------------------------------------------
FORM 10-Q
------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
----------------------------
For the quarter ended: June 30, 1996
----------------------------
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from _____ to _____.
-----------------------------------------
STATE BANCORP, INC.
-----------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 11 - 2846511
- ------------------------ ------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
699 Hillside Avenue, New Hyde Park, N.Y. 1 1 0 4 0
- -------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
(5 1 6) 4 3 7 - 1 0 0 0
-----------------------
(Registrant's telephone number, including area code)
Not Applicable
- -------------------------------------------------------------------------------
(Former name,former address and former fiscal year,if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
---------------------------
Yes X No
--------------------------- --------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
- -------------------------------------------------------------------------------
4,614,373 shares of common stock outstanding as of July 31, 1996.
- -------------------------------------------------------------------------------
<PAGE>
---------------------------------------
STATE BANCORP, INC.
---------------------------------------
FORM 10-Q
INDEX
- --------------------------------------------------
PART I. FINANCIAL INFORMATION Page
- -------------------------------------------------- ----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - June 30, 1996 and December 31, 1995
(Unaudited) 1.
Statements of Consolidated Earnings for the Three and Six Months Ended
June 30, 1996 and 1995 (Unaudited) 2.
Statements of Consolidated Cash Flows for the Six Months Ended
June 30, 1996 and 1995 (Unaudited) 3.
Consolidated Statements of Stockholders' Equity for the Six Months Ended
June 30, 1996 and 1995 (Unaudited) 4.
Notes to Unaudited Consolidated Financial Statements 4.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6.
- ---------------------------------------------------
PART II. OTHER INFORMATION
- ---------------------------------------------------
Item 1. Legal Proceedings - None N/A
Item 2. Changes in Securities - None N/A
Item 3. Defaults upon Senior Securities - None N/A
Item 4. Submission of Matters to a Vote of Security Holders 13.
Item 5. Other Information - None N/A
Item 6. Exhibits and Reports on Form 8-K 14.
- --------------------------------
SIGNATURES 15.
- --------------------------------
<PAGE>
- ---------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS
- ---------------------------------------------------
- -----------------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995 (UNAUDITED)
- -----------------------------------------------------------------------
- ----------------------------------
ASSETS: 1996 1995
- ---------------------------------- ------------ ------------
CASH & DUE FROM BANKS $23,372,139 $45,853,678
SECURITIES PURCHASED UNDER AGREEMENTS
TO RESELL 0 76,000,000
------------ ------------
CASH AND CASH EQUIVALENTS 23,372,139 121,853,678
SECURITIES:
HELD TO MATURITY (APPROXIMATE MARKET
VALUE - $12,945,040 IN 1996 AND
$28,224,224 IN 1995) 12,947,903 28,222,798
AVAILABLE FOR SALE - AT MARKET VALUE 206,558,258 204,391,430
------------ ------------
TOTAL SECURITIES 219,506,161 232,614,228
LOANS - NET OF ALLOWANCE FOR POSSIBLE
LOAN LOSSES($5,180,022 IN 1996 AND
$5,004,216 IN 1995) 312,516,937 282,574,525
BANK PREMISES AND EQUIPMENT - NET 3,038,530 2,959,399
OTHER ASSETS 11,898,502 10,948,638
- ---------------------------------- ------------ ------------
TOTAL ASSETS $570,332,269 $650,950,468
- ---------------------------------- =========== ===========
- ----------------------------------
LIABILITIES:
- ----------------------------------
DEPOSITS:
DEMAND $88,622,208 $72,821,175
SAVINGS 169,346,750 245,970,879
TIME 195,785,055 178,947,900
----------- -----------
TOTAL DEPOSITS 453,754,013 497,739,954
FEDERAL FUNDS PURCHASED 14,500,000 17,000,000
SECURITIES SOLD UNDER AGREEMENTS
TO REPURCHASE 59,111,500 83,217,774
OTHER SHORT-TERM BORROWINGS 0 10,000,000
ACCRUED EXPENSES, TAXES AND OTHER
LIABILITIES 1,654,004 2,405,188
---------------------------------- ------------ ------------
TOTAL LIABILITIES 529,019,517 610,362,916
---------------------------------- ------------ ------------
----------------------------------
STOCKHOLDERS' EQUITY:
----------------------------------
COMMON STOCK, $5.00 PAR VALUE,
AUTHORIZED 20,000,000 SHARES;
ISSUED 4,599,067 IN 1996 AND
4,211,912 IN 1995 22,995,335 21,059,560
