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: MARCH 31, 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 April 30, 1997, there were 5,050,211 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 - March 31, 1997 and
December 31, 1996 (Unaudited) 1.
Statements of Consolidated Earnings for the Three
Months Ended March 31, 1997 and 1996 (Unaudited) 2.
Statements of Consolidated Cash Flows for the Three
Months Ended March 31, 1997 and 1996 (Unaudited) 3.
Statements of Consolidated Stockholders' Equity for
the Three Months Ended March 31, 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 13.
<PAGE>
- -------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS
- -------------------------------------------
- --------------------------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
- ----------------------------------------------- ------------- -------------
ASSETS: 1997 1996
- ----------------------------------------------- ------------- -------------
CASH AND DUE FROM BANKS $ 20,118,042 $ 34,676,593
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL 0 30,000,000
------------- -------------
CASH AND CASH EQUIVALENTS 20,118,042 64,676,593
SECURITIES:
HELD TO MATURITY (APPROXIMATE MARKET VALUE -
$32,880,874 IN 1997 AND $30,486,626 IN 1996) 32,887,521 30,469,524
AVAILABLE FOR SALE - AT MARKET VALUE 189,617,890 156,931,674
------------- -------------
TOTAL SECURITIES 222,505,411 187,401,198
LOANS - NET OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
($5,008,775 IN 1997 AND $5,008,965 IN 1996) 348,455,594 348,293,930
BANK PREMISES AND EQUIPMENT - NET 3,024,951 2,996,124
OTHER ASSETS 13,025,969 12,049,810
- ----------------------------------------------- ------------- -------------
TOTAL ASSETS $ 607,129,967 $ 615,417,655
- ----------------------------------------------- ============= =============
- -----------------------------------------------
LIABILITIES:
- -----------------------------------------------
DEPOSITS:
DEMAND $ 92,319,948 $ 96,600,418
SAVINGS 175,225,335 200,744,964
TIME 229,232,683 177,105,107
------------- -------------
TOTAL DEPOSITS 496,777,966 474,450,489
FEDERAL FUNDS PURCHASED 10,000,000 3,600,000
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 36,387,709 74,079,000
OTHER SHORT-TERM BORROWINGS 12,000,000 12,000,000
ACCRUED EXPENSES, TAXES AND OTHER LIABILITIES 2,930,816 2,718,695
- ----------------------------------------------- ------------- -------------
TOTAL LIABILITIES 558,096,491 566,848,184
- ----------------------------------------------- ------------- -------------
- -----------------------------------------------
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 5,118,429 SHARES IN 1997
AND 5,101,048 SHARES IN 1996; OUTSTANDING 5,035,372
SHARES IN 1997 AND 5,013,883 SHARES IN 1996 25,592,145 25,505,240
SURPLUS 23,040,718 22,915,331
RETAINED EARNINGS 3,241,380 2,130,980
UNREALIZED NET LOSS ON SECURITIES AVAILABLE
FOR SALE (NET OF DEFERRED INCOME TAX BENEFIT
OF $1,278,835 IN 1997 AND $649,167 IN 1996) (1,844,083) (936,100)
UNEARNED COMPENSATION (996,684) (1,045,980)
- ------------------------------------------------ ------------- -------------
TOTAL STOCKHOLDERS' EQUITY 49,033,476 48,569,471
- ------------------------------------------------ ------------- -------------
- ------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 607,129,967 $ 615,417,655
- ------------------------------------------------ ============= =============
(1)
<PAGE>
- -------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------
- -------------------------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
- -------------------------------------------------------------------------------
------------------------------
THREE MONTHS
------------------------------
