STATEN ISLAND BANCORP INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Transition period from __________ to __________

Commission File Number 1-13503

STATEN ISLAND BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

DELAWARE 13-3958850
- ------------------------------------ ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

1535 Richmond Avenue
STATEN ISLAND, NEW YORK 10314
- --------------------------------------- ---------------------------
(Address of principal executive office) (Zip Code)

(718) 697-2813
---------------------------
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. The Registrant had
60,227,107 shares of Common Stock outstanding as of November 13, 2002.

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes X No
--- ---

TABLE OF CONTENTS

CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)

See accompanying notes to consolidated financial statements.

1

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

See accompanying notes to consolidated financial statements.

(1) Prior period amounts have been adjusted to reflect the 2-for-1 stock split
on November 19, 2001.

2

STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(RESTATED)

See accompanying notes to consoliated financial statements.

3

STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

See accompanying notes to consoliated financial statements.

4

STATEN ISLAND BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Item 1. Financial Information

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.

BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary, SI Bank & Trust
(the "Bank"), and the Bank's subsidiaries. The Bank's wholly owned subsidiaries
are SIB Mortgage Corp. (the "Mortgage Company"), SIB Investment Corporation
("SIBIC"), Staten Island Funding Corporation ("SIFC") and SIB Financial Services
Corporation ("SIBFSC"). All significant intercompany transactions and balances
are eliminated in consolidation.

The unaudited consolidated financial statements included herein reflect
all normal recurring adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods presented.
The results of operations for the three-month and nine-month periods ended
September 30, 2002 are not necessarily indicative of the results to be expected
for the year ending December 31, 2002. Certain information and note disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. The unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2001. The Company
expects to file an amendment to its Form 10-K for the year ended December 31,
2001 to reflect its audited financial statements, as restated, and related
information as restated. See the "Restatement" note below.

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.

BUSINESS

Staten Island Bancorp, Inc. is the holding company for SI Bank & Trust.
The Bank, which is a full service community oriented savings bank, operates 17
full service branches on Staten Island, two full service branches in Brooklyn,
six full service branches in Ocean County, New Jersey, two full service branches
in Monmouth County, New Jersey, four full service branches in Union County, New
Jersey and three full service branches in Middlesex County, New Jersey. The Bank
also has a lending center and a Trust Department on Staten Island, New York.
Commercial lending offices are also located in Bay Ridge, Brooklyn, New York and
the Howell, New Jersey branch.

5

The Mortgage Company does retail business as Ivy Mortgage and wholesale
business as SIB Mortgage Corp. and is headquartered in Branchburg, New Jersey.
The Mortgage Company originates loans in 42 states and sells most of such loans
to investors on a service released basis with standard mortgage company
representations and warranties thereby generating fee income for the Bank. The
Bank, in its efforts to manage interest rate risk and maintain yields, retains
for its own portfolio certain loans originated by the Mortgage Company.

The Bank's deposits are insured by the Bank Insurance Fund ("BIF") to
the maximum extent permitted by law. The Bank is subject to examination and
regulation by the Office of Thrift Supervision ("OTS"), which is the Bank's
chartering authority and primary regulator. The Bank is also regulated by the
Federal Deposit Insurance Corporation ("FDIC"), the administrator of the BIF.
The Bank is also subject to certain reserve requirements established by the
Board of Governors of the Federal Reserve System ("FRB") and is a member of the
Federal Home Loan Bank ("FHLB") of New York, which is one of the 12 regional
banks comprising the FHLB system.

ORGANIZATION AND 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 OTS. 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 (the "Conversion"). The Company
completed its initial public offering and Conversion on December 22, 1997 and
issued 45,130,312 shares of common stock, $.01 par value per share.

The Company, on November 19, 2001, paid a stock dividend of one share
for each share of stock held (two-for-one stock split) to shareholders of record
on November 5, 2001. At September 30, 2002 the number of shares issued was
90,260,624 and the number of shares outstanding was 60,227,107. All share
amounts and earnings per share amounts have been adjusted for the stock split.

The Bank has the following wholly owned subsidiaries:

The Mortgage Company was incorporated in the State of New Jersey in
1998. The Mortgage Company currently originates loans in 42 states and, as of
September 30, 2002, had assets totaling $1.7 billion of which $1.5 billion were
loans held for sale.

SIFC is a wholly owned subsidiary of SIBIC, incorporated in the State
of Maryland in 1998 for the purpose of establishing a real estate investment
trust ("REIT"). The assets of SIFC totaled $705.8 million at September 30, 2002.

SIBIC was incorporated in the State of New Jersey in 1998 for the
purpose of managing certain investments of the Bank. The Bank transferred the
common stock and a majority of the preferred stock of SIFC to SIBIC. The
consolidated assets of SIBIC at September 30, 2002 were $947.2 million.

SIBFSC was incorporated in the State of New York in January 2000.
SIBFSC was formed as a licensed life insurance agency to sell the products of
the SBLI USA Mutual Life Insurance Co. In the second quarter of 2002, this
subsidiary began to offer certain non-deposit investment products such as mutual
funds and annuities along with additional insurance products using a third party
vendor. The assets of SIBFSC were $854,181 as of September 30, 2002.

6

EARNINGS PER SHARE

Earnings per share are computed by dividing net income by the weighted
average number of shares of common stock and dilutive common stock equivalents
outstanding, adjusted for the aggregate 5.1 million unallocated shares held by
the Company's Employee Stock Ownership Plan ("ESOP") and Recognition and
Retention Plan ("RRP") in accordance with the Statement of Position 93-6. The
following table is a reconciliation of the earnings per share calculation for
the three months and nine months ended September 30, 2002 and 2001.

EARNINGS PER SHARE RECONCILIATION (UNAUDITED)

7

RESTATEMENT

During the third quarter of 2002, management determined that certain
stock options issued under the Company's Amended and Restated 1998 Stock
Option Plan (the "Stock Option Plan") were exercised under a net cash
settlement method, whereby the Company, in effect, repurchased the option
shares under the Company's on-going stock repurchase programs and remitted
the excess of the fair market value of the shares over the exercise price to
the employee. Under existing accounting standards, the existence of these
transactions conducted in this manner required that compensation expense be
recorded from the inception date of the plan, on all exercised, or vested and
unexercised, options equal to the difference between the option exercise
price and the fair value of the stock at the exercise date (or at the
financial reporting date, whichever is earlier). Increases or decreases in
the value of the stock options are subsequently reflected as additional
charges or credits to compensation expense in the respective financial
reporting period, during the time in which this exercise method was allowed.
Effective September 24, 2002, the Company has discontinued the practice which
led to this accounting treatment; therefore, for quarterly reporting periods
subsequent to September 30, 2002, no additional charges or credits to
compensation expense will occur as a result of this plan activity.

