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, 1997
[ ] 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 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, 1997, there were 6,099,973 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, 1997 and December 31, 1996
(Unaudited) 1.
Statements of Consolidated Earnings for the Three and Nine Months
Ended September 30, 1997 and 1996 (Unaudited) 2.
Statements of Consolidated Cash Flows for the Nine Months Ended
September 30, 1997 and 1996 (Unaudited) 3.
Statements of Consolidated Stockholders' Equity for the Nine Months
Ended September 30, 1997 and 1996 (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 - None N/A
SIGNATURES 14.
<PAGE>
- -----------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS
- -----------------------------------------------------
- -----------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 (UNAUDITED)
- -----------------------------------------------------
- -----------------------------------------------------
ASSETS: 1997 1996
- ----------------------------------------------------- ----------- -------------
CASH AND DUE FROM BANKS $20,696,386 $34,676,593
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL 20,000,000 30,000,000
------------- -------------
CASH AND CASH EQUIVALENTS 40,696,386 64,676,593
SECURITIES:
HELD TO MATURITY (APPROXIMATE MARKET VALUE -
$6,579,213 IN 1997 AND $30,486,626 IN 1996) 6,575,766 30,469,524
AVAILABLE FOR SALE - AT MARKET VALUE 233,566,707 156,931,674
------------- -------------
TOTAL SECURITIES 240,142,473 187,401,198
LOANS - NET OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
($5,151,771 IN 1997 AND $5,008,965 IN 1996) 367,019,377 348,293,930
BANK PREMISES AND EQUIPMENT - NET 3,328,650 2,996,124
OTHER ASSETS 11,991,966 12,049,810
- -------------------------------------------------- ------------- -------------
TOTAL ASSETS $663,178,852 $615,417,655
- -------------------------------------------------- ============= =============
- --------------------------------------------------
LIABILITIES:
- --------------------------------------------------
DEPOSITS:
DEMAND $99,131,900 $96,600,418
SAVINGS 160,402,566 200,744,964
TIME 259,703,690 177,105,107
------------- -------------
TOTAL DEPOSITS 519,238,156 474,450,489
FEDERAL FUNDS PURCHASED 14,500,000 3,600,000
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 51,946,000 74,079,000
OTHER SHORT-TERM BORROWINGS 21,000,000 12,000,000
ACCRUED EXPENSES, TAXES AND OTHER LIABILITIES 3,164,310 2,718,695
- -------------------------------------------------- ------------- -------------
TOTAL LIABILITIES 609,848,466 566,848,184
- -------------------------------------------------- ------------- -------------
- --------------------------------------------------
STOCKHOLDERS' EQUITY:
- --------------------------------------------------
PREFERRED STOCK, $.01 PAR VALUE, AUTHORIZED
250,000 SHARES 0 0
COMMON STOCK, $5.00 PAR VALUE, AUTHORIZED
20,000,000 SHARES; ISSUED 6,178,805 SHARES IN 1997
AND 5,101,048 SHARES IN 1996; OUTSTANDING 6,088,599
SHARES IN 1997 AND 5,013,883 SHARES IN 1996 30,894,025 25,505,240
SURPLUS 18,230,361 22,915,331
RETAINED EARNINGS 5,426,479 2,130,980
UNREALIZED NET LOSS ON SECURITIES AVAILABLE
FOR SALE (NET OF DEFERRED INCOME TAX BENEFIT
OF $220,821 IN 1997 AND $649,167 IN 1996) (318,425) (936,100)
UNEARNED COMPENSATION (902,054) (1,045,980)
- -------------------------------------------------- ------------- -------------
TOTAL STOCKHOLDERS' EQUITY 53,330,386 48,569,471
- -------------------------------------------------- ------------- -------------
- --------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $663,178,852 $615,417,655
- -------------------------------------------------- ============= =============
(1)
<PAGE>
- ------------------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------
<TABLE>
- -----------------------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED EARNINGS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
- -----------------------------------------------------------------------------
<CAPTION>
--------------------------------- ----------------------------------
THREE MONTHS NINE MONTHS
--------------------------------- ----------------------------------
--------------- --------------- -------------- ----------------
1997 1996 1997 1996
--------------- --------------- -------------- ----------------
- ------------------------------------------------
INTEREST INCOME:
- ------------------------------------------------
<S> <C> <C> <C> <C>
LOANS $ 8,655,327 $ 7,347,241 $ 25,392,489 $ 21,333,312