-------------- --------------
1997 1996
-------------- --------------
- ----------------------------------------------
INTEREST INCOME:
- ----------------------------------------------
LOANS $8,169,411 $6,894,725
FEDERAL FUNDS SOLD AND SECURITIES
PURCHASED UNDER AGREEMENTS TO RESELL 449,783 424,001
SECURITIES HELD TO MATURITY AND
SECURITIES AVAILABLE FOR SALE:
U.S. TREASURY SECURITIES 0 339,160
STATES AND POLITICAL SUBDIVISIONS 507,133 372,978
MORTGAGE-BACKED SECURITIES 1,362,031 2,258,514
GOVERNMENT AGENCY SECURITIES 1,002,118 418,395
OTHER SECURITIES 33,524 25,333
-------------- --------------
TOTAL INTEREST INCOME 11,524,000 10,733,106
-------------- --------------
- ----------------------------------------------
INTEREST EXPENSE:
- ----------------------------------------------
TIME CERTIFICATES OF DEPOSIT OF $100,000 OR MORE 2,095,982 1,815,654
OTHER DEPOSITS AND TEMPORARY BORROWINGS 2,836,020 3,081,940
-------------- --------------
TOTAL INTEREST EXPENSE 4,932,002 4,897,594
-------------- --------------
NET INTEREST INCOME 6,591,998 5,835,512
PROVISION FOR POSSIBLE LOAN LOSSES 450,000 375,000
-------------- --------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 6,141,998 5,460,512
-------------- --------------
- ----------------------------------------------
OTHER INCOME:
- ----------------------------------------------
SERVICE CHARGES ON DEPOSIT ACCOUNTS 320,035 320,247
NET SECURITY (LOSSES) GAINS (13,808) 25,193
OTHER OPERATING INCOME 108,595 99,080
-------------- --------------
TOTAL OTHER INCOME 414,822 444,520
-------------- --------------
INCOME BEFORE OPERATING EXPENSES 6,556,820 5,905,032
-------------- --------------
- ----------------------------------------------
OPERATING EXPENSES:
- ----------------------------------------------
SALARIES AND OTHER EMPLOYEE BENEFITS 2,349,083 2,194,914
OCCUPANCY 335,394 346,162
EQUIPMENT 138,852 130,244
DEPOSIT ASSESSMENT FEES 31,186 59,558
AMORTIZATION OF INTANGIBLES 151,287 152,221
OTHER OPERATING EXPENSES 900,005 783,306
-------------- --------------
TOTAL OPERATING EXPENSES 3,905,807 3,666,405
-------------- --------------
INCOME BEFORE INCOME TAXES 2,651,013 2,238,627
PROVISION FOR INCOME TAXES 936,987 810,477
- ---------------------------------------------- -------------- --------------
NET INCOME $1,714,026 $1,428,150
- ---------------------------------------------- -------------- --------------
- ----------------------------------------------
EARNINGS PER COMMON SHARE $0.34 $0.31
- ---------------------------------------------- ----- -----
- ----------------------------------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 5,028,292 4,557,880
- ---------------------------------------------- -------------- --------------
(2)
<PAGE>
- --------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------
- -------------------------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
- -------------------------------------------------------------------------------
- --------------------------------------------- ------------- -------------
OPERATING ACTIVITIES: 1997 1996
- --------------------------------------------- ------------- -------------
NET INCOME $1,714,026 $1,428,150
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR POSSIBLE LOAN LOSSES 450,000 375,000
DEPRECIATION AND AMORTIZATION OF BANK
PREMISES AND EQUIPMENT 132,752 132,446
AMORTIZATION OF INTANGIBLES 151,287 152,221
AMORTIZATION OF NET PREMIUM ON SECURITIES 283,513 335,059
AMORTIZATION OF UNEARNED COMPENSATION 58,191 0
NET SECURITY LOSSES (GAINS) 13,808 (25,193)
(INCREASE) DECREASE IN OTHER ASSETS (497,778) 430,802
INCREASE (DECREASE) IN ACCRUED EXPENSES,
TAXES AND OTHER LIABILITIES 208,621 (382,112)
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,514,420 2,446,373
