UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: SEPTEMBER 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
699 HILLSIDE AVENUE, NEW HYDE PARK, NEW YORK 11040
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
(516) 437-1000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
As of October 31, 1996, there were 5,005,192 shares of Common Stock outstanding.
<PAGE>
STATE BANCORP, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - September 30, 1996 and
December 31, 1995 (Unaudited) 1.
Statements of Consolidated Earnings for the Three and Nine
Months Ended September 30, 1996 and 1995 (Unaudited) 2.
Statements of Consolidated Cash Flows for the Nine Months
Ended September 30, 1996 and 1995 (Unaudited) 3.
Statements of Consolidated Stockholders' Equity for the Nine
Months Ended September 30, 1996 and 1995 (Unaudited) 4.
Notes to Unaudited Consolidated Financial Statements 5.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7.
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 - None N/A
Item 5. Other Information - None N/A
Item 6. Exhibits and Reports on Form 8-K 13.
SIGNATURES 14.
<PAGE>
- -------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS
- -------------------------------------------
- ------------------------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 (UNAUDITED)
- ------------------------------------------------------------------------------
- ------------------------------------------- ------------- -------------
ASSETS: 1996 1995
- ------------------------------------------- ------------- -------------
CASH AND DUE FROM BANKS $ 26,709,806 $ 45,853,678
SECURITIES PURCHASED UNDER AGREEMENTS
TO RESELL 0 76,000,000
------------- -------------
CASH AND CASH EQUIVALENTS 26,709,806 121,853,678
SECURITIES:
HELD TO MATURITY (APPROXIMATE MARKET VALUE -
$29,160,857 IN 1996 AND $28,224,224 IN 1995) 29,184,672 28,222,798
AVAILABLE FOR SALE - AT MARKET VALUE 163,439,028 204,391,430
------------- -------------
TOTAL SECURITIES 192,623,700 232,614,228
LOANS - NET OF ALLOWANCE FOR POSSIBLE LOAN LOSSES 319,618,531 282,574,525
($5,278,540 IN 1996 AND $5,004,216 IN 1995)
BANK PREMISES AND EQUIPMENT - NET 3,088,032 2,959,399
OTHER ASSETS 11,314,960 10,948,638
- ------------------------------------------- ------------- -------------
TOTAL ASSETS $ 553,355,029 $ 650,950,468
- ------------------------------------------- ============= =============
- -------------------------------------------
LIABILITIES:
- -------------------------------------------
DEPOSITS:
DEMAND $ 90,024,736 $ 72,821,175
SAVINGS 161,611,674 245,970,879
TIME 192,666,614 178,947,900
------------- -------------
TOTAL DEPOSITS 444,303,024 497,739,954
FEDERAL FUNDS PURCHASED 8,500,000 17,000,000
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 42,618,671 83,217,774
OTHER SHORT-TERM BORROWINGS 8,000,000 10,000,000
ACCRUED EXPENSES, TAXES AND OTHER LIABILITIES 3,262,436 2,405,188
- ------------------------------------------- ------------- -------------
TOTAL LIABILITIES 506,684,131 610,362,916
- ------------------------------------------- ------------- -------------
- -------------------------------------------
STOCKHOLDERS' EQUITY:
- -------------------------------------------
COMMON STOCK, $5.00 PAR VALUE,
AUTHORIZED 20,000,000 SHARES; ISSUED
5,080,086 IN 1996 AND 4,211,912 IN 1995 25,400,430 21,059,560
SURPLUS 22,912,401 16,402,404
RETAINED EARNINGS 927,900 3,159,000
UNREALIZED NET LOSS ON SECURITIES AVAILABLE
FOR SALE (NET OF DEFERRED INCOME TAX BENEFIT
OF $986,101 IN 1996 AND $23,456 IN 1995) (1,421,961) (33,412)
UNEARNED ESOP SHARES (1,147,872) 0
- ------------------------------------------- ------------- -------------
TOTAL STOCKHOLDERS' EQUITY 46,670,898 40,587,552
- ------------------------------------------- ------------- -------------
- -------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 553,355,029 $ 650,950,468