SURPLUS 19,554,997 16,402,404
RETAINED EARNINGS 467,571 3,159,000
UNREALIZED NET LOSS ON SECURITIES
AVAILABLE FOR SALE (NET OF DEFFERED
INCOME TAX BENEFIT OF $1,197,233
IN 1996 AND $23,456 IN 1995) (1,705,151) (33,412)
- ----------------------------------- ------------ ------------
TOTAL STOCKHOLDERS' EQUITY 41,312,752 40,587,552
- ----------------------------------- ------------ ------------
- ------------------------------------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $570,332,269 $650,950,468
- ------------------------------------------ ============ ============
<PAGE>
- -------------------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
STATE BANCORP AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED EARNINGS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30,1996 AND 1995 (UNAUDITED)
- ------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
---------------------------------- ------------------------------------
THREE MONTHS SIX MONTHS
---------------------------------- ------------------------------------
--------------- --------------- ---------------- ----------------
1996 1995 1996 1995
--------------- --------------- ---------------- ----------------
- -----------------
INTEREST INCOME:
- -----------------
LOANS $7,091,346 $6,171,872 $13,986,071 $12,032,714
FEDERAL FUNDS SOLD
AND SECURITIES PURCHASED
UNDER AGREEMENTS TO RESELL 308,868 515,253 732,869 641,399
SECURITIES HELD TO MATURITY AND
SECURITIES AVAILABLE FOR SALE:
U.S. TREASURY SECURITIES 267,789 407,038 606,949 805,477
STATES AND POLITICAL
SUBDIVISIONS 372,642 594,011 745,621 1,154,152
MORTGAGE-BACKED SECURITIES 2,107,176 1,743,748 4,365,690 3,548,816
GOVERNMENT AGENCY SECURITIES 477,452 356,137 895,847 541,990
OTHER SECURITIES 30,284 31,589 55,617 31,589
--------------- --------------- ---------------- ----------------
TOTAL INTEREST INCOME 10,655,557 9,819,648 21,388,664 18,756,137
--------------- --------------- ---------------- ----------------
- ------------------
INTEREST EXPENSE:
- ------------------
TIME CERTIFICATES OF DEPOSIT
OF $100,000 OR MORE 1,918,128 1,687,401 3,733,782 2,870,784
OTHER DEPOSITS AND TEMPORARY
BORROWINGS 2,808,934 3,085,670 5,890,874 5,980,717
--------------- --------------- ---------------- ----------------
TOTAL INTEREST EXPENSE 4,727,062 4,773,071 9,624,656 8,851,501
--------------- --------------- ---------------- ----------------
NET INTEREST INCOME 5,928,495 5,046,577 11,764,008 9,904,636
PROVISION FOR POSSIBLE
LOAN LOSSES 375,000 375,000 750,000 750,000
--------------- --------------- ---------------- ----------------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN
LOSSES 5,553,495 4,671,577 11,014,008 9,154,636
--------------- --------------- ---------------- ----------------
- ---------------
OTHER INCOME:
- ---------------
SERVICE CHARGES ON DEPOSIT
ACCOUNTS 345,314 266,507 665,561 541,404
NET SECURITY (LOSSES) GAINS (11,698) (5,007) 13,494 (46,450)
OTHER OPERATING INCOME 104,673 83,154 203,754 196,043
--------------- --------------- ---------------- ----------------
TOTAL OTHER INCOME 438,289 344,654 882,809 690,997
--------------- --------------- ---------------- ----------------
INCOME BEFORE OPERATING
EXPENSES 5,991,784 5,016,231 11,896,817 9,845,633
--------------- --------------- ---------------- ----------------
- ---------------------
OPERATING EXPENSES:
- ---------------------
SALARIES AND OTHER
EMPLOYEE BENEFITS 2,211,398 1,920,440 4,406,313 3,779,637
OCCUPANCY 325,722 340,763 671,884 668,001
EQUIPMENT 128,395 133,752 258,639 258,394
DEPOSIT ASSESSMENT FEES 94,532 205,989 154,090 411,978
AMORTIZATION OF INTANGIBLES 152,221 162,120 304,441 321,487
OTHER OPERATING EXPENSES 842,014 730,509 1,625,321 1,419,215
--------------- --------------- ---------------- ----------------
TOTAL OPERATING EXPENSES 3,754,282 3,493,573 7,420,688 6,858,712
--------------- --------------- ---------------- ----------------
INCOME BEFORE INCOME TAXES 2,237,502 1,522,658 4,476,129 2,986,921
PROVISION FOR INCOME TAXES 824,771 454,103 1,635,248 889,426
--------------- --------------- ---------------- ----------------
- ------------
NET INCOME $1,412,731 $1,068,555 $2,840,881 $2,097,495
- ------------ --------------- --------------- ---------------- ----------------
- ---------------------------
EARNINGS PER COMMON SHARE $0.31 $0.24 $0.62 $0.47
- ---------------------------
- ---------------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,583,063 4,480,661 4,570,471 4,473,240
- --------------------------- --------------- --------------- ---------------- ----------------
</TABLE>
<PAGE>
- -------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------