-------------- --------------
- ---------------------------------------------
INVESTING ACTIVITIES:
- ---------------------------------------------
PROCEEDS FROM MATURITIES OF SECURITIES HELD
TO MATURITY 1,325,600 2,323,601
PURCHASES OF SECURITIES HELD TO MATURITY (3,765,000) (1,247,000)
PROCEEDS FROM SALES OF SECURITIES AVAILABLE
FOR SALE 42,500,847 12,421,815
PROCEEDS FROM MATURITIES OF SECURITIES
AVAILABLE FOR SALE 15,344,725 48,256,047
PURCHASES OF SECURITIES AVAILABLE FOR SALE (92,345,357) (50,159,118)
INCREASE IN LOANS - NET (611,664) (14,383,146)
PURCHASES OF BANK PREMISES AND EQUIPMENT-NET (161,579) (180,982)
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (37,712,428) (2,968,783)
-------------- --------------
- ---------------------------------------------
FINANCING ACTIVITIES:
- ---------------------------------------------
DECREASE IN DEMAND AND SAVINGS DEPOSITS (29,800,099) (59,338,654)
INCREASE (DECREASE) IN TIME DEPOSITS 52,127,576 (2,998,760)
INCREASE (DECREASE) IN FEDERAL FUNDS PURCHASED 6,400,000 (12,000,000)
DECREASE IN SECURITIES SOLD UNDER AGREEMENTS
TO REPURCHASE (37,691,291) (18,226,309)
DECREASE IN OTHER SHORT-TERM BORROWINGS 0 (10,000,000)
CASH DIVIDENDS PAID (600,126) (421,191)
PROCEEDS FROM SHARES ISSUED UNDER DIVIDEND
REINVESTMENT PLAN 196,008 138,325
PROCEEDS FROM STOCK OPTIONS EXERCISED 7,389 1,378
-------------- --------------
NET CASH USED IN FINANCING ACTIVITIES (9,360,543) (102,845,211)
-------------- --------------
- ---------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (44,558,551) (103,367,621)
- ---------------------------------------------
- ---------------------------------------------
CASH AND CASH EQUIVALENTS - JANUARY 1 64,676,593 121,853,678
- ---------------------------------------------
- --------------------------------------------- -------------- --------------
CASH AND CASH EQUIVALENTS - MARCH 31 $20,118,042 $18,486,057
- --------------------------------------------- -------------- --------------
- ---------------------------------------------
SUPPLEMENTAL DATA:
- ---------------------------------------------
INTEREST PAID $5,015,832 $5,060,275
INCOME TAXES PAID $228,779 $422,875
TRANSFERS FROM LOANS TO OTHER REAL
ESTATE OWNED $0 $700,000
ADJUSTMENT TO UNREALIZED NET LOSS
ON SECURITIES AVAILABLE FOR SALE ($1,537,651) ($1,655,210)
DIVIDENDS DECLARED BUT NOT PAID AS
OF QUARTER END $603,626 $422,213
(3)
<PAGE>
- ---------------------------------------------------
ITEM 1 - FINANCIAL STATEMENTS (CONTINUED)
- ---------------------------------------------------
<TABLE>
- -------------------------------------------------------------------------------
STATE BANCORP, INC. AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 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 1,714,026 1,714,026
CASH DIVIDENDS DECLARED
($0.12 PER SHARE) (603,626) (603,626)
SHARES ISSUED UNDER DIVIDEND
REINVESTMENT PLAN (16,334 SHARES
AT 95% OF MARKET VALUE) 81,670 114,338 196,008
STOCK OPTIONS EXERCISED 5,235 2,154 7,389
AMORTIZATION OF UNEARNED
COMPENSATION 8,895 49,296 58,191
NET CHANGE IN UNREALIZED NET LOSS
ON SECURITIES AVAILABLE FOR SALE (907,983) (907,983)
- ------------------------------------ ----------- ----------- ----------- ----------- ----------- ------------
BALANCE, MARCH 31, 1997 $25,592,145 $23,040,718 $ 3,241,380 ($1,844,083) ($ 996,684) $ 49,033,476
- ------------------------------------ ----------- ----------- ----------- ----------- ----------- ------------
BALANCE, JANUARY 1, 1996 $21,059,560 $16,402,404 $ 3,159,000 ($ 33,412) $ 40,587,552
NET INCOME 1,428,150 1,428,150
CASH DIVIDENDS DECLARED
($0.09 PER SHARE) (422,213) (422,213)
SHARES ISSUED UNDER DIVIDEND
REINVESTMENT PLAN (10,216 SHARES
AT 95% OF MARKET VALUE) 51,080 87,245 138,325