- ------------------------------------------- ============= =============
(1)
<PAGE>
- -------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------
<TABLE>
- ---------------------------------------------------------------------------
STATE BANCORP AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED EARNINGS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,1996 AND 1995 (UNAUDITED)
- ---------------------------------------------------------------------------
<CAPTION>
---------------------------------- --------------------------------
THREE MONTHS NINE MONTHS
---------------------------------- --------------------------------
--------------- --------------- --------------- -------------
1996 1995 1996 1995
--------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
- --------------------------------------------
INTEREST INCOME:
- --------------------------------------------
LOANS $ 7,347,241 $ 6,421,959 $ 21,333,312 $ 18,454,673
FEDERAL FUNDS SOLD AND SECURITIES
PURCHASED UNDER AGREEMENTS TO RESELL 130,738 103,891 863,607 745,290
SECURITIES HELD TO MATURITY AND
SECURITIES AVAILABLE FOR SALE:
U.S. TREASURY SECURITIES 41,929 405,516 648,878 1,210,993
STATES AND POLITICAL SUBDIVISIONS 400,927 488,606 1,146,548 1,642,758
MORTGAGE-BACKED SECURITIES 1,766,123 1,871,302 6,131,813 5,420,118
GOVERNMENT AGENCY SECURITIES 691,709 510,166 1,587,555 1,052,156
OTHER SECURITIES 32,831 24,908 88,447 56,497
------------ ------------ ------------ ------------
TOTAL INTEREST INCOME 10,411,498 9,826,348 31,800,160 28,582,485
------------ ------------ ------------ ------------
- --------------------------------------------
INTEREST EXPENSE:
- --------------------------------------------
TIME CERTIFICATES OF DEPOSIT OF $100,000 OR MORE 1,770,084 1,507,437 5,503,866 4,378,221
OTHER DEPOSITS AND TEMPORARY BORROWINGS 2,752,371 3,096,288 8,643,245 9,077,005
------------ ------------ ------------ ------------
TOTAL INTEREST EXPENSE 4,522,455 4,603,725 14,147,111 13,455,226
------------ ------------ ------------ ------------
NET INTEREST INCOME 5,889,043 5,222,623 17,653,049 15,127,259
PROVISION FOR POSSIBLE LOAN LOSSES 375,000 375,000 1,125,000 1,125,000
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 5,514,043 4,847,623 16,528,049 14,002,259
------------ ------------ ------------ ------------
- --------------------------------------------
OTHER INCOME:
- --------------------------------------------
SERVICE CHARGES ON DEPOSIT ACCOUNTS 324,827 306,850 990,388 848,254
NET SECURITY LOSSES (40,971) (3,866) (27,477) (50,316)
OTHER OPERATING INCOME 102,362 61,449 306,115 257,492
------------ ------------ ------------ ------------
TOTAL OTHER INCOME 386,218 364,433 1,269,026 1,055,430
------------ ------------ ------------ ------------
INCOME BEFORE OPERATING EXPENSES 5,900,261 5,212,056 17,797,075 15,057,689
------------ ------------ ------------ ------------
- --------------------------------------------
OPERATING EXPENSES:
- --------------------------------------------
SALARIES AND OTHER EMPLOYEE BENEFITS 2,179,253 1,867,553 6,585,566 5,647,190
OCCUPANCY 327,974 325,688 999,857 993,689
EQUIPMENT 128,740 121,863 387,379 380,257
DEPOSIT ASSESSMENT FEES 574,463 45,328 728,553 457,306
AMORTIZATION OF INTANGIBLES 152,220 160,300 456,662 481,787
OTHER OPERATING EXPENSES 934,819 666,589 2,560,140 2,085,804
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 4,297,469 3,187,321 11,718,157 10,046,033
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 1,602,792 2,024,735 6,078,918 5,011,656
PROVISION FOR INCOME TAXES 544,864 693,098 2,180,111 1,582,524
- -------------------------------------------- ------------ ------------ ------------ ------------
NET INCOME $ 1,057,928 $ 1,331,637 $ 3,898,807 $ 3,429,132
- -------------------------------------------- ------------ ------------ ------------ ------------
