Staten Island Bancorp, Inc.

            A timeless tradition of excellence in community banking.

                               1998 Annual Report
<PAGE>
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
<PAGE>
Financial Highlights                  Staten Island Bancorp, Inc. and Subsidiary

<TABLE>
<CAPTION>
                                                      At or For the Years Ended December 31,
----------------------------------------------------------------------------------------------
($ in thousands, except per share data)                1998             1997            1996
----------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>             <C>        
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
        --------------------------------------------------------------------------------------
        Net income ..............................   $    44,262    $    14,549     $    21,775
        --------------------------------------------------------------------------------------
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
        --------------------------------------------------------------------------------------
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
        --------------------------------------------------------------------------------------
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           --              --
        --------------------------------------------------------------------------------------
</TABLE>
[GRAPHIC -- BAR GRAPHS REPRESENTING TOTAL ASSETS, TOTAL LOANS AND
 TOTAL DEPOSITS]
                                      -1-
<PAGE>
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-
<PAGE>
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.

--------------------------------------------------------------------------------
  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.
--------------------------------------------------------------------------------

  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-
<PAGE>
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-
<PAGE>
                                        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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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.
<TABLE>
<CAPTION>
                                                                              December 31,
                                             --------------------------------------------------------------------------
(000's omitted except share data)               1998             1997            1996            1995            1994
-----------------------------------------------------------------------------------------------------------------------
Selected Financial Condition Data:
<S>                                          <C>             <C>             <C>             <C>             <C>       
  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             --              --              --
<CAPTION>
                                                                      For the Year Ended December 31,
                                             --------------------------------------------------------------------------
Selected Operating Data:                          1998            1997           1996           1995             1994
-----------------------------------------------------------------------------------------------------------------------
<S>                                          <C>             <C>             <C>             <C>             <C>       
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               --             --              --              --
<PAGE>
<CAPTION>
                                                                   At or For the Year Ended December 31,
                                             --------------------------------------------------------------------------
Key Operating Ratios:                             1998            1997           1996           1995             1994
------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>             <C>             <C>             <C>             <C>       
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
</TABLE>

(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
  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.
<TABLE>
<CAPTION>
                                                                              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)
<S>                                       <C>             <C>             <C>             <C>             <C>             <C>       
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
                                          ------------------------------------------------------------------------------------------
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
                                          ------------------------------------------------------------------------------------------
      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%
                                          ==========================================================================
</TABLE>

(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-
<PAGE>
  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-
<PAGE>
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.
<TABLE>
<CAPTION>
                                                                                 Year Ended December 31,
                                ---------------------------------------------------------------------------
                                                 1998                                     1997             
                                ---------------------------------------------------------------------------
                                                            Average                                 Average
                                 Average                     Yield/        Average                   Yield/
                                 Balance        Interest      Cost         Balance       Interest     Cost 
-----------------------------------------------------------------------------------------------------------
                                                                                     (000's omitted)
<S>                             <C>             <C>         <C>          <C>            <C>         <C>    
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                        
                                ==========                               ==========                        

<PAGE>
<CAPTION>
                                       Year Ended December 31,
                                ----------------------------------
                                                 1996
                                ----------------------------------
                                                           Average
                                 Average                    Yield/
                                 Balance        Interest     Cost
------------------------------------------------------------------
                                           (000's omitted)
<S>                             <C>            <C>         <C>  
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
                                ==========
<PAGE>
<CAPTION>
                                                             Year Ended December 31,
                                ----------------------------------------------------------------------------
                                                 1998                                     1997              
                                ----------------------------------------------------------------------------
                                                            Average                                 Average 
                                 Average                     Yield/        Average                   Yield/ 
                                 Balance        Interest      Cost         Balance       Interest     Cost  
------------------------------------------------------------------------------------------------------------
                                                              (000's omitted)
<S>                             <C>             <C>         <C>          <C>            <C>         <C>     
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% 
                                                            ======                                  ======  
<PAGE>
<CAPTION>
                                      Year Ended December 31,
                                ----------------------------------
                                              1996
                                ----------------------------------
                                                           Average
                                 Average                    Yield/
                                 Balance        Interest     Cost
------------------------------------------------------------------
                                         (000's omitted)
<S>                             <C>            <C>         <C>  
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%
                                                           ====== 

</TABLE>

(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-
<PAGE>
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).
<TABLE>
<CAPTION>
                                                                         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)
<S>                                    <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>     
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
                                       =============================================================================================
</TABLE>
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31, 1998 and 1997                                           1998          1997
------------------------------------------------------------------------------------------
ASSETS  (000's omitted)
<S>                                                             <C>            <C>        
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
                                                                ==========================
</TABLE>
The accompanying notes are an integral part of these statements.

                                      -19-
<PAGE>
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended December 31, 1998, 1997 and 1996         1998             1997            1996
----------------------------------------------------------------------------------------------------
                                                                        (000's omitted)
<S>                                                       <C>              <C>             <C>             
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       
</TABLE>
(1) Since conversion on December 22, 1997                                  
The accompanying notes are an integral part of these statements.

                                      -20-
<PAGE>
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                     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)
<S>                              <C>      <C>         <C>           <C>           <C>          <C>      
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)             
========================================================================================================
<PAGE>
<CAPTION>
                                              Accumulated
                                                 Other
For the Years Ended                             Compre-
December 31, 1998,              Retained        hensive
1997 and 1996                   Earnings      Income, Net      Total
---------------------------------------------------------------------
                                            (000's omitted)
<S>                             <C>             <C>          <C>     
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
=====================================================================
</TABLE>
The accompanying notes are an integral part of these statements.

                                      -21-
<PAGE>
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31, 1998, 1997 and 1996                                    1998               1997             1996
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     (000's omitted)
<S>                                                                                 <C>               <C>               <C>        
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)
                                                                                    -----------------------------------------------
<PAGE>
<CAPTION>
For the Years Ended December 31, 1998, 1997 and 1996                                    1998               1997             1996
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                     (000's omitted)
<S>                                                                                 <C>               <C>               <C>        
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              --                --
                                                                                    ===============================================
</TABLE>



The accompanying notes are an integral part of these statements.



                                      -22-
<PAGE>
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-
<PAGE>
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-
<PAGE>
  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-
<PAGE>
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
<PAGE>
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
                        ========================================================
<PAGE>
                                              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-
<PAGE>
                             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.
<PAGE>
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
                                                    ===========================

<PAGE>
  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-
<PAGE>
  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.
<PAGE>
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.
<PAGE>
  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-
<PAGE>
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
                                            ===================================
<PAGE>
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
                                                ===============================
<PAGE>
  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-
<PAGE>
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.
<PAGE>
                                                                           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
                                                  =======================
<PAGE>
  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-
<PAGE>
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%
                                                      ==========================
<PAGE>
                                                          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
                                                       =========================
<PAGE>
  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.
<PAGE>
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-
<PAGE>
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.
<PAGE>
  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-
<PAGE>
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.
<PAGE>
  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
<PAGE>
                                                        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-
<PAGE>
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
                                                     ==========================
<PAGE>
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)
                                                     ==========================
<PAGE>
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)
                                                     ==========================
<PAGE>
                                                             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-
<PAGE>
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
<PAGE>
                               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.
<PAGE>

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-

<PAGE>
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
<PAGE>
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
<PAGE>

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-

<PAGE>
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
<PAGE>

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
<PAGE>

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
<PAGE>

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