STOCK OPTIONS EXERCISED 895 483 1,378
NET CHANGE IN UNREALIZED NET LOSS
ON SECURITIES AVAILABLE FOR SALE (972,434) (972,434)
- ------------------------------------ ----------- ----------- ----------- ----------- ----------- ------------
BALANCE, MARCH 31, 1996 $21,111,535 $16,490,132 $ 4,164,937 ($1,005,846) $ 40,760,758
- ------------------------------------ ----------- ----------- ----------- ----------- ----------- ------------
</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 March 31, 1997 and December 31, 1996 and
its consolidated results of operations and cash flows for the three months ended
March 31, 1997 and 1996 and changes in stockholders' equity for the three months
ended March 31, 1997 and 1996. The results of operations for the three months
ended March 31, 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 March 31, 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 March 31, 1997, 16,943 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. 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 $1,192,131 and $1,244,000 was established for $8,879,792
and $ 8,602,044 of the total impaired loans at March 31, 1997 and December 31,
1996, respectively, with the balance of impaired loans requiring no specific
allowance. The total average impaired loan balance was $9,517,261 for the
quarter ended March 31, 1997 and $7,428,255 for the year ended December 31,
1996. Total impaired loans amounted to $9,556,280 at March 31, 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 $5,992,978 and the amount of impaired
collateral-dependent loans, measured based on the fair value of the underlying
collateral, is $3,563,302. Total interest income recognized for impaired,
nonaccrual and restructured loans was $81,306 and $14,734 during the three
months ended March 31, 1997 and 1996, respectively.
Activity in the allowance for possible loan losses for the three months ended
March 31, 1997 and 1996 is as follows:
1997 1996
------------ ------------
Balance, January 1 $5,008,965 $5,004,216
Provision charged to income 450,000 375,000
Charge-offs, net of recoveries of
$18,289 in 1997 and $35,705 in 1996 (450,190) (598,168)
------------ ------------
Balance, March 31 $5,008,775 $4,781,048
============ ============
(6)
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1. MATERIAL CHANGES IN FINANCIAL CONDITION - At March 31, 1997, total assets of
the Company amounted to $607.1 million, a decline of $8.3 million or 1.3% when
compared to December 31, 1996. A reduction of $44.6 million in cash and cash
equivalents, principally short-term securities purchased under agreements to
resell (SPUARs), accounted for the asset reduction experienced by the Company.
Largely offsetting the foregoing decline, the investment securities portfolio
expanded by $35.1 million to $222.5 million. The growth in the investment
portfolio was in callable Government agency issues that are pledgeable to secure
municipal deposits. These securities have replaced short-term SPUARs for this
purpose and have provided an increase in yield of approximately 150 basis points
in the process. Total loans outstanding were relatively flat at March 31, 1997
versus year-end 1996 ($353.5 million versus $353.3 million). First quarter
principal amortization and normal clean-up activity offset the new business that
was generated during the first three months of the year. Management anticipates
that expansion of the loan portfolio will take place throughout the balance of
the year, with year to year growth of approximately 10% an achievable target.
At March 31, 1997, total deposits advanced by $22.3 million to $496.8 million
when compared to year-end 1996. This increase was due to a $52.1 million
increase in short-term time deposits, primarily municipal CD's over $100,000.