- --------------------------------------------
EARNINGS PER COMMON SHARE $0.21 $0.29 $0.83 $0.76
- -------------------------------------------- ------ ------ ------ ------
- --------------------------------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,906,961 4,529,526 4,683,765 4,491,473
- -------------------------------------------- ------------ ------------ ------------ ------------
</TABLE>
(2)
<PAGE>
- -------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------
- -------------------------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,1996 AND 1995 (UNAUDITED)
- -------------------------------------------------------------------------------
- -------------------------------------------- -------------- -------------
OPERATING ACTIVITIES: 1996 1995
- -------------------------------------------- -------------- -------------
NET INCOME $ 3,898,807 $ 3,429,132
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR POSSIBLE LOAN LOSSES 1,125,000 1,125,000
DEPRECIATION AND AMORTIZATION OF BANK
PREMISES AND EQUIPMENT 407,022 277,115
AMORTIZATION OF INTANGIBLES 456,662 481,787
AMORTIZATION OF NET PREMIUM ON SECURITIES 1,047,657 883,863
AMORTIZATION OF UNEARNED COMPENSATION 52,128 0
NET SECURITY LOSSES 27,477 50,316
DECREASE (INCREASE) IN OTHER ASSETS, NET 139,650 (694,100)
INCREASE IN ACCRUED EXPENSES, TAXES
AND OTHER LIABILITIES 259,638 2,734,954
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,414,041 8,288,067
------------- -------------
- --------------------------------------------
INVESTING ACTIVITIES:
- --------------------------------------------
PROCEEDS FROM MATURITIES OF SECURITIES HELD
TO MATURITY 26,180,740 48,315,122
PURCHASES OF SECURITIES HELD TO MATURITY (27,181,318) (32,430,168)
PROCEEDS FROM SALES OF SECURITIES AVAILABLE
FOR SALE 103,367,994 37,314,678
PROCEEDS FROM MATURITIES OF SECURITIES
AVAILABLE FOR SALE 77,810,627 20,081,359
PURCHASES OF SECURITIES AVAILABLE FOR SALE (143,613,833) (97,890,332)
INCREASE IN LOANS - NET (38,169,006) (15,514,471)
PURCHASES OF BANK PREMISES AND EQUIPMENT-NET (535,655) (566,066)
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (2,140,451) (40,689,878)
------------- -------------
- --------------------------------------------
FINANCING ACTIVITIES:
- --------------------------------------------
DECREASE IN DEMAND AND SAVINGS DEPOSITS (67,155,644) (17,396,652)
INCREASE IN TIME DEPOSITS 13,718,714 25,078,457
DECREASE IN FEDERAL FUNDS PURCHASED (8,500,000) (400,000)
(DECREASE) INCREASE IN SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE (40,599,103) 14,441,705
DECREASE IN OTHER SHORT-TERM BORROWINGS (2,000,000) 0
CASH DIVIDENDS PAID (933,238) (1,932,701)
PROCEEDS FROM SHARES ISSUED UNDER DIVIDEND
REINVESTMENT PLAN 480,978 516,142
PROCEEDS FROM STOCK OPTIONS EXERCISED 182,818 175,378
PROCEEDS FROM RIGHTS EXERCISED 4,388,013 0
------------- -------------
NET CASH (USED IN)PROVIDED BY FINANCING ACTIVITIES (100,417,462) 20,482,329
------------- -------------
- --------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (95,143,872) (11,919,482)
- --------------------------------------------
- --------------------------------------------
CASH AND CASH EQUIVALENTS - JANUARY 1 121,853,678 24,966,956
- --------------------------------------------
- -------------------------------------------- ------------- -------------
CASH AND CASH EQUIVALENTS - SEPTEMBER 30 $ 26,709,806 $ 13,047,474
- -------------------------------------------- ------------- -------------
- --------------------------------------------
SUPPLEMENTAL DATA:
- --------------------------------------------
INTEREST PAID $ 14,284,390 $ 13,241,804
TAXES PAID $ 2,763,875 $ 1,467,090
(3)
<PAGE>
- ------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------
<TABLE>
- -------------------------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
