EX-99.1 3 c28061_ex99-1.txt TEXT OF REPORT TO STOCKHOLDERS-ASCII 2003 STOCKHOLDER MEETING FIRST SENTINEL GROUNDED IN TRADITION, POSITIONED FOR THE FUTURE [GRAPHIC OMITTED - Person with binoculars looking at lighthouse] FIRST SENTINEL This presentation contains statements that are forward looking in nature, such as references to strategic initiatives and growth plans. Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those currently anticipated due to a large number of factors. Please refer to First Sentinel's 10-K and 10-Qs for a discussion of these risks. Quality asset growth [The table below represents a bar chart contained in the presentation] Total Assets at December 31 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- $1,855 $1,905 $1,969 $2,139 $2,257 Prepayments hit record highs in 2002, forcing reinvestment in mortgage-backed and investment securities [The table below represents a pie chart contained in the presentation] Asset Mix @ 12/31/02 Cash/Fed Funds Investments MBS Loans FF&E Other -------------- ----------- --- ----- ---- ----- 3% 6% 35% 53% 1% 2% Despite record originations, the portfolio decreased as loan production was outweighed by refinances and prepayments [The table below represents a bar chart contained in the presentation] Loans Receivable at December 31 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- $ 855 $1,016 $1,185 $1,243 $1,201 The loan portfolio mix has maintained its low-risk profile [The table below represents a pie chart contained in the presentation] Loans Receivable @ 12/31/02 Comm RE/Multi-family Other Home Equity Construction Single-family -------------------- ----- ----------- ------------ ------------- 15% 1% 9% 6% 69% Historically low interest rates contributed to record originations [The table below represents a pie chart contained in the presentation] Loan Originations - 2002 First Mtges Home Equity Construction Comm RE Multi-family/Other Loan Purchases ----------- ----------- ------------ ------- ------------------ -------------- 50.8% 20.5% 14.6% 8.3% 1.6% 4.2% Adhering to our underwriting standards [The table below represents a bar chart contained in the presentation] 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- Non-Performing Loans (thousands) .... $4,265 $2,682 $2,389 $1,849 $1,764 Reserves/Non-performing loans ....... 223% 410% 517% 699% 727% Prepayments pressured yields on MBS as interest rates declined [The table below represents a pie chart contained in the presentation] Mortgage-backed Securities @ 12/31/2002 ARMs Balloons 10yr Fxd 15yr Fxd 20/30yr Fxd CMOs ---- -------- -------- -------- ----------- ---- 66.3% 2.9% 2.4% 3.9% 9.1% 15.4% Reinvestment risk was, and continues to be, a challenge in these uncertain economic times [The table below represents a pie chart contained in the presentation] Investments @ December 31, 2002 US Gov't/Agencies Muni's/CRA Corporates Trust Preferreds Equities ----------------- ---------- ---------- ---------------- -------- 48.1% 10.5% 27.7% 12.0% 1.7% The Company has an internal borrowing limit of 30% of assets [The table below represents a bar chart contained in the presentation] 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- (millions) Borrowings ......... $ 265 $ 422 $ 506 $ 546 $ 597 Deposits ........... $1,268 $1,214 $1,219 $1,315 $1,388 Core deposits as a percentage of total deposits accelerated during 2002 [The table below represents a bar chart contained in the presentation] Deposits @ December 31 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- (millions) Core Deposits ........... $554 $564 $571 $661 $785 Certificates ............ $714 $649 $649 $654 $603 Core deposits increased as we shifted our focus on commercial account growth [The table below represents a pie chart contained in the presentation] Deposits at 12/31/2002 Non-interest bearing Checking Money Market Savings CDs -------------------- -------- ------------ ------- --- 5.1% 9.6% 26.5% 15.3% 43.4% Record 2002 earnings negatively impacted by loan loss provision and WorldCom bonds [The table below represents a bar chart contained in the presentation] Net Income/Diluted Earnings Per Share 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- Net Income (thousands) ........ $19,493 $23,652 $22,968 $25,311 $26,073 Earnings Per Share ............ 0.46 0.59 0.68 0.82 0.89 Company return on average assets consistently exceeds peers [The table below represents a bar chart contained in the presentation] 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- First Sentinel ............... 1.12% 1.25% 1.17% 1.25% 1.17% Thrifts $1B-$5B .............. 0.87% 0.85% 0.78% 0.87% 0.99% Mid Atlantic Thrifts ......... 0.78% 0.74% 0.80% 0.76% 0.88% Source: SNL Financial Return on average equity improves as capital strategies are deployed [The table below represents a line chart contained in the presentation] 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- First Sentinel ...................... 7.41% 7.99% 10.17% 11.09% 11.39% Thrifts converted in '98 (Median) ... 6.32% 4.70% 5.76% 5.26% 7.57% Mid Atlantic Thrifts ................ 7.73% 7.86% 7.83% 7.71% 10.10% Source: SNL Financial Maintaining control of expenses continues to be a focus of management [The table below represents a line chart contained in the presentation] Efficiency Ratio @ December 31 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- First Sentinel ........................ 43.4% 40.0% 40.4% 41.0% 39.2% Mid Atlantic Thrifts (Median) ......... 62.1% 64.4% 65.0% 62.6% 62.4% Source: SNL Financial Relative Stock Price Performance [GRAPHIC OMITTED - Line Chart of Relative Stock Price Performance from 4/14/98 to 4/15/03] 5 Year Return 3 Year Return 1 Year Return YTD Return ------------- ------------- ------------- ---------- FSLA ................... 40.9 % 34.9 % 5.3 % 2.8 % LB Thrift Index ........ 28.2 15.5 0.3 4.7 LB Small-Cap Index ..... (8.4) 2.9 (17.6) (4.7) S&P 500 ................ (20.4) (24.7) (19.2) 1.2 --------- LB THRIFT INDEX INCLUDES: AF, BBX, CFB, DCOM, FBBC, FBC, FED, GDW, GPT, HCBK, ICBC, MAFB, NYCB, PBCT, RSLN, SIB, WBST, WFSL and WM. LB SMALL-CAP BANK INDEX INCLUDES: ASBC, BOH, CBSH, CFR, CHZ, CNB, FCF, FMBI, FMER, GBBK, HIB, MRBK, PFGI, SIVB, SKYF, SWBT, VLY and WABC. LB - Lehman Bros. Cash dividend increased 26.6% in 2002 and 10.5% in February 2003 [The table below represents a bar chart contained in the presentation] 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- Dividend per Share .......... $0.15 $0.37 $0.24 $0.30 $0.36 Payout ratio ................ 32.6% 62.7% 35.3% 36.6% 40.4% 1999 includes special, one-time $0.15 cash dividend Despite margin compression, earnings per share increased from last year Quarter Ended Quarter Ended (Dollars in thousands) March 31, 2003 March 31, 2002 -------------- -------------- Net income ........................... $6,550 $6,601 Diluted earnings per share ........... $0.24 $0.22 Return on average equity ............. 11.98% 11.43% Return on average assets ............. 1.16% 1.22% Total assets ......................... $2,291,231 $2,194,261 Total deposits ....................... $1,406,077 $1,351,494 Asset Quality ------------- Non-performing assets ................ $1,419 $1,979 Allowance to total loans ............. 1.04% 1.03% Business Strategies for 2003 & Beyond * Branch expansion - 4 new locations over next three years * Growth of loan portfolio with concentration in commercial real estate lending * Continued product development to grow core deposits and reduce wholesale borrowings * Expansion of net interest margin * Fee income improvement Capital Management Strategy * Repurchased 2.6 million shares of FSLA at an average cost of $13.82 per share during 2002 * Completed sixth Stock Repurchase Program and started seventh in February 2003 * Increased cash dividend 10.5% to $0.105 per share in February 2003 * Reviewing opportunities within financial services arena that are earnings and/or market accretive Central Jersey Focused Franchise [GRAPHIC OMITTED - Map of Central New Jersey indicating possible de novo branches] Corporate Governance [GRAPHICS OMITTED] The Future [GRAPHICS OMITTED] FIRST SENTINEL Questions & Comments