Staten Island Bancorp, Inc.
A timeless tradition of excellence in community banking.
1998 Annual Report
Staten Island Bancorp, Inc.
Profile Staten Island Bancorp, Inc. was organized in 1997 and is the
holding company for Staten Island Savings Bank, a federally
chartered, FDIC insured thrift institution, originally
organized in 1864. Headquartered in Staten Island, New York,
the bank operates 16 full service branches and a trust
department in Staten Island, and one branch office in Bay
Ridge, Brooklyn, New York.
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".
Mission Staten Island Savings Bank will continue to be a strong
financial services company committed to improving shareholder
value, while 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.
Letter to Shareholders ..................................................... 2
Selected Consolidated Financial and Other Data ............................. 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................................ 9
Financial Statements ....................................................... 19
Report of Independent Public Accountants ................................... 35
Services Available ......................................................... 36
Directors and Officers, Shareholder Information ............................ IBC
Banking Locations .......................................................... BC
Financial Highlights Staten Island Bancorp, Inc. and Subsidiary
At or For the Years Ended December 31,
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($ in thousands, except per share data) 1998 1997 1996
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Operations Data
Net interest income ..................... $ 121,072 $ 86,755 $ 73,993
Provision for loan losses ............... 1,594 6,003 1,000
Total other income ...................... 10,380 7,454 3,929
Contribution to SISB Community Foundation -- 25,817 --
Total other expense ..................... 55,918 42,908 40,066
------------------------------------------
Income before provision for income taxes 73,940 19,481 36,856
Provision for income taxes .............. 29,678 4,932 15,081
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Net income .............................. $ 44,262 $ 14,549 $ 21,775
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Financial
Condition Data
Total assets ............................ $ 3,776,947 $ 2,651,170 $ 1,782,323
Loans receivable, net ................... 1,535,001 1,082,918 968,015
Securities available for sale ........... 2,029,041 1,350,467 703,134
Deposits ................................ 1,729,061 1,623,652 1,577,748
Borrowed funds .......................... 1,344,517 250,042 54
Stockholders' equity .................... 669,042 685,886 171,080
Non-performing assets ................... 17,081 21,943 23,854
Net loan chargeoffs ..................... 782 271 1,727
Allowance for loan losses ............... 16,617 15,709 9,977
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Selected
Financial Ratios
Stockholders' equity to total assets .... 17.71% 25.87% 9.60%
Tangible equity to assets ............... 16.84 24.78 8.55
Total risk-based capital ................ 35.93 59.62 20.66
Net interest margin ..................... 4.13 4.39 4.46
Interest rate spread .................... 2.93 3.82 3.84
Return on average assets ................ 1.45 0.70 1.24
Return on average equity ................ 6.39 7.79 14.03
Efficiency ratio ........................ 41.11 43.30 47.12
Non-performing assets to total assets ... 0.45 0.83 1.34
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Per Common
Share Data
Basic earnings .......................... $ 1.06 $ (0.29) --
Fully diluted earnings .................. 1.06 (0.29) --
Tangible book value ..................... 14.90 14.79 --
Market value ............................ 19.94 20.94 --
Cash dividends declared ............... 0.32 -- --
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[GRAPHIC -- BAR GRAPHS REPRESENTING TOTAL ASSETS, TOTAL LOANS AND
TOTAL DEPOSITS]
-1-
To Our Shareholders:
The completion of Staten Island Bancorp, Inc.'s first year as a public company
was both exciting and rewarding. The year was highlighted by the implementation
of capital management strategies intended to enhance shareholder value, as well
as continued growth in key business lines that strengthened our dominant
community bank franchise. This performance resulted in steady quarter-to-quarter
increases in net income.
The Financial Year in Review
Net income for the year 1998 of $44.3 million, or $1.06 per share, represented
a 56% increase over adjusted earnings due to the one-time contribution to the
SISB Community Foundation in 1997. Total assets increased by 42.46% to $3.8
billion--primarily through growth in the securities portfolio of $678.6 million,
and a record $452.1 million of net growth in loans.
The asset growth was mainly funded by an increase of $1.1 billion in borrowed
funds, a capital management strategy that was implemented in an effort to
prudently generate earnings on the expanded capital base resulting from our
stock conversion in December 1997.
Our net loan growth of 42% was accomplished through a significant increase in
loan originations for 1998, primarily with respect to loans on 1-4 family
residential properties, the traditional backbone of our lending operations. We
also continued to diversify our loan portfolio by pursuing commercial real
estate and other business lending opportunities, including the implementation of
a Small Business Loan program targeting borrowers in need of less than $100,000.
In total, we originated over $640 million in loans, and we remain the leading
lender on Staten Island.
Loan growth has also been accomplished with careful attention to quality. The
continued reduction of non-performing loans to $16.2 million, or 1.05% of loans
and the corresponding reduction in the provision for loan losses to $1.6 million
for the current year, is evidence of our success in meeting this objective.
While falling interest rates presented opportunities for loan growth, the
flattening of the yield curve also created compression on interest margins. To
counter this compression, we focused on increasing non-interest income. To that
end, we are pleased with the 30% increase we achieved in this area--largely a
result of the fee income generated through the mortgage company acquired in 1998
and ongoing expansion of the commercial customer base, as well as modest changes
to the pricing of consumer services.
Capital Management Strategies
As a result of our highly successful initial public offering in December 1997,
management was faced with the challenge of implementing strategies that would
effectively utilize the new capital, while increasing earnings and enhancing
shareholder value. These strategies included the payment of regular quarterly
dividends, the initiation of a stock repurchase program, the acquisition of a
mortgage company, and prudent leveraging of the balance sheet.
Regular quarterly dividend payments were initiated in the first quarter 1998.
Total dividends of $0.23 per share were paid in 1998. In the first quarter of
1999, the Company increased the regular quarterly dividend to $0.09 from $0.08
per share, representing a 12.5% increase. We also implemented a Dividend
Reinvestment Plan beginning with the dividend payments in the third quarter of
1998.
In the fourth quarter of 1998, the Company instituted a 5% stock repurchase
program. This program was completed in the first quarter of 1999 and resulted in
the repurchase of 2.3 million shares. In addition, the Company commenced a new
5% stock buyback during the first quarter of 1999.
We also completed the acquisition of Ivy Mortgage Corp. in the fourth quarter,
which has loan origination offices in 22 states. This acquisition will enable
Staten Island Savings Bank to generate additional fee income, increase the
product mix in our own market area, and diversify the loan portfolio beyond the
local market.
-2-
Commitment to Community Banking
We are pleased that our officers and staff continue to respond to the
challenges that emerge as we expand our services to the business community and
enhance services to our core consumer base. Our success in serving these markets
is demonstrated by our ongoing leadership role in residential and business
lending in the communities we serve, along with our 30% share of the Staten
Island deposit market. Deposit growth of $55 million, exclusive of interest, and
the continued growth of our office in Bay Ridge, Brooklyn, further demonstrate
this success.
Core deposits continue to comprise approximately two-thirds of our deposit
base and give us the ability to minimize the compression in our net interest
spread. This solid base is made up of 17.7% of non-interest checking, up from
15.4% in December 1997. At year-end 1998, our weighted average cost of deposits,
including non-interest DDA accounts, of 2.96% places us among the top performers
in our peer group.
Our ability to successfully serve the financial needs of individuals and
businesses in our markets is due to a number of factors. More aggressive
business development programs, the addition of experienced commercial lenders,
and new products and services are just a few examples. By year-end, new small
business loan products, debit cards, and on-line banking and bill payment
services were introduced.
The scope of services, which also include a full service trust department as
well as savings bank life insurance, continue to be evaluated and enhanced based
on responses from our customer base.
Enhancements to Technology
Cost efficient and flexible technology is critical in the delivery of banking
services in this rapidly changing environment. A major conversion to a new data
processing service provider was completed in August 1998. This conversion is
expected to reduce our data processing costs and improve the flexibility of our
technical support systems.
At this time, the Company is continuing its dedicated efforts to be ready for
the Year 2000. Conversion to this new system was a significant step in this
process and we have the utmost confidence that we will be ready for the century
date change.
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The year was highlighted by the implementation of capital management
strategies intended to enhance shareholder value, as well as continued growth in
key business lines that strengthened our dominant community bank franchise.
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More importantly, our new systems provide the platform for us to build upon
our service and sales orientation, and enable us to expand and compete more
effectively and efficiently beyond the turn of the century. This system will
also facilitate the identification of profitable growth opportunities that exist
within our customer base due to our significant market penetration.
Looking Ahead
We began this report by stating that the past year had been exciting and
rewarding. Well, our first year as a public company has also been encouraging.
We have demonstrated our ability to prioritize and execute plans that have
enhanced shareholder value, while simultaneously improving the delivery of
banking services within our market area.
At the same time, those decisions will enable us to proceed with our plans for
growth and profitability. We will continue to focus on active management of our
balance sheet and capital. Our new mortgage company will also play an important
role in achieving growth in income and new business opportunities. And of
course, we will continue to seek to create opportunities through expansion into
new markets and new product development, provided they are in alignment with our
strategic objectives.
As always, the contribution of our directors, officers and staff must be
recognized as we manage change and growth. We also remain grateful to you, our
shareholders and customers, for your confidence in us, and we are confident in
our ability to continue to earn your support and loyalty.
/s/HARRY P. DOHERTY /s/JAMES R. COYLE
HARRY P. DOHERTY JAMES R. COYLE
Chairman and President and
Chief Executive Officer Chief Operating Officer
-3-
Personal Banking
The timeless tradition of our successful community banking franchise centers
on Staten Island Savings Bank's network of 17 branch locations. The 16 locations
on Staten Island and one in Bay Ridge, Brooklyn provide unrivaled access to THE
bank's full range of deposit and loan services. This extensive branch network is
one reason why we continue to maintain our 30% share of the deposit market on
Staten Island. Another reason, is the unparalleled customer service that has
been a tradition at THE bank for over a century. Responses to regularly
scheduled surveys continue to reflect high levels of customer satisfaction among
the 70,000 plus households doing business with THE bank.
While the bank prides itself on the personal service provided at all of our
locations, our electronic delivery systems, including a network of 36 ATMs,
bank-by-phone and PC direct, our new on-line banking service, offer 24 hour/7
day access to transactions and information. In addition, the benefits of the ATM
card were expanded for over 20,000 cardholders through the introduction of the
Visa Check Card program in December 1998. With this new feature, cardholders can
now use THE bankCard at all retail and merchant locations that accept Visa.
Single-family residential loan volume remains at record levels with $508
million in loan originations during the year, once again placing Staten Island
Savings Bank as the leading lender in our market. Several outreach programs
implemented in 1997 continue to have a significant impact on new loan
production.
A full-time residential loan originator is available for consultation at times
and locations most convenient to the applicant. This program has been very well
received in our market and accounted for $28 million in new loan business in
1998.
In addition, our Priority Access Broker Program accounts for approximately 70%
of the total loan volume. A full-time manager of the program has improved the
awareness of our products with mortgage and real estate brokers. Program members
have indicated that our increased presence in the market has enabled us to
respond more quickly to pricing and product changes dictated by changing market
conditions. We are also more aggressive in enlisting new productive members into
the program.
The service delivered by loan origination staff also continues to receive high
marks from the borrowers who respond to our customer service surveys.
Personal and business customers also have access to services which include
trust and estate planning, retirement planning, and investment management
planning services. We currently have $137 million in assets under management.
The availability of Trust services is another source for establishing profitable
relationships.
-4-
Single-family residential loan volume
remains at record levels with $508 million in loan originations
during the year, once again placing
STATEN ISLAND SAVINGS BANK
as the leading lender in our market.
-5-
Efforts to
enhance services and
expand products targeting local businesses continue to be effective.
With over 10,000 business checking accounts,
no one knows the needs of businesses in our market area
better than we do.
-6-
Business Banking
Efforts to enhance services and expand products targeting local businesses
continue to be effective. Ninety percent of businesses in Staten Island have
sales volumes of less than $5 million per year. With over 10,000 business
checking accounts, no one knows the needs of businesses in our market area
better than we do.
In 1998, we established a Small Business Loan unit dedicated to the borrowing
needs of businesses seeking less than $100,000. Four products were designed for
this customer segment and the application process was simplified.
The operation of this unit will enable our commercial lenders to spend more
time with larger borrowers, thereby accelerating relationship management and
business development efforts. Originations of commercial loans increased to $112
million, or 65% over 1997 activity. This includes multi-family, commercial real
estate, construction and land, and other commercial loans.
