[graphic-STATEN ISLAND Bancorp,Inc. logo]
15 BEACH STREET, STATEN ISLAND, NY 10304
Member F.D.I.C. Equal Opportunity Employer Equal Housing Lender
www.sibk.com
STATEN ISLAND BANCORP, INC.
2000 Annual Report
" Bringing a successful
tradition of Community
Banking to new markets"
[graphic-STATEN ISLAND Bancorp,Inc. logo]
CORPORATE PROFILE
MISSION STATEMENT: SI Bank & Trust is a strong financial services company
committed to improving shareholder value and delivering the highest quality
products and services responsive to the changing needs of our consumer and
business markets. As we grow, we will consistently strive to give extraordinary
service to our customers by providing our employees with the means and
opportunities to make full use of their skills and capabilities. These
commitments to our shareholders, customers and employees will enable the Company
to maintain a level of profitability necessary to remain independent for the
benefit of the communities we serve.
[GRAPHIC-MAP DEPICTING LOCATIONS]
Staten Island, NY .........17
Kings (Brooklyn), NY....... 2
Union, NJ...................3
Middlesex, NJ ..............1
Monmouth, NJ................2
Ocean, NJ...................5
Staten Island Bancorp, Inc. ("SIB") was organized in 1997 and is the holding
company for SI Bank & Trust (the "Bank"), a federally chartered, FDIC insured
thrift institution, originally organized in 1864 under the name of Staten Island
Savings Bank. Headquarted in Staten Island, New York, the Bank operates 17 full
service branches and a trust department in Staten Island, New York, two branches
in Brooklyn, New York, five branches in Ocean County, New Jersey, two branches
in Monmouth County, New Jersey, one branch in Middlesex County, New Jersey and
three branches in Union County, New Jersey.
SI Bank & Trust also has a mortgage-banking subsidiary: SIB Mortgage Corp.,
d/b/a Ivy Mortgage. The principal business of the Bank consists of attracting
deposits from consumers and businesses in its market area and originating
consumer, residential, multi-family and commercial real estate loans, as well as
other business loans.
Staten Island Bancorp, Inc.'s common stock is publicly traded on the New York
Stock Exchange under the symbol "SIB".
FINANCIAL HIGHLIGHTS
[GRAPHIC-GRAPH DEPICTING TOTAL ASSETS (in millions of dollars)]
[GRAPHIC-GRAPH DEPICTING TOTAL LOANS (in millions of dollars)]
[GRAPHIC-GRAPH DEPICTING TOTAL DEPOSITS (in millions of dollars)]
At or For the Years Ended December 31,
- --------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Operations Data Net interest income $ 140,684 $ 138,409 $ 121,072
Provision (benefit) for loan losses 652 (1,843) 1,594
Total other income 43,562 30,853 10,380
Total other expenses 96,760 82,971 55,918
Income before provision for income taxes 86,834 88,134 73,940
Provision for income taxes 32,908 35,259 29,678
Net income 53,926 52,875 44,262
- --------------------------------------------------------------------------------------------------------------------
Financial Condition Data Total assets $5,240,864 $4,489,314 $3,776,947
Loans receivable, net 2,847,660 2,150,039 1,457,058
Loans held for sale, net 116,163 46,588 77,943
Securities available for sale, net 1,888,946 1,963,954 2,029,041
Deposits 2,345,213 1,820,233 1,729,061
Borrowed funds 2,241,011 2,049,411 1,344,517
Stockholders' equity 585,532 571,377 669,042
Non-accruing assets 10,669 13,361 17,081
Net loan charge-offs 1,132 503 782
Allowance for loan losses 14,638 14,271 16,617
- --------------------------------------------------------------------------------------------------------------------
Selected Financial Ratios Stockholders' equity to total assets 11.17% 12.73% 17.71%
Tangible equity to assets 10.09 13.01 16.84
Total risk-based capital 18.77 25.58 35.93
Net interest margin 2.99 3.50 4.13
Interest rate spread 2.22 2.60 2.93
Return on average assets 1.09 1.28 1.45
Return on average equity 9.61 8.44 6.39
Efficiency ratio 49.41 47.70 41.11
Non-accruing assets to total assets 0.20 0.30 0.45
- --------------------------------------------------------------------------------------------------------------------
Per Share Data Basic earnings $ 1.61 $ 1.40 $ 1.06
Diluted earnings 1.61 1.40 1.06
Tangible book value 14.98 14.37 14.90
Market value 21.38 18.00 19.94
Cash dividends paid 0.51 0.41 0.23
Page 1
EXECUTIVE MESSAGE
2000 Highlights
o Changed name of wholly owned subsidiary to
SI Bank & Trust
o Core Cash Earnings per Share increased by 21%
o Loan production exceeds a record $1.7 billion
o Non-accruing assets decline to 0.20%
of total assets
o Acquired a $374 million commercial bank in
New Jersey
o Purchased four branches of a commercial
bank in New Jersey
o Opened two de-novo branches
o Deposit share in Staten Island remains
in excess of 30%
o Completed Fifth Stock Repurchase Program
o SIB Mortgage profitable in 3rd and 4th quarters
To Our Shareholders:
Our third year as a public company has been highlighted by continued earnings
momentum, expansion of our branch franchise into the State of New Jersey,
continued record growth of our loan production activities and increased
shareholder value.
In addition, on September 5th, we changed the name of the Company's wholly owned
subsidiary from Staten Island Savings Bank to SI Bank & Trust. The name change
was implemented due to the continued expansion of our commercial services, as
well as the geographic expansion of our branch office network beyond the shores
of Staten Island.
In January we completed the acquisition of First State Bancorp and its
subsidiary, First State Bank, a $374 million commercial bank with branches
located in Monmouth and Ocean Counties, New Jersey.
In the fourth quarter we acquired four branches of Unity Bank, expanding our New
Jersey branch network into Middlesex and Union Counties.
These transactions, as well as other activities noted in this report,
demonstrate management's ongoing commitment to improve shareholder value through
expansion of our franchise, growth in our key business lines and responsiveness
of our products and services.
The Financial Year in Review
Our financial performance remains solid as we continue to execute capital and
business plans that align with our long-term strategic vision to enhance
shareholder value through careful and methodical growth and expansion. Net
income in the year 2000 was affected by narrowing margins resulting from steady
increases in interest rates. However, while net income grew by 2.0%, from $52.9
million to $53.9 million, earnings per share
page 2
[GRAPHIC-GRAPH DEPICTING EARNINGS PER SHARE (IN DOLLARS)]
increased by 15.0% on a diluted per share basis, primarily due to our commitment
to stock repurchases during the year. Core cash earnings per share increased by
21% to $1.92.
Total assets increased by 16.7% to $5.2 billion, deposits increased by 28.8% to
$2.3 billion, and stockholders' equity increased to $585.5 million. This growth
was accomplished through the acquisition of First State Bancorp as well as
continued growth in net loans.
The Company's loan production reached new record levels due to the expansion of
our two loan subsidiaries, SIB Mortgage Corp. and American Construction Lending
Services ("ACLS"). In total, the Company originated $1.7 billion in loans and
net loan growth was $604 million, exclusive of the loans acquired from First
State. SIB Mortgage, which does business in twenty-seven states as Ivy Mortgage,
originated $760 million in residential mortgage loans, while ACLS had $96
million in loans outstanding by the end of the year. In an effort to streamline
operations and improve operating efficiencies, we recently announced the merger
of ACLS with and into SIB Mortgage Corp.
[graphic photo]
"The Company's loan production reached new record levels..."
Our commercial lending initiatives have proven to be successful resulting in
significant increases in commercial real estate, multi-family, construction and
unsecured commercial loans. The commercial loan portfolio increased by 55% to
$560 million during the year. This segment of our portfolio provides us with
higher yielding, shorter-term loans, which are complementary to our core
one-to-four family residential mortgage loan portfolio.
Asset growth was mainly funded through cash flows, amortization of our
securities portfolio, sales of long-term fixed-rate mortgage loans, and the
acquisition and growth of deposits in new markets.
The Company's reliance on borrowed funds declined slightly to 42.8% of total
assets, from 45.7% of total assets at year-end 1999. Total borrowings increased
slightly to $2.2 billion during the year. However, it is our intention to reduce
borrowings in 2001 as a result of anticipated deposit growth in our New Jersey
markets. In addition, $1.4 billion, or 63% of borrowed funds will re-price in
2001. The weighted average cost of the borrowings was 6.19% for the year.
page 3
Loan quality remains a priority, particularly as we expand into new markets with
a much broader product line. We are proud to report that, while we have
substantially increased our loan portfolio, we have also reduced non-accruing
assets to $10.7 million or 0.20% of total assets. In addition, we made a
provision of $652 thousand to our allowance for loan losses due to the changing
dollar mix of our loan originations. At December 31, 2000, our allowance for
loan losses was 149.7% of non-accruing loans, up from 114.4% at December 31,
1999.
Steadily rising interest rates throughout the year resulted in narrowing
interest spreads and margins. However, the trend stabilized during the fourth
quarter and recent cuts in the Fed Funds rate should allow the Company to
improve these spreads during the coming year. Also, fee income has increased by
approximately 37% over the prior year, which will serve to offset the narrowing
spreads. New initiatives for growth of our Trust and Investment Services have
also resulted in early success, and should produce a larger amount of fee income
in the future.
Capital Management Strategies
The capital management strategies deployed throughout the year include:
continuing our stock repurchase program; the payment of regular quarterly
dividends; and acquisition and expansion. As mentioned earlier, we are planning
to de-emphasize leveraging of the balance sheet in 2001 as a capital management
strategy, provided we can effectively increase deposits in our new markets.
Through December 2000, we have completed five stock repurchase programs. In
total, 10.2 million shares have been repurchased at an average cost of $18.45
per share. We remain predisposed toward this program as a way of deploying
excess capital and the Company commenced a new 5% repurchase program during the
first quarter 2001.
Regular quarterly dividend payments also continued in 2000 with total dividends
of $.51 per share declared during the year. We increased the amount of our
dividend twice during the year and our dividend payout ratio amounted to 31.7%.
Revenue Enhancements Through
Cost-Efficient Expansion
As we mentioned in the introduction, geographic expansion into the State of New
Jersey was accomplished with the January acquisition of First State Bancorp,
Inc. and First State Bank, a $374 million commercial bank with six branches
serving communities in Monmouth and Ocean Counties, New Jersey. By March 31,
2000, we had achieved all cost savings objectives with respect to the
integration of the First State network. We also purchased four branches, with
$41 million in deposits, from Unity Bank which enabled us to establish locations
in Middlesex and Union Counties in New Jersey.
We expect to capitalize on excellent opportunities to grow market share and
generate revenue in these new markets through the introduction of a broader
range of commercial and consumer products supported by SI Bank & Trust's
enhanced technology and proven expertise in product delivery and service.
In addition, Ivy Mortgage opened additional sales offices which are expected to
enable us to further increase production significantly. More importantly,
approximately $1.5 million in cost reductions were implemented at Ivy Mortgage
and the mortgage-banking operation was profitable in both the third and fourth
quarters.
[GRAPHIC-GRAPH DEPICTING TOTAL OTHER INCOME (thousands of dollars)]
By year-end we opened two de-novo branches, one in Brooklyn, New York, and one
in Jackson,
page 4
New Jersey. Our ability to serve the financial needs of individuals and
businesses in our core markets remains obvious as our share-of-market in Staten
Island remains in excess of 30% of total deposits.
A New Name, but the Same Core Principals
of Community Banking
On September 5th, we changed the name of the Company's subsidiary from Staten
Island Savings Bank to SI Bank & Trust. A big step for a 136-year old
institution, but appropriate due to our successful transition to a full-service
community bank that began approximately five years ago. As we enter new markets,
we believe that the general definition of a "savings bank" was too limiting in
its description of the scope of products and services available to the consumers
and businesses we serve.
[graphic-photo]
More importantly, we are confident that these new markets will respond to the
brand of community banking that has enabled us to maintain our dominant position
in our core market of Staten Island. We know that community banking is defined
by the people that deliver the services, which is why we remain committed to
extensive operational and service training. We also understand that revenue
enhancements exist within our own customer base, which is why we remain
committed to product and sales training for our customer contact staff at all
levels.
And we understand that the confidence of our shareholders is dependent upon our
ability to improve revenues through cost effective and efficient delivery of
products to our marketplace, which is why we remain committed to careful
monitoring of expense controls as well as responsive product delivery.
The directors, officers and staff at SI Bank & Trust have a vested interest in
the Company's success due to their participation in the Employee Stock Ownership
Plan (ESOP), our 401(k), and other stock benefit plans, as well as individual
investments in our stock that many of them have made. In this regard, we are
partners with our shareholders and mindful that, in order to be truly
successful, our business decisions must result in long-term improvement in
shareholder value.
We remain appreciative to our shareholders for entrusting us with their
financial investment in our Company and pledge our continued commitment toward
maintaining the strong fundamentals of the Company. Namely, a loyal and stable
low-cost core customer base, the highest quality asset generation, and a team of
banking professionals prepared to set SI Bank & Trust apart as the premier
community bank within the markets we serve.
/s/James R. Coyle
- -----------------
James R. Coyle
President and Chief Operating Officer
/s/Harry P. Doherty
-------------------
Harry P.Doherty
Chariman and Chief Executive Officer
page 5
"Our new markets have been added to our core branch franchise in Staten Island,
NY. We are proud that in Staten Island we continue to maintain marketshare in
excess of 30%, and household penetration of approximately 50%..."
The Community Bank Franchise Expands
Into New Markets
In recent years, the Bank's branch expansion strategies have included whole bank
and branch acquisitions, as well as de novo branching. In 2000, we accomplished
all three.
In January 2000, as part of its efforts to strengthen its franchise and enter
new markets, Staten Island Bancorp completed the acquisition of First State
Bancorp and its subsidiary, First State Bank, a $374 million commercial bank
with six branch offices. This network of branches served as the Bank's platform
for entering the strong markets of Monmouth and Ocean Counties, New Jersey.
The purchase of four branches and $41 million in deposits of Unity Bank in
December 2000 enabled the Bank to establish four additional branch offices in
Union and Middlesex Counties in New Jersey.
We also opened two new de novo branches, one in Bensonhurst, Brooklyn, New York,
in September; and the second in December, in the town of Jackson, Ocean County,
New Jersey. Each community is contiguous to towns already served by the Bank. By
year-end deposits in these two branches totaled $15 million.
A significant opportunity for growth exists in these new markets through the
implementation of SI Bank & Trust's proven sales and service philosophies. The
introduction of new business and consumer products to the 15,000 existing
customer households and tens-of-thousands of non-customer households in these
markets will include on-line and ATM banking, electronic bill-payment, mortgage
and consumer loans, secured and unsecured commercial loans and trust services.
In addition, the employees in the new branches have participated in the Bank's
extensive sales and service training programs designed to identify cross-sell
opportunities, which we hope will further strengthen the customer's relationship
with the Bank.
[graphic-photo of Bensonhurst, Brooklyn, NY, opened September 2000]
We have also deployed business development activities that have proven to be
extremely successful in the core markets served by the Bank. These strategies
include the effective partnership of business development officers, branch
managers and commercial loan officers in the acquisition of new customers, as
well as the expansion of services used by our current customer base.
Our new markets have been added to our core branch franchise in Staten Island,
NY. We are proud that in Staten Island, we continue to maintain marketshare in
excess of 30%, and household
page 6
penetration of approximately 50%, despite aggressive branching and pricing
strategies employed by competitors. In addition, core deposit balances make up
approximately 60% of the total, with over 17% in non-interest checking accounts.
We believe that our ability to retain such a significant market-share
demonstrates the effectiveness of our retail and business banking strategies.
These strategies have included responsive product development and high standards
of customer service. Usage of new products introduced in recent years, such as
on-line banking, the Visa Check Card and small business loans have continued to
expand and add to revenue due to well-defined, targeted marketing and sales
efforts.
[graphic-Jackson, NJ, opened December 2000]
Our solid base of core deposits also enables the Bank to generate service and
fee income that helps offset the narrowing interest margins that were common in
our industry during the past year. We also benefit from the fees generated by
our financial services subsidiary through the sale of Savings Bank Life
Insurance in our New York markets.
Our Trust and Investment Services Department experienced significant growth this
past year. Assets under management at December 31, 2000 totaled $216 million, an
increase of $40 million or 23% compared to December 31, 1999. Fee income
generated by this department increased by approximately 20% in 2000. The growth
in new trust and investment services clients has been due to the successful
integration of business development activities targeting the existing customer
base.
Loan Production Remains Strong
The programs, products and practices implemented over the past few years
continued to result in record levels of loan production. Loan originations in
2000 totaled $1.7 billion, which included $850 million by Ivy Mortgage and ACLS,
and approximately $850 million by the Bank's residential, commercial and
consumer loan units. This record production resulted in net loan growth of $604
million, exclusive of the First State acquisition, and was accomplished in
several ways.