FEDERAL FUNDS SOLD AND SECURITIES
PURCHASED UNDER AGREEMENTS TO RESELL 229,701 130,738 1,365,823 863,607
SECURITIES HELD TO MATURITY AND
SECURITIES AVAILABLE FOR SALE:
U.S. TREASURY SECURITIES 0 41,929 0 648,878
STATES AND POLITICAL SUBDIVISIONS 432,515 400,927 1,501,166 1,146,548
MORTGAGE-BACKED SECURITIES 1,177,363 1,766,123 3,801,356 6,131,813
GOVERNMENT AGENCY SECURITIES 1,817,246 691,709 4,943,731 1,587,555
OTHER SECURITIES 32,414 32,831 96,488 88,447
------------ ------------ ------------ ------------
TOTAL INTEREST INCOME 12,344,566 10,411,498 37,101,053 31,800,160
------------ ------------ ------------ ------------
- ------------------------------------------------
INTEREST EXPENSE:
- ------------------------------------------------
TIME CERTIFICATES OF DEPOSIT OF $100,000 OR MORE 2,600,650 1,770,084 7,298,373 5,503,866
OTHER DEPOSITS AND TEMPORARY BORROWINGS 2,905,656 2,752,371 9,078,924 8,643,245
------------ ------------ ------------ ------------
TOTAL INTEREST EXPENSE 5,506,306 4,522,455 16,377,297 14,147,111
------------ ------------ ------------ ------------
NET INTEREST INCOME 6,838,260 5,889,043 20,723,756 17,653,049
PROVISION FOR POSSIBLE LOAN LOSSES 450,000 375,000 1,500,000 1,125,000
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 6,388,260 5,514,043 19,223,756 16,528,049
------------ ------------ ------------ ------------
- ------------------------------------------------
OTHER INCOME:
- ------------------------------------------------
SERVICE CHARGES ON DEPOSIT ACCOUNTS 291,865 324,827 916,999 990,388
NET SECURITY LOSSES (30,457) (40,971) (84,794) (27,477)
OTHER OPERATING INCOME 102,994 102,362 321,167 306,115
------------ ------------ ------------ ------------
TOTAL OTHER INCOME 364,402 386,218 1,153,372 1,269,026
------------ ------------ ------------ ------------
INCOME BEFORE OPERATING EXPENSES 6,752,662 5,900,261 20,377,128 17,797,075
------------ ------------ ------------ ------------
- ------------------------------------------------
OPERATING EXPENSES:
- ------------------------------------------------
SALARIES AND OTHER EMPLOYEE BENEFITS 2,476,272 2,179,253 7,273,846 6,585,566
OCCUPANCY 382,062 327,974 1,116,406 999,857
EQUIPMENT 149,751 128,740 436,539 387,379
DEPOSIT ASSESSMENT FEES 32,885 574,463 96,703 728,553
AMORTIZATION OF INTANGIBLES 124,184 152,220 426,757 456,662
OTHER OPERATING EXPENSES 1,070,784 934,819 2,938,118 2,560,140
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 4,235,938 4,297,469 12,288,369 11,718,157
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 2,516,724 1,602,792 8,088,759 6,078,918
PROVISION FOR INCOME TAXES 894,449 544,864 2,852,968 2,180,111
- ------------------------------------------------ ------------ ------------ ------------ ------------
NET INCOME $ 1,622,275 $ 1,057,928 $ 5,235,791 $ 3,898,807
- ------------------------------------------------ ------------ ------------ ------------ ------------
- ------------------------------------------------
EARNINGS PER COMMON SHARE $ 0.26 $ 0.18 $ 0.86 $ 0.69
- ------------------------------------------------ ------------ ------------ ------------ ------------
- ------------------------------------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,083,033 5,888,352 6,058,795 5,620,143
- ------------------------------------------------ ------------ ------------ ------------ ------------
</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, 1997 AND 1996 (UNAUDITED)
- ----------------------------------------------------------------
- ---------------------------------------------------- ----------- ------------
OPERATING ACTIVITIES: 1997 1996
- ---------------------------------------------------- ----------- ------------
NET INCOME $5,235,791 $3,898,807
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR POSSIBLE LOAN LOSSES 1,500,000 1,125,000
DEPRECIATION AND AMORTIZATION OF BANK
PREMISES AND EQUIPMENT 399,810 407,022
AMORTIZATION OF INTANGIBLES 426,757 456,662
AMORTIZATION OF NET PREMIUM ON SECURITIES 1,142,529 1,047,657
AMORTIZATION OF UNEARNED COMPENSATION 210,544 52,128
NET SECURITY LOSSES 84,794 27,477
GAIN ON SALE OF OTHER REAL ESTATE OWNED ("OREO") (56,680) 0
(INCREASE) DECREASE IN OTHER ASSETS (1,823,923) 139,650
INCREASE IN ACCRUED EXPENSES, TAXES
AND OTHER LIABILITIES 314,745 680,811
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,434,367 7,835,214
------------ ------------
- -----------------------------------------------------
INVESTING ACTIVITIES:
- -----------------------------------------------------
PROCEEDS FROM MATURITIES OF SECURITIES HELD
TO MATURITY 31,558,512 26,180,740