- -------------------------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,1996 AND 1995 (UNAUDITED)
- -------------------------------------------------------------------------------
- ----------------------- ----------- ----------
OPERATING ACTIVITIES: 1996 1995
- ----------------------- ----------- ----------
NET INCOME $2,840,881 $2,097,495
ADJUSTMENTS TO RECONCILE
NET INCOME TO NET CASH
PROVIDED BY OPERATING
ACTIVITIES:
PROVISION FOR POSSIBLE
LOAN LOSSES 750,000 750,000
DEPRECIATION AND AMORTIZATION
OF BANK PREMISES AND EQUIPMENT 264,980 183,952
AMORTIZATION OF INTANGIBLES 304,441 321,487
AMORTIZATION OF NET PREMIUM
ON SECURITIES 689,129 565,659
NET SECURITY (GAINS)/LOSSES (13,494) 46,450
(INCREASE) DECREASE IN OTHER
ASSETS, NET (80,528) 535,728
(DECREASE) INCREASE IN ACCRUED
EXPENSES, TAXES AND OTHER
LIABILITIES (1,262,191) 2,427,831
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,493,218 6,928,602
----------- ----------
- -----------------------
INVESTING ACTIVITIES:
- -----------------------
PROCEEDS FROM MATURITIES OF
SECURITIES HELD TO MATURITY 22,962,340 34,090,515
PURCHASES OF SECURITIES HELD TO
MATURITY (7,707,929) (15,318,465)
PROCEEDS FROM SALES OF SECURITIES
AVAILABLE FOR SALE 21,284,206 21,582,211
PROCEEDS FROM MATURITIES OF SECURITIES
AVAILABLE FOR SALE 67,358,262 14,949,143
PURCHASES OF SECURITIES AVAILABLE FOR
SALE (94,309,963) (32,922,198)
(INCREASE) DECREASE IN LOANS - NET (30,692,412) (5,617,056)
PURCHASES OF BANK PREMISES AND EQUIPMENT (344,111) (404,839)
------------- -------------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES (21,449,607) 16,359,311
------------- -------------
- -----------------------
FINANCING ACTIVITIES:
- -----------------------
(DECREASE) INCREASE IN DEMAND AND
SAVINGS DEPOSITS (60,823,096) 12,039,119
(DECREASE) INCREASE IN TIME DEPOSITS 16,837,155 15,246,414
DECREASE IN FEDERAL FUNDS PURCHASED (2,500,000) (16,000,000)
DECREASE IN SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE (24,106,274) (31,412,673)
(DECREASE) INCREASE IN OTHER
SHORT-TERM BORROWINGS (10,000,000) 0
CASH DIVIDENDS PAID (422,231) (1,512,887)
PROCEEDS FROM SHARES ISSUED UNDER
DIVIDEND REINVESTMENT PLAN 306,478 78,513
PROCEEDS FROM STOCK OPTIONS EXERCISED 182,818 174,608
------------- -------------
NET CASH USED IN FINANCING ACTIVITIES (80,525,150) (21,386,906)
------------- -------------
- ------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (98,481,539) 1,901,007
- ------------------------------------------
- ------------------------------------------
CASH AND CASH EQUIVALENTS - JANUARY 1 121,853,678 24,966,956
- ------------------------------------------
- ------------------------------------------ ------------- ------------
CASH AND CASH EQUIVALENTS - JUNE 30 $23,372,139 $26,867,963
- ------------------------------------------ ------------- ------------
- -----------------------------------
SUPPLEMENTAL DATA:
- -----------------------------------
INTEREST PAID $9,795,707 $8,884,910
TAXES PAID $1,897,875 $857,770
<PAGE>
- ------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------
- -------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
- -------------------------------------------------------------
<TABLE>
<C> <C> <C> <C> <C>
UNREALIZED
NET (LOSS) GAIN
ON SECURITIES
COMMON RETAINED AVAILABLE
STOCK SURPLUS EARNINGS FOR SALE TOTAL
BALANCE, JANUARY 1, 1996 $21,059,560 $16,402,404 $3,159,000 $ (33,412) $40,587,552
NET INCOME 2,840,881 2,840,881
CASH DIVIDENDS DECLARED ($0.20 PER SHARE) (933,238) (933,238)
8% STOCK DIVIDEND ISSUED
(340,672 SHARES AT MARKET VALUE) 1,703,360 2,895,712 (4,599,072) 0
SHARES ISSUED UNDER DIVIDEND
REINVESTMENT PLAN (22,746 SHARES
AT 95% OF MARKET VALUE) 113,730 192,748 306,478
STOCK OPTIONS EXERCISED 118,685 64,133 182,818
NET CHANGE IN UNREALIZED NET LOSS ON
SECURITIES AVAILABLE FOR SALE (1,671,739) (1,671,739)
-------------- -------------- -------------- --------------- --------------
- ---------------------------------------
BALANCE, JUNE 30, 1996 $22,995,335 $19,554,997 $467,571 $(1,705,151) $41,312,752
- --------------------------------------- -------------- -------------- -------------- --------------- --------------
BALANCE, JANUARY 1, 1995 $18,764,095 $13,114,916 $5,201,989 $ (910,530) $36,170,470
NET INCOME 2,097,495 2,097,495
CASH DIVIDEND ($0.34 PER SHARE) (1,512,887) (1,512,887)
10% STOCK DIVIDEND (378,222 SHARES
AT MARKET VALUE 1,891,110 2,836,665 (4,727,775) 0
SHARES ISSUED UNDER DIVIDEND
REINVESTMENT PLAN (7,450 SHARES
AT 95% OF MARKET VALUE) 37,250 41,263 78,513
STOCK OPTIONS EXERCISED 109,740 64,868 174,608
NET CHANGE IN UNREALIZED NET LOSS ON
SECURITIES AVAILABLE FOR SALE 1,073,173 1,073,173