The employees in each of our branches continue to support the growth in
commercial accounts with their understanding of the importance of time and
flexibility to the small business owner. Unique services, like phone calls for
checks presented against insufficient or uncollected funds are valuable to small
businesses and are a source of fee income. Business customers with special
investment and banking needs receive personal service through our Personal
Financial Center, and may be referred to the Trust Department for retirement
planning or other investment management services.
We know that business people need a bank at all times of the day or week. The
availability of ATM cards for select businesses and bank-by-phone for all
businesses, allow 24 hour access to transactions and information. Businesses
will also benefit from PC banking, which allows them to review account history,
transfer money between accounts, and pay bills.
New business development is accomplished through the full-time efforts of a
team of officers. Branch managers are actively involved in calling on current
customers in order to seek new opportunities or handle current needs. We will
continue to integrate the activities of our branch network, loan officers,
business development staff and back-office operations to provide seamless
service to this important and profitable group of customers.
We also recognize that our high penetration into the local business market
presents excellent opportunities for growth in personal banking and trust
services. Staff training directed toward cross selling loan and non-loan
products continues, and enables THE bank to strengthen the overall relationship
with our business customers.
-7-
Staten Island Bancorp, Inc. and Subsidiary
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following selected historical financial data for the five years ended
December 31, 1998 is derived in part from the audited financial statements of
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,
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(000's omitted except share data) 1998 1997 1996 1995 1994
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Selected Financial Condition Data:
Total assets $ 3,776,947 $ 2,651,170 $1,782,323 $1,728,130 $1,376,220
Securities held to maturity -- -- -- -- 321,263
Securities available for sale 2,029,041 1,350,467 703,134 788,622 378,207
Loans receivable, net 1,535,001 1,082,918 968,015 801,137 608,954
Intangible assets(1) 17,701 18,414 20,490 22,633 492
Deposits 1,729,061 1,623,652 1,577,748 1,535,617 1,225,918
Borrowings 1,344,517 250,042 54 46 47
Stockholders' equity 669,042 685,886 171,080 150,082 125,444
Tangible book value per share 14.90 14.79 -- -- --
Common shares outstanding 43,704,812 45,130,312 -- -- --
For the Year Ended December 31,
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Selected Operating Data: 1998 1997 1996 1995 1994
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Net interest income $ 121,072 $ 86,755 $ 73,993 $ 60,122 $ 53,747
Provision for loan losses 1,594 6,003 1,000 -- 76
Other income 10,380 7,454 3,929 4,040 2,048
Charitable contribution to
SISB Community Foundation -- 25,817 -- -- --
Other expenses 55,918 42,908 40,066 32,953 25,557
Provision for income taxes 29,678 4,932 15,081 13,284 13,958
Net income $ 44,262 $ 14,549 $ 21,775 $ 13,225 $ 16,204
Earnings (loss) per share
basic and fully diluted $ 1.06 $ (0.29)(3) -- -- --
Dividends paid $ 0.23 -- -- -- --
At or For the Year Ended December 31,
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Key Operating Ratios: 1998 1997 1996 1995 1994
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Performance Ratios:(2)(3)
Return on average assets 1.45% 0.70% 1.24% 0.88% 1.17%
Return on average equity 6.39 7.79 14.03 9.54 13.27
Average interest-earning assets to
average interest-bearing liabilities 139.98 118.70 120.24 117.17 113.05
Interest rate spread(4) 2.93 3.82 3.84 3.63 3.64
Net interest margin(4) 4.13 4.39 4.46 4.16 4.00
Noninterest expenses,
exclusive of amortization of
intangible assets, to average assets 1.76 1.96 2.16 2.11 1.81
Asset Quality Ratios:
Non-performing assets to total assets
at end of period(5) 0.45% 0.83% 1.34% 1.44% 0.61%
Allowance for loan losses to
non-performing loans at
end of period 102.37 73.69 43.85 44.20 38.79
Allowance for loan losses to total loans
at end of period 1.07 1.42 1.02 1.32 0.51
Capital Ratios:
Average equity to average assets(3) 22.64% 8.96% 8.85% 9.21% 8.84%
Tangible equity to assets
at end of period 16.84 24.78 8.55 7.09 9.55
Total capital to
risk-weighted assets 35.93 59.62 20.66 19.65 17.16
(1) Consists of excess of cost over fair value of net assets acquired
("goodwill") and core deposit intangibles which amounted to $14.6 million
and $3.1 million at December 31, 1998, respectively.
(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-performing assets consist of nonaccrual loans and real estate acquired
through foreclosure or by deed-in-lieu thereof.
-8-
Staten Island Bancorp, Inc. and Subsidiary
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, which principally consist of loans and mortgage-backed and investment
securities, and interest expense on interest-bearing liabilities which
principally consist of deposits and borrowed funds. The Company's results of
operations are also affected by the provision for loan losses, the level of its
noninterest income and expenses, and income tax expense.
Asset and Liability Management. The ability to maximize net interest income is
largely dependent upon the achievement of a positive interest rate spread that
can be sustained during fluctuations in prevailing interest rates. Interest rate
sensitivity is a measure of the difference between amounts of interest-earning
assets and interest-bearing liabilities which either reprice or mature within a
given period of time. The difference, or the interest rate repricing "gap",
provides an indication of the extent to which an institution's interest rate
spread will be affected by changes in interest rates. 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, 1998, the ratio of the Company's one-year
gap to total assets was a negative 14.35% and its ratio of interest-earning
assets to interest-bearing liabilities maturing or repricing within one year was
64.84%.
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. 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. The gap analysis does not provide a clear presentation of the risks to
income embedded in the balance sheet, customer structure and various management
strategies.
To measure earnings at risk, the Asset and Liability Management Committee
(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 twelve month 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 borrowers and depositors in response to changes in both general
market interest rates and rates offered by the Bank. These assumptions represent
management's estimates and do not necessarily reflect actual results.
At December 31, 1998, 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 was a 2.52% decrease in projected net income for the year
1999 in a rising rate environment and a 1.38% 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. ALCO monitors the Company's risk profile on a
quarterly basis or as needed to monitor the effects of movements 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 (MVPE) 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 information provided by the
Bank. In addition the Company prepares its MVPE calculation based on its own
assumptions which could vary from those used by the OTS.
In order to minimize the potential for adverse effects of material and
prolonged increases or decreases in interest rates on the Company's results of
operations,
-9-
the Company has adopted asset and liability management policies to better match
the maturities and repricing terms of the Company's interest-earning assets and
interest-bearing liabilities. The Finance and Planning Committee, a Board
committee, sets and recommends the asset and liability policies along with
limits for earnings at risk and MVPE of the Company which are implemented by the
ALCO. The ALCO is chaired by the Chief Financial Officer and is comprised of
members of the Company's management. The purpose of the ALCO is to communicate,
coordinate and control asset/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 quarterly 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 versus current
projections pursuant to gap analysis and income simulations. At each meeting,
the ALCO recommends appropriate strategy changes based on such review. The Chief
Financial Officer or his designate is responsible for reviewing and reporting on
the effects of the policy implementations and strategies to the Finance and
Planning Committee at least quarterly.
The ALCO regularly reviews interest rate risk by forecasting the impact of
alternative interest rate environments on net interest income and MVPE, and
evaluating such impacts against the maximum potential change in net interest
income and MVPE that is authorized by the Board of Directors of the Company.
-10-
The following table summarizes the anticipated maturities or repricing of the
Company's interest-earning assets and interest-bearing liabilities as of
December 31, 1998, based on the information and assumptions set forth in the
notes below.
More More than
Within Three to than One Three Years Over
Three Twelve Year to to Five Five
Months Months Three Years Years Years Total
- ------------------------------------------------------------------------------------------------------------------------------------
(000's omitted)
Interest-earning assets(1):
Loans receivable(2):
Mortgage loans:
Fixed $ 26,528 $ 70,696 $ 168,935 $ 144,231 $ 465,459 $ 875,850
Adjustable 180,428 109,805 137,610 102,275 68,806 598,923
Other loans 26,788 11,510 17,338 2,050 1,294 58,980
Securities:
Non-mortgage(3) 96,969 12,302 21,326 1,115 247,543 379,295
Mortgage-backed fixed(4) 47,179 129,605 240,586 219,605 493,935 1,130,910
Mortgage-backed adjustable(4) 77,406 165,198 199,433 46,948 -- 488,985
Other interest-earning assets 45,050 -- -- -- -- 45,050
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Total interest-earning assets $500,347 $ 499,116 $ 785,228 $ 516,264 $1,277,037 $3,577,993
==========================================================================================
Interest-bearing liabilities:
Deposits:
NOW accounts(5) $ 7,458 $ 22,375 $ 27,415 $ 7,257 $ 16,126 $ 80,632
Savings accounts(5) 31,051 93,153 189,960 124,204 292,246 730,614
Money market deposit accounts(5) 16,266 48,798 9,059 4,324 3,912 82,359
Certificates of deposit 179,712 227,711 111,640 18,091 -- 537,154
Other borrowings 268,000 646,977 299,500 130,040 -- 1,344,517
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Total interest-bearing
liabilities $502,487 $1,039,014 $ 637,574 $ 283,916 $ 312,284 $2,775,276
==========================================================================================
Excess (deficiency) of
interest-earning assets over
interest-bearing liabilities $ (2,140) $ (539,898) $ 147,654 $ 232,348 $ 964,753 $ 802,717
==========================================================================================
Cumulative excess (deficiency) of
interest-earning assets
over interest-bearing liabilities $ (2,140) $ (542,038) $(394,384) $(162,036) $ 802,717
==========================================================================
Cumulative excess (deficiency) of
interest-earning
assets over interest-bearing
liabilities as a percent of
total assets (0.06)% (14.35)% (10.44)% (4.29)% 21.25%
==========================================================================
(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.
(2) Balances have been reduced for non-performing loans, which amounted to
$17.1 million at December 31, 1998.
(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 $1.2 billion or 32.2% of total
assets.
-11-
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 total assets of $3.8 billion at December 31, 1998,
representing a $1.1 billion, or 42.46% increase from the level recorded at
December 31, 1997. The primary source of asset growth was a $678.6 million or
50.24% increase in securities and a $452.1 million or 41.75% increase in net
loans. Such net increases were funded primarily by an increase in borrowed funds
of $1.1 billion and an increase in deposits of $105.4 million partially offset
by a decrease of $59.7 million in other liabilities.
Cash and Cash Equivalents. Cash and cash equivalents, which consist of cash and
due from banks, money market accounts and federal funds sold, amounted to $133.1
million and $148.9 million at December 31, 1998 and December 31, 1997,
respectively. The decrease of $15.8 million or 10.63% between December 31, 1997
and December 31, 1998 was primarily due to the investment of funds into loans
and securities.
Loans. The Company's net loan portfolio increased $452.1 million or 41.75% to
$1.5 billion at December 31, 1998. The increase in the loan portfolio was due to
record loan originations of $643.9 million or $354.3 million more than last
year. Loan demand was primarily in one-to-four family residential loans and to a
lesser extent, commercial real estate, construction and land loans and
commercial business lending. The Company continued its efforts to expand its
lending activities through the use of business development officers, commercial
loan officers and mortgage loan originators. The purchase of substantially all
of the assets of Ivy Mortgage Corp. ("Ivy Mortgage") has provided the Company
with greater flexibility to further increase its loan portfolio.
Securities. Securities amounted to $2.0 billion and $1.4 billion at December 31,
1998 and December 31, 1997, respectively. All of the Company's securities were
classified available for sale at such dates. The securities portfolio increased
$678.6 million or 50.25% during the period between December 31, 1997 and
December 31, 1998. The increase was primarily due to the Company's strategy to
fund asset growth through borrowings at acceptable spreads to leverage the
balance sheet.
Deposits. Deposits rose $105.4 million to $1.7 billion at December 31, 1998
primarily reflecting increases of $54.7 million in demand deposits to $305.4
million, $21.5 million in savings accounts to $730.6 million, $16.5 million in
certificates of deposit to $537.2 million, $6.3 million in money market accounts
to $82.4 million and $6.5 million in NOW accounts to $73.5 million. Deposit
growth especially in demand deposits is a result of the Bank's continued efforts
in business development as well as continued and ever increasing customer
loyalty which management attributes to the service provided by the Bank.