The Company and its current independent auditors have commenced their
procedures with respect to a reaudit of the Company's historical financial
statements at and for the year ended December 31, 2001. In the course of
undertaking such procedures, the Company has identified certain other items for
restatement. While the reaudit is still in process, management believes that the
magnitude of the known adjustments to date justifies discussion in the current
period Form 10-Q, and restatement of certain financial information for the
periods affected, as disclosed in this Form 10-Q.

Management has determined that certain securities (primarily
collateralized bond obligations "CBOs") with a total carrying value of $24.5
million were other than temporarily impaired at December 31, 2001, and,
accordingly, impairment charges of $14.5 million (pre-tax) will be reflected in
the Company's restated financial statements at and for the year ended December
31, 2001. This adjustment does not affect total stockholders' equity at December
31, 2001, as this charge was previously reflected as unrealized depreciation at
December 31, 2001, which is shown as a component of stockholders' equity. The
Company previously took impairment charges of $500,000 and $7.4 million for the
three months ended March 31, 2002 and June 30, 2002, respectively, against these
securities; these charges have been reversed in the respective quarters, and
quarterly income increased by these same amounts. During the quarter ended
September 30, 2002, the Company sold all of its remaining $14.3 million of CBOs
as part of a securities portfolio restructuring.

The Company had not previously reflected dividends paid on
unallocated shares in its ESOP as compensation expense. The Company has
determined that the dividends on ESOP shares were not properly recorded and
its restated financial statements will reflect additional compensation
expense of $1.4 million for the year ended December 31, 2001 and $332,000 and
$376,000 for the quarters ended March 31, 2002 and June 30, 2002,
respectively. The Company will record future dividends on unallocated shares
as compensation expense.

The Company has recognized revenues and expenses on loans when loans
sold by the Mortgage Company were sold subject to take out commitments. From the
time a loan is shipped to the time payment is received by the Mortgage Company,
a period of five to 30 days typically elapses. The Company has now determined
that gains on loans sold should be recognized at the time payment is received
rather than at the time loans are shipped. Due to this timing difference, the
Company's restated financial results will reflect a reduction of gain on sale of
$2.8 million for the year ended December 31, 2001 and an increase to gain on
sale of $844,000 and a reduction in gain on sale of $345,000 for the quarters
ended March 31, 2002 and June 30, 2002, respectively, reflecting this change.

8

Additionally, the Company has revised certain estimates related to
deferred loan origination costs and fees and will reflect an increase in net
deferred costs of $1.1 million for the year ended December 31, 2001 and $1.4
million for the quarter ended March 31, 2002 and a decrease in net deferred
costs of $394,000 for the quarter ended June 30, 2002. Changes in net deferred
costs are reflected in the income statement as increases or decreases to gain on
sale of mortgage loans.

The Company has recognized previously unrecorded market appreciation
in unallocated forward securities sales by the Mortgage Company of $1.0 million
for the year ended December 31, 2001 and market depreciation in unallocated
forward securities sales of $860,000 and $160,000 for the quarters ended
March 31, 2002 and June 30, 2002, respectively.

To correctly account for the previously mentioned items in prior
periods, the Company will amend its Annual Report on Form 10-K for the year
ended December 31, 2001 as well as certain of its quarterly reports on Form
10-Q and will file such amendments with the Securities and Exchange
Commission as promptly as practicable. The Company's consolidated financial
statements for the year ended December 31, 2001 is subject to re-audit by the
Company's new auditors.

The following is a summary of the effect of restatement on the
Company's consolidated financial statements at or for the periods reflected.

SELECTED DATA - CONDENSED STATEMENTS OF INCOME

DERIVATIVE FINANCIAL INSTRUMENTS

The Mortgage Company currently utilizes certain derivative instruments,
primarily forward delivery commitments, in its efforts to manage interest rate
risk associated with its mortgage loan commitments and mortgage loans held for
sale. Prior to the closing and funds disbursement on a single-family residential
mortgage loan, the Mortgage Company generally extends an interest-rate locked
commitment to the borrower. Such commitment obligates the Mortgage Company to
close the mortgage at a specified rate of interest provided the conditions to
closing are satisfied. However, a period of 15 to 90 days, or more, generally
elapses between the time such commitment is issued and the time that the
Mortgage Company sells the closed mortgage loan into the secondary market.
During such time, the Mortgage Company is subject to risk that market rates of
interest may change, coupled with the fact that the price that investors will
pay for mortgage loans purchased from the Mortgage Company is dependent, in
part, on the difference between the interest rate on such loans and the then
current rate on long-term (generally 10-year) U.S. Treasury bonds plus a margin
(with any such difference referred to as the spread). If market rates of
interest rise, the spread between locked loans and the U.S. Treasury rate will
widen and investors generally will pay less to purchase such loans resulting in
a reduction in the amount of the Mortgage Company's gain recognized on sale or,
possibly, a loss. In an effort to mitigate such interest rate risk,
substantially at the same time the Mortgage Company extends an interest rate
locked commitment to its borrower, the Mortgage Company enters into forward
delivery sales commitments pursuant to which it agrees to deliver whole mortgage
loans to various investors or to issue Fannie Mae and/or Freddie Mac
mortgage-backed securities. These forward sales delivery commitments, which
amounted to $1.5 billion at September 30, 2002, establish the price the Mortgage
Company will receive upon the sale of the related mortgage loan, thereby
mitigating certain interest rate risk (the Mortgage Company still will have
certain execution risk, that is, risk related to its ability to close and
deliver to its investors the mortgage loans it has committed to sell to them
pursuant to these forward delivery commitments). At September 30, 2002, the
Company had mandatory forward delivery commitments outstanding amounting to $1.5
billion. Such commitments are comprised of the following: $275.3 million in
allocated single whole loan sales, $766.7 million of allocated bulk whole loan
sales and $475.3 million of unallocated forward securities sales. At September
30, 2002, the Mortgage Company had no forward commitments allocated to Fannie
Mae or Freddie Mac securities. The unallocated forward securities sales had
market depreciation of $1.7 million at September 30, 2002 compared to $295.0
million of unallocated forward securities sales with a market depreciation of
$1.3 million at June 30, 2002.

Prior to the quarter ended September 30, 2002, the Company had not
accounted for loan commitments as derivatives. However, the Financial Accounting
Standards Board ("FASB") issued Statement 133 Implementation Issue C13 ("Issue
C13") in March 2002, which provides additional guidance requiring certain loan
commitments to be accounted for as derivatives under FASB

10

Statement No. 133 ("Statement 133"). Pursuant to Issue C13, the Mortgage Company
identified certain interest rate locked loan commitments that should be
accounted for as derivative instruments as of July 1, 2002, the effective
implementation date. The interest rate locked loan commitments are recorded at
fair value upon implementation, with changes in fair value recorded in current
period earnings and classified as a loan basis adjustment.