Our extensive product line gives borrowers the opportunity to select among the
aspects that are most important to them. "No-point" options are available on
most products, along with other features including "no-income" verification, and
bi-weekly payments on fixed-rate mortgage loans. The availability of jumbo
loans, government-backed FHA loans and loans provided through state housing
programs such as the State of New York
page 7
Mortgage Association (SONYMA), round out the product mix which is designed to
cover the first-time buyer to the more experienced buyer.
Responsiveness is another important factor in the successful growth of our
residential mortgage loan volumes. Our Priority Access Program, available to
mortgage brokers, accounted for approximately 90% of the Bank's total mortgage
loan originations for the year. Members of our program are constantly providing
us with feedback concerning the changing conditions of the residential lending
marketplace. This enables us to react more quickly with respect to pricing and
product changes.
In addition, many applicants have schedules that may not allow them to speak to
loan representatives during "normal" business hours. We provide a loan
specialist who is available seven days a week at locations determined by the
borrower.
The operations of Ivy Mortgage Corp. reduce the Company's dependence on the
market in and around the New York Metropolitan area. Ivy Mortgage has an
extensive presence as a licensed mortgage banker in the northeast and
mid-Atlantic regions of the country, and in the past year opened offices in five
additional states, bringing total coverage to 27 states. During the year we also
implemented approximately $1.5 million in cost controls at Ivy Mortgage and this
subsidiary was profitable during the third and fourth quarters. The Bank also
retained approximately $222 million of Ivy Mortgage's adjustable-rate loan
production in order to increase the amount of adjustable-rate loans in its
portfolio.
We continue to achieve controlled, yet significant, improvement in commercial
loan production. With an approach toward "relationship lending," our commercial
real estate and business loan officers have the expertise and the resources to
structure complicated transactions and to meet tight deadlines. We also
continued to enhance the profitability of these customers by generating deposits
and other fee business such as trust services.
[graphic-Professional office, Staten Island, NY--construction and
permanent financing by SI Bank & Trust]
The commercial loan portfolio reached a record $562 million by year-end, with
growth in all segments of the portfolio. The operation of ACLS has contributed
to the growth in the construction loan portfolio, which provides higher
yielding, variable rate, short-term loans.
Community Banking Is All About The People
The Bank has had a tradition of solidifying its ties with the community and
developing business through support of local charitable, housing, educational,
health care and civic organizations. The directors, officers and staff continue
to contribute their time, money and talents to hundreds of organizations.
Proceeds from team activities such as walk-a-thons, bowl-a-thons, dress down
days and other events are donated to various charitable organizations. Directors
and officers also serve on numerous boards and advisory committees.
This individual giving is supported by corporate sponsorship of various events
and programs such as the "Newspaper-in-Education" program, serving hundreds of
classrooms and students in schools throughout Staten Island, in partnership with
the local newspaper, the Staten Island Advance.
In addition, the SISB Community Foundation, which was formed and funded through
the stock conversion, has contributed millions of dollars in each of the past
three years to local housing, education and charitable causes.
[graphic-Professional office, Brooklyn, NY--purchase, renovation
and permanent financing by SI Bank & Trust]
We believe that these activities are paramount in our positioning as a community
bank. They expand our reach into households and businesses and present SI Bank &
Trust with additional opportunities for growth.
page 8
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
The following selected historical financial data for the five years ended
December 31, 2000 is derived in part from the audited financial statements of
Staten Island Bancorp, Inc. the ("Company"). The selected historical financial
data set forth below should be read in conjunction with the historical financial
statements of the Company, including the related notes, included elsewhere
herein.
December 31,
------------------------------------------------------------------------
(000's omitted except share data) 2000 1999 1998 1997 1996
Selected Financial Condition Data:
Total assets ......................................... $ 5,240,864 $ 4,489,314 $ 3,776,947 $ 2,651,170 $1,782,323
Securities available for sale, net ................... 1,888,946 1,963,954 2,029,041 1,350,467 703,134
Loans receivable, net ................................ 2,847,660 2,150,039 1,457,058 1,082,918 968,015
Loans held for sale, net ............................. 116,163 46,588 77,943 -- --
Intangible assets(1) ................................. 62,447 15,432 17,701 18,414 20,490
Deposits ............................................. 2,345,213 1,820,233 1,729,061 1,623,652 1,577,748
Borrowings ........................................... 2,241,011 2,049,411 1,344,517 250,042 54
Stockholders' equity ................................. 585,532 571,377 669,042 685,886 171,080
Tangible book value per share ........................ 14.98 14.37 14.90 14.79 --
Common Shares Outstanding ............................ 34,920,987 38,693,623 43,704,812 45,130,312 --
For the Year Ended December 31,
------------------------------------------------------------------------
Selected Operating Data: 2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income .................................. $ 140,684 $ 138,409 $ 121,072 $ 86,755 $ 73,993
Provision (benefit) for loan losses .................. 652 (1,843) 1,594 6,003 1,000
Other income ......................................... 43,562 30,853 10,380 7,454 3,929
Charitable contribution to
SISB Community Foundation ......................... -- -- -- 25,817 --
Other expenses ....................................... 96,760 82,971 55,918 42,908 40,066
Income tax expense ................................... 32,908 35,259 29,678 4,932 15,081
Net income ........................................... $ 53,926 $ 52,875 $ 44,262 $ 14,549 $ 21,775
Earnings (loss) per share basic and diluted .......... $ 1.61 $ 1.40 $ 1.06 $ (.29)(3)$ --
Dividends paid per share .......................... $ 0.51 $ 0.41 $ 0.23 $ -- $ --
At or For the Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------------
Key Operating Ratios: ................................ 2000 1999 1998 1997 1996
Performance Ratios:(2)(3)
Return on average assets ........................... 1.09% 1.28% 1.45% 0.70% 1.24%
Return on average equity ........................... 9.61 8.44 6.39 7.79 14.03
Average interest-earning assets to
average interest-bearing liabilities ............ 117.83 125.65 139.98 118.70 120.24
Interest rate spread(4) ............................ 2.22 2.60 2.93 3.82 3.84
Net interest margin(4) ............................. 2.99 3.50 4.13 4.39 4.46
Non-interest expenses, exclusive of
amortization of intangible assets,
to average assets ............................... 1.85 1.93 1.76 1.96 2.16
Asset Quality Ratios:
Non-accruing assets to total assets
at end of period(5) ............................. 0.20% 0.30% 0.45% 0.83% 1.34%
Allowance for loan losses to
non-accruing loans at end of period ............. 149.74 114.40 102.37 73.69 43.85
Allowance for loan losses to total loans
at end of period ................................ 0.51 0.66 1.13 1.42 1.02
Capital Ratios:
Average equity to average assets(3) ................ 11.35% 15.17% 22.64% 8.96% 8.85%
Tangible equity to assets at end of period ......... 10.09 13.01 16.84 24.78 8.55
Total capital to risk-weighted assets .............. 18.77 25.58 35.93 59.62 20.66
(1) Consists of excess of cost over fair value of net assets acquired
("goodwill"), core deposit intangibles and loan servicing assets which
amounted to $56.7 million, $2.8 million, and $3.0 million, respectively, at
December 31, 2000.
(2) With the exception of end of period ratios, all ratios are based on average
daily balances during the respective periods.
(3) The conversion proceeds were received on December 22, 1997 and have been
reflected in the performance and other ratios as of that date. Per share
information for 1997 is since conversion.
(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) Non-accruing assets consist of non-accrual loans and real estate acquired
through foreclosure or by deed-in-lieu thereof.
page 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General. The following discussion is intended to assist in understanding the
financial condition and results of operations of the Company. The information
contained in this section should be read in conjunction with the Financial
Statements and the accompanying Notes to Financial Statements and the other
sections contained in this Annual Report.
The Company's results of operations depend primarily on its net interest income,
which is the difference between interest income on interest-earning assets, that
principally consists of loans and mortgage-backed and investment securities, and
interest expense on interest-bearing liabilities which principally consists of
deposits and borrowed funds. The Company's results of operations also are
affected by the provision or benefit for loan losses, the level of its
non-interest income and expenses and income tax expense.
Asset and Liability Management. The principal goal of the Company's interest
rate risk management is to minimize the potential of adverse effects of material
and prolonged increases or decreases in interest rates on the Company's results
of operations. The Company evaluates the inherent interest rate risk in certain
balance sheet accounts in an effort to determine the acceptable level of
interest rate risk exposure based on the Company's business plan, operating
environment, capital, liquidity requirements and performance objectives. The
Board of Directors sets limits for earnings at risk and the net portfolio value
("NPV") ratio in order to reduce the potential vulnerability of the Company's
operations to changes in interest rates. The Company's Asset and Liability
Management Committee ("ALCO") is comprised of members of the Company's
management under the direction of the Board of Directors. The purpose of the
ALCO is to communicate, coordinate and control asset and liability management
consistent with the Company's business plan and Board approved policies and
limits. The ALCO establishes and monitors the volume and mix of assets and
funding sources taking into account relative costs and spreads, interest rate
sensitivity and liquidity needs. The objectives are to manage assets and funding
sources to produce results that are consistent with liquidity, capital adequacy,
growth, risk and profitability goals. The ALCO generally meets on a monthly
basis to review, among other things, economic conditions and interest rate
outlook, current and projected liquidity needs and capital positions,
anticipated changes in the volume and mix of assets and liabilities and interest
rate risk exposure limits compared to current projections pursuant to "gap
analysis" and income simulations. At each meeting, the ALCO recommends
appropriate strategy changes based on such review which are then reported to the
Board of Directors.
Market Risk. The Company's primary market risk is in market interest rate
volatility due to the potential impact on net interest income and the market
value of all interest-earning assets and interest-bearing liabilities resulting
from changes in interest rates. The operation of the Company does not subject it
to foreign exchange or commodity price risk and the Company does not own any
trading assets. The real estate loan portfolio of the Company is concentrated
primarily within the New York metropolitan area, making it subject to the risks
associated with the local economy.
Interest Rate Sensitivity. Interest rate sensitivity is a measure of the
difference between amounts of interest-earning assets and interest-bearing
liabilities which either reprice or mature within a given period of time. The
difference, or the interest rate repricing "gap," provides an indication of the
extent by which an institution's interest rate spread will be affected by
changes in interest rates. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities, and is considered negative when the amount of interest rate
sensitive liabilities exceeds the amount of interest rate sensitive assets.
Generally, during a period of rising interest rates, a negative gap within
shorter maturities would adversely affect net interest income, while a positive
gap within shorter maturities would result in an increase in net interest
income, and during a period of falling interest rates, a negative gap within
shorter maturities would result in an increase in net interest income while a
positive gap within shorter maturities would have the opposite effect. As of
December 31, 2000, the ratio of the Company's one-year interest rate gap to
total assets was a negative 31.9% and its ratio of interest-earning assets to
interest-bearing liabilities maturing or repricing within one year was 42.2%.
The static gap analysis alone is not a complete representation of interest
rate risk since it fails to account for changes in prepayment speeds on the
Company's loan and investment portfolios in different rate environments and does
not address the extent to which rates on assets or liabilities may change or
reprice. The behavior of deposit balances will also vary with changes in the
customer mix, management's pricing strategies and changes in the general level
of interest rates. Thus, gap analysis does not provide a comprehensive
presentation of the possible risks to income embedded in the balance sheet,
customer structure and various management strategies.
To measure earnings at risk, ALCO makes extensive use of an earnings
simulation model in the formation of its interest rate risk management
strategies. The model uses management assumptions concerning the repricing of
assets and liabilities, as well as business volumes projected under a variety of
interest rate scenarios. These scenarios incorporate interest rate increases and
decreases of 200 basis points over a twelvemonth period.
Management's assumptions for prepayments in the loan portfolio and pricing of
the Company's deposit products are based on management's review of past behavior
of the Company's depositors and borrowers in response to changes in both general
market interest rates and rates offered by the Company's federal savings bank
subsidiary, SI Bank & Trust (the "Bank"). These assumptions represent
management's estimates and do not necessarily reflect actual results.
At December 31, 2000, based on this model, the Company's potential earnings
at risk to a gradual 200 basis point rise or decline in market interest rates
over the next twelve months
page 10
was a 7.9% decrease in projected net income for the year 2001 in a rising rate
environment and a 4.0% increase in projected net income in a declining rate
environment. Actual interest rate changes during the past three years have
fallen within this range and management expects that any changes over the next
year will not exceed this range.
Management has included all financial instruments and assumptions that have a
material effect in calculating the Company's potential net income. These
measures of risk represent the Company's exposure to interest rate movements at
a particular point in time. The ALCO monitors the Company's risk profile on a
quarterly basis, or as needed, to monitor the effects of movement in interest
rates and also any changes or developments in the Company's core business.
The Company also reviews the market value of portfolio equity ("NPV") which
is defined as the net present value of an institution's existing assets,
liabilities and off balance sheet instruments on a quarterly basis. The Office
of Thrift Supervision ("OTS") monitors the Bank's interest rate risk through
this calculation, which they prepare quarterly, based on data provided by the
Bank. In addition, the Company prepares its NPV calculation based on its own
assumptions which could vary from those used by the OTS.
Four to More than More than
Within Three Twelve One Year to Three Years to Over Five
Months Months Three Years Five Years Years Total
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Interest-earning assets(1):
Loans receivable(2):
Mortgage loans:
Fixed-rate..................................... $ 50,953 $ 142,849 $ 317,905 $ 255,342 $ 519,125 $1,286,174
Adjustable-rate................................ 318,555 273,444 457,761 315,429 183,797 1,548,986
Other loans ..................................... 14,520 30,094 29,051 15,297 31,974 120,936
Securities:
Non-mortgage(3) ................................. 102,135 25,080 51,630 59,450 295,077 533,372
Mortgage-backed fixed-rate(4) ................... 35,488 118,795 352,509 360,397 241,435 1,108,624
Mortgage-backed adjustable-rate(4) .............. 28,630 66,295 93,637 62,576 1,470 252,608
Other interest-earning assets...................... 12,000 -- -- -- -- 12,000
--------- ----------- ---------- ----------- ---------- ---------
Total interest-earning assets ................... 562,281 656,557 1,302,493 1,068,491 1,272,878 4,862,700
========= =========== ========== =========== ========== =========
Interest-bearing liabilities:
Deposits:
NOW accounts(5)................................ 9,827 29,480 36,119 9,561 21,247 106,233
Savings accounts(5) ........................... 32,310 96,930 197,662 129,240 304,095 760,238
Money market deposit accounts(5) .............. 28,123 84,368 15,663 7,476 6,764 142,394
Certificates of deposit ....................... 254,401 509,235 143,515 31,629 8,803 947,583
Other borrowings ................................ 695,537 1,151,447 368,990 25,000 37 2,241,011
--------- ----------- ---------- ----------- ---------- ---------
Total interest-bearing liabilities .............. 1,020,198 1,871,460 761,949 202,906 340,946 4,197,459
========= =========== ========== =========== ========== =========
Excess (deficiency) of interest-earning assets
over interest-bearing liabilities ............... (457,917) (1,214,903) 540,544 865,585 931,932 665,241
========= =========== ========== =========== ========== =========
Cumulative excess (deficiency) of interest-earning
assets over interest-bearing liabilities......... $(457,917) $(1,672,820) $(1,132,276) $ (266,691) $ 665,241
========= =========== ========== =========== ==========
Cumulative excess (deficiency) of interest-earning
assets over interest-bearing liabilities as a
percent of assets ............................... (8.74)% (31.92)% (21.60)% (5.09)% 12.69%
========= =========== ========== =========== ========== =========
(1) Adjustable-rate loans are included in the period in which interest rates
are next scheduled to adjust rather than in the period in which they are
due and fixed-rate loans are included in the periods in which they are
scheduled to be repaid, based on scheduled amortization, as adjusted to
take into account estimated prepayments in the current rate environment and
loans held for sale are included in the time period they are expected to be
sold.
(2) Balances have been reduced for non-accruing loans, which amounted to $9.8
million at December 31, 2000.
(3) Based on contractual maturities.
(4) Reflects estimated prepayments in the current interest rate environment.
(5) Although the Company's NOW accounts, savings accounts and money market
deposit accounts are subject to immediate withdrawal, management considers
a substantial amount of such accounts to be core deposits having
significantly longer effective maturities. The decay rates used on these
accounts are based on the latest available OTS assumptions and should not
be regarded as indicative of the actual withdrawals that may be experienced
by the Company. If all of the Company's NOW accounts, savings accounts and
money market deposit accounts had been assumed to be subject to repricing
within one year, interest-bearing liabilities which were estimated to
mature or reprice within one year would have exceeded interest-earning
assets with comparable characteristics by $2.4 billion or 45.81% of total
assets.
page 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Certain assumptions are contained in the previous table which affect the
presentation therein. Although certain assets and liabilities may have similar
maturities or periods of repricing, they may react in different degrees to
changes in market interest rates. The interest rates on certain types of assets
and liabilities may fluctuate in advance of changes in market interest rates,
while interest rates of other types of assets and liabilities lag behind changes
in market interest rates. Certain assets, such as adjustable-rate mortgage
loans, have features which restrict changes in interest rates on a short-term
basis and over the life of the asset. In the event of a change in interest
rates, prepayment and early withdrawal levels would likely deviate significantly
from those assumed in calculating the table.