Borrowed Funds. The Company's borrowings amounted to $1.3 billion at December
31, 1998 representing a $1.1 billion increase from the level at December 31,
1997. The Company utilizes borrowings as an additional source of funds to fund
asset growth in both the securities and loan portfolios.
Stockholders' Equity. Stockholders' equity amounted to $669.0 million at
December 31, 1998 and $685.9 million at December 31, 1997 or 17.71% and 25.87%
of total assets at such dates, respectively. The decrease of $16.8 million was
due to the use of $31.4 million to purchase shares on the open market for the
Recognition and Retention Plan, initiation of a 5% stock repurchase program
which resulted in a reduction of $27.4 million and aggregate cash dividend
payments of $10.3 million. These decreases were partially offset by net income
of $44.3 million, an increase of $2.8 million in unrealized appreciation on
securities available for sale net of taxes, and an allocation of ESOP and RRP
shares, resulting in an increase of $5.2 million.
-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 spread; and (v) net interest
margin. Information is based on average daily balances during the indicated
periods.
Year Ended December 31,
---------------------------------------------------------------------------
1998 1997
---------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
- -----------------------------------------------------------------------------------------------------------
(000's omitted)
Interest-earning assets:
Loans receivable(1):
Real estate loans $1,213,098 $ 95,742 7.89% $ 982,569 $ 79,521 8.09%
Other loans 48,212 5,433 11.27 47,150 4,510 9.57
------------------------ -----------------------
Total loans 1,261,310 101,175 8.02 1,029,719 84,031 8.16
Securities 1,631,050 106,025 6.50 822,045 55,973 6.81
Other earning
assets(2) 36,648 1,941 5.30 126,208 6,808 5.39
------------------------ -----------------------
Total interest-
earning assets 2,929,008 209,141 7.14 1,977,972 146,812 7.42
-------- -------
Noninterest-
earning assets 132,995 105,101
---------- ----------
Total assets $3,062,003 $2,083,073
========== ==========
Interest-bearing
liabilities:
Deposits:
NOW and money
market deposits $ 118,318 3,114 2.63 $ 102,837 2,824 2.75
Savings deposits 780,536 20,953 2.68 951,188 25,281 2.66
Certificates of
deposit 528,686 26,875 5.08 531,293 27,185 5.12
------------------------ -----------------------
Total deposits 1,427,540 50,942 3.57 1,585,318 55,290 3.49
Total other
borrowings 664,863 37,127 5.58 81,071 4,767 5.88
------------------------ -----------------------
Total interest-
bearing
liabilities 2,092,403 88,069 4.21 1,666,389 60,057 3.60
-------- ------
Noninterest-bearing
liabilities(3) 276,455 230,017
Total liabilities 2,368,858 1,896,406
Stockholders' equity 693,145 186,667
Total liabilities and
stockholders'
equity $3,062,003 $2,083,073
========== ==========
Year Ended December 31,
----------------------------------
1996
----------------------------------
Average
Average Yield/
Balance Interest Cost
- ------------------------------------------------------------------
(000's omitted)
Interest-earning assets:
Loans receivable(1):
Real estate loans $ 833,770 $ 68,600 8.23%
Other loans 57,913 5,144 8.88
-----------------------
Total loans 891,683 73,744 8.27
Securities 737,796 49,083 6.65
Other earning
assets(2) 29,853 1,603 5.37
-----------------------
Total interest-
earning assets 1,659,332 124,430 7.49
------
Noninterest-
earning assets 93,611
----------
Total assets $1,752,943
==========
Interest-bearing
liabilities:
Deposits:
NOW and money
market deposits $ 134,600 3,479 2.58
Savings deposits 752,190 21,192 2.82
Certificates of
deposit 493,180 25,760 5.22
-----------------------
Total deposits 1,379,970 50,431 3.65
Total other
borrowings 47 6 12.77
-----------------------
Total interest-
bearing
liabilities 1,380,017 50,437 3.65
-------
Noninterest-bearing
liabilities(3) 217,740
Total liabilities 1,597,757
Stockholders' equity 155,186
Total liabilities and
stockholders'
equity $1,752,943
==========
Year Ended December 31,
----------------------------------------------------------------------------
1998 1997
----------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
- ------------------------------------------------------------------------------------------------------------
(000's omitted)
Net interest-earning
assets $ 836,605 $ 311,583
========== ==========
Net interest
income/interest
rate spread $121,072 2.93% $86,755 3.82%
================== =================
Net interest margin 4.13% 4.39%
====== ======
Ratio of average
interest-earning assets
to average interest-
bearing liabilities 139.98% 118.70%
====== ======
Year Ended December 31,
----------------------------------
1996
----------------------------------
Average
Average Yield/
Balance Interest Cost
- ------------------------------------------------------------------
(000's omitted)
Net interest-earning
assets $ 279,315
==========
Net interest
income/interest
rate spread $73,993 3.84%
=================
Net interest margin 4.46%
======
Ratio of average
interest-earning assets
to average interest-
bearing liabilities 120.24%
======
(1) The average balance of loans receivable includes non-performing loans,
interest on which is recognized on a cash basis.
(2) Includes money market accounts, Federal Funds sold and interest-earning
bank deposits.
(3) Consists primarily of demand deposit accounts.
-13-
RATE/VOLUME ANALYSIS
The following table sets forth the effects of changing rates and volumes on
net interest income of the Company. Information is provided with respect to (i)
effects on interest income attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) effects on 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,
--------------------------------------------------------------------------------------------
1998 compared to 1997 1997 compared to 1996
--------------------------------------------------------------------------------------------
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 .............. $ (1,973) $ 18,657 $ (463) $ 16,221 $ (1,122) $ 12,243 $ (200) $ 10,921
Other loans .................... 803 101 18 922 395 (956) (73) (634)
---------------------------------------------------------------------------------------------
Total loans receivable ......... (1,170) 18,758 (445) 17,143 (727) 11,287 (273) 10,287
Securities ....................... (2,357) 55,085 (2,496) 50,052 1,037 5,732 121 6,890
Other earning assets ............. (125) (4,831) 89 (4,867) 32 5,072 101 5,205
---------------------------------------------------------------------------------------------
Total net change in
income on interest-earning assets (3,832) 69,012 (2,852) 62,328 342 22,091 (51) 22,382
---------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits:
NOW and money
market deposits .............. (117) 425 (18) 290 217 (821) (51) (655)
Savings accounts ............... 252 (4,536) (45) (4,329) (1,200) 5,607 (318) 4,089
Certificates of deposit ........ (177) (133) -- (310) (525) 1,991 (41) 1,425
---------------------------------------------------------------------------------------------
Total deposits ............... (42) (4,244) (63) (4,349) (1,508) 6,777 (410) 4,859
Other borrowings ................. (240) 34,325 (1,725) 32,360 (3) 10,343 (5,579) 4,761
Total net change in expense
on interest-bearing liabilities (282) 30,081 (1,788) 28,011 (1,511) 17,120 (5,989) 9,620
---------------------------------------------------------------------------------------------
Net change in net interest income .. $ (3,550) $ 38,931 $ (1,064) $ 34,317 $ 1,853 $ 4,971 $ 5,938 $ 12,762
=============================================================================================
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997
General. The Company reported net income of $44.3 million or $1.06 per share for
the year ended December 31, 1998 compared to net income of $14.5 million for the
year ended December 31, 1997, an increase of $29.8 million or 205.5%. The
earnings for the year ended December 31, 1997 included a one time non-recurring
contribution to the SISB Community Foundation (the Foundation) of $25.8 million
($13.8 million net of taxes). The Foundation was established as part of the
Conversion to enhance the Company's visibility and reputation in the communities
that it serves. The Foundation will continue the Bank's previously demonstrated
commitment to the housing, civic and special needs of the community. The
Company's net income for 1998 represents a $15.9 million or 56.0% increase over
1997 net income as adjusted to exclude the effect of the contribution to the
Foundation.
The increase in net income for the year ended December 31, 1998 was primarily
due to an increase in net interest income of $34.3 million and a decrease in the
provision for loan losses of $4.4 million, partially offset by an increase of
$13.0 million in total other expenses and an increase of $12.7 million in the
provision for income taxes exclusive of related deferred tax benefit from the
contribution to the Foundation. These and other significant fluctuations in the
Company's results of operations are discussed below.
Interest Income. The increase in interest income of $62.3 million for the year
ended December 31, 1998 was primarily due to an increase in the average balance
of the Company's earning assets partially offset by a decrease in the average
yield on loans and securities. The average balance of the loan portfolio
increased $231.6 million or 22.49% to $1.3 billion primarily as a result of
increased loan demand and the Company's continued efforts to expand its lending
activity including the purchase of assets from Ivy Mortgage in the fourth
quarter of 1998. The average balance of the securities portfolio increased
$809.0 million or 98.41% to $1.6 billion for 1998 primarily as a result of the
use of the net proceeds from the
-14-
Conversion and the Company's leveraging strategy. These increases were partially
offset by a decrease in the average balance of other interest-earning assets of
$89.6 million or 70.96%. The average yield earned on the Company's loan
portfolio decreased from 8.16% in 1997 to 8.02% in 1998. This decrease in the
average yield on the loan portfolio was a result of declining interest rates
during the year resulting in the payoff of higher yielding loans and the
origination of loans at market interest rates which are currently lower than the
average yield on the Bank's loan portfolio. The average yield was also reduced
by downward pricing of certain of the Company's adjustable rate loans. The yield
on the securities portfolio decreased 31 basis points to 6.50% in 1998 from
6.81% in 1997. The decrease was a result of declining interest rates in 1998 and
the accelerated payoff of higher yielding mortgage backed securities.
Interest Expense. The Company recorded interest expense of $88.1 million for
1998 compared to $60.1 million for 1997, an increase of $28.0 million or 46.64%.
Interest on borrowed funds increased $32.4 million due to a $583.8 million
increase in the average balance of borrowings in 1998. The increase in the
average balance of borrowings reflects the Bank's leveraging strategy which was
instituted in 1997 to fund asset growth through borrowings at acceptable
spreads. The average cost of borrowings decreased 30 basis points from 5.88% in
1997 to 5.58% in 1998 primarily due to the declining interest rate environment
and the use of certain callable borrowings. The average balance of
interest-bearing deposits decreased $157.8 million as a result of the withdrawal
of temporary deposits held in anticipation of the Company's stock conversion in
the fourth quarter of 1997. The average cost of interest-bearing deposits
increased to 3.57% due to the change in the mix of the interest-bearing deposit
base.
Net Interest Income. Net interest income was $121.1 million for 1998 compared to
$86.8 million for 1997. This represents an increase of $34.3 million or 39.56%.
The increase was a result of a $62.3 million increase in interest income
partially offset by a $28.0 million increase in interest expense. The increase
in interest income was the result of an increase of $951.0 million in the
average balance of interest- earning assets partially offset by a decrease in
the average yield of interest-earning assets of 27 basis points from 7.41% in
1997 to 7.14% in 1998. Interest expense increased due to a $426.0 million
increase in the average balance of interest-bearing liabilities and a 61 basis
point increase in the average cost from 3.60% in 1997 to 4.21% in 1998 due to a
change in the composition of the Company's interest-bearing liabilities and the
respective costs of the funding sources found within the mix. The net interest
rate spread and margin decreased to 2.93% and 4.13%, respectively, for the
period ended December 31, 1998 from 3.82% and 4.39%, respectively, as of
December 31, 1997. Such decreases were primarily due to the Bank's continued use
of borrowed funds to leverage the balance sheet coupled with the current rate
environment which has resulted in lower interest-earning asset yields.
Provision for Loan Losses. For the year ended December 31, 1998 the provision
for loan losses was $1.6 million compared to $6.0 million for the year ended
December 31, 1997. The provision in 1997 included a non-recurring amount of $4.0
million based on management's review of the risk elements in the loan portfolio
and also the longer-than-anticipated workout periods for the commercial
portfolio that was acquired from Gateway State Bank in 1995. Management
determined that in certain circumstances more aggressive work-out procedures for
such non-performing loans would be warranted; which could increase the risk of
loss with respect to such loans. As a result, management decided to increase the
reserve levels in 1997. The provision in 1998 was based on management's
continuing review of the risk elements in the Bank's loan portfolio and past
history related to chargeoffs and recoveries. In particular, management
considered the continued growth in the loan portfolio, as well as the decrease
in its non-performing loans in determining the level of the provision in 1998.