To implement the guidance of Issue C13, which is reported as a change in
accounting principle, the Mortgage Company recorded a cumulative pre-tax gain of
$8.1 million ($4.7 million after taxes) during the quarter ended September 30,
2002, representing the mark to market of certain loan commitments as of July 1,
2002. During the third quarter of 2002, the Mortgage Company also recognized
current period pre-tax income due to the net change in fair value of locked loan
commitments of $14.1 million.

As previously disclosed above, the Mortgage Company uses derivative
instruments (forward sales) to hedge the interest rate locked commitments. To
the extent that loans held for sale are not allocated to these derivatives, the
changes in fair value of these derivatives are also recorded to current period
earnings as a loan basis adjustment.

The net asset arising from the value of these derivative instruments at
September 30, 2002 was $19.4 million. The value of this asset will be adjusted
monthly based on market interest rates and the level of unallocated forward
securities sales and locked loan commitments. Generally, the value of locked
loan commitments will increase in a falling interest rate environment and
decrease in a rising interest rate environment. The goal of the Company is to
offset the change in the market value of locked loan commitments with the change
in the market value of forward securities sales.

ACCOUNTING FOR GOODWILL

The Company adopted Statement of Financial Accounting Standards No. 142
"Goodwill and Other Intangible Assets", ("SFAS 142") effective January 1, 2002.
In accordance with SFAS No. 142, the Company is no longer required to amortize
goodwill resulting from acquisitions. At the effective date, the Company had
goodwill of $55.3 million, which included core deposit intangibles of $2.4
million. The Company completed the transitional impairment test of goodwill as
of January 1, 2002 and concluded that no potential impairment exists. An annual
impairment test of the goodwill is conducted to determine if there is a need to
writedown the goodwill. Prior to adoption of SFAS 142, the quarterly goodwill
amortization expense totaled approximately $1.7 million.

The proforma results if SFAS 142 had been adopted in the prior periods is as
follows:

The carrying amount of goodwill and other intangible assets (in 000's) at
September 30, 2002 and December 31, 2001 is as follows:

Estimated future amortization expense (in 000's) related to the core deposit
intangibles is as follows:

For the year ending

2002 $483
2003 483
2004 483
2005 483
2006 463

11

SEGMENT REPORTING

The Company manages its operations in a manner to focus on two
strategic goals: fulfilling its role as a community banking institution for both
individuals and businesses and as a national provider of single-family
residential mortgage loan products. Accordingly, the Company aligns its various
business objectives in support of these goals and manages the Company through
two segments: Community Banking and Mortgage Banking.

COMMUNITY BANKING

The Company's Community Banking segment provides traditional banking
services to commercial and retail customers through the Bank. The services
include deposit accounts and related services, residential and commercial real
estate lending, consumer lending, commercial lending, loan servicing, trust
services, life insurance products and investment products. Products and services
offered by this business segment are delivered through a multi-channel
distribution network, including on-line banking. The Community Banking segment
is the primary warehouse lender for the Mortgage Banking segment and purchases
certain loans from the Mortgage Banking segment to be held in its portfolio.

During the first nine months of 2002, the Community Banking segment
opened four branches in the State of New Jersey, in furtherance of its goal to
expand its branch network and increase deposits.

MORTGAGE BANKING

The Company's Mortgage Banking segment activities, which are conducted
through the Mortgage Company, primarily include the origination of residential
real estate loans either for sale into the secondary market or, to a lesser
extent, for retention in the Bank's portfolio. The loans are originated
throughout a network in 42 states. Loans not retained for the Bank's portfolio
are sold to investors, including certain government-sponsored agencies.
Applications for loans are accepted through various sources by the Mortgage
Banking segment as indicated below.

The Mortgage Banking segment's net income for the quarter was $17.4
million resulting in net income of $29.6 million for the first nine months of
2002. Included in the quarter and year-to-date net income is the previously
discussed cumulative effect due to a change in accounting principle to comply
with implementation guidance in Issue C13 of FASB 133 of $4.7 million after
taxes and an increase in the value of locked loan commitments in the third
quarter of $8.2 million, net of taxes. The level of earnings at the Mortgage
Company is dependent on loan originations, which were $2.2 billion in the third
quarter of 2002 and loan sales, which were $1.8 billion for the third quarter of
2002. For the first nine months of 2002, loan originations were $5.0 billion and
loans sold were $4.8 billion.

The primary source of income for the Mortgage Company is gains
generated by the sale of loans on a servicing released basis. All loans are sold
servicing released by the Mortgage Company and therefore, the Mortgage Company
has no loan servicing assets. The Mortgage Company recognizes gains on sales
when the loan is sold with the net gain for the period being determined by the
volume of loans sold and the net realized margin on those loans.

The Mortgage Company's net realized margin on mortgage loans is
comprised of the gross profit margin recognized in originating and subsequently
selling mortgage loans. The net realized margin has two components, the inherent
margin expected at the time the loan is locked in, or "origination income", and
the secondary market gain. Origination income is the gross difference between
the market value of a loan based upon a standard execution and the cost basis of
the loan as of the date of lock-in. The secondary marketing gains/losses portion
of the gain on sale is

12

essentially the extent to which the execution of the sale of the loan is either
greater or less than the expected or inherent origination income. Secondary
market gains/losses primarily occur as a result of changes in the interest rate
environment, hedging activities and changes in the method of execution of
settlements of the sales of the loans from what was anticipated at the time of
lock-in. During the third quarter of 2002, the Mortgage Company experienced a
widening of both the inherent origination income margins and the secondary
marketing margin, resulting in an increase of 18 basis points in average gross
margin to 2.72% over the second quarter of 2002 in spite of a greater volume of
agency business, traditionally a lower margin business line. Comparing the third
quarter of 2002 to the third quarter of 2001, the average gross margins
decreased by 44 basis points. However, it should be noted that the third quarter
of 2001 included post-September 11 market fluctuations resulting in larger than
normal secondary market gains. The Mortgage Company's goal is to increase Alt-A
loan (loans not eligible for Agency or Government programs that have a minimum
specified credit score and/or that satisfy other criteria and/or reduced income
or asset documentation) production since this product produces higher margins.

Certain of the Mortgage Company's expenses are variable based on the
volume of loan applications and originations. The primary expense associated
with loan originations is commission expense paid to brokers and retail loan
officers to originate a loan. Declines in volume resulting in reduced fee income
will be partially offset by a decline in commission expense and reduction in
back-office staff, primarily shipping, and the number of contract employees. The
Mortgage Company, in an effort to partially protect itself in the event of
declines in volumes resulting from interest rate movements, has developed
contingency plans designed to reduce expenses to coincide with reductions in
loan origination volumes.

The Mortgage Company originates loans through various sources.

The following table summarizes application volumes by source.