The growth in time deposits offset lower levels of demand and savings deposits
resulting from a seasonal reinvestment of short-term municipal tax deposits. The
Company's municipal finance department is among the most active on Long Island
and serves a number of local Towns, Villages and School Districts in Nassau and
Suffolk counties. The Company also experienced a net decline in short-term
borrowings of $31.3 million due to a $37.7 million reduction in securities sold
under agreements to repurchase (SSUAR). Somewhat offsetting the lower level of
SSUARs was a $6.4 million increase in overnight Federal funds purchased.
Average assets for the first quarter of 1997 grew by $38.4 million or 7.0% to
$590.3 million from the comparable 1996 period. A 21.4% increase in average
loans (up $62.5 million to $354.9 million) and a nominal increase in money
market instruments (up $3.5 million) was responsible for the asset growth during
the first quarter of 1997. Funding this growth were increases in all core
deposit products (demand deposits, Super NOW, savings and money fund accounts)
and certificates of deposit over $100,000 along with a reduction in investment
securities (down $27.6 million on average), principally due to amortization of
mortgage-backed issues and maturities of U.S. treasury obligations. Short-term
money market borrowings, primarily SSUARs, declined on average by $9.2 million
during the first quarter of 1997. The net result of these activities was a
change in the mix of the Company's balance sheet that yielded a 24 basis point
widening of the first quarter's net interest rate spread (to 4.47%) and an
improved loan to deposit ratio (65% in 1997 versus 58% in 1996). Growth in
commercial loans and commercial mortgages at rates of prime to prime plus 2.5%
along with an increased demand deposit base have fueled the Company's
improvements in net interest income and the net interest rate spread during the
first quarter of 1997 as well as during the previous two years. Management
anticipates that these trends will continue for the balance of 1997.
(7)
<PAGE>
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. Total
stockholders' equity of the Company amounted to $49.0 million at March 31, 1997,
an increase of $8.3 million or 20.3% versus the comparable 1996 date. Excluding
valuations related to SFAS No. 115 at March 31, 1997 and 1996, total
stockholders' equity grew at a year to year rate of 21.8%. The ratio of total
stockholders' equity to total assets was 8.08%, 7.89% and 7.44% at March 31,
1997, December 31, 1996 and March 31, 1996, respectively. Based upon banking
industry regulatory guidelines, a "well capitalized" institution must maintain a
Tier I leverage ratio of at least 5.00% and Tier I and total capital to
risk-weighted assets ratios of at least 6.00% and 10.00%, respectively. At March
31, 1997, the Company's sole operating subsidiary, State Bank of Long Island,
maintained a Tier I leverage ratio of 7.92%, while its risk-weighted ratios were
12.46% for Tier I capital and 13.71% for total capital. These ratios are
substantially in excess of the foregoing regulatory guidelines and also compare
favorably to the Bank's peers. 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.
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 quarter 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 quarter of 1997, 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 March
31, 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 as well as approximately $29 million in securities available to be
pledged to secure repurchase agreements or Federal Reserve Discount Window
borrowings at quarter-end 1997.
2. MATERIAL CHANGES IN RESULTS OF OPERATIONS - Net income for the three months
ended March 31, 1997 was $1,714,000, a 20.0% improvement over the comparable
1996 period. The higher level of earnings in 1997 resulted from a 13.0% 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. Mitigating these improvements somewhat were increases
in the provision for credit losses (up 20.0% due to continued growth in the loan
portfolio) and total operating expenses and a decline in other income during the
first quarter of 1997.
As previously mentioned, the growth in net interest income, up $756 thousand to
$6.6 million, resulted from an expanded interest-earning asset base, principally
commercial loans and commercial mortgages, and a wider net interest rate spread.