CHANGES IN FINANCIAL CONDITION
General. The Company recorded assets of $5.2 billion at December 31, 2000 and
$4.5 billion at December 31, 1999. The asset growth of $751.6 million or 16.7%
was driven by the Company's expansion into the State of New Jersey with the
acquisition of First State Bank ("FSB") in January 2000 and four branches of
Unity Bank in December 2000. These acquisitions resulted in asset growth of
$415.0 million or 55% of the year's total asset growth.
The increase of $767.2 million or 34.9% in the loan portfolio was the primary
component of this asset growth. The sources of funding for asset growth were a
$525.0 million increase in deposits, a $191.6 million increase in borrowed
funds, and a decrease of $75.0 million in securities available for sale.
Cash and Cash Equivalents. Cash and cash equivalents, which consists of cash and
due from banks, money market accounts, other interest-bearing deposits and
federal funds sold amounted to $104.1 million at December 31, 2000 compared to
$101.4 million at December 31, 1999.
Loans. The Company's net loan portfolio increased $767.2 million or 34.9% to
$3.0 billion at December 31, 2000. This increase was due to loan originations of
$1.7 billion and the addition of $93.1 million of loans from the acquisition of
FSB. The record originations included $850.0 million in originations by the
Bank's two lending subsidiaries. The originations were partially offset by loan
sales of $721.5 million of one to four family residential loans, including
$230.0 million of primarily fixed-rate residential loans sold by the Bank. The
proceeds from these sales were used to fund adjustable rate loans and
construction loans originated by the construction lending company. The Bank
retained for its own portfolio $222.0 million of higher yielding one to four
family adjustable rate residential loans originated by the mortgage company.
Loan demand was primarily in one to four family residential loans; however, the
Company had $217.9 million in commercial real estate and construction loan
originations. The Company expanded its lending activities this year through
geographic expansion by its lending subsidiaries into different areas of the
country and increasing the Bank's presence in the State of New Jersey. The
improved interest rate environment at year-end resulted in increased volumes at
both lending subsidiaries during the fourth quarter of this year.
Securities. Securities amounted to $1.9 billion at December 31, 2000 and $2.0
billion at December 31, 1999. These amounts represent 36.0% and 43.7% of assets,
respectively. Securities totaling $223.5 million were acquired in the FSB
acquisition and were subsequently sold to fund higher yielding loan originations
reflecting the Company's efforts to reallocate cash flows from the portfolio
into higher yielding loans. All of the Company's securities are classified as
available for sale at such dates.
Deposits. Deposits increased $525.0 million or 28.8% to $2.3 billion at December
31, 2000. This increase was primarily due to the Company's expansion activities
into the State of New Jersey with the acquisition of FSB and four additional
branch locations from Unity Bank, which resulted in an increase of $360.0
million to the deposit base.
Core deposits, which consist of $400.3 million of demand deposits, $760.2
million of savings deposits, $142.4 million of money market deposits and $94.7
million of NOW deposits represented 59.6% of total deposits at December 31,
2000. Retail cer tificates of deposit of $872.7 million represented 37.2% of
total deposits at December 31, 2000.
In addition, the Bank increased deposits by $74.9 million by instituting a
brokered CD program to use as an alternative source for funding higher yielding
loans. The Bank continues to utilize effective business development efforts to
maintain current and obtain new commercial relationships. The Company believes
that its efforts, along with providing quality customer service, will enable the
Bank to maintain its high ratio of demand deposits and strong core deposit base.
Borrowed Funds. The Company's borrowings at December 31, 2000 were $2.2 billion
compared to $2.0 billion at December 31, 1999, which represents an increase of
$191.6 million or 9.3%. The Company utilized borrowings in 2000 primarily to
fund the acquisition of FSB and certain higher yielding loan originations. The
borrowings consist of reverse repurchase agreements and advances from the
Federal Home Loan Bank, which are secured by the one to four family residential
loan portfolio. At the present time, it is the Company's intention to reduce its
utilization of borrowings to fund asset growth and to emphasize more traditional
funding sources such as deposit growth.
Stockholders' Equity. Stockholders' equity amounted to $585.5 million at
December 31, 2000 and $571.4 million at December 31, 1999, or 11.2% and 12.7% of
total assets at such dates respectively. The increase of $14.2 million was due
to net income of $53.9 million, an allocation of Employee Stock Ownership
("ESOP") and Recognition and Retention Plan ("RRP") shares, resulting in an
increase of $9.6 million, a valuation adjustment of the deferred tax asset
resulting from the Company's previous contribution of 2.1 million shares of its
stock to the SISB Community Foundation resulting in an increase of $4.9 million
and a $31.7 million increase in the unrealized appreciation on securities
available for sale, net of taxes. These increases were partially offset by the
use of $67.2 million to continue the Company's stock repurchase program which
has resulted in the repurchase of 10.2 million shares of treasury stock and
aggregate cash dividend payments of $18.8 million. The tangible book value per
share was $14.98 at December 31, 2000 compared to $14.37 at December 31, 1999.
page 12
AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID
The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest income from interest-earning
assets and the resultant average yields; (ii) the total dollar amount of
interest expense on interest-bearing liabilities and the resultant average rate;
(iii) net interest income; (iv) interest rate spreads; and (v) net interest
margin. Information is based on average daily balances during the indicated
periods.
Year Ended December 31,
----------------------------------------------------------------------------------------------
2000 1999 1998
----------------------------- --------------------------- ------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
- ------------------------------------------------------------------------------------------------------------------------------------
(000's omitted)
Interest-earning assets:
Loans receivable:(1)
Real estate loans . . . . . . . $2,540,580 $194,128 7.64% $1,739,898 $131,978 7.59% $1,213,098 $ 95,742 7.89%
Other loans . . . . . . . . . . 107,699 10,426 9.68 77,054 7,219 9.37 48,212 5,433 11.27
---------- -------- ---------- -------- ---------- ---------
Total loans . . . . . . . . . . . . 2,648,279 204,554 7.72 1,816,952 139,197 7.66 1,261,310 101,175 8.02
Securities . . . . . . . . . . . . . 2,025,188 137,848 6.81 2,089,829 136,023 6.51 1,631,050 106,025 6.50
Other interest-earning assets(2) . . 25,743 1,402 5.44 49,679 2,253 4.53 36,648 1,941 5.30
---------- -------- ---------- -------- ---------- ---------
Total interest-earning assets . . . 4,699,210 343,804 7.32 3,956,460 277,473 7.01 2,929,008 209,141 7.14
-------- -------- ---------
Non-interest-earning assets . . . . 244,255 173,512 132,995
---------- ---------- ----------
Total assets . . . . . . . . . . . . $4,943,465 $4,129,972 $3,062,003
Interest-bearing liabilities:
Deposits:
NOW and money market deposits. . . 219,087 5,960 2.72% 165,071 4,152 2.52% 118,318 3,114 2.63%
Savings and escrow accounts . . . 793,908 19,488 2.45 752,131 18,716 2.49 780,536 20,953 2.68
Certificates of deposit . . . . . 827,504 44,781 5.41 556,635 26,477 4.76 528,686 26,875 5.07
---------- -------- ---------- -------- ---------- ---------
Total Deposits. . . . . . . . . . . 1,840,499 70,229 3.82 1,473,837 49,345 3.35 1,427,540 50,942 3.57
Total borrowings . . . . . . . . . . 2,147,718 132,891 6.19 1,674,990 89,719 5.36 664,863 37,127 5.58
---------- -------- ---------- -------- ---------- ---------
Total interest-bearing liabilities . 3,988,217 203,120 5.09 3,148,827 139,064 4.42 2,092,403 88,069 4.21
Non-interest-bearing liabilities(3). 394,180 354,671 276,455
---------- ---------- ----------
Total liabilities . . . . . . . . . 4,382,397 3,503,498 2,368,858
Stockholders' equity . . . . . . . . 561,068 626,474 693,145
Total liabilities and stockholders'
equity . . . . . . . . . . . . . $4,943,465 $4,129,972 $3,062,003
========== ========== ==========
Net interest-earning assets. . . . . $ 710,993 $ 807,633 $ 836,605
========== ========== ==========
Net interest income/interest
rate spread . . . . . . . . . . . . $140,684 2.22% $138,409 2.60% $121,072 2.93%
======== ==== ======== ==== ======== ====
Net interest margin. . . . . . . . . 2.99% 3.50% 4.13%
==== ==== ====
Ratio of average interest-earning
assets to average
interest-bearing liabilities. . . . 117.83% 125.65% 139.98%
====== ====== ======
(1) The average balance of loans receivable includes non-accruing loans,
interest on which is recognized on a cash basis.
(2) Includes Federal Funds sold and interest-earning bank deposits.
(3) Consists primarily of demand deposit accounts.
page 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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 net interest income attributable to changes in volume (changes in
volume multiplied by prior rate); (ii) effects on net interest income
attributable to changes in rate (changes in rate multiplied by prior volume);
and (iii) changes in rate/volume (change in rate multiplied by change in
volume).
For the Year Ended December 31,
-----------------------------------------------------------------------------------------------
2000 compared to 1999 1999 compared to 1998
Increase (decrease) due to Increase (decrease) due to
--------------------------------------------- -----------------------------------------------
Total Net Total Net
Rate/ Increase Rate/ Increase
Rate Volume Volume (Decrease) Rate Volume Volume (Decrease)
- -----------------------------------------------------------------------------------------------------------------------------------
(000's omitted)
Interest-earning assets:
Loans receivable:
Real estate loans ............. $ 970 $ 60,735 $ 446 $ 62,151 $ (3,724) $ 41,577 $ (1,617) $ 36,236
Other loans ................... 240 2,871 95 3,206 (916) 3,250 (548) 1,786
-------- -------- -------- -------- -------- -------- -------- --------
Total loans receivable ...... 1,210 63,606 541 65,357 (4,640) 44,827 (2,165) 38,022
Securities ....................... 6,225 (4,207) (193) 1,825 136 29,823 39 29,998
Other interest-earning assets .... 452 (1,085) (218) (851) (279) 690 (99) 312
-------- -------- -------- -------- -------- -------- -------- --------
Total net change in income
on interest-earning assets ..... 7,887 58,314 130 66,331 (4,783) 75,340 (2,225) 68,332
-------- -------- -------- -------- -------- -------- -------- --------
Interest-bearing liabilities:
Deposits:
NOW and money
market deposits ............... 339 1,358 111 1,808 (138) 1,231 (55) 1,038
Savings and escrow accounts .... (253) 1,039 (14) 772 (1,530) (763) 56 (2,237)
Certificates of deposit ........ 3,645 12,885 1,774 18,304 (1,727) 1,421 (92) (398)
-------- -------- -------- -------- -------- -------- -------- --------
Total deposits ............... 3,731 15,282 1,871 20,884 (3,395) 1,889 (91) (1,597)
Borrowings ....................... 13,922 25,321 3,929 43,172 (1,514) 56,406 (2,300) 52,592
-------- -------- -------- -------- -------- -------- -------- --------
Total net change in expense
on interest-bearing liabilities 17,653 40,603 5,800 64,056 (4,909) 58,295 (2,391) 50,995
-------- -------- -------- -------- -------- -------- -------- --------
Net change in net
interest income ................ $ (9,766) $ 17,711 $ (5,670) $ 2,275 $ 126 $ 17,045 $ 166 $ 17,337
======== ======== ======== ======== ======== ======== ======== ========
page 14
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS
ENDED DECEMBER 31, 2000 AND 1999
General. The Company reported net income of $53.9 million or $1.61 on a diluted
per share basis for the year ended December 31, 2000 compared to net income of
$52.9 million or $1.40 on a diluted per share basis for the year ended December
31, 1999. Core earnings for the year ended December 31, 2000 were $54.3 million
or diluted earnings per share of $1.62 compared to core earnings for the year
ended December 31, 1999 of $52.6 million or diluted earnings per share of $1.39.
Core earnings for the year ended December 31, 2000 exclude $569,000 of net
securities losses. Core earnings for the year 1999 exclude a $1.8 million
benefit for loan losses, a $4.1 million curtailment gain on the freezing of the
Bank's defined benefit pension plan and $5.5 million in net securities losses.
The increase in net income for the year ended December 31, 2000 was primarily
due to an increase in net interest income of $2.3 million, an increase in other
income of $12.7 million and a reduction in the provision for income taxes of
$2.4 million. These increases to income were partially offset by a $13.8 million
increase in total other expenses and an increase of $2.5 million in the
provision (benefit) for loan losses.
Interest Income. The increase in interest income of $66.3 million for the year
ended December 31, 2000 was primarily due to a $65.4 million increase in
interest income from loans. The increase in interest income on loans was due
primarily to a $831.3 million or 45.8% increase in the average balance of the
loan portfolio primarily as a result of increased loan demand and the Company's
continued efforts to expand loan activity through its business development
program, mortgage broker program, geographic expansion and increased loan
originations by its two lending subsidiaries, SIB Mortgage Corp. and American
Construction Lending Services, Inc. The average balance of the securities
portfolio declined by $64.6 million during 2000, primarily as a result of
management's strategy to fund loan originations with cash flows generated by the
securities portfolio. The increase in the average yield of interest-earning
assets was due to a six basis point increase in the average yield on loans and a
31 basis point increase in the average yield of the securities portfolio
primarily due to the rising rate environment resulting in the repricing of
assets and the origination of loans at higher average yields.
Interest Expense. The Company recorded interest expense of $203.1 million for
the year ended December 31, 2000 compared to $139.1 million for the year ended
December 31, 1999, an increase of $64.1 million or 46.1%. The primary reason for
the increase was a $43.2 million increase in interest on borrowed funds and a
$18.3 million increase in interest on certificates of deposit. The increase in
interest expense on borrowed funds was due to an increase of $472.7 million in
the average balance of borrowed funds and an 83 basis point increase in the
average cost to 6.19% for 2000 from 5.36% for 1999. The increase in the average
balance of borrowed funds was primarily due to the Company's program to fund
asset growth with borrowed funds at acceptable spreads during 1999 and to a
lesser extent the use of borrowed funds to fund the acquisition of FSB in 2000
and certain adjustable rate loan originations. The average cost of borrowings
increased due to the rising interest rate environment throughout most of the
year resulting in borrowings repricing to higher rates. The increase in interest
expense on certificates of deposit was due to an increase of $270.9 million in
the average balance of certificates of deposit primarily due to the acquisition
of FSB and an increase of 65 basis points in the average cost of certificates of
deposit to 5.41% for the year 2000 from 4.76% for the year 1999. This increase
in the average cost was primarily due to the rising interest rate environment
during most of the year increasing the cost of new money and maturing deposits.
The increase in the average cost of the Company's deposits during 2000 was
also affected by the initiation of a brokered CD program in June 2000. In an
effort to reduce its utilization of borrowings and increase its deposits as a
relative source of funds, the Company began a program of using certain national
securities firms to provide additional CD deposits. The Company's brokered CDs,
which amounted to $74.9 million at December 31, 2000, had a weighted average
cost of 7.0% for the year. Brokered CDs generally have a higher cost than
non-brokered CDs and are more subject to withdrawal as the customers generally
are seeking to obtain higher yielding deposits from institutions throughout the
country and have little or no allegiance to any particular institution. Such
customers are likely to withdraw their CDs at the end of their term if a more
competitive rate is available elsewhere.
Net Interest Income. Net interest income was $140.7 million for 2000 compared to
$138.4 million for 1999. The increase of $2.3 million was due to a $66.3 million
increase in interest income which was partially offset by a $64.1 million
increase in interest expense. The increase in interest income was due to a
$742.7 million increase in the average balance of interest-earning assets and an
increase in the average yield on interest-earning assets from 7.01% for 1999 to
7.32% for 2000. The increase in interest expense was due to an increase of
$839.4 million in the average balance of interest-bearing liabilities and a 68
basis point increase in the average cost from 4.42% in 1999 to 5.09% in 2000 due
to the rising interest rate environment during the year and the changing mix of
deposits primarily due to the acquisition of FSB. The net interest rate spread
and margin decreased to 2.22% and 2.99%, respectively, for the year ended
December 31, 2000 from 2.60% and 3.50%, respectively, for the year ended
December 31, 1999. Such decreases were primarily due to rollovers of the
Company's interest-bearing liabilities to higher costing market rates faster
than the Company's interest-earning assets repricing to higher yields. The
downward trend of interest rates in the fourth quarter stabilized the
compression of the Company's interest rate spread and margin.
Provision (Benefit) For Loan Losses. The provision for loan losses was $652,000
for the year 2000 compared to a benefit of $1.8 million for the year 1999. The
provision (benefit) for
page 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
loan losses is based on management's continuing review of the adequacy of the
loan loss allowance, which includes such factors as the composition of the loan
portfolio and its interest risk characteristics, the level of charge-offs, both
current and historic, the level of non-accruing loans and delinquencies, local
economic conditions, including the direction of real estate values and current
trends in regulatory supervision. During 2000, the level of non-accrual loans
decreased by $2.7 million or 21.6%. The Company's net loan charge-offs were $1.1
million for the year ended December 31, 2000 compared to $503,000 for the year
ended December 31, 1999. During 2000, the quality of the loan portfolio remained
strong.