With the exception of loans originated for the Bank's portfolio, all
loans originated by the Mortgage Company are originated for sale into the
secondary market and the Mortgage Company assumes limited repurchase risk. In
connection with the sale of loans to mortgage loan investors, the Mortgage
Company makes standard secondary market representations and warranties in the
normal course of business to facilitate the sale as is common in the mortgage
banking industry. These representations and warranties relate to, among other
things, the Mortgage Company's compliance with laws, regulations, investor and
industry standards and the accuracy of information supplied by borrowers and
verified by the Mortgage Company.

The Mortgage Company also represents and warrants that the borrowers
will make payments as agreed for a specified period of time after transfer of
ownership of the loans to the investors. The time period ranges from 0 to 90
days after the loan transfer. In the event of payment default within the
warranty period, the investor may require the Mortgage Company to repurchase the
loan or the Mortgage Company may mutually agree to extend the warranty period.
In certain

13

cases where repurchase is required, an alternative settlement may be reached
whereby the investor reprices the loan to market based on its then impaired
status, and accepts a cash payment of the difference between the price
originally paid by the investor and the repriced market value as full
satisfaction of the Mortgage Company's warranty for that loan. The Mortgage
Company repriced loans totaling $2.9 million in the third quarter of 2002 and
$5.2 million for the nine-month period ended September 30, 2002, resulting in a
reduction of gain on loan sales of $1.3 million and $2.5 million for the quarter
and nine-month period ended September 30, 2002.

The segment operating revenue and operating earnings in the table below
incorporate certain intersegment transactions that the Company views as
appropriate for purposes of reflecting the contribution of certain segments,
which are eliminated in preparation of the Company's consolidated financial
statements in accordance with generally accepted accounting principles.

SEGMENT REPORTING TABLE
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

SEGMENT REPORTING TABLE
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

(1) The intersegment eliminations consist of interest income on the Community
Banking segment's results and interest expense on the Mortgage Banking
segment's results due to the Community Banking segment providing a $1.3
billion warehouse line of credit to the Mortgage Banking segment. The
intersegment elimination also includes $1.3 million and $475,858 in
premiums paid by the Community Banking segment to the Mortgage Banking
segment for the purchase of loans during the third quarter of 2002 and
2001, respectively. The premiums paid for the purchase of loans by the
Community Banking segment from the Mortgage Banking segment for the first
nine months of 2002 and 2001 were $8.9 million and $666,669, respectively.

14

SECURITIES - AVAILABLE FOR SALE. The following table sets forth certain
information regarding amortized cost and estimated fair values of debt,
mortgage-backed and mortgage related securities of the Company at September 30,
2002 and December 31, 2001.

15

LOAN PORTFOLIO COMPOSITION - The following table sets forth the composition of
the Company's held for investment loans at the dates indicated.

- ------------------
(1) Mortgage loans held for sale, net at September 30, 2002 and December 31,
2001, of $1.5 billion and $1.2 billion, respectively, are not included in
this table.

16

DELINQUENT LOANS: The following table sets forth information concerning
delinquent loans at September 30, 2002 in dollar amounts and as a percentage of
each category of the Bank's loan portfolio. The amounts presented represent the
total outstanding principal balances of the related loans, rather than the
actual payment amounts which are past due.

17

DELINQUENT LOANS: The following table sets forth information concerning
delinquent loans at the dates indicated. The amounts presented represent the
total outstanding principal balances of the related loans held in portfolio and
held for sale loans, rather than the actual payment amounts which are past due.

18

LOANS PAST DUE 90 DAYS OR MORE AND STILL ACCRUING AND NON-ACCRUING ASSETS. The
following table sets forth information with respect to non-accruing loans, other
real estate owned, repossessed assets, loans past due 90 days or more and still
accruing, and non-accruing securities.

* Held for Investment
** Held for Sale

19

ALLOWANCE FOR LOAN LOSSES. The following table sets forth the activity in the
Bank's allowance for loan losses during the periods indicated.

20

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

All the discussion and analysis below is based on the restated
financial statements as of or for the respective periods in 2001 and 2002.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain forward-looking
statements and information relating to the Company that are based on the beliefs
of management as well as assumptions made by and information currently available
to management. In addition, in portions of this document the words "anticipate,"
"believe," "estimate," "expect," "intend," "should" and similar expressions, or
the negative thereof, as they relate to the Company or the Company's management,
are intended to identify forward-looking statements. Such statements reflect the
current views of the Company with respect to forward-looking events and are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected or intended. The Company does not
intend to update these forward-looking statements.

CHANGES IN FINANCIAL CONDITION

The Company's total assets amounted to $6.9 billion at September 30,
2002 compared to total assets of $6.0 billion at December 31, 2001. The increase
of $876.8 million or 14.6% was due primarily to an increase of $357.0 million in
federal funds sold, an increase of $480.7 million in loans, net and a $342.4
million increase in loans held for sale. These increases were partially offset
by a $326.5 million decrease in the securities available for sale portfolio. The
increase in federal funds sold was due to the cash flow requirements of the
Mortgage Company. The increase in loans, net was primarily due to loan
originations of $897.4 million by the Bank and the retention of $472.0 million
in loans originated by the Mortgage Company for the Bank's portfolio, partially
offset by repayments of $1.1 billion. The loan originations by the Bank during
the nine months ended September 30, 2002 were primarily residential loans and,
to a lesser extent, loans secured by commercial real estate. This level of
originations reflects the current market demand in the current low rate
environment along with the Bank's continued business development efforts to
originate both commercial and residential real estate loans in its primary
market area. The Mortgage Company's originations retained for the Bank's
portfolio are primarily relatively higher yielding adjustable rate single-family
residential mortgage loans. The increase in loans held for sale was due to the
record level of loan originations at the Mortgage Company which is being driven
by market demand as well as expansion of the Mortgage Company's branch network.
For the first nine months of 2002, the Mortgage Company had loan originations of
$5.0 billion and loan sales of $4.8 billion. The Mortgage Company's originations
continue to be driven by market demand in this low rate environment with over
70% of the current application volumes being refinance transactions. The
Mortgage Company continues to look for market expansion opportunities and to
review its current operations and product mix to maintain a profitable level of
originations in all interest rate environments. The decrease in securities
available for sale was due to increased paydowns on amortizing securities due to
the current rate environment and securities sales to restructure the Company's
portfolio to reduce exposure to prepayment risk, to generate funding for loan
originations and to improve the overall credit quality of the Company's
investment portfolio.