- -------------------------------------------------------------------------------
<CAPTION>
UNREALIZED
NET (LOSS)
GAIN ON
SECURITIES UNEARNED
COMMON RETAINED AVAILABLE ESOP
STOCK SURPLUS EARNINGS FOR SALE SHARES TOTAL
----- ------- -------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ 21,059,560 $ 16,402,404 $ 3,159,000 ($ 33,412) $ 40,587,552
NET INCOME 3,898,807 3,898,807
CASH DIVIDENDS DECLARED
($0.32 PER SHARE) (1,530,849) (1,530,849)
8% STOCK DIVIDEND
(340,671 SHARES AT MARKET VALUE) 1,703,355 2,895,703 (4,599,058) 0
SHARES ISSUED UNDER DIVIDEND
REINVESTMENT PLAN (38,053 SHARES
AT 95% OF MARKET VALUE) 190,265 290,713 480,978
STOCK OPTIONS EXERCISED 118,685 64,133 182,818
RIGHTS EXERCISED 2,328,565 3,259,448 ($ 1,200,000) 4,388,013
AMORTIZATION OF UNEARNED
COMPENSATION 52,128 52,128
NET CHANGE IN UNREALIZED NET LOSS ON
SECURITIES AVAILABLE FOR SALE ( 1,388,549) ( 1,388,549)
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE, SEPTEMBER 30, 1996 $ 25,400,430 $ 22,912,401 $ 927,900 ($ 1,421,961) ($ 1,147,872) $ 46,670,898
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE, JANUARY 1, 1995 $ 18,764,095 $ 13,114,916 $ 5,201,989 ($ 910,530) $ 36,170,470
NET INCOME 3,429,132 3,429,132
CASH DIVIDENDS DECLARED
($0.43 PER SHARE) (1,932,701) (1,932,701)
10% STOCK DIVIDEND (378,222 SHARES
AT MARKET VALUE) 1,891,105 2,836,657 (4,727,762) 0
SHARES ISSUED UNDER DIVIDEND
REINVESTMENT PLAN (45,047 SHARES
AT 95% OF MARKET VALUE) 225,235 290,907 516,142
STOCK OPTIONS EXERCISED 110,240 65,138 175,378
NET CHANGE IN UNREALIZED NET LOSS ON
SECURITIES AVAILABLE FOR SALE 983,926 983,926
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE, SEPTEMBER 30, 1995 $ 20,990,675 $ 16,307,618 $ 1,970,658 $ 73,396 $ 39,342,347
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
(4)
<PAGE>
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 September 30, 1996 and December 31, 1995
and its consolidated results of operations for the three and nine months ended
September 30, 1996 and 1995 and changes in cash flows and stockholders' equity
for the nine months ended September 30, 1996 and 1995. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's 1995 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. The Company has 250,000 shares of preferred stock authorized.
No shares are issued as of September 30, 1996.
In connection with the rights offering in July 1996, the Bank's Employee Stock
Option Plan (the "ESOP") borrowed $1,200,000 from the Company to purchase
100,000 of the Company's shares. As such, the Company recorded a deduction from
stockholders' equity to reflect the unearned compensation for the shares. The
unearned ESOP shares, pledged as collateral for the ESOP loan, are held in a
suspense account and released for allocation among the participants as principal
and interest on the loan is repaid. As shares are released from the suspense
account, the Company recognizes compensation expense equal to the current market
price of the common shares; and, the shares become outstanding for earnings per
share computations. As of September 30, 1996, 4,344 shares of the 100,000
suspense shares have been released.
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 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.
(5)
<PAGE>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
- ----------------------------------
Activity in the allowance for possible loan losses for the nine months ended
September 30, 1996 and 1995 is as follows:
1996 1995
------------ ------------
Balance, January 1 $5,004,216 $4,928,521
Provision charged to income 1,125,000 1,125,000
Charge-offs, net of recoveries of
$80,921 in 1996 and $59,870 in 1995 (850,676) (774,866)
------------ ------------
Balance, September 30 $5,278,540 $5,278,655
============ ============
LOANS
- -----
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.