Other Income. Other income amounted to $10.4 million and $7.5 million for the
years ended December 31, 1998 and 1997, respectively. The increase of $2.9
million or 39.27% was primarily due to an increase of $2.3 million in service
and fee income and a $0.6 million increase in net gains on securities. The
increase in service and fee income was due to the fees generated by the
operations of Ivy Mortgage, increased fees due to the growth of checking
accounts along with the related transaction growth and increased gains related
to the disposition of Other Real Estate Owned ("ORE") properties. The increase
in net gains on security transactions reflects management's decision to adjust
the mix of the Company's investment portfolio in the normal course of business.
Other Expenses. Other expenses for the year ended December 31, 1998 were $55.8
million or 30.30% more than the other expenses of $42.9 million for the year
ended December 31, 1997, exclusive of the $25.8 million contribution to the
Foundation. The primary reasons for the increase in other expenses were
increases in personnel costs of $9.3 million, data processing of $1.0 million,
professional fees of $1.5 million and other expenses of $0.9 million. The
increase in personnel costs was primarily due to the $7.1 million non-cash
expense generated by the allocation and appreciation of shares held in the
Company's stock related benefit plans during the year and staff
-15-
additions to the Bank's lending operations to enhance credit administration and
process the substantial increase in new loan originations.
The increase in data processing costs was primarily due to non-recurring costs
related to the conversion to a new data processing system in the third quarter
of 1998. The increase in professional fees was primarily due to the costs
related to forming a passive Real Estate Investment Trust (REIT) and a New
Jersey investment company in connection with certain of the Company's tax
planning strategies. Professional fees also increased due to increased audit and
legal fees associated with operating as a public company. Other expenses
increased primarily as a result of additional costs related to regulatory and
reporting requirements as a public company.
Provision for Income Taxes. The provision for income taxes amounted to $29.7
million for the year ended December 31, 1998 compared to $4.9 million for the
year ended December 31, 1997. The Company in 1997 recorded a $12.0 million
deferred tax benefit from the $25.8 million contribution to the Foundation along
with a $2.6 million reversal of previously deferred income taxes related to bad
debt reserves accumulated for New York City purposes, resulting in an adjusted
tax provision of $19.5 million. The effective tax rate in 1998 was 40.1%
compared to 43.1% in 1997. The decrease in the effective tax rate was primarily
a result of the Bank's tax planning strategies put in place in 1998.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1997 AND 1996
General. The Company reported net income of $14.5 million for the year ended
December 31, 1997 compared to net income of $21.8 million for the year ended
December 31, 1996, a decrease of $7.2 million or 33.2%. The earnings for the
year ended December 31, 1997 included a one-time non-recurring contribution of
$25.8 million ($13.8 million net of taxes) for the funding of the Foundation. At
the close of the Conversion in December 1997, the Company funded the Foundation
with a one-time donation of 2,149,062 shares of common stock. Excluding the
effect of this contribution to the Foundation, net income would have been $28.4
million. In addition to this one-time charge, the loan loss provision increased
by $5.0 million and total other expenses increased $2.8 million, net of the
one-time contribution to the Foundation. These increases were partially offset
by an increase in net interest income of $12.8 million and a decrease in the
provision for income taxes of $10.1 million.
Interest Income. The increase in interest income for the year ended December 31,
1997 was primarily due to an increase in the average balance of the Company's
earning assets and an increase in the average yield on securities partially
offset by a decrease in the average yield on loans. The average balance of the
loan portfolio increased $138.0 million or 15.48% to $1.0 billion primarily as a
result of increased loan demand and the Company's continued efforts to expand
its lending activity. The average balance of the Company's securities portfolio
increased $84.2 million or 11.42% to $822.0 million for 1997 primarily as a
result of the use of a portion of the net proceeds from the Conversion and, to a
lesser extent, the Company's leveraging strategy. The increase in the average
balance of other earning assets to $126.2 million for 1997 is directly related
to the funds generated during the Conversion. The average yield earned on the
Company's loan portfolio decreased from 8.27% for 1996 to 8.16% for 1997. This
decrease in the average yield on the loan portfolio was primarily due to the
increased loan repayment activity in higher yielding loans and the downward
pricing of certain of the Company's adjustable rate loans. The yield on the
securities portfolio increased to 6.81% for 1997 compared to 6.65% for 1996
which reflects the sale of lower rate securities in connection with the
Company's restructuring of its investment portfolio during 1996 and 1997, along
with the investment in higher yielding mortgage-backed securities.
Interest Expense. Interest expense was $60.1 million for 1997 compared to $50.4
million for 1996, an increase of $9.6 million or 19.07%. Interest on borrowed
funds increased $4.8 million due to a $81.1 million increase in the average
balance of borrowings in 1997. The average balance of borrowings for 1996 was
$47,000. The significant increase in the average balance of borrowings reflects
the leveraging strategy instituted by the Company during the year ended December
31, 1997. The average balance of interest bearing deposits increased by $205.3
million from December 31, 1996 to December 31, 1997 while the average cost of
these deposits decreased from 3.65% for 1996 to 3.49% for 1997. The increase in
the average balance of deposits and the decrease in the average cost was a
result of the Company's continued business development efforts for demand
deposits along with deposits made in anticipation of payment for the Company's
common stock in the Conversion.
Net Interest Income. Net interest income was $86.8 million for 1997 compared to
$74.0 million for 1996. This represents an increase of $12.8 million or 17.2%.
The increase was a result of a $22.4 million increase in interest income which
was partially offset by a $9.6 million increase in interest expense. The
increase in interest income was the result of an increase of $318.6 million in
the average balance of interest earning assets partially offset by a decrease of
seven basis points from 7.49% for 1996 to 7.42% for
-16-
1997 in the average yield on interest earning assets. Interest expense increased
due to a $286.4 million increase in the average balance of interest bearing
liabilities which was partially offset by a decrease of five basis points in the
average rate paid from 3.65% to 3.60% for the years 1996 and 1997, respectively.
The net interest rate spread and margin decreased to 3.82% and 4.39%,
respectively, for the year ended December 31, 1997 compared to 3.84% and 4.46%,
respectively, for the year ended December 31, 1996.
Provision for Loan Losses. For the year ended December 31, 1997 the provision
for loan losses was $6.0 million compared to $1.0 million for the year ended
December 31, 1996. The provision for loan losses in 1997 was based on
management's continued review of the risk elements in the Company's loan
portfolio. As part of its 1997 review, management considered a report prepared
by an independent third-party consultant with respect to the risk elements in
the Company's loan portfolio and an analysis prepared by the Company's
management with respect to certain trends affecting the Company's loan portfolio
such as charge-offs, delinquencies and other external economic factors including
interest rates. Such trend analysis and third-party report indicated certain
additional potential risk factors to be considered in estimating the level of
the allowance for loan losses. In establishing the provision in 1997, management
of the Company also considered the overall increase in the Company's loan
portfolio, the potential increased risk of loss generally attributed to
commercial real estate loans, construction and land loans and commercial
business loans as well as management's continuing experience with the loan
portfolio acquired from Gateway. The Company experienced a longer than
anticipated work-out period with respect to such loans, and charged-off $1.3
million in 1997 and $2.7 million in 1996. Based on the various factors
considered in its 1997 review of risk elements, and in particular the longer
than anticipated work-out periods for the Gateway portfolio, management
determined that in certain circumstances more aggressive work-out procedures for
non-performing loans would be warranted. The fact that more aggressive work-out
procedures could increase the risk of loss with respect to such loans also
affected management's determination to increase the provision levels during
1997. In addition to general provisions of approximately $2.0 million during
1997, management determined that an additional provision of approximately $4.0
million was necessary in light of estimated losses with respect to the loans
acquired from Gateway and with respect to the Company's portfolio of
non-performing loans.
Other Income. Other income increased $3.5 million or 89.7% to $7.5 million for
1997 from $3.9 million for 1996. Such increase was primarily due to a $2.7
million net loss on securities transactions in 1996 compared to a net loss of
$85,000 in 1997. The Company's program of restructuring its securities was the
primary cause of these losses. Service and fee income increased $900,000 to $7.5
million for 1997 from $6.6 million in 1996. The increase in service and fee
income was due to an increase in the volume of transactions as well as an
increase in demand deposit accounts.
Other Expenses. Other expenses, exclusive of the $25.8 million contribution to
the Foundation, were $42.9 million for the year ended December 31, 1997, an
increase of $2.8 million or 7.1% compared to $40.1 million for the year ended
December 31, 1996. The primary reasons for the increase were an increase in
personnel costs of $1.3 million, data processing of $1.1 million, miscellaneous
other expenses of $327,000 and marketing expenses of $318,000. The increase in
personnel expense was the result of normal salary increases as well as the
payment of special bonus payments aggregating $600,000 to all officers and
employees. The increase in data processing reflects a one time write-off of the
$969,000 investment in the Company's data processing provider. In 1997, the
Company determined that the service bureau should be liquidated and the
conversion to a new data processing system took place in 1998. The increase in
miscellaneous other expenses was due to an increase in stationery and supplies.
The increase in marketing expense was a result of the Company's efforts to
penetrate new business opportunities particularly in the commercial business
development area, and trust services.
Provision for Income Taxes. The provision for income taxes amounted to $4.9
million for 1997 compared with $15.1 million for 1996. The decrease in the
provision for income taxes for the year was due to the reduction of income
before taxes due to the $25.8 million contribution to the Foundation and a $2.6
million reversal of previously deferred income taxes related to bad debt
reserves accumulated for New York City purposes. For a further discussion of the
reversal of such income taxes related to bad debt reserves, see Note 11 of the
Notes to Consolidated Financial Statements.
LIQUIDITY AND COMMITMENTS
The Company's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. The Company's
primary sources of funds are deposits, 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
-17-
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 Company has been able to generate
sufficient cash through its deposits and has only utilized borrowings to fund
asset growth at acceptable spreads to leverage the balance sheet. During the
year ended December 31, 1998, the Company entered into repurchase agreements as
an alternative funding source. At December 31, 1998, such borrowings amounted to
$1.3 billion. The Company intends to continue to utilize repurchase agreements
and FHLB advances to leverage its capital base and provide funds for its lending
and investing activities.
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 or U.S. Treasury securities. 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, 1998, the total approved
loan origination commitments outstanding amounted to $243.3 million and unused
credit lines equaled $39.5 million. At the same date, the unadvanced portion of
construction loans totaled $14.1 million. Certificates of deposit scheduled to
mature in one year or less at December 31, 1998, totaled $407.4 million.
Investment securities scheduled to mature in one year or less at December 31,
1998 totaled $17.3 million and amortization from the amortizing investments is
projected at $303.0 million for the year 1999. Based on historical experience,
management believes that a significant portion of maturing deposits will remain
with the Company. The Company anticipates that it will continue to have
sufficient funds, together with borrowings, to meet its current commitments.
YEAR 2000
In the third quarter of 1998, the Company converted most of its mission critical
systems, such as deposits and loans to a Year 2000-compliant platform provided
by a new data processing servicer. The cost of this Year 2000 compliance is born
by the server under terms of the Company's contract with them. A comprehensive
test of the Year 2000 functionality of this system will be substantially
completed by the end of the first quarter of 1999. The Company's other
information technology systems have been substantially upgraded to be tested for
Year 2000 compliance.
In accordance with regulatory guidelines, the Company is developing a Year 2000
business resumption contingency plan which it expects to complete and test by
the end of the second quarter of 1999. During 1998, the Company spent
approximately $50,000 in connection with Year 2000 compliance and anticipates
additional cost of $150,000 to $200,000 for 1999. This amount could increase
materially if problems are noted in the test process or contingency plan that
have not yet been identified. All such costs are charged to expense as incurred.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related 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.