-------------- -------------- -------------- --------------- --------------
- --------------------------------------
BALANCE, JUNE 30, 1995 $20,802,195 $16,057,712 $1,058,822 $ 162,643 $38,081,372
- --------------------------------------- -------------- -------------- -------------- --------------- --------------
</TABLE>
- -------------------------------------------------------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
- ----------------------------------
FINANCIAL STATEMENT PRESENTATION
- ----------------------------------
In the opinion of the management of State Bancorp, Inc. (the "Company"),
the preceding unaudited consolidated financial statements contain all
adjustments, consisting of normal accruals, necessary for a fair presentation
of its consolidated financial condition as of June 30, 1996 and December 31,
1995 and its consolidated results of operations for the three and six months
ended June 30, 1996 and 1995 and changes in cash flows and stockholders' equity
for the six months ended June 30, 1996 and 1995. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K. Certain amounts have been reclassified to
conform with the current year's presentation.
- ----------------------------------
STOCKHOLDERS' EQUITY
- ----------------------------------
Common shares issued have been adjusted to reflect an 8% stock dividend
declared on May 28, 1996. Effective April 30,1996, the Company has 250,000
shares of preferred stock authorized. No shares are issued as of June 30, 1996.
<PAGE>
- -------------------------------------------------------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
- ----------------------------------
EARNINGS PER SHARE
- ----------------------------------
Earnings per share are computed based on the weighted average number of
common shares outstanding after giving retroactive effect to stock dividends.
The impact of the assumed exercise of stock options is immaterial or
antidilutive in all periods presented.
- ------------------------------------------------------------
UNREALIZED NET (LOSS) GAIN ON SECURITIES AVAILABLE FOR SALE
- ------------------------------------------------------------
Securities available for sale are stated at estimated market value and
unrealized gains and losses are excluded from earnings and reported as a
separate component of stockholders' equity until realized. Securities held to
maturity are stated at amortized cost. Management designates each security, at
the time of purchase, as either available for sale or held to maturity
depending upon investment objectives, liquidity needs and intent.
- -----------------------------------
ALLOWANCE FOR POSSIBLE LOAN LOSSES
- -----------------------------------
Activity in the allowance for possible loan losses for the six months
ended June 30, 1996 and 1995 is as follows:
----------------- ------------------
1996 1995
----------------- ------------------
Balance, January 1 $5,004,216 $4,928,521
Provision charged to income 750,000 750,000
Charge-offs, net of recoveries
of $59,543 in 1996 and
$47,156 in 1995 (574,194) (708,671)
----------------- ------------------
Balance, June 30 $5,180,022 $4,969,850
================= ==================
- ----------------
LOANS
- ----------------
Under Statement of Financial Accounting Standards No. 114 ("SFAS No.114"),
"Accounting by Creditors for Impairment of a Loan," a loan is considered
impaired when, based on current information and events, it is probable that the
lender will not be able to collect all the principal and interest due under the
original contractual terms of the loan. The company discontinues
the accrual of interest on loans whenever there is reasonable doubt that
interest and/or principal will be collected, or when either principal or
interest is 90 days or more past due and the loan is not well collateralized
nor in the process of collection.
Under SFAS No. 114, the Company may aggregate loans that have common risk
characteristics and historical experience and evaluate them as a group. However,
the Company has determined that its portfolio is comprised primarily of loans
that have unique characteristics (specific to an individual borrower or
relationship, industry or loan size) that must be evaluated individually. In
addition, management has established a materiality threshold for cost
effectiveness and practicability of individual analysis. Impaired loans subject
to individual analysis consist of all nonaccrual commercial mortgages and
nonaccrual commercial and industrial loans over $250,000. Total impaired loans
amounted to $7,033,907 at June 30, 1996 and $7,782,686 at December 31, 1995.