Loan growth, although flat thus far during 1997, has generally been
(8)
<PAGE>
strong during the past 18 months. An expanded lending staff, an improved economy
and the ongoing consolidation of the local banking market have provided numerous
opportunities for the Company to increase its loan portfolio. The Company,
offering superior service and response time coupled with competitive product
pricing, has been able to steadily improve its market share. Products such as
Business Direct Access, the Company's real-time cash management system, and the
recently introduced small business line of credit, continue to provide the local
business community with a product line-up that competes quite effectively with
larger financial institutions.
The Company's investment portfolio declined, on average, by 12.1% in 1997 versus
1996. Paydowns on mortgage-backed issues and maturities of Treasury notes
accounted for this decline. Somewhat offsetting these reductions were increases
in short-term municipal securities (up $16.3 million on average) and callable
Government agency issues (up $34.4 million). Management of the Company has been
an active purchaser of agency securities thus far in 1997 due to their
attractive yields and their ability to be pledged to secure municipal deposits.
Other income fell by 6.7% in the first quarter of 1997 due to losses incurred on
the sale of investment securities. Excluding the impact of securities
transactions, other income improved by 2.2% in 1997 due to growth in annuity
commission income, wire transfer fees and cash management product income.
Total operating expenses increased by 6.5% during the first quarter 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 an increase
in employee benefits expenses related to incentive compensation plans. In
addition, other operating expenses increased due to higher other real estate
expenses, an increased marketing and advertising budget and higher costs related
to external audits and exams and commercial insurance policies. Somewhat
offsetting the operating expense increases previously described were a decline
in FDIC assessment expenses due to the lowering of the assessment rates on
insured deposits during 1996 and a reduction in occupancy costs arising from
lower maintenance expenses on owned properties.
Despite the overall increase in 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
53.6% for the first quarter of 1997 versus 57.0% a year ago. The Company's ratio
of total operating expenses to average total assets was 2.53% during the first
quarters of 1997 and 1996. This ratio places the Company in the top 15% of its
peer group for this efficiency measure. It continues to be the Company's stated
goal to reduce each of these ratios as part of its efforts to improve
efficiencies and, ultimately, stockholder value.
The Company's senior lending personnel work in conjunction with line lenders to
determine the level of risk in the Company's loan-related assets and establish
an adequate level for the allowance for possible loan losses. An outside loan
review consultant is also utilized to independently verify the loan
classifications and the adequacy of the allowance. Management actively seeks to
reduce the level of nonperforming assets through aggressive collection efforts
and, where necessary, litigation and charge-offs. Nonperforming assets (defined
by the Company as nonaccrual loans and other real estate owned) totaled $6.8
million at March 31, 1997, a decrease of $0.1 million versus December 31, 1996
and $1.2 million versus March 31, 1996. Nonperforming assets (as defined by the
Company) as a percentage
(9)
<PAGE>
of total loans and other real estate owned were 1.93%, 1.95% and 2.64% at March
31, 1997, December 31, 1996 and March 31, 1996, respectively. The level of
restructured, accruing loans at March 31, 1997 increased 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 include $5.0
million related to one credit which is collateralized by commercial real estate
with a current appraised value significantly in excess of the carrying amount 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. Subsequent to the close of the first
quarter of 1997, the Company sold a commercial property classified as other real
estate owned. This sale, which resulted in a small gain, reduced the balance of
other real estate owned by approximately $0.9 million.
The provision for possible loan losses was up by $75 thousand (20%) versus the
first quarter of 1996 due principally to growth in the loan portfolio. The
allowance for possible loan losses amounted to $5.0 million or 1.42% of total
loans at March 31, 1997 versus $4.8 million or 1.59% at the comparable 1996
date. The allowance for loan losses as a percentage of nonaccrual loans improved
to 86.3% from 85.4% and 65.8% at December 31, 1996 and March 31, 1996,
respectively. Management has determined that the current level of the allowance
for loan losses is adequate in relation to the risks present in the portfolio.