However, due to the changing dollar mix of commercial and construction loans,
among other factors, management deemed it prudent to add $652,000 to the
allowance for loan losses during 2000 compared to a benefit of $1.8 million for
the year 1999. The Company's allowance for loan losses was $14.6 million at
December 31, 2000 or 149.7% of non-accrual loans at such date compared to $14.3
million at December 31, 1999, or 114.4% of non-accrual loans at such date.
Other Income. During 2000, other income exclusive of net losses on securities
transactions and a one time pension curtailment gain of $4.1 million in 1999,
increased $11.8 million or 36.7% to $44.1 million. This increase was primarily
due to a $4.2 million increase in service and fee income as a result of the
increase in the cash surrender value of bank owned life insurance ("BOLI"). To a
lesser extent, the increase was also caused by an increase in deposit related
fees and premium income from the sale of life insurance. Loan fees increased
$5.0 million primarily due to the increase in net gains on loan sales and other
loan related fees generated at the Company's mortgage banking subsidiary as a
result of increased volumes of loan originations.
The decrease in net securities losses to $569,000 for the year 2000 compared
to net securities losses of $5.5 million for the year 1999 was due to the $9.0
million write-down of certain corporate bonds held in the Company's available
for sale portfolio partially offset by $3.5 million in net gains realized from
various securities sales in 1999. The sale of $310.0 million in securities in
the year 2000 was primarily used to fund loan originations.
Other Expenses. Other expenses for the year ended December 31, 2000 were $96.8
million or 16.6% more than other expenses of $83.0 million for the year ended
December 31, 1999. The increase in other expenses in 2000 was attributable to a
$3.4 million increase in personnel expense, a $3.4 million increase in
commission expense, a $1.9 million increase in occupancy and equipment expense
and a $2.9 million increase in amortization expense of intangible assets. The
increase in personnel costs was primarily due to the Company's expansion into
the State of New Jersey, where it added 11 new branch offices during the year,
the opening of an additional office in Brooklyn and annual merit pay increases.
The increase in commission expense was due to the increase in volumes and mix of
loans originated by the mortgage company. The increase in occupancy and
equipment expense was due to the previously mentioned expansion by the Bank and
the geographic expansion of the mortgage company. The increase in the
amortization expense of intangible assets was due to the goodwill amortization
associated with the FSB acquisition in January 2000.
Provision For Income Taxes. The Company's effective tax rate was 37.9% for 2000
compared to 40.0% for 1999. The provision for the year included miscellaneous
tax adjustments as the result of the Company's finalization of its tax returns
for 1999. Excluding these miscellaneous tax adjustments the effective tax rate
would have been 38.4%. The reduction of the effective tax rate was due to
various tax planning strategies.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS
ENDED DECEMBER 31, 1999 AND 1998
General. The Company reported net income of $52.9 million or $1.40 on a diluted
per share basis for the year ended December 31, 1999 compared to net income of
$44.3 million or $1.06 on a diluted per share basis for the year ended December
31, 1998, an increase of $8.6 million or 19.4%. Core earnings for the year ended
December 31, 1999 were $52.5 million or diluted earnings per share of $1.39
compared to core earnings for the year ended December 31, 1998 of $43.9 million
or diluted earnings per share of $1.06. Core earnings for the year ended
December 31, 1999 exclude a $1.8 million benefit for loan losses, a $4.1 million
curtailment gain on the freezing of the Bank's defined benefit pension plan and
$5.5 million in net securities losses. Core earnings for the year ended December
31, 1998 exclude $524,000 of net securities gains.
Based upon management's assessment of the credit quality of the Company's
loan portfolio, among other factors, during the fourth quarter of 1999 the
Company determined to reverse $1.9 million of the allowance for loan losses
which was the primary reason for a benefit for loan losses of $1.8 million for
the year ended December 31, 1999. As a result of management's continuing efforts
to moderate non-interest expense and in light of stock-based employee benefit
plans implemented since the Company's initial public offering in 1997, the
Company froze its defined benefit pension plan in 1999 which, due to its
over-funded status, resulted in a curtailment gain of $4.1 million. The $5.5
million in net securities losses for 1999 were primarily the result of
write-downs of $9.0 million with respect to corporate debt securities of one
financially distressed issuer.
The increase in net income for the year ended December 31, 1999 was primarily
due to an increase in net interest income of $17.3 million, the benefit for loan
losses of $1.8 million and an increase in other income of $20.5 million, which
were partially offset by an increase of $27.1 million in total other expenses
and an increase in the provision for income taxes of $5.6 million.
Interest Income. The increase in interest income of $68.3 million for the year
ended December 31, 1999 was primarily due to an increase in the average balance
of the Company's interest-earning assets, which was partially offset by a
decrease in the average yield on loans. The average balance of the loan
page 16
portfolio increased $555.6 million or 44.1% to $1.8 billion during 1999
primarily as a result of increased loan demand and the Company's continued
efforts to expand its lending activity through its business development programs
and the expansion of the mortgage broker program. The average balance of the
securities portfolio increased $458.8 million or 28.1% to $2.1 billion during
1999 primarily as a result of the Company's continuing leveraging strategy to
fund asset growth with borrowed funds when acceptable spreads can be obtained.
The average yield earned on the Company's loan portfolio decreased from 8.02%
during 1998 to 7.66% for 1999. This decrease was due to the repayment of
substantial amounts of relatively higher yielding loans, particularly during the
first six months of 1999, and the origination of loans at market interest rates
which were lower than the average yield of the Company's loan portfolio during
the first half of the year.
Interest Expense. The Company recorded interest expense of $139.1 million for
the year ending December 31, 1999 compared to $88.1 million for the year ending
December 31, 1998, an increase of $51.0 million or 57.9%. The primary reason for
the increase was a $52.6 million increase in the interest on borrowed funds. The
increase in interest expense on borrowed funds was primarily due to an increase
of $1.0 billion in the average balance of borrowed funds partially offset by a
decrease in the average cost from 5.58% during 1998 to 5.36% during 1999. The
increase in the average balance of borrowed funds during 1999 was due to the
Company's program to fund asset growth with borrowed funds at acceptable
spreads. The average cost of borrowings decreased in 1999 compared to 1998 due
to the lower interest rates during the first half of 1999.
Net Interest Income. Net interest income was $138.4 million for 1999 compared to
$121.1 million for 1998. This represents an increase of $17.3 million or 14.3%.
The increase was the result of a $68.3 million increase in interest income,
which was par tially offset by a $51.0 million increase in interest expense. The
increase in interest income was due to a $1.0 billion increase in the average
balance of interest-earning assets which was partially offset by a 13 basis
point decrease in the average yield earned on interest-earning assets from 7.14%
in 1998 to 7.01% in 1999. Interest expense increased due to a $1.1 billion
increase in the average balance of interest-bearing liabilities and a 21 basis
point increase in the average cost from 4.21% in 1998 to 4.42% in 1999 due to
the Company's increasing reliance on borrowings as a source of funds and the
rising interest rate environment during much of 1999. The net interest rate
spread and margin decreased to 2.60% and 3.50%, respectively, for the year ended
December 31, 1999 from 2.93% and 4.13%, respectively, for the year ended
December 31, 1998. Such decreases were primarily due to the Bank's continued use
of borrowed funds during 1999 to leverage the balance sheet in its effor ts to
incrementally increase net interest income although such efforts decreased the
net interest margin and net interest spread. The interest rate environment
during 1999 resulted in lower net interest spreads and margins.
Provision (Benefit) For Loan Losses. During 1999, the quality of the loan
portfolio remained strong and the level of non-accrual loans decreased by $3.8
million or 23.2%. The Company's net loan charge-offs were $503,000 for the year
ended December 31, 1999 compared to $782,000 for the year ended December 31,
1998. As a result of the continued improvement in the Company's non-accruing
loans, among other factors, during the fourth quarter of 1999, management deemed
it prudent to reverse $1.9 million of the allowance for loan losses which was
the primary reason for a $1.8 million benefit for the loan loss reserve for the
year 1999 compared to a provision of $1.6 million in the year 1998. The
Company's allowance for loan losses was $14.3 million at December 31, 1999, or
114.4% of non-accrual loans at such date, compared to $16.6 million at December
31, 1998, or 102.4% of non-accrual loans at such date.
Other Income. Other income amounted to $30.9 million and $10.4 million for the
years ended December 31, 1999 and 1998, respectively. The increase of $20.5
million in 1999 was due to an increase in service and fee income of $22.4
million and a $4.1 million curtailment gain stemming from the freezing of the
Bank's defined benefit pension plan at year end, which were partially offset by
net securities losses of $5.5 million. The increase in service and fee income
was primarily due to an increase of $19.7 million in fees generated by the
Company's mortgage banking subsidiary, SIB Mortgage, d/b/a Ivy Mortgage, and a
$2.6 million increase in the cash surrender value of the Company's BOLI. The
increase in net securities losses for the year ended December 31, 1999 compared
to the year ended December 31, 1998 was primarily due to the $9.0 million
write-down of certain corporate bonds held in the Company's available for sale
securities portfolio and determined by management to be permanently impaired
due to the distressed financial condition of the issuer, which was partially
offset by $3.5 million in net gains realized from various securities sales.
Other Expenses. Other expenses for the year ended December 31, 1999 were $83.0
million or 48.5% more than other expenses of $55.9 million for the year ended
December 31, 1998. The primary reasons for the increase were increases in
personnel costs of $19.5 million, occupancy and equipment costs of $1.8 million,
and other expenses of $6.3 million. The increase in personnel costs was
primarily due to an increase in aggregate personnel costs of $6.5 million
primarily as the result of the operation of Ivy Mortgage, which was acquired in
November 1998, for the entire year, a $7.6 million increase in commission
expense for Ivy Mortgage, an increase of $3.0 million in the non-cash expense
related to the Company's RRP, a $1.1 million increase in the Bank's incentive
plan and other routine merit pay increases. The increase in occupancy and
equipment expense during 1999 was primarily due to the additional expenses of
Ivy Mortgage and additional property and equipment expense due to business
expansion and growth. The increase in other expenses in 1999 again was due
primarily to loan related expenses resulting from the operation of Ivy Mortgage.
page 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Provision For Income Taxes. The provision for income taxes was $35.3 million for
1999 compared to $29.7 million for the year ended December 31, 1998. The
increase in the provision was primarily due to an increase of $14.2 million in
income before taxes. The effective consolidated tax rate for 1999 was 40.0%
compared to 40.1% for the year 1998.
LIQUIDITY AND CAPITAL
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, amortization, prepayments and maturities
of outstanding loans and mortgage-backed securities, maturities of investment
securities and other short-term investments and funds provided from operations.
While scheduled payments from the amortization of loans and mortgage-related
securities and maturing investment 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 which provide liquidity to meet
lending requirements. Historically, the Bank relied almost exclusively on its
deposits as a source of funds. Commencing in late 1997, the Company began a
leveraging program whereby it uses borrowings, such as FHLB advances and reverse
repurchase agreements as an additional source of funds to fund asset growth at
acceptable spreads. This leveraging strategy continued throughout 1998, 1999 and
2000. However, it is management's intent to place less emphasis on this strategy
in the year 2001. During the year ended December 31, 2000, the Company began to
reduce its use of reverse repurchase agreements and FHLB advances as an
alternative funding source. At December 31, 2000, such borrowings amounted to
$2.2 billion.
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. On a longer term basis, the Company maintains a
strategy of investing in 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-backed and mortgage-related securities and investment
securities. At December 31, 2000, the total approved loan origination
commitments outstanding amounted to $292.4 million and unused credit lines
equaled $75.3 million. At the same date, the unadvanced portion of construction
loans totaled $98.0 million and the mortgage company had $218.2 million in
commitments to sell loans. Certificates of deposit scheduled to mature in one
year or less at December 31, 2000 totaled $762.8 million. Investment securities
scheduled to mature in one year or less at December 31, 2000 totaled $3.3
million and amortization from investments and loans is projected at $756.0
million for the year 2001. Based on historical experience, the current pricing
strategy, and the strong core deposit base 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.
At December 31, 2000 the Bank's capital ratios exceeded all the regulatory
requirements. Under OTS regulations, the Bank is required to comply with each of
three separate capital adequacy standards. At such date the Bank had tangible
capital of $382.2 million or 7.53% of adjusted assets compared to a requirement
of $76.2 million or 1.50% of adjusted assets, core capital of $383.1 million or
7.54% of adjusted assets compared to a requirement of $203.1 million or 4% of
adjusted assets, and risk-based capital of $396.8 million or 15.06% of risk
weighed assets compared to a requirement of $210.8 million or 8% of risk
weighted assets.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial data presented herein have been prepared in
accordance with generally accepted accounting principles, which require 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.
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE
HARBOR STATEMENT
In addition to historical information, this Annual Report includes certain
"forward-looking statements" based on current management expectations. The
Company's actual results could differ materially, as defined in the Securities
Act of 1933 and the Securities Exchange Act of 1934, from those management
expectations. Such forward-looking statements include statements regarding our
intentions, beliefs or current expectations as well as the assumptions on which
such statements are based. Stockholders and potential stockholders are cautioned
that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking statements.
Factors that could cause future results to vary from current management
expectations include, but are not limited to, general economic conditions,
legislative and regulatory changes, monetary and fiscal policies of the federal
government, changes in tax policies, rates and regulations of federal, state and
local tax authorities, changes in interest rates, deposit flows, the cost of
funds, demand for loan products, demand for financial services, competition,
changes in the quality or composition of the Company's loan and investment
portfolios, changes in accounting principles, policies or guidelines, and other
economic, competitive, governmental and technological factors affecting the
Company's operations, markets, products, services and fees.
The Company undertakes no obligation to update or revise any forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated
events or changes to future operating results over time.
page 18
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
December 31, 2000 and 1999 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
ASSETS (000's omitted)
Assets:
Cash and due from banks ......................................................... $ 92,103 $ 80,998
Federal funds sold .............................................................. 12,000 20,400
Securities available for sale, at fair value .................................... 1,888,946 1,963,954
Loans, net ...................................................................... 2,847,660 2,150,039
Loans held for sale, net ........................................................ 116,163 46,588
Accrued interest receivable ..................................................... 30,905 23,621
Bank premises and equipment, net ................................................ 31,883 24,731
Intangible assets, net .......................................................... 62,447 15,432
Other assets .................................................................... 158,757 163,551
---------- ----------
Total assets ............................................................... $5,240,864 $4,489,314
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Due depositors--
Savings ....................................................................... $ 760,238 $ 737,794
Certificates of deposit ....................................................... 947,584 573,043
Money market .................................................................. 142,394 89,004
NOW accounts ................................................................. 94,699 80,352
Demand deposits ............................................................... 400,298 340,040
---------- ----------
Total deposits ............................................................. 2,345,213 1,820,233
Borrowed funds ................................................................ 2,241,011 2,049,411
Advances from borrowers for taxes and insurance ............................... 11,534 10,805
Accrued interest and other liabilities ........................................ 57,574 37,488
---------- ----------
Total liabilities........................................................... 4,655,332 3,917,937
---------- ----------
Commitments and Contingencies (Note 12)
Stockholders' Equity:
Common stock, par value $.01 per share, 100,000,000 shares authorized,
45,130,312 issued and 34,920,987 outstanding at December 31, 2000 and
45,130,312 issued and 38,693,623 outstanding at December 31, 1999 .............. 451 451
Additional paid-in capital .......................................................... 537,744 536,539
Retained earnings--substantially restricted ......................................... 291,345 251,315
Unallocated common stock held by ESOP ............................................... (32,962) (35,709)
Unearned common stock held by RRP ................................................... (19,784) (25,439)
Less--Treasury stock (10,209,325 and 6,436,689 shares at
December 31, 2000 and 1999, respectively), at cost ................................ (188,321) (121,149)
Accumulated other comprehensive loss, net of tax .................................... (2,941) (34,631)
---------- ----------
Total stockholders' equity ................................................... 585,532 571,377
---------- ----------
Total liabilities and stockholders' equity ................................... $5,240,864 $4,489,314
========== ==========
The accompanying notes are an integral part of these statements.