The aggregate amount of impaired loans measured using the present value of
expected future cash flows discounted at each loan's effective interest rate
is $1,999,832 and the amount of impaired collateral-dependent loans, measured
based on the fair value of the underlying collateral, is $5,034,075. As a result
of the Company's evaluation of impaired loans, an allowance for possible loan
losses of $1,310,527 and $1,177,013 was established for $5,667,419 and
$6,416,198 of the total impaired loans at June 30, 1996 and December 31, 1995,
respectively, with the balance of impaired loans requiring no specific
allowance according to SFAS No. 114. The total average impaired loan balance
was $7,056,426 for the quarter ended June 30, 1996 and $6,498,542 for the year
ended December 31, 1995.
Interest received on impaired and other nonaccrual loans is either applied
against principal or reported as income, according to management's judgement as
to the collectibility of the principal. Interest for impaired, restructured
loans is accrued in accordance with their revised terms. Total interest income
recognized for impaired, nonaccrual and restructured loans was $35,891 and
$14,974 during the three months ended June 30, 1996 and June 30, 1995,
respectively and $50,625 and $29,783 during the six months ended June 30, 1996
and June 30, 1995, respectively.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <C> <C>
==================================================================================================
JUNE 30, 1996
- -----------------
TABLE 2-2 LIQUIDITY AND INTEREST RATE SENSITIVITY
- ----------------- ==================================================================================================
==================================================================================================
($ IN THOUSANDS) SENSITIVITY TIME HORIZON
Noninterest
- -------------------------------
INTEREST - SENSITIVE ASSETS :1) 0 - 6 Months 6-12 Months 1 - 5 Years Over 5 Years Sensitive Total
- -------------------------------
------------------------------------------------------------------------------------------------
Loans (net of unearned income)2) $206,700 $20,211 $54,696 $28,238 $7,852 $317,697
Securities Held to Maturity 3) 5,237 7,458 127 126 12,948
Securities Available for Sale 21,560 43,120 94,654 48,156 1,971 209,461
Unrealized Net Loss on Securities
Available for Sale (2,902) (2,902)
------------- ----------- ---------- -------- -------- --------------
Total Interest-Sensitive Assets 230,595 70,789 149,477 76,520 9,823 537,204
Cash and Due from Banks 23,372 23,372
All Other Assets 6) 4,100 1,869 3,787 9,756
------------- ----------- ---------- -------- -------- --------------
Total Assets $258,067 $72,658 $149,477 $76,520 $13,610 $570,332
------------- ----------- ---------- -------- -------- --------------
- ---------------------------------
INTEREST - BEARING LIABILITIES:1)
- ---------------------------------
Savings Accounts 4) $11,416 $11,416 $91,332 $0 $114,164
Money Fund and Now Accounts 5) 22,922 6,454 4,025 0 55,183
Time Deposits 6) 146,914 21,225 27,432 214 0 195,785
------------- ------------ ---------- ------------- --------- --------------
Total Interest-Bearing Liabilities 181,252 39,095 144,571 214 0 365,132
Securities Sold Under Agreements
to Repurchase, Federal Funds
Purchased, and Other Borrowings 73,611 73,611
All Other Liabilities, Equity and
Demand Deposits 7) 1,350 217 87 0 129,935 131,589
-------------- ------------ ---------- ------------- --------- -------------
Total Liabilities and Equity $256,213 $39,312 $144,658 $214 $129,935 $570,332
-------------- ------------ ---------- ------------- --------- -------------
Cumulative Interest-Sensitivity Gap $1,854 $35,200 $40,018 $114,470 $0 $0
------------ ------------ ---------- ------------- --------- -------------
Cumulative Interest-Sensitivity Ratio 100.7% 111.9% 109.1% 109.1% 100.0% 100.0%
Cumulative Interest-Sensitivity Gap
As a % of Total Assets .7% 10.6% 8.3% 38.3% -- % -- %
1) Allocations to specific interest sensitivity periods are based on the earlier of the repricing or maturity date.
2) Nonaccrual loans are shown in the non-interest sensitive category.
3) Estimated principal reductions have been assumed for mortgage-backed securities based upon their current constant prepayment
rates.
4) Savings deposits are assumed to decline at a rate of 20% per year over a five-year period based upon the nature of their
historically stable core deposit relationships.
5) Money Fund and Now accounts of individuals, parnerships and corporations are assumed to decline at a rate of 33% per year over a
three-year period based upon the nature of their historically stable core deposit relationships. Money Fund and Now accounts of
municipalities are included in the 0 - 6 months category.
6) Reflected as maturing in each instrument's period of contractual maturity.
7) Other Assets and Liabilities are shown according to payment schedule or reasonable estimate.
</TABLE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
- -----------------------
TABLE 2 - 3
- -----------------------
<TABLE>
<C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
STATE BANCORP, INC.
