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: JUNE 30, 1997
[ ] 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 July 31, 1997, there were 6,085,266 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 - June 30, 1997 and 1.
December 31, 1996 (Unaudited)
Statements of Consolidated Earnings for the Three and
Six Months Ended June 30, 1997and 1996 (Unaudited) 2.
Statements of Consolidated Cash Flows for the Six Months
Ended June 30, 1997 and 1996(Unaudited) 3.
Statements of Consolidated Stockholders' Equity for the
Six Months Ended June 30, 1997and 1996 (Unaudited) 4.
Notes to Unaudited Consolidated Financial Statements 5.
Item 2. Management's Discussion and Analysis of Financial
Condition and Resultof 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 14.
Item 5. Other Information - None N/A
Item 6. Exhibits and Reports on Form 8-K - None N/A
SIGNATURES 15.
<PAGE>
- ------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS
- ------------------------------------------------
- ------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996 (UNAUDITED)
- ------------------------------------------------
- ------------------------------------------------
ASSETS: 1997 1996
- ------------------------------------------------ -------------- --------------
CASH AND DUE FROM BANKS $28,941,714 $34,676,593
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL 3,000,000 30,000,000
FEDERAL FUNDS SOLD 4,000,000 0
-------------- --------------
CASH AND CASH EQUIVALENTS 35,941,714 64,676,593
SECURITIES:
HELD TO MATURITY (APPROXIMATE MARKET VALUE -
$9,880,127 IN 1997 AND $30,486,626 IN 1996) 9,875,868 30,469,524
AVAILABLE FOR SALE - AT MARKET VALUE 234,778,589 156,931,674
-------------- --------------
TOTAL SECURITIES 244,654,457 187,401,198
LOANS - NET OF ALLOWANCE FOR POSSIBLE LOAN
LOSSES ($5,220,331 IN 1997 AND $5,008,965
IN 1996) 349,819,930 348,293,930
BANK PREMISES AND EQUIPMENT - NET 3,100,946 2,996,124
OTHER ASSETS 12,802,850 12,049,810
- ------------------------------------------------ -------------- --------------
TOTAL ASSETS $646,319,897 $615,417,655
- ------------------------------------------------ ============== ==============
- ------------------------------------------------
LIABILITIES:
- ------------------------------------------------
DEPOSITS:
DEMAND $100,893,546 $96,600,418
SAVINGS 183,290,738 200,744,964
TIME 217,412,864 177,105,107
-------------- --------------
TOTAL DEPOSITS 501,597,148 474,450,489
FEDERAL FUNDS PURCHASED 0 3,600,000
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 79,680,494 74,079,000
OTHER SHORT-TERM BORROWINGS 11,000,000 12,000,000
ACCRUED EXPENSES, TAXES AND OTHER LIABILITIES 2,459,646 2,718,695
- ------------------------------------------------ -------------- --------------
TOTAL LIABILITIES 594,737,288 566,848,184
- ------------------------------------------------ -------------- --------------
- ------------------------------------------------
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 6,160,031
SHARES IN 1997 AND 5,101,048 SHARES
IN 1996; OUTSTANDING 6,065,153
SHARES IN 1997 AND 5,013,883 SHARES IN 1996 30,800,155 25,505,240
SURPLUS 18,059,648 22,915,331
RETAINED EARNINGS 4,535,202 2,130,980
UNREALIZED NET LOSS ON SECURITIES AVAILABLE
FOR SALE (NET OF DEFERRED INCOME TAX BENEFIT
OF $598,900 IN 1997 AND $649,167 IN 1996) (863,616) (936,100)
UNEARNED COMPENSATION (948,780) (1,045,980)
- ------------------------------------------------ -------------- --------------
TOTAL STOCKHOLDERS' EQUITY 51,582,609 48,569,471
- ------------------------------------------------ -------------- --------------
- ------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $646,319,897 $615,417,655
- ------------------------------------------------ ============== ==============
(1)
<PAGE>
- ------------------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------
<TABLE>