PURCHASES OF SECURITIES HELD TO MATURITY (7,707,701) (27,181,318)
PROCEEDS FROM SALES OF SECURITIES AVAILABLE
FOR SALE 162,741,639 103,367,994
PROCEEDS FROM MATURITIES OF SECURITIES AVAILABLE
FOR SALE 101,759,853 77,810,627
PURCHASES OF SECURITIES AVAILABLE FOR SALE (341,274,880)(143,613,833)
INCREASE IN LOANS - NET (20,225,447) (38,169,006)
PROCEEDS FROM SALE OF OREO 1,083,343 0
PURCHASES OF BANK PREMISES AND EQUIPMENT - NET (732,336) (535,655)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (72,797,017) (2,140,451)
------------ ------------
- -----------------------------------------------------
FINANCING ACTIVITIES:
- -----------------------------------------------------
DECREASE IN DEMAND AND SAVINGS DEPOSITS (37,810,916) (67,155,644)
INCREASE IN TIME DEPOSITS 82,598,583 13,718,714
INCREASE (DECREASE) IN FEDERAL FUNDS PURCHASED 10,900,000 (8,500,000)
DECREASE IN SECURITIES SOLD UNDER AGREEMENTS
TO REPURCHASE (22,133,000) (40,599,103)
INCREASE (DECREASE) IN OTHER SHORT-TERM
BORROWINGS 9,000,000 (2,000,000)
CASH DIVIDENDS PAID (1,809,421) (1,354,411)
PROCEEDS FROM SHARES ISSUED UNDER DIVIDEND
REINVESTMENT PLAN 587,045 480,978
PROCEEDS FROM STOCK OPTIONS EXERCISED 50,152 182,818
PROCEEDS FROM RIGHTS EXERCISED 0 4,388,013
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 41,382,443 (100,838,635)
------------ ------------
- -----------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (23,980,207) (95,143,872)
- -----------------------------------------------------
- -----------------------------------------------------
CASH AND CASH EQUIVALENTS - JANUARY 1 64,676,593 121,853,678
- -----------------------------------------------------
- ----------------------------------------------------- ----------- ------------
CASH AND CASH EQUIVALENTS - SEPTEMBER 30 $40,696,386 $26,709,806
- ----------------------------------------------------- ----------- ------------
- -----------------------------------------------------
SUPPLEMENTAL DATA:
- -----------------------------------------------------
INTEREST PAID $16,332,717 $14,284,390
INCOME TAXES PAID $3,298,779 $2,763,875
TRANSFERS FROM LOANS TO OTHER REAL ESTATE OWNED $0 $835,000
ADJUSTMENT TO UNREALIZED NET LOSS ON SECURITIES
AVAILABLE FOR SALE $1,046,021 ($2,351,194)
DIVIDENDS DECLARED BUT NOT PAID AS OF QUARTER
END $730,997 $597,610
(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, 1997 AND 1996 (UNAUDITED)
- --------------------------------------------------------------------
<CAPTION>
UNREALIZED
NET (LOSS)
GAIN ON
SECURITIES UNEARNED
COMMON RETAINED AVAILABLE COMPEN-
STOCK SURPLUS EARNINGS FOR SALE SATION TOTAL
----- ------- -------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 $ 25,505,240 $ 22,915,331 $ 2,130,980 ($ 936,100) ($ 1,045,980) $ 48,569,471
NET INCOME 5,235,791 5,235,791
CASH DIVIDENDS DECLARED
($0.32 PER SHARE) (1,940,292) (1,940,292)
6 FOR 5 STOCK SPLIT (1,026,672 SHARES 5,133,360 (5,133,360) 0
AT $5.00 PAR VALUE)
SHARES ISSUED UNDER DIVIDEND
REINVESTMENT PLAN (43,207 SHARES
AT 95% OF MARKET VALUE) 216,035 371,010 587,045
STOCK OPTIONS EXERCISED 39,390 10,762 50,152
AMORTIZATION OF UNEARNED
COMPENSATION 66,618 143,926 210,544
NET CHANGE IN UNREALIZED NET LOSS
ON SECURITIES AVAILABLE FOR SALE 617,675 617,675
- ------------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE, SEPTEMEBR 30, 1997 $ 30,894,025 $ 18,230,361 $ 5,426,479 ($ 318,425) ($ 902,054) $ 53,330,386
- ------------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
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
($0.27 PER SHARE) (1,530,849) (1,530,849)
8% STOCK DIVIDEND ISSUED
(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
AMORTIZATON 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
- ------------------------------------ ------------ ------------ ------------ ------------- ------------ -------------
</TABLE>
(4)
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------
FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
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, 1997 and December 31, 1996,
its consolidated earnings for the three and nine months ended September 30, 1997
and 1996 and cash flows and changes in stockholders' equity for the nine months
ended September 30, 1997 and 1996. The results of operations for the nine months
ended September 30, 1997 are not necessarily indicative of the results of
operations to be expected for the remainder of the year. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's 1996 annual report on Form 10-K. Certain
amounts have been reclassified to conform with the current year's presentation.