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 $7,036,429 at September 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
$1,996,442 and the amount of impaired collateral-dependent loans, measured based
on the fair value of the underlying collateral, is $5,039,987. As a result of
the Company's evaluation of impaired loans, an allowance for possible loan
losses of $1,323,980 and $1,177,013 was established for $6,359,941 and
$6,416,198 of the total impaired loans at September 30, 1996 and December 31,
1995, respectively, with the balance of impaired loans requiring no specific
allowance. The total average impaired loan balance was $7,034,415 for the
quarter ended September 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 $14,610 and
$34,054 during the three months ended September 30, 1996 and September 30, 1995,
respectively, and $65,235 and $63,837 during the nine months ended September 30,
1996 and September 30, 1995, respectively.
(6)
<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 $553.4 million at September 30, 1996, a decline of $97.6 million or
15.0% when compared to December 31, 1995. The reduction in assets 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
$41.0 million reduction in investment securities available for sale (due to
mortgage-backed securities (MBS) principal amortization coupled with sales and
maturities of the Company's U.S. Treasury portfolio). The loan portfolio
experienced strong growth during the first nine months of 1996. Total loans
outstanding at September 30, 1996 were $324.9 million, up $37.3 million or 13.0%
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 interest-bearing
funding sources, principally lower levels of savings deposits and borrowed
funds. Total deposits fell by $53.4 million or 10.7% as the result of an $84.4
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 $40.6 million
and $8.5 million, respectively, when compared to year-end 1995. Other short-term
borrowings declined by $2.0 million when compared to December 31, 1995 due to
seasonal variation in the utilization of Federal Home Loan Bank (FHLB) advances.
Partially offsetting the foregoing declines in funding were increases in demand
deposit balances (up $17.2 million or 23.6% due to both new and expanded
relationships with small businesses in the Company's service area) and time
deposits, up $13.7 million, mainly large denomination certificates of deposit.
Third quarter 1996 average assets advanced by $41.6 million or 8.0%, to $561.2
million, from the comparable 1995 quarter. Growth in loans of $56.2 million or
21.2%, primarily commercial loans and commercial mortgages, accounted for the
asset expansion. The Company's investment portfolio was down, on average, by
$24.1 million or 10.7% versus 1995, due to a restructuring of the portfolio.
Sales and maturities of U.S. Treasury and local municipal available for sale
issues were reinvested, in part, into higher-yielding Government Agency and MBS
paper. The balance of the portfolio's cash flow was utilized to fund the
aforementioned growth in loans. 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 approximately 5% of the
Company's total investment portfolio. Funding the growth in average assets were
increases in core deposits (primarily demand balances), short-term certificates
of deposit and borrowed funds. Average demand deposit balances were up 26.0%
versus the third quarter of 1995 mainly due to a continued influx of new
commercial customers. Retail savings balances, on average, have grown at a
moderate pace during 1996 as customers continue to support the Company's
Prosperity Savings product which has a variable interest rate tied to the 90-day
Treasury bill rate. Money fund balances have declined slightly on a year-to-year
basis largely through disintermediation to higher-yielding bank and non-bank
products.
(7)
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
At September 30, 1996, the Company maintained capital adequacy ratios
significantly 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 September 30, 1996 and
compares them to current regulatory guidelines and December 31 and September 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 were 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.
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:
September 30, 1996 8.33% 13.10% 14.35%
December 31, 1995 6.56% 11.35% 12.81%
September 30, 1995 7.23% 12.09% 13.74%
Regulatory Criteria for
a "Well Capitalized"
Institution 5.00% 6.00% 10.00%
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.
The Company's Funds Management Committee is responsible for oversight of the
liquidity position and management of the asset/liability structure. This
Committee monitors the loan and investment portfolios and also examines the
maturity structure, volatility characteristics and pricing of liabilities to
develop an optimum asset/liability mix. Funding sources available to the Company
include retail, commercial and municipal deposits, purchased liabilities and
stockholders' equity. If needed, for
(8)
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
short-term liquidity purposes, the Company has access to $17 million in informal
unsecured lines of credit extended by correspondent banks and up to $33 million
in FHLB lines of credit. The Company is able to utilize the FHLB as a source of
market rate funds for overnight or term borrowings with maturities of up to
thirty years. The Company does not utilize brokered deposits as a source of
funds nor has it engaged in any derivatives activities during 1995 or 1996 to
manage its liquidity or interest rate risk.