- ------------------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED EARNINGS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
- ------------------------------------------------------------------------
<CAPTION>
--------------------------------- ---------------------------------
THREE MONTHS SIX MONTHS
--------------------------------- ---------------------------------
--------------- --------------- --------------- ----------------
1997 1996 1997 1996
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------
INTEREST INCOME:
- ------------------------------------------------------------
LOANS $ 8,567,751 $ 7,091,346 $ 16,737,162 $ 13,986,071
FEDERAL FUNDS SOLD AND SECURITIES
PURCHASED UNDER AGREEMENTS TO RESELL 686,340 308,868 1,136,123 732,869
SECURITIES HELD TO MATURITY AND
SECURITIES AVAILABLE FOR SALE:
U.S. TREASURY SECURITIES 0 267,789 0 606,949
STATES AND POLITICAL SUBDIVISIONS 561,518 372,642 1,068,651 745,621
MORTGAGE-BACKED SECURITIES 1,261,962 2,107,176 2,623,993 4,365,690
GOVERNMENT AGENCY SECURITIES 2,124,367 477,452 3,126,485 895,847
OTHER SECURITIES 30,551 30,284 64,074 55,617
------------ ------------ ------------ ------------
TOTAL INTEREST INCOME 13,232,489 10,655,557 24,756,488 21,388,664
------------ ------------ ------------ ------------
- ------------------------------------------------------------
INTEREST EXPENSE:
- ------------------------------------------------------------
TIME CERTIFICATES OF DEPOSIT OF $100,000 OR MORE 2,601,742 1,918,128 4,697,723 3,733,782
OTHER DEPOSITS AND TEMPORARY BORROWINGS 3,337,248 2,808,934 6,173,268 5,890,874
------------ ------------ ------------ ------------
TOTAL INTEREST EXPENSE 5,938,990 4,727,062 10,870,991 9,624,656
------------ ------------ ------------ ------------
NET INTEREST INCOME 7,293,499 5,928,495 13,885,497 11,764,008
PROVISION FOR POSSIBLE LOAN LOSSES 600,000 375,000 1,050,000 750,000
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 6,693,499 5,553,495 12,835,497 11,014,008
------------ ------------ ------------ ------------
- ------------------------------------------------------------
OTHER INCOME:
- ------------------------------------------------------------
SERVICE CHARGES ON DEPOSIT ACCOUNTS 305,099 345,314 625,134 665,561
NET SECURITY (LOSSES) GAINS (40,529) (11,698) (54,337) 13,494
OTHER OPERATING INCOME 109,578 104,673 218,173 203,754
------------ ------------ ------------ ------------
TOTAL OTHER INCOME 374,148 438,289 788,970 882,809
------------ ------------ ------------ ------------
INCOME BEFORE OPERATING EXPENSES 7,067,647 5,991,784 13,624,467 11,896,817
------------ ------------ ------------ ------------
- ------------------------------------------------------------
OPERATING EXPENSES:
- ------------------------------------------------------------
SALARIES AND OTHER EMPLOYEE BENEFITS 2,448,490 2,211,398 4,797,574 4,406,313
OCCUPANCY 398,950 325,722 734,344 671,884
EQUIPMENT 147,936 128,395 286,788 258,639
DEPOSIT ASSESSMENT FEES 32,632 94,532 63,818 154,090
AMORTIZATION OF INTANGIBLES 151,287 152,221 302,573 304,441
OTHER OPERATING EXPENSES 967,329 842,014 1,867,334 1,625,321
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 4,146,624 3,754,282 8,052,431 7,420,688
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 2,921,023 2,237,502 5,572,036 4,476,129
PROVISION FOR INCOME TAXES 1,021,533 824,771 1,958,519 1,635,248
- -------------------------------------------------------- ------------ ------------ ------------ ------------
NET INCOME $ 1,899,490 $ 1,412,731 $ 3,613,517 $ 2,840,881
- -------------------------------------------------------- ------------ ------------ ------------ ------------
- --------------------------------------------------------
EARNINGS PER COMMON SHARE $ 0.31 $ 0.26 $ 0.60 $ 0.52
- -------------------------------------------------------- ------------ ------------ ------------ ------------