page 19
CONSOLIDATED STATEMENTS OF INCOME
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
For the Years Ended December 31, 2000, 1999 and 1998 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------
(000's omitted,
except share data)
Interest Income:
Loans ............................................................ $204,554 $139,197 $101,175
Securities available for sale ..................................... 137,848 136,023 106,025
Other earning assets .............................................. 1,402 2,253 1,941
-------- -------- --------
Total interest income .......................................... 343,804 277,473 209,141
-------- -------- --------
Interest Expense:
Borrowed funds .................................................... 132,891 89,719 37,127
Certificates of deposit ........................................... 44,781 26,477 26,875
Savings and escrow ................................................ 19,488 18,716 20,953
Money market and NOW .............................................. 5,960 4,152 3,114
-------- -------- --------
Total interest expense ......................................... 203,120 139,064 88,069
-------- -------- --------
Net interest income ............................................ 140,684 138,409 121,072
Provision (Benefit) for Loan Losses .................................. 652 (1,843) 1,594
-------- -------- --------
Net interest income after provision (benefit) for loan losses ..... 140,032 140,252 119,478
-------- -------- --------
Other Income:
Service and fee income ............................................ 16,878 10,057 7,018
Loan fees and gains ............................................... 27,253 22,234 2,838
Defined benefit plan curtailment gain ............................. -- 4,093 --
Securities transactions (losses) gains ............................ (569) (5,531) 524
-------- -------- --------
Total other income .............................................. 43,562 30,853 10,380
-------- -------- --------
Other Expenses:
Personnel ......................................................... 56,454 49,719 30,248
Occupancy and equipment ........................................... 9,827 7,912 6,150
Data processing ................................................... 5,352 4,448 4,915
Amortization of intangible assets ................................. 5,179 2,236 2,089
Professional fees ................................................. 2,566 2,063 2,403
Other ............................................................. 17,382 16,593 10,113
-------- -------- --------
Total other expenses ........................................... 96,760 82,971 55,918
-------- -------- --------
Income before provision for income taxes ....................... 86,834 88,134 73,940
Provision for Income Taxes ........................................... 32,908 35,259 29,678
-------- -------- --------
Net income ..................................................... $ 53,926 $ 52,875 $ 44,262
======== ======== ========
Earnings per Share:
Basic ............................................................. $ 1.61 $ 1.40 $ 1.06
Diluted ........................................................... 1.61 1.40 1.06
The accompanying notes are an integral part of these statements.
page 20
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
Unearned
Unallocated Common
For the Years Ended Additional Common Stock Compre-
December 31, 2000, Common Paid-in Stock Held Held by Treasury hensive
1999 and 1998 Stock Capital by ESOP RRP Stock Income
- -----------------------------------------------------------------------------------------------------------------------
(000's
omitted)
Balance, January 1, 1998 ...... $ 451 $ 532,521 $ (41,262) $ -- $ -- $ --
Allocation of 233,843
ESOP shares ............... -- 1,886 2,806 -- -- --
Purchase of RRP shares ...... -- -- -- (31,397) -- --
Earned RRP shares ........... -- 57 -- 524 -- --
Treasury stock purchases
(1,425,500 shares), at cost -- -- -- -- (27,480) --
Dividends paid .............. -- -- -- -- -- --
Change in unrealized
appreciation (depreciation)
on securities, net of tax . -- -- -- -- -- 2,845
Net income .................. -- -- -- -- -- 44,262
--------- --------- --------- --------- --------- ---------
Comprehensive income ........ $ 47,107
=========
Balance, December 31, 1998 .... 451 534,464 (38,456) (30,873) (27,480) $ --
Allocation of 228,904
ESOP shares ............... -- 1,484 2,747 -- -- --
Earned RRP shares ........... -- 591 -- 5,434 -- --
Treasury stock purchases
(5,011,189 shares), at cost -- -- -- -- (93,669) --
Dividends paid .............. -- -- -- -- -- --
Change in unrealized
appreciation (depreciation)
on securities, net of tax . -- -- -- -- -- (50,153)
Net income .................. -- -- -- -- -- 52,875
--------- --------- --------- --------- --------- ---------
Comprehensive income ........ $ 2,722
=========
Balance, December 31, 1999 .... 451 536,539 (35,709) (25,439) (121,149) --
Allocation of 228,904
ESOP shares ............... -- 1,360 2,747 -- -- --
Earned RRP shares ........... -- (155) -- 5,655 -- --
Treasury stock purchases
(3,772,636 shares), at cost -- -- -- -- (67,172) --
Dividends paid .............. -- -- -- -- -- --
Change in unrealized
appreciation (depreciation)
on securities, net of tax . -- -- -- -- -- 31,690
Valuation adjustment for
deferred tax benefit ...... -- -- -- -- -- --
Net income .................. -- -- -- -- -- 53,926
--------- --------- --------- --------- --------- ---------
Comprehensive income ........ $ 85,616
=========
Balance, December 31, 2000 .... $ 451 $ 537,744 $ (32,962) $ (19,784) $(188,321)
========= ========= ========= ========= =========
Accumulated
Other
Comprehensive
Retained Income (Loss)
Earnings Net of Tax Total
- --------------------------------------------------------------------------------
Balance, January 1, 1998 ...... $ 181,499 $ 12,677 $ 685,886
Allocation of 233,843
ESOP shares ............... -- -- 4,692
Purchase of RRP shares ...... -- -- (31,397)
Earned RRP shares ........... -- -- 581
Treasury stock purchases
(1,425,500 shares), at cost -- -- (27,480)
Dividends paid .............. (10,347) -- (10,347)
Change in unrealized
appreciation (depreciation)
on securities, net of tax . 2,845 2,845
Net income .................. 44,262 -- 44,262
Comprehensive income ........
Balance, December 31, 1998 .... 215,414 15,522 669,042
Allocation of 228,904
ESOP shares ............... -- -- 4,231
Earned RRP shares ........... -- -- 6,025
Treasury stock purchases
(5,011,189 shares), at cost -- -- (93,669)
Dividends paid .............. (16,974) -- (16,974)
Change in unrealized
appreciation (depreciation)
on securities, net of tax . -- (50,153) (50,153)
Net income .................. 52,875 -- 52,875
Comprehensive income ........
Balance, December 31, 1999 .... 251,315 (34,631) 571,377
Allocation of 228,904
ESOP shares ............... -- -- 4,107
Earned RRP shares ........... -- -- 5,500
Treasury stock purchases
(3,772,636 shares), at cost -- -- (67,172)
Dividends paid .............. (18,764) -- (18,764)
Change in unrealized
appreciation (depreciation)
on securities, net of tax . -- 31,690 31,690
Valuation adjustment for
deferred tax benefit ...... 4,868 -- 4,868
Net income .................. 53,926 -- 53,926
Comprehensive income ........
Balance, December 31, 2000 .... $ 291,345 $ (2,941) $ 585,532
========= ========= =========
The accompanying notes are an integral part of these statements.
page 21
CONSOLIDATED STATEMENTS OF CHANGES OF CASH FLOWS
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
For the Years Ended December 31, 2000, 1999 and 1998 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
(000's omitted)
Cash Flows from Operating Activities:
Net income ............................................................ $ 53,926 $ 52,875 $ 44,262
Adjustments to reconcile net income to net cash (used in)
provided by operating activities--
Depreciation and amortization .................................... 3,292 2,543 1,983
(Accretion) and amortization of bond and mortgage premiums ....... (1,246) 4,715 (1,258)
Amortization of intangible assets ................................ 5,179 2,236 2,089
Realized loss (gain) on sale of available for sale securities .... 569 (3,539) (524)
Expense charge relating to allocation and earned
portions of employee benefit plans ............................ 8,666 8,790 7,583
Other noncash (income) .......................................... (5,987) (1,439) (2,374)
Provision (benefit) for loan losses .............................. 652 (1,843) 1,594
Increase (decrease) in deferred loan fees ........................ (5,086) 1,512 1,477
(Increase) in accrued interest receivable ........................ (3,085) (4,232) (3,682)
(Increase) in other assets ....................................... (15,618) (90,479) (5,528)
(Decrease) increase in accrued interest and other liabilities .... 17,865 12,103 (55,611)
(Increase) decrease in deferred income taxes ..................... 324 4,691 (6,769)
Recoveries of loans .............................................. 1,054 1,161 1,337
---------- ----------- -----------
Net cash (used in) provided by operating activities .......... 60,505 (10,906) (15,421)
---------- ----------- -----------
Cash Flows from Investing Activities:
Maturities and amortization of available for sale securities .......... 208,587 389,930 519,667
Sales of available for sale securities ................................ 310,222 76,257 109,224
Purchases of available for sale securities ............................ (159,473) (517,115) (1,304,385)
Principal collected on loans .......................................... 388,311 324,937 201,091
Loans made to customers ............................................... (1,712,457) (1,607,459) (643,854)
Purchase of loans ..................................................... (74,545) (16,088) (66,267)
Sales of loans ........................................................ 730,506 644,557 57,577
Capital expenditures .................................................. (5,396) (4,961) (4,392)
Acquisition of Ivy Mortgage, net of cash acquired ..................... -- -- (2,194)
Acquisition of First State Bank, net of cash acquired ................. (46,688) -- --
---------- ----------- -----------
Net cash used in investing activities ........................ (360,933) (709,942) (1,133,533)
---------- ----------- -----------
Cash Flows from Financing Activities:
Net increase in deposit accounts ...................................... 197,469 94,886 107,877
Increase in borrowings ................................................ 191,600 704,894 1,094,475
Dividends paid ........................................................ (18,764) (16,974) (10,347)
Purchase of treasury stock ............................................ (67,172) (93,669) (27,480)
Purchase of shares for RRP ............................................ -- -- (31,397)
---------- ----------- -----------
Net cash provided by financing activities .................... 303,133 689,137 1,133,128
Net increase (decrease) in cash and cash equivalents ......... 2,705 (31,711) (15,826)
Cash and Cash Equivalents,beginning of year ............................. 101,398 133,109 148,935
---------- ----------- -----------
Cash and Cash Equivalents,end of year ................................... 104,103 $ 101,398 $ 133,109
========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid for--
Interest ............................................................ $ 197,141 $ 131,043 $ 80,540
Income taxes ........................................................ 25,109 31,300 30,529
Acquisition of Ivy Mortgage--
Fair value of assets acquired ....................................... -- -- 65,823
Fair value of liabilities assumed ................................... -- -- 63,937
Acquisition of First State Bank--
Fair value of assets acquired ....................................... 370,579 -- --
Fair value of liabilities assumed ................................... 331,280 -- --
The accompanying notes are an integral part of these statements.
page 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Staten Island Bancorp, Inc. (the
"Company") and subsidiary conform to generally accepted accounting principles
and to general practice within the banking industry. The following is a
description of the more significant policies which the Company follows in
preparing and presenting its consolidated financial statements.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary SI Bank & Trust (formerly Staten
Island Savings Bank) (the "Bank"). The Bank's wholly owned subsidiaries are SIB
Mortgage Corp. (the "Mortgage Company"), SIB Investment Corporation ("SIBIC"),
Staten Island Funding Corporation ("SIFC"), American Construction Lending
Services, Inc ("ACLS") and SIB Financial Services Corporation ("SIBFSC"). All
significant intercompany transactions and balances are eliminated in
consolidation.
The Mortgage Company was set up to acquire the operations of Ivy Mortgage as
discussed in Note 3. SIFC was set up as a real estate investment trust, SIBIC
was set up to hold certain Bank investments, and ACLS was set up to originate
residential construction loans throughout the country. SIBFSC was formed as a
licensed life insurance agency to sell the products of the SBLI USA Mutual Life
Insurance Co.
As more fully discussed in Note 2, Staten Island Bancorp, Inc., a Delaware
corporation, was organized by the Bank for the purpose of acquiring all of the
capital stock of the Bank pursuant to the conversion of the Bank from a
federally chartered mutual savings bank to a federally chartered stock savings
bank. The Company is subject to the financial reporting requirements of the
Securities Exchange Act of 1934, as amended.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported assets, liabilities,
revenues and expenses as of the dates of the financial statements. Actual
results could differ significantly from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks, money market deposits, interest-bearing certificates of
deposit and federal funds sold for the years ended December 31, 2000, 1999 and
1998.
Securities Available for Sale
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities," debt
and equity securities used as part of the Company's asset/liability management
that may be sold in response to changes in interest rates are reported at fair
value, with unrealized gains and losses excluded from earnings and reported on
an after-tax basis in a separate component of stockholders' equity. Gains and
losses on the disposition of securities are recognized on the specific
identification method in the period in which they occur.
Premiums and discounts on mortgage-backed securities are amortized over the
average life of the security using a method which approximates the level yield
method.
Loans
Loans are stated at the principal amount outstanding, net of unearned income,
loan origination fees and costs, and an allowance for loan losses. Loan
origination fees and costs are recognized in interest income as an adjustment to
yield over the life of the loan or at the time of the sale of the loan for loans
held in the por tfolio and loans held for sale. Premiums and discounts on
purchased mor tgages are amor tized over the average life of the loan using a
method which approximates the level yield method.
Loans are placed on non-accrual status when the interest or principal
payments are 90 days past due unless in the opinion of management, collection is
deemed probable. When interest accruals are discontinued, the recognition of
interest income ceases and previously accrued interest remaining unpaid is
reversed against income. Cash payments received are applied to principal, and
interest income is recognized when management determines that the financial
condition and payment record of the borrower warrant the recognition of income.
The Bank has defined its impaired loans as its non-accrual loans under the
guidance of SFAS No. 114, entitled, "Accounting by Creditors for Impairment of a
Loan." Pursuant to this accounting guidance, a valuation allowance is recorded
on impaired loans to reflect the difference, if any, between the loan face value
and the present value of projected cash flows, observable fair value or
collateral value. This valuation allowance is reported within the overall
allowance for loan losses.
Loans Held for Sale
Loans held for sale are carried at the lower of cost or market as determined
by outstanding commitments from investors or current investor yield
requirements.
Mortgage Servicing Rights
Mortgage servicing rights ("MSR") are the rights to service mortgage loans
for others and are acquired primarily through loan sales. Capitalized MSRs are
reported in other assets. After the serviced residential mortgage loan portfolio
is stratified by servicing type, loan type, rate type and interest rate, the
fair value of the MSR is determined using the present value of estimated future
cash flows assuming a market discount rate and certain forecasted prepayment
rates based on the industry experience. MSRs are amortized in proportion to, and
over the period of, the estimated net servicing income of the underlying
financial assets. The assessment of impairment on MSRs is based on the current
fair value of those rights. Such impairment is recognized through a valuation
allowance established through a charge against gains on loan sales.
page 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
Allowance for Loan Losses
The allowance for loan losses is established by management through provisions
for loan losses charged against income. Amounts deemed to be uncollectible are
charged against the allowance for loan losses, and subsequent recoveries, if
any, are credited to the allowance.
The amount of the allowance for loan losses is inherently subjective, as it
requires making material estimates which may vary from actual results. These
estimates are evaluated periodically and, as adjustments become necessary, they
are reflected in operations in the periods in which they become known.
Considerations in this evaluation include past and anticipated loss experience,
current portfolio composition, evaluation of real estate collateral, as well as
current and anticipated economic conditions. In the opinion of management, the
allowance, when taken as a whole, is adequate to absorb estimated loan losses
inherent in the Company's entire loan portfolio.
Premises and Equipment
Premises and equipment are carried at cost, less allowance for depreciation
and amor tization applied on a straight-line basis over the estimated useful
lives of 10 to 50 years for buildings and improvements and 3 to 10 years for
furniture, fixtures and equipment.
Investments in Real Estate
Investments in real estate consist of real estate acquired through
foreclosure or by deed in lieu of foreclosure and assets repossessed ("owned
real estate" or "ORE"). ORE properties are carried at the lower of cost or fair
value at the date of foreclosure (new cost basis) and at the lower of the new
cost basis or fair value less estimated selling costs thereafter.
Goodwill and Other Intangibles
Goodwill, representing the excess of purchase price over the fair value of
net assets acquired using the purchase method of accounting, is being amortized
using the straight line method over periods not exceeding 20 years. Core deposit
intangibles, representing the premium associated with the acquisition of cer
tain deposit liabilities, are being amor tized to operating expense on an
accelerated basis over the average lives of such deposit liabilities.
Goodwill and other intangibles, which collectively represent less than 1.5%
of total assets, are periodically reviewed for recoverability through review of
various economic factors to determine whether any impairment exists.
Segment Reporting
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," applies to public business enterprises and requires the repor ting
of cer tain financial information about significant revenue-producing segments
of the business for which such information is available and utilized by the
chief operating decision maker. The information reported for the operating
segments would include a measure of revenues, expenses and total assets. As a
financial institution, substantially all of the Company's operations involve the
delivery of loan and deposit products to customers. Management makes operating
decisions and reviews performance based on ongoing review of these banking
services, which constitutes the Company's only operating segment for reporting
purposes under SFAS No. 131.
Demand Deposits
Each of the Bank's commercial and personal demand (checking) accounts and NOW
accounts has a related interest-bearing money market sweep account. The sole
purpose of the sweep accounts is to reduce the noninterest-bearing reserve
balances that the Bank is required to maintain with the Federal Reserve Bank,
and thereby increase funds available for investment . Although the sweep
accounts are classified as money market accounts for regulatory purposes, they
are included in demand deposits and NOW accounts in the accompanying
consolidated statements of financial condition.
Comprehensive Income
Comprehensive income includes net income and all other changes in equity
during a period except those resulting from investments by owners and
distribution to owners. Other comprehensive income includes revenues, expenses,
gains and losses that under generally accepted accounting principles are
included in comprehensive income but excluded from net income.