Deposits at September 30, 2002 totaled $3.5 billion compared to $2.9
billion at December 31, 2001. The increase of $552.6 million or 19.0% was
primarily due to a $229.4 million increase in money market accounts, a $144.4
million increase in savings accounts and a $91.2 million increase in demand
deposits. The increase in money market accounts was primarily due to the "Bank
Edge" account which is a higher yielding money market account which also
requires the opening of a non-interest bearing DDA account and is promoted
primarily in the Bank's Brooklyn and New Jersey markets. The growth in savings
accounts was due to the current interest rate environment and the current
uncertainty of the stock market. The increase in demand deposits was due to the
Bank's continued business development efforts to obtain primarily commercial
demand deposits. Core

21

deposits, which consist of savings, money market, NOW and DDA accounts,
represented 66.6% of deposits at September 30, 2002 compared to 62.6% at
December 31, 2001.

The Bank primarily relies on competitive pricing of its deposit
products, quality customer service and long-standing relationships with
customers to attract and retain deposits. In 2002, the Bank's branch network
grew to 34 locations with the opening of four new branches in the State of New
Jersey. The Bank plans to continue this strategy of opening de-novo branches to
increase deposits and expand its market area when acceptable locations can be
found.

The Company's borrowings at September 30, 2002 were $2.7 billion or
39.9% of assets compared to $2.5 billion or 40.8% of assets at December 31,
2001. The increase of $294.4 million was primarily used to fund loan
originations at the Mortgage Company. Borrowings at September 30, 2002 consisted
of Federal Home Loan Bank advances of $1.9 billion and repurchase agreements of
$803.6 million, including $298.8 million of repurchase agreements between the
Mortgage Company and two individual financial institutions. The Mortgage
Company's obligations under these repurchase agreements are fully guaranteed by
the Bank.

Stockholders' equity amounted to $594.3 million at September 30, 2002
and $563.8 million at December 31, 2001 or 8.6% and 9.4% of total assets at such
dates, respectively. The increase of $30.5 million was due to net income of
$79.6 million, an allocation of Employee Stock Ownership Plan ("ESOP") and
Recognition and Retention Plan ("RRP") shares resulting in an increase of $12.5
million, the exercise of 860,148 stock options resulting in an increase of $9.8
million, an increase of $6.2 million from accounting for the stock option plan
and a $1.4 million increase in the unrealized appreciation on securities
available for sale, net of taxes. These increases were partially offset by the
purchase of 3.1 million shares of the Company's common stock at a cost of $60.2
million and aggregate cash dividend payments of $18.7 million. The tangible book
value per share of the Company's common stock was $8.90 at September 30, 2002
compared to $8.08 at December 31, 2001.

RESULTS OF OPERATIONS

The Company reported net income of $47.0 million or $0.81 per fully
diluted share for the third quarter of 2002 compared to net income of $22.6
million or $0.37 per fully diluted share for the third quarter of 2001.
Included in the earnings for the third quarter of 2002 is an after tax
increase of $4.7 million, or $0.08 per fully diluted share, reflecting the
cumulative effect ( at June 30, 2002) of a change in accounting principle for
certain loan commitments as derivative instruments and an after tax increase
of $7.4 million or $0.13 per diluted share related to a correction in
accounting for the Company's stock option plan. Net income per diluted share
before the cumulative change in accounting for loan commitments and excluding
adjustments relating to the stock option plan and the other items discussed
under "Restatement" in the Notes to Unaudited Consolidated Financial
Statements, was $0.60 for the third quarter of 2002. The results for the
three months ended September 30, 2002 also include an after tax credit of
$8.2 million or $0.14 per diluted share reflecting the increase in fair value
during the current period of certain loan commitments. The Company's net
income per diluted share for the third quarter 2002, excluding the previously
mentioned three items, was $0.46 compared to the $0.31 for the third quarter
of 2001.

For the nine-month period ended September 30, 2002, the Company
reported net income of $79.6 million or $1.38 per diluted share compared to
net income of $44.6 million or $0.72 per diluted share for the comparable
period last year. Net income per diluted share before the cumulative change
in accounting for loan commitments and excluding the adjustments relating to
the stock option plan and the other items discussed under "Restatement" in
the Notes to Unaudited Consolidated Financial Statements was $1.26 for the
nine months ended September 30, 2002. This amount included the increase in
the fair value of certain locked loan commitments of $0.14 per share.

The return on average equity and average assets for the three months
ended September 30, 2002 was 31.12% and 2.74%, respectively, compared to 15.71%
and 1.57%, respectively, for the comparable period in the prior year.

22

The return on average equity and average assets for the nine-month
period ended September 30, 2002 was 18.41% and 1.66%, respectively, compared to
10.37% and 1.08%, respectively, for the nine-month period ended September 30,
2001.

The increase in net income for the quarter ended September 30, 2002,
before considering the change in accounting principle, compared to the same
quarter one year ago was due to an increase of $48.9 million in other income and
a $10.4 million increase in net interest income. These increases were partially
offset by a $28.0 million increase in total other expenses, a $10.9 million
increase in the provision for income taxes and a $748,947 increase in the
provision for loan losses.

The increase in net income for the nine-month period ended September
30, 2002 before considering the change in accounting principle, compared to the
same nine-month period one year ago was due to an increase of $103.9 million in
total other income and a $36.7 million increase in net interest income. These
increases were partially offset by a $86.5 million increase in total other
expenses, a $6.0 million increase in the provision for loan losses and a $17.8
million increase in the provision for income taxes.

23

AVERAGE BALANCES, NET INTEREST INCOME, YIELD EARNED AND RATES PAID (unaudited)

------------------
(1) The average balance of loans receivable includes nonperforming
loans, interest on which is recognized on a cash basis.
(2) Includes money market accounts and Federal Funds sold.
(3) Consists primarily of demand deposit accounts.

24

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).

25

INTEREST INCOME

The Company's interest income for the three months ended September 30,
2002 was $100.6 million compared to $94.0 million for the three months ended
September 30, 2001. The increase of $6.6 million was due to a $12.8 million
increase in interest income from loans which was partially offset by a $6.3
million decrease in interest income from securities. The increase in interest
income from loans was due to a $1.1 billion increase in the average balance of
loans which was partially offset by a 70 basis point decrease in the average
yield on loans to 6.74% for the third quarter of 2002 from 7.44% for the third
quarter of 2001. The increase in the average balance of the loan portfolio was
due to increased originations at the Bank, the retention of an increased amount
of relatively higher yielding loans originated by the Mortgage Company for the
Bank's portfolio and the record loan origination volumes at the Mortgage Company
resulting in increased balances in loans held for sale. The decrease in the
average yield on loans was due to the low interest rate environment resulting in
the increased amortization and satisfaction of loans being replaced by lower
yielding originations and the downward repricing of adjustable rate loans. The
decrease in interest income from securities was due to a $184.1 million decline
in the average balance of the securities portfolio and an 88 basis point decline
in the average yield on the securities portfolio to 5.50% for the third quarter
of 2002. The decrease in the average balance of the securities portfolio was due
to accelerated paydowns of amortizing securities primarily due to the current
interest rate environment and the use of the cash flows generated from such
paydowns to fund higher yielding loan originations at both the Bank and the
Mortgage Company. During the quarter, the Company also sold $306.4 million in
securities to restructure the securities available for sale portfolio to reduce
exposure to prepayment risk, generate additional funding for loan commitments
and to improve the overall credit quality of the portfolio.