- --------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,058,858 5,499,675 6,046,473 5,484,566
- -------------------------------------------------------- ------------ ------------ ------------ ------------
</TABLE>
(2)
<PAGE>
- ----------------------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- ----------------------------------------------------------------
- ----------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
- ----------------------------------------------------------------
- ---------------------------------------------------- ------------- ------------
OPERATING ACTIVITIES: 1997 1996
- ---------------------------------------------------- ------------- ------------
NET INCOME $3,613,517 $2,840,881
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR POSSIBLE LOAN LOSSES 1,050,000 750,000
DEPRECIATION AND AMORTIZATION OF BANK
PREMISES AND EQUIPMENT 266,134 264,980
AMORTIZATION OF INTANGIBLES 302,573 304,441
AMORTIZATION OF NET PREMIUM ON SECURITIES 726,099 689,129
AMORTIZATION OF UNEARNED COMPENSATION 120,746 0
NET SECURITY LOSSES (GAINS) 54,337 (13,494)
GAIN ON SALE OF OTHER REAL ESTATE OWNED("OREO") (38,055) 0
INCREASE IN OTHER ASSETS (1,997,543) (80,528)
DECREASE IN ACCRUED EXPENSES, TAXES
AND OTHER LIABILITIES (264,592) (841,018)
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,833,216 3,914,391
------------- -------------
- ----------------------------------------------------
INVESTING ACTIVITIES:
- ----------------------------------------------------
PROCEEDS FROM MATURITIES OF SECURITIES HELD
TO MATURITY 25,040,712 22,962,340
PURCHASES OF SECURITIES HELD TO MATURITY (4,489,000) (7,707,929)
PROCEEDS FROM SALES OF SECURITIES AVAILABLE
FOR SALE 81,287,928 21,284,206
PROCEEDS FROM MATURITIES OF SECURITIES
AVAILABLE FOR SALE 41,215,758 67,358,262
PURCHASES OF SECURITIES AVAILABLE FOR SALE (200,966,342) (94,309,963)
INCREASE IN LOANS - NET (2,576,000) (30,692,412)
PROCEEDS FROM SALE OF OREO 929,718 0
PURCHASES OF BANK PREMISES AND EQUIPMENT-NET (370,956) (344,111)
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (59,928,182) (21,449,607)
------------- -------------
- ----------------------------------------------------
FINANCING ACTIVITIES:
- ----------------------------------------------------
DECREASE IN DEMAND AND SAVINGS DEPOSITS (13,161,098) (60,823,096)
INCREASE IN TIME DEPOSITS 40,307,757 16,837,155
DECREASE IN FEDERAL FUNDS PURCHASED (3,600,000) (2,500,000)
INCREASE (DECREASE) IN SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE 5,601,494 (24,106,274)
DECREASE IN OTHER SHORT-TERM BORROWINGS (1,000,000) (10,000,000)
CASH DIVIDENDS PAID (1,203,752) (843,404)
PROCEEDS FROM SHARES ISSUED UNDER DIVIDEND
REINVESTMENT PLAN 399,657 306,478
PROCEEDS FROM STOCK OPTIONS EXERCISED 16,029 182,818
------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 27,360,087 (80,946,323)
------------- -------------
- ----------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (28,734,879) (98,481,539)
- ----------------------------------------------------
- ----------------------------------------------------
CASH AND CASH EQUIVALENTS - JANUARY 1 64,676,593 121,853,678
- ----------------------------------------------------
- ---------------------------------------------------- ------------- -------------
CASH AND CASH EQUIVALENTS - JUNE 30 $35,941,714 $23,372,139
- ---------------------------------------------------- ------------- -------------
- ----------------------------------------------------
SUPPLEMENTAL DATA:
- ----------------------------------------------------
INTEREST PAID $11,005,329 $9,795,707
INCOME TAXES PAID $2,248,779 $1,897,875
TRANSFERS FROM LOANS TO OTHER REAL ESTATE OWNED $0 $700,000
ADJUSTMENT TO UNREALIZED NET LOSS ON SECURITIES
AVAILABLE FOR SALE $122,751 ($2,845,516)
DIVIDENDS DECLARED BUT NOT PAID AS OF QUARTER
END $605,543 $511,007
(3)
<PAGE>
- --------------------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------