2. Material Changes in Results of Operations - Net income for the nine months
ended September 30, 1996 was $3,899,000, a 13.7% improvement over the comparable
1995 period due to an increase in net interest income and a 20.2% improvement in
other income. Higher earning asset levels, as previously discussed, coupled with
an 11 basis point improvement in the net interest spread (to 4.27%), accounted
for a 16.7% 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 loans, primarily commercial loans and commercial mortgages, and
Government Agency and MBS securities. Year-to-date earnings were negatively
impacted by a $294,000 (after-tax) one-time deposit assessment payable to the
Federal Deposit Insurance Corporation related to deposits acquired through a
1992 Oakar transaction. This payment resulted from recent Federal legislation to
recapitalize the Savings Association Insurance Fund. Excluding this one-time
Federally mandated payment, September year-to-date earnings would have been
22.3% higher than last year.
Excluding securities transactions, other income rose by 17.3% 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 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. The Company anticipates that the January 1997
introduction of its corporate cash management product will serve to enhance
noninterest revenue and assist in new business development next year.
Total operating expenses advanced by 16.6% during the first nine months of 1996
versus 1995. This increase would have been 11.7% excluding the one-time deposit
assessment fee previously discussed. Growth in salaries and employee benefits
expenses due to an increase in staff, an increase in deposit assessment fees 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 22.7% on a
year-to-year basis due to increases in marketing and advertising costs and audit
and examination fees, 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.
The Company's operating efficiency ratio (total operating expenses as a
percentage of fully taxable equivalent net revenue, excluding securities
transactions) was 59.7% for the nine months ended September 30, 1996 versus
58.4% during the comparable 1995 period. Excluding the deposit assessment fee,
the Company's operating efficiency ratio would have been 57.2% in 1996. This
ratio compares very favorably with the Company's peers.
(9)
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Nonperforming assets, defined by the Company as the sum of nonaccrual loans and
other real estate owned, totaled $8.9 million at September 30, 1996, up $0.6
million versus December 31, 1995. The increase in total nonperforming assets
since year end 1995 was due to the transfer of two properties to other real
estate owned. Management is confident that the sales of these properties 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 in excess
of 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. The Company has initiated foreclosure
proceedings on several properties utilized as collateral for commercial credits.
Management expects to transfer approximately $1.7 million in nonaccrual loans to
other real estate owned during the fourth quarter of this year.
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 certain other real estate owned.
The increase in loans 90 days or more past due and still accruing relates
largely to one credit totaling $4.5 million, which is collateralized by
commercial real estate with a current appraised value significantly in excess of
the carrying value of the credit. 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. In anticipation of a resolution of this
restructuring during the fourth quarter of 1996, the Company has already
recorded the reversal of a portion of the interest previously accrued during the
first nine months of the year. Future accruals will be at the lower,
restructured rate until the third quarter of 1997. In the event that this loan
is not restructured as anticipated, a further reversal of interest totaling
approximately $175,000 (after-tax) will need to be recorded during the fourth
quarter.
The decrease in restructured, accruing loans at September 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 $5.3 million or 1.62% of
total loans outstanding at September 30, 1996 versus 1.74% and 1.96% at December
31, 1995 and September 30, 1995, respectively. During the fourth quarter of 1996
and throughout 1997, the Company will continue to closely review the level of
the provision for possible loan losses and the adequacy of the allowance for
possible loan losses as it relates to the level of nonperforming loans and
current and anticipated growth in the loan portfolio. A further review of the
Company's nonperforming assets may be found in Table 2-3 following this
analysis.