ANALYSIS OF NONPERFORMING ASSETS AND THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
JUNE 30, 1996 VERSUS DECEMBER 31, 1995 AND JUNE 30, 1995
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED:
-----------------------------------------------------------
NONPERFORMING ASSETS BY TYPE 6/30/96 12/31/95 6/30/95
--------------- --------------- ---------------
NONACCRUAL LOANS $7,852 $8,247 $6,817
OTHER REAL ESTATE OWNED 700 0 321
--------------- --------------- ---------------
TOTAL NONPERFORMING ASSETS $8,552 $8,247 $7,138
--------------- --------------- ---------------
RESTRUCTURED, ACCRUING LOANS 1,723 3,344 1,962
LOANS 90 DAYS OR MORE PAST DUE
AND STILL ACCRUING $5,845 $337 $1,336
GROSS LOANS OUTSTANDING $317,768 $287,643 $260,128
TOTAL STOCKHOLDERS' EQUITY $41,313 $40,588 $38,081
QUARTER ENDED:
-----------------------------------------------------------
ANALYSIS OF THE ALLOWANCE FOR
POSSIBLE LOAN LOSSES 6/30/96 12/31/95 6/30/95
--------------- --------------- ---------------
BEGINNING BALANCE $4,781 $5,279 $5,254
PROVISION 375 75 375
NET RECOVERIES/(CHARGE-OFFS) 24 (350) (659)
--------------- --------------- ---------------
ENDING BALANCE $5,180 $5,004 $4,970
--------------- --------------- ---------------
KEY RATIOS AT PERIOD-END:
ALLOWANCE AS A % OF TOTAL LOANS 1.63% 1.74% 1.91%
NONACCRUAL LOANS AS A % OF TOTAL LOANS 2.47% 2.87% 2.62%
NONPERFORMING ASSETS (1) AS A % OF TOTAL
LOANS AND OTHER REAL ESTATE OWNED 2.69% 2.87% 2.74%
ALLOWANCE FOR POSSIBLE LOAN LOSSES AS A %
OF NONACCRUAL LOANS 65.97% 60.68% 72.91%
ALLOWANCE FOR POSSIBLE LOAN LOSSES AS A %
OF NONACCRUAL LOANS, OTHER REAL ESTATE 60.57% 60.68% 69.63%
OWNED, RESTRUCTURED, ACCRUING LOANS
AND LOANS 90 DAYS OR MORE PAST DUE AND
STILL ACCRUING
(1) EXCLUDES RESTRUCTURED, ACCRUING LOANS AND LOANS 90 DAYS OR MORE PAST DUE AND STILL ACCRUING.
</TABLE>
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1. Material Changes in Financial Condition - Total assets of the
Company amounted to $570.3 million at June 30, 1996, a decline of
$80.6 million or 12.4% when compared to December 31, 1995. The
asset contraction resulted from a $76.0 million decline in
securities purchased under agreements to resell (due to a reduced
need for collateral to support municipal funding sources) and a
$13.1 million reduction in investment securities held to maturity
due to seasonal maturities of short-term tax-exempt notes. The
Company's loan portfolio experienced strong growth during the first
six months of 1996. Total loans outstanding at June 30, 1996 were
$317.7 million, up $30.1 million or 10.5% versus year-end 1995.
Growth in middle market commercial and industrial credits was the
primary catalyst for the increase in loans, however, higher levels
of residential mortgages and tax-exempt financing also aided the
overall expansion of the portfolio.
The reduction in total assets was paralleled by a decline in
funding sources, principally lower levels of savings deposits and
borrowed funds. Total deposits fell by $44.0 million or 8.8% as the
result of a $76.6 million decline in savings balances, solely due
to a seasonal outflow of municipal tax deposits. These deposits
result from a natural extension of the Company's municipal banking
relationships; they are short-term in nature and provide the
Company with a low-cost source of funding. Securities sold under
agreements to repurchase and Federal funds purchased declined by
$24.1 million and $2.5 million, respectively, when compared to
year-end 1995. Other short-term borrowings declined by $10.0
million when compared to December 31, 1995 due to the maturity of
a Federal Home Loan Bank advance. Partially offsetting the
foregoing declines in funding were increases in demand deposit
balances (up $15.8 million or 21.7% due to both new and expanded
relationships with small businesses in the Company's trade area)
and time deposits, up $16.8 million, mainly large denomination
certificates of deposit.
Second quarter 1996 average assets advanced by $44.4 million or
8.3%, to $581.4 million, from 1995's comparable quarter. Loan
growth of $50.2 million or 19.6%, primarily commercial credits,
accounted for the vast majority of the asset expansion. Although
the Company's investment portfolio was flat, on average, versus
last year, a restructuring of its composition took place in an
effort to enhance yield. Maturing U.S. Treasury notes and local
municipal issues were reinvested in mortgage-backed (MBS) and
Government Agency paper. The Company's MBS portfolio is low risk in
nature due to its concentration in AAA-rated pass-throughs and
balloons. Collateralized Mortgage Obligations account for only 5%
of the Company's investment portfolio. Funding the growth in
average assets were increases in core deposits (primarily demand
(6)
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
balances), short-term certificates of deposit and borrowed funds.