<TABLE>
- ----------------------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 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 3,613,517 3,613,517
CASH DIVIDENDS DECLARED
($0.20 PER SHARE) (1,209,295) (1,209,295)
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 (30,057 SHARES
AT 95% OF MARKET VALUE) 150,285 249,372 399,657
STOCK OPTIONS EXERCISED 11,270 4,759 16,029
AMORTIZATION OF UNEARNED
COMPENSATION 23,546 97,200 120,746
NET CHANGE IN UNREALIZED NET LOSS
ON SECURITIES AVAILABLE FOR SALE 72,484 72,484
- ----------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1997 $ 30,800,155 $ 18,059,648 $ 4,535,202 ($ 863,616) ($ 948,780) $ 51,582,609
- ----------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
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
($0.17 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
- -------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
</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 June 30, 1997 and December 31, 1996, its
consolidated earnings for the three and six months ended June 30, 1997 and 1996
and cash flows and changes in stockholders' equity for the six months ended June
30, 1997 and 1996. The results of operations for the six months ended June 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 June 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 June 30, 1997, 25,122 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 $964,676 and $1,244,000 was established for $8,550,478
and $8,602,044 of the total impaired loans at June 30, 1997 and December 31,
1996, respectively, with the balance of impaired loans requiring no specific
allowance. The total average impaired loan balance was $9,919,692 for the
quarter ended June 30, 1997 and $7,428,255 for the year ended December 31, 1996.
Total impaired loans amounted to $9,979,607 at June 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 $6,311,557 and the amount of impaired collateral-dependent
loans, measured based on the fair value of the underlying collateral, is
$3,668,050. Total interest income recognized for impaired, nonaccrual and
restructured loans was $95,372 and $35,891 during the three months ended June
30, 1997 and 1996, respectively, and $176,678 and $50,625 during the six months
ended June 30, 1997 and 1996, respectively.
Activity in the allowance for possible loan losses for the six months ended June
30, 1997 and 1996 is as follows:
1997 1996
------------ ------------
Balance, January 1 $5,008,965 $5,004,216
Provision charged to income 1,050,000 750,000
Charge-offs, net of recoveries of
$72,347 in 1997 and $59,543 in 1996 (838,634) (574,194)
------------ ------------
Balance, June 30 $5,220,331 $5,180,022
============ ============
(6)
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1. Material Changes in Financial Condition - As of June 30, 1997, total assets
of the Company amounted to $646.3 million, an increase of $30.9 million or 5.0%
when compared to December 31, 1996. Growth in available for sale investment
securities (up $77.8 million), primarily due to purchases of callable Agency
paper, coupled with a modest expansion of the loan portfolio (up $1.5 million),
accounted for the increase in total assets. The increase in holdings of callable
Agency securities have replaced short-term securities purchased under agreements
to resell (SPUARs) as a vehicle to secure various deposits. This shift in the
asset mix has helped to widen the Company's net interest rate spread for the six
months ended June 30, 1997 to 4.34% from 4.22% in the same period last year.
Somewhat offsetting the foregoing increases were declines in held to maturity
investment securities (down $20.6 million) due to seasonal municipal refinancing
activity, along with the aforementioned decrease in securities purchased under
agreements to resell (down $27.0 million).