(10)
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
==========================================================================
SEPTEMBER 30, 1996
- -------------------
TABLE 2-2 LIQUIDITY AND INTEREST RATE SENSITIVITY
- ------------------- ==========================================================================
<CAPTION>
=======================================================================
($ IN THOUSANDS) SENSITIVITY TIME HORIZON
- ------------------------------------ Over Noninterest
INTEREST - SENSITIVE ASSETS : 1) 0-6 Months 6-12 Months 1-5 Years 5 Years Sensitive Total
- ------------------------------------ =======================================================================
<S> <C> <C> <C> <C> <C> <C>
Loans (net of unearned income) 2) $ 213,036 $ 18,519 $ 55,917 $ 29,399 $ 8,026 $ 324,897
Securities Held to Maturity 3) 3,401 25,597 131 56 0 29,185
Securities Available for Sale 15,787 22,488 71,994 53,607 1,971 165,847
Unrealized Net Loss on Securities
Available for Sale (2,408) 0 0 0 0 (2,408)
--------- --------- --------- --------- --------- ---------
Total Interest-Sensitive Assets 229,816 66,604 128,042 83,062 9,997 517,521
Cash and Due from Banks 26,710 0 0 0 0 26,710
All Other Assets 6) 3,466 2,114 0 0 3,544 9,124
--------- --------- --------- --------- --------- ---------
Total Assets $ 259,992 $ 68,718 $ 128,042 $ 83,062 $ 13,541 $ 553,355
--------- --------- --------- --------- --------- ---------
- ------------------------------------
INTEREST - BEARING LIABILITIES : 1)
- ------------------------------------
Savings Accounts 4) $ 10,939 $ 10,939 $ 87,510 $ 0 $ 0 $ 109,388
Money Fund and Now Accounts 5) 25,767 13,228 13,228 0 0 52,223
Time Deposits 6) 146,558 18,835 26,951 323 0 192,667
--------- --------- --------- --------- --------- ---------
Total Interest-Bearing Liabilities 183,264 43,002 127,689 323 0 354,278
Securities Sold Under Agreements to Repurchase,
Federal Funds Purchased, and Other Borrowings 59,119 0 0 0 0 59,119
All Other Liabilities, Equity and
Demand Deposits 7) 3,120 48 94 0 136,696 139,958
--------- --------- --------- --------- --------- ---------
Total Liabilities and Equity $ 245,503 $ 43,050 $ 127,783 $ 323 $ 136,696 $ 553,355
--------- --------- --------- --------- --------- ---------
Cumulative Interest-Sensitivity Gap $ 14,489 $ 40,157 $ 40,416 $ 123,155 $ 0 $ 0
--------- --------- --------- --------- --------- ---------
Cumulative Interest-Sensitivity Ratio 105.9% 113.9% 109.7% 129.6% 100.0% 100.0%
Cumulative Interest-Sensitivity Gap
As a % of Total Assets 5.6% 12.2% 8.8% 22.8% -- % -- %
<FN>
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, partnerships 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.
</FN>
</TABLE>
(11)
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
- -----------------------
TABLE 2 - 3
- -----------------------
- ------------------------------------------------------------------------------
STATE BANCORP, INC.
ANALYSIS OF NONPERFORMING ASSETS AND THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
SEPTEMBER 30, 1996 VERSUS DECEMBER 31, 1995 AND SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------
NONPERFORMING ASSETS BY TYPE: PERIOD ENDED:
- ----------------------------- ---------------------------------
9/30/96 12/31/95 9/30/95
--------- --------- ---------
NONACCRUAL LOANS $ 8,026 $ 8,247 $ 7,607
OTHER REAL ESTATE OWNED 835 0 57
--------- --------- ---------
TOTAL NONPERFORMING ASSETS $ 8,861 $ 8,247 $ 7,664
--------- --------- ---------
RESTRUCTURED, ACCRUING LOANS $ 1,709 $ 3,344 $ 2,818