Comprehensive income and accumulated other comprehensive income are reported
net of related income taxes. Accumulated other comprehensive income consists
solely of unrealized holding gains and losses on available for sale securities.
Income Taxes
Deferred income taxes are provided for temporary differences between items of
income or expense reported in the financial statements and those reported for
income tax purposes.
Earnings Per Share
Earnings per share are computed by dividing net income by the weighted
average number of shares of common stock and dilutive common stock equivalents
outstanding, adjusted for the unallocated por tion of shares held by the
Employee Stock Ownership Plan ("ESOP") and unearned Recognition and Retention
Plan ("RRP") in accordance with the Statement of Position 93-6. For the year
ended December 31, 2000, the basic and diluted weighted average common stock
outstanding was 33,510,674 shares. For the year ended December 31, 1999, the
basic and diluted weighted average common stock outstanding was 37,878,481
shares. For the year ended December 31, 1998, the basic and diluted weighted
average common stock outstanding was 41,567,051 shares.
page 24
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages but does
not require companies to record compensation cost for stock-based employee
compensation plans at fair value rather than the intrinsic value-based method
that is contained in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25") and related Interpretations. The
Company has chosen to account for stock-based compensation using the intrinsic
value method as prescribed in APB No. 25, measuring compensation cost for 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 must pay to acquire the
stock.
Treasury Stock
Repurchases of common stock are recorded as treasury stock at cost.
Bank Owned Life Insurance ("BOLI")
In August 1999, the Bank invested in BOLI policies to fund certain future
employee benefit costs. The Bank's investment totaled approximately $100 million
and the Bank is the beneficiary of these policies. The cash surrender value of
the BOLI policies is recorded on the Company's balance sheet as other assets and
the change in the cash surrender value is recorded as other income.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June
1999, the FASB issued SFAS No. 137, "Accounting For Derivative Instruments and
Hedging Activities Deferral of the Effective Date of SFAS No. 133," which
amended the effective date of SFAS No. 133. SFAS No. 133 is now effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. The
statement established accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. In management's opinion,
the adoption of SFAS Nos. 133 and 137 will not have a material effect on the
Company's financial statements.
In September 2000, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." This
Statement replaces SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." It revises the standards
for accounting for securitiza-tions and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of SFAS
No. 125's provisions without reconsideration. SFAS No. 140 is generally
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. The Corporation is still assessing
the impact, if any, of SFAS No. 140 on its accounting and disclosures.
Reclassifications
Certain reclassifications have been made to the prior year amounts to conform
with current year presentation.
2.ORGANIZATION/FORM OF OWNERSHIP
The Bank was originally founded as a New York State chartered savings bank in
1864. In August 1997, the Bank converted to a federally chartered mutual savings
bank and is now regulated by the Office of Thrift Supervision (the "OTS"). The
Bank is a community bank providing a complete line of retail and commercial
banking services along with trust services. Individual customer deposits are
insured up to $100,000 by the Federal Deposit Insurance Corporation ("FDIC").
On April 16, 1997, the Board of Directors of the Bank adopted a Plan of
Conversion to convert from a federally chartered mutual savings bank to a
federally chartered stock savings bank with the concurrent formation of a
holding company. As part of the conversion, the Company was incorporated under
Delaware law in July 1997. The Company completed its initial public offering on
December 22, 1997 and issued 42,981,250 shares of common stock resulting in
proceeds of approximately $532,972,000, net of expense totaling $8,591,000,
before the contribution to the SISB Community Foundation. The Company used
$253,592,000 or 50% of the net proceeds to purchase all of the outstanding stock
of the Bank. The Company also loaned $41,262,000 to the Bank to establish an
ESOP which purchased 3,438,500 shares of the Company's stock in the initial
public offering.
As part of the Plan of Conversion, the Company formed the SISB Community
Foundation and donated 2,149,062 shares of the Company valued at approximately
$25,789,000. The Company recorded a contribution expense charge of $25,789,000
and a corresponding deferred tax benefit of $11,987,000 for this donation. In
addition, the Bank paid expenses on behalf of the Foundation totaling
approximately $28,000 in 1997. The formation of this private charitable
foundation was undertaken in order to further the Bank's commitment to the
communities that it serves.
Additionally, the Bank established, in accordance with the requirements of
the OTS, a liquidation account for $183,947,000 which was equal to its capital
as of the date of the latest consolidated statement of financial condition
(September 30, 1997) appearing in the IPO prospectus supplement. The liquidation
account is reduced as and to the extent that eligible account holders have
reduced their qualifying deposits. Subsequent increases in deposits do not
restore an eligible account holder's interest in the liquidation account. In the
event of a complete
page 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000, 1999 and 1998
liquidation of the Bank, each 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. This account had a
balance of $40,144,000 at December 31, 2000.
In addition to the restriction described above, the Company may not declare
or pay cash dividends on or repurchase any of its shares of common stock if the
effect thereof would cause stockholders' equity to be reduced below applicable
regulatory capital maintenance requirements or if such declaration and payment
would otherwise violate regulatory requirements.
3.ACQUISITIONS
On November 20, 1998, SIB Mortgage Corp. acquired substantially all of the
assets of Ivy Mortgage Corp., a New Jersey-based mortgage loan originator which
has branch offices primarily throughout the Northeastern United States. The
acquisition by SIB Mortgage Corp. was funded by the Bank. The acquisition has
been accounted for using the purchase method of accounting and, accordingly, the
purchase price has been allocated to the assets acquired and the liabilities
assumed based upon the fair values at the date of acquisition. The excess of the
purchase price over the fair value of the net assets acquired was approximately
$1,775,000 and has been recorded as goodwill. Included as part of the purchase
price is a noncompete agreement (the "Agreement") with the sellers of Ivy
Mortgage. The noncompete agreement, which is recorded as goodwill, is being amor
tized over five years on a straight-line basis and the remaining goodwill is
being amortized over 15 years on a straight-line basis. The original Agreement
contained provision for payments which are contingent upon future earnings. In
January 2000, the original Agreement was amended to relieve the seller of
certain potential obligations and to eliminate the provision which provided for
future payments to the sellers contingent upon future earnings.
On January 14, 2000, the Company acquired First State Bancorp, the holding
company for First State Bank, which operated six full-service branches in the
State of New Jersey. First State Bancorp, a bank holding company with assets
over $370 million, was acquired for cash consideration totaling $84.5 million,
including transaction costs.
The acquisition has been accounted for using the purchase method of
accounting, and accordingly, the purchase price has been allocated to the assets
acquired and the liabilities assumed based upon fair value at the date of
acquisition. The excess of the purchase price over the fair value of the net
assets acquired was $45.5 million and has been recorded as goodwill, which is
being amortized on a straight line basis over 15 years.
4.REGULATORY MATTERS
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
imposes a number of mandatory supervisory measures on banks and thrift
institutions. One of the items FDICIA imposed was certain minimum capital
requirements or classifications. Such classifications are used by the FDIC and
other bank regulatory agencies to determine matters ranging from each
institution's semiannual FDIC deposit insurance premium assessments, to
approvals of applications authorizing institutions to grow their asset size or
otherwise expand business activities. Under OTS capital regulations, the Bank is
required to comply with each of three separate capital adequacy standards. Set
forth below is a summary of the Bank's compliance with OTS capital standards as
of December 31, 2000 and 1999. The Company's capital ratios are presented,
however, there are no capital requirements set by the OTS for the Company.
(000's omitted):
December 31, 2000
--------------------------------------------
Actual Percent Required Percent
- ----------------------------------------------------------------------
SI Bank & Trust:
Tangible capital....... $ 382,150 7.53% $ 76,151 1.50%
Core capital........... 383,089 7.54 203,107 4.00
Risk-based capital..... 396,837 15.06 210,751 8.00
December 31, 1999
--------------------------------------------
Actual Percent Required Percent
- -----------------------------------------------------------------------
SI Bank & Trust:
Tangible capital....... $ 388,248 8.93% $ 65,213 1.50%
Core capital........... 390,192 8.97 173,980 4.00
Risk-based capital..... 404,463 19.80 163,442 8.00
December 31, 2000
--------------------------------------------
Actual Percent Required Percent
- -----------------------------------------------------------------------
Staten Island Bancorp:
Tangible capital....... $ 522,326 10.09% $ 77,665 1.50%
Core capital........... 523,265 10.10 207,144 4.00
Risk-based capital..... 537,903 18.77 229,292 8.00
December 31, 2000
--------------------------------------------
Actual Percent Required Percent
- -----------------------------------------------------------------------
Staten Island Bancorp:
Tangible capital....... $ 585,976 13.01% $ 67,559 1.50%
Core capital........... 587,921 13.05 180,234 4.00
Risk-based capital..... 602,191 25.58 188,340 8.00
page 26
5. INVESTMENT SECURITIES
Securities Available for Sale
The amortized cost and approximate market value of securities available for sale
are summarized as follows:
December 31, 2000
--------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------
(000's omitted)
Debt securities:
U.S. Government
and agencies....................... $ 178,351 $ 865 $ (1,130) $ 178,086
GNMA, FNMA and
FHLMC mortgage
participation
certificates ..................... 712,292 7,000 (2,064) 717,228
Agency CMOs ......................... 223,224 657 (2,614) 221,267
Privately issued
CMOs ............................. 412,374 601 (2,223) 410,752
Other ............................... 170,480 947 (13,530) 157,897
---------- -------- -------- ----------
1,696,721 10,070 (21,561) 1,685,230
---------- -------- -------- ----------
Marketable
equity securities:
Common stocks .................... 98,632 7,349 (897) 105,084
Preferred stocks ................. 69,913 130 (7,155) 62,888
Mutual Fund ...................... 29,337 6,691 (284) 35,744
---------- -------- -------- ----------
197,882 14,170 (8,336) 203,716
---------- -------- -------- ----------
Total securities
available
for sale ..................... $1,894,603 $ 24,240 $(29,897) $1,888,946
========== ======== ======== ==========
December 31, 1999
--------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------
(000's omitted)
Debt securities:
U.S. Government
and agencies..................... $ 164,236 $ 63 $ (8,542) $ 155,757
GNMA, FNMA and
FHLMC mortgage
participation
certificates ...................
Agency CMOs ....................... 813,632 1,380 (21,401) 793,611
Privately issued
CMOs ........................... 248,376 60 (9,819) 238,617
Other .............................
436,604 1 (18,403) 418,202
Marketable
equity securities: .............. 163,357 628 (11,168) 152,817
---------- -------- --------- ------------
Common stocks ..................
Preferred stocks ............... 1,826,205 2,132 (69,333) 1,759,004
---------- -------- --------- ------------
Mutual Fund ....................
Total securities ............. 97,787 9,201 (5,943) 101,046
available .................. 79,870 604 (10,916) 69,558
for sale ................... 26,691 7,779 (123) 34,346
---------- -------- --------- ------------
204,348 17,584 (16,982) 204,950
---------- -------- --------- ------------
$2,030,553 $ 19,716 $ (86,315) $ 1,963,954
========== ======== ========= ============
The amortized cost and market value of debt securities available for sale at
December 31, 2000 and 1999, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
December 31, 2000 December 31, 1999
------------------------ -------------------------
Amortized Market Amortized Market
Cost Value Cost Value
- -----------------------------------------------------------------------------------
(000's omitted)
Due in one
year or less .......... $ 3,331 $ 3,347 $ 8,150 $ 8,176
Due after one year
through five years .... 96,721 97,875 58,256 56,785
Due after five years
through ten years ..... 124,157 121,221 132,988 125,979
Due after ten years ...... 536,996 524,292 564,803 535,836
---------- ---------- ---------- ----------
761,205 746,735 764,197 726,776
GNMA, FNMA
and FHLMC
mortgage
participation
certificates
and agency
CMOs ..................... 935,516 938,495 1,062,008 1,032,228
---------- ---------- ---------- ----------
$1,696,721 $1,685,230 $1,826,205 $1,759,004
========== ========== ========== ==========
Proceeds from sales of securities available for sale during 2000, 1999 and
1998 were $309,972,000, $76,257,000 and $109,224,000 with realized gross gains
of $8,140,000, $8,876,000 and $2,374,000 and realized gross losses $8,709,000,
$14,407,000 and $1,850,000, respectively. Gross losses in 1999 include
write-downs of approximately $9,000,000 on securities whose decline in value was
deemed to be other than temporary.
6.LOANS
A significant portion of the Bank's loans are to borrowers who are domiciled
on Staten Island. The income of many of those customers is dependent on the New
York City economy. In addition, most of the Bank's real estate loans involve
mortgages on Staten Island properties. Thus, the majority of the Bank's loan
portfolio is susceptible to the economy of Staten Island, a borough of New York
City, which is its primary marketplace.
While management uses available information to provide losses of value on
loans and foreclosed properties, future loss provisions may be necessary based
on changes in economic conditions. In addition, the Bank's regulators, as an
integral part of their examination process, periodically review the valuation of
the Bank's loans and foreclosed properties. Such regulators may require the Bank
to recognize write-downs based on judgments different from those of management.
page 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000, 1999 and 1998
Loans, net consist of the following at December 31, 2000 and 1999:
2000 1999
- ----------------------------------------------------------------------------------------------
(000's omitted)
Loans secured by mortgages on real estate:
1-4 family residential................................... $2,206,972 $ 1,737,913
Multi-family properties ................................. 49,034 42,501
Commercial properties ................................... 307,407 223,809
Home equity.............................................. 10,699 5,390
Construction and land ................................... 152,956 60,105
Deferred origination costs and
unearned income, net ................................. 11,696 5,537
---------- -----------
Net loans secured by mortgages
on real estate ................................ 2,738,764 2,075,255
---------- -----------
Other loans:
Student ................................................. 333 657
Passbook ................................................ 6,237 5,357
Commercial .............................................. 52,980 33,646
Other .................................................. 63,984 49,395
---------- -----------
Net other loans ......................................... 123,534 89,055
---------- -----------
Net loans before the
allowance for loan losses ............................ 2,862,298 2,164,310
Allowance for loan losses ............................ (14,638) (14,271)
---------- -----------
Net loans ........................................ $2,847,660 $ 2,150,039
========== ===========
A summary of activity in the allowance for loan losses for the years ended
December 31, 2000, 1999 and 1998, is as follows:
2000 1999 1998
- --------------------------------------------------------------------------------
(000's omitted)
Beginning balance ................. $ 14,271 $ 16,617 $ 15,709
Increase as a result
of acquisition ............... 847 -- 96
Provision (benefit) charged
to operations ................ 652 (1,843) 1,594
Charge-offs ..................... (2,186) (1,665) (2,119)
Recoveries ...................... 1,054 1,162 1,337
-------- -------- --------
Ending balance .................... $ 14,638 $ 14,271 $ 16,617
======== ======== ========
Non-accrual loans totaled $9,776,000 at December 31, 2000, which is also the
Bank's recorded investment in loans for which impairment has been recognized in
accordance with SFAS No. 114 and SFAS No. 118. Non-accrual loans totaled
$12,474,000 at December 31, 1999. The loss of interest income associated with
loans on non-accrual status was approximately $728,000, $746,000 and $794,000
for the years ended December 31, 2000, 1999 and 1998, respectively.
At December 31, 2000 and 1999, the valuation allowance related to all
impaired loans totaled $8,152,000 and $7,195,000, respectively, and is included
in the allowance for loan losses shown on the statement of financial condition.
The average recorded investment in impaired loans for the years ended December
31, 2000 and 1999, was approximately $12,857,000 and $13,342,000, respectively.
At December 31, 2000 and 1999, the Company had other real estate totaling
$893,000 and $887,000, respectively, classified in other assets.
At December 31, 2000 and 1999, the Company was servicing mortgages for others
totaling $262,957,000 and $122,589,000, respectively.
At December 31, 2000 and 1999, the Company had mortgage servicing rights of
$3,053,000 and $254,000, respectively.
At December 31, 2000 and 1999, the Company had balances outstanding from
various officers totaling $5,706,000 and $3,944,000, respectively.
7. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 2000 and 1999, are summarized as
follows:
2000 1999
- --------------------------------------------------------------------------------
(000's omitted)
Land, building and leasehold improvements. $ 28,931 $ 22,821
Furniture, fixtures and equipment......... 18,957 19,561
--------- --------
47,888 42,382
Less--Accumulated depreciation
and amortization........................ (16,005) (17,651)
--------- --------
$ 31,883 $ 24,731
========= ========
8. DUE DEPOSITORS
Scheduled maturities of certificates of deposit at December 31, 2000, are
summarized as follows:
Weighted
Amount Average Rate
- ------------------------------------------------------------
(000's omitted)
2001........................... $762,795 5.72%
2002........................... 119,519 5.91
2003........................... 22,016 5.78
2004........................... 12,162 5.72
2005........................... 23,014 5.80
2006 and thereafter............ 8,078 7.08
--------
$947,584 5.76%
======== ====
The aggregate amounts of outstanding certificates of deposit in denominations
of $100,000 or more at December 31, 2000 and 1999 were $226,902,000 and
$161,603,000, respectively.