The Company's loan portfolio increased only nominally (0.4%) in the June
year-to-date period. Principal amortization, normal clean-up activity and the
loss of several large credits due to acquisitions of certain Company customers,
largely offset the new business that was generated during the first half of the
year. Management anticipates that expansion of the loan portfolio will take
place during the second half of the year, with year-to-year growth of
approximately 5% - 7% an achievable target. This modest growth scenario will
possibly result in compression of the net interest rate spread during the last
six months of 1997.
Funding the first half asset expansion, total deposits grew by $27.1 million, or
5.7%, to $501.6 million when compared to year-end 1996. This growth was due to
advances in demand deposits (up $4.3 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. The Company's municipal finance department continues to
be among the most active on Long Island and enjoys relationships with dozens of
local Towns, Villages and School Districts in Nassau and Suffolk counties. The
Company also experienced a net increase in short-term borrowings of $1.0 million
due to a $5.6 million increase in securities sold under agreements to repurchase
(SSUARs). Somewhat offsetting the higher level of SSUARs were declines of $3.6
million in overnight Federal funds purchased and $1.0 million in other
short-term borrowings.
Second quarter average assets grew by $135.4 million or 23.3% to $716.8 million
from the comparable 1996 period. Significant growth in all interest-earning
asset categories accounted for the asset expansion. A 16.7% increase in loans
(up $51.1 million to $356.6 million), primarily commercial loans and commercial
mortgages, and a $43.6 million increase in investment securities, were the
largest contributors to the asset growth. In addition, Federal funds sold and
SPUARs increased by $26.9 million, largely the result of municipal
collateralization activity. Primarily
(7)
<PAGE>
funding this growth were increases in all core deposit products (demand
deposits, Super NOW, savings and money fund accounts). Core deposits increased
by 27% and now comprise approximately 56% of total deposits. In addition, growth
in certificates of deposit over $100,000, Federal funds purchased, SSUARs 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 2 basis point narrowing of the second quarter net interest rate
spread to 4.27%, however, the Company's returns on average assets and average
stockholders' equity each increased over comparable 1996 levels to 1.06% and
15.14%, respectively.
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 June
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 $51.6 million at June 30, 1997, an increase of $10.3 million
or 24.9% versus the comparable 1996 date. Excluding valuations related to
Statements of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" at June 30, 1997 and 1996, total
stockholders' equity grew at a year-to-year rate of 21.9%. The following table
(2-1) summarizes the Company's capital ratios as of June 30, 1997 and compares
them to current regulatory guidelines and December 31 and June 30, 1996 actual
results. As previously discussed in the 1996 Annual Report to Stockholders, the
Company added $4.3 million to capital during 1996 through a rights offering.
This additional capital will continue to be utilized to support loan growth,
other investment opportunities and for general corporate purposes.
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, 1997 7.20% 12.78% 14.03%
December 31, 1996 7.71% 12.48% 13.73%
June 30, 1996 7.14% 11.82% 13.07%
Regulatory Criteria for
a "Well Capitalized"
Institution 5.00% 6.00% 10.00%
(8)
<PAGE>
Liquidity management is a fundamental component 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 six 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 half of the year, while
at the same time, paydowns on mortgage-backed securities also provided a source
of readily available funds to meet general liquidity needs. In addition, at June
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 six months
ended June 30, 1997 was $3,614,000, a 27.2% improvement over the comparable 1996
period. The improvement in earnings in 1997 resulted from an 18.0% increase in
net interest income 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 the
provision for loan losses (up 40.0%) due to continued growth in the loan
portfolio and total operating expenses and a decline in other income during the
first six months of 1997.