STOCKHOLDERS' EQUITY
- --------------------
The Company has 250,000 shares of preferred stock authorized. No shares were
issued as of September 30, 1997.
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 recognizes 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 legally released for allocation among the participants as
principal and interest on the loan is repaid annually. Shares are committed to
be released monthly from the suspense account and the Company recognizes
compensation expense equal to the current market price of the common shares. As
of September 30, 1997, 29,794 shares have been released from the suspense
account and are considered outstanding for earnings per share computations.
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 and
splits. 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>
LOANS
- -----
As a result of the Company's evaluation of impaired loans, an allowance for
possible loan losses of $1,012,387 and $1,244,000 was established for $8,943,372
and $ 8,602,044 of the total impaired loans at September 30, 1997 and December
31, 1996, respectively, with the balance of impaired loans requiring no specific
allowance. The total average impaired loan balance was $9,603,733 for the
quarter ended September 30, 1997 and $7,428,255 for the year ended December 31,
1996. Total impaired loans amounted to $9,608,449 at September 30, 1997 and
$9,278,532 at December 31, 1996. 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 $6,350,141 and the amount of impaired
collateral-dependent loans, measured based on the fair value of the underlying
collateral, is $3,258,308. Total interest income recognized for impaired,
nonaccrual and restructured loans was $125,606 and $14,610 during the three
months ended September 30, 1997 and 1996, respectively, and $302,284 and $65,235
during the nine months ended September 30, 1997 and 1996, respectively.
Activity in the allowance for possible loan losses for the nine months ended
September 30, 1997 and 1996 is as follows:
1997 1996
---- ----
Balance, January 1 $5,008,965 $5,004,216
Provision charged to income 1,500,000 1,125,000
Charge-offs, net of recoveries of
$109,357 in 1997 and $80,921 in 1996 (1,357,194) (850,676)
----------- -----------
Balance, September 30 $5,151,771 $5,278,540
=========== ===========
(6)
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1. Material Changes in Financial Condition - As of September 30, 1997, total
assets of the Company were $663.2 million, an increase of $47.8 million or 7.8%
when compared to December 31, 1996. Growth in available for sale investment
securities (up $76.6 million), primarily due to purchases of callable government
Agency paper, coupled with an increase in the loan portfolio (up $18.7 million),
accounted for the expanded asset base. The growth in holdings of callable Agency
securities have replaced lower-yielding municipal notes and short-term
securities purchased under agreements to resell (SPUARs), which had been
utilized as a vehicle to secure various deposits. This shift in the asset mix
helped to widen the Company's net interest rate spread for the nine months ended
September 30, 1997 to 4.38% from 4.27% during the comparable 1996 period.
Somewhat offsetting the foregoing increases were declines in held to maturity
investment securities (down $23.9 million) primarily local municipal issues
which matured during the third quarter, and securities purchased under
agreements to resell (down $10.0 million), along with a lower level of cash and
due from banks (down $14.0 million).
The Company's loan portfolio increased by 5.3% in the September 1997
year-to-date period, largely as a result of growth achieved during the third
quarter of the year. Higher levels of commercial loans and commercial mortgages
continue to account for the growth in the portfolio. Principal amortization,
normal clean-up activity and the loss of several large credits due to
acquisitions of certain customers offset a large portion of the new business
that was generated during the first nine months of the year. Continued
consolidation among local commercial bank competitors has provided some
additional opportunity to expand the loan portfolio. Management anticipates that
expansion of the loan portfolio will continue during the last quarter of the
year, with year-to-year growth of approximately 5% - 7% an achievable target.
This modest growth scenario, however, may result in compression of the net
interest rate spread during the fourth quarter of 1997.
Funding the first nine-months increase in assets, total deposits expanded by
$44.8 million, or 9.4%, to $519.2 million when compared to December 31, 1996.