-18-
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 1998 and 1997 1998 1997
- ------------------------------------------------------------------------------------------
ASSETS (000's omitted)
Assets:
Cash and due from banks ..................................... $ 88,059 $ 58,435
Federal funds sold .......................................... 45,050 90,500
Securities available for sale ............................... 2,029,041 1,350,467
Loans, net .................................................. 1,457,058 1,082,918
Loans held for sale, net .................................... 77,943 --
Accrued interest receivable ................................. 19,389 15,707
Bank premises and equipment, net ............................ 22,163 19,737
Intangible assets, net ...................................... 17,701 18,414
Other assets ................................................ 20,543 14,992
--------------------------
Total assets ............................................ $ 3,776,947 $ 2,651,170
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Due depositors--
Savings ................................................... $ 730,614 $ 709,074
Time ...................................................... 537,154 520,693
Money market .............................................. 82,360 76,088
NOW accounts .............................................. 73,541 67,076
Demand deposits ........................................... 305,392 250,721
--------------------------
1,729,061 1,623,652
Borrowed funds .............................................. 1,344,517 250,042
Advances from borrowers for taxes and insurance ............. 7,091 4,623
Accrued interest and other liabilities ...................... 27,236 86,967
--------------------------
Total liabilities ....................................... 3,107,905 1,965,284
--------------------------
Commitments and Contingencies (Note 12)
Stockholders' Equity:
Common stock, par value $.01 per share, 100,000,000 shares
authorized, 45,130,312 issued and 43,704,812 outstanding at
December 31, 1998 and 45,130,312 issued and outstanding
at December 31, 1997 ...................................... 451 451
Additional paid-in-capital .................................. 534,464 532,521
Retained earnings--substantially restricted ................. 215,414 181,499
Unallocated common stock held by ESOP ....................... (38,456) (41,262)
Unearned common stock held by RRP ........................... (30,873) --
Less--Treasury Stock (1,425,500 shares), at cost ............ (27,480) --
Accumulated other comprehensive income, net of taxes ........ 15,522 12,677
--------------------------
Total stockholders' equity .............................. 669,042 685,886
--------------------------
Total liabilities and stockholders' equity .............. $ 3,776,947 $ 2,651,170
==========================
The accompanying notes are an integral part of these statements.
-19-
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1998, 1997 and 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------
(000's omitted)
Interest Income:
Loans ............................................... $ 101,175 $ 84,031 $ 73,744
Securities available for sale ....................... 106,025 55,973 49,083
Other Earning Assets ................................ 1,941 6,808 1,603
------------------------------------------
Total interest income ............................. 209,141 146,812 124,430
------------------------------------------
Interest Expense:
Savings and escrow .................................. 20,953 25,281 21,192
Time ................................................ 26,875 27,185 25,760
Money market and NOW ................................ 3,114 2,824 3,479
Borrowed funds ...................................... 37,127 4,767 6
------------------------------------------
Total interest expense ............................ 88,069 60,057 50,437
------------------------------------------
Net interest income ............................... 121,072 86,755 73,993
Provision for Loan Losses ............................. 1,594 6,003 1,000
------------------------------------------
Net interest income after provision for loan losses 119,478 80,752 72,993
------------------------------------------
Other Income (Loss):
Service and fee income .............................. 9,856 7,539 6,639
Securities transactions ............................. 524 (85) (2,710)
------------------------------------------
Total other income ................................ 10,380 7,454 3,929
------------------------------------------
Other Expenses:
Personnel ........................................... 30,248 20,934 19,684
Occupancy and equipment ............................. 6,150 5,666 5,397
Amortization of intangible assets ................... 2,089 2,076 2,143
FDIC Insurance ...................................... 204 248 2
Data processing ..................................... 4,915 3,950 2,842
Marketing ........................................... 1,266 1,430 1,112
Professional fees ................................... 2,403 933 1,542
Contribution to SISB Community Foundation ........... -- 25,817 --
Other ............................................... 8,643 7,671 7,344
------------------------------------------
Total other expenses .............................. 55,918 68,725 40,066
------------------------------------------
Income before provision for income taxes .......... 73,940 19,481 36,856
Provision for Income Taxes ............................ 29,678 4,932 15,081
------------------------------------------
Net income ........................................ $ 44,262 $ 14,549 $ 21,775
==========================================
Earnings (Loss) Per Share:
Basic ............................................... $ 1.06 $ (.29)(1) N/A
Fully diluted ....................................... $ 1.06 $ (.29) N/A
(1) Since conversion on December 22, 1997
The accompanying notes are an integral part of these statements.
-20-
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Unallocated
Common
For the Years Ended Additional Stock Compre-
December 31, 1998, Common Paid-In Held by Unearned Treasury hensive
1997 and 1996 Stock Capital ESOP RRP Shares Shares Income
- --------------------------------------------------------------------------------------------------------
(000's omitted)
Balance,
January 1, 1996 $ -- $ -- $ -- $ -- $ -- $ --
Change in net
unrealized appreciation
(depreciation) on
securities, net of tax -- -- -- -- -- (777)
Net income -- -- -- -- -- 21,775
- --------------------------------------------------------------------------------------------------------
Comprehensive income $20,998
=======
Balance,
December 31, 1996 -- -- -- -- -- --
Net proceeds from
common stock issued
in conversion 451 532,521 -- -- -- --
Purchase of common
stock by ESOP -- -- (41,262) -- -- --
Change in net unrealized
appreciation
(depreciation) on
securities, net of tax -- -- -- -- -- 8,547
Net income -- -- -- -- -- 14,549
- --------------------------------------------------------------------------------------------------------
Comprehensive income $23,096
=======
Balance,
December 31, 1997 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
(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)
========================================================================================================
Accumulated
Other
For the Years Ended Compre-
December 31, 1998, Retained hensive
1997 and 1996 Earnings Income, Net Total
- ---------------------------------------------------------------------
(000's omitted)
Balance,
January 1, 1996 $145,175 $ 4,907 $150,082
Change in net
unrealized appreciation
(depreciation) on
securities, net of tax -- (777) (777)
Net income 21,775 -- 21,775
- ---------------------------------------------------------------------
Comprehensive income
Balance,
December 31, 1996 166,950 4,130 171,080
Net proceeds from
common stock issued
in conversion -- -- 532,972
Purchase of common
stock by ESOP -- -- (41,262)
Change in net unrealized
appreciation
(depreciation) on
securities, net of tax -- 8,547 8,547
Net income 14,549 -- 14,549
- ---------------------------------------------------------------------
Comprehensive income
Balance,
December 31, 1997 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
(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
=====================================================================
The accompanying notes are an integral part of these statements.
-21-
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
(000's omitted)
Cash Flows from Operating Activities:
Net income ................................................................... $ 44,262 $ 14,549 $ 21,775
Adjustments to reconcile net income
to net cash provided by operating activities--
Charitable contribution to SISB Community Foundation ..................... -- 25,817 --
Depreciation and amortization ............................................ 1,983 1,724 1,581
Accretion and Amortization of bond and
mortgage premiums .......................................................... (1,258) (1,772) 1,053
Amortization of intangible assets ........................................ 2,089 2,076 2,143
Loss (gain) on sale of available for sale securities ..................... (524) 85 2,710
Expense charge relating to allocation and earned
portions of employee benefit plans ..................................... 7,583 -- --
Other noncash expense (income) ........................................... (2,374) (2,707) (3,529)
Provision for loan losses ................................................ 1,594 6,003 1,000
Increase in deferred loan fees ........................................... 1,477 74 578
Decrease (increase) in accrued interest receivable ....................... (3,682) (3,969) 2,036
Decrease (increase) in other assets ...................................... (5,528) (4,691) 197
(Decrease) increase in accrued interest and other liabilities ............ (55,611) 62,337 (8,023)
(Increase) decrease in deferred income taxes ............................. (6,769) (13,327) (190)
Recoveries of loans ...................................................... 1,337 1,047 968
-----------------------------------------------
Net cash (used in) provided by operating activities .................... (15,421) 87,246 22,299
-----------------------------------------------
Cash Flows from Investing Activities:
Maturities of available for sale securities .................................. 519,667 180,489 189,180
Sales of available for sale securities ....................................... 109,224 97,757 240,417
Purchases of available for sale securities ................................... (1,304,385) (910,305) (345,700)
Principal collected on loans ................................................. 201,091 167,260 113,881
Loans made to customers ...................................................... (643,854) (289,512) (287,950)
Purchase of loans ............................................................ (66,267) -- --
Sales of loans ............................................................... 57,577 4,289 3,340
Capital expenditures ......................................................... (4,392) (2,786) (3,448)
Acquisition of Ivy Mortgage Company, net of cash acquired .................... (2,194) -- --
-----------------------------------------------
Net cash (used in) investing activities ................................ (1,133,533) (752,808) (90,280)
-----------------------------------------------
For the Years Ended December 31, 1998, 1997 and 1996 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
(000's omitted)
Cash Flows from Financing Activities:
Net increase in deposit accounts ............................................. 107,877 45,964 43,340
Borrowings ................................................................... 1,094,475 249,988 --
Issuance of common stock ..................................................... -- 507,185 --
Dividends paid ............................................................... (10,347) -- --
Purchase of shares for ESOP .................................................. -- (41,262) --
Purchase of Treasury Stock ................................................... (27,480) -- --
Purchase of shares for RRP ................................................... (31,397) -- --
-----------------------------------------------
Net cash provided by financing activities ................................ 1,133,128 761,875 43,340
-----------------------------------------------
Net increase (decrease) in cash and cash equivalents ..................... (15,826) 96,313 (24,641)
Cash and Cash Equivalents, beginning of year ................................. 148,935 52,622 77,263
-----------------------------------------------
Cash and Cash Equivalents, end of year ....................................... $ 133,109 $ 148,935 $ 52,622
===============================================
Supplemental Disclosures of Cash Flow Information:
Cash paid for--
Interest ................................................................... $ 80,540 $ 60,054 $ 50,450
Income taxes ............................................................... 30,529 14,298 14,381
Acquisition of Ivy Mortgage Company--
Fair value of assets acquired .............................................. 65,823 -- --
Fair value of liabilities assumed .......................................... 63,937 -- --
===============================================
The accompanying notes are an integral part of these statements.
-22-
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Staten Island Bancorp, Inc. (the
"Company") and subsidiaries 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 Staten Island Savings
Bank (the "Bank"). The Bank's wholly owned subsidiaries are SIB Mortgage
Corporation (the "Mortgage Company"), SIB Investment Corporation and Staten
Island Funding Corporation. All significant intercompany transactions and
balances are eliminated in consolidation.
The SIB Mortgage Corporation was set up to acquire the operations of Ivy
Mortgage Company as discussed in Note 3. The Staten Island Funding Corporation
was set up as a Real Estate Investment Trust and the SIB Investment Corporation
was set up to hold certain Bank investments.
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 and federal funds sold for the years
ended December 31, 1998, 1997 and 1996.
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 portfolio. Fees and costs related to loans originated by the
Mortgage Company and held for sale are included in other income and expense at
the time of the settlement of the loan sale. Premiums and discounts on purchased
mortgages are amortized over the average life of the loan using a method which
approximates the level yield method.
Loans are placed on nonaccrual status when management has determined that the
borrower will be unable to meet contractual principal or interest obligations or
when unsecured interest or principal payments are 90 days past due. 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 nonaccrual loans under the
guidance of SFAS 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.
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 and the ultimate losses may vary from the
estimates. 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, 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 Bank's entire portfolio.
-23-
Bank Premises and Equipment
Bank premises and equipment are carried at cost, less allowance for
depreciation and amortization 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.
Core Deposit Intangibles
Core deposit intangibles, which resulted from acquisitions, are being
amortized on a straight-line basis to expense over the estimated periods
benefited, not exceeding six years. Core deposit intangibles of $3,111,000 and
$4,278,000 as of December 31, 1998 and 1997, respectively, are included in
intangible assets in the accompanying consolidated financial statements.
Investments in Real Estate
Investments in real estate consist of real estate acquired through foreclosure
or by deed in lieu of foreclosure ("real estate owned" or "REO"). REO 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.
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
balance sheets.
Comprehensive Income
The Company adopted SFAS No. 130 "Reporting Comprehensive Income" in the first
quarter of 1998. All comparative financial statements provided for earlier
periods have been reclassified to reflect application of the provisions of this
statement.
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 is 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 portion of shares held by the Employee
Stock Ownership Plan (ESOP) and Recognition and Retention Plan (RRP) in
accordance with the American Institute of Certified Public Accountants Statement
of Position 93-6. For the year ended December 31, 1998, the basic and fully
diluted weighted average common stock outstanding was 41,567,051 shares. From
the conversion on December 22, 1997 to December 31, 1997, the basic and fully
diluted weighted average common stock outstanding was 41,691,812 shares.
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.
New Accounting Pronouncements
In July 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 requires disclosures for each
segment that are similar to those required under current standards with the
addition of quarterly disclosure requirements and a finer partitioning of
geographic disclosures.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures About
Pension and Other Postretirement Benefits." SFAS No. 132 standardizes the
disclosure requirements for pensions and other postretirement benefits and
requires additional information on changes in benefit obligations and fair
values of plan assets.