The higher level of net interest income, up $2.1 million to $13.9 million,
resulted from an expanded interest-earning asset base, principally commercial
loans, commercial mortgages and callable Government Agency securities, and a
wider net interest rate spread. Loan growth, although basically flat thus far in
1997, has generally been strong during the past 12 to 24 months. Average loans
outstanding were up by 19.0% during the first six 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 the expansion of the Company's lending activities. 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 expand the loan portfolio during the last six
months of 1997.
The Company's investment portfolio increased, on average, by 3.7% in 1997 versus
1996. Purchases of callable Agency securities (volume up $65.0 million) more
than offset paydowns on mortgage-backed issues and maturities of Treasury notes.
Also contributing to growth in the investment portfolio was an increase in
short-term tax-exempt municipal securities (up $18.4 million). The Company has
been an active purchaser of agency securities thus far in 1997 due to their
attractive yields and their pledgeability to secure municipal deposits.
(9)
<PAGE>
Other income declined by 10.6% during the June 1997 year-to-date period, mainly
as the result of losses incurred on the sale of investment securities. Excluding
the impact of securities transactions, other income decreased by 3.0% in 1997
due to a reduction in deposit return item charges. On a positive note, fees from
processing merchant credit card transactions, wire transfers, ATMs and the
Company's cash management system all showed year-to-year gains versus 1996.
Total operating expenses increased by 8.5% during the first six 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 rose 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 due to the lowering of the assessment rates on insured
deposits during 1996, coupled with reductions in consulting fees and directors'
retirement plan expenses.
Despite an increase in total operating expenses, the Company's operating
efficiency ratio (total operating expenses as a percentage of fully taxable
equivalent net interest revenue, excluding securities transactions) improved to
52.7% during the first half of 1997 versus 56.7% a year ago. The Company's ratio
of total operating expenses to average total assets was 2.42% and 2.57% during
the first six months of 1997 and 1996, 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 $5.7 million at June 30, 1997, a decline of $1.1 million
versus December 31, 1996 and $2.8 million versus June 30, 1996. The primary
reason for the decline in nonperforming assets at June 30, 1997 versus year-end
1996 was due to the second quarter 1997 sale of a property classified as other
real estate owned. This sale resulted in a small gain which was recorded as a
credit to other operating expenses. The level of restructured, accruing loans at
June 30, 1997 decreased nominally by $0.4 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 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 fourth quarter of
1997. The provision for possible
(10)
<PAGE>
loan losses was up by $300 thousand (40%) versus the first half of 1996 due to
continued growth in the loan portfolio. The allowance for possible loan losses
amounted to $5.2 million or 1.47% of total loans at June 30, 1997 versus $5.0
million and 1.63% at the comparable 1996 date. The allowance for possible loan
losses as a percentage of nonaccrual loans improved to 93.0% from 85.4% and
63.8% at December 31, 1996 and June 30, 1996, respectively. Nonperforming assets
(as defined by the Company) as a percentage of total loans and other real estate
owned was 1.62%, 1.95% and 2.69% at June 30, 1997, December 31, 1996 and June
30, 1996, respectively. Management of the Company has determined that the
current level of the allowance for possible loan losses is adequate in relation
to the risks present in the portfolio. The Company's loan portfolio is primarily
comprised of commercial and industrial loans and commercial mortgages, the
majority of which are secured by collateral with a market value in excess of the
carrying amounts of the individual loans. A further review of the Company's
nonperforming assets may be found in Table 2-3 following this analysis.