Total interest income for the nine-month period ended September 30,
2002 was $294.8 million compared to $277.4 million for the first nine months of
2001. The increase of $17.4 million was due to a $34.6 million increase in
interest income from loans which was partially offset by a $17.4 million
decrease in interest income from securities. The increase in interest income
from loans was due to a $938.5 million increase in the average balance of loans
which was partially offset by a 59 basis point decline in the average yield on
loans to 7.02% for the first nine months of 2002 from 7.61% for the same period
in 2001. The increase in the average balance and decline in the average yield
was due to substantially the same reasons as previously disclosed above in the
discussion of interest income for the quarter ended September 30, 2002. The
decrease in interest income from securities was due to a $196.3 million decline
in the average balance of securities and a 66 basis point decline in the average
yield on securities to 5.82% for the first nine months of 2002. The decline in
the average balance and average yield of the securities portfolio was primarily
due to the lower interest rate environment resulting in increased amortization
and reinvestment of the cash flow in lower yielding securities. The decline in
the average balance of the securities portfolio in the first nine months of 2002
was due to sales of $364.7 million, and amortization, repayments and maturities
of $494.9 million which were partially offset by purchases of $522.4 million.

INTEREST EXPENSE

The Company's total interest expense for the three months ended
September 30, 2002 was $48.4 million compared to $52.1 million for the
comparable time period last year. The decrease in interest expense was primarily
due to a $3.3 million decrease in interest expense on certificates of deposit as
a result of the average cost of certificates of deposit declining to 3.43% for
the third quarter of 2002 compared to 5.13% for the third quarter of 2001, which
was partially offset by a $123.5 million increase in the average balance of
certificates of deposit. The decline in the average cost of certificates of
deposit was due to the lower interest rates over the past twelve months
resulting in the reinvestment of funds from certificate maturities at lower
interest rates than the maturing certificates. The increase in the average
balance was due to deposit growth resulting primarily from branch expansion.

26

For the first nine months of 2002 the Company's interest expense was
$141.8 million compared to $161.0 million for the first nine months of 2001. The
decrease of $19.2 million was due to an $11.2 million decrease in interest
expense on certificates of deposit and a $12.8 million decrease in interest
expense on borrowed funds. These two decreases were partially offset by a $4.6
million increase in interest expense on money market and NOW accounts. The
decrease in interest expense on certificates of deposit was due to a decline in
the average cost to 3.63% for the first nine months of 2002 from 5.49% for the
first nine months of 2001 which was partially offset by a $101.7 million
increase in the average balance of certificates of deposit. The decrease in the
interest expense on borrowed funds was due to a 113 basis point decline in the
average cost to 4.47% for the first nine months of 2002 compared to 5.60% for
the comparable time period last year which was partially offset by a $218.1
million increase in the average balance of borrowings. The decline in the
average cost of borrowings was due to the repricing of borrowings at lower rates
than those which matured and were repaid during the period. The increase in the
average balance of borrowings was primarily due to the increased funding needs
of the Mortgage Company. The increase in interest expense for money market and
NOW accounts was due to a $312.2 million increase in the average balance of
money market and NOW accounts partially offset by a decrease in the average cost
to 2.58% from 3.23% for the first nine months of 2002 and 2001, respectively.
The increase in the average balance of money market and NOW accounts was due to
the promotion of a premium money market account which required the opening of a
DDA account to develop banking relationships in new markets and, to a lesser
extent, branch expansion. The decline in the average cost was due to the lower
interest rate environment over the past twelve months.

NET INTEREST INCOME

Net interest income for the third quarter of 2002 was $52.3 million
compared to $41.9 million for the third quarter of 2001. The increase of $10.4
million or 24.8% resulted primarily from favorable changes in volume and, to a
lesser extent, rate. Average interest earning assets increased $982.3 million
primarily due to increases in loans, net and loans held for sale. The favorable
change in net interest income was primarily due to a decrease in the average
cost for certificates of deposit and borrowed funds, resulting from lower market
interest rates, which was partially offset by lower yielding interest earning
assets and the impact of asset and liability repricing in the year 2002 compared
with 2001.

The Company's net interest rate spread and net interest margin for the
three-month period ended September 30, 2002 was 2.95% and 3.31%, respectively,
compared to 2.57% and 3.15%, respectively for the three months ended September
30, 2001.

For the nine month period ended September 30, 2002, net interest income
was $153.0 million compared to $116.3 million for the nine months ended
September 30, 2001. The increase of $36.7 million or 31.6% resulted from a
$794.9 million increase in average interest earning assets and a 42 basis point
increase in net interest margin. The increase in earning assets was primarily
due to increases in loans, net and loans held for sale. The increase in the net
interest rate margin was due primarily to a significant decease in the cost of
interest bearing liabilities which was partially offset by a decrease in the
yield on interest earning assets.

The Company's net interest rate spread and net interest margin for the
nine-month period ended September 30, 2002 was 3.04% and 3.44%, respectively,
compared to 2.38% and 3.02%, respectively, for the comparable period last year.

The improvement in the Company's net interest rate spread and net
interest rate margin in comparison to last year continues to be driven primarily
by growth in earning assets and lower funding costs as a result of the lower
interest rate environment, however, the net interest rate spread and net
interest margin decreased in the quarter ended September 30, 2002 compared to
the quarter ended June 30, 2002. Based on the current interest rate environment
and the slope of the yield curve, this decreasing trend may continue. To
partially offset this trend, the Company will

27

continue to retain some of the relatively higher yielding loans originated by
the Mortgage Company and closely monitor its repricing of interest bearing
liabilities. In this low interest rate environment, decreases in net interest
income could be offset, in whole or part, by increased gains on loan sales
generated by the Mortgage Company.

PROVISION FOR LOAN LOSSES

The provision for loan losses for the third quarter of 2002 was $3.3
million compared to $2.6 million for the third quarter of 2001. The increase in
the provision for loan losses was due to the increase in net chargeoffs,
increased loan originations at both the Bank and Mortgage Company and current
economic conditions. Net chargeoffs for the third quarter of 2002 were $2.4
million of which $1.9 million related to mortgage banking operations.

For the nine-month period ended September 30, 2002, the provision for
loan losses was $9.8 million compared to $3.8 million for the comparable period
last year. The increase in the provision for loan losses was primarily due to
the increase in net chargeoffs, increased balances in loans, net and current
economic conditions. The increase in net chargeoffs to $6.0 million for the nine
month period in 2002 compared to $2.0 million for the comparable period in 2001
was due to $1.7 million in chargeoffs on loans transferred to other real estate
owned ("OREO"), and $3.2 million in chargeoffs related to mortgage banking
activities. These activities primarily represent the impairment charge on loans
in non-accrual status prior to their sale at below market prices.