The Company adopted SFAS Nos. 131 and 132 in 1998 and the adoption did not
affect the Company's results of operations or financial condition.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities.
-24-
As the Company does not engage in derivatives trading and does not hold any
derivative positions as of December 31, 1998, this statement did not have an
effect on the Company's financial statements.
Reclassifications
Certain reclassifications have been made to the December 31, 1997 and 1996
financial statements 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 (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 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 is 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
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 $147,158,000 at December 31, 1998.
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. ACQUISITION
On November 20, 1998, the SIB Mortgage Company acquired the assets of Ivy
Mortgage Company, a New Jersey-based mortgage loan originator which has branch
offices primarily throughout the Northeastern United States. The acquisition by
SIB Mortgage Company 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 values 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 Company.
The noncompete agreement, which is recorded as goodwill, is being amortized over
5 years on a straight-line basis and the remaining goodwill is being amortized
over 15 years on a straight-line basis. The Agreement contains provisions for
payments which are contingent upon future earnings. The Agreement provisions
require payment of 100%, 75% and 50% of the net income, as defined in the
Agreement, of SIB Mortgage Company for the first, second and third years,
respectively. Such contingent payments will be recorded as additional purchase
price or compensation as is appropriate for the nature of the payments. The
amount of goodwill amortization for 1998 of $13,000 is included in other
expenses.
Results of operations after the acquisition date are included in the 1998
statement of income. The following pro forma information has been prepared
assuming that this acquisition had taken place at the beginning of 1997 after
giving effect to certain pro forma adjustments, including, among others, the
implied cost of capital and the amortization of intangibles resulting from the
transaction. The pro forma financial information is not necessarily indicative
of the results of operations as they would have been if the Bank and Ivy
Mortgage Company had been a single entity during all of 1998 and 1997, nor is it
necessarily indicative of the results of operations which may occur in the
future.
1998 1997
------------------------
Net interest income $120,892 $86,820
Other income 26,457 18,518
Other expenses 72,388 80,065
Net income 43,922 14,403
Earnings per share 1.06 (0.29)
-25-
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, 1998 and 1997 (000's omitted):
Staten Island Savings Bank
December 31, 1998
-----------------------------------------------
Actual % Required %
-----------------------------------------------
Tangible capital $402,472 11.31% $ 53,355 1.50%
Core capital 405,583 11.39 142,404 4.00
Risk-based capital 422,512 26.04 129,794 8.00
December 31, 1997
-----------------------------------------------
Actual % Required %
-----------------------------------------------
Tangible capital $388,889 14.87% $ 39,233 1.50%
Core capital 393,167 15.01 78,594 3.00
Risk-based capital 407,091 36.60 88,973 8.00
Staten Island Bancorp, Inc.
December 31, 1998
-----------------------------------------------
Actual % Required %
-----------------------------------------------
Tangible capital $629,519 16.84% $ 56,061 1.50%
Core capital 632,630 16.91 149,621 4.00
Risk-based capital 649,247 35.93 144,565 8.00
December 31, 1997
-----------------------------------------------
Actual % Required %
-----------------------------------------------
Tangible capital $647,495 24.78% $ 39,192 1.50%
Core capital 651,773 24.90 78,383 3.00
Risk-based capital 665,732 59.62 89,336 8.00
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, 1998
------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- --------------------------------------------------------------------------------
(000's omitted)
Debt securities:
U.S. Government
and agencies $ 75,310 $ 1,032 $ -- $ 76,342
GNMA, FNMA
and FHLMC
mortgage partici-
pation certificates 901,536 11,683 (198) 913,021
Agency CMOs 232,070 2,569 (1) 234,638
Privately issued
CMOs 473,424 3,224 (319) 476,329
Other 151,219 1,695 (5,684) 147,230
--------------------------------------------------------
1,833,559 20,203 (6,202) 1,847,560
========================================================
Marketable
equity securities:
Common
stocks 58,995 7,695 (5,407) 61,283
Preferred
stocks 79,010 2,040 (901) 80,149
IIMF Capital
Appreciation
Fund 27,626 12,423 -- 40,049
--------------------------------------------------------
165,631 22,158 (6,308) 181,481
--------------------------------------------------------
Total securities
available
for sale $1,999,190 $42,361 $(12,510) $2,029,041
========================================================
December 31, 1997
--------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- --------------------------------------------------------------------------------
(000's omitted)
Debt securities:
U.S. Government
and agencies $ 105,491 $ 1,128 $ -- $ 106,619
GNMA, FNMA
and FHLMC
mortgage
participation
certificates 818,501 11,334 (90) 829,745
Agency CMOs 166,587 1,133 -- 167,720
Privately issued
CMOs 171,034 402 (215) 171,221
Other 269 -- (1) 268
--------------------------------------------------------
1,261,882 13,997 (306) 1,275,573
--------------------------------------------------------
Marketable equity
securities:
Common
stocks 23,643 4,424 (841) 27,226
Preferred
stocks 15,965 584 -- 16,549
IIMF capital
appreciation 24,599 6,520 -- 31,119
--------------------------------------------------------
64,207 11,528 (841) 74,894
--------------------------------------------------------
Total securities
available
for sale $1,326,089 $25,525 $(1,147) $1,350,467
========================================================
The amortized cost and market value of debt securities available for sale at
December 31, 1998 and 1997, 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.
-26-
December 31, 1998 December 31, 1997
-------------------------------------------------------
Amortized Market Amortized Market
Cost Value Cost Value
- --------------------------------------------------------------------------------
(000's omitted)
Due in one
year or less $ 17,297 $ 17,447 $ 30,329 $ 30,416
Due after one
year through
five years 43,058 40,509 45,284 47,153
Due after five
years through
ten years 56,479 56,889 29,978 29,149
Due after
ten years 583,119 585,056 171,204 171,391
-------------------------------------------------------
699,953 699,901 276,795 278,109
GNMA, FNMA
and FHLMC
mortgage
participation
certificates
and agency
CMOs 1,133,606 1,147,659 985,087 997,464
--------------------------------------------------------
$1,833,559 $1,847,560 $1,261,882 $1,275,573
========================================================
Proceeds from sales of securities available for sale during 1998, 1997 and
1996 were $109,224,000, $97,957,000 and $240,417,000 with realized gross gains
of $2,374,000, $945,000 and $488,000 and realized gross losses of $1,850,000,
$1,030,000 and $3,198,000, respectively.
Other
Under a securities lending agreement, the Bank's investment custodian made
loans of the Bank's available for sale securities with a market value of
approximately $65,563,000 as of December 31, 1997. There were no securities on
loan as of December 31, 1998. Cash collateral received for such loans exceeded
100% of the market value of all loaned securities.
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 for 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.
Loans, net, consist of the following at December 31, 1998 and 1997:
1998 1997
- --------------------------------------------------------------------------------
(000's omitted)
Loans secured by mortgages on real estate:
1-4 family residential ......................... $ 1,187,212 $ 863,694
Multifamily properties ......................... 33,328 28,218
Commercial properties .......................... 137,720 120,084
Home equity .................................... 6,121 6,538
Construction and land .......................... 42,420 40,476
Deferred origination fees and
unearned income, net ......................... (717) (4,116)
---------------------------
Net loans secured by
mortgages on
real estate ................................ 1,406,084 1,054,894
---------------------------
Other loans:
Student ........................................ 940 4,033
Passbook ....................................... 5,989 6,929
Commercial ..................................... 36,592 19,559
Other .......................................... 24,070 13,212
---------------------------
Net other loans .............................. 67,591 43,733
---------------------------
Net loans before the
allowance for loan
losses ..................................... 1,473,675 1,098,627
Allowance for loan losses ...................... (16,617) (15,709)
---------------------------
Net loans .................................... $ 1,457,058 $ 1,082,918
===========================
A summary of activity in the allowance for loan losses for the years ended
December 31, 1998, 1997 and 1996, is as follows:
1998 1997 1996
- --------------------------------------------------------------------------------
Beginning balance .................... $15,709 $ 9,977 $10,704
Increase as a result
of acquisition ................... 96 -- --
Provision charged
to operations .................... 1,594 6,003 1,000
Charge-offs ........................ (2,119) (1,318) (2,695)
Recoveries ......................... 1,337 1,047 968
----------------------------------
Ending balance ....................... $16,617 $15,709 $ 9,977
==================================
Nonaccrual loans totaled approximately $16,232,000 at December 31, 1998, 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. Nonaccrual loans
totaled approximately $21,316,000 at December 31, 1997. The loss of interest
income associated with loans on nonaccrual status was approximately $794,000,
$899,000 and $696,000 for the years ended December 31 1998, 1997 and 1996,
respectively.
At December 31, 1998 and 1997, the valuation allowance related to all impaired
loans totaled $5,898,000 and $6,258,000, respectively, and is included in the
allowance for loan losses shown on the balance sheet. The average recorded
investment in impaired loans for the twelve months ended December 31, 1998 and
1997, was approximately $18,693,000 and $23,154,000, respectively.
At December 31, 1998 and 1997, the Bank has other real estate totaling
approximately $849,000 and $618,000, respectively, classified in other assets.
-27-
At December 31, 1998 and 1997, the Bank was servicing mortgages for others
totaling approximately $140,748,000 and $156,865,000, respectively.
At December 31, 1998 and 1997, the Bank has balances outstanding from various
officers totaling approximately $2,999,000 and $2,472,000, respectively.
7. BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1998 and 1997, are summarized as
follows:
1998 1997
- --------------------------------------------------------------------------------
(000's omitted)
Land, building and
leasehold improvements ................... $ 22,499 $ 21,662
Furniture, fixtures and
equipment ................................ 14,922 11,434
---------------------------
37,421 33,096
Less--Accumulated
depreciation and
amortization ............................. (15,258) (13,359)
---------------------------
$ 22,163 $ 19,737
===========================
8. DUE DEPOSITORS
Scheduled maturities of time deposits at December 31, 1998, are summarized as
follows (000's omitted):
Weighted
Average
Amount Rate
- --------------------------------------------------------------------------------
1999 ............................................... $407,423 4.85%
2000 ............................................... 98,867 5.14
2001 ............................................... 12,773 5.30
2002 ............................................... 8,621 5.53
2003 and thereafter ................................ 9,470 5.38
------------------------
$537,154 4.94%
========================
The aggregate amounts of outstanding time certificates of deposit in
denominations of $100,000 or more at December 31, 1998 and 1997 were
approximately $122,166,000 and $99,915,000, respectively.
9. BORROWED FUNDS
The Bank was obligated for borrowings as follows (000's omitted):
December 31
-----------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Weighted Weighted
Average Average
Rate Amount Rate Amount
- --------------------------------------------------------------------------------
Reverse
Repurchase
Agreements
Non-FHLB ........... 5.19 $ 773,477 5.84 $ 140,000
Reverse
Repurchase
Agreements
FHLB ............... 5.30 571,000 5.88 110,000
Mortgage
payable ............ 12.00 40 12.00 42
------------------------------------------------
5.24 $1,344,517 5.86 $ 250,042
================================================
The average balance of borrowings for December 31, 1998 and 1997 was
$664,863,000 and $81,071,000, respectively. The reverse repurchase agreements at
December 31, 1998 have contractual maturities as follows (000's omitted):
1999 ................................ $ 826,477
2000 ................................ 28,500
2003 ................................ 111,500
2008 ................................ 378,000
----------
$1,344,477
==========
10. EMPLOYEE BENEFIT PLANS
Pension Plan
The Bank maintains a noncontributory defined benefit pension plan (the "Plan")
covering substantially all full-time employees 21 years of age or older. The
benefits are computed as 2% of the highest three-year average annual earnings
multiplied by credited service, to a maximum of 60% of average annual earnings.
The annual benefit is reduced by 5% for each year the benefit payments commence
before age 65. The amounts contributed to the Plan are determined annually on
the basis of (a) the maximum amount that can be deducted for federal income tax
purposes, or (b) the amount certified by a consulting actuary as necessary to
avoid an accumulated funding deficiency in accordance with federal law and
regulations. Contributions are intended to provide not only for benefits
attributed to service to date but also for those expected to be earned in the
future. Assets of the Plan are primarily invested in various equity and fixed
income funds.