This growth was due to advances in demand deposits (up $2.5 million) and time
deposits, primarily municipal CD's over $100M with maturities of less than three
months. The growth in demand and time balances offset a lower level of savings
deposits resulting from seasonal outflows of municipal balances. The Company
also experienced a net decrease in short-term borrowings of $2.2 million
resulting from a $22.1 million decline in securities sold under agreements to
repurchase (SSUARs). Somewhat offsetting the lower level of SSUARs were
increases of $10.9 million in overnight Federal funds purchased and $9.0 million
in other short-term borrowings (Federal Home Loan Bank overnight advance).
Third quarter average assets grew by $76.4 million, or 13.6%, to $637.6 million
from the comparable 1996 period. Significant growth in all interest-earning
asset categories accounted for the asset
(7)
<PAGE>
expansion. Average loans increased by 12.0% to $360.0 million, primarily
commercial loans and commercial mortgages. This growth, coupled with a $30.3
million or 15.1% increase in investment securities, were the largest
contributors to the asset expansion. In addition, Federal funds sold and SPUARs
increased by $6.6 million, largely the result of ongoing municipal
collateralization activity. Funding of the third quarter asset growth was
principally accomplished through growth in certificates of deposit over $100,000
in the retail, commercial and municipal sectors. A $9.5 million increase in core
deposits (demand deposits, Super NOW, savings and money fund accounts),
primarily demand deposits and Super NOW accounts, also contributed to the
increase in deposits during 1997. Core deposits now comprise approximately 50%
of total deposits, down slightly from their 1996 level. In addition, growth in
Federal funds purchased, SSUARs, other borrowed funds and stockholders' equity
also contributed to the increase in funding. The net result of these activities
was a change in the mix of the Company's balance sheet that resulted in a 4
basis point widening of the third quarter net interest rate spread to 4.43%.
Additionally, during the third quarter, the Company's returns on average assets
and average stockholders' equity each increased over comparable 1996 levels to
1.01% and 12.25%, respectively. For the nine months ended September 30, 1997,
the Company's returns on average assets and average stockholders' equity were
1.06% and 13.79%, respectively, versus 0.91% and 12.24% a year ago.
A strong capital position is absolutely essential to support continued growth
and profitability, to serve the ongoing needs of depositors and creditors, and
to yield an attractive and competitive rate of return to stockholders. At
September 30, 1997, the Company continued to maintain 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). Total stockholders'
equity amounted to $53.3 million at September 30, 1997, an increase of $4.8
million or 9.8% versus the comparable 1996 date. Excluding valuations related to
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" at September 30, 1997 and 1996, total
stockholders' equity grew at a year-to-year rate of 8.4%. The following table
(2-1) summarizes the Company's capital ratios as of September 30, 1997 and
compares them to current regulatory guidelines and December 31 and September 30,
1996 actual results.
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, 1997 8.32% 12.67% 13.91%
December 31, 1996 7.71% 12.48% 13.73%
September 30, 1996 8.33% 13.10% 14.35%
Regulatory Criteria for
a "Well Capitalized"
Institution 5.00% 6.00% 10.00%
(8)
<PAGE>
Liquidity management is an integral part of the Company's business strategy. The
objective of liquidity management is to ensure the ability to access funding
which will enable the Company to 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. After assessing actual and projected cash flow needs, management seeks
to obtain funding at the most economical cost to the Company. Throughout the
first nine months of 1997, the Company's liquidity position remained stable and
well within acceptable industry standards. As previously described, low-cost
core deposit balances continued to grow during the first three quarters of the
year, while at the same time, paydowns on mortgage-backed securities coupled
with calls of Government agency securities also provided a source of readily
available funds to meet general liquidity needs. In addition to the foregoing,
at September 30, 1997, the Company had access to $39 million in Federal Home
Loan Bank lines of credit for overnight or term borrowings with maturities of up
to thirty years. The Company also had $16.5 million in informal lines of credit
extended by correspondent banks to be utilized, if needed, for short-term
funding purposes.
2. Material Changes in Results of Operations - Net income for the nine months
ended September 30, 1997 was $5,236,000, a 34.3% increase over the comparable
1996 period. The improvement in earnings in 1997 resulted from an 17.4% increase
in net interest income, an 86.7% reduction in deposit assessment fees and a
lower effective income tax rate. The lower effective tax rate resulted from an
increase in tax-exempt municipal income recorded during 1997 coupled with the
phase-out of the New York State MTA tax surcharge on July 1, 1996. Offsetting
these improvements somewhat were increases in total operating expenses,
primarily salaries and employee benefits, and the provision for loan losses, (up
33.3%) due to continued growth in the loan portfolio, along with a decline in
other income during the first nine months of 1997.