Total non-accruing loans and OREO amounted to $23.8 million at
September 30, 2002 compared to $16.3 million at December 31, 2001. The increase
of $7.5 million was due primarily to a $6.6 million increase in the balance of
OREO. This increase was driven by the addition of two properties with an
aggregate outstanding balance of $6.4 million. The Company has entered into a
contract to sell the property with a carrying value of $4.6 million at no
additional loss. The other property is a single-family residential property with
a carrying value of $1.8 million and the borrower has claimed bankruptcy. The
Company will aggressively pursue a buyer for this property and anticipates a
sale in the first quarter of 2003 at no additional loss based on the current
appraisal value.

Non-accrual loans at September 30, 2002 totaled $16.0 million compared
to $15.1 million at December 31, 2001. The overall level of non-accrual loans
has increased slightly, due primarily to the level of non-accrual single-family
residential loans increasing to $12.3 million at September 30, 2002 compared to
$7.7 million at December 31, 2001. The increase in single-family non-accrual
loans at September 30, 2002 was primarily offset by declines in non-accrual
construction loans, and non-residential properties. Certain of the single-family
residential non-accruing loans are partially insured and the Company does not
presently anticipate any losses on such loans.

The allowance for loan losses at September 30, 2002 was $23.9 million
or 149.47% of non-accruing loans compared to $20.0 million or 132.78% of
non-accruing loans at December 31, 2001. The activity in the allowance for loan
losses consisted of chargeoffs of $6.7 million, recoveries of $702,731 and a
provision of $9.8 million for the first nine months of 2002. In determining the
appropriate level of the allowance for loan losses, the Company on a quarterly
basis will review the mix and volume of the loan portfolio and its inherent
risks, the level of non-accruing loans and delinquencies, historical loss
experience, local and national economic condition including the direction of
real estate values and current trends in regulatory supervision. While no
assurance can be given that future chargeoffs or additional provisions over the
current level will not be necessary, management believes, based on its ongoing
review and the current level of non-accruing loans and delinquencies, that the
current level of the allowance for loan losses is adequate.

TOTAL OTHER INCOME

Total other income, exclusive of net securities gains and losses,
was $82.4 million for the three months ended September 30, 2002 compared to
$35.0 million for the same time period last year. The increase of $47.4
million was due to a $43.5 million increase in net gains on loan sales, a
$2.9 million increase in loan fees and a $1.1 million increase in service and
fee income. In addition to increased loan origination volume, the increase in
net gains on loan sales includes $14.1 million in current period income
resulting from the change in market value of certain locked loan commitments
from the time the commitment is locked in until the loan closes or the end

28

of the period, net of corresponding hedging activity. The Mortgage Company
recognizes the gain on sale when the loan is funded by the investor. In the
third quarter of 2002 loans sold were $1.8 billion compared to $853.2 million in
the third quarter of 2001. See the "Segment Reporting" and "Derivative Financial
Instruments" notes in the financial statements for additional information.

The increase in loan fees was primarily due to the increased loan
origination volumes at the Mortgage Company. The increase in service and fee
income was due to an increase in deposit transaction fees due to increased
deposit account transactions.

Total other income, exclusive of net securities gains and losses, for
the nine months ended September 30, 2002 was $179.0 million compared to $77.2
million for the same time period last year. The increase of $101.9 million was
due to an $88.2 million increase in net gains on loan sales, an $8.6 million
increase in loan fees and a $5.1 million increase in service and fee income. The
increase in net gains on loan sales was primarily due to the increased volume of
loans sold at the Mortgage Company which was $4.8 billion this year compared to
$1.9 billion last year. The net gain also includes the previously mentioned
$14.1 million related to increase in the value of certain loan commitments. The
increase in loan fees was due to the increased loan origination volumes at both
the Bank and Mortgage Company. The increase in service and fee income was due to
the previously mentioned increase in deposit account transactions and new
products and also the receipt of a one time $3.0 million liquidating dividend
from an investment in the Company's former data processing provider.

Net gains on securities for the third quarter of 2002 were $1.5 million
compared to the net gain of $61,374 in the third quarter of 2001. The net gain
in the quarter was due to the Company's restructuring the securities available
for sale portfolio, to realize gains on certain higher yielding mortgage-backed
securities before accelerated paydowns, to generate funds for loan originations
at the Mortgage Company and to improve the overall credit quality of the
portfolio. This program resulted in sales of $306.4 million of securities, of
which $8.3 million were collateral bond obligations, $169.7 million were
mortgage-backed securities, $69.5 million consisted of other debt securities,
and $29.1 million consisted of equity securities.

The Company recorded a net securities gain of $2.1 million for the
first nine months of 2002 compared to a $64,068 net gain for the comparable time
period last year. The reason for the net securities gains for the first nine
months of 2002 was generally the same as for quarter ended September 30, 2002.

TOTAL OTHER EXPENSES

Total other expenses for the third quarter of 2002 were $64.2 million
compared to $36.1 million for the third quarter of 2001. As previously reported,
during the third quarter of 2002, the Company determined that the settlement of
certain stock option exercises triggered the recognition of compensation expense
for certain options under the stock option plan. For the three months ended
September 30, 2002 and 2001, this accounting treatment resulted in non-cash
credits to compensation expense of $13.6 million and $7.3 million, respectively.
See "Restatement" in the notes to financial statements for additional
information. Exclusive of these credits, total other expenses for the third
quarter of 2002 were $77.8 million compared to $43.4 million for the third
quarter of 2001. The increase of $34.4 million was primarily due to an $8.3
million increase in personnel expense, a $20.9 million increase in commission
expense, a $1.8 million increase in professional fees and a $3.8 million
increase in other expenses. The increase in personnel expense was due to a $5.4
million increase in personnel costs at the Mortgage Company, primarily due to
increased loan origination volume, which results in additional brokered
commissions income paid, and expansion, and an $872,029 increase in salary
expense at the Bank due to expansion and normal merit pay increases. The
increase in professional fees was primarily due to the use of contract employees
at the Mortgage Company to handle the increased volumes. The increase in other
expense was due to the increased loan origination volume and expansion at the
Mortgage Company.