LOANS 90 DAYS OR MORE PAST DUE
AND STILL ACCRUING $ 7,167(1)$ 337 $ 1,946
GROSS LOANS OUTSTANDING $ 324,969 $ 287,643 $ 269,954
TOTAL STOCKHOLDERS' EQUITY $ 46,671 $ 40,588 $ 39,342
ANALYSIS OF THE ALLOWANCE FOR QUARTER ENDED:
POSSIBLE LOAN LOSSES: ---------------------------------
- ----------------------------- 9/30/96 12/31/95 9/30/95
--------- --------- ---------
BEGINNING BALANCE $ 5,180 $ 5,279 $ 4,970
PROVISION 375 75 375
NET CHARGE-OFFS (276) (350) (66)
--------- --------- ---------
ENDING BALANCE $ 5,279 $ 5,004 $ 5,279
--------- --------- ---------
KEY RATIOS AT PERIOD-END:
- -----------------------------
ALLOWANCE AS A % OF TOTAL LOANS 1.62% 1.74% 1.96%
NONACCRUAL LOANS AS A % OF TOTAL LOANS 2.47% 2.87% 2.82%
NONPERFORMING ASSETS (2) AS A % OF TOTAL
LOANS AND OTHER REAL ESTATE OWNED 2.72% 2.87% 2.84%
ALLOWANCE FOR POSSIBLE LOAN LOSSES AS
A % OF NONACCRUAL LOANS 65.77% 60.68% 69.40%
ALLOWANCE FOR POSSIBLE LOAN LOSSES AS A %
OF NONACCRUAL LOANS, OTHER REAL ESTATE
OWNED, RESTRUCTURED, ACCRUING LOANS
AND LOANS 90 DAYS OR MORE PAST DUE AND
STILL ACCRUING 29.76% 41.95% 42.48%
(1) INCLUDES ONE CREDIT TOTALING $4.5 MILLION WHICH IS EXPECTED TO BE
RESTRUCTURED AND BROUGHT CURRENT DURING THE FOURTH QUARTER OF 1996. SEE
MANAGEMENT'S DISCUSSION AND ANALYSIS SECTION FOR A MORE COMPLETE
DESCRIPTION OF THIS CREDIT.
(2) EXCLUDES RESTRUCTURED, ACCRUING LOANS AND LOANS 90 DAYS OR MORE PAST DUE
AND STILL ACCRUING.
(12)
<PAGE>
PART II
-------
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
On August 9, 1996, the Company filed a report on Form 8-K indicating that on
August 2, 1996, the Company issued 465,713 shares of common stock in connection
with its recently completed Rights Offering. Shares were sold at a price of
$12.00 per share to stockholders of record as of April 26, 1996. Net proceeds
were added to the Company's equity capital base to increase its capacity for
growth and for other working capital needs.
(13)
<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.
11/12/96 s/Daniel T. Rowe
- -------- ----------------
Date Daniel T. Rowe, Secretary
(Principal Financial Officer)
11/12/96 s/Brian K. Finneran
- -------- -------------------
Date Brian K. Finneran, Comptroller
(14)
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000723458
<NAME> STATE BANCORP INC
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 26,584,684
<INT-BEARING-DEPOSITS> 125,122
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 165,847,090
<INVESTMENTS-CARRYING> 29,184,672
<INVESTMENTS-MARKET> 29,160,857
<LOANS> 324,897,071
<ALLOWANCE> 5,278,540
<TOTAL-ASSETS> 553,355,029
<DEPOSITS> 444,303,024
<SHORT-TERM> 59,118,671
<LIABILITIES-OTHER> 3,262,436
<LONG-TERM> 0
0
0
<COMMON> 25,400,430
<OTHER-SE> 21,270,468
<TOTAL-LIABILITIES-AND-EQUITY> 553,355,029
<INTEREST-LOAN> 21,333,312
<INTEREST-INVEST> 9,599,641
<INTEREST-OTHER> 867,207
<INTEREST-TOTAL> 31,800,160
<INTEREST-DEPOSIT> 12,887,519
<INTEREST-EXPENSE> 14,147,111
<INTEREST-INCOME-NET> 17,653,049
<LOAN-LOSSES> 1,125,000
<SECURITIES-GAINS> (27,477)
<EXPENSE-OTHER> 11,718,157
<INCOME-PRETAX> 6,078,918
<INCOME-PRE-EXTRAORDINARY> 3,898,807
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,898,807
<EPS-PRIMARY> 0.83
<EPS-DILUTED> 0.83
<YIELD-ACTUAL> 7.74
<LOANS-NON> 8,026,484
<LOANS-PAST> 7,167,080
<LOANS-TROUBLED> 1,708,627
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,004,216
<CHARGE-OFFS> 931,597
<RECOVERIES> 80,921
<ALLOWANCE-CLOSE> 5,278,540
<ALLOWANCE-DOMESTIC> 3,554,112
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,724,428
</TABLE>