The increase in net interest income, up $3.1 million to $20.7 million, resulted
from an expanded interest-earning asset base, principally commercial loans,
commercial mortgages and callable Government Agency securities, coupled with a
wider net interest rate spread. Average loans outstanding were up by 16.5%
during the first nine months of 1997 versus the comparable 1996 period. An
expanded lending staff, an improved economy and continued consolidation in the
local banking market have been the driving forces behind this growth. Management
anticipates that recently introduced products such as the Company's small
business line of credit, combined with focused calling efforts in targeted
markets and industries, will provide ample opportunity to continue the loan
portfolio expansion during the fourth quarter of 1997 and into early 1998.
The Company's investment portfolio grew, on average, by 7.2% during the first
nine months of 1997 versus 1996. Purchases of callable Agency securities (up
$65.7 million) and short-term tax-exempt municipal issues (up $14.0 million)
more than offset paydowns on mortgage-backed issues and maturities of Treasury
notes. The Company has continued its active acquisition of Agency securities
throughout the first nine months of 1997 due to their attractive yields and
their pledgeability to secure municipal deposits.
(9)
<PAGE>
September 1997 year-to-date other income declined by 9.1%, the result of a
decline in service charges on deposit accounts, primarily overdraft fees, and a
greater level of losses incurred on the sale of investment securities. Excluding
the impact of securities transactions, other income decreased by 4.5% in 1997.
Other operating income improved by 4.9% versus the comparable 1996 period, due
to higher fees from an expanded user base of the Company's cash management
system along with an increase in fees from processing merchant credit card
items, wire transfers, and ATM transactions.
Total operating expenses increased by 4.9% during the first nine months of 1997,
mainly due to increases in salaries and employee benefits arising from staff
expansion in the lending group and product support areas along with increases in
supplementary compensation costs related to incentive compensation plans and
retirement plan contributions to fund the Company's 401(k) and employee stock
ownership plans. Occupancy costs were up due to additional space occupied at the
Company's regional lending facility in Jericho. In addition, other operating
expenses grew due to an increase in marketing and advertising initiatives,
higher costs related to external audits and exams, commercial insurance
policies, credit and collection efforts and computer hardware and software
maintenance. Somewhat offsetting the operating expense increases previously
described was a decline in Federal Deposit Insurance Corporation ("FDIC")
assessment expenses, coupled with reductions in consulting fees and directors'
retirement plan expenses. The decline in FDIC expenses was due largely to a $498
thousand one-time assessment accrued during the third quarter of 1996 to
recapitalize the Savings Association Insurance Fund.
Despite the increase in total operating expenses thus far in 1997, the Company's
operating efficiency ratio (total operating expenses as a percentage of fully
taxable equivalent net interest revenue, excluding securities transactions)
declined to 54.0% during the first nine months of 1997 versus 59.7% a year ago.
The Company's ratio of total operating expenses to average total assets was
2.23% and 2.45% during the same periods, respectively. These ratios place the
Company in the top 15% of its peer group for this efficiency measure. Management
of the Company is encouraged by the ongoing trend of improvement in these ratios
and it continues to be the Company's stated goal to reduce each of these ratios
even further as part of its efforts to improve efficiencies and, ultimately,
stockholder value.
Nonperforming assets (defined by the Company as nonaccrual loans and other real
estate owned) totaled $4.9 million at September 30, 1997, a decline of $2.0
million versus December 31, 1996 and $4.0 million versus September 30, 1996. The
primary reasons for the decline in nonperforming assets at September 30, 1997
versus year-end 1996 were sales, during 1997, of two properties classified as
other real estate owned and the charge-off of several nonaccrual credits. The
sales of other real estate owned each resulted in small gains which were
recorded as credits to other operating expenses. The level of restructured,
accruing loans at September 30, 1997 decreased nominally by $0.3 million when
compared to year-end 1996. Restructured loans continue to accrue and pay
interest in accordance with their revised terms. As outlined in the Company's
1996 Annual Report to Stockholders, restructured, accruing loans includes $5.0
million related to one credit which is collateralized by commercial real estate
with a
(10)
<PAGE>
current appraised value in excess of the carrying value of the credit. The
restructured rate on this credit will remain below the contractual rate 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
first quarter of 1998. An increase of $375 thousand in the provision for
possible loan losses versus the comparable 1996 period, resulted from continued
growth in the loan portfolio. The allowance for possible loan losses amounted to
$5.2 million or 1.38% of total loans at September 30, 1997 versus $5.3 million
and 1.62% at the comparable 1996 date. The allowance for possible loan losses as
a percentage of nonaccrual loans improved to 105.1% from 85.4% and 65.8% at
December 31, 1996 and September 30, 1996, respectively. Nonperforming assets (as
defined by the Company) as a percentage of total loans and other real estate
owned was 1.32%, 1.95% and 2.72% at September 30, 1997, December 31, 1996 and
September 30, 1996, respectively. Management of the Company has determined that
the current level of the allowance for possible loan losses is adequate in
relation to the risks present in the portfolio. The Company's loan portfolio is
primarily comprised of commercial and industrial loans and commercial mortgages,
the majority of which are secured by collateral with a market value in excess of
the carrying amounts of the individual loans. A further review of the Company's
nonperforming assets may be found in Table 2-3 following this analysis.