The Company's loan portfolio is concentrated in commercial and industrial loans
and commercial mortgages, the majority of which are secured by collateral with a
market value in excess of the carrying amounts of the individual loans. A
further review of the Company's nonperforming assets and allowance for possible
loan losses may be found in Table 2-3 following this analysis.
(10)
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
================================================================================
MARCH 31, 1997
- ------------------
TABLE 2-2 LIQUIDITY AND INTEREST RATE SENSITIVITY
- ------------------ ================================================================================
<CAPTION>
====================================================================
($ IN THOUSANDS) SENSITIVITY TIME HORIZON
- --------------------------------------------- Over Noninterest
INTEREST - SENSITIVE ASSETS : 1) 0-6 Months 6-12 Months 1-5 Years 5 Years Sensitive Total
- --------------------------------------------- ====================================================================
<S> <C> <C> <C> <C> <C> <C>
Loans (net of unearned income) 2) $ 238,535 $15,735 $ 61,361 $ 32,028 $ 5,805 $ 353,464
Securities Held to Maturity 30,034 2,713 98 42 0 32,887
Securities Available for Sale 3) 15,434 18,331 59,081 97,924 1,971 192,741
Unrealized Net Loss on Securities
Available for Sale (3,123) 0 0 0 0 (3,123)
--------- ------- -------- -------- -------- ---------
Total Interest-Sensitive Assets 280,880 36,779 120,540 129,994 7,776 575,969
Cash and Due from Banks 20,118 0 0 0 0 20,118
All Other Assets 7) 5,388 2,338 0 0 3,317 11,043
--------- ------- -------- -------- -------- ---------
Total Assets $ 306,386 $39,117 $120,540 $129,994 $ 11,093 $ 607,130
--------- ------- -------- -------- -------- ---------
- ---------------------------------------------
INTEREST - BEARING LIABILITIES : 1)
- ---------------------------------------------
Savings Accounts 4) $ 10,727 $10,727 $ 85,818 0 $ 0 $ 107,272
Money Fund and Now Accounts 5) 41,043 13,455 13,455 0 0 67,953
Time Deposits 6) 162,338 23,133 43,411 351 0 229,233
--------- ------- -------- -------- -------- ---------
Total Interest-Bearing Liabilities 214,108 47,315 142,684 351 0 404,458
Securities Sold Under Agreements to Repurchase,
Federal Funds Purchased, and Other Borrowings 58,388 0 0 0 0 58,388
All Other Liabilities, Equity and Demand Deposits 7) 1,889 947 95 0 141,353 144,284
--------- ------- -------- -------- -------- ---------
Total Liabilities and Equity $ 274,385 $48,262 $142,779 $ 351 $141,353 $ 607,130
--------- ------- -------- -------- -------- ---------
Cumulative Interest-Sensitivity Gap $ 32,001 $22,856 $ 617 $130,260 $ 0
Cumulative Interest-Sensitivity Ratio 111.7% 107.1% 100.1% 128.0% 100.0%
Cumulative Interest-Sensitivity Gap
As a % of Total Assets 10.4% 6.6% 0.1% 21.9% -- %
<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.