9. BORROWED FUNDS
The Company was obligated for borrowings as follows:
December 31,
- --------------------------------------------------------------------------------
2000 1999
Weighted Weighted
Average Average
Amount Rate Amount Rate
- --------------------------------------------------------------------------------
(000's omitted) (000's omitted)
Reverse Repurchase
Agreements
Non-FHLB .............. $ 629,974 6.15% $ 846,372 5.56%
Reverse Repurchase
Agreements FHLB........ 263,000 5.40 318,000 5.38
FHLB Advances ............. 1,348,000 6.51 885,000 5.90
Mortgage payable........... 37 12.00 39 12.00
---------- ----------
$2,241,011 6.28% $2,049,411 5.68%
========== ==========
page 28
The average balance of borrowings for the years ended December 31, 2000 and
1999 was $2,147,718,000 and $1,674,990,000, respectively. The maximum month end
balance of borrowings for the years ended December 31, 2000 and 1999 were
$2,249,963,000 and $2,049,411,000, respectively.
The Company's borrowings at December 31, 2000 have contractual maturities as
follows (000's omitted):
2001 ........................ $1,407,134
2002 ........................ 90,000
2003 ........................ 132,500
2004 ........................ 53,250
2005 ........................ 220,090
2008 ........................ 248,000
2009 ........................ 35,000
2010 ........................ 55,000
2012 ......................... 37
----------
$2,241,011
==========
As of December 31, 2000, $977,786,000 of investment securities and
$1,872,831,000 in mortgage loans were pledged as collateral for these borrowed
funds.
10. EMPLOYEE BENEFIT PLANS
Defined Benefit Plan
Costs of the Bank's defined benefit plan are accounted for in accordance with
SFAS No. 87. The following table sets forth the change in benefit obligations,
the change in the plan assets, the funded status of the plan, and amounts
recognized in the accompanying consolidated financial statements at December 31,
2000 and 1999, respectively, based upon the latest available actuarial
measurement dates of December 31, 2000 and 1999, respectively.
2000 1999
- --------------------------------------------------------------------------------
(000's omitted)
Projected benefit obligation,
beginning of year ............................. $ 17,245 $ 22,483
Service cost ............................... -- 1,355
Interest cost .............................. 1,359 1,457
Benefits paid .............................. (1,001) (1,203)
Actuarial loss (gain) ...................... 2,072 (2,599)
Curtailment of future benefits ............. -- (4,248)
-------- --------
Projected benefit obligation, end of year .. $ 19,675 $ 17,245
======== ========
The following table sets forth the Plan's change in plan assets:
2000 1999
- --------------------------------------------------------------------------------
(000's omitted)
Fair value of the plan assets, beginning of year.. $ 28,242 $ 22,507
Actual return on plan assets ..................... 946 6,938
Employer contributions ........................... -- --
Benefits paid .................................... (1,001) (1,203)
-------- --------
Fair value of the plan assets, end of year ......... $ 28,187 $ 28,242
======== ========
Funded status ...................................... $ 8,512 $ 10,998
-------- --------
Unrecognized net actuarial loss (gain) ............. $ (2,726) (6,680)
Prepaid cost................................... $ 5,786 $ 4,318
======== ========
The components of net pension expense are as follows:
2000 1999 1998
- --------------------------------------------------------------------------------
(000's omitted)
Service cost-benefits earned
during the year .................. $ -- $ 1,355 $ 1,172
Interest cost on projected
benefit obligation ............... 1,359 1,457 1,350
Net amortization and deferral ........ -- (15) (125)
Actual return on plan assets ......... 2,072 (2,599) (21)
Deferred investment gain (loss) ...... (4,900) 614 (1,799)
------- ------- -------
Net pension expense .......... $(1,469) $ 812 $ 577
Major assumptions utilized:
2000 1999 1998
- --------------------------------------------------------------------------------
Weighted average discount rate ....... 7.25% 6.75% 6.50%
Rate of increase in compensation ..... -- 4.50 4.50
levels
Expected long-term rate of
return on assets ................. 9.00 9.00 8.00
During 1999, the Bank amended the defined benefit plan to freeze future
benefit accruals on December 31, 1999. In connection with the freezing of the
plan and the plan's measurement date of December 31, 1999, in accordance with
SFAS No. 88, the Bank recognized a curtailment gain of approximately $4.1
million for the year ended December 31, 1999.
Postretirement Benefits
The Bank provides postretirement benefits, including medical care and life
insurance, which cover substantially all active employees upon their retirement.
The Bank's postretirement benefits are unfunded. The following table shows
the components of the plan's accrued postretirement benefit cost included in
other liabilities on the consolidated statements of financial condition as of
December 31, 2000 and 1999:
2000 1999
- --------------------------------------------------------------------------------
(000's omitted)
Accumulated postretirement benefit obligation:
Retirees ........................................... $1,262 $1,522
Other fully eligible participants .................. 2,229 2,024
Unrecognized gain (loss) ........................... 770 399
Unrecognized past service liability ................ 433 508
------ ------
Accrued postretirement benefit cost ............ $4,694 $4,453
====== ======
Net periodic postretirement benefit cost for 2000, 1999 and 1998 included the
following components:
2000 1999 1998
- --------------------------------------------------------------------------------
(000's omitted)
Service cost--benefits attributed to
service during period ............... $210 $217 $ 173
Interest cost on accumulated
postretirement benefit obligation ... 270 228 205
Amortization of:
Unrecognized (gain) loss .................. (3) -- (13)
Unrecognized past service liability ..... (75) (75) (75)
---- ---- -----
Net periodic postretirement
benefit cost .......................... $402 $370 $ 290
==== ==== =====
page 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000, 1999 and 1998
The average health care cost trend rate assumption significantly affects the
amounts reported. For example, a 1% increase in this rate would increase the
accumulated benefit obligation by $263,000, $214,000 and $280,000 at December
31, 2000, 1999 and 1998, respectively, and increase the net periodic cost by
$37,000, $43,000 and $37,000 for the years ended December 31, 2000, 1999 and
1998, respectively. The postretirement benefit cost components for 2000 were
calculated assuming average health care cost trend rates ranging up to 6.5% and
grading to 5% in 2004 and thereafter.
401(k) Plan
The Bank has a 401(k) plan (the "Plan") covering substantially all full-time
employees. The Plan provides for employer matching contributions subject to a
specified maximum, and also contains a profit-sharing feature which provides for
contributions at the discretion of the Company. The Plan expense in 2000 and
1999 was matched through stock contributions under the ESOP. Amounts charged to
operations for the years ended December 31, 2000, 1999 and 1998 were
approximately $581,000, $535,000 and $514,000, respectively.
Employee Stock Ownership Plan
The ESOP borrowed $41,262,000 from the Company and used the funds to purchase
3,438,500 shares of the Company's stock issued in the conversion. The loan has
an interest rate of 8.25% and will be repaid over a 15-year period. The loan was
issued on December 19, 1997. Shares purchased are held in a suspense account for
allocation among the participants as the loan is paid. Contributions to the ESOP
and shares released from the loan collateral will be in an amount proportional
to repayment of the ESOP loan. Shares allocated will first be used for the
employer matching contribution for the 401(k) plan with the remaining shares
allocated to the participants based on compensation as described in the plan, in
the year of allocation. The vesting schedule will be the same as the Bank's
current 401(k) plan. Forfeitures from the 401(k) matching contributions will be
used to reduce future employer 401(k) matching contributions while forfeitures
from shares allocated to the participants will be allocated among the
participants the same as contributions. There were 228,904 and 228,904 shares
allocated in 2000 and 1999, respectively. The Company recorded compensation
expense of $1,773,000, $2,790,000 and $4,020,000 for the ESOP for the years
ended December 31, 2000, 1999 and 1998, respectively.
Recognition and Retention Plan
The Company maintains the 1998 Recognition and Retention Plan (the "RRP") for
the directors and officers of the Bank which was implemented in July 1998. The
objective of the RRP is to enable the Company to provide officers, key employees
and directors of the Bank with a proprietary interest in the Company as an
incentive to contribute to its success. During 1998, the RRP purchased 1,719,250
shares of the Company or 4% of the common stock sold in the Conversion on the
open market. These purchases were funded by the Bank. Awards vest at a rate of
20% per year for directors and officers, commencing one year from the date of
award. Awards become 100% vested upon retirement, termination of employment due
to death or disability or upon change of control. The Company recorded
compensation expense of $6,313,000, $6,025,000 and $3,049,000 for the RRP for
the years ended December 31, 2000, 1999 and 1998, respectively. The following
table sets forth the activity in the RRP plan.
2000 1999 1998
----------------- ------------------ --------------------
Number Weighted Number Weighted Number Weighted
of Average of Average of Average
Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------------
Granted ............ 29,200 $17.86 18,200 $18.63 1,501,675 $20.25
Vested ............. 309,670 20.23 297,530 20.25 28,700 20.25
Forfeited ........... 2,370 20.25 5,325 20.25 -- --
Shares
Available ........ 177,870 204,700 217,575
Stock Option Plan
The Company maintains the 1998 Stock Option Plan (the "Option Plan"). The
Company has reserved for future issuance pursuant to the Option Plan 4,298,125
shares of common stock, which is equal to 10% of the common stock sold in the
Conversion. Under the Option Plan, stock options (which expire ten years from
the date of grant) have been granted to the directors and officers of the Bank.
Each option entitles the holder to purchase one share of the Company's common
stock at an exercise price equal to the fair market value of the stock at the
date of the grant. Options will be exercisable in whole or in part over the
vesting period. The options vest ratably over a five-year period. However, all
options become 100% exercisable in the event the employee terminates his
employment due to retirement, death or disability or upon change of control.
The Company has chosen to account for stock-based compensation using the
intrinsic value method prescribed in APB No. 25. Since each option granted at a
price equal to the fair market value of one share of the Company's stock on the
date of the grant, no compensation cost has been recognized. The following table
compares reported net income and earnings per share to net income and earnings
per share on a pro forma basis assuming that the Company accounted for
stock-based compensation under SFAS No. 123. The effects of applying SFAS No.
123 in this pro forma disclosure are not indicative of future amounts.
2000 1999 1998
- --------------------------------------------------------------------------------
(000's omitted, except per share data)
Net income:
As reported ....................... $ 53,926 $ 52,875 $ 44,262
Pro forma ......................... 50,396 47,341 40,108
Earnings per share:
As reported
Basic ............................. 1.61 1.40 1.06
Diluted .............................. 1.61 1.40 1.06
Pro forma
Basic ............................. 1.50 1.25 0.97
Diluted .............................. 1.50 1.25 0.97
page 30
Stock Option Activity
The following table sets forth stock option activity and the weighted average
fair value of options granted.
2000 1999 1998
- --------------------------------------------------------------------------------
Options outstanding
beginning of year .......... 3,046,000 3,056,000 --
Options granted ............... 45,000 91,000 3,056,000
Options exercised ............. -- -- --
Options forfeited ............. (13,200) (101,000) --
Options outstanding
end of year ................ 3,077,800 3,046,000 3,056,000
Remaining options available for
grant under plan 1,220,325 . 1,252,125 1,242,125
Exercisable options end of year 1,258,400 626,200 70,000
Weighted average exercise
price on exercisable
options end of year ........ 22.82 22.88 22.88
Weighted average fair value
options granted ............ $ 6.84 $ 6.77 $ 8,34
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes Option Pricing Model using the following weighted average
assumptions:
2000 1999 1998
- --------------------------------------------------------------------------------
Risk free interest rate .................... 5.50% 5.50% 5.21%
Expected dividend yield .................... 2.70% 2.70% 1.80%
Volatility ................................. 30.42% 29.92% 35.57%
Expected life in years ..................... 6 6 6
Supplemental Executive Retirement Plan
In 1993, the Bank adopted a Supplemental Executive Retirement Plan (the
"Executive Plan") for certain senior officers that provides for payments upon
retirement, death or disability. The annual benefit is based upon annual salary
(as defined) plus interest. Amounts charged to operations for the years ended
December 31, 2000, 1999 and 1998 were approximately $407,000, $458,000 and
$436,000, respectively.
11. INCOME TAXES
The provision for income taxes consists of the following:
2000 1999 1998
- --------------------------------------------------------------------------------
(000's omitted)
Current:
Federal ................................. $22,790 $26,353 $21,299
State ................................... 1,727 2,778 2,610
City .................................... 1,801 2,776 2,676
26,318 31,907 26,585
Deferred ................................... 6,590 3,352 3,093
------- ------- -------
$32,908 $35,259 $29,678
======= ======= =======
The following table reconciles the federal statutory rate to the Company's
effective tax rate:
December 31, 2000
---------------------------
Percentage of
Amount Pretax Income
- --------------------------------------------------------------------------------
(000's omitted)
Federal tax at statutory rate .............. $ 30,392 35.0%
State and local income taxes ............... 2,565 3.0
Tax-exempt dividend income ................. (1,357) (1.6)
Amortization of goodwill ................... 1,738 2.0
Other ...................................... (430) (0.5)
Income tax provision .................. $ 32,908 37.9%
-------- ----
======== ====
December 31, 1999
---------------------------
Percentage of
Amount Pretax Income
- --------------------------------------------------------------------------------
(000's omitted)
Federal tax at statutory rate .............. $ 30,847 35.0
State and local income taxes ............... 4,475 5.0
Tax-exempt dividend income ................. (1,425) (1.6)
Amortization of goodwill ................... 318 0.4
Other ...................................... 1,044 1.2
-------- ----
Income tax provision ................. $ 35,259 40.0
======== ====
December 31, 1998
---------------------------
Percentage of
Amount Pretax Income
- --------------------------------------------------------------------------------
(000's omitted)
Federal tax at statutory rate .............. $ 25,879 35.0
State and local income taxes ............... 2,837 3.8
Tax-exempt dividend income ................. (436) (0.6)
Amortization of goodwill ................... 318 0.4
Other ...................................... 1,080 1.5
-------- ----
Income tax provision ................. $ 29,678 40.1
-------- ----
The following is a summary of the income tax (liability) receivable at
December 31, 2000 and 1999:
2000 1999
- --------------------------------------------------------------------------------
(000's omitted)
Current taxes .............................. $ (5,691) $ (2,286)
Deferred taxes ............................. 25,340 47,146
-------- --------
$ 19,649 $ 44,860
======== ========
page 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000, 1999 and 1998
The components of the net deferred tax asset at December 31, 2000 and 1999
are as follows:
2000 1999
- -------------------------------------------------------------------------------
(000's omitted)
Assets:
Contribution to Foundation ......................... $ 5,537 $ 4,051
Allowance for loan losses .......................... 5,868 5,991
Postretirement benefit accrual ..................... 1,984 1,935
Non-accrual loans .................................. 517 634
Deferred compensation .............................. 975 1,088
ESOP shares ........................................ 1,485 1,053
Unrealized loss on AFS securities .................. 6,049 30,764
Other .............................................. 8,969 6,532
------- -------
Total assets .................................. 31,384 52,048
------- -------
Liabilities:
Bad debt recapture under Section 593 ............... 1,250 1,666
Pension plan and curtailment gain .................. 2,288 1,935
Fixed asset tax basis adjustment ................... 662 --
Bond discounts ..................................... 1,115 51
Other .............................................. 729 1,250
------- -------
Gross deferred tax liability .................. 6,044 4,902
------- -------
Net deferred tax asset ........................ $25,340 $47,146
======= =======
At December 31, 2000 and 1999, the deferred tax asset is included in other
assets in the accompanying consolidated financial statements.
Bad Debt Deduction
Through January 1, 1996, under Section 593 of the Internal Revenue Code,
thrift institutions such as the Bank which met certain definitional tests,
primarily relating to their assets and the nature of their business, were
permitted to establish a tax reserve for bad debts and to make annual additions
thereto, which additions may, within specified limitations, be deducted in
arriving at their taxable income. The Bank's deduction with respect to
"qualifying loans," which are generally loans secured by certain interests in
real property, was computed using an amount based on the Bank's actual loss
experience (the "Experience Method"), or a percentage equal to 8% of the Bank's
taxable income (the "PTI Method"), computed without regard to this deduction and
with additional modifications and reduced by the amount of any permitted
addition to the non-qualifying reserve. Similar deductions or additions to the
Bank's bad debt reserve are permitted under the New York State Bank Franchise
Tax; however, for purposes of these taxes, the effective allowable percentage
under the PTI Method was approximately 32% rather than 8%.
Effective January 1, 1996, Section 593 was amended, and the Bank is unable to
make additions to its federal tax bad debt reserve, is permitted to deduct bad
debts only as they occur and is additionally required to recapture (that is,
take into taxable income) over a six-year period, beginning with the Bank's
taxable year beginning on January 1, 1996, the excess of the balance of its bad
debt reserves as of December 31, 1995 over the balance of such reserves as of
December 31, 1987, or over a lesser amount if the Bank's loan portfolio has
decreased since December 31, 1987. Such recapture requirements have been
deferred for taxable years through December 31, 1997, as the Bank originated a
minimum amount of certain residential loans based upon the average of the
principal amounts of such loans originated by the Bank during its six taxable
years preceding January 1, 1996. The recapture requirement amount for the year
2000 was $1,190,000.