(11)
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
===============================================================================
SEPTEMBER 30, 1997
- -----------------
TABLE 2-2 LIQUIDITY AND INTEREST RATE SENSITIVITY
- ----------------- ===============================================================================
<CAPTION>
==================================================================
SENSITIVITY TIME HORIZON
($ IN THOUSANDS)
- --------------------------------------------------------- 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) $ 242,977 $ 21,212 $ 62,476 $ 40,602 $ 4,904 $ 372,171
Securities Purchased Under Agreements to Resell
and Federal Funds Sold 20,000 0 0 0 0 20,000
Securities Held to Maturity 2,713 3,733 88 42 0 6,576
Securities Available for Sale 3) 57,188 88,531 49,638 38,731 18 234,106
--------- --------- --------- --------- --------- ---------
Total Interest-Earning Assets 322,878 113,476 112,202 79,375 4,922 632,853
Unrealized Net Loss on Securities Available for Sale (539) 0 0 0 0 (539)
Cash and Due from Banks 20,696 0 0 0 0 20,696
All Other Assets 7) 5,912 2,177 0 0 2,080 10,169
--------- --------- --------- --------- --------- ---------
Total Assets $ 348,947 $ 115,653 $ 112,202 $ 79,375 $ 7,002 $ 663,179
--------- --------- --------- --------- --------- ---------
- ---------------------------------------------------------
INTEREST - BEARING LIABILITIES : 1)
- ---------------------------------------------------------
Savings Accounts 4) $ 10,614 $ 10,614 $ 84,912 0 $ 0 $ 106,140
Money Fund and Now Accounts 5) 19,330 7,155 27,778 0 0 54,263
Time Deposits 6) 197,777 18,136 43,399 $ 392 0 259,704
--------- --------- --------- --------- --------- ---------
Total Interest-Bearing Deposits 227,721 35,905 156,089 392 0 420,107
Securities Sold Under Agreements to Repurchase,
Federal Funds Purchased, and Other Borrowings 87,446 0 0 0 0 87,446
--------- --------- --------- --------- --------- ---------
Total Interest-Bearing Liabilities 315,167 35,905 156,089 392 0 507,553
All Other Liabilities, Equity and Demand Deposits 7) 3,035 36 93 0 152,462 155,626
--------- --------- --------- --------- --------- ---------
Total Liabilities and Equity $ 318,202 $ 35,941 $ 156,182 $ 392 $ 152,462 $ 663,179
--------- --------- --------- --------- --------- ---------
Cumulative Interest-Sensitivity Gap 8) $ 7,711 $ 85,282 $ 41,395 $ 120,378 $ 125,300
Cumulative Interest-Sensitivity Ratio 9) 102.4% 124.3% 108.2% 123.7% 124.7%
Cumulative Interest-Sensitivity Gap
As a % of Total Assets 1.2% 12.9% 6.2% 18.2% 18.9%
<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.
8) Total interest-earning assets minus total interest-bearing liabilities.
9) Total interest-earning assets as a percentage of total interest bearing
liabilities.