(11)
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
=============================================================================
JUNE 30, 1997
- -----------------
TABLE 2-2 LIQUIDITY AND INTEREST RATE SENSITIVITY
- ----------------- =============================================================================
<CAPTION>
==================================================================
($ IN THOUSANDS) SENSITIVITY TIME HORIZON
- -------------------------------------------------------- Over Noninterest
INTEREST - SENSITIVE ASSETS : 1) 0-6 Months 6-12 Months 1-5 Year 5 Years Sensitive Total
- -------------------------------------------------------- ============= =========== ========= ======== ========== ==========
<S> <C> <C> <C> <C> <C> <C>
Loans (net of unearned income) 2) $ 240,181 $ 12,223 $ 59,671 $ 37,353 $ 5,612 $ 355,040
Securities Purchased Under Agreements to Resell
and Federal Funds Sold 7,000 0 0 0 0 7,000
Securities Held to Maturity 7,567 2,169 98 42 0 9,876
Securities Available for Sale 3) 92,672 48,988 61,704 30,906 1,971 236,241
Unrealized Net Loss on Securities
Available for Sale (1,463) 0 0 0 0 (1,463)
--------- -------- -------- -------- -------- ---------
Total Interest-Sensitive Assets 345,957 63,380 121,473 68,301 7,583 606,694
Cash and Due from Banks 28,942 0 0 0 0 28,942
All Other Assets 7) 6,101 2,194 0 0 2,389 10,684
--------- -------- -------- -------- -------- ---------
Total Assets $ 381,000 $ 65,574 $121,473 $ 68,301 $ 9,972 $ 646,320
--------- -------- -------- -------- -------- ---------
- --------------------------------------------------------
INTEREST - BEARING LIABILITIES : 1)
- --------------------------------------------------------
Savings Accounts 4) $ 11,140 $ 11,140 $ 89,121 0 $ 0 $ 111,401
Money Fund and Now Accounts 5) 29,362 21,264 21,264 0 0 71,890
Time Deposits 6) 153,066 20,840 43,276 231 0 217,413
Securities Sold Under Agreements to Repurchase,
Federal Funds Purchased, and Other Borrowings 90,680 0 0 0 0 90,680
--------- -------- -------- -------- -------- ---------
Total Interest-Bearing Liabilities 284,248 53,244 153,661 231 0 491,384
All Other Liabilities, Equity and Demand Deposits 7) 1,606 767 87 0 152,476 154,936
--------- -------- -------- -------- -------- ---------
Total Liabilities and Equity $ 285,854 $ 54,011 $153,748 $ 231 $152,476 $ 646,320
--------- -------- -------- -------- -------- ---------
Cumulative Interest-Sensitivity Gap $ 95,146 $106,709 $ 74,434 $142,504 $ 0
Cumulative Interest-Sensitivity Ratio 133.3% 131.4% 115.1% 128.9% 100.0%
Cumulative Interest-Sensitivity Gap
As a % of Total Assets 25.0% 23.9% 13.1% 22.4% --%
<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>
(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
JUNE 30, 1997 VERSUS DECEMBER 31, 1996 AND JUNE 30, 1996
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
NONPERFORMING ASSETS BY TYPE: PERIOD ENDED:
---------------------------------------
6/30/97 12/31/96 6/30/96
--------- ---------- -----------
NONACCRUAL LOANS $5,612 $5,869 $7,852
OTHER REAL ESTATE OWNED 135 1,027 700
--------- ---------- -----------
TOTAL NONPERFORMING ASSETS $5,747 $6,896 $8,552
--------- ---------- -----------
RESTRUCTURED, ACCRUING LOANS $6,166 (1) $6,524 (1) $1,723
LOANS 90 DAYS OR MORE PAST DUE
AND STILL ACCRUING $2,388 $1,228 $5,845
GROSS LOANS OUTSTANDING $355,120 $353,383 $317,768
TOTAL STOCKHOLDERS' EQUITY $51,583 $48,569 $41,313
ANALYSIS OF THE ALLOWANCE FOR QUARTER ENDED:
POSSIBLE LOAN LOSSES: ---------------------------------------
6/30/97 12/31/96 6/30/96
--------- ---------- -----------
BEGINNING BALANCE $5,009 $5,279 $4,781
PROVISION 600 375 375
NET CHARGE-OFFS (389) (645) 24
--------- ---------- -----------
ENDING BALANCE $5,220 $5,009 $5,180
--------- ---------- -----------
KEY RATIOS AT PERIOD-END:
ALLOWANCE AS A % OF TOTAL LOANS 1.47% 1.42% 1.63%
NONACCRUAL LOANS AS A % OF TOTAL LOANS 1.58% 1.66% 2.47%
NONPERFORMING ASSETS (2) AS A % OF TOTAL
LOANS AND OTHER REAL ESTATE OWNED 1.62% 1.95% 2.69%
ALLOWANCE FOR POSSIBLE LOAN LOSSES AS
A % OF NONACCRUAL LOANS 93.01% 85.35% 65.97%
ALLOWANCE FOR POSSIBLE LOAN LOSSES AS A %
OF NONACCRUAL LOANS, RESTRUCTURED,
ACCRUING LOANS AND LOANS 90 DAYS OR
MORE PAST DUE AND STILL ACCRUING 36.85% 36.77% 33.59%
(1) INCLUDES ONE CREDIT TOTALING $5.0 MILLION AT 6/30/97 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 FOURTH QUARTER OF 1997.