The New York State tax law has been amended to prevent a similar recapture of
the Bank's bad debt reserve, and to permit continued future use of the bad debt
reserve method for purposes of determining the Bank's New York State tax
liability. This change also provides for an indefinite deferral of the recapture
of the bad debt reserves generated for New York State purposes.
The New York City tax law was also amended and is similar to the New York
State tax law regarding bad debt reserves and provides for the indefinite
deferral of the recapture of bad debt reserves generated for New York City
purposes. Prior to the tax law changes mentioned above, for New York State and
New York City purposes, the bad debt deduction was equal to a multiple of the
federal bad debt deduction, which is approximately four times the federal
amount.
State, Local and Other Taxes
The Company files state and local tax returns on a calendar-year basis. State
and local taxes imposed on the Company consist primarily of New York State
franchise tax, New York City Financial Corporation tax, Delaware franchise tax
and state taxes for an additional 30 states. These additional state taxes are
attributable to the operation of SIB Mortgage Corp. and American Construction
Lending Services, Inc. which have offices in these additional locations. The
Company's annual liability for New York State and New York City purposes is the
greater of a tax on income or an alternative tax based on a specified formula.
Liability for other state taxes are determined in accordance with the applicable
local tax code. The Company's liability for Delaware franchise tax is based on
the lesser of a tax based on an authorized shares method or an assumed par value
capital method; however, under each method, the Company's total tax will not
exceed $150,000.
12. COMMITMENTS AND CONTINGENCIES AND
RELATED PARTY TRANSACTIONS
In the normal course of business, there are various outstanding commitments
and contingent liabilities, such as standby letters of credit and commitments to
extend credit, which are not reflected in the accompanying consolidated
financial statements. The Company uses the same policies in making commitments
as it does for on-balance sheet instruments. No material losses are anticipated
as a result of these transactions. The Company is contingently liable under
standby letters of credit in the amount of $4,786,000 and $4,811,000 at December
31, 2000 and 1999, respectively. In addition, at December 31, 2000 and 1999,
mortgage loan commitments and unused balances under revolving credit lines
approximated $469,519,000 and $390,479,000, respectively. As of December 31,
2000 and December 31, 1999 the Mortgage Company had commitments to sell loans of
$218.6 million and $70.5 million, respectively.
page 32
Total operating rental commitments on branch offices and other facilities,
which expire at various dates through May 2015, exclusive of renewal options,
are as follows (000's omitted):
2001 ........................... $ 2,467
2002 ........................... 1,922
2003 ........................... 1,481
2004 ........................... 1,334
2005 and thereafter............. 3,832
-------
$11,036
=======
Rental expense included in the statements of income was approximately
$2,213,000, $1,648,000 and $768,000 for the years ended December 31, 2000, 1999
and 1998, respectively.
13. DISCLOSURES ABOUT FAIR VALUE OF
FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Due From Banks and Federal Funds Sold
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Accrued Interest
The carrying amount is a reasonable estimate of fair value.
Securities Available for Sale
Fair values for securities are based on quoted market prices or dealer
quotes. If a quoted market price is not available, fair value is estimated using
quoted market prices for similar securities.
Loans
For loans, fair value is based on the credit and interest rate
characteristics of individual loans. These loans are stratified by type,
maturity, interest rate, underlying collateral where applicable, and credit
quality ratings. Fair value is estimated by discounting scheduled cash flows
through estimated maturities using discount rates which in management's opinion
best reflect current market interest rates that would be charged on loans with
similar characteristics and credit quality. Credit risk concerns are reflected
by adjusting cash flow forecasts, by adjusting the discount rate or by adjusting
both.
Deposit Liabilities
The fair value of demand deposits, savings accounts and certain money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity certificates of deposit is estimated using the rates currently
offered for deposits of similar remaining maturities.
Demand deposits, savings accounts and certain money market deposits are
valued at their carrying value. In the Company's opinion, these deposits could
be sold at a premium based on management's knowledge of the results of recent
sales of financial institutions in the New York City area.
Advances From Borrowers for Taxes and Insurance
The carrying amount is a reasonable estimate of fair value.
Borrowed Funds
Fair value is based on discounted contractual cash flows using rates which
approximate the rates offered for borrowings of similar remaining maturities.
Loan Commitments
Fair values for loan commitments are based on fees currently charged to enter
into similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing, and are not significant
since fees charged are not material.
The estimated fair values of the Company's financial instruments are as
follows:
December 31, 2000
-----------------
Carrying Fair
Amount Value
- --------------------------------------------------------------------------------
(000's omitted)
Financial assets:
Cash and due from banks .............. $ 92,103 $ 92,103
Federal funds sold ..................... 12,000 12,000
Securities available for sale ......... 1,888,946 1,888,946
Loans .................................. 2,978,501 2,988,491
Less--Allowance for loan losses ........ (14,638) (14,638)
Accrued interest receivable ........... 30,905 30,905
Financial liabilities:
Savings and demand deposits ........... 1,397,629 1,397,629
Certificates of deposit ............... 947,584 948,650
Borrowed funds ........................ 2,241,011 2,277,774
Advances from borrowers for
taxes and insurance .................. 11,534 11,534
Accrued interest payable .............. 26,969 26,969
December 31, 1999
-----------------
Carrying Fair
Amount Value
- --------------------------------------------------------------------------------
(000's omitted)
Financial assets:
Cash and due from banks .............. $ 80,998 $ 80,998
Federal funds sold ..................... 20,400 20,400
Securities available for sale ......... 1,963,954 1,963,954
Loans .................................. 2,210,898 2,111,761
Less--Allowance for loan losses ........ (14,271) (14,271)
Accrued interest receivable ........... 24,731 24,731
Financial liabilities:
Savings and demand deposits ........... 1,247,190 1,247,190
Certificates of deposit ............... 573,043 573,230
Borrowed funds ........................ 2,049,411 2,069,770
Advances from borrowers for
taxes and insurance .................. 10,805 10,805
Accrued interest payable .............. 16,485 16,485
14. STATEN ISLAND BANCORP, INC.
The following condensed statements of financial condition as of December 31,
2000 and 1999, and condensed statements of income and cash flows for each of the
years in the three-year
page 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2000, 1999 and 1998
period ended December 31, 2000 represent the parent-company-only financial
information and should be read in conjunction with the consolidated financial
statements and the notes thereto.
Condensed Statements of Financial Condition
December 31,
------------
2000 1999
- -----------------------------------------------------------------------------------
(000's omitted)
Assets:
Cash .............................................. $ 9,980 $ 3,482
Securities available for sale ..................... 118,849 145,332
Investment in Bank ................................ 441,961 374,187
ESOP loan receivable from Bank .................... 36,497 38,217
Other assets ...................................... 13,007 11,284
--------- ---------
Total assets .................................. $ 620,294 $ 572,502
========= =========
Liabilities:
Loan payable to Bank .............................. $ 33,191 $ --
Accrued interest and other liabilities ............ 1,571 1,125
--------- ---------
Total liabilities ............................. 34,762 1,125
Stockholders' equity:
Common stock ...................................... 451 451
Additional paid in capital ........................ 537,744 536,539
Retained earnings
(substantially restricted) ....................... 291,345 251,315
Unallocated ESOP shares ........................... (32,962) (35,709)
Unearned RRP shares ............................... (19,784) (25,439)
Less--Treasury stock (10,209,325 and
6,436,689 shares at December 31, 2000
and 1999, respectively), at cost ................ (188,321) (121,149)
Accumulated other comprehensive
income (loss), net of taxes ..................... (2,941) (34,631)
--------- ---------
Total stockholders' equity .................... 585,532 571,377
--------- ---------
Total liabilities and
stockholders' equity ....................... $ 620,294 $ 572,502
========= =========
Condensed Statements of Income
December 31,
------------------------------------------------
2000 1999 1998
- ------------------------------------------------------------------------------------------
(000's omitted)
Income:
Investment income ................ $ 9,395 $ 12,222 $ 7,810
Other interest income ............ 41 172 287
Interest income ESOP loan ........ 3,101 3,236 3,464
Other income ..................... 386 76 --
Loss on sale of investments ...... (590) (5,555) (646)
12,333 10,151 10,915
Expenses:
Interest expense ................. 4,390 1,675 657
Other expense .................... 348 483 598
Income before taxes and equity in
undistributed earnings of Bank 7,595 7,993 9,660
Provision for income taxes ....... 3,119 3,830 3,107
Income before equity in
undistributed earnings
of Bank ................ 4,476 4,163 6,553
Equity in undistributed earnings
of Bank .......................... 49,448 48,712 37,709
------------ ------------ ------------
Net income ............... $ 53,926 $ 52,875 $ 44,262
============ ============ ============
Condensed Statements of Cash Flows
December 31,
------------------------------------------------
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------
(000's omitted)
Cash flows from operating activities:
Net income ......................................... $ 53,926 $ 52,875 $ 44,262
Adjustments to reconcile net income
to net cash provided by operating
activities --
Undistributed earnings of Bank ..................... (49,450) (48,712) (37,709)
Amortization of bond and
mortgage premium ................................. (2) 74 (23)
Loss on sale of available
for sale securities .............................. 590 1,737 646
Decrease (increase) in accrued
interest receivable .............................. 87 171 (683)
Decrease (increase) in
other assets ..................................... (689) -- 1,868
(Decrease) increase in
accrued interest payable ......................... 447 (13) 1,112
Decrease (increase) in
deferred income taxes ............................ (1,676) 5,539 1,684
-------- -------- ---------
Net cash provided by
operating activities ....................... 3,233 11,671 11,157
-------- -------- ---------
Cash flows from investing activities:
Decrease in investment in Bank .................... 20,000 80,000 --
Maturities of available for sale
securities ....................................... -- 7,428 --
Sales of available for sale
securities ....................................... 52,828 66,205 99,627
Purchases of available for sale
securities ....................................... (18,538) (272,711)
Principal collected on ESOP loan ...................... 1,720 1,584 1,461
-------- -------- ---------
Net cash provided by
(used in) investing
activities ................................. 56,010 88,446 (171,623)
-------- -------- ---------
Cash flows from financing activities:
Increase in borrowings ............................ 33,191 -- --
Dividends paid .................................... (18,764) (16,974) (10,347)
Purchase of treasury stock ........................ (67,172) (93,669) (27,480)
-------- -------- ---------
Net cash used in
financing activities ............................. (52,745) (110,643) (37,827)
-------- -------- ---------
Net increase (decrease)
in cash and cash equivalents ..................... 6,498 (10,526) (198,293)
Cash and cash equivalents,
beginning of year ................................... 3,482 14,008 212,301
-------- -------- ---------
Cash and cash equivalents,
end of year ......................................... $ 9,980 $ 3,482 $ 14,008
========= ========= =========
page 34
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quar terly financial data for the years ended December 31,
2000 and 1999 is presented below:
Fourth Third Second First
Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------
2000:
Interest income .................. $ 91,654 $ 86,540 $ 84,204 $ 81,406
Interest expense ................. 55,193 53,150 49,073 45,704
Net interest income .............. 36,461 33,390 35,131 35,702
Provision for loan losses ........ 611 12 11 18
Service and fee income ........... 4,573 4,262 3,903 4,079
Loan fees and gains .............. 9,096 8,329 5,580 4,309
Securities transactions .......... 173 416 (934) (224)
Noninterest expense .............. 26,335 24,786 23,281 22,358
Income before
income taxes ..................... 23,357 21,599 20,388 21,490
Income taxes ..................... 8,751 7,938 7,892 8,327
Net income ....................... 14,606 13,661 12,496 13,163
Earnings per share--
Basic .......................... 0.45 0.41 0.37 0.38
Diluted ........................ 0.45 0.41 0.37 0.38
Dividends declared
per common
share ......................... 0.14 0.13 0.12 0.12
Stock price per
common share--
High ............................. 21 15/16 20 18 1/8 18 15/16
Low .............................. 17 5/8 16 13/16 15 5/8 15 13/16
Close ............................ 21 3/8 20 17 5/8 17 1/8
Fourth Third Second First
Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------
1999:
Interest income ....................... $ 77,033 $ 70,856 $ 66,840 $ 62,744
Interest expense ...................... 40,538 36,266 32,533 29,727
Net interest income ................... 36,495 34,590 34,307 33,017
Provision (benefit)
for loan losses ..................... (1,943) 30 11 59
Service and fee income ................ 3,513 2,876 1,879 1,790
Loan fees and gains ................... 5,485 5,880 7,164 3,705
Defined benefit plan
curtailment gain .................... 4,093 -- -- --
Securities transactions ............... (6,452) 436 361 124
Noninterest expense ................... 22,612 21,440 21,240 17,679
Income before
income taxes ........................ 22,465 22,312 22,460 20,897
Income taxes .......................... 8,813 8,740 9,129 8,577
Net income ............................ 13,652 13,572 13,331 12,320
Earnings per share--
Basic ............................... .38 .36 .35 .31
Diluted ............................. .38 .36 .35 .31
Dividends declared
per common
share ............................. .12 .11 .11 .10
Stock price per
common share--
High ................................ 20 3/16 18 7/8 19 1/4 19 15/16
Low ................................ 17 11/16 17 3/8 16 1/4 16 1/2
Close .............................. 18 18 13/16 18 17 3/16
16. SUBSEQUENT EVENT (UNAUDITED)
Subsequent to December 31, 2000 the Company has merged ACLS into the Mortgage
Company with ACLS operating as a division of the Mortgage Company. The impact of
this event will not have a material effect on the operations of the Company.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Staten Island Bancorp, Inc.:
We have audited the accompanying consolidated statements of financial
condition of Staten Island Bancorp, Inc. (a Delaware corporation) and subsidiary
as of December 31, 2000 and 1999, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for each of the years in
the three-year period ended December 31, 2000. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Staten
Island Bancorp, Inc. and subsidiary as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
/s/Arthur Andersen LLP
- ----------------------
Arthur Andersen LLP
New York, New
York January 22, 2001
page 35
CORPORATE INFORMATION
STATEN ISLAND BANCORP INC.
DIRECTORS
Harold Banks
Charles J. Bartels
James R. Coyle
Harry P. Doherty
William G. Horn
Denis P. Kelleher
Julius Mehrberg
John R. Morris
Kenneth W. Nelson
William E. O'Mara
DIRECTORS EMERITI
Elliott L. Chapin
Pio Paul Goggi
Dennis E. Knudsen
Edward F. Norton, Jr.
Edward F. Vitt
Raymond A. Vomero
OFFICERS OF STATEN
ISLAND BANCORP INC.
Harry P. Doherty
Chief Executive Officer
James R. Coyle
Chief Operating Officer
Edward Klingele
Chief Financial Officer
Patricia A. Smith
Corporate Secretary
CORPORATE OFFICE
15 Beach Street
Staten Island, New York 10304
ANNUAL MEETING
The annual meeting of stockholders will be held on May 10, 2001 at 10:00 a.m. at
the Excelsior Grand, 2380 Hylan Boulevard, Staten Island, New York, 10306.
Notice of the meeting and a proxy form are included with this mailing to
shareholders of record as of March 12, 2001.
SI BANK & TRUST--
A Staten Island Bancorp Company
SENIOR OFFICERS
Harry P. Doherty
Chairman and Chief Executive Officer
James R. Coyle
President and Chief Operating Officer
John P. Brady
Executive Vice President
Ira Hoberman
Executive Vice President
Frank J. Besignano
Senior Vice President
Donald C. Fleming
Senior Vice President
Edward Klingele
Senior Vice President
Deborah Pagano
Senior Vice President
INVESTOR RELATIONS
Shareholders, analysts and others interested in additional information may
contact:
Donald C. Fleming
Senior Vice President
15 Beach Street
Staten Island, New York 10304
(718) 556-6518
www.sibk.com
TRANSFER AGENT AND REGISTRAR
Inquiries regarding stock transfer, lost certificates, or changes in name and/or
address should be directed to the stock and transfer agent and registrar:
Registrar and Transfer Company
Investor Relations
10 Commerce Drive
Cranford, New Jersey 07016
(800) 368-5948
SIB MORTGAGE CORPORATION--
d/b/a IVY MORTGAGE
Richard W. Payne
President and Chief Executive Officer
Paul Heckman
Executive Vice President
Ralph Picarillo
Executive Vice President, Treasurer and
Chief Financial Officer
SIB INVESTMENT CORP.
Bernard Durnin
President
STOCK LISTING
Staten Island Bancorp Inc.'s common stock is traded on the New York Stock
Exchange (NYSE) under the symbol SIB.
Shares outstanding as of January 1, 2001:
34,920,987
Shareholders of record as of January 1, 2001:
9,363
INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
Arthur Andersen LLP
1345 Avenue of the Americas
New York, New York 10105
COUNSEL
The Law Firm of Hall & Hall
57 Beach Street
Staten Island, New York 10304
Elias, Matz, Tiernan & Herrick, LLP
734 15th Street N.W., 12th fl.
Washington, D.C. 20005
page 36