Average demand deposit balances were up 24.0% versus the second
quarter of 1995 mainly due to an influx of new commercial
customers. Retail savings balances, on average, experienced
moderate growth during 1996 as customers continue to support the
Company's Prosperity Savings product which was introduced in early
1995.
At June 30, 1996, the Company maintained capital adequacy ratios
well in excess of those necessary for it to be classified as a
"well capitalized" institution pursuant to the provisions of the
Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA). The following table (#2-1) summarizes the Company's
capital ratios as of June 30, 1996 and compares them to current
regulatory guidelines and December 31 and June 30, 1995 actual
results.
As disclosed in stockholder correspondence and regulatory filings,
the Company's previously announced stockholder Rights Offering
closed during the month of July. Approximately $4.3 million in net
proceeds will be added to the Company's equity capital base during
the third quarter of this year. These funds will be utilized to
support anticipated loan growth and other working capital needs of
the Company. On a pro-forma basis, the Company's Tier I leverage
ratio would have been approximately 7.90% at June 30, 1996 had the
proceeds from the Offering been included in capital at that time.
TABLE 2-1 Tier I Capital/ Total Capital/
Tier I Risk-Weighted Risk-Weighted
Leverage Assets Assets
Regulatory Minimum 3.00%-5.00% 4.00% 8.00%
Ratios as of:
June 30, 1996 7.14% 11.82% 13.07%
December 31, 1995 6.56% 11.35% 12.81%
June 30, 1995 6.72% 12.14% 13.82%
Regulatory Criteria for
a "Well Capitalized"
Institution 5.00% 6.00% 10.00%
(7)
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
The principal objective of the Company's liquidity management
strategy is to ensure the ability to access funding which will
maintain cash flows sufficient to meet immediate and future demands
for credit, deposit withdrawals, maturing liabilities and operating
expenses and to do so without incurring significant losses.
Management seeks to obtain funding at the most economical cost to
the Company by converting liquid assets to cash or by attracting
new deposits or other sources of funds. Many factors affect the
Company's ability to effectively manage its liquidity needs,
including variations in the markets served, its asset/liability mix
and its reputation and credit standing in its markets. Management
is not aware of any trends, events or uncertainties that will have,
or that are reasonably likely to have, a material effect on the
Company's liquidity, capital resources or operations.
Throughout the first six months of 1996, the Company's liquidity
position remained stable and well within acceptable industry
standards. At June 30, 1996, the Company had access to $17 million
in informal lines of credit extended by correspondent banks to be
utilized, if needed, for short-term funding purposes. In addition,
the Company had approximately $21 million in investment securities
available to be pledged to secure repurchase agreements or Federal
Reserve Discount Window borrowings as well as $33 million in a
Federal Home Loan Bank overnight line of credit available to be
drawn down. The Funds Management Committee of the Company utilizes
natural hedging strategies to manage its liquidity and interest
rate risk. The Company did not engage in any derivatives activities
during 1995 or 1996 to manage these risks.
2. Material Changes in Results of Operations - Net income for the
six months ended June 30, 1996 was $2,841,000, a 35.5% improvement
over the comparable 1995 period, due to increases in net interest
income and a 27.8% improvement in other income. Higher earning
asset levels as previously discussed, coupled with a 17 basis point
improvement in the net interest spread (to 4.22%), accounted for
the 18.8% increase in gross margin. The wider spread resulted from
a shift in the Company's earning asset mix from lower yielding
investment securities into higher yielding mortgage-backed and
Government Agency securities and loans, primarily commercial loans
and commercial mortgages.
Excluding securities transactions, other income rose by 17.9% on a
year-to-year basis due to increased deposit service charges, higher
ATM usage fees and an increase in wire transfer income. Deposit
service charges continue to be the Company's largest source of
(8)
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
other income and growth in this area has been strong during the
past year. New products, enhanced account analysis and collection
efforts and an expanded customer base all contributed to the
increase in service charge income in 1996.
Total operating expenses advanced by 8.2% during the first six
months of 1996 versus 1995. Growth in salaries and employee
benefits expenses due to an increase in staff, and higher other
operating expenses contributed to the upward trend in total
operating expenses. The increase in staff was mainly due to an
expansion of the Company's commercial lending group. Other
operating expenses rose by 14.5% on a year-to-year basis due to an
increase in marketing and advertising costs, higher loan collection
expenses and growth in computer software maintenance fees due to
various new P.C. and mainframe product applications added during
the past year. Somewhat offsetting these negative factors was a
decline in deposit assessment costs due to the ongoing debate in
Congress over the SAIF bailout.
