's Reports 10-QSB for March 31, 2002 and June 30, 2002.

For the six months ended June 30, 2002, net interest income totaled $3,004,000, down from $3,465,000 in the prior year period, as the net interest margin fell from 2.60% to 2.22%. For the June 2002 six-month period, interest income totaled $6,979,000, down from $9,481,000 in the prior year, as the average yield on financial assets dropped from 7.73% to 5.60%. About 39% of the Bank's financial assets have adjustable interest rates that reset to the 91-day treasury bill rate. Thus, the average yield on financial assets has been adversely impacted by the dramatic decline in interest rates following the "9/11" terrorist attacks and the recent turmoil in the stock market. For the six months ended June 30, 2002, interest expense amounted to $3,975,000, down from $6,016,000, as the cost of funds dropped from 5.13% to 3.38%. For the June 2002 semi-annual period, noninterest income totaled $1,956,000, up from $1,488,000 in the prior year. For the June 2002 period, gains on sales of securities totaled $266,000. There were no gains in the prior year. Also, the previously mentioned re-negotiation of the lockbox contract resulted in a one-time credit of $207,000. For the June 2002 period, noninterest expense amounted to $4,148,000, down from $4,784,000 in the prior year. For the 2002 period, noninterest expense comprised 3.18% (annualized) of average assets, down from 3.69% (pre FASB 142) and 3.60% (post FASB 142) in the prior year.