Costs of the Bank's retirement plan are accounted for in accordance with SFAS
No. 87. The following table sets forth the Plan's funded status and amounts
recognized in the Bank's financial statements at December 31, 1998 and 1997,
based upon the latest available actuarial measurement dates of September 30,
1998 and 1997, respectively.
1998 1997
- --------------------------------------------------------------------------------
(000's omitted)
Projected benefit
obligation, beginning
of year .................................. $ 18,630 $ 17,237
Service cost ............................... 1,172 981
Interest cost .............................. 1,350 1,243
Benefits paid .............................. (919) (875)
Actuarial loss (gain) ...................... 2,250 44
--------------------------
Projected benefit obligation,
end of year .............................. $ 22,483 $ 18,630
==========================
-28-
The following table sets forth the Plan's change in plan assets:
1998 1997
- --------------------------------------------------------------------------------
(000's omitted)
Fair value of the plan assets,
beginning of year .......................... $ 23,002 $ 18,582
Actual return on plan assets ................. 21 4,213
Employer contributions ....................... 403 1,082
Benefits paid ................................ (919) (875)
-------------------------
Fair value of the plan assets,
end of year ................................ $ 22,507 $ 23,002
=========================
Funded status ................................ $ 25 $ 4,372
Unrecognized net asset ....................... (62) (191)
Unrecognized prior service cost .............. 393 440
Unrecognized net actuarial
loss (gain) ................................ 871 (3,221)
-------------------------
Prepaid cost ................................ $ 1,227 $ 1,400
=========================
The components of net pension expense are as follows:
1998 1997 1996
- --------------------------------------------------------------------------------
(000's omitted)
Service cost-benefits earned
during the year .................... $ 1,172 $ 981 $ 908
Interest cost on projected
benefit obligation ................. 1,350 1,243 1,206
Net amortization
and deferral ....................... (125) (82) (81)
Actual return on plan assets ......... (21) (4,213) (2,275)
Deferred investment
gain (loss) ........................ (1,799) 2,714 1,007
-----------------------------------
Net pension expense ................ $ 577 $ 643 $ 765
===================================
Major assumptions utilized:
1998 1997 1996
- --------------------------------------------------------------------------------
Weighted average
discount rate ........................ 6.50% 7.25% 7.50%
Rate of increase in
compensation levels ................ 4.50 5.00 5.50
Expected long-term rate
of return on assets ................ 8.00 8.00 8.00
================================
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 statements of financial condition as of December 31, 1998 and
1997:
1998 1997
- --------------------------------------------------------------------------------
(000's omitted)
Accumulated postretirement benefit obligation:
Retiree's ............................................. $ 1,324 $ 1,514
Other fully eligible participants ..................... 2,249 2,592
Unrecognized gain (loss) .............................. 50 (747)
Unrecognized past
service liability ................................... 583 657
-------------------
Accrued postretirement benefit cost ................... $ 4,206 $ 4,016
===================
Net periodic postretirement benefit cost for 1998, 1997 and 1996 included the
following components:
1998 1997 1996
- --------------------------------------------------------------------------------
(000's omitted)
Service cost--benefits
attributed to service
during period ......................... $ 173 $ 204 $ 175
Interest cost on accumulated
postretirement benefit
obligation ............................ 205 269 297
Amortization of:
Unrecognized (gain) loss .............. (13) 10 51
Unrecognized past
service liability ................... (75) (75) (75)
-------------------------------
Net periodic postretirement
benefit cost .......................... $ 290 $ 408 $ 448
===============================
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 $280,000, $196,000 and $128,200 at December
31, 1998, 1997 and 1996, respectively, and increase the net periodic cost by
$37,000, $27,700 and $7,000 for the years ended December 31, 1998, 1997 and
1996, respectively. The postretirement benefit cost components for 1998 were
calculated assuming average health care cost trend rates ranging up to 6.5% and
grading to 5% in 2005 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 Bank. The Plan expense in 1998 was
matched through stock contributions under the ESOP. Amounts charged to
operations for the years ended December 31, 1998, 1997 and 1996 were
approximately $514,000 $1,266,000 and $1,427,000, 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
-29-
forfeitures from shares allocated to the participants will be allocated among
the participants the same as contributions. There were 233,843 and 0 shares
allocated in 1998 and 1997, respectively. The Company recorded compensation
expense of $4,020,000 and $0 for the ESOP for the years ended December 31, 1998
and 1997, respectively.
Recognition and Retention Plan (RRP)
The Company maintains the 1998 Recognition and Retention Plan (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. On July 31, 1998,
1,501,725 shares were granted to the directors and officers of the Company.
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 termination of
employment due to death or disability. In 1998, 28,700 shares vested due to the
death of two participants. The Company recorded compensation expense of
$3,049,000 and $0 for the RRP for the years ended December 31, 1998 and December
31, 1997, respectively.
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 5-year period. However, all
options become 100% exercisable in the event the employee terminates his
employment due to death or disability.
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.
1998
- --------------------------------------------------------------------------------
Net Income--
As reported ........................................................ $44,262
Pro forma .......................................................... 40,108
Earnings per share--
As reported--
Basic .............................................................. 1.06
Diluted ............................................................ 1.06
Pro forma--
Basic .............................................................. .97
Diluted ............................................................ .97
================================================================================
Stock Option Activity
The following table sets forth stock option activity and the weighted average
fair value of options granted.
Year Ended
December 31, 1998
------------------------
Exercise
Shares Price
- --------------------------------------------------------------------------------
Outstanding, beginning of year--
Granted 3,056,000 $22.875
-------
Exercised --
Forfeited --
---------
Outstanding end of year 3,056,000 $22.875
-----------------------
Options exercisable as of
December 31, 1998 70,000
Weighted average fair
value of options granted $ 8.34
=======================
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model using the following weighted average
assumptions: risk free interest rates of 5.21%, volatility of 35.57%, expected
dividend yield of 1.8% and expected life of six years.
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, 1998, 1997 and 1996 were approximately $436,000, $186,000 and
$255,000, respectively.
-30-
11. INCOME TAXES
The provision for income taxes consists of the following:
1998 1997 1996
- --------------------------------------------------------------------------------
(000's omitted)
Current:
Federal ................. $ 21,299 $ 14,137 $ 11,213
State ................... 2,610 3,150 2,489
City .................... 2,676 227 3,294
-------------------------------------------
26,585 17,514 16,996
Deferred .................. 3,093 (12,582) (1,915)
-------------------------------------------
$ 29,678 $ 4,932 $ 15,081
===========================================
The following table reconciles the federal statutory rate to the Bank's
effective tax rate (000's omitted):
December 31, 1998
--------------------------
Percentage
of Pretax
Amount Income
- --------------------------------------------------------------------------------
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
Nondeductible expense of ESOP 407 0.6
Other 673 0.9
--------------------------
Income tax provision $29,678 40.1%
==========================
December 31, 1997
--------------------------
Percentage
of Pretax
Amount Income
- --------------------------------------------------------------------------------
Federal tax at statutory rate $ 6,818 35.0%
State and local income taxes (2,313) (11.9)
Tax-exempt dividend income (305) (1.5)
Amortization of goodwill 318 1.6
Other 414 2.1
--------------------------
Income tax provision $ 4,932 25.3%
==========================
December 31, 1996
--------------------------
Percentage
of Pretax
Amount Income
- --------------------------------------------------------------------------------
Federal tax at statutory rate $13,022 35.0%
State and local income taxes 2,057 5.5
Tax-exempt interest (69) (.2)
Tax-exempt dividend income (276) (.7)
Amortization of goodwill 318 0.2
Other 29 .8
--------------------------
Income tax provision $15,081 40.6%
==========================
The following is a summary of the income tax (liability) receivable at
December 31, 1998 and 1997 (000's omitted):
1998 1997
- --------------------------------------------------------------------------------
Current taxes ............................ $1,257 $ 86
Deferred taxes ........................... 1,861 2,653
-------------------------
$3,118 $2,739
=========================
The components of the net deferred tax asset at December 31, 1998 and 1997 are
as follows (000's omitted):
1998 1997
- --------------------------------------------------------------------------------
Assets:
Contribution to Foundation ....................... $ 6,571 $10,105
Allowance for loan losses ........................ 7,005 6,598
Postretirement accrual ........................... 1,809 1,672
Nonaccrual loans ................................. 583 706
Deferred compensation ............................ 1,031 813
Investment in data
processing entity .............................. 381 381
ESOP shares ...................................... 565 --
Deferred loan fees ............................... 170 339
Other ............................................ 832 827
----------------------
Gross deferred tax asset ....................... 18,947 21,441
Valuation Allowance .............................. -- --
----------------------
Total assets ................................... 18,947 21,441
----------------------
Liabilities:
Bad debt recapture under Section 593 ............. 2,354 2,950
Deposit premium .................................. 1,009 1,797
Unrealized gain on AFS securities ................ 12,537 10,239
Pension plan ..................................... 499 572
Bond discounts ................................... 303 331
Other ............................................ 384 2,899
----------------------
Gross deferred tax liability ................... 17,086 18,788
----------------------
Net deferred tax asset ......................... $ 1,861 $ 2,653
======================
At December 31, 1998 and 1997, 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 nonqualifying 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
-31-
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 1998 was $1,405,000.
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. In connection with this change, which also provides for an indefinite
deferral of the recapture of the bad debt reserves generated for New York State
purposes, the Bank reversed $2.1 million in 1996 of previously deferred income
taxes related to the bad debt reserves accumulated for New York State purposes.
The New York City tax law was amended in the first quarter of 1997 and is now
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. The Bank reversed $2.6 million in 1997 of previously
deferred income taxes related to the bad debt reserve accumulated 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 22 states. These additional state taxes are
attributable to the purchase of SIB Mortgage Company which has 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. Taxes for the
additional states that the Mortgage Company operates in are not deemed to be
material to these financial statements.
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 Bank 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 Bank is contingently liable under standby
letters of credit in the amount of $1,777,000 and $1,636,000 at December 31,
1998 and 1997, respectively. In addition, at December 31, 1998 and 1997,
mortgage loan commitments and unused balances under revolving credit lines
approximated $297,000,000 and $81,100,000, respectively.
Total operating rental commitments on bank facilities, which expire at various
dates through June 2007, exclusive of renewal options, are as follows (000's
omitted):
1999 .................................. $1,134
2000 .................................. 902
2001 .................................. 851
2002 .................................. 366
2003 and thereafter ................... 765
------
$4,018
======
Rental expense included in the statements of income was approximately $768,000,
$702,000 and $708,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
In October 1997, the Company became the primary owner of an entity that provides
data processing services to the Bank. Based on its assessment of the continuing
viability of this company, the Bank had earlier in 1997, written off its entire
investment of $969,000 which is reflected in data processing expense. The
Company intends to liquidate this company with no material effect on the
Company's financial statements. As a result, this data processing company is not
included in the consolidated financial statements of the Company. In 1998, the
Bank signed a 5-year contract to outsource substantially all of its data
processing to another data service provider.
-32-
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 Bank'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.
Commitments to Extend Credit
The fair value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties.
The estimated fair values of the Bank's financial instruments are as follows:
December 31, 1998
------------------------------
Carrying Fair
Amount Value
- --------------------------------------------------------------------------------
(000's omitted)
Financial assets:
Cash and due from banks .................. $ 88,059 $ 88,059
Federal funds sold ....................... 45,050 45,050
Securities available for sale ............ 2,029,041 2,029,041
Loans .................................... 1,551,618 1,567,486
Less--Allowance for
loan losses ............................ (16,617) (16,617)
Accrued interest receivable .............. 19,389 19,389
Financial liabilities:
Savings and demand
deposits ............................... 1,191,906 1,191,906
Time deposits ............................ 537,154 540,144
Borrowed funds ........................... 1,345 1,345
Advances from borrowers
for taxes and insurance ................ 7,091 7,091
Accrued interest payable ................. 8,464 8,464
Unrecognized financial
instruments:
Commitments to extend
credit ................................. -- 1,257
December 31, 1998
------------------------------
Carrying Fair
Amount Value
- --------------------------------------------------------------------------------
(000's omitted)
Financial assets:
Cash and due from banks .................. $ 58,435 $ 58,435
Federal funds sold ....................... 90,500 90,500
Securities available for sale ............ 1,350,467 1,350,467
Loans .................................... 1,098,627 1,107,013
Less--Allowance for
loan losses ............................ (15,709) --
Accrued interest receivable .............. 15,707 15,707
Financial liabilities:
Savings and demand deposits .............. 1,102,961 1,102,961
Time deposits ............................ 520,693 521,841
Borrowed funds ........................... 250,000 250,000
Advances from borrowers
for taxes and insurance ................ 4,623 4,623
Accrued interest payable ................. 972 972
Unrecognized financial
instruments:
Commitments to
extend credit .......................... -- 131
14. STATEN ISLAND BANCORP, INC.
The following condensed statements of financial condition as of December 31,
1998 and 1997 and condensed statements of income and cash flows for the years
ended December 31, 1998 and 1997 should be read in conjunction with the
consolidated financial statements and the notes thereto.