Despite the increase in operating expenses recorded during the
first half of the year, the Company's operating efficiency ratio
(total operating expenses as a percentage of fully taxable
equivalent net revenue, excluding securities transactions) was
56.7% for the six months ended June 30, 1996 versus 60.6% during
the comparable 1995 period. This ratio compares very favorably with
the Company's peers and is in line with a short-term goal of a 55%
ratio. Over the next several years, the Company is committed to
reducing this ratio to below 50% in an effort to enhance the return
on stockholders' equity through an efficient utilization of
revenue.
Nonperforming assets, defined by the Company as the sum of
nonaccrual loans and other real estate owned, totaled $8.6 million
at June 30, 1996, up $0.3 million versus December 31, 1995. Despite
a $0.4 million decline in nonaccrual loans since year-end 1995,
total nonperforming assets increased due to the transfer of a
residential property to other real estate owned. Management is
confident that the sale of this property will have an immaterial
impact on the Company's income statement. Management of the Company
recognizes that the level of nonaccrual loans continues to be
higher than the Company's peer group, however, each credit is being
aggressively pursued through a combination of litigation,
collection and workout efforts. The vast majority of the Company's
nonaccrual loans are fully secured by liens on various assets of
each respective borrower.
(9)
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Management anticipates improvement in the level of nonperforming
assets within the next twelve months as the result of the
resolution of certain problem credits and the expected sale of
other real estate owned.
The increase in loans 90 days or more past due and still accruing
relates primarily to one credit totaling $4.5 million, which is
collateralized by commercial real estate. The Company is in
the process of restructuring this credit at an interest rate that
is less than the contractual rate and will remain so until the
underlying project is complete. It is estimated that cash flows
will again be sufficient to support a market rate of interest on
this credit during the third quarter of 1997. Management believes
that the impact of any reversal of interest previously accrued will
not have a material impact on the Company's income statement during
the second half of this year.
The decrease in restructured, accruing loans at June 30, 1996
versus year-end 1995 is attributable to one credit totaling $1.5
million. The interest rate on this credit was restructured upward
to a level that is consistent with that of new debt with similar
risk. The credit has been performing in accordance with its revised
contractual terms since December 1995.
The allowance for possible loan losses amounted to $5.2 million or
1.63% of total loans outstanding at June 30, 1996 versus 1.74% and
1.91% at December 31, 1995 and June 30, 1995, respectively. During
the second half of 1996, the Company will continue to closely
review the level of the provision for possible loan losses and the
adequacy of the allowance for possible loan losses as it relates to
the level of nonperforming loans and the recent growth in the loan
portfolio. A further review of the Company's nonperforming assets
may be found in Table 2-3 following this analysis.
(10)
<PAGE>
PART II
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the shareholders of the Company
was held on April 30, 1996 for the following purposes:
1. To elect four directors to hold office for a term of three years.
To approve an amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of common stock from 10,000,000
to 20,000,000 and to authorize 250,000 shares of preferred stock.
The proxy statement for this meeting has been filed with the Securities and
Exchange Commission.
PROPOSALS
1. Election of Directors
NOMINEE TERM FOR WITHHELD
Thomas F. Goldrick, Jr. 3 years 3,154,279 21,325
Raymond M. Piacentini 3 years 3,154,371 21,233
John F. Picciano 3 years 3,151,808 23,796
Suzanne H. Rueck 3 years 3,153,171 22,433
The proposal was passed.
2. Amendment to the Company's Certificate of Incorporation.
FOR AGAINST WITHHELD
2,675,000 222,800 277,804
The proposal was passed.
(11)
<PAGE>
PART II
ITEM 5 - EXHIBITS AND REPORTS ON FORM 8-K
On May 8, 1996, the Company filed a report on Form 8-K indicating that on April
30, 1996, the Company's shareholders approved an amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares of
common stock from 10,000,000 to 20,000,000 and to authorize 250,000 shares of
preferred stock. In addition, the Company's shareholders elected four
directors to three year terms, each to serve until his or her successor is
elected and has qualified. The four directors, each of whom were already
members of the Board of Directors, are Thomas F. Goldrick, Jr., Raymond M.
Piacentini, John F. Picciano and Suzanne H. Rueck.
<PAGE>
-------------------------------
SIGNATURES
-------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
-------------------------------------------------------------
STATE BANCORP, INC.
-------------------------------------------------------------
8/13/96 s / Daniel T. Rowe
- -------------- -----------------------------------------
Date Daniel T. Rowe, Secretary
(Principal Financial Officer)
8/13/96 s / Brian K. Finneran
- ---------------- ------------------------------------------
Date Brian K. Finneran, Comptroller
(11)
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<PERIOD-START> APR-01-1996
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0
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<SECURITIES-GAINS> 13,494
<EXPENSE-OTHER> 7,420,688
<INCOME-PRETAX> 4,476,129
<INCOME-PRE-EXTRAORDINARY> 4,476,129
<EXTRAORDINARY> 0
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<NET-INCOME> 2,840,881
<EPS-PRIMARY> 0.62
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