</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
MARCH 31, 1997 VERSUS DECEMBER 31, 1996 AND MARCH 31, 1996
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
NONPERFORMING ASSETS BY TYPE: PERIOD ENDED:
------------------------------------
3/31/97 12/31/96 3/31/96
--------- --------- ---------
NONACCRUAL LOANS $5,805 $5,869 $7,266
OTHER REAL ESTATE OWNED 1,027 1,027 700
--------- --------- ---------
TOTAL NONPERFORMING ASSETS $6,832 $6,896 $7,966
--------- --------- ---------
RESTRUCTURED, ACCRUING LOANS $6,782 (1) $6,524 (1) $1,748
LOANS 90 DAYS OR MORE PAST DUE
AND STILL ACCRUING $1,046 $1,228 $4,525
GROSS LOANS OUTSTANDING $353,544 $353,383 $300,731
TOTAL STOCKHOLDERS' EQUITY $49,033 $48,569 $40,761
ANALYSIS OF THE ALLOWANCE FOR QUARTER ENDED:
POSSIBLE LOAN LOSSES: ------------------------------------
3/31/97 12/31/96 3/31/96
--------- --------- ---------
BEGINNING BALANCE $5,009 $5,279 $5,004
PROVISION 450 375 375
NET CHARGE-OFFS (450) (645) (598)
--------- --------- ---------
ENDING BALANCE $5,009 $5,009 $4,781
--------- --------- ---------
KEY RATIOS AT PERIOD-END:
ALLOWANCE AS A % OF TOTAL LOANS 1.42% 1.42% 1.59%
NONACCRUAL LOANS AS A % OF TOTAL LOANS 1.64% 1.66% 2.42%
NONPERFORMING ASSETS (2) AS A % OF TOTAL
LOANS AND OTHER REAL ESTATE OWNED 1.93% 1.95% 2.64%
ALLOWANCE FOR POSSIBLE LOAN LOSSES AS
A % OF NONACCRUAL LOANS 86.29% 85.35% 65.80%
ALLOWANCE FOR POSSIBLE LOAN LOSSES AS A %
OF NONACCRUAL LOANS, RESTRUCTURED,
ACCRUING LOANS AND LOANS 90 DAYS OR
MORE PAST DUE AND STILL ACCRUING 36.74% 36.77% 35.31%
(1) INCLUDES ONE CREDIT TOTALING $5.0 MILLION AT 3/31/97 AND $4.7 MILLION AT
12/31/96, WHICH IS COLLATERALIZED BY COMMERCIAL REAL ESTATE WITH A CURRENT
APPRAISED VALUE SIGNIFICANTLY 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.
(12)
<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.
5/14/97 s/Daniel T. Rowe
- ------- ----------------
Date Daniel T. Rowe, President
5/14/97 s/Brian K. Finneran
- ------- -------------------
Date Brian K. Finneran, Secretary
(Principal Financial Officer)
(13)
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000723458
<NAME> STATE BANCORP INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 20,025,006
<INT-BEARING-DEPOSITS> 93,036
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 192,740,808
<INVESTMENTS-CARRYING> 32,887,521
<INVESTMENTS-MARKET> 32,880,874
<LOANS> 353,464,369
<ALLOWANCE> 5,008,775
<TOTAL-ASSETS> 607,129,967
<DEPOSITS> 496,777,966
<SHORT-TERM> 58,387,709
<LIABILITIES-OTHER> 2,930,816
<LONG-TERM> 0
0
0
<COMMON> 25,592,145
<OTHER-SE> 23,441,331
<TOTAL-LIABILITIES-AND-EQUITY> 607,129,967
<INTEREST-LOAN> 8,169,411
<INTEREST-INVEST> 2,903,122
<INTEREST-OTHER> 451,467
<INTEREST-TOTAL> 11,524,000
<INTEREST-DEPOSIT> 4,547,770
<INTEREST-EXPENSE> 4,932,002
<INTEREST-INCOME-NET> 6,591,998
<LOAN-LOSSES> 450,000
<SECURITIES-GAINS> (13,808)
<EXPENSE-OTHER> 3,905,807
<INCOME-PRETAX> 2,651,013
<INCOME-PRE-EXTRAORDINARY> 1,714,026
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,714,026
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
<YIELD-ACTUAL> 7.84
<LOANS-NON> 5,804,951
<LOANS-PAST> 1,046,264
<LOANS-TROUBLED> 6,782,066
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,008,965
<CHARGE-OFFS> 468,479
<RECOVERIES> 18,289
<ALLOWANCE-CLOSE> 5,008,775
<ALLOWANCE-DOMESTIC> 4,746,083
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 262,692
</TABLE>