(2) EXCLUDES RESTRUCTURED, ACCRUING LOANS AND LOANS 90 DAYS OR MORE PAST DUE
AND STILL ACCRUING.
(13)
<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 29, 1997
for the following purposes:
1. To elect five directors.
The proxy statement for this meeting has been filed with the Securities and
Exchange Commission.
PROPOSALS
1. Election of Directors
NOMINEE TERM FOR WITHHELD
- ------- ---- --- --------
Carl R. Bruno . 3 years 3,893,676 45,350
Robert J. Grady 3 years 3,889,296 49,730
Gary Holman 3 years 3,873,084 65,942
Richard W. Merzbacher 3 years 3,893,676 45,350
Arthur Dulik, Jr. 1 year 3,893,676 45,350
The proposal was passed.
(14)
<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.
8/13/97 s/Daniel T. Rowe
- ------- ----------------
Date Daniel T. Rowe, President
8/13/97 s/Brian K. Finneran
- ------- -------------------
Date Brian K. Finneran, Secretary
(Principal Financial Officer)
(15)
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000723458
<NAME> STATE BANCORP INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 28,827,064
<INT-BEARING-DEPOSITS> 114,650
<FED-FUNDS-SOLD> 7,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 236,241,105
<INVESTMENTS-CARRYING> 9,875,868
<INVESTMENTS-MARKET> 9,880,127
<LOANS> 355,040,261
<ALLOWANCE> 5,220,331
<TOTAL-ASSETS> 646,319,897
<DEPOSITS> 501,597,148
<SHORT-TERM> 90,680,494
<LIABILITIES-OTHER> 2,459,646
<LONG-TERM> 0
0
0
<COMMON> 30,800,155
<OTHER-SE> 20,782,454
<TOTAL-LIABILITIES-AND-EQUITY> 646,319,897
<INTEREST-LOAN> 16,737,162
<INTEREST-INVEST> 6,880,182
<INTEREST-OTHER> 1,139,144
<INTEREST-TOTAL> 24,756,488
<INTEREST-DEPOSIT> 9,889,150
<INTEREST-EXPENSE> 10,870,991
<INTEREST-INCOME-NET> 13,885,497
<LOAN-LOSSES> 1,050,000
<SECURITIES-GAINS> (54,337)
<EXPENSE-OTHER> 8,052,431
<INCOME-PRETAX> 5,572,036
<INCOME-PRE-EXTRAORDINARY> 3,613,517
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,613,517
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
<YIELD-ACTUAL> 7.81
<LOANS-NON> 5,611,629
<LOANS-PAST> 2,388,562
<LOANS-TROUBLED> 6,166,135
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,008,965
<CHARGE-OFFS> 910,981
<RECOVERIES> 72,347
<ALLOWANCE-CLOSE> 5,220,331
<ALLOWANCE-DOMESTIC> 4,244,403
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 975,928
</TABLE>