29

Total other expenses for the first nine months of 2002 were $204.2
million compared to $117.8 million for the first nine months of 2001. Exclusive
of the $6.2 million expense in 2002 and the $6.0 million expense in 2001 related
to stock options, and reflected in compensation expense (see "Restatement" in
the notes to financial statements for additional information), total other
expenses were $198.0 million in 2002 and $111.8 million in 2001. The increase of
$86.2 million was due to a $20.7 million increase in personnel expense, a $47.9
million increase in commission expense, a $2.0 million increase in occupancy
expense, a $1.8 million increase in advertising expense, a $6.0 million increase
in professional fees and an $11.5 million increase in other expense. These
increases were partially offset by a $3.8 million decrease in amortization
expense for goodwill due to a change in accounting for goodwill, as discussed
previously. The increase in personnel costs was due to a $14.9 million increase
in personnel costs at the Mortgage Company due to increased volumes and
expansion and a $2.9 million increase in the ESOP expense due to the previously
discussed change in accounting and the increased value of the Company's common
stock. The increase in commission expense was due to the increased loan
origination volume at the Mortgage Company. The increase in occupancy expense
was due to expansion at the Mortgage Company and the opening of four new branch
locations by the Bank. The increase in advertising and marketing expense was due
to the increased activity in this area resulting from expansion at both the Bank
and the Mortgage Company. The increase in professional fees and other expenses
was primarily due to the increased loan origination volumes and expansion at the
Mortgage Company.

PROVISION FOR INCOME TAXES

The provision for income taxes for the third quarter of 2002 was $26.4
million resulting in an effective tax rate of 38.5% compared to a provision of
$15.6 million in the third quarter of 2001 resulting in an effective tax rate of
40.8%. The provision for the nine months ended September 30, 2002 was $45.2
million compared to $27.4 million for the first nine months of 2001. The
effective tax rates for the nine-month periods ending September 30, 2002 and
2001 were 37.6% and 38.0%, respectively. The primary reason for the increase in
the provision for income taxes for both the three and nine-month periods is the
increase in income before the provision for income taxes partially offset by a
decline in the effective tax rate.

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-backed
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.

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. 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 September 30,
2002, the total approved loan commitments outstanding amounted to $1.5 billion
and the Mortgage Company had forward commitments of $1.4 billion to sell loans
to third party investors. At the same date, the unadvanced portion of
construction loans totaled $35.2 million. Certificates of deposit scheduled to
mature in one year or less at September 30, 2002 totaled $752.0 million.
Investment

30

securities scheduled to mature in one year or less at September 30, 2002 totaled
$1.0 million and amortization from investments and loans is projected at $1.5
billion over the next 12 months. Based on historical experience, the Bank's
current pricing strategy and the Bank's strong core deposit base, management
believes that a significant portion of maturing deposits will remain with the
Bank. The Bank anticipates that it will continue to have sufficient funds,
together with loan sales and security sales, to meet its current commitments. In
the event the funds required exceed the funds generated by the Bank, additional
sources of funds such as reverse repurchase agreements, FHLB advances, overnight
lines of credit and brokered Certificates of Deposit are available to the Bank.

CAPITAL

At September 30, 2002, the Bank had regulatory capital that was well in
excess of all regulatory requirements set by the OTS. The current requirements
and the Bank's actual levels are detailed below (dollars in thousands)
(unaudited):

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company's primary market risk continues to be market interest rate
volatility due to the potential impact on net interest income, the market value
of all interest-earning assets and interest-bearing liabilities at the Mortgage
Company and the change in spreads on loan sales in the different rate
environments. The Company monitors its interest rate risk on a quarterly basis,
and due to the current interest rate environment, the Company's net interest
rate spreads and margins have started to decline on a linked quarter basis and
the level of loan originations at both the Bank and Mortgage Company have
increased significantly. The operation of the Company does not subject it to
foreign exchange or commodity price risk and the Company does not own any
trading assets. The real estate loans held for investment in the Company's
portfolio is concentrated primarily within the New York metropolitan area making
it subject to the risks associated with the local economy. Since December 31,
2001 OREO properties have increased primarily due to two credit relationships
being placed in OREO status this year. Management anticipates that this will not
have a material effect on future earnings. For a complete discussion of the
Company's asset and liability management market risk and interest rate
sensitivity, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the Company's 2001 Annual Report to Stockholders.

Item 4. Controls and Procedures

Under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, we have
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures within 90 days of the filing date of this quarterly
report, and based on their evaluation, our chief executive officer and chief
financial officer have concluded that these controls and procedures are
effective. There were no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.

Disclosure controls and procedures are our controls and other
procedures that are designed to ensure that information required to be disclosed
by us in the reports that we file or submit under the Securities Exchange Act of
1934, as amended (the "Exchange Act") is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file under the Exchange
Act is accumulated and communicated to our management, including our chief
executive officer and chief financial officer, as appropriate to allow timely
decisions regarding required disclosure.

31

Part II Other Information

Item 1 Legal Proceedings
Not applicable
Item 2 Changes in Securities and Use of Proceeds
Not applicable
Item 3 Defaults Upon Senior Securities
Not applicable
Item 4 Submission of Matters to a Vote of Security Holders
Not applicable
Item 5 Other Information
Not applicable
Item 6 Exhibits and Reports on Form 8-K

a. Exhibits

99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer

b. Reports on Form 8-K

On July 15, 2002, the Company filed a Current Report on Form 8-K under
Item 5 that included a press release regarding certain additional
impairment charges.

On July 22, 2002, the Company filed a Current Report on Form 8-K under
Item 5 that included the press release announcing the Company's
earnings for the second quarter of 2002.

On July 25, 2002, the Company filed a Current Report on form 8-K under
Item 5 that included a press release regarding an additional stock
repurchase program.

On October 9, 2002, Staten Island Bancorp filed a Current Report on
Form 8-K under Item 5 that included the press release regarding
estimated earnings for the third quarter 2002, the correction in
accounting for stock option plans and a change in accounting treatment
for certain loan commitments.

On October 18, 2002 Staten Island Bancorp filed a Current Report on
Form 8-K under Item 5 that included the press release announcing the
Company's earnings for the third quarter of 2002.

32

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

STATEN ISLAND BANCORP, INC.

Date: November 14, 2002 By: /s/ HARRY P. DOHERTY
----------------------------- --------------------------------------------
Harry P. Doherty, Chairman of the Board
and Chief Executive Officer

Date: November 14, 2002 By: /s/ EDWARD KLINGELE
----------------------------- -------------------------------------------
Edward Klingele, Sr. Vice President
and Chief Financial Officer

33

CERTIFICATION

I, HARRY P. DOHERTY, the Chief Executive Officer of Staten Island Bancorp, Inc.,
certify that:

1. I have reviewed this quarterly report on Form 10-Q of Staten Island Bancorp,
Inc.;

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

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

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

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

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

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

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

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

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

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002 /s/ Harry P. Doherty
------------------ ----------------------------
Harry P. Doherty
Chief Executive Officer

34

CERTIFICATION

I, EDWARD KLINGELE, the Chief Financial Officer of Staten Island Bancorp Inc.,
certify that:

1. I have reviewed this quarterly report on Form 10-Q of Staten Island Bancorp,
Inc.;

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

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

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

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

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

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

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

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

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

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002 /s/ Edward Klingele
------------------ -------------------------------
Edward Klingele
Chief Financial Officer

35