</FN>
</TABLE>
(12)
<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, 1997 VERSUS DECEMBER 31, 1996 AND SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
- -----------------------------------------------------------------------------
NONPERFORMING ASSETS BY TYPE: PERIOD ENDED:
----------------------------------
9/30/97 12/31/96 9/30/96
--------- ---------- ---------
NONACCRUAL LOANS $4,904 $5,869 $8,026
OTHER REAL ESTATE OWNED 0 1,027 835
-------- ---------- ---------
TOTAL NONPERFORMING ASSETS $4,904 $6,896 $8,861
-------- ---------- ---------
RESTRUCTURED, ACCRUING LOANS $6,220 (1) $6,524 (1) $1,709
LOANS 90 DAYS OR MORE PAST DUE
AND STILL ACCRUING $1,743 $1,228 $7,167 (3)
GROSS LOANS OUTSTANDING $372,251 $353,383 $324,969
TOTAL STOCKHOLDERS' EQUITY $53,330 $48,569 $46,671
ANALYSIS OF THE ALLOWANCE FOR QUARTER ENDED:
----------------------------------
POSSIBLE LOAN LOSSES: 9/30/97 12/31/96 9/30/96
--------- ---------- ---------
BEGINNING BALANCE $5,220 $5,279 $5,180
PROVISION 450 375 375
NET CHARGE-OFFS (518) (645) (276)
--------- ---------- ---------
ENDING BALANCE $5,152 $5,009 $5,279
--------- ---------- ---------
KEY RATIOS AT PERIOD-END:
ALLOWANCE AS A % OF TOTAL LOANS 1.38% 1.42% 1.62%
NONACCRUAL LOANS AS A % OF TOTAL LOANS 1.32% 1.66% 2.47%
NONPERFORMING ASSETS (2) AS A % OF TOTAL
LOANS AND OTHER REAL ESTATE OWNED 1.32% 1.95% 2.72%
ALLOWANCE FOR POSSIBLE LOAN LOSSES AS
A % OF NONACCRUAL LOANS 105.06% 85.35% 65.77%
ALLOWANCE FOR POSSIBLE LOAN LOSSES AS A %
OF NONACCRUAL LOANS, RESTRUCTURED,
ACCRUING LOANS AND LOANS 90 DAYS OR
MORE PAST DUE AND STILL ACCRUING 40.04% 36.77% 31.23%
(1) INCLUDES ONE CREDIT TOTALING $5.0 MILLION AT 9/30/97 AND $4.7 MILLION AT
12/31/96, WHICH IS COLLATERALIZED BY COMMERCIAL REAL ESTATE WITH A CURRENT
APPRAISED VALUE IN EXCESS OF THE CARRYING VALUE OF THE CREDIT. THE
RESTRUCTURED RATE ON THIS CREDIT WILL REMAIN BELOW THE CONTRACTUAL RATE
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 FIRST QUARTER OF 1998.
(2) EXCLUDES RESTRUCTURED, ACCRUING LOANS AND LOANS 90 DAYS OR MORE PAST DUE
AND STILL ACCRUING.
(3) INCLUDES THE CREDIT REFERENCED IN NOTE (1) ABOVE PRIOR TO RESTRUCTURING.
(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.
11/14/97 s/Daniel T. Rowe
- -------- -------------------------
Date Daniel T. Rowe, President
11/14/97 s/Brian K. Finneran
- -------- ----------------------------
Date Brian K. Finneran, Secretary
(Principal Financial Officer)
(14)
<PAGE>
<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-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 20,598,303
<INT-BEARING-DEPOSITS> 98,083
<FED-FUNDS-SOLD> 20,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 234,105,953
<INVESTMENTS-CARRYING> 6,575,766
<INVESTMENTS-MARKET> 6,579,213
<LOANS> 372,171,148
<ALLOWANCE> 5,151,771
<TOTAL-ASSETS> 663,178,852
<DEPOSITS> 519,238,156
<SHORT-TERM> 87,446,000
<LIABILITIES-OTHER> 3,164,310
<LONG-TERM> 0
0
0
<COMMON> 30,894,025
<OTHER-SE> 22,436,361
<TOTAL-LIABILITIES-AND-EQUITY> 663,178,852
<INTEREST-LOAN> 25,392,489
<INTEREST-INVEST> 10,338,070
<INTEREST-OTHER> 1,370,494
<INTEREST-TOTAL> 37,101,053
<INTEREST-DEPOSIT> 14,898,586
<INTEREST-EXPENSE> 16,377,297
<INTEREST-INCOME-NET> 20,723,756
<LOAN-LOSSES> 1,500,000
<SECURITIES-GAINS> (84,794)
<EXPENSE-OTHER> 12,288,369
<INCOME-PRETAX> 8,088,759
<INCOME-PRE-EXTRAORDINARY> 5,235,791
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,235,791
<EPS-PRIMARY> 0.86
<EPS-DILUTED> 0.86
<YIELD-ACTUAL> 7.87
<LOANS-NON> 4,903,881
<LOANS-PAST> 1,742,938
<LOANS-TROUBLED> 6,219,863
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,008,965
<CHARGE-OFFS> 1,466,551
<RECOVERIES> 109,357
<ALLOWANCE-CLOSE> 5,151,771
<ALLOWANCE-DOMESTIC> 4,336,608
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 815,163
</TABLE>