-33-
Condensed Statements of
Financial Condition
December 31
--------------------------
1998 1997
- --------------------------------------------------------------------------------
(000's omitted)
Assets:
Cash ......................................... $ 14,008 $ 212,301
Securities available for sale ................ 171,563 --
Investment in subsidiary ..................... 435,258 420,349
ESOP loan receivable
from subsidiary ............................ 39,801 41,262
Other assets ................................. 9,524 11,974
--------------------------
$ 670,154 $ 685,886
==========================
Liabilities:
Accrued interest and
other liabilities .......................... $ 1,112 --
Stockholders' equity:
Common stock ................................. 451 451
Additional paid in capital ................... 534,464 532,521
Retained earnings
(substantially restricted) ................. 215,414 181,499
Unallocated ESOP shares ...................... (38,456) (41,262)
Unearned RRP shares .......................... (30,873) --
Less--Treasury stock
(1,425,500 shares, at cost) ................ (27,480) --
Accumulated other
comprehensive income,
net of taxes ............................... 15,522 12,677
--------------------------
Total liabilities and equity ............. $ 670,154 $ 685,886
==========================
Condensed Statements of Income
December 31
--------------------------
1998 1997
- --------------------------------------------------------------------------------
(000's omitted)
Income:
Investment income .......................... $ 7,810 $ --
Other interest income ...................... 287 --
Interest income ESOP
loan receivable .......................... 3,464 --
Loss on sale of investments ................ (646) --
--------------------------
10,915 --
Expenses:
Interest expense ........................... 657 --
Other expense .............................. 598 --
Contribution to SISB
Community Foundation ..................... -- 25,817
--------------------------
Income (loss) before taxes
and equity in undistributed
earnings of subsidiary ................... 9,660 (25,817)
Provision (benefit) for
income taxes ............................. 3,107 (11,974)
--------------------------
Income (loss) before equity
in undistributed earnings
of subsidiary ............................ 6,553 (13,843)
Equity in undistributed
earnings of subsidiary ................... 37,709 1,642
--------------------------
Net income (loss) .......................... $ 44,262 $(12,201)
==========================
Condensed Statements of Cash Flows
December 31
--------------------------
1998 1997
- --------------------------------------------------------------------------------
(000's omitted)
Cash flows from operating activities:
Net income ..................................... $ 44,262 $ (21,201)
Adjustments to reconcile net loss
to net cash (used in) provided
by operating activities--
Undistributed earnings of
subsidiary bank ............................ (37,709) (1,642)
Amortization of bond and
mortgage premium ............................. 28 --
Loss on sale of available
for sale securities .......................... 646 --
Other noncash expense
(income) ..................................... (51) --
Decrease (increase) in
accrued interest ............................. (683) --
Decrease (increase) in
other assets ................................. 1,868 (1,869)
(Decrease) increase in
accrued interest and
other liabilities .......................... 1,112 --
(Increase) decrease in
deferred income taxes ........................ 1,684 10,105
--------------------------
Net cash (used in) provided
by operating activities ...................... 11,157 (14,607)
--------------------------
Cash flows from investing activities:
(Increase) decrease in
Investment in Subsidiary ..................... -- (253,592)
Sales of available for
sale securities .............................. 99,627 --
Purchases of available
for sale securities .......................... (272,711) --
Principal collected on loans ................. 1,461 --
Loan made to SISB
Employee Stock
Ownership Plan ............................... -- (41,262)
--------------------------
Net cash (used in)
investing activities ......................... (171,623) (294,854)
==========================
December 31
--------------------------
1998 1997
- --------------------------------------------------------------------------------
(000's omitted)
Cash flows from financing activities:
Net proceeds from
issuance of common stock
in initial public offering ................... $ -- $ 532,972
Cash dividends ................................. (10,347) --
Purchase of treasury stock ..................... (27,480) --
--------------------------
Net cash (used in) provided
by financing activities ...................... (37,827) 532,972
--------------------------
Net (decrease) increase in
cash and cash equivalents .................... (198,293) 212,301
Cash and equivalents,
beginning of year ............................ 212,301 --
--------------------------
Cash and equivalents,
end of year .................................. $ 14,008 $ 212,301
==========================
-34-
15. QUARTERLY FINANCIAL DATA
(UNAUDITED)
Selected unaudited quarterly financial data for the years ended December 31,
1998 and 1997 is presented below:
Fourth Third Second First
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
1998:
Interest
income ............... $62,557 $54,068 $48,050 $44,466
Interest
expense .............. 28,953 24,143 18,883 16,090
Net interest
income ............... 33,604 29,925 29,167 28,376
Provision for
loan losses .......... 92 500 501 501
Noninterest
income ............... 3,663 1,916 2,069 2,732
Noninterest
expense .............. 18,142 13,327 12,277 12,172
Income before
income taxes ......... 19,033 18,014 18,458 18,435
Income taxes ........... 7,259 7,066 7,515 7,838
Net income
(loss) ............... 11,774 10,948 10,943 10,597
Earnings per
share--
Basic .............. .28 .26 .27 .25
Diluted ............ .28 .26 .27 .25
Dividends
declared per
common share ......... .09 .08 .08 .07
Stock price per
common share
High 21-3/4 23-1/8 23-5/8 21-1/8
Low 14-1/8 15-9/16 20-5/8 18-13/16
Close 19-15/16 18 22-3/4 20-3/8
Fourth Third Second First
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
1997:
Interest
income ................. $ 46,495 $ 35,231 $ 33,210 $ 31,876
Interest
expense ................ 19,187 15,082 13,272 12,516
Net interest
income ................. 27,308 20,149 19,938 19,360
Provision for
loan losses ............ 501 501 2,501 2,500
Noninterest
income ................. 2,285 2,118 1,840 1,210
Noninterest
expense ................ 35,820* 11,468 10,589 10,847
Income before
income taxes ........... (6,728) 10,298 8,688 7,223
Income taxes ............. (4,280) 4,261 3,655 1,296
Net income
(loss) ................. (2,448) 6,037 5,033 5,927
Earnings (loss)
per share since
conversion:
Basic ................ (.29) -- -- --
Diluted .............. (.29) -- -- --
*Fourth quarter of 1997 includes one-time contribution of $25,789 to the SISB
Community Foundation formed as part of the Conversion.
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. and subsidiary (the "Company") as of
December 31, 1998 and 1997, and the related consolidated statements of income,
changes in stockholder's equity and cash flows for each of the years in the
three-year period ended December 31, 1998. 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 generally accepted auditing
standards. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
New York, New York
January 20, 1999
-35-
CORPORATE INFORMATION
Corporate Office
15 Beach Street
Staten Island, New York 10304
ANNUAL MEETING
The annual meeting of stockholders will be held on April 29, 1999 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 19, 1999.
INVESTOR RELATIONS
Shareholders, analysts and others interested in additional information may
contact:
Donald C. Fleming
Senior Vice President at
15 Beach Street
Staten Island, New York 10304
(718) 447-7900
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
STOCK LISTING
Staten Island Bancorp Inc.'s common stock is traded on the New York Stock
Exchange (NYSE) under the symbol SIB.
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 and Herrick
734 15th Street N.W., 12th floor
Washington, D.C. 20005
SERVICES AVAILABLE
PERSONAL BANKING SERVICES
Day of Deposit-Day of Withdrawal
Savings Accounts
Holiday Club Accounts
Insured Money Market Accounts
Time Savings Accounts
Checking Accounts
Checking with Interest
Checking Overdraft
Retirement Plans
Mortgage Loans
Bi-weekly Mortgage Loans
Home Equity Loans
Home Improvement Loans
HomeSecured Advantage Loans
Personal Loans
Passbook Loans
Student Loans
Automated Payment System
Bank-by-Phone
Bill Pay-by-Phone
THE bankCard
24 Hour Automated Teller Machines
Direct Deposit of Payroll
and Government Checks
Safe Deposit Boxes
Savings Bank Life Insurance
Money Orders
Banking by Mail
U.S. Savings Bonds
Travelers Checks
Utility Bill Payments
Drive-thru Banking
PC Banking
Visa Check Card
Drive-thru ATM
BUSINESS BANKING SERVICES
Business Checking Accounts
Business Checking with Interest
Business Overdraft Checking
Business Savings Accounts
Retirement Accounts
Lawyer Escrow Accounts (IOLA)
Bank-by-Phone
Bill Pay-by-Phone
Automatic Transfers and Payments
Direct Payroll Deposit
Payroll Check Cashing
Night Deposit Boxes
Safe Deposit Boxes
24 Hour Automated Teller Machines
Merchant Card Services
Treasury Tax and Loan Payment
Secured Lines of Credit
Unsecured Lines of Credit
Business Term Loans
Commercial Mortgage Loans
Tailored Business Loans
Small Business Administration (SBA) Loans
PC Banking for Business
TRUST AND INVESTMENT SERVICES
Estate Management
Trust Management
Custody
Record Keeping
Income Collection
Security Processing and Safekeeping
Investment Management
-36-
CORPORATE INFORMATION
STATEN ISLAND
BANCORP, INC.
BOARD OF 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 J. Maloy, Jr.
Edward F. Norton, Jr.
Edward F. Vitt
Raymond A. Vomero
EXECUTIVE OFFICERS
Harry P. Doherty
Chief Executive Officer
James R. Coyle
Chief Operating Officer
Edward Klingele
Chief Financial Officer
Patricia J. Villani
Corporate Secretary
STATEN ISLAND SAVINGS
BANK--A Staten Island
Bancorp Company
CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
Harry P. Doherty
PRESIDENT AND CHIEF
OPERATING OFFICER
James R. Coyle
EXECUTIVE VICE PRESIDENT
John P. Brady
SENIOR VICE PRESIDENTS
Frank J. Besignano
Donald C. Fleming
Edward Klingele
Deborah Pagano
FIRST VICE PRESIDENTS
Dorothy A. MacIver
William McMahon
Catherine M. Paulo
Robert S. Ryan
Harvey B. Singer
Vice Presidents
Diana J. Alore
Catherine Arcuri
Marlene Blum
Michael J. Brennan
Andrea R. Cicero
Robert C. Dunn
Thomas Longendyke
Lawerence Nelson
Barbara Tichenor
Frederick A. Volk
Anna Williams
AUDITOR
Suzanne Lackow
CONTROLLER
Scott Salner
CORPORATE SECRETARY
Patricia J. Villani
ASSISTANT VICE PRESIDENTS
Paula Armband
Arlene Brown
Richard G. Budalich
Karen Capela
Mary Cautela
Zenaida Cordero
Maureen DeAngelo
Barbara Giardiello
Joseph Gilroy
Maryann Hurley
George P. Keogh
Therese Marks
Eileen Merkent
Robin Mollica
Jose Nieves
Mary Palmieri
Barbara Palomba
Patricia Phoel
Helena V. Pizzuto
Usha Ramaswamy
Jean Ringhoff
William Robinson
Lynne Sigona
Carmela Taliento
Carl Tullis
Clifford Zoller
ASSISTANT CONTROLLER
Barbara Corbett
ASSISTANT SECRETARIES
Annette Ackerson
Dorri Aspinwall
Nina Brancato
Donna Bruen
Kathleen Geosits
David E. Kennedy
Maryanne Sexton
Donald Thorsen
Mary Ann Young
SIB MORTGAGE
CORPORATION--d/b/a IVY
MORTGAGE
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Richard W. Payne
CHIEF OPERATING OFFICER
Paul Hechman
CHIEF FINANCIAL OFFICER
Ralph Piccarello
SIB INVESTMENT
CORPORATION
PRESIDENT
Bernard Durnin
Designed by Curran & Connors, Inc. / www.curran-connors.com
15 BEACH STREET, STATEN ISLAND, NY 10304
Member F.D.I.C. Equal Opportunity Employer Equal Housing Lender